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‘The Good Shepherd’ Turns Bad For Morgan Creek Productions

Below is a rreport detailing how things have gone horribly wrong at Morgan Creek Productions, with the company having its bank accounts frozen amid a financial meltdown:

Morgan Creek Productions is in the midst of a legal and financial thicket.

Court documents reveal the indie production giant now owes more than $5.7 million to Japanese film distributor Toho-Towa Co. as reimbursement for the failure of the 2006 film The Good Shepherd, directed by Robert De Niro and starring Matt Damon,Angelina Jolie and Alec Baldwin. Earlier this month, Toho-Towa got a judge to grant an assignment order and restraining order so that Morgan Creek would have to pay the hefty sum, which is climbing with interest accrued.

As a result of the judge’s order, which Morgan Creek opposed on the grounds this “drastic remedy” could be intrusive to its business, all of the Hollywood companies that have done business with Morgan Creek have been informed of the pending debt and have been asked to hold back money from the indie studio. Additionally, one of Morgan Creek’s bank accounts has been frozen.

Here’s how it came to this for Morgan Creek, whose hits include Young GunsMajor LeagueRobin Hood: Prince of Thieves and Ace Ventura: Pet Detective.

In 2005, Morgan Creek International signed a deal whereby Toho-Towa would distributeThe Good Shepherd in Japan in return for a distribution fee. According to the terms of the deal, Toho-Towa would advance distribution expenses, and if the picture couldn’t recoup, Morgan Creek would be responsible for the shortfall. The agreement required Morgan Creek to reimburse within 15 days of a submitted invoice, and the production company was given audit rights to verify the shortfall amount.

The Good Shepherd wasn’t a box office success, especially in Japan, where it took in only $3.3 million, according to BoxOfficeMojo.com. Toho-Towa then asked Morgan Creek to repay a 434 million yen shortfall for its P&A costs by November 20, 2008, and when that didn’t happen, Toho-Towa forced Morgan Creek into private arbitration at JAMS.

Morgan Creek didn’t believe the shortfall amount was correct, but evidently it didn’t exploit its audit rights to find out for sure. According to an arbitrator’s decision in August 2010, “The Opposition [Morgan Creek has] filed is insufficient to raise any triable issues as to any of [the] material facts. All that is offered are statements devoid of proof as to a declarant’s belief that the Shortfall amount is excessive.”

The arbitrator awarded Toho-Towa $5.2 million.

Morgan Creek continued to resist paying, first filing an appeal at JAMS on grounds there was inadequate time to review documents (many in Japanese), that depositions of certain executives hadn’t been taken, and that a lack of time denied it the opportunity to obtain an expert in the case. Those arguments were rejected.

Still, Morgan Creek wouldn’t pay, so in March 2011, Toho-Towa went to a Los Angeles Superior Court to confirm the arbitration award. The judge confirmed the money owed, which has now climbed to $5.7 million.

Morgan Creek still hasn’t paid, which led to a showdown over the past few weeks between Toho-Towa’s attorneys at Greenberg Glusker and Morgan Creek attorneys at Glaser, Weil, Fink over a request for an assignment order and a restraining order. Such a particular remedy to force a debtor to pay up — “drastic,” to cite Glaser’s court papers — is highly unusual. First off all, the vast majority of cases like these are settled. Those that don’t settle end up in judgment, which often results in a payment, especially for an established, well-respected company.

In asking for an assignment order, Toho-Towa essentially was looking for the ability to serve notice on third parties that money credited to Morgan Creek should be diverted to Toho-Towa. And in asking for a restraining order, Toho-Towa would essentially constrict Morgan Creek from assigning rights to any of the films in the company’s library to anyone else in a way to avoid what is owed. For a company in the business of assigning intellectual property, that’s bad news.

But the disruption to Morgan Creek’s business might even bigger than that.

In a motion opposing the orders, Morgan Creek president James G. Robinson told the judge that all of its distributors and licensees deposit the company’s receivables into a collection account at Bank of America. As a result of the Toho-Towa dispute, the BofA informed Morgan Creek of a “garnishment notice” in July and froze almost $1.5 million in the account. That caused JP Morgan Chase, which provides Mogan Creek with a revolving credit facility against the film company’s property as collateral, to assert its prior perfected security interest in the deposit account. The company warned the judge that an assignment order likely would result in a mess of “conflicting instructions to its obligors” and that its “assets would be frozen in limbo.”

Despite those objections, a judge granted an assignment order and restraining order on September 7. Since then, Toho-Towa has been on the hunt for its money throughout Hollywood, as Morgan Creek appeals the $5.7 million judgment to the 2nd Appellate District.

Reached for comment, Morgan Creek lawyer Joel Klevens says he believes that the previous attorneys representing his client “screwed up” by not making a bigger issue of the fact that Toho-Towa’s agreement was with Morgan Creek International (the Bermuda-based affiliate) rather than Morgan Creek Productions. He believes that an appellate court will agree that Toho-Towa hasn’t adequately established alter-ego status.

But in the interim, Klevens admits that the Los Angeles judge has now made orders upon Morgan Creek Productions, and that JP Morgan “was not happy” about the decision. He says the bank has now filed an action in a New York court to establish it has a superior lein on the bank account as a new fight commences to unfreeze it.

Toho-Towa is represented by attorneys Charles ShephardAaron Bloom and Kenneth Basin.

More news as we get it.

Source: The Hollywood Reporter

Sam is a bloody lovely lad born and raised in Bristol (he’s still there and can’t escape). Favourite films include THE LOST BOYS, DRIVE, FIGHT CLUB and COMMANDO, well pretty much any 1980s Arnie film you can throw his way…even RED SONJA. Sam once cancelled a Total Film subscription after they slagged off Teen Wolf. He resubscribed 2 days later.

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