Steven Mnuchin Escapes Film Finance Fraud Suit

"Mnuchin's personal friendship with [Ryan] Kavanaugh is insufficient to establish awareness or liability," writes justice Charles Ramos.
Courtesy of Milken Institute
Steve Mnuchin

U.S. Treasury Secretary Steven Mnuchin is clear of a fraud lawsuit that he was dragged into because of his business dealings with Relativity Media, after a New York Supreme Court justice granted a motion to dismiss him from the complaint on Tuesday.

In 2015 RKA Film Financing sued Ryan Kavanaugh, Mnuchin and several other individuals, claiming it was misled into lending Relativity tens of millions of dollars for print and advertising expenses and its money was misappropriated.

Mnuchin's OneWest bank committed about $160 million to Relativity years ago, which eventually led to his joining the board as co-chairman. RKA claims he was aware its funds were being misappropriated, especially since he had a "close personal relationship" with Kavanaugh.

Mnuchin in March asked the court to dismiss him from the suit, arguing that because he didn't interact with RKA during his short stint as a Relativity board member he can't be liable for the conduct of others at the company.

"RKA alleges that Mnuchin learned of Kavanaugh's scheme to market a supposedly low risk P&A facility to investors and to subsequently misappropriate those funds during his time as a non-executive director of Relativity," writes justice Charles E. Ramos. "However, absent substantive allegations that Mnuchin was responsible for, aware of, or participated in the purported fraud surrounding the Funding Agreement, liability cannot attach. ... Further, RKA does not sufficiently establish that Mnuchin was aware of the alleged misrepresentations and their implications. Mnuchin's personal friendship with Kavanaugh is insufficient to establish awareness or liability."

Ramos also found that even if Mnuchin had knowledge of purported misconduct regarding the agreement, RKA failed to show he had a duty to disclose that information to RKA.

"Absent a fiduciary or heightened duty, Mnuchin had no obligation to disclose the purported misconduct surrounding the Funding Agreement or the subsequent payments relating to it," writes Ramos. "In any event, RKA does not allege that he was privy to it."

Mnuchin had also asked the court to issue sanctions against RKA for costs and fees, but the court denied that request finding that they were "unwarranted absent evidence of frivolous conduct."

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