Lantern Wins Lawsuit Testing What Harvey Weinstein's Studio Downfall Means for Hollywood's Stars
After paying $289 million for Weinstein's assets, Lantern brought suit against "Silver Linings Playbook" producer Bruce Cohen to demonstrate that Weinstein's old debts weren't Lantern's responsibility.
Thanks to a Delaware bankruptcy court ruling on Monday, quite a few A-list actors, directors, and producers are more likely than ever to be hit in the wallet from the downfall of Harvey Weinstein and the bankruptcy of his indie studio.
The sexual misconduct allegations against Harvey Weinstein precipitated the Chapter 11 bankruptcy of The Weinstein Co. last March. A few months later, Lantern Entertainment came to a deal to acquire the company's film and television assets for $289 million. That's hardly enough money to make whole all those owed by Weinstein, and with dozens of women accusing the movie mogul of sexual assault and harassment, and making claims in civil court, the pot of sale proceeds for distribution to creditors figures to further diminish.
As a result of this situation, various stars objected to Lantern's attempt to close the deal and assume contracts without firm word that they'd be getting everything owed under profit participation deals. Among the objectors: Bradley Cooper, Jennifer Lawrence, Robert De Niro, Meryl Streep, Bill Murray, and Julia Roberts. Collectively, these stars were owed millions of dollars. When Lantern began looking at Weinstein Co.'s books and records, it was shocked at the extent of the financial disarray and years upon years of owed payments. Lantern would only pledge to begin making payments under contracts going forward; As for pre-closing debts, the stars couldn't put themselves ahead of Harvey Weinstein's victims or any other unsecured creditors.
Two hearings were held yesterday in Delaware bankruptcy court.
At the first, Lantern was allowed to move forward with the close of its sale and the potential assumption of contracts. Despite hearing from a long line of dissenters including attorneys for Quentin Tarantino threatening to foreclose on copyrights and questioning Lantern's ability to exploit intellectual property, a judge overruled objections.
After this morning session, though, there may have remained some ambiguity as to what Lantern was acquiring.
As the judge put it, "Look, Lantern is taking the assets it is buying and assuming the risks associated with those assets. So if there are risks that they buy something that violates contracts...they are not getting a release here. They are buying what they are buying.”
That might have given Hollywood's A-list talent at least some hope that they'd eventually see every last penny owed.
But then came the afternoon session in the adversary case that Lantern brought against Silver Linings Playbook producer Bruce Cohen.
In what Lantern would call a "test case," the company sought a declaration that Cohen's agreement for the film was not executory, meaning substantial unperformed obligations wherein a failure to "cure" — i.e. pay what's owed — constitutes a breach of contract. Lantern wanted the judge to rule that it had been assigned Cohen's contract in the $289 million transaction free and clear of any claims.
U.S. Bankruptcy Judge Mary Walrath has decided to grant summary judgment in favor of Lantern.
"I conclude that the primary purpose of this contract was for Cohen to produce this film, and that was concluded years ago," she ruled, adding that ancillary obligations such as contingent payments and sequel rights didn't make the contract non-executory.
Walrath then added that Cohen's contract was properly maintained by Weinstein, which could transfer it to Lantern. She then took up the question of what a sale under bankruptcy code meant. She determined that Lantern's acquisition of the Cohen contract "doesn't obligate the buyer to cure all prior payment defaults that the debtor [Weinstein Co.] would otherwise have to make, but I think [Lantern] is bound by the agreement going forward after closing."
Meaning, Lantern's assessment is correct: When it now receives license payments for Silver Linings Playbook, it will have to pay Cohen's profit share. But what Lantern won't have to do is to pay Cohen the approximately $405,000 that he was owed by Weinstein before the sale of the movie.
Because of the ruling's precedential value, the same will likely be the case for Bradley Cooper, Jennifer Lawrence, and other stars, who nonetheless may attempt to raise legal hell anyway they can.
For the moment, and as Hollywood's transactional lawyers assess what went wrong, Lantern will have confidence moving forward with new assets. The company's business affairs executive Virginia Longmuir led a team at DLA Piper to victory.
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