12:29pm PT by Eriq Gardner
Judge Allows Ron Burkle to Pursue Weinstein Buyout Fraud
Billionaire Ron Burkle gets to move forward in his lawsuit alleging being defrauded in the $289 million sale of The Weinstein Co. assets. On Thursday, a Los Angeles Superior Court judge rejected a bid to nix fraud claims brought by Burkle's Yucaipa Companies.
Back in July 2018, Yucaipa sued Lantern Entertainment (later becoming Spyglass Media) upon completion of the $289 million deal.
Burkle once attempted to buy TWC's assets outside of bankruptcy, but certain events intervened. According to the complaint, Yupaica had taken the lead in assembling a deal that would save TWC from bankruptcy and ensure compensation for Harvey Weinstein's victims and creditors. Instead, ongoing investigations and a suit from New York's attorney general made his buyout nearly impossible.
Once TWC filed for Chapter 11 in Delaware, a bankruptcy court supervised the sale of film and television assets. Lantern emerged the winner of bidding.
But after Lantern was crowned the victor, Burkle's Yucaipa stepped forward to allege it was cheated.
Specifically, Yucaipa asserts that behind the scenes, it provided confidential information to Lantern, which at that point had no experience in the entertainment industry. What's more, the private equity firm owned by Burkle — a supermarket magnate with ties to former President Bill Clinton — is said to have given Lantern access to advisers, taught the company the basics of Hollywood and used its valuable relationships to open doors, including to TWC.
Yucaipa says that in return for providing all this to Lantern, Burkle's company was contractually promised 2 percent of the purchase price as well as the opportunity to invest in Lantern's entertainment investment vehicle up to $50 million. Yucaipa also alleges that it was promised reimbursement of its fees and expenses.
In an attempt to kill the fraud claims, Lantern/Spyglass pointed to emails between the parties. It is those communications that provide the evidence for any enforceable agreement.
The messages, as the defendants see it, show that the parties were merely in the process of negotiating an agreement, and that Yucaipa was explicitly told that its participation would be discussed after Lantern closed the deal. At best, this was a breach of contract case, Lantern's lawyers told the judge, but really, since the emails also supposedly establish no real intention of any post-acquisition investment by Yucaipa, Lantern's lawyers call this a "case of sour grapes."
Los Angeles Superior Court Judge Steven Kleifield sees more than whine.
In ruling on Lantern's demurrer, he writes that Lantern is focused on the aspect of the allegation concerning the alleged promise of an opportunity to invest.
"Defendants rely on emails to indicate there was no intent to defraud," adds Kleifield. "However, regardless of whether there was fraudulent intent for that one promise, Plaintiff raised multiple allegedly false promises for this single cause of action. And, where a plaintiff includes many acts that comprise a single cause of action, it is error to sustain a demurrer that addresses fewer than all of the allegations that comprise the cause of action."
In other words, the judge rules that Lantern/Spyglass must address the alleged wider-ranging fraud.
Kleifield also permits a claim for unfair competition while telling Yucaipa that it has fallen short at this point on a claim of negligent misrepresentation. The judge also OK's Burkle's attempt at a judicial determination that Lantern has a contractual obligation to pay transaction fees and allow Yucaipa to contribute to the Lantern investment vehicle in return for equivalent equity interest.
A judge would later decide any such obligation on a fuller presentation of evidence, and as scheduled, a jury trial is currently set for October 2020.