Flop film poses unique valuation challenge

Holder v. Howe, 2016 Cal. App. Unpub. LEXIS 8989 (Dec. 14, 2016)

When Reliant Pictures completed a film in 2007, the world remained indifferent to it. However, recently the film has been the star in a bankruptcy-related suit in which the parties argued over the ownership interest in the film and the movie's worth. The case raises important questions about how one quantifies the value of a dated piece of art for which there never was a market in the first place.

Shortly before Reliant went bankrupt, in July 2010, it transferred its interest in the film to third-party investors that had provided most of the funding for the picture. In early 2010, the plaintiff bought Reliant’s assets at a bankruptcy auction for $140,000. He later sued Reliant and the investors, alleging they committed a fraudulent transfer and breaches of fiduciary duties and their actions left Reliant with only “debts, obligations, and liabilities.”

The plaintiff asked the court for a declaratory judgment that Reliant owned 100% of the film and monetary damages.

The plaintiff’s entertainment and media expert, who used a market approach to value the film, concluded it was worth about $2.73 million at the time of the fraudulent transfer.

The trial court adamantly rejected the expert’s valuation and, as a remedy, ordered the defendants to return the film and production company to the plaintiff “in such form and conditions as they existed in 2009.”

For its part, the appeals court dismissed the trial court’s choice of remedy as “unworkable and inequitable.”

To read more about the decision from the California Court of Appeal, click here.