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It's a Rebuilding Year for Franchise

Elie Samaha's movie firm is bailed out by construction mogul Ronald Tutor's group.

January 15, 2003|Michael Cieply and Claudia Eller | Times Staff Writers

Producer Elie Samaha's troubled Franchise Pictures has found someone to do its heavy lifting.

In the last few weeks, Southern California construction magnate Ronald Tutor and a business partner who specializes in salvaging "litigation-distressed" companies have quietly acquired just under 50% of the Warner Bros.-affiliated production firm, according to Tutor and others involved in the deal.

Tutor is president of Sylmar-based Tutor-Saliba Corp., the largest contractor on Metro Rail and other massive public works projects in California.

In an unusual arrangement, Tutor and co-investor David Bergstein, a Los Angeles businessman who scouts for companies with legal problems, are leading a five-investor group that ultimately will pay what they called a "substantial seven-figure" sum for their equity stake in Franchise. The investment, they said, will cover not only Franchise's overhead costs but also its heavy legal fees.

Franchise -- home to such costly megaflops as "Battlefield Earth" and "3000 Miles to Graceland" -- has been embroiled in a legal fight with its former partner, German financier Intertainment.

The German company accused Franchise of defrauding it of at least $100 million through false accounting and other transgressions. Franchise fired back with counter-claims in the federal court case, which is scheduled for trial Aug. 5.

Asked about the litigation and published reports that Samaha was the subject of an FBI investigation of possible fraud, Tutor said he had examined Franchise's finances for six months and concluded that the company faces only "minimal" liabilities.

"Elie did nothing wrong," said Tutor, who then quickly added: "Let me put that in the context of Hollywood. Elie did nothing wrong in terms of Hollywood, where everything goes."

According to Bergstein, the investors made a "fixed-fee deal" with powerhouse entertainment law firm Quinn Emanuel Urquhart Oliver & Hedges to defend Franchise. Bergstein declined to give the amount of the legal fee or of his group's investment.

Bergstein said he has previously invested with Tutor, whom he met in connection with earlier corporate salvage efforts. "He's had a lot of litigation. He's a specialist of sorts," Bergstein said of the construction executive.

In one high-profile civil action, Tutor-Saliba was found guilty of defrauding the Metropolitan Transportation Authority in connection with the giant Metro Rail project. The company was ordered to pay $29.5 million in damages and an additional $22 million in legal fees. Among other things, the construction firm was accused of using minority businesses as fronts, submitting false claims and more than 1,000 instances of unfair business practices. An appeal is pending.

In November, the San Francisco city attorney's office filed suit against Tutor-Saliba alleging a complex pattern of fraud and inflated billings in connection with the expansion of San Francisco International Airport. The firm, which posted $642 million in revenue for its fiscal year ended Sept. 30, has denied wrongdoing.

Tutor said he met Samaha through a mutual friend and has been discussing their arrangement for several months. The construction mogul added that he expected to find "synergies" between Franchise and, a troubled Internet disc distributor in which he and Bergstein are investors.

"We really see the opportunity for substantial success," Tutor said.

For Samaha, the bailout cuts the bleeding from legal fees, which already had exceeded $7.5 million, according to Bergstein. It also enables Samaha to continue taking advantage of a four-year movie distribution deal with AOL Time Warner Inc.'s Warner Bros. studio.

"I'm going to concentrate on what I do best, which is making movies," Samaha said in an interview Tuesday.

Of the reported FBI inquiry, Samaha added: "If there was anything there, they'd have done something by now."

The producer's new partners won't directly finance Franchise's movies. They said Samaha has about $300 million in production funding available from various sources, including his lead lender, Comerica Bank.

Los Angeles garment industry tycoon Gerard Guez is one of Samaha's longtime backers. Bergstein said Guez has 30 days under his deal with Franchise to exercise an option that would let him acquire as much as 25% of the company.

Guez didn't return calls.

Under the producer's arrangement with Warner Bros., the studio is obligated to release Franchise's movies in U.S. theaters as long as they have production budgets higher than $20 million and carry an R rating or less. Warner advances the cost of prints and advertising and receives a distribution fee of about 15% of revenue.

Warner Bros. executives, pained by the embarrassment of earlier Samaha releases such as "Get Carter" -- a Sylvester Stallone action film that took in $15 million at the U.S. box office in 2000 -- have been working with Franchise to improve the caliber of its films.

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