Image sues Relativity over 2006 distribution deal

By Susanne Ault -- Video Business, 4/8/2008

APRIL 8 | On the heels of major management changes, Image Entertainment is suing Relativity Media over a DVD output agreement that has yet to come to fruition.

Relativity is accused of breach of contract and fraud over a 2006 deal, in which the production company said it expected to produce at least three films for Image DVD distribution in 2007, followed by as many as 20 films annually. In exchange, Relativity would receive 3.4 million shares of Image stock upon delivery of the titles.

Since 2006, Relativity has produced several movies, including 3:10 to Yuma and The Bank Job, but to date none have been released on DVD through Image. Lionsgate is overseeing both theatrical and DVD distribution of these two movies. 3:10 to Yuma bowed on DVD in January, and a street date for The Bank Job hasn’t yet been specified.

In the lawsuit filed Monday in Los Angeles Superior Court, Image cites the 2006 distribution agreement as evidence that Relativity had promised the supplier product last year. Image is seeking unspecified compensatory and punitive damages.

“…Relativity shall identify at least three expected pictures for distribution during calendar year 2007,” according to an excerpt from the output pact. “If one or more of such identified pictures do not proceed to production, Relativity will provide substitute pictures for distribution by Image.”

Image claims that Relativity never intended to commence the agreement, as the 3:10 to Yuma producer figured it would soon be distributing forthcoming Image-designated titles to Lionsgate. For much of 2006, Lionsgate was aggressively hoping to acquire Image but ultimately was unsuccessful. Image argues that Relativity was hoping to score stock by doing little actual work.

“Relativity secretly expected [Lionsgate] would gain control of Image shortly after execution of the distribution agreement, and that upon such ‘change in control,’ Relativity automatically would be entitled to millions of dollars in Image stock without ever having to provide a single film title to Image,” states the suit.

Image has been struggling financially for some time now, and new president David Borshell has stated that star-driven feature film product will be critical to Image’s turnaround.

Last week, Image formally announced its hiring of former First Look Home Entertainment president Bill Bromiley as chief acquisitions officer for this purpose.

Further underscoring its drive for features, Image also is suing CT1 Holdings in an attempt to reinstate a ThinkFilm DVD distribution agreement. Although the case hasn’t been resolved in L.A. Superior Court, Image has succeeded in securing an interim pact with CT1, the parent company to ThinkFilm.

Neither Image nor Relativity executives were immediately available for comment.

Brian Lysaght, an attorney for Image, said, “This is an agreement that was entered into between the parties, and we expect it to be enforced.”