Making Sense of a Bad Hollywood Breakup

T.S. Eliot had it mostly right when he wrote about the world ending not with a bang but a whimper. He simply didn’t specify that the whimper might take the form of an interminable stretch of mind-numbing litigation.

That’s the case with the brief, painful dalliance between Hollywood producers and German capital, which peaked in 2000 and ended with the Nasdaq-like collapse of a sheaf of entertainment companies on the Frankfurt stock exchange. The tail end of the adventure is currently playing out in a federal courtroom in Santa Ana, where a 4-year-old lawsuit brought by the German company Intertainment against its onetime producing partner, Elie Samaha’s Franchise Pictures, has finally come to trial.

Intertainment, which rose from nowhere to stand briefly astride the Frankfurt Neuer Markt like a continental version of EToys Inc. or Pets.com, provoked a frenzy for its stock by announcing a series of deals for European rights to movies with such stars as John Travolta, Jack Nicholson and Bruce Willis. Most of these pictures were produced by Franchise under a deal in which Intertainment agreed to underwrite 47% of the films’ budgets.

Intertainment contends that Franchise provided its executives with such grossly inflated budgets that the 47% commitment actually amounted, in some cases, to more than 100% of the real production costs. The subterfuge, Intertainment contends, helped Franchise secure bank loans for the movies by

reassuring the lenders that the loans were well-secured.

The company says the scheme defrauded it of more than $100 million, which would be an impressive haul, even by Hollywood standards. (Intertainment is also pursuing a claim against Franchise’s lead lender, Comerica Bank, which it contends was aware of the fraud. Comerica has denied any wrongdoing.)

Franchise’s defense may not be unique, but it’s certainly bold. Although Samaha admits that the budgets were faked, he says this was done at the behest of Rudiger “Barry” Baeres, Intertainment’s chief executive. Baeres, Samaha says, understood that he had to contribute a larger share of the real production budgets to get some of the pictures made, but he didn’t want to publicly acknowledge that he was paying more than 47%. “He wanted to look like a very smart guy,” Samaha testified last week.

One can only have sympathy for the 10 jurors who eventually will have to make sense of the enormous volume of evidence generated by four years of legal maneuvering in this case. If you want a hint of its scale, consider that when Intertainment’s lawyer, Scott Edelman, introduced a new document in court the other day, he asked that it be marked “Plaintiff’s Exhibit No. 6,007.”

Concluding who was the scammer and who the scammee in this relationship means making a tough choice between two entrepreneurs similarly determined to seize the main chance. Baeres is a rags-to-riches businessman who brought his company to a stock market valuation of more than $1 billion by inking nine-figure deals to distribute Hollywood pictures all over Europe.

Then there’s Samaha, a Lebanese immigrant and former Studio 54 bouncer who had been churning out generic B-pictures (“Hollow Point,” “Scar City”) for years before hooking up with Intertainment in 1999. Samaha was known for persuading big-name stars to appear in his films by agreeing to produce their own pet projects in return. Among the resulting bombs detonated at the box office was “Battlefield Earth,” a cherished Travolta project based on a novel by the founder of Scientology, L. Ron Hubbard. The project was considered so toxic by Hollywood that it had been growing whiskers on studio shelves for 15 years.

There’s no question that for a while Baeres and Samaha were inseparable -- “like one person in two bodies,” a Franchise

executive testified. Accordingly, Franchise insiders rarely blinked when Samaha emerged from private tete-a-tetes with Baeres to announce that Intertainment wanted the budgets of its movies to look bigger. No one knew what schemes the duo might be hatching during their almost daily private meetings, and no one apparently questioned why so much of the relationship depended on oral agreements that no one else had witnessed.

For a while, the two men fed off each other. Samaha liked to do deals, and “Mr. Baeres had a need to get lots of movie-star movies made,” as Samaha testified. The German entrepreneur was so hungry for high-profile inventory, he added, that he even leaped at “Battlefield Earth.” Budgeted at $55 million to $70 million, the movie was eliciting such meager interest from overseas buyers that Franchise was on the verge of killing the project outright. Baeres’ offer to take all European rights to the picture, therefore, “was very shocking to everybody,” Samaha said.

Baeres denied this story when he took the stand himself late last week. Intertainment only accepted the rights to “Battlefield Earth,” he said, because Samaha made it a condition of awarding Intertainment pan-European and Chinese rights to two pictures he really wanted -- the Bruce Willis-Matthew Perry comedy “The Whole Nine Yards” and the Wesley Snipes vehicle “The Art of War.”

Samaha, in any event, aimed to feed his own huge appetite for deal making by spending Intertainment’s money, which was supposed to help finance 60 films costing $1.2 billion over five years. The pace of his deal making may explain one of the enduring mysteries of Franchise Pictures -- how a company with access to so much A-list star power could churn out a nearly unbroken string of turkeys. (The only certified hit anyone would grant Franchise was “The Whole Nine Yards,” which predictably overstayed its welcome by spawning a dud sequel, “The Whole Ten Yards.”)

It’s not unusual for Hollywood executives to live for the deal, but Samaha seemed to go further than most in treating his projects like so many sides of beef -- ink the contracts, sell the overseas distribution rights, dump the product on an indifferent market and move on to the next haunch.

Whoever the jury concludes was responsible for the scam, the ruthlessness exhibited by both Samaha and Baeres probably made it inevitable that their relationship would sour -- “like a bad divorce,” as a Franchise executive described it in court.

Samaha has said the breakup stemmed from his rejection of an overture from Baeres to buy him out and from his dalliance with another European

financing company. Intertainment claims the cause was its discovery of Franchise’s fraud and its subsequent questioning of the budgets.

Meanwhile, both companies have been left impoverished.

Intertainment’s market value has dropped to about $50 million. Its most significant corporate assets are its yet-unresolved claims against Franchise and Comerica.

Franchise was bailed out of its own difficulties about a year ago by an investment group

including construction magnate Ron Tutor, who said at the time that he had examined Franchise’s books and satisfied himself that it faced only “minimal” liabilities. He then unburdened himself of one of history’s great judgments on the movie industry.

“Elie did nothing wrong,” he told The Times. “Let me put that in the context of Hollywood. Elie did nothing wrong in terms of Hollywood, where everything goes.”

Golden State appears every Monday and Thursday. You

can reach Michael Hiltzik at golden.state@latimes.com and read his previous columns at latimes.com/hiltzik.