NY Court Rules Film Securities Suit Against Paramount Lacks Viable Claim

The U.S. District Court for the Southern District of New York dismissed a securities suit brought by several investing financial institutions against Paramount Pictures. Allianz Risk Transfer v. Paramount Pictures Corp., 08 Civ. 10420(TPG). The Allianz plaintiffs paid about $231.3 million for securities in Melrose Investors LLC, through which Paramount procured funds to produce and distribute movies between 2004 and 2006. The plaintiffs alleged that statements in the Melrose private placement memorandum (PPM) were incomplete, false and misleading ' including that Paramount planned to use pre-sales to foreign distributors to lower cost and risk, although the studio had already decided its affiliated United International Pictures would handle foreign distribution. The complaint causes of action included for violation of '10(b) of the Securities Exchange Act of 1934 and of U.S. Securities and Exchange Commission Rule 10b-5.

Granting Paramount's motion to dismiss for failure to state a claim, U.S. District Judge Thomas P. Griesa noted, among other things, that “the actual decline in Paramount's use of international pre-sales was insufficient to find in any of Paramount's statements a material misstatement or the omission of a material fact, as required to state a claim under the federal securities laws. According to the amended complaint, 25% of the cost of films comparable to the Melrose Slate films and released by Paramount between 1998 and 2003 was financed by international pre-sales, as opposed to 12.5% of the cost of the Melrose Slate films. This does amount to a reduction. However, it is difficult to say that Paramount was no longer engaging in the practice on an 'opportunistic' or 'selective basis,' which is all the PPM claims.”

The Allianz plaintiffs also challenged PPM language regarding Paramount's use of risk-mitigation strategies. But Judge Griesa found: “By telling investors that Paramount 'aims to achieve consistent film slate profitability,' 'opportunistically enter[s] into output agreements and territory sales,' 'emphasiz[es] cost mitigation programs,' and employs 'a culture of fiscal caution,' the PPM did not represent that Paramount would enter into any particular type of transaction with respect to the Melrose Slate of pictures or would otherwise work to mitigate plaintiffs' risk.”

The U.S. District Court for the Southern District of New York dismissed a securities suit brought by several investing financial institutions against Paramount Pictures. Allianz Risk Transfer v. Paramount Pictures Corp., 08 Civ. 10420(TPG). The Allianz plaintiffs paid about $231.3 million for securities in Melrose Investors LLC, through which Paramount procured funds to produce and distribute movies between 2004 and 2006. The plaintiffs alleged that statements in the Melrose private placement memorandum (PPM) were incomplete, false and misleading ' including that Paramount planned to use pre-sales to foreign distributors to lower cost and risk, although the studio had already decided its affiliated United International Pictures would handle foreign distribution. The complaint causes of action included for violation of '10(b) of the Securities Exchange Act of 1934 and of U.S. Securities and Exchange Commission Rule 10b-5.

Granting Paramount's motion to dismiss for failure to state a claim, U.S. District Judge Thomas P. Griesa noted, among other things, that “the actual decline in Paramount's use of international pre-sales was insufficient to find in any of Paramount's statements a material misstatement or the omission of a material fact, as required to state a claim under the federal securities laws. According to the amended complaint, 25% of the cost of films comparable to the Melrose Slate films and released by Paramount between 1998 and 2003 was financed by international pre-sales, as opposed to 12.5% of the cost of the Melrose Slate films. This does amount to a reduction. However, it is difficult to say that Paramount was no longer engaging in the practice on an 'opportunistic' or 'selective basis,' which is all the PPM claims.”

The Allianz plaintiffs also challenged PPM language regarding Paramount's use of risk-mitigation strategies. But Judge Griesa found: “By telling investors that Paramount 'aims to achieve consistent film slate profitability,' 'opportunistically enter[s] into output agreements and territory sales,' 'emphasiz[es] cost mitigation programs,' and employs 'a culture of fiscal caution,' the PPM did not represent that Paramount would enter into any particular type of transaction with respect to the Melrose Slate of pictures or would otherwise work to mitigate plaintiffs' risk.”