In a surprising turn of events, Alliance Atlantis is speaking informally with Victor Loewy about bringing the departed chair of AA’s Motion Picture Distribution back into the fold, according to a source close to the negotiations.

‘Cooler heads have prevailed,’ says the source. ‘The thinking now is ‘how do we all stay rich and keep everyone happy?”

Loewy and AAC executive chairman Michael MacMillan – who have years of friction between them – surprised onlookers when they were seen shaking hands at the Toronto International Film Festival opening night gala screening of MPD’s The Journals of Knud Rasmussen on Sept. 7. Their chumminess fueled further speculation that negotiations were progressing. The remaining stumbling blocks appear to be what Loewy’s job description and remuneration would be were he to return.

Both sides would have much lose if they went their separate ways. While MPD has built itself up to be the dominant Canadian distributor, the charismatic Loewy has strong relationships with U.S. suppliers that have brought MPD much of its business. It is widely accepted that New Line Cinema, which handed MPD the cash-cow The Lord of the Rings films, has an out in its contract that would enable it to walk away from its output deal with MPD if Loewy was to depart.

New Line had previously stated that it would decide what it would do regarding its output deal by Sept. 18, after Playback went to press. There has been speculation that New Line might, at least temporarily, shift its Canadian release slate to parent company Time Warner until the MPD/Loewy conflict was resolved.

What’s more, both sides want to avoid a costly legal battle. AAC secured a court injunction barring Loewy from establishing his own distribution company while an arbitrator at the Ontario Superior Court was to decide whether he should abide by his contract’s non-compete clause.

Loewy stormed out on MPD in July, reportedly after learning of the firings of company president and CEO Patrice Théroux and general counsel Paul Laberge. In a separate case, MPD is taking those former staffers to court for allegedly deceiving the board and ‘advancing business activities for personal gain.’

Meanwhile, the U.K.’s Marwyn Investments has offered to buy MPD, which is 51% owned by Alliance Atlantis and 49% by the Movie Distribution Income Fund, for up to $414 million, if various conditions, including intact output deals, are met. AA said it would study the viability of its distribution business and decide its course of action this month.

In addition to a potential reconciliation with Loewy, there is more good news for MPD, as U.S. partner The Weinstein Company extended its exclusive distribution agreement with MPD for another year, to Dec. 31, 2010.

Rival Canadian distribs concede that, regardless of whether or not Loewy returns to his former company, most of MPD’s U.S. output deals and industry ties won’t be severed any time soon.

Brad Pelman, co-president of Maple Pictures, acknowledges that it’s an uphill battle to chip away at MPD, where executive managing director Jim Sherry still has the organization and capital to acquire most any film he wishes.

But Pelman believes Maple is well positioned to take advantage of the current uncertainty.

‘This gives us the opportunity to build momentum, to service [parent company] Lionsgate as well as we can, and, when it comes time for [U.S. suppliers] to possibly change contracts, we’ll be at the table,’ he says.

Smaller Canadian distributors say that with everything up in the air at MPD, they are fielding more calls from producers seeking theatrical deals whose first call would traditionally go to MPD. But no one’s making rash deals.

‘We’re keeping the status quo,’ says Michael Mosca, senior VP and COO of Equinoxe Films. ‘It would be unwise to jump on any bandwagon for a sale, not knowing what [AAC] will do.’