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Relativity’s Ryan Kavanaugh Sued in Dispute with P&A Firm (Exclusive)

UPDATED: A promotional lender sued Ryan Kavanaugh in a New York court Wednesday, claiming that the Hollywood impresario owes $7.5 million after his Relativity Media failed to live up to contractual terms related to P&A funds earmarked for specific upcoming films.

The suit, filed in a Supreme Court of the state of New York by RKA Film Financing, alleges that Relativity Media and subsidiaries failed to follow through on a promise to make the payment to RKA, which loans companies money for film releases. Because of the missed payment, the complaint says that Kavanaugh should forfeit his stake in the year-old vendor.

The lawsuit marks another escalation of the financial crisis that has enveloped Relativity for weeks, as the film- and TV-maker has struggled to find new investors, while previous partners and creditors have clamored to be made whole. Relativity CEO Kavanaugh has scrambled to recapitalize, to keep his 11-year-old company afloat and to remain in control.

Sources told Variety this week that a Toronto-based company had made an investment of substantially less than the $320 million that Kavanaugh was hoping would keep Relativity afloat for at least another year. The diminished investment from Catalyst Capital means that Relativity has continued to search for a financial fix.

RKA Financing was formed in 2014, with a roughly 10% equity interest assumed by Kavavaugh’s River Birch Funds, according to sources familiar with the arrangement. Little else is known about the financing firm, although a document attached to its lawsuit shows that RKA claims more than $101 million in loans (counting principal and interest) has been made available to Relativity for pre-release promotion.

It’s unclear from the documents how much of the $101 million has been spent, but individuals familiar with the agreement said none of the funds have to be repaid until after the release of the films.

The money was intended to help the Beverly Hills-based mini-studio promote five pics — “Before I Wake,” “The Lazarus Effect,” “Kidnap,” “Masterminds” and “The Disappointments Room.”  “Before I Wake” and “The Lazarus Effect” are both horror films, the latter released in February. “Kidnap” is a thriller starring Halle Barry, while “Masterminds” is a Kristen Wiig/Zach Galifianakis comedy and “The Disappointments Room” another thriller, with Kate Bekinsdale.

Relativity recently moved “Masterminds” from August to an October release date, saying that it needed to clear up its financial difficulities to properly support the film.  Sources speculated that the delay was due to Kavanaugh’s company running out of P&A funds — a theory that the new litigation supports. All of the upcoming films are now set to be released this fall — assuming Relativity is not forced into any other delays.

According to the lawsuit, Relativity failed to live up to a contract that called for it to use loans from RKA “only on the P&A of specific films.” That rift led to an additional agreement, on June 5, in which Relativity agreed to transfer $7.5 million to an RKA agent. No part of the $7.5 million was ever paid, the lawsuit claims.

Relativity issued a statement Wednesday minimizing the severity of the disagreement with RKA. “In support of Relativity, River Birch Funds LLC, an entity owned by Ryan Kavanaugh, pledged an equity ownership interest in RKA,” the statement said. “Unfortunately, Relativity’s payment to RKA was delayed as a result of the company’s pending refinancing. We expect this matter to be resolved shortly.”

Relativity representatives declined further comment.

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