One "Rings" penalty to rule them all

LOS ANGELES (Hollywood Reporter) - It’s not quite a battle for Middle Earth, but the war between director Peter Jackson and New Line Cinema over profits from “Lord of the Rings” is quickly approaching epic status.

New Zealand director Peter Jackson (C) poses with his nominee medallion and stars of his film 'The Lord of the Rings, The Return of the King' Elijah Wood (L) and Sean Astin in Los Angeles, February 7, 2004. It's not quite a battle for Middle Earth, but the war between Jackson and New Line Cinema over profits from "Lord of the Rings" is quickly approaching epic status. REUTERS/Lucy Nicholson

The latest plot twist in the 2-1/2-year saga (just a tad longer than the actual trilogy) is a rare $125,000 sanction against the studio for failing to turn over potential evidence Jackson says could help him prove that accounting tricks cheated him out of tens of millions in profits.

The 40-page, strongly worded ruling by U.S. Magistrate Stephen Hillman says New Line may have destroyed key documents and was “haphazard” in its efforts to track down files and e-mails requested for more than a year by Jackson’s legal team. Its “repeated and unequivocal certifications that it has fully complied with the court’s discovery orders have been seriously misleading and obfuscatory,” the magistrate wrote in the September 18 order.

For a complex entertainment case, where lawyer gamesmanship over access to documents and witnesses is fairly common, Hillman’s language and the amount of the penalty are striking. “It’s almost unheard of,” says litigator Neville Johnson, who frequently tangles with studios. “You rarely see sanctions, and you certainly don’t see sanctions that high.”

The penalty will hardly break the studio’s bank, but it’s a setback for New Line and its lawyers at the O’Melveny & Myers firm. In addition to angering the magistrate presiding over a closely watched case worth millions to the struggling mini-major, the studio was given a tight deadline of Tuesday to turn over the requested materials and hire an outside retrieval service to scan internal electronic files for relevant documents and e-mails, a labor-intensive job that could cost as much as $1 million. (A New Line spokesperson declined to comment on the case. Its lawyers didn’t return calls but filed papers this week saying their client believes it acted in good faith but won’t appeal the sanctions award.)

From the start of this case, Jackson and his team have been an unusually prickly thorn in New Line’s side. They’re an aggressive, well-financed fellowship that includes manager Ken Kamins, transaction lawyer Peter Nelson and a litigation team headed by Steve Marenberg at Irell & Manella.

Ironically, Marenberg is usually on the other side of studio accounting cases for clients like NBC and Disney, which are familiar with tough sanctions in entertainment cases. Just last week a California court upheld its win in the long-running Winnie the Pooh profits case, dismissed in 2004 as a sanction against the Slesinger family after the trial court found its investigator broke into Disney property and stole privileged documents. New Line’s conduct as described by Hillman certainly doesn’t rise to that level, but Marenberg says he “intends to monitor compliance with the order to make sure we get the internal documents we’re entitled to.”

Hanging over the dispute like fog on the Shire is a planned film version of “The Hobbit,” which New Line and millions of movie fans would love to see Jackson direct. If the sanction shifts momentum in the case, it could help facilitate a settlement (relations between the parties are rumored to have warmed recently). However, the stakes are so high and both sides have already spent millions litigating the case, so the January trial date still seems likely.

And let’s not forget that this lawsuit concerns only the first “Rings” film. Any settlement probably would have to cover Jackson’s identical claims on the other two blockbusters, meaning that the dispute, like that ending sequence in “Return of the King,” could keep going and going.

Reuters/Hollywood Reporter