Willkie Produces Hollywood Ending for Film Studio Relativity

August 24, 2018

Following briefing and opening statements at trial, Judge Wiles ruled for Relativity on damages and made other remarks that prompted a favorable settlement.

On August 1, Willkie secured a swift victory for client Relativity Media against Netflix shortly after appearing in the $70+ million case in U.S. Bankruptcy Court for the Southern District of New York. That victory then led to a wide-ranging settlement with Netflix that was approved by the court on August 14, resolving the long-running conflict, removing a cloud of uncertainty from Relativity’s business, and facilitating its planned sale to UltraV Holdings LLC and the conclusion of its chapter 11 bankruptcy case. Netflix had sued Relativity for over $70 million in damages under a license agreement and sought to prevent Relativity from assigning to UltraV license agreements potentially worth hundreds of millions of dollars. Under the settlement, which was agreed to after the court ruled that Netflix was not entitled to damages on its claims, the contracts will be assigned, Netflix will not receive any damages, and Netflix will pay Relativity $7.2 million to cover outstanding license fees and various costs, including Relativity’s legal fees.

In 2010 and 2011, Relativity (a movie studio that produced films such as American Gangster, The Holiday, The Fighter, and Bridesmaids) and Netflix entered into license agreements under which Relativity agreed to license movies to Netflix and Netflix agreed to pay pre-determined license fees. On May 3, 2018, Relativity filed for bankruptcy under chapter 11 in the Southern District of New York. Relativity announced that it intended to sell substantially all of its assets to UltraV, its senior secured creditor, which would also assume the license agreements. On June 1, Netflix filed an adversary proceeding seeking declarations that it was entitled to penalty payments totaling $60 million as a result of Relativity’s failure to deliver the required minimum number of films in 2017, damages of approximately $12.5 million for alleged exclusivity violations, and additional relief under the license agreements. Netflix also filed a series of motions in the main bankruptcy proceeding, including an objection to Relativity’s sale motion and an objection to the assignment of the license agreements.

Willkie was hired as conflicts counsel on July 5. Over the course of one month, a team from Willkie’s litigation and bankruptcy departments completed document discovery, took and defended seven depositions, prepared an expert report, got Netflix to withdraw its $60 million penalty payment claim, pursued counterclaims for violations of the automatic stay, completed pretrial briefing, and prepared for trial. After Willkie’s opening on August 1, Judge Wiles pressed Netflix’s counsel on its positions. He ruled from the bench on damages after confirming Netflix’s damages theory: “Okay, then you lose[.]” Netflix agreed to settle the remaining issues before the first witness was called. Under the settlement, Netflix withdraws all of its claims, pays all withheld amounts, consents to the UltraV transaction, and will pay outstanding fees and various costs.

The Willkie team was led by partners Antonio Yanez, Jr., John Longmire, Jeffrey Korn, and Matthew Freimuth, and included (among others) associates Stuart Lombardi, John Joy, and Gabriel Brunswick.

The case was extensively covered by the media. Read “Netflix and Chill: Willkie Farr Style,” The AmLaw Litigation Daily.