Paramount Cleared Over Big-Budget Flops

MANHATTAN (CN) - Scoffing at the idea that Paramount pulled a fast one on high-powered insurers and hedge funds that invested in a slate of films that flopped a decade ago, a federal judge had three pointed words.

"Not these guys," U.S. District Judge Katherine Forrest said of the investors in a bench ruling on Thursday.

Allianz Risk Transfer, Munich Re Capital Markets New York, Marathon Structured Finance Fund and Newstar Financial cast themselves as hapless victims of a movie studio, but a 216-page transcript of the hearing shows that the judge didn't buy it.

The investors sued Paramount six years ago after finding themselves $40.1 million in the red on a films they funded through an investment vehicle named Melrose LLC.

Named after the avenue of Paramount's Hollywood studio, Melrose supported a program of 25 films that included "Mission: Impossible III," "Stepford Wives," "The Manchurian Candidate," "Mean Girls" and "War of the Worlds."

When trial kicked off earlier this month, Paramount's attorney noted that "Mean Girls" was a "surprise hit" that would define Lindsay Lohan's career, but "Mission: Impossible III" was the biggest disappointment of the bunch.

The Tom Cruise vehicle lost $40.1 million of the $61 million that Paramount lost on the slate. "If it had done had done as well as 'Mission: Impossible IV,' none of us would be here today," Paramount's lawyer Richard Kendall said at a hearing last week.

While the investors blamed the heavy losses on Paramount's alleged misrepresentations about presales abroad, Judge Forrest noted Thursday that they knew they were making "a risky investment."

"They knew that," she emphasized, according to a transcript of her findings. "They testified to that. There were risks involved. There is no doubt about that."

Nor did Paramount hide that the films could have lost money, she found.

"The court does not find credible that all of these highly sophisticated businessmen having information as to the co-financing levels at their disposal preinvestment would have ignored it if they truly cared about it," she said. "Paramount was not hiding its business practice to the plaintiffs, it was disclosing them."

The studio had investors sign repeated disclaimers relevant to the case, including one stating that there could be "no assurance that Paramount will implement the same techniques or achieve the same results in the future as it has in the past."

Forrest remarked that the "specific disclaimer destroys plaintiffs claims" to having been defrauded.

While a Paramount spokesman applauded the decision, an appeal by the investors seems likely, their attorney, James Janowitz with Pryor Cashman, said.

The eleventh-hour turnabout that occurred when U.S. District Judge Thomas Griesa removed himself form the case "without explanation" on the eve of trial troubles the attorney in particular, he noted in a phone interview.

Reversing "all of Griesa's findings," Forrest's determination that Paramount did not change its approach to foreign sales contradicted that of her predecessor, Janowitz added.

While the lawyer agreed his clients were "very sophisticated," he said this fact led Forrest to the wrong conclusion.

"We represent four of the most sophisticated investors around," Janowitz said.

"So what does that tell you?" he asked later. "Is the conclusion that they're all faulty and careless, or is there something that they couldn't reasonably figure out because it was concealed?"

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