A Filmmaker’s Finances Face a Court Assault : Entertainment: Francis Ford Coppola remains a magnificent bankrupt. But his latest Chapter 11 filings have been challenged by a major creditor. At stake are his film and vineyard businesses.
Nothing is simple with Francis Ford Coppola, least of all his bankruptcies.
In the filmmaker’s latest pair of Chapter 11 proceedings--and there have been four since 1983--the biggest creditor is longtime Coppola associate Fred Roos.
Roos, a good soldier, has co-produced at least 16 of Coppola’s films, from “The Conversation” to “Tucker.” He also served as an officer of Coppola’s Zoetrope Corp. until after the most recent bankruptcy petitions were filed last January and since has been in New York with the director, helping to finish “The Godfather, Part III” for Paramount Pictures.
According to documents on file with U.S. Bankruptcy Court in Santa Rosa, Coppola or his businesses nevertheless may owe Roos the staggering sum of $53 million, including interest, because two Roos-owned companies hold a $32-million promissory note from Coppola that they purchased at a steep discount from Chase Manhattan Bank in 1983.
But if Roos has a gun to Coppola’s head, it is only because the movie director handed it to him: Roos purchased the note with the proceeds of a $5.25-million Chemical Bank loan that was guaranteed by Coppola and his wife, Eleanor.
That peculiar debt between friends--created with backing from Coppola himself--has become the focal point in a bizarre legal dispute that is threatening to destroy the director’s blossoming film and vineyard businesses and, according to Coppola’s own court filings, may even jeopardize his ability to deliver the long-awaited Mafia epic in time for Christmas.
In the long run, his debt repayment plans might also turn Coppola into a hired gun again, working more for the sake of commerce than art. He claims to have done exactly that in the 1980s, when he paid down earlier debts by making “Tucker,” “Peggy Sue Got Married” and “Gardens of Stone” for Paramount and Tri-Star.
Coppola adversaries have styled the Roos debt a “sham.”
They claim that the director devised it as a tax shelter and has relied on its fast-accruing but largely unpaid interest obligation to avoid paying any income tax on more than $13 million in movie income in the past three years.
They further say Coppola, fat with assets, is using the Roos debt to shield his large Napa County estate and other properties from a potentially crippling $8-million court judgment won earlier this year by the Singer family of Canada, who have been dogging him for nearly a decade to repay a $3-million loan that helped finance the disastrous “One From the Heart.”
“This is not personal. We’ve never been angry. We’d like to have settled this a long time ago,” Alan Singer, 43-year-old son of Calgary real estate magnate Jack Singer, said of the dispute.
Because creditors vote on key issues in bankruptcy proceedings according to the amount of debt they hold, Roos, apparently Coppola’s largest creditor, can outvote the Singers when it comes to decisions about the filmmaker’s financial future. Were it not for the Roos debt, moreover, Coppola’s assets would far exceed his liabilities, and the Bankruptcy Court might simply order him to sell some property to satisfy the Singers and other creditors.
Coppola and Roos declined through representatives to be interviewed.
But attorneys for the two contend that the Roos promissory note, created as part of an overall settlement of Coppola’s massive debt to Chase Manhattan in the early 1980s, is genuine--although Roos never pressed to collect on it before the recent bankruptcies, and Coppola’s attorneys say they plan to dispute how much of the obligation remains valid.
Coppola’s attorneys add that the Singers are trying to get favored position over legitimate but more sympathetic creditors, such as Roos. “Putting aside the law for a moment, I think you have to ask yourself what’s fair here,” said Coppola lawyer Michael Ahrens.
In plans filed with the Bankruptcy Court by Coppola and his Zoetrope Productions, the filmmaker proposes to pay his debts over seven years by contributing half his income from a projected six films, among other things. The plans rely on his 15% share of Paramount’s receipts from “Godfather III,” even though future income is protected from current creditors under bankruptcy law.
“Francis is willing to use his future earning power so that he can have a plan of reorganization with his creditors confirmed,” Ahrens explained.
Plea for Peace
Distraught by his financial woes, Coppola recently bypassed his attorneys to approach the Singers with a personal plea for peace, according to individuals familiar with the foray. No settlement has been reached so far, and attorney Robert Chapman, who represents the Singers, said his clients are reluctant to endorse the bankruptcy plans, which they believe will pay them well under 30 cents on the dollar for their debt.
The Singers have asked a Los Angeles Superior Court judge to extend their $8-million award--which Coppola is appealing--to include not just the filmmaker personally but also Zoetrope Corp., his principal holding company.
Such an extension could lead the holding company to join the Coppola family and Zoetrope Productions in Bankruptcy Court, as Coppola’s representatives fight to block what they say are looming sheriff’s sales of his winery or his office building in San Francisco.
If Coppola hadn’t filed for bankruptcy protection, the Singers could ask the court for “writs of execution” entitling them, within days, to seize Coppola’s bank accounts, impound payments due him from movie studios, or have sheriffs in Napa or San Francisco counties sell his property.
“If a judgment lien is entered and execution imposed upon Mr. Coppola,” the director’s attorneys have also said in court papers, “his ability to complete ‘Godfather III’ will be seriously jeopardized.”
For Coppola, the 1990s weren’t supposed to be this way.
Until the Singers won their judgment, the 51-year-old filmmaker seemed close to a period of comfort and creative freedom, far removed from the money worries that plagued him since he founded his film company in 1969.
Coppola’s winery business, the Niebaum-Coppola Estate, is coming into its own. Its Cabernet-Merlot blend, called Rubicon, is respected, partly because Coppola has insisted on holding each vintage seven years before release.
“You’re definitely dealing with a super-premium wine. . . . They’re doing something most wineries can’t afford to do,” said Bill Faherty of Western Wine Services, which works with Coppola.
Niebaum-Coppola produces 6,000 cases of wine a year and has inventory worth $6 million, according to Coppola’s filings with the Bankruptcy Court. Winery profit, including income from grape sales to neighboring Inglenook, is projected at about $200,000 in 1991, but that is expected to rise fivefold by the end of the decade as warehoused vintages are released.
The estate, which includes 1,700 acres on the western slope of the Napa Valley, appears to be Coppola’s most valuable asset. He bought it in 1975 for a reported $2 million and watched it appreciate to roughly $10 million, according to his bankruptcy filings--subject to $2.5-million security interest held by Chase and the Roos debt.
A 22-room Victorian house on the property once was a summer home for Inglenook founder Gustav Niebaum and now serves as Coppola’s residence and workshop.
The director once dreamed of building a larger studio in Napa. In 1982, he hired the Mexican architectural firm Barragan y Ferrera to design the facility, which he hoped would become the model for an even grander “communications city of the future” in Belize, where Coppola owns a lodge. As design fees rose, however, Coppola dropped the project, and he has since contested Barragan y Ferrera’s fees in Napa Superior Court.
In New York, Coppola has enjoyed the use of another major asset, his co-op apartment at the Sherry Netherland. The luxury hotel was a setting for the Coppola-directed vignette in Disney’s “New York Stories” last year. Coppola’s apartment there is carried in the director’s bankruptcy schedules at $2.5 million and was recently offered for sale at $3 million.
The Zoetrope headquarters at 916 Kearny St. in San Francisco was appraised this year at $1.9 million. The building houses much of Coppola’s electronic equipment, worth millions more, but its most precious appointment appears to be its ship’s cabin-like penthouse.
Coppola’s associates say the director has often plotted his films in the wood-inlaid cabin, which is lined with video equipment and graced by a sky-lit mural that mingles scenes from his movies with important people in his life. The mural depicts Gian-Carlo Coppola, the 23-year-old son who was killed in a boating accident four years ago, standing not far from 56-year-old Roos.
Coppola has denigrated the work he produced in his hideaway during the past decade. “I just don’t want to be doing this anymore,” he said after shooting “Tucker,” according to a story in Vanity Fair.
(Coppola told the same reporter he “fired” Fred Roos from the set of “Godfather III” in Rome after some production snafus. Representatives of both filmmakers say there was no serious rift, and Roos later returned to the production in New York.)
But the films, for which he was paid 10% of gross receipts with a guarantee of $2.5 million, nearly repurchased his creative freedom before the Singers prevailed in court. According to the bankruptcy files, Coppola has worked off all but $2.5 million of his only significant bank debt, what remains of a $7.75-million note held by Chase Manhattan. Chase in 1983 had accepted the note--along with the separate payment from Roos and some movie rights--in settling a $30-million-plus debt he had owed to the bank, thanks to “One From the Heart.”
Coppola’s failed musical, which died in theaters eight years ago, has haunted him since.
“One From the Heart” cost more than $25 million to produce but took in less than $2 million when Columbia Pictures released it domestically in 1982 and just over $8 million from all markets, including cable and videocassette sales. It was touted as a cinematic experiment, its lush Las Vegas scenes having been shot in miniature at the director’s own Zoetrope Studios in Los Angeles. Ultimately, it tested the ingenuity of the lawyers who are still bickering over its liabilities.
As Coppola’s representatives have said in court documents, the filmmaker had spent most of his initial funding from Chase Manhattan by the time he started shooting in February of 1981. Jack Singer, on learning of Coppola’s bind, offered an $8-million loan to finish the film, but only if he could recover his investment on an equal footing with Chase. Singer advanced $3 million before the deal fell apart, and Chase eventually provided funds to complete the movie, after Coppola guaranteed the loan with his personal wealth.
In July, 1983, the Singers forced Coppola’s studio operation into bankruptcy and then bought the property for $12.3 million at a foreclosure sale, after earlier discouraging a higher offer for the property by threatening legal action that might have blocked the bid. They renamed it Hollywood Center Studios and operate it as a rental facility for movie and TV show makers.
When the bankruptcy was concluded in 1985 because the studio subsidiary had no assets left after paying off a mortgage with proceeds from the sale, the Singers sued Coppola for their $3 million. Coppola countersued, claiming that Singer never meant to finance his film and was only trying to get a lien on the studio. In separate state and federal suits filed later in Los Angeles, Coppola also claimed that the Singers captured his studio with proceeds of a supposed fraud against two Texas thrifts, in violation of the Racketeer Influenced and Corrupt Organizations Act.
The latter suits were dismissed, and the Singers won a summary judgment--an award directly from the court, without a jury trial--in their own suit. When it became apparent last summer that the Singers were likely to prevail in an initial judgment against Coppola’s now dormant studio holding company, officially called Hollywood General Studios, that unit declared bankruptcy in San Francisco, but the filing was quickly dismissed.
To avoid foreclosure sales while appealing the various court decisions, Zoetrope President John Peters tried to borrow $11 million from Bank of America to post a bond. But the bank last January declined to lend more than $7.3 million. The Coppola family and Zoetrope Productions filed bankruptcy petitions the next day, allowing them to pursue their appeals without posting bond.
If they have held off a sheriff’s sale, the bankruptcies have also made a display of the director’s finances. Documents filed with the court describe everything from his unpaid pharmacy bills to the $150,000 value of his Tucker automobiles and the $10,000 he lost last year at the Peppermill Casino in Reno, where he worked on the script to “Godfather III.”
The documents also show that the filmmaker could pay the Singer judgment, if painfully, were it not for his rapidly accumulating debt to his friend, Fred Roos.
According to a balance sheet that Peters delivered to Bank of America officers when seeking the loan last year and that he later supplied to the court, Coppola had a net worth of $25,050,000. That calculation didn’t include any value for Coppola’s 100% ownership of Zoetrope Corp., nor did it include the $50-million-plus Roos debt, which Peters later said he had omitted out of “haste.”
In more carefully drawn schedules submitted to the court, Coppola claimed assets of $23 million, consisting largely of wine and real estate. Those schedules showed him to have a negative net worth of $24 million--largely because this time they included a substantial portion of the Roos debt.
For whatever reason, it is Roos who keeps Coppola insolvent.
Technically, the Roos note is held by Hot Weather Films and Pony Boy Inc., two corporations owned by FR Productions, Roos’ personal holding company. Zoetrope President Peters was secretary and chief financial officer of both Hot Weather and Pony Boy, which respectively produced “Rumble Fish” and “The Outsiders” for Coppola, but he resigned after the bankruptcies were filed.
Martin Zohn, an attorney for Roos, said the companies purchased their $32-million Coppola note from Chase as an investment. During the past seven years, the note--which was to be repaid with proceeds from various films--has accumulated $25.1 million in accrued interest, according to documents filed by Coppola. During that period, Roos’ companies have received payments totaling only a fraction of that amount--"at least $5 million,” according to Zohn--which were used to retire the Chemical Bank loan.
“Creditors have different ways of approaching things. I’ve been involved with a number of creditors who don’t believe they have to squeeze blood out of a turnip to collect,” Zohn explained.
In adversary pleadings before the Bankruptcy Court, Singer attorney Chapman has offered another explanation for the debt. In his view, Coppola and Roos used the note to keep Coppola’s “One From the Heart” debt alive, at least on paper, after Coppola was advised that he might face a huge tax liability if Chase forgave his debt in return for partial payment.
Later, Chapman has argued, the note allowed Coppola “to accrue enormous interest on the ‘debt’ to show huge net operating losses to write off against large amounts of income that would be generated by Mr. Coppola in the future.”
In fact, neither Coppola nor Zoetrope Corp. has filed state or federal income tax returns for 1987, 1988 or 1989, according to his representatives. In a deposition, Peters said he expected to file the tax returns soon but believed that Coppola would owe no taxes for the three years.
Michael Ahrens, Coppola’s attorney, declined to comment on the filmmaker’s taxes. Barry Hirsch of Armstrong & Hirsch, a Los Angeles firm that handles business affairs for Coppola and Roos, declined to be interviewed.
In the Singers’ view, the Roos debt further operates to deprive them of their due. As Chapman has argued, Coppola “wishes, for reprehensible purposes, to use a bogus debt to show that he is insolvent and prepare a plan which will force (the Singers) to accept less than what they are owed.”
Ahrens has disavowed that claim in court, contending that the bankruptcy proceedings will ultimately confirm the validity of the debt. "(They) use words like ‘sham.’ . . . But this man got himself a movie studio for virtually nothing,” he added of Singer.
Under Coppola’s bankruptcy plans, in any case, Roos would release all his security interest in Coppola’s personal properties for a new $10-million note secured by Zoetrope Corp. He would also share with the Singers and others in a note settling unsecured claims for $12 million, payable over seven years--an arrangement that would apparently provide partial payment to both creditors.
Whether any such plan is ultimately approved by creditors and the Bankruptcy Court, Coppola is likely to face intense grilling now that he has finished filming “Godfather III.”
On June 11, he is scheduled to undergo a “Section 2004 examination,” a kind of deposition, by his creditors--and the Los Angeles court is considering whether his Zoetrope Corp., parent to the unit that is producing “Godfather III,” will be vulnerable to the Singers.
Chapman has said he will continue to attack the existing Chapter 11 cases as invalid--a position the court disallowed in a preliminary skirmish, even while demanding more financial disclosure from Coppola and leaving the door open to new dismissal motions.
William Jennings, who represents Coppola against the Singers, meanwhile said he has appealed two of the Los Angeles cases and plans to appeal the third.
While the litigation grinds on, Coppola apparently will continue to live well, a magnificent bankrupt, in full possession of his manor and businesses, at least for now.
Some of his Napa Valley neighbors believe he will survive this round in style, as he has several others.
Dennis Fife, a former president of Inglenook, for instance, recently recalled that Coppola and his wife once “flew to England for lunch” during an earlier financial crunch.
“His bankruptcies and mine,” Fife quipped, “are not the same.”