Tolkien's heirs claim New Line Cinema has failed to pay any royalties from the estimated $6 billion they say the movie has grossed worldwide. The lawsuit is seeking more than $150 million in compensatory damages based on breach of contract, fraud and other claims.

Los Angeles Superior Court Judge Ann I. Jones also ruled this week that the estate and Tolkien heirs have established a legal basis for the fraud claim against New Line.

As part of that allegation, the lawsuit claims New Line sent millions of dollars to Time Warner Inc.'s AOL, improperly claiming they were for advertising expenses. The lawsuit also claims the studio built production offices and facilities in New Zealand and listed them as expenses for the "Lord of the Rings" films, although the heirs claim they are now being used for other New Line projects.

New Line's attorneys successfully argued that Tolkien's heirs had to demonstrate a "public wrong" under New York law — which governs the contracts — to claim punitive damages if they win at trial. Jones ruled that the heirs' grievance "is clearly seeking to vindicate private wrongs."

Tolkien signed agreements in 1969 with United Artists governing the movie rights to the "Lord of the Rings" books as well as "The Hobbit."

After the author's death, his heirs created The Tolkien Trust, a British charity.

The charity's trustees, which include Tolkien's heirs, joined publisher HarperCollins to sue the studio in February. Besides damages, the lawsuit seeks a court order that would terminate New Line's rights to make a two-film prequel based on "The Hobbit."

Guillermo del Toro has signed on to direct that film and its sequel in New Zealand alongside executive producer Peter Jackson.

Attorneys for New Line and The Tolkien Trust did not immediately return calls seeking comment on Thursday.

New Line now has 10 days to answer the lawsuit. A trial has been scheduled for October 2009.

The studio was absorbed into Warner Bros. Entertainment in February.