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David Bergstein Wins Key Legal Victory in Involuntary Bankruptcy Case

Neale notes that when they sought a preliminary injunction in 2012 to stop the sale of some of the movies by a company controlled by Tutor, Russell ruled that the 2009 release did not apply. He was upheld in that belief by Gutierrez for the appeals court last May. Then later in 2013, Neale says Russell reversed himself when he said the release was, in Neale's words, "so broad as to cover everyone for anything," including suits by SCIC.

Now Aramid and SCIC hope Gutierrez will again say the release isn't that broad, which this time would reverse Russell.

Weingarten says the release is a valid issue but wasn't the only reason for this latest ruling. He says Russell also ruled that the facts presented by SCIC in more than 100 pages of pleadings "were barred by the litigation privilege" and were "insufficient to form a basis to seek to impose liability upon Mr. Bergstein."

Neale contends Russell's ruling was not "made on the basis of litigation privilege." Neale says that what Russell did was place an impossible burden of proof on them: "He imposed on us a standard where we were supposed to show we had the likelihood of success on the merits at the stage of evaluating whether or not the complaint was adequate."

Weingarten not only disagrees but believes Bergstein has shown SCIC acted improperly by buying the debt of companies that became caught up in the involuntary bankruptcy. "Aramid is not and has never been a legitimate creditor in any of these cases," says Weingarten. "It bought claims in order to file them" (which would be illegal under federal law).

Neale says SCIC and Aramid never bought debt from any creditor in the case prior to the start of the involuntary bankruptcy in March 2010. "This is what they have been saying from day one in the case," says Neale, "and they say it to whoever will listen as often as possible in hopes if they say it enough times somebody will buy it."

The next court date is March 5, when Russell will rule on motions brought by Bergstein to stop SCIC and Aramid from being paid on claims for administration and related legal fees.

Weingarten says the real question to be answered is, "Why would David Molner spend millions of dollars buying claims and paying lawyers when his companies are not and have never been actual creditors of these debtors?"

Neale says SCIC had every right to make a business decision to join with the trustee to try and recover assets and money that flowed out of the bankrupt companies. "We believe very strongly in the merits of the appeal," says Neale, "and we hope we are going to be vindicated by the appellate court."