Movie, Hedge Fund War Spreads to Attorneys

     LOS ANGELES (CN) – Two Los Angeles-based law firms representing a hedge fund operator helped their client wage “an aggressive litigation campaign” against a film investor, using confidential information divulged by the investor’s former attorney, the investor claims in Superior Court.



     Ronald Tutor and his company Library Asset Acquisition Co., a United Kingdom LC, sued Stroock and Stroock and Lavan, and Levene Neale Bender Yoo & Brill, alleging intentional interference with contract, aiding and abetting breach of fiduciary duty and unjust enrichment.
     Tutor claims the attorneys helped hedge fund operator David Molnar’s teetering company “embark on a scheme to hide its losses on other nonperforming loans and to cover up the fact that it had inflated the value of its loans to investors,” by waging a legal war against Tutor’s company and associates.
     Molnar is not a party to the case, nor are his companies, nor his apparent enemy; the only defendants named in this case are the two law offices, and Does 1-10.
     According to the complaint: “This case arises from the flames of a wider war waged by offshore hedge fund operator David Molnar (‘Molnar’) against film financier David Bergstein (‘Bergstein’) and numerous entities formed by and/or operated by Bergstein. Molnar operates several offshore hedge funds, including Aramid Entertainment Fund Ltd., Aramid Entertainment B.V., Cayman Film Holdings Limited and Screen Capital International Corporation (collectively, ‘Aramid’), which lent funds to Bergstein’s various enterprises. Plaintiff Tutor, having invested in certain film related enterprises with Bergstein, both through his own company, LAAC, and as a personal guarantor of certain film related obligations, has been swept up in this larger war, as Molnar has looked for potential ‘deep pockets’ to loot. Defendants herein are the attorneys who provided material assistance to Molnar in this undertaking, by actively soliciting Bergstein’s former lawyer and confidant Susan Tregub (‘Tregub’) (who at times also represented LAAC and Tutor) to commit shocking breaches of her professional, ethical and contractual fiduciary duties as a lawyer to her client(s) and who then knowingly used the very same attorney client privileged information obtained from Tregub in several lawsuits and proceedings as part of Molnar’s war against Bergstein, LAAC and Tutor.
     “Tregub’s conceded breaches of her fiduciary obligations to plaintiffs and Bergstein are, to plaintiffs’ knowledge, unmatched in jurisprudence, and they go to the very heart of the core obligations of an attorney. She violated her duty of loyalty by working against plaintiffs’ and affiliated entities’ interests while she continued to represent these same individuals and entities in ongoing litigation. She did not disclose that she had switched sides or obtain a waiver to bless her conflicted representation. She also violated several rules of professional conduct by: (1) disclosing confidential information of her clients (Rule 3-100); (2) representing interests adverse to her clients (Rule 3-310); and (3) suppressing and destroying evidence (Rule 5 – 220). Indeed, the suppression and destruction of evidence continued even after defendants filed litigation against plaintiffs and affiliated entities. Defendants, as attorneys themselves were perfectly aware of Tregub’s professional, contractual and ethical duties to her clients, and yet, they ignored their own duties as attorneys and officers of the court to improperly advance the interests of Molnar for their own financial and professional gain.” (Parentheses in complaint).
     Tutor became involved in the film business in 2007, when he formed a holding company with Bergstein to acquire movie rights. Tutor and Bergstein borrowed money to finance movies and purchase film rights, often from hedge funds, according to the complaint.
     Tutor claims Molnar’s hedge funds loaned Bergstein’s companies tens of millions of dollars, at interest rates ranging from 20 percent to 100 percent per year, and asked Tutor and Bergstein to back some of the loans with personal guarantees.
     Susan Tregub, Bergstein’s former attorney and confidant, also represented Tutor and Library Asset Acquisition Company, and had access to the company’s confidential information, according to the complaint.
     Tutor claims that when Tregub and Bergstein’s relationship deteriorated, Tregub “switched sides” and took her clients’ confidential information to Molnar’s attorneys.
     “Upon information and belief, in approximately 2009 Tregub and Bergstein began having disagreements and other problems in their working relationship, including a demand by Tregub that Bergstein owed her $100,000,” the complaint states. “Tregub apparently became interested in obtaining alternate employment. During this period of time, Tregub, upon information and belief, was contacted by Molnar, who was allegedly seeking someone to perform legal services in connection with Aramid’s business. Molnar had previously known Tregub was the lawyer for Bergstein and the Bergstein related entities and LAAC, because Molnar had been on the opposite sides of transactions and litigation with Bergstein, and Tregub had represented Bergstein in both transactions and litigation against Aramid.
     “Upon information and belief, at the same time that Tregub began becoming disgruntled with Bergstein, Aramid was having its own financial problems. In particular, on information and belief, since 2009 Aramid has been in a state of financial crisis. Its investors have been clamoring for redemptions in an amount that exceeds $130 million and Aramid (through its affiliates) has been forced to cease honoring redemption requests. In addition, Aramid investors have demanded an investigation of Aramid’s financial condition and its lending practices.
     “On information and belief, as a result of its financial problems, and in order to continue its ability to charge enormous and usurious interest rates, penalties and management fees, Aramid embarked on a scheme to hide its losses on other non performing loans and to cover up the fact that it had inflated the value of its loans to investors. Molnar and Aramid ultimately decided to do this by waging an aggressive litigation campaign against Bergstein and the Bergstein related entities to detract attention from Aramid”s performance problems.
     “In furtherance of the above, upon information and belief, Molnar sought to obtain spectacularly high rates and fees from Bergstein entities, such as Cerulean (the SPE owning the rights to the film ‘Five Dollars a Day’), Dandelion and Nailed Productions (SPE’s owning the rights to the film entitled ‘Nailed’) and other Bergstein related entities by providing outrageously large loan payoff amounts, refusing to renegotiate and/or by conditioning refinancing upon the execution of a ‘global deal’ involving the loans made to several Bergstein related entities. The global deal proposed by Molnar and Aramid was a brazen attempt to turn loan balances of approximately $20 million owed by several entities into a $75 million package deal, including interest rates as high as 50 percent per annum, and to cover loans of other non-Bergstein related entities that were not performing.
     “Upon information and belief, Aramid and Molnar indicated to Bergstein that Aramid needed the global deal because it needed to shore up its balance sheet and to cover up underperforming loans made to others. Aramid also indicated that it would enter into a secret side agreement whereby the obligations of the Bergstein entities would be moved to a separate UK based company and that entity would ‘take back’ liability for much of these loans. Bergstein rejected the global deal and thereafter relations between Molnar and Bergstein deteriorated significantly.” (Parentheses in complaint).
     Molnar asked Tregub to come work for him knowing that she had been Bergstein’s attorney for years, and had access to confidential information about his companies, according to the complaint.
     Tutor claims that Tregub joined Molnar’s “scorched earth battle” against Bergstein’s entities and agreed to represent him in cases against her former clients.
     He says Stroock and Levene Neale asked for Tregub’s help in a massive litigation campaign against him and Bergstein, which included several complaints and “involuntary bankruptcy” petitions, and sought millions in “damages.”
     He claims Tregub provided the attorneys with protected information about his company, with the help of people who continued to work for Bergstein and Tutor.
     Tutor claims Stroock and Levene Neale used the information to earn legal fees and enhance their reputation, though they knew Tregub had breached her professional, ethical and contractual obligations by disclosing it.
     Tutor seeks restitution and compensatory and punitive damages for aiding and abetting breach of fiduciary duty, intentional interference with contractual relations and unjust enrichment.
     He is represented by Nomi Castle of Beverly Hills.

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