The "success fee lawsuit" that CJ CGV fought with a local law firm over the closure of its San Francisco location in the United States has come to an end after two years.
However, including the settlement payment, the loss the company shouldered is estimated to exceed 70 billion won, prompting assessments that the backlash from overseas expansion was significant.
According to the Financial Supervisory Service on the 15th, CJ CGV recently reached a settlement with U.S. law firm Pachulski Stang Ziehl & Jones, ending the lawsuit over the payment of a success fee.
CJ CGV, which invested about 20 billion won to open its San Francisco location in 2016, sought local legal advice over rent issues during the closure process. At the time, Pachulski said it helped reduce rental losses, which had been around 100 billion won, to the 40 billion won range, and demanded a 15.4 billion won success fee for that.
However, CJ CGV refused to pay, saying "it is difficult to recognize the law firm's contribution," and the dispute between the two sides continued for nearly two years.
Pachulski withdrew its application for confirmation filed with the court and instead reached a settlement with CJ CGV. The settlement amount is less than 2.5% of CJ CGV's consolidation capital (57.67 billion won), which is a maximum of 14.4 billion won by simple calculation. This is lower than the 15.4 billion won Pachulski initially demanded.
CGV said, "We entered into an amicable settlement with the plaintiff, the plaintiff withdrew the application to confirm the arbitral award, and the legal dispute was concluded."
CJ CGV's San Francisco location opened in 2016 with an investment of about 20 billion won, but closed in 2023 due to the COVID-19 pandemic and a downturn in the commercial district. The problem was the 20-year long-term lease signed in 2018.
At the time, CJ CGV provided a $75.2 million (about 108.3 billion won) payment guarantee to the landlord's real estate investment trust in case the local entity could not pay rent. As a result, even if the U.S. subsidiary withdrew, it faced a situation where it had to cover the rent for the remaining lease term.
To resolve this, CJ CGV's U.S. subsidiary retained Pachulski to discuss ways to terminate the contract. According to Variety, the landlord proposed that CJ CGV purchase the building for $28 million (about 40.5 billion won), and while CJ CGV said it had no intention to acquire it, it ultimately agreed to pay $28 million and transfer the building to a local investor at no cost.
During this process, Pachulski claimed it played a decisive role in sealing the deal and billed a success fee of about 15.4 billion won. CJ CGV countered that the advisory contract had already ended and that there had been no substantive contribution, and refused to pay.
In September last year, Pachulski filed for arbitration with a U.S. arbitration body seeking payment of the success fee, and the arbitral tribunal sided with the law firm. Based on that, Pachulski filed an application in April this year with the Santa Monica court to confirm the arbitral award, but it recently withdrew the filing, bringing the case to a close.
Although the legal issue has been resolved, CJ CGV is estimated to have incurred at least 70 billion won in losses from withdrawing from the San Francisco location. That figure adds the initial investment of 20 billion won and the building purchase cost of 40.5 billion won to the law firm settlement of up to 14 billion won.
CJ CGV's U.S. business is also shrinking. Until 2023, it operated two sites with 11 screens, but as of the first half of this year, only one site with three screens remains.