Closing a deal with Hollywood failed to save top talent in the industry from studio bankruptcy.
This is the lesson of a previous opinion issued on Friday by the 3rd Circuit Court of Appeal, which examined what happened after the fall of Harvey Weinstein. Unfortunately for many stars, millions of dollars in compensation for blockbuster movies now seem almost lost forever.
After Weinstein was credibly accused of sexual misconduct, his eponymous company filed for bankruptcy. 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 the rights to many movies and TV shows? This is what Hollywood creatives including Bradley Cooper, Jennifer Lawrence, Robert de niro, insisted Meryl Streep, Bill Murray and Julia Roberts.
Spyglass felt the opposite. According to the company, these contracts were not enforceable, which means that the obligations of the parties had already been substantially fulfilled. The debts were not transferred in the Weinstein bankruptcy sale. To confirm this, Spyglass filed a test case against Silver Linings Playbook producer Bruce Cohen, who got 5% of the famous film’s net profits and owed $ 400,000 at the time of bankruptcy.
Now comes another victory for Spyglass – and unless there’s a new 3rd Circuit hearing or Supreme Court intervention, this could become the final decision.
“At a high level, the essence of the Cohen deal was for Cohen to produce the image in exchange for money,” writes circuit judge Thomas Ambro. “So he contributed almost all of his value when he produced the film. By the time of TWC’s bankruptcy, the Picture had been out for six years and Cohen hadn’t 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? Of course, payment is a material obligation of the contract.
Ambro responds by going through the distinction between an undertaking clause and a termination clause before finally concluding: “If we accept Cohen’s argument, the parties have also exceeded 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, no matter how much 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 decides that the $ 400,000 in conditional compensation owed to Cohen does not need to 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 for any net profits the film makes 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 decision in the Cohen case.