FranchisePictures CEO Elie Samaha's unique defense in his marathon litigation withIntertainment Licensing was put to the test Tuesday in a Santa Ana, Californiafederal courtroom, and his explanations for why he admittedly pumped thebudgets on Franchise films were akin to his own analogy comparing making filmsto making souffles: Some rose, some didn't.
Under intensequestioning by Intertainment lawyer Scott Edelman, Samaha sought to explain analleged oral agreement done in secret between him and Intertainment CEO Rudiger"Barry" Baeres that allowed Franchise employees to load production budgets onsuch films as Battlefield Earth, The Pledge and The Whole Nine Yards with millions of dollars of bogus line items, usuallydisguised as contingent deferments.
Intertainmenthas denied the existence of the oral agreement, and has claimed it wasdefrauded out of $100 million by the scheme allegedly involving Franchise, hislenders at Imperial Bank (since taken over by Comerica Bank), and twocompletion bond companies.
Intertainmenthad agreed to pay 47 per cent of the Franchise budgets in exchange forpan-European rights.
Samaha hasclaimed that Baeres agreed to the budget-pumping scheme that resulted inIntertainment paying up to 100% of the production budgets because Baeres wasdesperate to get films in motion in the wake of Intertainment's wildlysuccessful February 1999 stock offering on the now-defunct Neuer Markt.
Samaha testifiedon Tuesday that the extra Intertainment contribution to the budget wasnecessary to cover shortfalls in territory pre-sales on Franchise films, andthus give Franchise lender Imperial Bank the necessary collateral to make Samaha'sproduction loan.
When asked whyBaeres wasn't given the unsold territories that his increased contribution waspaying for, Samaha replied that Baeres was entitled to only Europeanterritories.
When asked bylawyer Edelman if he had ever inflated budgets on any of the scores of films hehad been associated with before he met Baeres, Samaha replied: "Not to the bestof my knowledge."
Edelman alsogrilled Samaha on whether he had given similar inflated production budgets tonon-European distributors like Village Roadshow that hadsimilarpercentage-of-budget agreements on the Franchise films thatIntertainment also had. "Not to my knowledge," Samaha replied, "but somemistakes have been made."
Samaha said thathe wanted to include the budget-pumping definitions in an expanded version ofthe short-form $1.2 billion, 55-picture output agreement between Intertainmentand Franchise that was roughed out at the 1999 Cannes Film Festival, "but BarryBaeres never wanted to do a real contract, and he said the multi-picture dealwe did at Cannes wasn't worth the paper it was written on, and not to worryabout the budgets, because he was going to buy my company."
"Franchise was aservice company for Intertainment," Samaha added. "Whatever [Baeres] wanted meto do, I did it."
In a sign ofthings to come, Intertainment showed the jury documents signed byFranchise-lender Imperial/Comerica that clearly indicated the bank had evidencethat Intertainment was paying well over the contracted 47% of the $55 million"high" budget for the Jack Nicholson-starrer The Pledge.
A source closeto the bank later told Screendaily thatImperial officer Morgan Rector andother bank officers never saw the 1999 Cannes output agreement betweenFranchise and Intertainment that spelled out Intertainment's 47% budgetagreement.
"Never in threeyears of discovery has anyone found a document in bank files that showedImperial knew about the Cannes multi-picture deal," the source added. "And evenif we knew about the multi-picture agreement, privacy laws would forbid us fromtelling Intertainment that our client Franchise was making two separatebudgets."
Comerica iscurrently awaiting arbitration proceedings to determine if it can recover $72million in letters of credit and cash guarantees on Franchise films thatIntertainment has defaulted on.
Intertainament has claimedit doesn't owe anything on the defaults due to the alleged fraud by Franchiseand the bank.