Ronald Tutor, David Bergstein Win Legal Victory in Involuntary Bankruptcy

Screen Capital’s David Molner says they will appeal and cites past rulings to back up his expectation the latest court orders will be reversed.
Ryan Schude; Michael Buckner/Getty Images
Ronald Tutor, David Bergstein

After three years of legal battles in bankruptcy court, Ronald Tutor and his former partner in the movie business David Bergstein have won an important legal victory that appears to open the door for Tutor to finally sell more than 500 movies that have been frozen for months by a legal injunction, including The Whole Ten Yards, Woody Allen’s Sweet and Lowdown, Crouching Tiger, Hidden Dragon and the Oscar-winning documentary Taxi to the Darkside.

On Monday in Los Angeles, Federal Judge Barry Russell issued a final order dismissing complaints for fraudulent transfer of movies and other charges by four of five companies involved in an involuntary bankruptcy that began in 2010, including a subsidiary of Capitol Films. The one bankrupt company still subject to further litigation over claims of fraudulent transfer is ThinkFilm.

Tutor’s attorney Jeffrey Garfinkle says that means the injunction against the sale of the movies in the TFC film library that was tied to the litigation is also dissolved without his client having to take any further action (such as seeking an order from the court that confirms the injunction is not moot).

“Mr. Tutor and his counsel are extremely satisfied with Judge Russell’s rulings,” says Garfinkle. “It completely vindicates Mr. Tutor and his actions both before the bankruptcy cases and after.”

The TFC film library, says Garfinkle, is owned by an entity controlled by Bergstein but is mortgaged to LAAC, which is owned by Tutor. That means Tutor may finally get a chance to recover some of an estimated $100 million-plus he has paid to retain the movie library, including payments to cover guarantees he made to bankrupt New York hedge fund D.B. Zwirn, and an estimated $14 million he has paid in the legal battles.

Based on expert estimates he has seen, Garfinkle says he doesn’t believe the TFC library, which is made up of several other film libraries (including the former Intermedia library), will ever bring the hundreds of millions of dollars some have estimated it is worth. Garfinkle says they will find out because they now have the right to move forward immediately with a properly noticed foreclosure sale in light of Russell’s rulings, first made in court on June 12.

“The secured creditor has an absolute right under state law to sell its collateral regardless of who it is owned by,” says Garfinkle. “It doesn’t matter [who technically owns it]. Plain and simple.”

When it comes to this case, and other legal matters involving Bergstein and Tutor, nothing is really that simple. In this case, Russell dismissed several of these claims “with prejudice,” a legal term that means they can’t be refilled in the same court and in the same case.

Garfinkle and one of Bergstein’s lawyers, Alex Weingarten, are interpreting this to mean Bergstein and Tutor have won and there is nothing the opposition in these cases, led by David Molner of Aramid Entertainment Fund and his company Screen Capital International, can do about it.

“It means hopefully the beginning of the end of this entire process,” says Weingarten.

However, Molner says they intend to appeal the latest rulings, and he believes they have a good chance of being successful. That is because part of the basis for Russell’s most recent ruling is that a waiver Molner and Aramid signed previously when they were paid on a loan guaranteed by Tutor meant they could not pursue these claims. In the past Russell and District Court Judge Philip S. Gutierrez has ruled that despite the waiver, Screen Capital can pursue the claims.

Molner has said he feels they have a good chance to win on appeal because of the past rulings. However, Weingarten doesn’t agree: “The ruling from Judge Gutierrez that disagrees was in a different context. This ruling says clearly there was a scheme by David Molner and these entities to pursue these claims in the name of Screen Capital because they realized Aramid was clearly prohibited. They advanced arguments that Screen Capital and Aramid are not affiliates, which is preposterous and Judge Russell recognized that.”

Molner represents Aramid Entertainment Fund, an investment fund based in the Cayman Islands, but also has maintained his own wholly owned company Screen Capital International, and maintains they are indeed separate entities. So in a series of suits filed since Russell approved a deal between the trustee and Molner allowing him to pursue claims on behalf of the credits, most of the cases have been filed on behalf of Screen Capital International.

“There’s no reason this wont be fatal to all of all their other adversary actions pending in the bankruptcy,” says Weingarten. “I do not believe it will be reversed. We’re very confident [Russell’s latest rulings will] stand.”

Even if Tutor and Bergstein are right, and the appeals court upholds Russell, there are still a number of outstanding litigation issues. There are separate claims by Screen Capital that Bergstein and Tutor breached their fiduciary duty and the operating agreement of R2D2, one of the companies in the bankruptcy that at one time was a primary holding company for all of the movie industry assets. Bergstein tried to get that decision moved directly to the appeals court but Gutierrez declined the request as being improper at this stage, and sent it back to Russell to rule on first.

If they are found liable on breach of their fiduciary duty, a source close to Screen Capital says they will then seek $300 million in damages against Bergstein and Tutor. That would primarily impact Tutor, who is a multimillionaire from his role as CEO of Tutor Perini, a large multinational construction company that recently won the contract to build the first leg of the high-speed rail project in California.

“These are complex cases,” says Molner. “The goal of the former insiders [Bergstein and Tutor] is to keep them messy and unresolved. I think an appeals court will see that creditors should have been given the benefit of discovery and a trial on the merits. The case for appeal is strong and ours will be swift.”

Weingarten says it will be his client who sues for damages when all the pending litigation is resolved. “There are absolutely measures of damages that will be pursued,” says Weingarten, adding: “They have caused hundreds of millions of dollars in damages to Jeff Garfinkle’s client, to my clients, and we will pursue them for those damages.”

Garfinkle says that the other remaining matters, including allegations that Tutor and Bergstein backdated documents to hide the real ownership of the bankrupt companies after early 2009, are minor and he believes they will all amount to nothing. “All these matters were dismissed or the judge indicated he is going to dismiss them,” says Garfinkle. “Another completely irrelevant red herring. It has no bearing whatsoever on the bankruptcy case.”

As for the backdating of documents, Garfinkle adds: “The trustee needed to grasp on to something and they tried to make this into a mountain when it was no more than a little blip.”

The trustee is forensic accountant and former FBI agent Ronald Durkin, who in his previous reports has documented in detail evidence that Tutor backdated a sales agreement by which he sold all his movie business interests, which cost him millions, to Bergstein for a few dollars.

Weingarten also downplays the significance of the charge that Bergstein and Tutor backdated a document: “I don’t think it’s a significant issue. It’s not true. It’s never been proven. I don’t think its particularly material, but its false.”

Bergstein has also appealed Russell’s ruling from May that allows Molner and Screen Capital to take Durkin’s place in pursuing claims on behalf of the creditors. The fraudulent transfer cases that Russell has just dismissed were part of an effort to track down money and assets that were believed to have once been part of the bankrupt companies.

Durkin and his legal team, led by Leonard Gumport, are involved in the appeal of that case because they made a deal with Molner and Screen Capital that empowered them to act on behalf of the bankrupt companies. However, except for one other appeal motion and some side issues, the trustee has pretty much withdrawn from the case and left it to Screen Capital to search for lost assets to recover. 

If Screen Capital were to recover enough, Durkin and his team might finally see some payment for about three years of work. Russell said in court in June that it was clear because of the lack of cooperation from Bergstein, Durkin was unable to do the job he was given.

Garfinkle estimated that in cash outlays and for the work done by Durkin and his legal team, the trustee’s expenditures exceed $5 million. Garfinkle says Durkin has “no prospect of any recovery on those, and the creditors will be no different than they were three years ago.”

“We filed a motion to dismiss [that appeal],” says Weingarten, “and we are confident it will be granted.”

A spokesman for Durkin and his legal team said they would not comment on Garfinkle’s statements or any related matter.

Separately, Russell’s sanctions against Bergstein and another of his lawyers, Victor Sahn, were settled out of court by the judge’s stipulation. They had been cited for improper conduct related to money owed to a subsidiary of Capitol Films in the U.K. Bergstein paid only $909 to settle the charge.

Weingarten says former Los Angeles District Attorney Steve Cooley, now in private law practice, has been consulting on the bankruptcy case, and another former member of the D.A.’s office, Alan Jackson, is working on another of Bergstein’s lawsuit.