Ryan Kavanaugh Beats $110M Film Finance Fraud Suit

Ryan Kavanaugh Cover Splash Without Text - H 2015

Ryan Kavanaugh has beat a $110 million film financing lawsuit, as a New York judge dismissed with prejudice a 2015 lawsuit against the Relativity co-founder. 

RKA Film Financing in July 2015 sued Kavanaugh twice, claiming he and his colleagues fraudulently mismanaged the millions it put up to fund projects like Masterminds, The Disappointments Room and Before I Wake. RKA had claimed its loans to Relativity were intended to fund print and advertising expenses for a handful of films and it therefore believed the repayment of its money was tied to box-office receipts and not the overall financial health of the since-bankrupt company. Meanwhile, Relativity argued the use of the funds was consistent with their agreement.

Relativity countersued and Kavanaugh demanded RKA be sanctioned, alleging the suit hit the "rare trifecta" of being meritless, being undertaken to harass and asserting false statements.

Financier turned U.S. Treasury Secretary Steven Mnuchin was dismissed from the suit last summer after having been dragged into the fray during the course of proceedings. 

Kavanaugh and the other remaining defendants also filed motions to dismiss the complaint, arguing RKA failed to state a claim, and this week judge Charles E. Ramos agreed and granted them with prejudice. (The full decision is posted below.)

"Among other defenses, Defendants argue that the SAC lacks the specificity required by CPLR 3016[b] to plead fraud-based claims, which in itself is sufficient to dismiss the fraud claims," writes Ramos. "Although this is RKA's third version of the complaint, not once has RKA listed the name of a single person to whom Defendants' alleged misrepresentations were made."

The judge also dismissed the negligent misrepresentation claims, finding they couldn't meet the requirement of showing "the existence of a special or privity-like relationship imposed a duty on the defendant to impart correct information to the plaintiff."

"In this case, we are dealing with a sophisticated lender, and Defendants who purportedly acted to procure loans for a sophisticated borrower," writes Ramos. "The First Department has 'repeatedly held' that an arm's length borrower-lender relationship between sophisticated parties does not support a negligent misrepresentation action."

Kavanaugh was represented by Jonathan Frank and Jeffrey Geier of Skadden Arps.

Relativity issued a lengthy, blistering statement in response to the decision. It reads, in part: “This is a perfect example of how media hype can spin molehills into mountains. ... The press spun what amounted to nothing more than false words filed in the form of a complaint — something any person can do for a small court fee — into false claims that have no merit. ... We can only hope the media will use this as a lesson and stop the practice of trial by press: attack first and ask questions later.”