Treasury Secretary Steven Mnuchin Wants Out of Relativity Fraud Suit

Ryan Kavanaugh Steven Mnuchin Split - Getty - H 2017
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Steven Mnuchin is now officially the U.S. Treasury Secretary, and his attorneys are asking the court to dismiss him from a financial fraud lawsuit that's tied to his stint at Relativity Media.

RKA Film Financing claims it loaned Relativity millions to pay print and advertising costs, but the money was used for other purposes. It also claims it was misled into believing the company was in good financial health. Relativity itself isn't a defendant — but Mnuchin, CEO Ryan Kavanaugh and a handful of others are being sued for fraud

Among other things, RKA claims Mnuchin knew Relativity would treat RKA's money like a "slush fund" and "actively conspired" to conceal it.

"Because Mr. Mnuchin did not interact with RKA during his short tenure on Relativity’s Board from October 2014 to May 2015, he cannot as a matter of law be held liable for the tortious conduct of others at Relativity 'unless [he] personally participate[d]' in, 'or ha[d] actual knowledge of' that conduct when it occurred," writes attorney Robert Sacks in a Tuesday motion.

RKA also claims Mnuchin siphoned off $50 million of Relativity's money to pay back his own company's investment in the studio before it declared bankruptcy. Sacks argued in a prior motion that the company, OneWest, was exercising its contractual rights to recover the money it was owed after Relativity defaulted on its loan and RKA has not presented any facts that suggest OneWest's actions were improper and that Mnuchin is liable for them.

Sacks is also seeking sanctions against RKA for "reasserting its baseless claims" against Mnuchin after the court dismissed the previous version of the complaint in October. 

"This Court never invited RKA to replead a frivolous claim; indeed, it cautioned RKA not to do so," writes Sacks. "'Naming all conceivable parties and subjecting them to extensive litigation expenses,' as RKA has attempted to do here with respect to Mr. Mnuchin, 'cannot be tolerated' and warrants sanctions."

Kavanaugh also thinks he should be dismissed from the suit. In a motion filed Tuesday, attorney Jonathan Frank argues that, while the second amended complaint tones down the "vitriol and invective" present in the first two iterations, RKA still has failed to state a plausible fraud claim. 

"All RKA has done is to take the same breach of contract claim — that it was promised money would be used one way, but it instead was used in another way — and restate it multiple times and in different words," writes Frank. "But, no matter how many ways and times RKA attempts to rephrase its claim, the end result is the same — a contract claim against an entity cannot be converted into a fraud claim against the entity's officers." 

Further, Frank argues dismissal is appropriate because RKA was a sophisticated lender that was represented by sophisticated counsel — and says the company was perfectly happy with the relationship and the use of its funds until Relativity ran into financial trouble.

"Only when Relativity began to experience financial difficulties did RKA begin singing a different tune — one designed to unfairly place it in a better position than Relativity's other creditors and, apparently, to mislead the investors in the underlying RKA funds as to the understanding of RKA's managers of the loan terms," writes Frank. "RKA's efforts to improve on its recovery in Relativity's bankruptcy process by asserting legally defective claims against Relativity's officers and directors should not be countenanced."