Tolkien Estate Sues New Line, The Hobbit Not Yet Threatened

[Voronwë the Faithful]

I have now read the Tolkien plaintiffs' opposition to the demurrer to the first amended complaint. While I am still not very impressed with their arguments, I think they probably have sufficiently alleged enough allegations to survive the demurrer stage of the litigation. I now believe that the court will overrule this demurrer.

I also note that they have dismissed defendant Katja from the case.

[Primula Baggins]

Thanks, Voronwë.

What do these developments imply for those of us who would like to see the films made? Good news, bad news, or wait and see?

[Voronwë the Faithful]

Wait and see. But honestly I don't think there is any real significant threat to the films being made.

[solicitr]

There conceivably might be added incentive now for the parties to reach a settlement if the demurrer is rejected, because from that point fullblown discovery (the most expensive part of litigation) comes online. I doubt that the Estate is serious about pulling the plug on the films- it's a useful threat.

[ArathornJax]

In the end this is about business and there is far too much money out there on this franchise to lay it aside or not to form a settlement. People may not agree but in business this is exactly what you want (to a point) so that you can get a better settlement than if you attempted settlement up front. I have absolutely no doubt that the firm representing Time Warner/Warner Bros/New Line received instructions from the get go on what terms Time Warner is willing to accept, and a timeline based on the litigation. In the end I would expect the Estate to come to terms with the defendants and we will know very little about those terms.

I'm speaking not as a lawyer but as a former executive who was taught to use the legal system and litigation to further the profitability of the business (unit in my case), even if I knew that a litigation had merit and knowing we would eventually settle to some extent. The legal system was used to minimize impact. In my case it was usually with either contracts with other businesses or in regards to employees who were suing the company. Anyway, I diverge, but the point is the same. Corporate America uses litigation to minimize impact to the organization unless they know the grievance is so bad it will threaten the very organization. Then quick settlements are offered. That is the strategy I see Time Warner using here.

[Voronwë the Faithful]

I've read New Line's reply to the opposition to their demurrer. I continue to believe that they have the superior legal argument, but I still think that the court will overrule the demurrer this time, and make them test the sufficiency of the evidence supporting the allegations. There is one allegation in particular that I think the court will agree is sufficiently pleaded to support the fraud claim. That is the claim that New Line claimed payments to AOL that had nothing to do with the films as expenses. New Line's argument is that at most these payments were overstated payments for advertising on AOL, but as I read it that is not what the allegation is. The First Amended Complaint alleges that New Line has not been able to substantiate that "these expenses" had any relation to advertising the films. New Line says that that does mean that none of these expenses were related to advertising the films, only that some of them did not. That is not how I read it. To me, "these expenses" means all of them, unless it is qualified with something like "some of". That is what I think the court will say, and that is why I think it will overrule the demurrer on the fraud cause of action.

[Voronwë the Faithful]

The court website lists the demurrer as "submitted" which means the judge heard arguments on the issue, but didn't make a decision. She will likely issue a written ruling at some point in the next couple of weeks. I figured this would be a close call, but I still think in the end she will overrule the demurrer and give the plaintiffs at least an opportunity to prove the fraud.

[solicitr]

It occurs to me that New Line/TW may be more interested in settling if the case gets past the demurrer stage. Once it moves to the summary judgment stage the case begins to turn on evidence, as unearthed during discovery- and there are all sorts of reasons why NL/TW might not want its bookkeeping opened to public scrutiny.

[Voronwë the Faithful]

Yes, I agree, Christo ..., er, I mean, soli.

[Voronwë the Faithful]

The website still says the matter is under submission, but Elven at TORN has posted about a story saying the court is allowing the fraud claim to go forward but sustaining the demurrer on the reformation claim.

Exactly as I predicted.

Unfortunately Elven's link doesn't seem to work, but I'll post it here in case it starts working again:

http://www.contracostatimes.com/...48148?nclick_check=1

Here is the text Elven posted:

Judge rules Tolkien trust can move forward with fraud claim Daily News Wire Services Article Launched: 09/24/2008 02:19:11 PM PDT

"Lord of the Rings" creator J.R.R. Tolkien's charitable trust can move forward with a fraud claim against New Line Cinema, a judge has ruled.
However, Los Angeles Superior Court Judge Ann I. Jones threw out the plaintiffs' contract reformation claim, saying they waited too long to file it.

[Voronwë the Faithful]

Not so fast!

I've just learned that, despite upholding the Fraud cause of action, the judge still struck the punitive damages claim. Apparently New York law requires proof of a "public wrong" in order to support punitive damages, and the judge ruled that the plaintiffs could not show that. We have no such equivalent rule in California; here proof of fraud is sufficient to support a punitive damage award. So I assumed - wrongly - that the motion to strike the punitive damages would follow the demurrer on the fraud claim.

So even though the court allowed the fraud claim to go forward, no additional damages beyond the breach of contract claim will be possible.

[sauronsfinger]

from AP

LOS ANGELES (AP) — A judge has barred the estate of "Lord of the Rings" author J.R.R. Tolkien from seeking punitive damages against the studio that brought the trilogy to the big screen.

Tolkien's heirs claim New Line Cinema has failed to pay any royalties from the estimated $6 billion they say the movie has grossed worldwide. The lawsuit is seeking more than $150 million in compensatory damages based on breach of contract, fraud and other claims.

Los Angeles Superior Court Judge Ann I. Jones also ruled this week that the estate and Tolkien heirs have established a legal basis for the fraud claim against New Line.

As part of that allegation, the lawsuit claims New Line sent millions of dollars to Time Warner Inc.'s AOL, improperly claiming they were for advertising expenses. The lawsuit also claims the studio built production offices and facilities in New Zealand and listed them as expenses for the "Lord of the Rings" films, although the heirs claim they are now being used for other New Line projects.

New Line's attorneys successfully argued that Tolkien's heirs had to demonstrate a "public wrong" under New York law — which governs the contracts — to claim punitive damages if they win at trial. Jones ruled that the heirs' grievance "is clearly seeking to vindicate private wrongs."

Tolkien signed agreements in 1969 with United Artists governing the movie rights to the "Lord of the Rings" books as well as "The Hobbit."

After the author's death, his heirs created The Tolkien Trust, a British charity.

The charity's trustees, which include Tolkien's heirs, joined publisher HarperCollins to sue the studio in February. Besides damages, the lawsuit seeks a court order that would terminate New Line's rights to make a two-film prequel based on "The Hobbit."

Guillermo del Toro has signed on to direct that film and its sequel in New Zealand alongside executive producer Peter Jackson.

Attorneys for New Line and The Tolkien Trust did not immediately return calls seeking comment on Thursday.

New Line now has 10 days to answer the lawsuit. A trial has been scheduled for October 2009.

The studio was absorbed into Warner Bros. Entertainment in February

[Voronwë the Faithful]

I checked the court website today for the first time in a while, and discovered two interesting developments.

First, the plaintiffs have filed a motion for reconsideration of the order striking the punitive damages, to be heard on November 14. These kind of motions are very rarely granted.

Second, the plaintiffs have also filed, just a couple of days ago, a motion to compel New Line to provide further responses to requests for production of documents. These kind of discovery disputes are common, and I would not leap to the conclusion that New Line is in the wrong for withholding documents, although that is certainly a possibility.

I have not looked at any of the documents for either of these motions, so I can't comment on the merits of them at this time.

[Voronwë the Faithful]

The two motions were decided by the court last week. Not surprisingly, the court rejected the plaintiffs' motion for reconsideration of the order striking punitive damages. So New Line is safe from an excessively huge award. But the court granted the plaintiffs' motion to compel production of documents that New Line was withholding. I've only read the minute order, and it was not at all clear there what documents were being sought, but it appears that they are documents related to New Lines settlement of other claims (presumably those of Jackson's and Zaentz's among others). It will be recalled that New Line actually got sanctioned for withholding documents in the Jackson case, and that the case settled soon after they were forced to produce that information. There is no indication of any sanctions here, but this could help push the case towards settlement, particularly since the question of what the limit of the damages are has now been settled.

[Frelga]

Thanks for the update, V! So... The Hobbit is safe, so far?

Could I beg for a favor? If you post news that significantly affect the fate of the Hobbit movie, would you change the thread title? Because I get palpitations every time this thread is updated.

[Voronwë the Faithful]

I will certainly do that, Frelga. But there isn't likely to be any developments that will threaten The Hobbit any time soon, because the Agreements provide that no revocation of the film rights can occur until after a court has determined that there was a breach of the Agreements, and it all likelihood, that can't happen until the trial late next year. More likely will be a settlement of the case before then, which will take the cloud off the potential Hobbit films for once and for all.

I'll change the title now so that it is clear that unless I change it again, there is no change in the status of the Hobbit films.

And by the way, thanks for nominating me for the Romestamo award, and campaigning on my behalf. That was very sweet.

[Frelga]

I hope you are right and the movie(s) can proceed as planned.

And by the way, thanks for nominating me for the Romestamo award, and campaigning on my behalf. That was very sweet.

Well deserved, V dear. May it be the first chirp in the loud chorus of recognition for your work.

[Holbytla]

I nominated Whistler for Lifetime Achievement but it didn't go over so well. I should have campaigned I guess.

What is the likely outcome of all of this?

[Voronwë the Faithful]

The likely outcome, in my opinion, is that New Line will eventually pay an undisclosed amount of money and the Hobbit films will proceed unencumbered.

(I saw your nomination of Whistler, but not until after the nominations had closed. Otherwise I definitely would have seconded it. He certainly deserves it.)

[Aravar]

Is there any point in pursuing a fraud claim if there is no right to punitive damages? Won't the Estate be entitled to whatever sums are due to it under the contract not as damages but as a debt, following the taking of accounts? Is the fraud claim necessary to claim repudiation of the contract, and so the reverter of the rights?