Appeals Court: Morgan Creek Owes $5.7 Million Over Robert De Niro Film

A California appeals court Friday ruled that Morgan Creek can't escape money that's due to a Japanese distributor for the 2006 film The Good Shepherd, directed by Robert De Niro and starring Matt Damon, Angelina Jolie and Alec Baldwin.

As The Hollywood Reporter detailed in September, Morgan Creek was facing a potential restraining order and a frozen bank account after refusing to pay up after an arbitrator's decision in favor of Japanese distributor Toho-Towa Co. Morgan Creek had to deliver $5.7 million out of contractual obligations that required the producer to make up any shortfall in the film's box-office performance from its cost to distribute. The Good Shepherd earned only $3.3 million in Japan, which led Toho-Towa to demand repayment of 434 million yen.

As Toho-Towa pursued the money, looking to serve notice on third parties that any money credited to Morgan Creek should be diverted to Toho-Towa, an attorney for Morgan Creek told THR at the time that the company's ex-attorneys had screwed up by not making a bigger issue of the fact that Toho-Towa's agreement was with Morgan Creek International rather than Morgan Creek Productions.

STORY: Kevin Costner Sued by Morgan Creek in Bankruptcy Court

That was challenged at the appellate stage, and the result is not in Morgan Creek's favor.

California appeals judge Vincent O'Neill had to analyze whether a trial judge was properly authorized to add Morgan Creek Productions to a judgment against Morgan Creek International B.V. and Morgan Creek International Ltd.

The appellant argued that there was "no alter ego liability" on MCP's part.

O'Neill agrees the the lower court made no error.

"There is substantial evidence for the trial court's finding that MCP, B.V. and Ltd. were part of a single business enterprise," he writes.

EXCLUSIVE: Morgan Creek Battling $5.7 Million Debt, Restraining Order, Frozen Bank Account

Among the cited evidence was that the three entities were owned by the same person, James G. Robinson, that they all exploited the same assets and that work was performed by employees of MCP.

The judge also says in the ruling:

"There is also substantial evidence for the court's conclusion that it would be inequitable to uphold B.V.'s separate existence under the circumstances of this case. Toho-Towa negotiated the distribution rights to the Picture with MCP. When that negotiation was concluded, MCP told Toho-Towa that the contract would actually be with B.V., not MCP, because this was how MCP conducted its distribution business. MCP assured Toho-Towa that there would be sufficient assets to pay Toho-Towa any monies due under the agreement. Toho-Towa was not told and did not know that B.V.'s financial operations were structured by MCP in such a way that it never received any money from its licensees, and thus would not have funds to meet its payment obligations under the agreement. In sum, it would be inequitable to permit MCP, the alter ego of B.V., to shift liability to B.V. after ensuring that B.V. would have no funds to pay its debts."

Finally, the judge declines to overturn the ruling based upon the former attorney's alleged failings.

The impact of the ruling to Morgan Creek could be large. Besides fighting with this Japanese distributor over money owed, the company also has been battling Kevin Costner over profits from the 1991 blockbuster film Robin Hood: Prince of Thieves. In that case, Morgan Creek also has attempted to shift liability to its international division now in bankruptcy.

Appeals Court Upholds College Student's $675,000 Piracy Penalty

In the long-running case of Joel Tenenbaum, who was ordered in 2009 by a jury to pay $675,000 for illegally downloading and sharing 30 songs online, the First Circuit Court of Appeals decided on Tuesday that the penalty should stand.

The penalty came to $22,500 for each song infringed, which Tenenbaum argued was unconstitutionally excessive under the due process clause.

But in a case that was first brought in 2007 as part of the RIAA's aborted legal campaign against individual file-sharers, the appeals court doesn't see anything wrong with that.

"Tenenbaum carried on his activities for years in spite of numerous warnings, he made thousands of songs available illegally, and he denied responsibility during discovery," says the appellate court. "Much of this behavior was exactly what Congress was trying to deter when it amended the Copyright Act. Therefore, we do not hesitate to conclude that an award of $22,500 per song, an amount representing 15% of the maximum award for willful violations and less than the maximum award for non-willful violations, comports with due process."

Tenenbaum argued that the actual injury to the record labels was $450, the cost of the 30 albums.

The appeals court retorts, "But this argument asks us to disregard the deterrent effect of statutory damages, the inherent difficulty in proving damages in a copyright suit, and Sony's evidence of the harm that it suffered from conduct such as Tenenbaum's."

In making the ruling, the First Circuit had to analyze different precedents for how to apply damages and settled on one brought in a Supreme Court case that held that a statutory damage award violates due process only "where the penalty prescribed is so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable."

Punishing piracy with a large award doesn't meet that test because Congress designed statutory damages to be a deterrent, the judges conclude.