MANHATTAN (CN) – An investment firm that promoted “Masterminds” and “The Disappointments Room” movies sued its attorneys, claiming they botched the deals and cost it $42 million when the studio filed for bankruptcy.
RKA Film Financing claims it invested $42 million in a slate of movies to be produced by the Hollywood studio Relativity Media, which is not a party to the lawsuit in New York County Supreme Court.
After being approached by Relativity Media, RKA says, it hired the Katten Muchin Rosenman law firm and its partner Howard Schickler to handle the negotiations.
“Relativity marketed P&A [prints and advertising] financing as having a ‘senior risk’ profile, meaning that it is almost always repaid, even in extremely low box office performance scenarios,” RKA says in the Nov. 29 lawsuit.
But when Relativity sought roughly $42 million in loans for “Masterminds” and “The Disappointments Room” in early 2015, Schickler failed to include provisions securing RKA’s first lien position, which led to its losing its right to collateral in the films when the studio later filed for bankruptcy, according to the complaint.
RKA says it discovered this only after Relativity filed for bankruptcy in late 2015, and junior lenders that provided supplemental funding were given priority over the collateral.
“In total dereliction of his ethical obligations, Schickler signed off on grossly defective agreements without raising (much less providing sufficient information to allow RKA to asses) the potential threat to RKA’s interest in the underlying collateral,” the complaint states.
RKA says that when it contacted Schickler about the provisions, he could not explain the provisions and later lied about knowing about them.
“In a rare moment of candor, he did admit, however, that such provisions should not have been in the intercreditor agreements,” the complaint states.
Ultimately, Schickler acknowledged that he ignored the provisions because he failed to consider a scenario in which the two films “weren’t completed or held in limbo because of a bankruptcy,” according to the complaint.
RKA claims that the negotiations for “The Disappointments Room” were particularly negligent, as Schickler spent only an hour reviewing that intercreditor agreement.
“It is difficult to fathom how Schickler could review and then approve contract provisions that, in some instances, permit RKA’s security interest to terminate based on the actions (or inactions) of a third party,” the complaint states.
Schickler, who is based in New York and allegedly charges $930 an hour for his services, is the co-head of Katten’s structured finance and securitization practice. Katten is a world-renowned firm with full-service entertainment practices. In 2010, it was named the Association of Media and Entertainment Counsel’s “Entertainment Law firm of the Year.”
RKA alleges a single count of legal malpractice. It claims that “under Katten and Schickler’s guidance, RKA loaned $42 million for which it will not recoup a single penny.”
It wants the money back, plus legal fees to defend its position with other creditors in the two movies.
“Masterminds,” a comedy based on the 1997 Loomis Fargo robbery starring Owen Wilson and Kristen Wiig, lost money at the box office, netting roughly $23 million on a $25 million production budget. RKA says it loaned nearly $26 million to help advertise the movie.
“The Disappointments Room” is a supernatural horror film that starred Kate Beckinsale and Lucas Till. It was a critical and commercial failure, making back less than $3 million of its $15 million production budget. RKA says it loaned Relativity almost $17 million for that movie’s advertising.
Jacqueline Heard, a spokeswoman for the law firm, said in a statement that the firm was aware of the allegations before the complaint was filed. “Then and now we believe them to be unfounded, and we will defend the matter vigorously,” Heard said.
Andrew Rodgers, with Smith Villazor, who represents RKA, did not immediately respond to an email request for comment.