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In the middle of his efforts to rescue his studio from financial problems, Relativity CEO Ryan Kavanaugh is now under fire in a new lawsuit from a financing company claiming he hasn’t paid it on time.
In the complaint filed Wednesday in New York Supreme Court, RKA Film Financing says it loaned millions of dollars to Relativity for the distribution of several specific films. Court documents filed with the complaint indicate the films RKA supported include Masterminds (which Relativity just pushed from release in August to October), Before I Wake and Solace.
The company claims Relativity “fail[ed] to abide by the contractual terms relevant to the specified use of the loans (i.e. Spending the loans only on the P&A of specific films),” leading the parties to strike a new agreement for Relativity to pay the company $7.5 million.
None of the $7.5 million was ever paid, claims RKA.
The company was founded in 2014 with Kavanaugh’s River Birch Funds holding part ownership. Failing the payment of the $7.5 million, RKA says River Birch is obligated to turn over its ownership in the company.
This hasn’t happened either, it claims.
“On July 14, 2015, counsel for RKA sent a formal letter to counsel for Defendants for the immediate transfer of the Kavanaugh RKA Equity Interest and for confirmation that neither Mr. Kavanaugh nor River Birch claim to maintain any interest in RKA,” states the complaint (read it here). “To date, the defendants have failed to respond to the July 14 letter.”
Said Relativity in a statement, “In support of Relativity, River Birch Funds LLC, an entity owned by Ryan Kavanaugh, pledged an equity ownership interest in RKA. Unfortunately, Relativity’s payment to RKA was delayed as a result of the company’s pending refinancing. We expect this matter to be resolved shortly.”
In recent months, Kavanaugh has struggled to hold onto the studio and pay off debts, reaching what sources said was a $320-million deal with Canadian firm Catalyst Capital Group in early July. The potential deal followed a 30-day extension Kavanaugh received to pay off debt by the end of May or lose his position in the studio he founded 11 years ago. Several big questions have swirled around the studio since the Catalyst deal was reported.
Kavanaugh still needs to reach an agreement with other debt holders, including Colbeck Capital, partners of which he forced from Relativity’s board and said tried to take over the studio.
In a further statement to THR, Kavanaugh said: “This lawsuit is ridiculous. I invested $10 million of my own capital into RKA, the entity that is suing me. My $10 million investment is the riskiest part of the capital structure and is subordinate to other capital. There is no default on the loan or facility and there has been no improper use of loan proceeds.”
He added: “This is nothing more than other investors trying to take advantage of Relativity’s current restructuring being delayed and market noise to squeeze the $10 million I invested out of my pocket and into theirs. Unfortunately, the other investors involved, who have no claims, have gone so far as to threaten the company and sue others, and use threats of a lawsuit as fraud so that I will write them a check. Fortunately, neither I nor the company are worried about these frivolous claims from RKA. I will not be making any payment to RKA, especially considering that I have invested $70 million in Relativity over the past two years.”
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