Sure, they can start the film, but what will they do with it when they've finished? MGM holds the distribution rights, and they want PJ to direct. That's why this is all such a tug-of-war. New Line dropped the ball by not talking to PJ immediately about a Hobbit film. Now time's running out, the director wants the money he's owed, the distribution company says they gotta make the film with him, and New Line's in a serious bind with this. Unless they make PJ happy, the whole thing is going to slip through their fingers - a spectacularly bad job of managing a franchise that's already proved very lucrative.