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Neal Moritz Claim: Relativity Used Fraud To Lure His ‘Hunter Killer’ Pic (EXCLUSIVE)

UPDATED: One of the most prominent films Relativity Media had in development even as it spiraled downward into bankruptcy was “Hunter Killer,” a Gerard Butler thriller about a submarine captain trying to save the world from the threat of a renegade Russian. Producer Neal Moritz hoped to begin shooting by this summer.

But now Moritz, a force behind the “Fast and Furious” and “21 Jump Street” franchises, and the writers on the film have filed legal papers accusing Relativity of fraudulently inducing them into letting the mini-studio help produce and distribute “Hunter Killer.” They reached the agreement with Relativity even as the studio’s leaders knew they were operating “nothing more than a house of cards,” according to a motion filed late Thursday by the would-be filmmakers in U.S. Bankruptcy Court in New York.

Relativity released a statement Friday saying calling Moritz’s allegations “baseless and patently false” and adding: “Relativity Media entered the ‘Hunter Killer’ agreement in good faith, and has detailed its efforts to refinance its balance sheet in its court filings.” The company said it would have no further comment.

The acclaimed producer and three writers used their motion to paint a scathing picture of Relativity, saying the bankrupt company and its founder, Ryan Kavanaugh, tried to make it appear the company was financially stable enough to produce and distribute films at a time that Relatively was “hopelessly insolvent.” The motion uses terms like “swindle” and “hoax” to describe the 11-year-old studio’s financing schemes.

The “Hunter Killer” team juxtapose pronouncements reported in the press about Relativity’s good financial health with an actual balance sheet that reportedly was tens of millions of dollars in the red.  The filmmakers also noted repeated instances in the last five years when stories were floated about Relativity’s purported financial health, including one that put its potential value in a potential public stock offering at $6 billion to $10 billion. That was despite the fact, the motion argues, that “Relativity has absolutely no financial wherewithal to either produce or distribute films and . . . hasn’t for some time.”

The project that would trigger the dispute has been in the works for years. Authors Donald Keith and George Wallace optioned their book, “Firing Point,” to screenwriter Arne Schmidt in 2008, even before the book had been completed. Schmidt assigned his option in the book a year later to Relativity, according to the filing. The option was renewed at least three more times, including in 2013.  The writers could have sold the rights to their publisher, Penguin, but didn’t because they had not been told that Relativity Media was already suffering big losses and “lacked the financial wherewithal to perform under the book option,” the two authors said in declarations.

Moritz said that he and producing partner Toby Jaffe also were kept in the dark about Relativity’s financial meltdown. Moritz said in his own declaration: “Had we known that Relativity Media, or any of its affiliates that are involved with the Hunter Killer project, were not, in fact, a viable production and distribution company, we would have never advised [the authors] to extend the Book Option and would have never agreed to the terms of the production agreement. In short, we were misled.”

Moritz, screenwriter Schmidt and authors Keith and Wallace joined in asking the bankruptcy court to prevent Relativity from holding on to the movie deal, or being able to pass it to a presumptive new owner, if one emerges in an auction of the company by the court for October 1. The team says Relativity has no right to pass hold the film or pass it to a new owner, because their agreement with the studio was “fraudulently induced.”

“Time is of the essence in this film project,” lawyers for the Moritz team argue. “The talent committed to this project— particularly Gerard Butler—are signed on to the Hunter Killer project for a certain period of time.” And Butler and others (the film is also set to star Billy Bob Thornton and Common)  would almost certainly leave if it remains in the hands of Relativity or the lenders who might takeover the company, the producers claimed.

Moritz says in his declaration that the film would cost between $55 million and $75 million to make and another $35 million to $50 million to market domestically. Neither Relativity, nor the senior lenders who have made a stalking horse bid for the company, have shown the ability to finance or produce such a big film, the filing contends.

Moritz noted in his declaration that he and his producing partners are entitled to a fee of $2.25 million, to be paid in five installments beginning eight weeks prior to the scheduled start of the project. He said that, although pre-production began in February, “we never received any payment from Relativity on account of this producing fee.”

The motion by the “Hunter Killer” team was just one of several that arrived at the Manhattan court ahead of a midnight deadline for companies that object to Relativity selling their contracts or leases as part of the upcoming auction. But the Moritz argument is likely to draw extra attention because of the prominence of the producer and his would-be star, Butler, who is a Kavanaugh friend. (Butler has taken no public position in the dispute.)

Moritz’s stand against Relativity echoed the aggressive position taken just before the July 30 bankruptcy filing, when lender RKA Film Financing filed a lawsuit in New York state court, accusing Kavanaugh of fraud for allegedly misdirecting $75 million intended for the release of films into his company’s operational expenses. RKA called Kavanaugh “a con man.”

Kavanaugh, in turn, accused New York-based RKA of trying to take advantage of him during a temporary downturn for his company.

The provocative position in the new filing came not from the bankruptcy lawyers who have been at the center of the Relativity case for weeks but from Michael Elkin, a prominent New York litigator. Elkin previously helped Barry Diller fight off an attempt by the broadcast networks to block deployment of his upstart digital platform, Aereo. Elkin represents the “Hunter Killer” team along with associate Carrie Hardman.

Thursday at midnight, eastern time, was the deadline for objections to be filed by companies holding contracts or leases with Relativity. Bids for the company are due September 25, with an auction prospectively to be held Oct. 1, if any new offer exceeds the $250 million stalking horse bid by the mini-studio’s senior lenders, Luxor Capital, Anchorage Capital and Falcon Investment Advisors.

Moritz and his partners in the film suggest that Relativity’s problems go well beyond hiding its financial straits. Their motion says the company appears to be “moving full steam ahead away from being able to produce and distribute films” and asserts that Relativity is “no longer a going concern.” They contend that the company’s recent loss of its production chief, Robbie Brenner, and marketing boss, Zoe Fairbourn, only provide more evidence of its imminent demise.

They also argue that Relativity furthered its “hoax” against them by creating “false starts” at getting “Hunter Killer” made, setting start dates this spring and summer that it never could have lived up to. The project was ultimately shut down on June 16.

The problems with the company continue, even in bankruptcy, the movie makers allege. “Even now, Relativity appears to be seeking to mislead the public by claiming it continues to have a ‘full-service studio with development, productions, financing and distribution capabilities,’ ” the Moritz group contends, quoting from a declaration by the company’s chief restructuring officer. The “Hunter Killer” team concludes: “Relativity has no such thing.”

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