3:10pm PT by Eriq Gardner
Ryan Kavanaugh Is Lampooned as Relativity Investor Seeks to Keep Fraud Lawsuit Alive
Relativity Media has faded from the headlines after the mini-major studio declared bankruptcy nearly three years ago, emerged from bankruptcy two years ago, then receded into the background when several of its newer films performed poorly. But the legal mess isn't quite over as hedge fund investor Carey Metz pursues fraud claims against Relativity chief Ryan Kavanaugh over a $2.5 million loan.
Kavanaugh is looking to a bankruptcy judge to stop the lawsuit. He argues in a motion that the approval of Relativity's plan of reorganization bars Metz's claims.
On Wednesday, Metz's attorneys Matthew Stein and Ronald Rossi at Kasowitz Benson Torres submitted an objection that also serves as evidence that maybe some bankruptcy lawyers harbor literary ambitions.
Here's how it begins:
"In a town full of scam artists, posers, false prophets and flim-flam men, Ryan C. Kavanaugh is in a Hollywood class by himself. During the first half of 2015, Kavanaugh was piloting Relativity on a crash course directly into the side of a mountain of debt. At risk for Kavanaugh was his poolside table at Chateau Marmont, his charitable largesse on his investors’ dime, the saccharine taste of celebrity friendships, the private jets and fast cars, the helicopter rides to and from his Malibu beach house to the office, and his use of Relativity’s rapidly dwindling cash as his own personal ATM to fund the lavish and orgiastic lifestyle to which he had grown accustomed."
"In the weeks and months leading up to Relativity finally having to pay the bill on Kavanaugh’s epic failure, as Relativity hemorrhaged cash under Kavanaugh’s mismanagement, and as Kavanaugh’s claimed penchant for picking successful movies was exposed as nothing more than an alchemist’s failed efforts to spin lead into gold, Kavanaugh saw himself diminishing from a self-described Hollywood mogul into just another lost soul in the city of dreams. Desperate to avoid the fate he deserved and had earned, Kavanaugh was willing to say anything to anyone in order to raise desperately needed cash, including by lying to his friend and then-business partner Carey Metz."
The objection then runs through the main grievance — the inducement of loans — before getting to the heart of the argument that Metz's claims aren't barred because his affirmative consent was needed and that an injunction shouldn't issue for willful misconduct.
Kavanaugh's own papers present Metz as more than just a guy who lent money.
"Not only was Metz a shareholder of Relativity Holdings, he served as an active member of Relativity Holdings’ Board of Managers as of the Petition Date and continued to serve on the Board of Managers during the Debtors’ bankruptcy cases," states the injunction motion. "Moreover, Metz was one of three members on a 'special committee' of the Board of Managers responsible for oversight of the bankruptcy process."
The confirmation of the reorganization plan allegedly had value for Metz.
"Metz is bound by the Plan not only because he was a creditor or equity security holder of the Debtors but also because he received consideration under the Plan — i.e., the release he received under the terms of the Plan in his capacity as a member of the Board of Managers of the Debtor," continues Kavanaugh's motion.
In other words, Metz himself could have been sued for his own actions as a Relativity insider before that was resolved during the bankruptcy.
In turn, Metz argues that to the extent he approved the filing of the reorganization plan in his fiduciary duty as a member of Relativity's board, that approval isn't the same thing as accepting the release of third-party claims in an individual capacity.
The matter will soon be decided by the bankruptcy judge.