11:23am PT by Ashley Cullins
Modern VideoFilm Founder Ramps Up Legal Fight Against Financier
At its height, Modern VideoFilm was worth more than $100 million, handling postproduction for Oscar winners and franchise tentpoles from nearly every major studio — but that success was shattered by an uncouth lender, according to a lawsuit filed in Los Angeles County Superior Court.
MVF founder Moshe Barkat sued Medley Capital for $100 million last year, claiming he was wrongfully terminated from his own company and Medley and its leadership “through bad faith misconduct, corruption and gross incompetence — effectively destroyed [his] life’s work.” (Read his full complaint here.)
In June, judge Daniel Murphy sustained Medley’s demurrer to Barkat’s claims of breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unfair competition and defamation, finding they were derivative. Last week, Murphy also tossed the breach of fiduciary claim against Medley-appointed director of MVF Charles Sweet on the same grounds, finding the claim “fails to allege an injury independent of harm to the corporation” and Barkat “lacks standing to bring a direct action against Sweet.”
So Monday, attorney Louis "Skip" Miller filed a derivative complaint on behalf of Barkat through Modern VideoFilm Holdings.
Barkat still remains the owner of MVF, and is the president of the holdings company which controls all its stock, but says he's left with only a "shell" of his company after Medley ran it into the ground.
"Holdings brings this derivative lawsuit because Medley has total control of MVF and will never seek to redress the wrongs committed by Defendants because they implicate Medley," Miller writes.
Those wrongs began in 2012, according to the derivative complaint, when Medley Capital loaned MVF $50 million "on terms it knew MVF could not keep." The next year, MVF negotiated a joint venture with Technicolor that would have bolstered MVF and enabled it to pay off the loan. That's when, according to the suit, Medley got greedy.
"It orchestrated a plan whereby it would emerge as the owner of both MVF and the joint venture," writes Miller. "Because of its loan terms, Medley possessed an effective veto power over the Technicolor deal; and it used this power as leverage to obtain control over the venture."
The move backfired and the deal fell through. In the "aftermath," Medley fired MVF's board and appointed its own leadership, Sweet and Scott Avila — the men the lawsuit claims destroyed the company.
Barkat claims he was terminated in 2014 for "phony" reasons, and almost immediately the company began losing key clients — including HBO, for which MVF has provided "coveted and lucrative" work on Game of Thrones.
MVF Holdings is suing for breach of fiduciary duty, aiding and abetting breach of fiduciary duty and unfair competition and is seeking damages in excess of $100 million, plus restitution, equitable subordination of the loan, rescission to multiple agreements and an order that any damages be paid to Holdings, not MVF. (Read the full complaint and relief sought here.)
A Medley spokesman on Wednesday afternoon sent The Hollywood Reporter a statement, saying the derivative complaint is merely an attempt by Barkat and MVF Holdings to reassert claims that have already been dismissed by the court. “Medley and the other defendants believe the outstanding claims for alleged interference with Mr. Barkat’s employment contract, and this latest attempt to resurrect other causes of action already dismissed by the Court, are completely without merit and they intend to continue to defend themselves vigorously,” says the statement.
Medley's cross-complaint, which was filed in June, is proof of that. In it, Medley claims Barkat's "avarice," including using MVF money to buy his wife a car and loan himself money, drove the company "to the brink of foreclosure." The lender claims Barkat made multiple material misrepresentations to induce it into issuing the loan and is suing for breach of contract, fraud and negligent misrepresentation, among other claims. (Read the full cross-complaint here.)
Aug. 31, 2:35 p.m. Updated with a response from Medley Capital.