VERDICTS  •  Jan. 09, 2009

Larry Gordon

By Noah Barron 

Daily Journal Staff Writer

LOS ANGELES – “Turnaround” is a magic word for movie producers. It’s that Lazarus moment when a dead Hollywood project is given new life at another studio. But occasionally, as happened with the “Watchmen” film property, a turnaround can go dramatically awry.

“Watchmen” is looking more and more like a $130 million train wreck for Warner Bros., which paid to make the movie, now that a federal judge has ruled 20th Century Fox owns all the distribution rights.

Industry attorneys said the “Watchmen” debacle serves as a warning to studios to refocus their attention on ownership research before greenlighting a movie. Hollywood studios have been using the turnaround vehicle at issue in the “Watchmen” case to smoothly pass ownership of a film project to one another without legal glitches since the early 1980s, but the Fox-Warner dispute shows how potentially expensive a slip-up can be, the lawyers said.

At issue is Fox’s claim that the studio bought the “Watchmen” rights from DC Comics in the early 1990s, and when it decided not to make the movie, the producer attached to the project improperly shopped it elsewhere without following the contract’s order to offer Fox another chance to make the picture.

In the dispute, Fox claimed Warner Bros. and “Watchmen” producer Lawrence Gordon failed to offer Fox another chance at the movie after elements of the film project were changed, including attaching director Zach Snyder of “300″ fame. The alleged violation of the 1994 turnaround agreement is the fulcrum upon which the entire dispute turned. 20th Century Fox Film v. Warner Bros. Entertainment, CV080889 (C.D. Cal., filed Feb. 2008).

Gordon was given perpetual turnaround rights, as opposed to the multiyear limitations common in Hollywood contracts.

Since the 1980s, turnaround agreements, like the one Fox agreed to in “Watchmen,” have included “changed-elements” clauses that allow a studio that previously passed on a movie to grab it back if budgetary or talent elements change to make the project more appealing.

A top transactional lawyer in Hollywood, who declined to be named due to his proximity to the “Watchmen” players, said that it appears Gordon didn’t make the phone call to Fox that he was contractually bound to make.

“If you take the judge at face value, it certainly appears that there was a precondition set up that would have required Larry to go back with changed elements,” the lawyer said.

Early in the dispute, Warner Bros. denied knowledge of the changed-elements clause but now asserts that Fox had ample knowledge of the movie and could have spoken up if it had wanted.

“Fox was aware of elements being changed over the years, was aware that the project was set up at other studios, without presentation to Fox, and yet Fox never complained,” Warner’s lawyer, Steven Marenberg of Irell & Manella, wrote in federal court documents filed Wednesday.

Daniel M. Yankelevits, a lawyer at Sony Pictures in Los Angeles, who is not affiliated with the dispute, said sometimes the observance of the changed-elements clause is often just an e-mail or a phone call from one studio staffer to another, with little in the way of legal documentation.

“It may be something that’s done very informally,” said Yankelevits, who wrote “Hollywood Dealmaking: Negotiating Talent Agreements,” published in 2002.

“In general, one of the studios’ biggest fears is having a competing studio release a successful movie that was once in their hands,” he said. “That’s weighed against a producer’s desire to have a movie made elsewhere. The turnaround is a sort of compromise.”

Yankelevits said that the most recent turnaround dispute that got the attention of the legal community in Hollywood was over the 2007 film “Michael Clayton,” which narrowly missed a production delay after Castle Rock Entertainment, a Warner subsidiary, opted to renew its rights to the movie when George Clooney was tapped as the star.

In the “Watchmen” case, U.S. District Judge Gary Allen Feess sided on Monday with Fox over distribution rights, setting up a probable delay of the film by injunction in advance of the federal bench trial, due to start Jan. 20 and expected to last two or three days.

Fox filed to have the film frozen on Monday, though Feess had not yet ruled on the injunction at press time. Warner counterclaimed on Wednesday that Fox’s request for injunction failed legal requirements.

Ugly ownership fights making it to trial are commonplace at the indie-film level but exceedingly rare for large studios and veteran producers, lawyers said.

One of these rare disputes happened a decade ago when Metro-Goldwyn-Mayer sought an injunction against Sony Pictures to stop Sony from development of a James Bond movie.

As in “Watchmen,” a maverick producer was at the eye of the storm when Sony counterclaimed that “Thunderball” producer/director Kevin McClory had made an agreement with Bond creator Ian Fleming that gave McClory rights to the franchise that predated MGM’s. The 9th Circuit Court of Appeals eventually ruled that McClory and Sony had waited too long to file their counterclaims, and MGM ended up paying Sony $5 million for the rights. That led to MGM’s control of the series’ latest installments, “Casino Royale” and “Quantum of Solace.” MGM v. Sony Corp. CV9708414 (C.D. Cal, filed 1998).

In the world of behemoth-budgeted movies, Gordon is thought of as a wizard of turnarounds, industry folks said.

Gordon, who has produced nearly 60 films in Hollywood since 1973, including “48 Hrs.,” “Predator” and “Waterworld,” and revived “Xanadu” in turnaround in 1980, is said by lawyers to be in hot water at Warner Bros. for not doing enough diligence on the “Watchmen” project.

Robert Lieberman of Fischbach, Perlstein, Lieberman & Almond, who was not connected to the dispute but works in the film financing world, said producers are rewarded for pushing hard to get their movies made.

“[Gordon] may have been desperate to get this thing done. He may have been taking some liberties with his interpretation of the agreement,” Lieberman said.

Gordon could not be reached for comment. Requests for comment were declined by the firm that represents him, Bloom Hergott Diemer Rosenthal LaViolette & Feldman in Beverly Hills.

After taking it to Fox, Gordon took the film to Paramount, which passed. He then shopped the film to Warner Bros., according to court documents. Paramount now has international distribution rights – a third-wheel issue that lawyers say prevents the Fox-Warner fight from settling cleanly.

“It keeps them from dividing the world in half,” said one lawyer with industry ties to all three studios.

Attorneys in the industry expect that once the matter is concluded, the facts of what went wrong in the “Watchmen” turnaround will be clearer. Until then, Warner’s internal operations remain opaque, leaving industry lawyers to guess at who is to blame – Gordon or someone else.

“Either somebody in [the Warner Bros.] legal department blew it or it’s a project that Warner really wanted and thought maybe they could get around the changed-elements clause,” Lieberman said.

Warner Bros. continues to assert ownership of the movie, said spokesman Scott Rowe.

In ruling Monday, Feess said that if “Watchmen” comes out March 6, a subsequent damages trial will be held no later than July 6 to calculate how much Warner owes Fox based on box office revenues from the film.

“Watchmen” is based on a 1987 DC Comics/Vertigo graphic novel by writer Alan Moore and artist Dave Gibbons.

noah_barron@dailyjournal.com

 

This article appears on Page 1 of the Verdicts and Settlements

 

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