Closing deals in Hollywood failed to save top talent in the industry from studio bankruptcy.
This is the lesson learned from an earlier opinion released on Friday by the Third Circuit Appeals Court, which examined what happened after Harvey Weinstein’s downfall. Unfortunately for many stars, millions of dollars in continental compensation for blockbuster movies now seem almost lost forever.
After Weinstein was credibly accused of sexual misconduct, his eponymous company filed for bankruptcy protection. Then in early 2019, Spyglass Media (then called Lantern) struck a deal to acquire most of Weinstein’s assets for $ 289 million. But did Spyglass have to pay off Weinstein’s old debts first before taking over contracts that would give them rights to many movies and TV shows? This is what Hollywood creatives including Bradley Cooper, Jennifer Lawrence, Robert De Niro, Meryl Streep, Bill Murray and Julia Roberts have insisted.
Spyglass felt the opposite. According to the company, these contracts were not enforceable, which means that the obligations of the parties had already been largely fulfilled. The debts were not transferred in the Weinstein bankruptcy sale. To confirm this, Spyglass presented a test case against Silver Linings Playbook producer Bruce Cohen, who got five percent of the famous movie’s bottom line and owed $ 400,000 at the time of bankruptcy.
Spyglass won the test – then prevailed in the first round of appeal much to the chagrin of guilds above the Hollywood line who warned of the consequences.
Now comes yet another victory for Spyglass – and unless there is a repeat by Circuit 3 or intervention by the Supreme Court, this could become the final decision.
“At a high level, the essence of the Cohen Accord was for Cohen to produce the image in exchange for money,” writes circuit judge Thomas Ambro. “So he brought almost all of his value when he produced the film. At the time of TWC’s bankruptcy, the photo had been posted for six years and Cohen had not worked on it anymore.
Cohen’s remaining obligations, such as indemnification, were “side reflections in a production deal,” Ambro adds.
OK, but what about the money owed? Payment is certainly an important obligation of the contract.
Ambro responds by going through the distinction between a restrictive covenant and a termination clause before finally concluding: “[I]If we accept Cohen’s argument, then the parties have also violated the protections of the Bankruptcy Code… Here, the logical implication of Cohen’s position is that the Cohen Agreement would be a binding contract forever, regardless. what he has already accomplished. This would be a very unusual result and would violate the protections created for debtors by the Bankruptcy Code. “
The appeals court ruled that the $ 400,000 in conditional compensation owed to Cohen should not be paid. The same is almost assuredly true of others involved in Silver Linings Playbook including Bradley Cooper and Robert De Niro, although Spyglass will have to pay all of the film’s net profits from now on. But as to what has been lost, Ambro writes: “This pill is bitter to swallow, but bankruptcy inevitably creates difficult results for some players.”
Separately, Spyglass won a separate appeal today against former Weinstein investors.
Here is the judgment in the Cohen case …