Fox seeks to dismiss $ 240 million lawsuit against “American Idol” lenders – The Hollywood Reporter
Seeking to save himself in a lawsuit that demands $ 240 million in compensatory damages and more in punitive damages, 21 Century Fox told a judge that American Idol lenders seek to blame others for their high risk loans that have not worked.
The complaint was filed in December 2016 by the litigation trustee of the former Idol producer Core Media Group, which declared bankruptcy and was later taken over by financial firms that once provided $ 360 million in loans. Core filed for chapter 11 after ratings for Idol tanked, forcing Fox to cancel the singing contest show. Idol is set to reboot on ABC soon, but the real drama may now be unfolding between Core: Fox’s lenders, Endemic and Apollo Global Management, one of the world’s largest private equity firms.
Since the lawsuit was filed, the case has bounced back and forth from court to court, but eventually landed in the New York Supreme Court, where a judge is now hearing arguments on whether the lawsuit high stakes must be pursued. On January 16, Fox, Endemic, and Apollo each filed motions to dismiss. Court documents became public this week.
According to the claimant, when Apollo acquired Core in 2011, it funded the purchase of the Idol producer with short-term bridging credit. Apparently, the lenders would have to be immediately repaid on the $ 360 million loan if Core undergoes a change of control. The lawsuit also claims that Core could only engage in mergers or business combinations if the newly formed entity agreed to assume the obligations on the loans.
Against this background came the controversial 2014 agreement between Apollo, Fox and Endemic. Apollo pledged Core’s assets while Fox pledged the same with from Endemol to create a reality production powerhouse that included shows like So you think you can dance, Big Brother, Agree or disagree and The biggest loser. Fox and Apollo each held a 50 percent stake.
But Core’s litigation trustee – who now truly operates for the benefit of the former lenders – alleges that the loan payments were evaded and the complex transaction was in effect a ploy “to strip Core of his remaining cash, transfer Core’s business opportunities to its competitors and ultimately leaving Core to default on its obligations to its lenders.
Now comes the first substantive response from Fox, accused of tortious interference.
“This case presents the paradigm of lenders seeking to blame others for making high-risk loans that didn’t work,” Fox attorneys write to Skadden arpes. “The companies that produce TV shows are inherently high-risk businesses because producing a show is expensive, anticipating consumer demand is difficult, and TV audiences are fickle. Even if a producer correctly guesses what will be popular with viewers right now, a show that is hugely successful one year may not air the following year.
In other words, lenders like TCP and Crestview made a bad bet on American Idol.
“Fully aware of the volatile nature of the entertainment industry, a group of lenders have made high-risk loans and negotiated a high yield to compensate them for that risk,” Fox’s motion to dismiss continues. “When the borrower’s business failed because his shows started losing viewers and the borrower defaulted on his loans, lenders sought to blame others and now accuse Fox of ‘interfering’ with loans from lenders because he entered into an arm’s length transaction affecting who held the stakes in the borrower. Adding insult to injury, the plaintiff’s complaint is replete with allegations that the borrower was insolvent long before Fox was involved, but the plaintiff attempts to hold Fox somehow responsible for the alleged breach of the same contract that the plaintiff admits that the borrower could never have fully performed. “
As to whether a contract was broken, Apollo’s lawyers at O’Melveny & Myers discuss this topic.
The plaintiff’s theory is that the loan agreement was broken when Apollo and Fox entered into an agreement that effectively changed control of Core or when Core entered into an agreement with Endemic to perform administrative and distribution services. At this point, the Applicant asserts that Core was indeed operating as a subsidiary of Endemic. This is when loan repayments had to be made or bonds had to be moved.
Apollo responds that the deal was not a violation because Fox did not acquire more than 50 percent of Core and there was no merger since Core has remained a separate entity at all times through the negotiation. Apollo adds that the complaint does not establish his dominance and control over the common entity, and even if it does not, that this control was used to commit fraud.
Fox argues that since there was no breach of contract, there can be no tortious interference. The Rupert Murdoch company also disputes any harmful interference.
For example, Fox points out that the plaintiff does not allege that he took any intentional steps to obtain the violation of Core or took any action that prevented Core from complying with the loan agreement.
“Instead, the plaintiff essentially alleges that Fox is responsible for not having assumed the obligations under the agreements itself or for causing the [joint venture] assume such obligations, ”continues Fox. “However, Fox was under no obligation to take on CORE’s responsibilities, or – assuming she even had the power – to provoke the [joint venture] assume the responsibilities of CORE. A party cannot be held liable for tortious interference simply because that party has not performed the contractual obligations itself.
This is the setup for the plaintiff’s opposition arguments, now scheduled for next month.