Shown in a scene from New Line Cinema's The Lord of the Rings: Fellowship of the Ring are actors, from left, Dominic Monaghan as Merry, Elijah Wood as Frodo, Billy Boyd as Pippin and Sean Astin as Sam. (Pierre Vinet, New Line Productions/Associated Press)

The estate of Lord of the Rings author J.R.R. Tolkien can go ahead with a lawsuit against New Line Cinema, but cannot claim punitive damages, a Los Angeles judge ruled this week.

The Tolkien Trust, which holds the rights to his books, is suing the maker of the Lord of the Rings movies saying it has failed to pay royalties from the films.

The lawsuit claims fraud and breach of contract and claims compensation of more than $150 million US.

Los Angeles Superior Court Judge Ann I. Jones ruled this week that the estate has established a legal basis for the fraud claim against New Line and has the right to sue for compensation, but not for damages.

She based that decision on New York law which covers the contract between New Line and the Tolkien Trust over rights to the works, signed before the first movie was made.

Under New York law, public wrong has to be proved for a judge to award punitive damages. The judge agreed with New Line lawyers that the suit is a case of "private wrongs."

The civil suit will be an examination of Hollywood accounting.

The Tolkein Trust and publisher HarperCollins claim in their lawsuit that New Line sought to hide its profits from the films by disguising them as advertising expenses and that the studio also claimed the cost of building production facilities in New Zealand was a Lord of the Rings expense, although the studios are now being used for other projects.

The lawsuit also seeks a court order to terminate New Line's right to The Hobbit, scheduled to be filmed in New Zealand by Guillermo del Toro.

The two sides return to court in October 2009, unless they can come to a settlement.

With files from the Associated Press