Relativity's Ryan Kavanaugh Demands Financier Be Sanctioned

The company that loaned Relativity funds for film distribution is said to have hit the "rare trifecta" of bringing a lawsuit that is meritless, undertaken to harass and asserting false statements.

Relativity CEO Ryan Kavanaugh is hitting back.

Now that his studio has declared Chapter 11 bankruptcy, he's opening up about those who are attempting to "steal the company." In a wide-ranging interview in this week's The Hollywood Reporter, he hints at what's coming, noting he's been told by others he has "the mother of all lawsuits" over a financial firm, Colbeck Capital, that allegedly saw an opportunity to leverage Relativity's debt maturity to make itself a billion dollars.

At the same time, he along with his River Birch Funds have now filed court papers to deal with another financier, RKA Film Financing, that put up $85 million for the P&A costs of seven Relativity films including the delayed Masterminds and upcoming Solace, The Disappointments Room and Before I Wake.

In the weeks leading up to the bankruptcy, RKA filed two lawsuits against Kavanaugh and River Birch. The second one called Kavanaugh a "con man ... who through dishonesty and deceit operated a scheme to defraud investors and convert and misappropriate their funds."

Relativity has already responded with its own $200 million lawsuit against RKA seeking a declaration the studio didn't misuse funds and further seeking to punish RKA for tortious interference for disrupting relationships to existing and prospective lenders.

On Tuesday, Kavanaugh went another step by accusing RKA of "ulterior motives" in bringing what he says is an "unauthorized and improper" lawsuit. He's seeking sanctions for abuse of the litigation process.

In a rather unusual motion to dismiss a lawsuit, Kavanaugh says that "RKA has ignored express requirements in its LLC Agreement governing the retention of legal counsel."

Latham & Watkins is representing RKA, and the involvement of the high-powered law firm gives RKA's action some significant heft. But before filing a lawsuit, RKA was told that retention of counsel to follow up on threats required unanimous approval of all board managers per its LLC agreement. RKA says that hasn't happened.

The motion to dismiss also says that Kavanaugh has been improperly named as a defendant as "he is not a party to the Guaranty and Pledge Agreement" and can't be held liable for debt solely by reason of being a member of River Birch, which is itself a shareholder in RKA.

"This proposition is so fundamental that it reveals the real purpose of the Complaint — to attract publicity to this action," states Kavanaugh's papers, further arguing his name has been "gratuitously" annexed to every description of the agreements between the companies.

The court papers go on to attack RKA's method of garnering media attention and its drive toward seeking equity, and say that a lawsuit isn't a substitute for proper vehicles like foreclosing on liens if circumstances dictate it.

As a result of a lawsuit that allegedly hits the "rare trifecta" of being meritless, undertaken to harass and asserting false statements, Kavanaugh is demanding that the judge sanction RKA. In a letter that was sent by Kavanaugh's counsel before the filing of the lawsuit, it's also been suggested that the Relativity CEO could pursue disciplinary action against Latham & Watkins.

"There's no basis for any of the claims made by Mr. Kavanaugh and his representatives in his motion to dismiss," responds Christopher Clark at Latham & Watkins. "Many people have waited many years for anything Mr. Kavanaugh has claimed to be proved true. These claims, like so much else that Mr. Kavanaugh has claimed, will be demonstrated false."