In a matter of first impression, Pryor Cashman successfully obtained dismissal of a lawsuit brought by Paramount Pictures seeking $8 million in damages from the firm’s clients, who are former investors in a slate of motion pictures produced by Paramount.

The case stemmed from a federal securities fraud lawsuit in which the investors claimed that Paramount had misrepresented its intent to “pre-sell” film distribution rights to foreign territories as a risk-mitigation tool. Following a judgment in Paramount’s favor, Paramount commenced a new action in New York state court seeking reimbursement of its attorneys’ fees incurred in the federal action by claiming that the investors had violated a covenant not to sue in their investment agreements. Pryor Cashman sought dismissal of Paramount’s state action based on the argument that Paramount was required under the doctrine of res judicata to have asserted its “covenant not to sue” claim in the prior federal action under that court’s “compulsory counterclaim” rule. 

On February 20, 2018, the New York Court of Appeals (New York’s highest court) ruled in favor of the firm’s clients and affirmed the dismissal of Paramount’s case. The Court’s decision resolves a previously unsettled issue concerning the interplay under res judicata between the federal compulsory counterclaim rule and New York’s permissive counterclaim rule.

To read the New York Court of Appeals’s decision in its entirety, please click here.

The Pryor Cashman Team

Pryor Cashman partners James Janowitz and William Charron, along with associate Benjamin Akley, represented the investors.