Relativity Countersues Over Promotion Funds, Calling Claims ‘Patently False’

Relativity Media and RKA Film Financing traded lawsuits Friday in a public fight over millions of dollars in promotion and advertising funds.

RKA struck first, leveling a $90 million action against Relativity founder Ryan Kavanaugh that accused him of defrauding investors and misappropriating funds.

Shortly after news broke of the suit, Relativity hit back, filing a $200 million lawsuit in a New York court that claims RKA is trying to take advantage of media reports of the studio’s troubled efforts to refinance hundreds of millions of dollars in debt, in order to make a profit. It accuses RKA of “making meritless, bad-faith allegations” about the terms of the promotion and advertising (P&A) facility it established for Relativity releases like “Masterminds” and “The Disappointments Room.”

Relativity said it has honored previous debts related to marketing expenses. It goes on to state that RKA asked it to draw an additional $30 million on the facility because it believed it was being underused.

“RKA opportunistically cooked up an allegation that Relativity might have violated the P&A facility,” the suit reads. “This was simply a way to extract additional (and significant) fees and concessions from Relativity as the company was negotiating with other lenders in connection with refinancing efforts.”

RKA’s suit claims that Kavanaugh and his company misdirected funds targeted to market films for other uses, including paying salaries, bonuses and supporting its television and sports divisions. Relativity has moved the release dates of several films, including “Kidnap,” “Masterminds” and “Before I Wake,” as it tries to convince creditors to give it an extension. If it fails in that effort, Relativity could face bankruptcy.

In a statement accompanying the lawsuit, a spokesman for Relativity implied that RKA was filing its action in order to negatively impact an important, though unspecified, business deal.

“As predicted RKA filed a malicious, patently false lawsuit against Ryan Kavanaugh which was conveniently timed to try to interfere with a transaction highly beneficial to Relativity,” the statement reads. “RKA has been engaged in an underhanded scheme to extract money from Kavanaugh, the company and its lenders, all of whom have refused to submit to RKA’s outrageous demands. Relativity has filed a $200 million complaint this morning against RKA for its unlawful interference and for a declatory judgment that all funds were used properly.”

Attorneys for RKA declined to comment.

RKA is represented by Latham & Watkins, while Jones Day is representing Relativity in its countersuit.

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