In a letter to TheOneRing.net website, Peter Jackson announced that New Line will be moving ahead with a film version of THE HOBBIT, as well as another LORD OF THE RINGS prequel, without Jackson's involvement.
Jackson states in the letter that part of the action is a result of his Wingnut Films' lawsuit against New Line in regards to, "differences of opinion about certain accounting practices" on the first LORD OF THE RINGS film. Co-president of New Line Cinema, Michael Lynne, had told Jackson's manager Ken Kamins that, "the way to settle the lawsuit was to get a commitment from [them] to make THE HOBBIT, because 'that's how these things are done.' [Wingnut] would stand to make much more money if [they] tied the lawsuit and the movie deal together."
Because Jackson did not want to make THE HOBBIT under those conditions and New Line's option for the film rights are limited, the studio decided to hire another director.