Vendian Entertainment has failed in its initial attempt to defeat fraud claims tied to the way that money was raised to produce Snowden, the Oliver Stone film about NSA contractor Edward Snowden. Last week, a New York judge rejected the producer's motion to dismiss by focusing on Vendian's alleged failure to disclose a key fact about its financial condition.

The lawsuit was filed in February by Wild Bunch, SA, a Paris-based film distribution and international sales company.

In obtaining rights to distribute Snowden, Wild Bunch agreed to a minimum guarantee of $2.5 million and a "net balance" of Snowden's gross receipts minus $11.5 million (the amount of a bank production loan). Vendian's responsibility was to cover $3 million in gap financing. According to the suit, Wild Bunch told Vendian — then run by Michael Bassick and Christopher Woodrow — that the deal would only work if Vendian itself had sufficient funds and ability to provide the gap financing if called upon to do so. Woodrow and Bassick allegedly represented repeatedly that their company had such ability.

What was not revealed, according to court papers, was that Vendian's source of funding came from John Bassick, Michael's father, who maintained a unilateral right to approve of Vendian's commitments.

"In other words, Vendian, contrary to the representations of Michael Bassick and his associates, had no actual funds to help finance the Picture at the time," writes U.S. District Court judge Jed Rakoff, summarizing the allegations.

Vendian attempted to dismiss fraudulent concealment and fraudulent inducement claims by arguing they were duplicative of Wild Bunch's breach of contract claim. This led the judge to examine whether there was a legal duty separate from a duty to perform under the contract.

Rakoff finds the answer to be affirmative.

"But, in fact, the defendants had a duty to disclose John Bassick's alleged unilateral control over Vendian's cash flow," he writes.

The judge rejects Vendian's proposition that it only had legal duties to convey any problems with the subject of the transaction, not its funding sources.

"[T]here is no reason in principle why superior knowledge of secret information about how a party 'plan[s] to perform or pay' should be exempted from disclosure, assuming the other conditions of this doctrine are satisfied," writes the judge. "Moreover, assuming arguendo that defendants correctly state the law, Wild Bunch alleges significantly more than a mere failure to explain how Vendian would pay on the contract. Wild Bunch further alleges that defendants deliberately concealed Vendian's alleged potential inability to ever pay at all because a concealed principal controlled the purse strings."

Rakoff's opinion (read here) later acknowledges that courts haven't been consistent on whether misrepresentations concerning a party's financial wherewithal are sufficiently "collateral" to maintain both fraud and contract claims. The judge decides to interpret the law to be that false statements about a party's financial condition can amount to "misrepresentations of a present fact" and not "promissory statements of what will be done in the future." As such, the judge determines that the statements from Bassick and Woodrow about their ability to put up money for Snowden were indeed "collateral or extraneous" to the 2015 contract. In short, the fraud claims survive.