Relativity Bankruptcy: U.S. Trustee Opposes Employee Bonuses

Relativity faces a major new obstacle in its effort to pay bonuses to five key employees, as well as 80 unidentified non-inside employees, while the studio’s under Chapter 11 bankruptcy protection.

The U.S. Trustee, who represents the Justice Department in the U.S. Bankruptcy Court proceeding, opposed the studio’s proposals, it said in a filing.

Last month the studio said that its key employees “possess intimate knowledge of [Relativity’s] operations and are vital to the success of the Sale Process and these chapter 11 cases.” They would be paid a total of $314,868, but anyone who left would forfeit his or her share. The group consists of President Tucker Tooley, Managing Director Carol Genis, Co-COO Greg Shamo, CFO and Co-COO Andrew Matthews, and Relativity Television CEO Thomas Forman.

(Tooley’s talking to The Weinstein Company to replace at least some of the duties of its soon-to-exit COO David Glasser, although my colleagues Dominic Patten and Patrick Hipes report that there is a long way to go and nobody has signed anything yet.)

But the Trustee says that there’s “no evidence” that they “would not perform the work necessary to maximize the sale irrespective of the proposed bonuses.” What’s more, Relativity’s benchmarks for the payments “are set too low” without evidence that they are “consistent with industry standards.”

And if a group of creditors, known as Stalking Horse Bidders, succeed in their plan to buy Relativity for $250 million, then the executives’ “bonuses are essentially guaranteed.” The Trustee adds that insiders “should not be paid bonuses to incentivize them to satisfy the very fiduciary duties that they are already required to fulfill under the Bankruptcy Code.”

With the other proposed bonuses for non-inside employees, Relativity said last month that its compensation was below its competitors making it “vulnerable to employees departing at this time.” It wants to pay the group $589,126 after the company’s sold.

The Trustee objects, though, because the studio has not proven “that none of the recipients…are ‘insiders’.”  The criteria for the payments, to be determined by the board, also are too squishy. And the studio hasn’t said “whether similarly situated Employees qualify for the same percentage bonus.”

Brett Ratner TCA 30 For 30In addition to the Trustee objection to the payments, other filings suggest Relativity may have to tangle with entertainment powers including producer-director Brett Ratner, Discovery Communications, Hulu, and WWE Studios.

Jeffrey Krieger, a bankruptcy expert in Los Angeles with law firm Greenberg Glusker Fields Claman & Machtinger, asked the court to be admitted to represent Ratner, Discovery, and Hulu. He’ll also be there for digital cinema companies Christie Digital Systems and Scrabble Ventures, and Silver Reel Entertainment Mezzanine Fund.

In 2013 there there were mummerings that Ratner might take legal action against Relativity in a dispute over its handling of a documentary, Catfish, and a subsequent MTV series. Nothing was filed.

Meanwhile, Steven Polard of Davis Wright Tremaine in LA asked to represent WWE Studios, described as an “interested party and creditor.” In 2014, WWE joined Relativity and Blumhouse Productions to release Intrepid Pictures’ horror film Oculus. WWE said at the time that it would “leverage its extensive multi-platform reach to help promote the film.”

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