January 19th, 2012

Law 360

Fox Fraud Suit Against Distributor Gets Qualified OK

Law360, Los Angeles (January 19, 2012, 6:56 PM ET) — A California federal judge ruled Thursday that 20th Century Fox International Corp. can sue a German stakeholder in an international film distributor that allegedly breached a contract and bilked the studio of at least $3 million, but suggested his decision is ripe for appeal.

U.S. District Judge George H. Wu denied German lawyer Bodo Scriba’s motion to dismiss the case against him for lack of personal jurisdiction and forum non conveniens.

The judge said that a Ninth Circuit decision reversing an earlier dismissal of Scriba implied that once Fox had shown some evidence to support a prima facie showing that Scriba is an alter ego of a party within the court’s jurisdiction, the judge should not analyze the reasonableness of exercising jurisdiction.

But Judge Wu criticized the Ninth Circuit’s lack of clarity on the question and suggested that his ruling Thursday was ripe for appeal. This set the stage for yet another round in a nearly four-year battle over jurisdiction in the fight over purported fraud by an international film distributor.

“All of this, of course, could have been resolved if the Ninth Circuit had given this court some measure of guidance on the issue beyond the conclusion that alter ego, ‘if supported by some evidence, would provide a strong argument for the exercise of jurisdiction over Scriba,’” Judge Wu wrote in his ruling Thursday. “[T]his decision is one that the court would seriously consider certifying for appeal.”

Fox sued Scriba and distributor Gemini Film International over alleged fraud related to a film distribution agreement in 2008, claiming GFI and Scriba used shell companies to illegally divert film revenue for Scriba’s personal gain.

The lawsuit stems from an international distribution agreement that dates back to 1999. Fox used GFI from 2000 until 2006 to distribute its movies in Russia and several Eastern European countries, according to the complaint.

Fox claims GFI owes it millions of dollars in unpaid gross film rentals, and has brought claims for breach of contract, intentional interference with a contract, fraudulent conveyance and accounting issues.

Scriba sought to dismiss the lawsuit, claiming that he wasn’t involved in the alleged fraud. Instead, Scriba claims GFI Managing Director Michael Schlicht was in charge of the company and oversaw its day-to-day operations. Furthermore, it was Schlicht who authorized loans to other corporate entities that were allegedly used as a means of funneling cash away from Fox, Scriba claims.

But at a hearing in December, Judge Wu noted that Scriba owns a 60 percent share of GFI and a substantial financial stake in Amadeus Publishing and Amadeus Distribution Services, which were allegedly used to carry out the scheme to defraud Fox of millions of dollars.

In his decision Thursday, Judge Wu said that a Ninth Circuit ruling reversing his earlier dismissal of Scriba was unclear, but suggested that it would not be appropriate for him to analyze whether exercising jurisdiction over Scriba is reasonable, an analysis that would lead to a different result.

“Were the reasonableness analysis necessary, and were it to implicate only the conduct of Scriba himself, the court would again reach the conclusion that jurisdiction over Scriba would be unreasonable,” Judge Wu wrote.

At the hearing Thursday, the judge expressed dissatisfaction with that outcome, and suggested that the appeals court should take another look at the issue.

“[T]o my mind, I would think that due process would require the court to look at the context,” Judge Wu said. “Apparently the Ninth Circuit doesn’t think that, or if it does, it’s kept the trial courts clueless. And that’s why the issue is ripe for certification.”

Scriba’s attorney Eric P. Early said Thursday that his client would strongly consider appealing the ruling.

“We don’t think there is any showing of alter ego, and whatever Fox has offered is threadbare at best, and to cause somebody to come in from a foreign country to defend himself here based on such a limited showing, it’s our position that that’s manifestly unreasonable,” Early said. “But of course I respect what the court said, and it appears pretty clear from the court’s ruling and from what [Judge Wu] said today that he thinks the Ninth Circuit Court of Appeals need to look closer at this issue. I totally agree with that.”

Representatives for Fox did not immediately respond to requests for comment Thursday.

Fox is represented by Richard L. Stone, Anthony Basich and Poopak Nourafchan of Hogan Lovells.

GFI and Scriba are represented by Eric P. Early and Bryan M. Sullivan of Early Sullivan Wright Gizer & McRae LLP.

The case is Twentieth Century Fox International Corp. v. Gemini Film International SAO et al., case number 2:08-cv-01109, in the U.S. District Court for the Central District of California.

Source: Zach Winnick, Law 360