Who Might Relativity Sue After Emerging from Bankruptcy?

The Ryan Kavanaugh company wishes to establish a $2.5 million trust to pursue litigation.
 

With a few weeks to go before an all-important hearing in New York where a bankruptcy judge will consider approval of Ryan Kavanaugh's reorganization plan for Relativity Media, the debtor is filing a slew of documents that spells out what will happen once the film studio emerges from Chapter 11.

Among the latest revelations in the case is a proposed agreement to establish a litigation trust. According to this agreement, $2.5 million would be set aside to investigate, prosecute or defend claims in court.

And who might the yet-to-be-determined litigation trustee find himself or herself battling?

Relativity is reserving rights to bring claims against 275 individuals and entities in Hollywood, including entertainment publications Variety and The Wrap; such studios as Warner Bros., DreamWorks Animation and Twentieth Century Fox Film; public relations powerhouse 42West; chief restructuring officer Brian Kushner; former Relativity TV chief Tom Forman; and hedge funds Elliott Management and Colbeck Partners.

Of course, there's no guarantee that Relativity would actually pursue legal action against any of them, nor television network ABC or Blumhouse Entertainment — two others who made the list — and some entrants like The Weinstein Co. could be making an appearance for the potential that Relativity could be on defense. (Relativity is now looking to reject a confidential settlement agreement struck in 2012 with Weinstein over rights to The Crow.)

There's no explanation on the basis of potential claims against these 275 entities, though Kavanaugh's war of words with Kushner and with Colbeck could provide some clues to what a couple of the disputes would be about. (Last year, referring to Colbeck, Kavanaugh told The Hollywood Reporter that he had been advised by others that he had the potential for "the mother of all lawsuits.")

While some new lawsuits may come after a Feb. 1 confirmation hearing, some older legal matters could be primed for resolution.

For example, before Relativity filed for bankruptcy, RKA Film Financing sued Kavanaugh in New York Supreme Court and accused him of fraudulently mismanaging $75 million in funds earmarked for print and advertising costs of specific films, including MastermindsSolace, The Disappointments Room and Before I Wake.

The reorganization plan is premised on the release of some of those films — meaning RKA might need to be taken care of. In fact, in a supplement to the reorg plan filed on Tuesday morning, the debtor acknowledges that it hasn’t yet selected a new lender for the P&A/Ultimates facility yet. Whoever does step up, though, will be unconditionally promising to pay RKA tens of millions of dollars as replacement P&A, according to court exhibits.

Some other legal matters, which other news outlets have painted as being nearly settled, aren't quite done yet.

Take the controversy over $30 million that was to come from investment fund VII Peaks to help Relativity close a sale of the television division.  In October, an emergency motion was made when VII Peaks took a step back from any commitment. At the time, Relativity said that after VII Peaks came to an agreement, it put new conditions on the investment including prioritized debt status and five domestic distribution slots a year for movies. Relativity said the change in posture threatened to hamper the TV transaction.

On Monday, in an adversarial proceeding, VII Peaks filed its answer to the claims. The financier says the term sheet was labeled "draft" and that a commitment letter relied upon by Relativity is merely a partial document. There was no meeting of the minds and thus no deal, asserts VII Peaks.

"VII Peaks never represented that it would fund $30 million pursuant to the terms identified in the Complaint," states VII Peaks. "Rather, that representation was made by Relativity’s President, Ryan Kavanaugh, and/or his personal attorney. It was Kavanaugh, and/or his personal attorney, acting in Kavanaugh’s personal capacity, not for Relativity, who misrepresented and failed to disclose the material issues ... Thus, if Relativity (or any potential assignee) has a claim, it is against Kavanaugh and/or his attorney, not against VII Peaks."

Relativity had no comment.

Needless to say, Kavanaugh is not among the 275 entities that Relativity has reserved the right to sue.

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