On Monday, a Los Angeles Superior Court judge issued a preliminary injunction that stopped ITV Studios from consummating a buyout of Gurney Productions, founded by Duck Dynasty co-creators Scott and Deirdre Gurney. The court also restored for the time being the Gurneys’ position as the controlling managers of the company in the midst of a $100 million dispute where ITV claims the couple was engaged in self-dealing and fraud and the Gurneys allege intimidation and extortion.
After the injunction was made clear at a hearing, ITV spun the outcome by cheering that the judge “expressly declined to opine on the merits and instead gave a view on a preliminary issue of contractual interpretation,” but a review of Judge Susan Bryant-Deason’s minute order released to the parties after the hearing concluded indicates a more broad determination advantaging the Gurneys.
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In one respect, there is a contract at play.
ITV acquired a 61.5 percent stake in Gurney Productions in 2012 for $40 million, and the deal gave the former an option to “call,” or purchase, the Gurneys’ remaining stake a few years later at a price related to the company’s profitability. But according to court papers, ITV would get a 25 percent discount if the Gurneys were terminated with cause.
The rub is that ITV’s “right to call” interest may have expired in 2015.
Both sides argued about the meaning.
“In interpreting this clause of the Operating Agreement by its plain language, the court finds that the option to call the membership interest has expired,” wrote Bryant-Deason in the minute order. “There was no evidence to the contrary presented by ITV.”
So a contract interpretation, yes, but a big one, and that was hardly the end of the judge’s analysis.
ITV alleges the Gurneys breached their deal by launching Snake River Productions, a company allegedly created to artificially inflate net profits and drive up the price ITV would be paid for their remaining interest in Gurney Productions. ITV further claimed that the Gurneys breached their fiduciary duty by setting up a new company in competition with their old one.
But the judge notes evidence that the business activities of Gurney Productions were defined in agreements as dealing with reality television, whereas Snake River dealt with feature-length documentary films, game shows and scripted television. The judge also points to an operating agreement she says “allows the Gurneys, as Members of Gurney Productions, to transact business with Gurney Productions, notwithstanding that it may constitute a conflict of interest, so long as the transaction is not expressly prohibited by the Operating Agreement and so long as the terms and conditions of the transaction, on an overall basis, are on arms’ length terms and are fair and reasonable to Gurney Productions.”
Bryant-Deason addresses some specific allegations of self-dealing, like the fact that Snake River bought one property from Gurney Productions for more than $3.6 million.
“The Gurneys offered to just rescind the deal and take the money they had paid ITV and Gurney back, but the board members, who had already distributed it amongst themselves said no,” writes the judge. “It was nowhere to be seen. The argument was telling. The court finds that [the Gurneys] are likely to prevail on their claim that the Gurneys’ termination as Co-Chief Executive Officers was without good cause.”
Bryant-Deason further writes she’s persuaded by declarations by the Gurneys that the formation of Snake River “was not a violation of the covenant not to compete.”
Elsewhere in the minute order, the judge waves off an allegation that Scott Gurney improperly advanced $350,000.
“However, the evidence indicates that Susan Barr, the Chief FInancial Officer at the time of the advance, stated that the $350,000 could be distributed as an advance against a distribution,” Bryant-Deason writes.
The judge in the order (read here) also pours cold water on other ITV allegations from personal expenses to the poaching of employees.
In short, the judge does indeed seem to be touching upon the merits of ITV’s claims.
If ITV can take solace in anything, it is Bryant-Deason’s note that “a preliminary injunction does not determine the ultimate rights of the parties, and a factual determination made at the hearing on the preliminary injunction does not bind the court at the trial.”
In response to this story, an ITV spokesperson comments, “We are not going to comment further on the judge’s ruling, which we are appealing, but can say that there is a large amount of evidence that will come out in discovery and at trial – as well as additional compelling evidence that has emerged since the filing of our lawsuit – that will substantiate our allegations of deceit, fraud and self-dealing by the Gurneys who will not be returning to the company while the appeal is pending.”
