NEW YORK (Reuters) - Investors who lost money on mid-2000s movies such as “The Manchurian Candidate” took Paramount Pictures to trial on Tuesday in a lawsuit that claims the studio concealed a risky business strategy when it obtained $40 million in financing.
Lawyers delivered opening statements before U.S. District Judge Katherine Forrest in Manhattan, who is presiding over the trial without a jury.
The investors, including a unit of Allianz SE, are asking for $16 million as well as punitive damages for what they said amounted to fraud. Paramount, which is owned by Viacom Inc, says the claims are baseless.
The dispute revolves around $40 million of the $231 million that Paramount raised through a private placement for a slate of 25 films that also included “Mean Girls.”
The films were released from 2004 to 2006, and there is no dispute that as a group they performed poorly at the box office.
Institutional investors sued in 2008, saying the studio misrepresented its planned use of certain risk-mitigation techniques.
Paramount failed to disclose that it had reduced its plans to sell international distribution rights, favoring instead increased self-distribution, the investors said.
The distribution decision meant there was less revenue to offset losses when the movies failed to deliver financially, according to the lawsuit.
“There was a change in strategy,” James Janowitz, a lawyer for the investors, said during opening statements. “It was not a change in strategy my clients knew about.”
Paramount’s lawyer, Richard Kendall, called the investors’ theory an “after-the-fact concoction.” The studio made no promises about its use of so-called pre-sales, a strategy it rarely used, he said.
“They did the deal, they took the risk, and they have to live with that risk,” he said.
The plaintiffs include Allianz Risk Transfer, Marathon Structured Finance Fund, Newstar Financial and Munich Re Capital Markets. They were junior investors in Melrose Investors LLC, a special-purpose vehicle that in turn invested in the film slate.
Other films in the slate were “The Stepford Wives,” “Collateral,” “Coach Carter,” “War of the Worlds,” and “Mission Impossible 3.”
Some films succeeded. With a budget the plaintiffs said was $22.7 million, “Mean Girls” has grossed $129 million worldwide since its release in 2004, according to Box Office Mojo.
Overall, the movies lost money, both sides in the lawsuit said. In court, Paramount’s Kendall displayed a slide that said films in the slate had an average production cost of $67.4 million but earned $22.2 million domestically.
The judge, Forrest, took the case on Monday after it was transferred from another judge on her court, Thomas Griesa. It was not immediately clear why the change was made.
The case is Allianz Risk Transfer, Inc. et al v. Paramount Pictures Corporation, U.S. District Court, Southern District of New York, No. 08-10420.
Reporting by Nate Raymond in New York; Editing by Davd Ingram and Jonathan Oatis