Ryan Kavanaugh’s Big-Bucks P&A Misuse Lawsuit Moved To Mediation As Battle Over ‘Masterminds’ Intensifies

By Dominic Patten, David Lieberman

The Relativity CEO’s legal battle with RKA Film Financing has slowed down in one court while ramping up fast in another. In federal bankruptcy court today, RKA filed paperwork to have a determining September 2 hearing before Judge Michael E. Wise on its motion of yesterday. The gist of that filing is for RKA to literally get their hands on the comedy Masterminds, the Halle Berry starrer Kidnap and other unreleased Relativity films and find a buyer for them. Relativity used the pics as backing for a loan of $115 million from RKA that was supposed to go to P&A. The crumbling mini-studio has until August 26 to respond to today’s request (read it here) for the hearing early next month. This comes as lawsuits in New York state court filled with terms like “con-man” and ““frivolous” look to be marked for mediation.

Besieged by debts and a lack of hits, Relativity filed for Chapter 11 on July 30. A Chief Restructuring Officer was appointed the next day as the finance and subdeal details of the hydra-like company became public. In its August 11 filing, RKA now say that Relativity “cannot effectively reorganize” to take advantage of the release of Mastermind and the other movies. Even if it could, the company “would not derive any value” from the releases “given the aggregate amount of secured debt,” claims RKA. Asking for the right to enter Relativity’s offices and grab the films themselves, which might be elsewhere now, RKA also want to be released from an automatic stay so they can make such a move.

The Tuesday filing says that Relativity still owes at least $28.7 million on the P&A loan for Masterminds and $15.0 million for Kidnap. There is more still owed for other unreleased pics to with $21.4 million for Somnia, $18.7 million for Disappointments Room, and $1.3 million for Lazarus. RKA adds that Relativity’s “lack of concern” about the movies “or protection of [their] value] has become a consistent pattern. The company was supposed to have a release schedule by September 30, but that “has now been postponed by [Relativity] ‘indefinitely’.”

As this is all going on, another hearing in Relativity’s increasingly messy Chapter 11 are coming up this week. On Friday the U.S. Bankruptcy Court in NYC will hold a hearing about whether to approve a $10.5 million loan to Relativity. This would be the second installment in the Debtor in Possession financing, following $9.5 million approved on July 31. The court will decide later on an additional $25 million that the company wants. Another hearing is set for August 25 and a proposed schedule of dates leading up to the stalking horse auction bid for Relativity’s assets in late September is also before the court. Last week, Relativity’s top lenders offered up a $250 million floor price for the bid.

Of course, the use of those P&A funds for Masterminds and other films is at the heart of the two multi-million dollar lawsuits going on between RKA and Kavanaugh and his River Birch Funds in state court in New York. Despite, the flurry of filings on both sides since RKA hit the Relativity boss with the first suit on July 15 over a $7.5 million missed loan payment, this might all ended up being settled behind closed doors. Earlier this week, the court referred the case to mandatory mediation. Both the 10%-River Birch owned RKA and Kavanaugh and River Birch have essentially until mid-December to either pick a mediator or let the court do it for them.

On July 24, RKA hit Kavanaugh with a $90 million suit while the latter hit back with a $200 million counterclaim. Post-Chapter 11 filing in federal court, Kavanaugh then sought on August 4 to have the “frivolous” RKA lawsuit, as his lawyers termed it, dismissed. All of which is now headed for mediation and mounting legal bills for a company that is deep in the red already.

Benjamin Naftalis, Christopher Clark, Matthew Salerno and Eric Taffet of the NYC offices of Latham & Watkins LLP are representing RKA Film Financing in both the Chapter 11 and the NY Supreme Court actions.

This article was printed from https://deadline.com/2015/08/relativity-ryan-kavanaugh-lawsuits-bankruptcy-masterminds-mediation-1201497902/