Relativity Media CEO Ryan Kavanaugh lashed out late Wednesday at a marketing investment firm that sued him earlier in the day — saying RKA Film Financing is using the litigation as a “fraud so that I will write them a check.”
Kavanaugh’s late-breaking statement categorically denied that he had defaulted on loans from the firm and said he would “not be making any payment to RKA, ” an entity in which the Relativity chief executive holds his own share of roughly 10%.
“There is no default on the loan or facility and there has been no improper use of loan proceeds,” said the written statement. “This is nothing more than other investors trying to take advantage of Relativity’s current restructuring being delayed and market noise to squeeze the $10 million I invested out of my pocket and into theirs.”
Relativity has been in a weeks-long struggle to find new investors and stave off bankruptcy. It has missed a important deadline for one debt repayment, with lenders and other creditors seeking payment.
RKA filed its lawsuit in a Supreme Court of the State of New York Wednesday morning, claiming that the Hollywood impresario owes $7.5 million after Relativity failed to live up to contractual terms related to P&A funds earmarked for specific upcoming films. Because of the missed payment, the complaint says that Kavanaugh should forfeit his stake in the year-old firm, which lends companies money for film releases.
The lawsuit, filed for RKA by the firm of Latham & Watkins, contends that Relativity did not live up to the terms of a contract that called for it to use loans “only on the P&A of specific films.” After an initial rift about the use of the funds, the two sides came to an attempted settlement on June 5, in which Kavanaugh’s River Birch subsidiary agreed to transfer $7.5 million to an RKA agent. No part of the $7.5 million was ever paid, the lawsuit claims.
Kavanaugh’s rebuttal counters: “This lawsuit is ridiculous. I invested $10 million of my own capital into RKA, the entity that is suing me. My $10 million investment is the riskiest part of the capital structure and is subordinate to other capital.” The statement concludes: “Fortunately, neither I nor the company are worried about these frivolous claims from RKA. I will not be making any payment to RKA, especially considering that I have invested $70 million in Relativity over the past two years.”
RKA had not previously been well known in the film community. A document attached to the lender’s lawsuit shows that RKA claims that 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.”
Relativity recently moved “Masterminds” from August to an October release date, saying that it needed to clear up its financial difficulties 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. Those titles are now set to be released this fall — assuming Relativity is not forced into any other delays.