No.
When you sell the option on a book, which is what happened here, you sell the a prod co the chance to develop that work into a movie. They then have a fixed period of time to get that movie off the ground. At the end of that time, if the movie isn't made, they have the chance to do the same thing again.
Very clearly this was stuck in "development hell" which is common. They couldn't work out a way to make the script work so they wanted to change it up. Nothing wrong with that. But when they found they couldn't do what they wanted (the "Adapation" route) they saw the chance to recoup some lost money.
Caveat emptor.
You seem to have accepted the defense's position without question. And that's fine. It may be correct. And you may very well be right that the company couldn't get it off the ground, and is now looking for ways to recoup the money it has spent.
But...none of this undoes, imo, the nature of the initial deal, which was to purchase the film rights for a novel written by someone named JT Leroy. And I maintain that the deal occurred based of who JT Leroy was, at that time. Now, it turns out that there was no JT Leroy. To me, that brings the legitimacy of the deal into question. And again, the simple and equitable solution is to nullify it. And I think that is how the court will ultimately rule, but I could easily be wrong.
And caveat emptor does not apply, imo, since there was a misrepresentation, planned or accidental, of what was being sold on the part of the seller.