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Cinedigm Corporation filed a lawsuit against Gaiam Inc. on Wednesday in Los Angeles Superior Court alleging there was fraud and wrongful conduct in relation to a $51.5 million deal in the 2013 sale of its home entertainment division.
Cinedigm, which is a public company, believes it may be owed more than $30 million in damages for misstatements about working capital when it bought GVE Video distribution.
Cinedigm claims Gaiam did not disclose, or hid, information about the real financial condition of the division it bought. It claims that Gaiam hid the fact it would not be able to hit a sales benchmark related to WWE Entertainment, forcing Cinedigm to pay millions to WWE after the deal closed.
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Gaiam has claimed that it should receive a $7 million adjustment based on the working capital of the subsidiary; but Cinedigm says that estimate is “grossly inflated,” and that actually it is the one owed money.
Cinedigm said in the complaint it has found more than $30 million in claims, much of which it believes it can and should recover.
Cinedigm and Gaiam have held arbitration but have not been able to come to a settlement. Now Cinedigm is charging that Gaiam is stalling on another arbitration. It wants the court to force them to proceed with the working capital dispute.
Gaiam, based in Colorado, is primarily now a producer of lifestyle, fitness and yoga DVDs and merchandise.
Cinedigm, after years of converting movie theaters to digital, has been re-invented in the past few years as a theatrical movie and video producer and distributor.
In the past year, Cinedigm has signed a number of distribution agreements for more than 70 films that will be distributed in theaters, home video and on digital media, including new OTT channels the company is launching.
On Thursday, Cinedigm reported its third quarter earnings of $31.3 million compared to $34.9 million in the same quarter a year earlier.
There was no response to a request for comment sent to a press representative of Gaiam on Thursday evening.
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