Warner, Village Roadshow debate when arbitration clauses affect dispute

LOS ANGELES -- Attorneys for Australian movie company Village Roadshow and Warner Bros. met remotely for a courtroom battle Friday -- but didn't engage in the warrior rhetoric their clients have been using in the public argument over whether Warner shut Village out of being a financial partner on several projects in order to boost the value of the streaming service HBO Max.

Befitting a lawsuit in the movie industry, the attorneys presented their arguments at the initial status conference in dramatic fashion, but added a bit of comedy when the judge asked if they had more to say and could go on with their points and arguments.

Ashley Neglia of Kirkland & Ellis laughed and said she certainly could.

One of her opponents, Daniel M. Petrocelli of O'Melveny & Myers LLP laughed too, explaining, "We are all colleagues. We've known each other for a long time."

In the complaint, filed in February in Los Angeles, Village Roadshow alleged it was being deprived of the long-term benefits of coproducing prequels, sequels, remakes and spin offs of several franchises which will premier on streaming and traditional movie theaters on the same day.

Village seeks an order allowing it to invest in the co-owned projects for which it shares the rights with Warner. Village also claims that the studio breached their contract on release windows in order to promote HBO Max.

The lawsuit says, "Many of the films Village Roadshow co-owns with WB are now household names and tent-pole franchises -- the type of films that have become the hallmark of financial success in Hollywood. 'The Matrix' trilogy, 'Joker', the 'Ocean's' series, 'Charlie and the Chocolate Factory,' and 'Edge of Tomorrow,' all co-owned by Village Roadshow and WB, are among them." Village Roadshow Films (BVI) Limited, et al v. Warner Bros. Entertainment Inc. et al., 22STCV04606 (L.A. Super. Ct., filed Feb. 7, 2022).

Warner Bros. said in a statement last month it had "reached mutually acceptable agreements on all films in the 2021 slate to provide additional compensation to talent and our partners" in light of changes in its release strategy because of the COVID-19 pandemic. "The only exception was Village, which refused to honor its commitment to pay their share of production costs, rejecting the opportunity we offered to de-risk them from any financial underperformance," the statement said. "Instead, Village wanted to enjoy the benefit of publicly holding themselves out as co-owners and producers while preserving a 'free look' at the ultimate outcome of the film performance without any financial investment on their part. This is not how we conduct business, certainly not with trusted partners."

With Superior Court Judge David S. Cunningham III presiding, Petrocelli said that there are issues that need to be solved before cross motions are appropriate, referring to the contract between Village and Warner Bros. which he said contains arbitration clauses. "No discovery can happen before the court rules on arbitration. That is breach of contract," he said. "By forcing cross motions, we're losing track of these previous clauses."

Neglia replied that despite alleging unfair business practices, Village has a demand for non-monetary injunctive relief, which is outside of the arbitration clauses. "We are joint copyright holders of 91 films. We were partners for four years, and then we got letters from their lawyers saying they want us to give up our rights," she argued.

Cunningham said he will adopt a calendar to move the case through cross motions for preliminary injunctive relief and motion to compel arbitration, as "a delay could create additional issues," and assured Petrocelli his arguments would be taken into consideration. The next hearing is May 22.

Mark Holscher, Diana Torres and Steven C. Czak of Kirkland & Ellis also represent Village Roadshow.

Along with Petrocelli, Matt T. Kline, Leah Godesky and Timothy B. Heafner of O'Melveny & Myers represent Warner Bros. "Village Roadshow seeks declaratory relief, injunctive relief, and specific performance, which the complaint alleges is expressly allowed under the terms of the parties' agreements,'' according to a Kirkland & Ellis news release quoting the complaint. It further alleges that Village Roadshow notified Warner of its intent to seek a declaration of its rights and that the studio "then filed a confidential arbitration without fully following the parties' contractual dispute resolution procedures in an attempt to preempt this authorized declaratory relief action."