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Can Louis CK’s Film Distributor Get Its Money Back?

The Orchard bought the film at the Toronto International Film Festival earlier this year

Film distributor The Orchard announced Friday that it would no longer release Louis C.K.’s “I Love You, Daddy” after the comedian admitted to masturbating in front of five women. But can the distribution company, which paid $5 million for the rights at the Toronto International Film Festival, get its money back?

TheWrap spoke to two entertainment lawyers and one financial analyst to see whether The Orchard will have to take a loss or whether C.K. might have to reimburse the company for its investment. It would be a big financial loss for an independent distributor like The Orchard.

“It depends on the contracts, but I doubt the contract had a morality clause, which is common in sports but not really in film because we have never seen this problem before, so why would they have them?” Ross Gerber, president and CEO of wealth and investment management firm Gerber Kawasaki, told TheWrap. “My assumption is that lawsuits will be filed, money will be lost, and there will be no recovery.”

Lincoln Bandlow, partner at Fox Rothschild LLP and a lawyer who focuses on intellectual property and entertainment-related litigation matters, agreed that it depends on what sort of contract was drafted for the distribution deal.

“I’d be surprised if a morals clause would be part of a distribution deal for a film,” he told TheWrap. “Barring having some reason to believe that [sexual misconduct] could come up as an issue, how would it make its way into a distribution deal? Unless they had preexisting knowledge of the issue, I don’t see why it would be standard.”

He added that whether or not The Orchard could ask for its money back “depends on the contract or on the circumstances of entering into the deal.”

“If it’s not addressed in the contract, there isn’t a mechanism for which they can get their money back. Unless there is a contract clause that says X, Y and Z, this isn’t grounds for termination,” Bandlow said. “They may take a big hit, but there might not be anything they can do about it.”

Aaron Swerdlow, an attorney specializing in entertainment, emerging technology and sports law at Gerard Fox Law, told TheWrap that distribution deals can include language known as a “boilerplate.” Nested towards the end of the contract, the language usually includes a reference to misconduct. But boilerplate usually doesn’t specify sexual impropriety.

“This is a template you can pretty much find on the internet and it’s pretty common, but the level of seriousness to trigger an opt-out is usually negotiated,” Swerdlow said. “If I had to speculate, I’d say they have the ability to claw back, especially if the allegations were true, and if he knew about them when he knew about the agreement.”

He added, “I don’t think Louis C.K.’s team will put up a fight. They have bigger problems. They will probably quickly settle.” He also said that it depends whether The Orchard paid the money upfront or had scheduled payments for the distribution deal.

The New York premiere for “I Love You, Daddy,” which was set to take place Thursday night, was canceled Thursday morning, with The Orchard citing “unexpected circumstances. A few hours later, the New York Times published a story in which five women accuse the comedian of masturbating in front of them. On Friday, The Orchard decided to drop the film from the release schedule.

Gerber said the The Orchard might be able to claim that Louis C.K.’s actions “damaged the value of the asset. One could argue that the people who invested themselves were misled by him and that the investor should be made whole. The investors should not have to lose anything. Kevin Spacey should have to pay back everyone because it’s his actions. Same with Louis C.K.”

But Bandlow says that once again, it all depends on what was put in the contract: “If they were specifically asking him questions about it and he lied, they could say it was fraudulently induced. But unless there is a clause, there are no grounds for termination.”

Bandlow added that rumors about C.K.’s behavior have been floating around for a while — after all, C.K. has been the subject of speculation regarding sexual misconduct in the past, stemming back to a 2012 Gawker article.

“Some of those rumors have been circulating so maybe someone flagged this issue, but it wouldn’t be standard in a distribution contract,” Bandlow added.

Should The Orchard have vetted the background of the project or the people involved before entering into a deal, especially given the film’s content?  In “I Love You, Daddy,” C.K. plays a successful Hollywood type whose 17-year-old daughter starts a sexual relationship with an esteemed director in his 60s (many critics out of TIFF likened the character, played by John Malkovich, to Woody Allen). C.K.’s character has to weigh his lifelong admiration for the character against his child’s innocence.

After the accusations that surrounded “The Birth of a Nation” director Nate Parker — after Fox Searchlight had paid a historic $17.5 million for the film at Sundance — many industry insiders told TheWrap that they expected filmmakers to undergo a rigorous vetting process before companies close distribution deals at TIFF and beyond.

The first-time filmmaker fell under renewed scrutiny for a 1999 sexual assault charge for which he was later acquitted, but the film felt the aftermath: It failed to perform at the box office, earning just $7 million its opening weekend, and awards consideration pretty much crumbled amid the allegations.

“What sometimes can happen is that companies say this person has had five deals this year, so they’ve probably been vetted,” added Swerdlow. “No one is thinking about potential problems, they are so focused on closing the deal and getting the movie out.”

A spokesperson for The Orchard had no additional comment. Reps for C.K. have not yet responded to TheWrap’s request for comment, but on Friday, the actor said in a statement, “These stories are true.”