3:24pm PT by Austin Siegemund-Broka
Producer Wins Appeal Over $300 Million Film Financing Deal
It's every producer's nightmare. At the end of 2010, Steven Kaplan signed two deals for $300 million total from foreign investors to finance 10 films for his company Rainstorm. Then, Kaplan began developing projects with a group of filmmakers. But the investment deal fell through.
Kaplan later learned the foreign company, Fortnom, with which he'd dealt, didn't exist. Ever since, he's pursued Anthony Lombard-Knight and Jakob Kinde, who he believed were Fortnom's principals, in a legal conflict that has spanned four years and two continents.
Update, Aug. 17, 11:22 a.m. In a statement months after the appellate decision, Kinde now tells The Hollywood Reporter he was a victim of fraud along with Kaplan.
"I feel like I've been in a frickin' war," Kaplan tells The Hollywood Reporter. "There were a lot of days I just wanted to stop, it was so painful."
With a decision published Wednesday from a California appellate court, he might get to. The Second District affirmed the opinion of the trial court that the parties' private arbitrator had rightly decided in 2012 that the investors owed nearly $27 million in damages to Kaplan's company.
"I think it's over," says Lombard-Knight's attorney Jonathan Birdt. When asked why the case isn't going to the state Supreme Court, he replied, "It just isn't."
In the legal crossfire, Kaplan says he paid much of his own money and lost films he worked with to other production companies. "I would say it had a pretty big impact on my getting divorced," he adds.
He started looking for more significant funding in 2008 with João Vale e Azevedo, the former president of the Portuguese football club S.L. Benfica. "There was no reason to believe he wasn't legit," says Kaplan.
Azevedo was convicted in 2002 of embezzling from the club, and he's been in and out of prison since. "I wasn't aware of any of that," says Kaplan. "I wouldn't have done the deal if I'd known. I was just shocked." Through him, Kaplan met Lombard-Knight and Kinde, he says. A $150 million deal for the company Lombard-Knight claimed to operate, Fortnom, to finance five films for Rainstorm, was on the table, before the deal then doubled to $300 million for 10 films.
"I said, 'Look, if you don't want to do it or don't have the money, just say so,'" says Kaplan. "They looked me in the eye and said, 'Yes, we have the funds. We want to do it.'"
They signed two agreements finalizing the deal in December 2010, with the funding conditional on Fortnom receiving performance bonds from Kaplan.
That's where things went wrong.
Kaplan says the would-be investors within months tried to force unwelcome changes to the agreements. He claims they ordered the insurer to withhold the performance bonds until he went along with their changes. "They basically were going to blackmail me," he says. (Kinde responds, "This was not true and nor did we ever threaten to do this. There never was any communication with the insurance company.")
In accordance with the deal, he initiated a private arbitration for breach of contract and related claims in 2011. Lombard-Knight and Kinde responded by asserting the performance bonds that had been prepared were fraudulent and unusable. The arbitrator sided in favor of Rainstorm, ordering the Fortnom investors to pay $27 million in damages.
To enforce the ruling, Kaplan went to the English court system, because the Fortnom investors did business in the U.K. In a February 2013 hearing, the British court ordered Lombard-Knight and Kinde to pay. They appealed claiming they weren't properly notified of the arbitration against them, but in March 2014 the British appellate court reaffirmed the judgment.
But while the English litigation was in progress, Birdt filed in Los Angeles Superior Court in January 2013 objecting to the arbitrator's award. (He separately filed claims of fraud, but dismissed them before the court entered judgment.) He held his clients weren't responsible individually for their fictitious corporation and weren't served properly under the Hague Convention.
The trial court agreed with Rainstorm that the potential investors were responsible for their deal on Fortnom's behalf and were properly served. Further, Judge Malcolm Mackey found the Fortnom investors responded too late in their January 2013 petition to the arbitrator's ruling, which Rainstorm claimed to have sent Lombard-Knight and Kinde in July 2012. Now the appellate court has affirmed that as well.
Birdt disputes the decision. "My position is the law requires a foreign national to be served under the Hague Convention," he says, which relates to the time limit on their petition. "The problem is, the time didn't start to run if they were never served in California. The court said, 'Yeah, but they were served in London with the London action, so maybe that started the timeline,' and it just doesn't work that way," he tells THR.
But with verdicts in England and California, it's likely the case won't continue, and Kaplan will collect his damages. Or at least, Kaplan will attempt to collect. "I will chase them till the end of time," he tells THR. "I've paid too high of a price to let that go."
He says he offered the filmmakers with whom he'd been developing projects "clean outs" to bring the films to other producers, but plans on reconnecting with them. In the meantime Rainstorm has signed on to films including the Italy-set Road to Capri, with Alfred Molina and Virginia Madsen, and focused on developing content in-house. "Even thought it's been like being in the meat grinder, I feel really good about everything now," says Kaplan.
"There are so many people who think they can screw over filmmakers because we're following our passions and our dreams. They think they can throw their money around and mislead us," he adds. "They didn't count on us."