September 06, 2012 4:57am PT by Alex Ben Block
Why David Bergstein’s $50 Million Legal Victory Could Backfire (Analysis)
Embattled film financier David Bergstein won a $50 million legal battle Aug. 21 when an L.A. Superior Court jury agreed that his former attorney Susan Tregub had breached her fiduciary duties to him and committed malpractice.
It was a public vindication for Bergstein after several years of legal setbacks and provided validation to his oft-repeated claims that commercial treason by Tregub was a major cause of his numerous legal problems in federal bankruptcy court and in his many civil lawsuits. He charged his opponents, especially Aramid Entertainment, conspired with Tregub to use insider information to damage his businesses as well as those of his sometime partner, construction executive and Miramax Films investor Ronald Tutor.
Bergstein’s post-victory plan, as explained by his attorney Lucia Coyoca after the trial, is to use the Tregub verdict as a hammer in other cases against Aramid Entertainment and two of its law firms. “This is the first step in a process that will be unfolding in other courtrooms to hold other parties responsible for what happened to Mr. Bergstein,” Coyoca said in an Aug. 24 statement.
However, winning future cases could prove to be as difficult as collecting that $50 million.
During the punitive phase of the case Tregub’s attorney Hayes Michel told the jury his client has no money and no assets to pay the judgments.
And that isn’t the only setback for Bergstein. His case against Tregub involved three counts, two of which went to the jury. A third count was decided by Superior Court Judge J. Stephen Czuleger, who found for Tregub. He ruled Bergstein “had not met [the] burden of proof” to prove Tregub stole Bergstein’s [documents].
Judge Czuleger also noted that his decision on the third count could affect Bergstein’s win on the first two causes of action if there is an appeal and that it could also have “potential life” in other legal battles in which Bergstein is involved.
That is exactly what Ronald Durkin is hoping. Durkin is the former FBI agent and forensic accountant who in 2010 was appointed by federal bankruptcy court Judge Barry Russell as trustee over five movie companies formerly run by Bergstein, including Capitol, ThinkFilm and R2D2, a holding company formed by Bergstein and Tutor a decade ago (Tutor claims to have sold his half to Bergstein in January 2009). Judge Russell also has given Durkin the right to oversee another Bergstein company, Pangea Media, although so far that has proven impossible.
In a motion with the U.S. District Court in Los Angeles filed last week, Durkin asked the judge to deny Bergstein’s request to depose him and his lead lawyer Leonard Gumport, and to provide documents about the status of the bankrupt companies. Durkin said in his filing that forcing a trustee to answer questions under oath would violate federal court rules.
Durkin’s filing also raises new questions about Tutor’s involvement in the bankrupt companies and about the conduct of Bergstein’s current attorney Victor Sahn and his former lawyers Ray Reyes, both of whom testified on his behalf in the Tregub trial.
Durkin charges that Bergstein’s testimony in the Tregub case provided proof that he has repeatedly given false testimony in the federal involuntary bankruptcy case, provided inaccurate financial statements about companies he controlled, purposefully concealed assets, fraudulently backdated documents and lied about Tutor’s continuing involvement in his businesses.
“In an ill-advised and self-destructive effort to get an uncollectable judgment against his former lawyer,” Durkin wrote in his filing, “Bergstein and his trial witnesses, including (his current attorney) Victor A. Sahn and (his former corporate attorney) Ray Reyes, revealed astonishing new information about Bergstein, his practice of retroactively transferring motion picture assets by backdating documents, and the Debtors (Bergstein and Tutor) previously undisclosed arrangements for funding payment of their attorney fees.”
Most startling is Durkin’s charge that Tutor is still involved in the bankrupt movie businesses, despite repeated claims by Bergstein and Tutor that he sold all his movie business interests to Bergstein — representing an investment of millions of dollars — for $10. In 2011, when he was acquiring a multi-million dollar equity interest in Miramax in a $660 million deal with Disney, Tutor said several times that he had no more movie business ties to Bergstein.
During the Tregub trial, evidence was presented that top Disney executives – all the way up to Chairman Robert Iger – were concerned about Bergstein’s involvement in the Miramax transaction due to his many highly-publicized legal problems. That was why it was important that Tutor and his partners confirm Bergstein would not be involved beyond his role in facilitating the sale.
Durkin goes to the heart of that claim in his legal response. “The record of the Tregub trial reflects that Bergstein and (his lawyers in the bankruptcy case) provided inaccurate statements of compensation that concealed the ongoing partnership relationship between Tutor and Bergstein,” said Durkin’s filing, adding: “The statement of compensation did not disclose that Tutor had signed a retainer letter reflecting that, contrary to Tutor’s and Bergstein’s testimony in the (federal) cases, Tutor still possessed an ownership interest in the (five bankrupt companies).”
“Now, in the Tregub trial,” Durkin continues, “Bergstein disclosed that Tutor remains Bergstein’s partner and that Bergstein has an agreement with Tutor to reimburse Tutor for 50 percent of all (legal) fees that Tutor paid in connections with the (bankrupt companies) cases.”
In asking Judge Russell to deny Bergstein’s request to depose him, Durkin shows the frustration of two years in which he has not been allowed to properly administer the five companies he was charged with overseeing because of Bergstein’s efforts to resist him. Durkin also notes that under his agreement with the court, he has not been paid for his work and won’t be until there is a final settlement. Meanwhile Bergsten and Tutor have spent more than $10 million on their legal battles, according to disclosures in the bankruptcy case. Several sources say Bergstein spent more than $2 million on the Tregub case over more than two years while Tregub spent less than $200,000.
Durkin says Bergstein should have cooperated with him as the federal trustee, not hidden assets and made it difficult for him to take over real control of the bankrupt companies.
“Rather than assist the trustee,” writes Durkin, “Bergstein and Sahn seek to waste the uncompensated time of the trustee and his (lawyers) by asking them questions about what they are doing in administering the (bankrupt companies) where Bergstein has demonstrated his intent to conceal both assets and information.”
The ruling that Tregub did not steal documents could be especially harmful in his and Tutor’s civil suits against Aramid Entertainment, Aramid’s David Molner and two of Aramid’s law firms, Stroock & Stroock & Lavan and Levene Neale Bender Yoo & Brill.
Tregub went to work for Aramid after she left Bergstein. Molner was a driving force in bringing together the creditors who successfully brought about the involuntary bankruptcy of five of Bergstein and Tutor’s movie companies.
If Bergstein had won, he could have charged Aramid used stolen documents against him and Tutor in the bankruptcy. However, now there likely is no clear link from Tregub to any of those firms and individuals.
“Aramid and their law firms aren’t guilty of malpractice,” says a source. “They weren’t his attorneys. Had he proven she stole documents, Bergstein could have suggested Aramid incited her or induced her to that misdeed. Now that is out the window.”
As it is, no one from Aramid testified at the Tregub trial, including Molner, so there is no record that Bergstein’s lawyers can use. However, Aramid attorney’s, like Durkin, plan to use Bergstein testimony to question his claims in the cases, according to several sources.
In Durkin’s filing, he wrote that on July 26, his attorney Gumport sent Sahn an email that said while Bergstein had represented that the bankrupt companies transferred “millions of dollars” to Aramid, Bergstein and Sahn never provided any documentation to prove that claim. Instead, a chart Gumport prepared showed proof that Aramid transferred $5.9 million to those companies and got nothing back.
While Bergstein and Sahn did not provide proof of their claims, on August 15, according to the filing, Aramid did provide an analysis to the trustee and court that showed none of the loan repayments it received came from the bankrupt companies, as Bergstein had claimed.
Aramid can now use all of that to defend itself.
Tregub has not yet filed an appeal and it is unclear if she will. She has 30 days after the official judgment is entered to appeal. If she does, that would mean nothing in the Tregub case could be used by Bergstein in other legal cases until there is a decision on the appeal, which could be months or longer.
Bergstein could also appeal his loss of the third cause of action, which would add even more complications.
The next hearing before Judge Russell in the bankruptcy case is in October.
The appeals in the bankruptcy case are being consolidated under Judge Phillip S. Gutierrez, who in past written rulings has agreed with Judge Russell that Bergstein “can’t be trusted.” Motions by Bergstein and Tutor to move the appeal to a different judge have been denied.
On Aug. 30, the L.A. Superior Court also ruled against Bergstein in a related case he brought for $50 million in damages against Teri Zimon, who had also worked as a lawyer for Bergstein. Zimon won a motion for summary judgment after the court found Bergstein had not proven that there was a legal issue to try in the case and for other reasons.
Bergstein, Coyoca and an attorney for Tutor did not respond to requests for comment, nor did Aramid, Molner and Aramid’s attorneys, or attorneys for Tregub.