December 14, 2015 / 4:42 PM / 2 years ago

Paramount wins U.S. appeal in movie financing fraud case

3 Min Read

The main gate to Paramount Pictures Studios, a division of Viacom, Inc. is pictured in Los Angeles, California July 29, 2008.Fred Prouser

NEW YORK (Reuters) - Investors suing Paramount Pictures for fraud failed to prove the studio hid a risky business strategy when obtaining $40 million in financing for "Mission: Impossible III" and other mid-2000s movies, a U.S. appeals court ruled on Monday.

Paramount, which is owned by Viacom Inc, welcomed the ruling by the 2nd U.S. Circuit Court of Appeals in New York that upheld the dismissal of a lawsuit in October 2014 against the company.

Paramount counsel Richard Kendall said the company hoped the decision "finally puts the plaintiffs' meritless claims to rest."

The investors, including a unit of Munich Re, Marathon Structured Finance Fund LP and Newstar Financial Inc, provided financing and had presented evidence in a trial where they sought up to $24 million in damages.

Their lawyer, William Charron, said in a statement that the appeals court's decision "is not likely to contribute to investor confidence in the film industry."

The lawsuit centered on about $40 million of the $231 million that Paramount raised through a private placement for a slate of 25 films that also included "Mean Girls" and "The Manchurian Candidate."

Released from 2004 to 2006, the films as a group performed poorly at the box office, both sides agreed.

The plaintiffs were junior investors in Melrose Investors LLC, a special-purpose vehicle that in turn invested in the film slate. They sued in 2008, saying the studio misrepresented its planned use of certain risk-mitigation techniques.

At trial, the investors said Paramount failed to disclose that it had reduced its plans to sell international distribution rights, favoring instead increased self-distribution.

The distribution decision meant less revenue to offset losses when the movies failed to deliver financially, the investors contended.

But the 2nd Circuit said U.S. District Judge Katherine Forrest's conclusion that Paramount had not changed its strategy but was engaging in business as usual "was not clearly erroneous."

The case is Marathon Structured Finance Fund LP, et al, v Paramount Pictures Corporation, 2nd U.S. Circuit Court of Appeals, No. 14-4455.

Reporting by Nate Raymond in New York; Editing by Lisa Von Ahn and Grant McCool

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