LOS ANGELES (CN) – A film financier who claims he helped a holding company consummate the $660 million acquisition of Miramax Film from Walt Disney claims in court that his associates conspired to freeze him out of the deal.
In his Superior Court complaint, David Bergstein claims that “as soon as the ink was dry” on the acquisition agreement, his associates shaved points of his interest in Miramax, then refused to pay his cut and equity stake to “cover up lies” told to a lender and investors.
In a story on Bergstein’s complaint this week, The Los Angeles Times reported that Bergstein “has been involved in dozens of lawsuits, many related to his activities in the film business.”
In his complaint, Bergstein claims that in response to his request for payment, the defendants told him “to keep quiet or that he would get nothing whatsoever and assert(ed) that no one would believe Bergstein because of negative press he had received regarding unrelated matters and that they would Bury Bergstein under yet more accusations if he continued to seek what was owed.”
Plaintiffs Bergstein and Exodus Film Co., a subsidiary of Bergstein-owned Veritum, sued Filmyard Holdings LLC, the holding company that acquired Miramax; Colony Capital LLC, a private equity firm and co-owner of Miramax; and Richard D. Nanula, a principal of Colony.
Bergstein claims that in addition to Colony, nonparties Ronald Tutor and Qatar Holding LLC were partners in Filmyard. Bergstein says he brought the Miramax opportunity to Tutor after he became aware of it in late 2009.
Bergstein claims he was instrumental in the Miramax acquisition, creating a business plan for the film company and providing employees and consultants to shepherd the deal through.
“In short, but for Bergstein, the capital he expended and his considerable efforts, there would not have been a deal,” the complaint states.
Bergstein claims that Colony and its CEO, nonparty Tom Barrack, took part in the acquisition when “the deal was essentially done.”
The complaint states: “The transaction was already structured in such a way as to permit financing, and the purchase agreement (‘purchase agreement’) with Disney had been negotiated. As part of its pitch to join the deal, Colony represented that it would invest $100 million of its own funds (as opposed to those of its investors). Colony was informed that the deal they were stepping into called for plaintiffs to receive a non-dilutable 5 percent of the equity in the transaction, a 1 percent transaction fee and a substantial consulting agreement. Colony agreed.” (2)
But Bergstein says that before the purchase agreement was signed, Barrack asked him to reduce the 5 percent nondilutable interest to 3.33 percent. Bergstein says he agreed on the proviso that there would be no more cuts.
“As soon as the ink was dry on the operative documents, however, defendant Richard Nanula (one of Colony’s principals and Miramax’s new chairman), and Colony’s attorney Joshua Grode began hounding Bergstein to reduce his interest in Miramax,” the complaint states. “Plaintiffs are informed, and on that basis allege, that Nanula and Grode were motivated to reduce Bergstein’s interest both to increase Colony’s own fees and interests and to obtain interests Colony could then sell to its clients and investors. In particular, as the deal neared closing, Colony desired to swap out its own promised $100 million equity investment and instead provide one of its largest clients, Qatar Holdings, with a preferred interest in Miramax to compensate the Qataris for prior failed investments that Colony had sold to the Qataris. Defendants knew that they would be unable to demand a preferred interest for the Qataris in Filmyard if, as was actually the case, Bergstein controlled a non-dilutable interest with voting rights. Defendants’ solution to this inconvenience was to set out to eliminate plaintiffs from the equation.”
The complaint states that Grode “had additional motivation to shave points off Bergstein’s interest” because of Grode’s interest in GHL & Co., which “served as either a consultant or underwriter to provide the original debt for the Miramax acquisition and for a refinancing of the Miramax debt.” That allowed Colony to retire its equity within one year of its investment, the complaint states.
“In the process, of course, GHL and Grode made, on information and belief, in excess of $15 million in fees (aside from the fees his law firm was paid for their legal services),” according to the complaint. “The money to pay those fees had to come from somewhere and Grode realized that he could shove Bergstein out of the deal to take the fees for himself while the investors would be none the wiser or have reason to ask why their attorney was double dipping and earning millions in fees on top of his no doubt handsome legal fees.”
The owners paid Exodus only a $6.1 million closing fee, Bergstein claims.
“While reneging on their promises to Bergstein lines defendants’ own pockets, defendants’ unlawful acts now appear to be motivated by additional concerns: to cover up lies they told their lender and other Colony investors,” the complaint states. “Plaintiffs are informed, and on that basis allege, that defendants lied to Filmyard’s lender and Colony investors by telling them that Bergstein would have no interest in Filmyard. Filmyard, Colony, Nanula and Grode therefore knew that Filmyard would not perform the promises to Bergstein to pay him fees and provide an equity interest through Exodus. But, defendants knowingly led Bergstein to believe that they would make good their promises because they needed Bergstein to close the Miramax acquisition and to get the new business off the ground. Bergstein relied in good faith on those promises to successfully bring the Miramax acquisition to closing and a profitable start.”
Bergstein claims that even in the midst of the Great Recession, Miramax doubled its equity value just one year after the acquisition, allowing the owners to retire the equity they had invested in the company.
But Bergstein says that in spite of this “resounding success” the owners refused to pay him his share or his equity stake.
“In short, defendants have lined their own pockets to the tune of tens of millions of dollars while reneging on the compensation promised to the individual who made the highly lucrative deal happen for them. Plaintiffs are entitled to the compensation which they were promised,” the complaint states.
Bergstein and Exodus are represented by Alex Weingarten with Weingarten Brown LLP. They seek at least $6.1 million, alleging breach of contract, fraud, constructive fraud, promissory estoppel, and unjust enrichment.
Neither Colony Capital nor the law firm immediately responded to emailed requests for comment.