Federal Judge Places Three Remaining David Bergstein Companies Into Bankruptcy
UPDATED: The bombshell decision will cost Bergstein millions spent on film libraries in Thinkfilm and legal fees for fighting involuntary bankruptcy.
In a bombshell decision, a federal judge Wednesday granted a motion to place the three remaining companies run by David Bergstein into bankruptcy without any further discussion or a trial.
Judge Barry Russell said there had been a "willful failure to comply" with his previous court orders to produce information relating to the case. "I'm satisfied the debtors are never going to comply," he said.
So the three remaining entities in the involuntary bankruptcy case filed in March 2010 have been placed in bankruptcy. They are R2D2, CT-1 Holdings and Capco. Two other companies, ThinkFilm and Capitol Film, were forced into bankruptcy in October.
All five will now be administered by Ronald Durkin, the trustee previously appointed by the judge. The trustee's counsel, Leonard Gumport, said that it will be the trustee's job to maximize the value of the assets and, with court approval, to pay the cost of the trustee's investigations and efforts.
Bergstein controls a web of other corporations, but most are tied to the ones in the bankruptcy.
This means the film libraries from ThinkFilm and other such entities as Franchise Films that Bergstein acquired over the years will be sold or otherwise disposed of as soon as practical. The 1,300-plus titles include The Whole Ten Yards, 3,000 Miles to Graceland, The Pledge, Laws of Attraction and Before the Devil Knows You're Dead.
The millions in investments made by Bergstein and his former partner Ronald Tutor in ThinkFilm and other entities are lost. The thousands spent on the trial and fighting the involuntary bankruptcy will never be recovered by Bergstein or his allies. They could still appeal the decision and also could face additional suits from creditors likely to try to recover their legal costs.
As always, Bergstein was not present in the courtroom.
The case against Bergstein on Wednesday was argued forcefully in court on behalf of the creditors, which include SAG and the DGA, by attorney David Neale. He accused Bergstein of failing to obey court orders to produce documents related to the case; "data dumping" thousands of pages that were meaningless; and lying about his creditors. Neale said they had never been able to depose Bergstein because he would never confirm that he had turned over all documents.
In a telling moment, Neale explained that the list of creditors provided by Bergstein included at least three who swore in affidavits that they were in fact not creditors. That's key, as the number of creditors determines how many claims must be proved to satisfy the requirements for an involuntary bankruptcy.
Attorney Joseph Eisenberg, who took over the defense of the debtors last summer, admitted they had no response to the evidence that false information had been provided under oath to the bankruptcy court.
The judge noted that Bergstein's previous group of lawyers had been sanctioned for failure to comply with his orders to produce all related documents. He agreed with Neale that further sanctions, even if he fined Bergstein's side thousands of dollars more, would be useless, because there is a third party paying the legal bills who can afford the fight.
Just who paid Bergstein's lawyers has never been revealed and remains under seal by the court. Neale theorized that person was Tutor, a millionaire who runs a large construction company. Tutor also was the lead investor in the $663 million purchase of Miramax from Disney in December.
Seated in the front row during Wednesday's hearing in downtown L.A. was Neale's key client among more than 30 creditors in the case, David Molner of the Aramid Entertainment Fund and Screen Capital International. After the hearing, an obviously delighted Molner noted this decision was unusual: "You couldn't find a lawyer within a hundred miles of here who has heard of this happening," he said.
"This happened because they used deceit and host of tactics to forestall the process," Molner added, "and they lost."
To put in perspective how unusual Wednesday's ruling is, the judge said only one-tenth of 1% of bankruptcy cases are involuntary bankruptcies, and of those, very few are successful for the creditors.
The trustee is expected to issue another status report in a matter of days or weeks that will blast Bergstein for not complying with his requests for information. Much of what the trustee has learned is under seal, so it is not clear what will be made public.
Bergstein's legal problems don't end here. He and Tutor still face a trial in May in the case brought by the company representing the creditors of D.B. Zwirn, the New York hedge fund that put up much of the money to fuel Bergstein and Tutor's film businesses.
Bergstein is facing other legal battles including claims by the IRS. Durkin has said in his reports that Bergstein did not pay personal or corporate taxes for at least the past three years. In August, the IRS filed its claim in the bankruptcy case claiming Bernstein owes more than $432,000.