A lawsuit was filed today in Los Angeles Superior Court by Boston-based Allied Advertising Ltd alleging breach of contract, fraud and deceit, and unfair business practices against David Bergstein and his ThinkFilm movie distribution company. It seeks more than $4.1 million in unpaid bills and contracts, plus damages, interest and a 5% penalty for all sums not paid in full within 30 days of a demand for payment. It is yet the latest twist and turn in what is obviously becoming a financial meltdown in Bergstein’s film production and distribution empire which includes ThinkFilm and Capitol Films. (See my previous, Capitol Films Cash Crunch: SAG Demands Meeting With Owner David Bergstein).

The lawsuit follows Bergstein’s reported yacht trip to the Cannes Film Festival , included in the complaint: “Between January and May 2008, while most of the ThinkFilm debt to Allied was outstanding, defendants have gone on a lavish film licensing buying spree at various film festivals around the world, including a film about director Roman Polanski scheduled for release on the Home Box Office cable channel later in 2008.”

The facts claimed in the lawsuit point to a business deal gone sour for Allied Advertising, which is in the business of placing advertising and promotion for feature motion pictures owned, licensed or distributed by client production companies or distributors. On June 21st, 2004, Allied and ThinkFilm entered into an agreement under which Allied would place P&A for movies owned and/or licensed or distributed by ThinkFilm with various media outlets around the U.S. ThinkFilm was supposed to pay Allied whenever Allied advanced payment to the media outlets on ThinkFilm’s behalf, or pay a hefty penalty. That agreement was modified on November 18, 2004.

Then, in October 2006, ThinkFilm was acquired by Los Angeles entrepreneurs David Bergstein shortly after he bought Capitol Films that January. “But between Fall 2006 (when Bergstein assumed control of ThinkFilm) and March 2008, defendants became increasingly delinquent on their obligation to pay Allied invoices when due. Through his manipulation of the business operations and employees of ThinkFilm, Bergstein repeatedly promised to honor and pay in full the debt of Thinkfi;l owed to Allied,” the lawsuit alleges. By November 2007, that sum was $1.9M. ThinkFilm promised to present a schedule to pay up. So Allied says it advanced an additional $2.2M from November 2007 through March 2008.

But, with the total now $4.1M, “defendants have failed to pay any of this arrearage,” the lawsuit claims. “On April 5th, 2008, thinkfilm executives stated in writing to Allied that a repayment schedule had been developed by certain ThinkFilm executives, but that it required the authorization of Bergstein, who dominates and controls ThinkFilm… However, Bergstein has proceeded to deplete much of the hard assets of ThinkFilm by, in March 2008, selling the ThinkFilm Canadian library to Entertainment One Ltd.” This is also when Bergstein went on his “lavish film licensing buying spree” referenced above. A final demand letter was sent to May 12, and the bill remains unpaid, resulting in the lawsuit today.

On the fraud and deceit cause of action, the lawsuit alleges, the defendants “were part of a plan or scheme to defraud and deceive Allied and other third parties. Between January 2008 and May 2008, defendants paid millions of dollars to acquire the rights to new feature motion pictures (or the right to produce or distribute such films). In order to convince film owners, producers, production companies and other third parties that it had credibility with advertising agencies such as Allied, to professionally and effectively advertise forthcoming motion pictures, defendants needed to create an impression that they were paying print and advertising obligations as they came due, which was not true. In furtherance of this scheme, defendants needed to deceive Allied into believing that a payment schedule would be presented and honored in good faith.

“Defendants knew that their representations were false when they made, or they were made recklessly and without regard for the truth… Defendants’ actions were perpetrated with fraud, malice and oppression.”

Interestingly, the lawsuit contends that after Fall 2006, there existed “a unity of interests and ownership between defendant David Bergstein and ThinkFilm LLC such that … defendants are the alter egos of each other in that at all times herein mentioned, thinkFilm was a mere shell, instrumentality and conduit of David Bergstein, through which he carried on his business, exercising complete control and dominance of ThinkFilm to such an extent that any individuality or separateness of these defendants ceased to exist.”