Edwards Chain in Legal Disputes Over Closure of Theaters

Edwards Theatres Circuit Inc., Orange County’s largest movie house operator, has become embroiled in legal disputes with three landlords as it moves to unload about 25 aging theaters, raising questions about the chain’s financial stability.

In a lawsuit filed recently in Orange County Superior Court, the owners of a shopping center in Rancho Cucamonga claim they were told by Edwards’ attorneys that the Newport Beach chain is experiencing “cash flow and net worth difficulties.” The suit and two others by landlords allege that Edwards closed theaters in Rancho Cucamonga, San Juan Capistrano and Riverside County and stopped paying rent to property owners, who hold long-term leases. The monthly rent for two of the properties totals more than $50,000.

Edwards general counsel Lawrence H. Davidson acknowledged that the Newport Beach theater operator has stopped paying rent on the closed complexes but is continuing to negotiate with the property owners.

Although those theaters were losing money, bankruptcy “isn’t on our agenda at this time,” Davidson said.

Edwards is saddled with dozens of aging movie houses, many with long-term leases, that are being overshadowed by flashier, more comfortable megaplexes. In March, Edwards hired Beverly Hills law firm Stutman Treister & Glatt to help it revise or discontinue leases for some of the theaters, which were built in the 1960s and 1970s.

Although the high-profile law firm specializes in bankruptcies, Edwards insisted at the time that it was not in financial distress and had no plans to file for Chapter 11 bankruptcy protection to get out of the leases. The theater chain said the law firm was hired because of its expertise in leasing.

Some experts said even the hint of bankruptcy could provide bargaining leverage, since the bankruptcy code limits the amount of money that a landlord can recover when a lease is broken.

“Sometimes they use it as a bargaining chip, but we don’t know what the case with Edwards is,” said Michael Stewart, the attorney representing Franciscan Plaza in San Juan Capistrano, where Edwards closed its five-screen movie complex last month after 10 years.

Edwards, which has six years remaining on its lease at Franciscan Plaza, stopped paying the $30,000 monthly rent in April, Stewart said.

The theater served as an anchor for the center, said Dave Busk, managing partner of Franciscan Plaza, which sued Edwards.

“We’re not happy with it, but we just have to deal with it,” he said. “This is the day of the multiplex.”

Focus Shifting to Megaplexes

Edwards is closing 16 theaters with 76 screens in Orange County, as well as some theaters in Riverside and San Bernardino counties.

“We have settled and closed several theater locations since the beginning of the year, generally the older theaters that have seen their attendance drop dramatically due to the megaplexes built by others as well as ourselves,” Davidson said.

When Edwards moved to shutter its six-screen theater in Rancho Cucamonga, however, the site’s owner, Warren Family Investment Partnership, sought an injunction to prevent the closure. After a judge rejected the motion, the theater closed. The landlord is now seeking a financial settlement with Edwards, which stopped paying monthly rent of $21,000 on the lease, which has 11 years remaining, said Joseph Cobert, attorney for the property owner.

The movie house operator was slapped with another lawsuit after closing a theater in Riverside County, said Davidson, the chain’s general counsel. Further details were not available.

Edwards and other theater chains are focusing on opening larger multiscreen theaters around the country at a time when the movie industry has experienced record business at the box office.

Last year, Edwards embarked on an ambitious expansion effort aimed at boosting its total movie screens by 25% over three years. The chain lined up $250 million in financing for the projects. Edwards plans to add more than 200 screens in California and 39 in Idaho, bringing its total screen count to about 1,000.

“The megaplexes are a sign of health in the industry,” said Jim Kozak, communications director for the National Assn. of Theater Owners. “There were more tickets sold in 1998 and 1999 than there were since the 1950s. People are going to the movies in numbers we haven’t seen in four decades.”

Kozak said it comes as no surprise that smaller, aging theaters are suffering under the new climate despite robust movie ticket sales of $7.5 billion in the U.S. last year.

“All chains close venues from time to time as the market gets saturated,” he said. “There’s a pruning that happens, and it’s happening elsewhere.”