Kavanaugh Motion

FILED: NEW YORK COUNTY CLERK 03/07/2017 09:45 PM INDEX NO.
652592/2015
NYSCEF DOC. NO. 211 RECEIVED NYSCEF: 03/07/2017
SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK
X
RKA FILM FINANCING, LLC Index No. 652592/2015
Part 53
Plaint Hon. Charles E. Ramos

v.
Motion Seq. No.
RYAN KAVANAUGH, COLBECK CAPITAL
MANAGEMENT, LLC, COLBECK CAPITAL,
LLC, COLBECK PARTNERS IV, JASON ORAL ARGUMENT
COLODNE, JASON BECKMAN, DAVID AHO, REQUESTED
RAMON WILSON, ANDREW MATTHEWS,
GREG SHAMO, TUCKER TOOLEY, S IEVEN
MNUCHIN, and JOHN DOES 1-6,
Defendants. :
X
MEMORANDUM OF LAW IN SUPPORT OF RYAN KAVANAUGH'S

MOTION TO DISMISS
SKADDEN, ARPS, SLATE, MEAGHER

& FLOM LLP
Four Times Square
New York, New York 10036
Tel: (212) 735-3000
Fax: (212) 735-2000
Attorneys for Ryan Kavanaugh
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FILED: NEW YORK COUNTY CLERK 03/07/2017 09:45 PM INDEX NO. 652592/2015
TABLE OF CONTENTS
Page
I. Preliminary Statement 1
II. Statement of Facts 3
A. The Parties and Relevant Non-Parties 3
B. RKA's "Due Diligence" 4
C. The Funding Agreement 5
D. Borrowing Under the Funding Agreement 8
E. Discussions After the Funding Agreement Was Executed 8
F. RKA Interferes With Relativity's Ability to Obtain Financing 9
G. The Replacement Notes 10
H. The Malpractice Lawsuit 10
III. Argument I1
A. Applicable Pleading Standards 11
B. The Funding Agreement 12
1. Mr. Kavanaugh Is Not Liable For Relativity's Contracts 12
2. All Conduct Was Consistent with the Funding Agreement 12
C. The Fraud Claims Asserted Against Mr. Kavanaugh Fail (Counts One and
Two) 13
1. RKA Cannot Base a Fraud Cairn on an Alleged Breach of the

Funding Agreement 15
2. Alleged Misrepresentations Mer Execution of the Funding

Agreement But Before the Final Disbursement 19
3. Any Claims Concerning Representations Made Atter the Last

Disbursement Fail Because of an Absence of Reliance/Damages 20
4. AIl Fraud Claims Fail Because of an Absence of Falsity 21
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5. RKA's Claims Fail For A Lack of Reasonable Reliance 21
The Negligent Misrepresentation Claim Fails Because There Was No

Special Relationship Between Mr. Kavanaugh and RKA (Count Three) 23
IV. Conclusion 25
3 of 31
TABLE OF AUTHORITIES
CASES
ACA Financial Guaranty Corp. y. Goldman, Sachs & Co.

25 N.Y.3d 1043 (2015) 21, 22, 23
AJW Partners, LLC y. Cyberlux Corp.,

21 Misc. 3d 1109(A), 2008 N.Y. Slip Op. 52020(U) (Sup. Ct. N.Y. Cty. Sept. 19,
2008) 17
Allenby, LLC y. Credit Suisse AG,

134 A.D.3d 577 (1st Dep't 2015) 18
Bank Hapoalim B.M. y. WestLB AG,

121 A.D.3d 531 (lst Dep't 2014) 21
Board of Managers Of Soho North 267 West 124th Street Condominium y. NW 124
LLC,
116 A.D.3d 506 (lst Dep't 2014) 25
Bondoc y. Sklar,
No. 152178/2015, 2017 N.Y. Slip Op. 30058(U) (Sup. Ct. N.Y. Cty. Jan. 12,
2017) 17
Borges y. Entra America, Inc.,

18 Misc. 3d 134(A), 2008 N.Y. Slip Op. 50167(U) (App. Term lst Dep't 2008) 17
California Capital Equity, LLC y. IJKG, LLC,

No. 652373/2015, 2016 N.Y. Slip Op. 50112(U) (Sup. Ct. N.Y. Cty. Feb. 3, 2016) 18
Camacho y. IO Practiceware, Inc.,

136 A.D.3d 415 (1st Dep't 2016) 25
Caniglia y. Chicago Tribune New York News Syndicate,

204 A.D.2d 233 (1st Dep't 1994) 16
Carbures Europe, S.A. y. Emerging Markets Intrinsic Cayman Ltd.

No. 3307, 2017 N.Y. Slip Op. 01631 (lst Dep't Mar. 2, 2017) 16
Cohen Ritz Retail Co. y. Manhattan ASC, LLC,

No. 650288/2014, 2015 N.Y. Slip Op. 30652(U) (Sup. Ct. N.Y. Cty. Apr. 17,
2015) 16
ESBE Holdings, Inc. y. Vanquish Acquisition Partners, LLC,

50 A.D.3d 397 (lst Dep't 2008) 18
4 of 31
Eurycleia Partners, LP v. Seward & Kissel, LLP,

12 N.Y.3d 553 (2009) 13
Ferro Fabricators, Inc. y. 1807-1811 Park Avenue Development Corp.,

127 A.D.3d 479 (lst Dep't 2015) 14
Foothill Capital Corp. y. Grant Thornton, L.L.P.,

276 A.D.2d 437 (lst Dep't 2000) 21
Georgia Malone & Co. y. Rieder,

86 A.D.3d 406 (1st Dep't 2011), aff'd, 19 N.Y.3d 511 (2012) 12
Glenn Partition, Inc. y. Trustees of Columbia University,

169 A.D.2d 488 (lst Dep't 1991) 17
Gluckman y. Laserline Vulcan Energy Leasing LLC,

No. 601687/08, 2009 N.Y. Slip Op. 33080(U) (Sup. Ct. N.Y. Cty. Dec. 17, 2009) 18
Greenberg, Trager & Herbst, LLP y. HSBC Bank USA,

17 N.Y.3d 565 (2011) 24
Gregor v. Rossi,
120 A.D.3d 447 (lst Dep't 2014) 14
Jeffers y. American University of Antigua,

125 A.D.3d 440 (lst Dep't 2015) 16
Katzrin Finance Group, LLC y. Arcapex LLC,

No. 651129/2014, 2015 N.Y. Slip Op. 31971(U) (N.Y. Cty. Oct. 22, 2015) 23
Laub y. Faessel,
297 A.D.2d 28 (lst Dep't 2002) 19, 21
Lucker y. Bayside Cemetery,

114 A.D.3d 162 (I st Dep't 2013) 16
Metropolitan Transportation Authority y. Triumph Advertising Productions, Inc.,

116 A.D.2d 526 (l st Dep't 1986) 17
MMCT, LLC v. JTR College Point, LLC

122 A.D.3d 497 (1st Dep't 2014) 14, 18
MP Cool Investments Ltd. y. Forkosh,

142 A.D.3d 286 (1st Dep't 2016) 22
New York University y. Continental Insurance Co.,

87 N.Y.2d 308 (1995) 16
iv
5 of 31
Pludeman v. Northern Leasing Systems, Inc.,

10 N.Y.3d 486 (2008) 15
RGH Liquidating Trust ex rel. Reliance Group Holdings, Inc. v. Deloitte & Touche LLP,
47 A.D.3d 516 (lst Dep't 2008) 18
Rivas y. AmeriMed USA, Inc.,

34 A.D.3d 250 (lst Dep't 2006) 17
Sabo v. Delman,
3 N.Y.2d 155 (1957) 16
Sandra Greer Real Estate, Inc. y. Johansen Organization,

182 A.D.2d 468 (1st Dep't 1992) 16
Sebastian Holdings, Inc. v. Deutsche Bank AG,

78 A.D.3d 446 (lst Dep't 2010) 24
Shea v. Hambros PLC,

244 A.D.2d 39 (lst Dep't 1998) 11
Starr Foundation v. American International Group, Inc.,

76 A.D.3d 25 (lst Dep't 2010) 21
StarVest Partners II, LP y. Emportai, Inc.,

101 A.D.3d 610 (1st Dep't 2012) 22
Vue Management, Inc. v. Photo Associates,

81 A.D.3d 569 (1st Dep't 2011) 17
Wal-Mart Stores, Inc. y. Visa U.S.A.,

No. 652530/2016, 2017 N.Y. Slip Op. 30367(U) (Sup. Ct. N.Y. Cty. 2017) 16
Wilson y. Hochberg,
245 A.D.2d 116 (lst Dep't 1997) 11
Wyle Inc. v. ITT Corp.,

130 A.D.3d 438 (1st Dep't 2015) 16
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Ryan C. Kavanaugh ("Mr. Kavanaugh") respectfillly submits this memorandum
of law in support of his motion to dismiss all daims asserted against him in the Second Amended
Complaint (the "Second Amended Complaint" or "SAC" ) t filed by RKA Film Financing, LLC
("RKA") with prejudice pursuant to CPLR 3016(b), 3211(a)(1) and 3211(a)(7).
L PRELEVIINARY STATEMENT
The Second Amended Complaint is RKA's third attempt to state a daim in this
action. The first two efforts by RKA were transparent attempts to exert pressure on defendants
by maximizing the amount of vitriol and invective for public relations purposes in apparent
hopes of extorting undeserved compensation (the Court branded RKA's prior iteration a "mess"
(Tr. 28)). While the Second Amended Complaint reduces the invective (shedding 18 pages and
45 paragraphs in the process), this third attempt is no more successful. The same fondamental
legal defects that permeated RKA's prior complaints remain. Stated simply, as the Court
explained when dismissing RKA's prior complaint, "we don't in New York have a cause of
action for fraudulent breach of contract" and the aile "is the fraud has to be something extr nsic
to the contract and this is not." (Tr. 14-15.)
Notwithstanding the Courts previous explication of the applicable law, RKA's
complaint remains that it entered a Funding Agreement2 with certain affiliates of Relativity
Media LLC ("Relativity") (not Mr. Kavanaugh). According to the Second Amended Complaint,
the Funding Agreement with Relativity required that any fonds loaned be used
A copy of the SAC is attached as Exhibit 1 to the Affirmation of Jonathan L. Frank, dated March 7, 2017 (the
"Frank Aff."). A copy of the prior Amended Complaint (which the Court dismissed) (the "First Amended
Complaint") is attached as Exhibit 2 to the Frank Aff. A copy of the transcript of the hearing held on October
11, 2016. at which the Court dismissed the First Amended Complaint ("Tr.") is attached as Exhibit 3 to the
Frank Aff.
2
RKA persists in mislabeling the Funding Agreement as the "P&A Facility." The actual title of the document is
the Second Amended and Restated Funding Agreement a fact RKA's sleight of hand cannot change.
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contemporaneously for print and advertising ("P&A") expenses, and Relativity breached the
Funding Agreement by using the fonds for purposes other than existing P&A expenses. RKA
tries mightily to disguise this core of its complaint by manufacturing "phases" and charts of
supposed misrepresentations. However, even a cursory parsing of the supposed
"misrepresentations" plainly reveals that they all flow back to RKA's fondamental complaint that
fonds supposedly were not used by Relativity as required by the Funding Agreement. All RKA
has done is to take the same breach of contract daim that it was promised money would be
used one way, but it instead was used in another way and restate it multiple times and in
different words. But, no matter how many ways and times RKA attempts to rephrase its daim,
the end result is the same a contract daim against an entity cannot be converted into a fraud
daim against the entity's officers. This axiomatic legal principle alone defeats RKA's fraud and
negligent misrepresentation daims. The negligent misrepresentation daim fails for the
additional reason that there was no special relationship in this arm's-length transaction a
prerequisite to a successful negligent misrepresentation daim.
Dismissal is particularly apt here, where RKA was a sophisticated tender
represented by sophisticated counsel that entered into the transaction with eyes wide open, fully
understanding the terms of the deal it allegedly spent months negotiating. RKA always knew
that the Funding Agreement did not operate as it now contends. Indeed, it wired the loan fonds
directly to a general operating account of Relativity, not special purpose entities or specifically
designated Relativity accounts. It was, likewise, well-aware that the loan fonds were being
provided well in advance of the respective film's incurred P&A expenses. In return, when times
were good, it happily accepted Relativity's repayments, with hefty interest rates only
commensurate with the actual nature of the loan. (RKA admits that it loaned money in
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connection with ten films, but only daims damages in connection with four). Only when
Relativity began to experience financial difficulties did RKA begin singing a different tune one
designed to unfairly place k in a better position than Relativity's other creditors and, apparently,
to mislead the investors in the underlying RKA fonds as to the understanding of RKA's managers
of the loan terms.
RKA's efforts to improve on its recovery in Relativity's bankruptcy process by
asserting legally defective daims against Relativity's officers and directors should not be
countenanced. Its daims fail as a matter of settled New York law. Having thrice failed to state a
daim, dismissal now should be with prejudice.
H.
STATEMENT OF FACTS
A. The Parties and Relevant Non-Parties
"Relativity is a privately-held global media company located in Beverly Hills,
California ..." (SAC 20.) Relativity, through its subsidiaries, finances, produces, advertises
and distributes films. (Id.)3 "One category of expenses associated with the theatrical release of
a film is P&A." (Id. 21.) Relativity is nota party to this action, and recently emerged from
bankruptcy. Mr. Kavanaugh is the founder and CEO of Relativity and resides in California. (Id.
9.) Mr. Kavanaugh is a well-known personality in the film industry.
"RKA is a limited liability corporation organized under Delaware law." (Id. S.)
RKA has no true existence separate and apart from the loans it provided to Relativity. To the
contrary, it is a funding vehicle consisting of a series of private equity/hedge fonds that,
apparently, invest other people's money.
The facts set Forth in the Amended Complaint are taken as truc solcly for purposes of the motion.
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Colbeck Capital Management, LLC ("Colbeck") is a financial advisory firm. (Id.
1110.) Jason Colodne and Jason Beckman are founders and managing partners of Colbeck, and
are alleged to have served on Relativity's board of directors. (Id.111111, 12.) David Aho is a
partner at Colbeck. (Id. 13.) Colbeck served as financial adviser to Relativity and assisted in
securing the funding that led to the Funding Agreement. As alleged in the Second Amended
Complaint, Colbeck was the primary point of contact with RKA prior to execution of the
Funding Agreement. (See, e.g. id. ri 31, 34.)
B. RKA's "Due Diligence"
RKA alleges that it was first contacted by Colbeck partner Aho in April 2014
about the transaction that ultimately became the Funding Agreement. (Id. 1129.) According to
RKA, during that initial call, RKA was told that "Relativity was looking to replace one of their
existing P&A (print & advertisement expenditures on film releases) lenders'" and was provided
certain information about a prior P&A facility. (Id. 31.) Thereafter, RKA allegedly was
provided with a presentation which was discussed with RKA by certain individuals, not
including Mr. Kavanaugh. (Id. 1131 n.8) Because of the presence of a Relativity logo on the
slides, RKA asserts that "upon information and belief, Kavanaugh, Matthews, Wilson, and Aho
helped create and knew of the contents of the presentation." (Id.) According to RKA, the slide
presentation contained a number of statements about how the Funding Agreement it was
considering would operate. (Id. 1131.)
RKA alleges it then "conducted extensive diligence" which apparently consisted
of "conversations and emails with Aho and Colbeck, as well as officers and directors of
Relativity, including Matthews and Wilson," as well as unspecified "other means." (Id. 1134.)
RKA alleges it was provided with an updated presentation on May 30, 2014, which allegedly
again made statements about how the Funding Agreement would operate. (1d.1136.) RKA
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alleges that it was told (again, not by Mr. Kavanaugh) that Relativity's financials and projections
were irrelevant and that RKA should flot request such financial information. (Id.) At the same
Lime, RKA complains that it was provided with certain unspecified financial information and
statements (e.g., "that Relativity was in good financial health" and that "[Oie Investments were
'bullet proof"). (Id.)
The Second Amended Complaint is unable to allege the existence of a single
specific conversation between Mr. Kavanaugh and RKA predating the Funding Agreement.
RKA repeatedly attempts to substitute for this glaring omission through obfiiscation. For
example, without any supporting facts, RKA alleges that "Kavanaugh, Matthews, Colbeck, Aho,
and Wilson made a series of misrepresentations regarding the P&A Facility" and that
"Kavanaugh, Colbeck, Aho, Beckman, Colodne, Matthews, and Wilson were aware of each
other's statements." (Id. 30, 37.) Of course, there is no basis alleged for these bald assertions. 4
C. The Funding Agreement
RKA accepts that it executed a Funding Agreement dated June 30, 2014. (Id.
39.) But RKA now backtracks from its prior allegation that all misrepresentations were
contained in the Funding Agreement (Frank Aff. Ex. 2, 50), it now alleges that "some (but not
all)" of the misrepresentations allegedly made to it are contained in the Funding Agreement.
(SAC 40.) Although Mr. Kavanaugh executed the Funding Agreement on behalf of certain of
Relativity's subsidiaries, Mr. Kavanaugh is not a party to the agreement. (Frank Aff., Ex. 4 at 1.)
4
RKA alleges the existence of some unspecified "Monversations throughout June 2014" that it daims to have
had with Mr. Kavanaugh . (SAC 36.) Seraing aside the total Jack of specificity regarding the timing or
content of these conversations, all RKA can muster is that it was told that "Relativity was in good financial
health" and that it had "`between eight and ten films' on the release schedule and that "P&A funds would be
earmarked for marketing and distributing those films." (Id.) These hopelessly vague allegations do not tome
close to identifying specific misrepresentations.
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Further, the Funding Agreement, negotiated by sophisticated counsel for its
sophisticated client, contains an express merger provision:
Final Agreement. This Agreement is intended by the parties hereto to be the final,
complete, and exclusive expression of the agreement between them with respect
to the subject matter hereof. This Agreement supersedes any and all prior oral or
written agreements relating to such subject matter, including without limitation
the expense reimbursement letter executed by RML in favor of the Pre-Release
Lenders (other than the Existing Pre-Release Lenders) prior to the Effective Date.
(Frank Aff. Ex. 4, 12.16.)
In the Funding Agreement, RKA expressly represented and warranted that:
(iv) it has received and reviewed all Loan Documents, financial statements, and
such other documents and information as it deems appropriate to make its own
credit analysis and decision to become a party to this Agreement and to make
Loans hereunder, and (v) it has, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to become a party
to this Agreement and to make Loans hereunder .
(Id. 16.1.)
Unsurprisingly, RKA takes pains to avoid discussing the actual terms of the
Funding Agreement. In actuality, the Funding Agreement undermines each of RKA's
allegations: It does not require fonds loaned by RKA to be segregated. Again, RKA admits that
the fonds were wired to Relativity's account, not the accounts of the entities that owned the film
at issue (SAC 1133 n.9); it also does not require that the loaned fonds be used for P&A expenses
in real-time. To the contrary, Section 1.3 of the Funding Agreement provides:
The proceeds of each advance of a Loan shall be made available solely for
the following purposes and in the following amounts, and the proceeds thereof
shall not be available for any other purpose:
(b) P&A Expenses: The payment or reimbursement of P&A Expenses

paid, committed or incurred (or to be paid committed or incurred) by the Credit
Parties for the P&A Picture for which such Loan was borrowed, in each case, in
accordance with the P&A budget approved for the corresponding P&A Picture in
accordance with Section 3.20) and (without material modification therefrom)
each line item set forth therein.
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(Frank Aff. Ex. 4, 1.3 (emphasis added).) Thus, the loan proceeds were expressly for P&A
Expenses that would, in the future, be "paid, committed or incurred." (Id.) This is not surprising
as P&A expenses are not typically paid until months alter a film is released. Thus, the funds
were wired to Relativity's general account and used by Relativity, and RKA enjoyed a senior
secured position with respect to the films, with its loan commitment capped by a proportion of
the P&A expenses that would be incurred in connection with the film. Indeed, it makes
absolutely no sense that Relativity would borrow funds months before P&A expenses would be
paid, only to have that money sit in a bank account, unable to be used, while paying RKA vert'
significant interest rates. It simply is not credible that RKA ever had a different understanding of
how the Funding Agreement was to work as it now professes.
That this not RKA's contrived litigation interpretation is correct is further
underscored by the definitions in the Funding Agreement, which reiterate that funds could be
drawn and used before P&A expenditures were actually made. Specifically, the defined term
"'P&A Expenses' means the aggregate Release Print Costs and Advertising Costs for the P&A
Picture in the Domestic Territories." (Id. 15.71.) In tum, "'Release Print Costs' means, with
regard to a P&A Picture, all actual, direct, out-of-pocket costs anticipated to be incurred and paid
(or actually paid) by any Credit Party .. " (Id. 15.97.) Likewise, "'Advertising Costs' means,
with regard to any Picture or Project, all actual, direct, out-of-pocket costs anticipated to be
incurred and paid (or actually paid) by a Credit Party ...." (Id. 15.3.) The Funding
Agreement repeatedly emphasizes that money may be drawn under the Funding Agreement
based on expectations of P&A expenses that are to be incurred in the future.
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D. Borrowing Under the Funding Agreement
RKA loaned fonds to Relativity in connection with ten films. (SAC 52.) Six of
those films were released, and RKA profited handsomely from those loans. RKA, of course, is
perfectly happy to keep the money (and large profit) it realized on the released films.
RKA's daims are limited to the unpaid amounts due pursuant to four films that, as
of the commencement of this action, had not been released: Masiermincls, Di sappointmetas
Boom, Solace and Before I Wake (together, the "Unreleased Films"). (Id. 60.) According to
RKA, the last loan was made in March 2015. (Id.) Since the filing of this lawsuit, three of the
Unreleased Films have been released.
In connection with borrowings pursuant to the Funding Agreement, the relevant
Film SPE was required to provide a borrowing certificate. (Id. 52.) Notably, RKA neither
attaches nor quotes from these certificates in the Second Amended Complaint. A review of those
borrowing certificates, however, reveals that they do not contain any representations concerning
how the borrowed fonds would be used.
E. Discussions After the Funding Agreement Was Executed
The only somewhat specific allegation that RKA makes regarding a conversation
with Mr. Kavanaugh prior to March 2015, when the last loan was disbursed, is an allegation that
Mr. Kavanaugh told RKA that "Relativity planned to release up to 15 films in 2015, rather than
the eight to ten previously represented" and that the additional borrowed fonds would be for
P&A. (Id. 42.) RKA alleges that it funded ten films before Relativity filed for bankruptcy.
(Id. Il 52.)
RKA alleges that it became aware "that the P&A fonds had not necessarily been
earmarked, allocated, or used for P&A" by April 1, 2015. (Id. 59.) Yet, RKA devotes pages
more of the Second Amended Complaint to recounting alleged misrepresentations made alter
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this date. (Id. Ill] 58-74.) Indeed, RKA apparently cannot keep its own allegations straight
alleging in one breath that representations concerning the amount of cash Relativity had on hand
at various times was false, (id. 66), while complaining in the next that on May 30, 2015,
OneWest "began seizing approximately $50 million from Relativity's accounts." (Id. 72.)
Obviously, as of May 30, by RKA's allegations, Relativity had at least $50 million available in
its bank accounts. Given RKA's conclusory allegation that the $50 million included RKA's
funds (id.), RKA has undermined its own allegations that the money had been "misappropriated."
(Id. 67.) Setting aside the inconsistency and inaccuracy of RKA's allegations concerning this
sequence, RKA has admitted that representations made alter the disbursement of the funds could
not have caused RKA the loss about which it complains because RKA supposedly "discovered"
the alleged misrepresentations by no later than April 1, 2015. (Id. 59.)
F. RKA Interferes With Relativity's Ability to Obtain Financing
While RKA asserts it learned of the supposed falsity of prior statements by April
1, 2015 (id. 58), RKA spent the next several months trying to extort Relativity and
disadvantage Relativity's other creditors. Indeed, while RKA now portrays itself as a "good guy"
for not taking any legal action until July, during that period it sought to extract as much money
from Relativity as possible, while pressing Relativity to, if RKA's allegations are to be believed,
find a new participant so RKA could be repaid (with a handsome profit). (Id. 75.) Ultimately,
RKA filed a complaint on July 15, 2015 that named Mr. Kavanaugh personally as a defendant,
notwithstanding the fact that there was not the slightest basis to do so. Nine days later, RKA
initiated this lawsuit, beginning its complaint with the colorai] (but frivolous) assertion that
"[t]his case is about a con man Ryan Kavanaugh ...." Not surprisingly, such an assertion,
regardless of how false, was not helpful in the course of seeking refinancing. Within the week,
Relativity was forced to file bankruptcy.
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G. The Replacement Notes
Relativity and certain of its subsidiaries filed for bankruptcy protection on July
30, 2015. On February 8, 2016, the United States Bankruptcy Court for the Southern District of
New York issued its Findings of Fact, Conclusions of Law and Order Confirming, Pursuant to
Section 1129 of the Bankruptcy Code, the Plan Proponents' Fourth Amended Plan of
Reorganization Pursuant to Chapter 11 of the Bankruptcy Code (the "Confirmation Order"), a
copy of which is attached as Exhibit 5 to the Frank Aff. In connection with the bankruptcy
proceedings, RKA accepted new notes to replace those that originally had been issued in
connection with the Funding Agreement. The Confirmation Order expressly provides all parties
including Mr. Kavanaugh, the right to argue the value of the replacement notes in this Court.
(See Frank Aff. Ex. 5, 66.) Notably, the replacement notes accepted by RKA continue to
provide it with a security interest in the Unreleased Films.
H. The Malpractice Lawsuit
Apparently unwilling to take responsibility for its own investment decisions at all
costs, RKA also has filed a malpractice action against the counsel it retained to negotiate the
Funding Agreement. Although the thrust of the malpractice complaint concerns an intercreditor
agreement, RKA readily admits that it was represented by sophisticated counsel in connection
with the Funding Agreement:
Relying on Katten's brand and Schickler's supposed expertise, RKA entrusted to

them the responsibility of negotiating, drafting, and reviewing the documents that
would memorialize the financing arrangement with Relativity, including the
Second Amended and Restated Funding Agreement dated June 30, 2014.... This
document sets forth the terms on which Relativity could withdraw funds from the
facility for specific films and memorialized, among other things, the need for
Relativity to execute a security agreement in connection with each film that would
grant RKA a first priority secured lien on the domestic distribution rights and
proceeds.
10
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RKA Film Financing, LLC y. Katten Muchin Rosenman LLP, No. 159980/2016 (Sup. Ct. N.Y.
Cty., Bled November 29, 2016) (a copy of the complaint is attached as Exhibit 6 to the Frank
Aff.) (the "Malpractice Complaint"). RKA further acknowledges that its counsel was
particularly experienced having represented other lenders to Relativity in the predecessor facility.
(Frank Aff. Ex. 6 34.) Those facilities functioned in an identical way as RKA's. In other
words, RKA admits that its counsel understood how this Funding Agreement worked.
In the Malpractice Complaint, RKA further alleges that at least part of the
damages it seeks here were the result of the alleged malpractice:
Because the first lien security interest in the underlying distribution rights and
proceeds for each film was an essential element to the P&A financing, RKA
would not have provided funding for Masterminds and The Disappointments
Room had it known that k was effectively an unsecured lender. [Attorney]
therefore caused RKA to provide over $42 million in financing under terms that
did not adequately match the risks and returns RKA expected from each
transaction.
(Id 73.) According to RKA, this alleged malpractice prevented RKA from recovering nearly
$20 million that it believed it was entitled to receive but for the alleged malpractice. (Id. 11177-
78.)
III. ARGUMENT
A. Applicable Pleading Standards
Plaintiffs Second Amended Complaint must satisfy the heightened pleading
requirements of CPLR 3016(6), which requires that "the circumstances constituting the wrong
shah be stated in detail." "[I]f sufficient factual allegations of even a single element are lacking,
then the cause of action must be dismissed." Shea v. Hambros PLC, 244 A.D.2d 39, 46 (lst
Dep't 1998). Further, allegations that consist of "bare legal conclusions, as well as factual daims
either inherently incredible or flatly contradicted by documentary evidence" are not presumed to
be nue nor accorded every favorable inference. Wilson v. Hochberg, 245 A.D.2d 116, 116 (lst
11
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Dep't 1997). As explained below, the Second Amended Complaint suffers from numerous
defects, and all daims against Mr. Kavanaugh should be dismissed with prejudice.
B. The Funding Agreement
1. Mr. Kavanaugh h Not Liable For Relativity's Contracts
The Funding Agreement is a contract between RKA, Macquarie US Trading LLC,
and certain of Relativity's affiliates. There does not appear to be any dispute that Mr. Kavanaugh
is not a party to the Funding Agreement a fact clear from the face of the document. In these
circumstances, Mr. Kavanaugh cannot be liable pursuant to the Funding Agreement. See, e.g.
Georgia Malone & Co. y. Rieder 86 A.D.3d 406, 408 (lst Dep't 2011) ("It is well established
that officers or agents of a company are not personally liable on a contract if they do not purport
to bind themselves individually."), affd, 19 N.Y.3d 511 (2012).
2. All Conduct Was Consistent with the Funding Agreement
RKA complains it understood that filnds loaned under the Funding Agreement
"would fund only the print and advertising ('P&A') expenses related to the release of major
motion picture films (the Facility') by special purpose entities (the 'Film SPEs')" (SAC
2), but, in actuality, were used for other purposes. (Id. 3.) In support of this allegation, RKA
feigns outrage that a majority of the P&A budgets for the Unreleased Films had not yet been
spent (id. 60), despite knowing that these films were not intended to be released for months.
(See id. 58.) RKA now apparently contends that it understood that the funds loaned pursuant
to the Funding Agreement were to sit in Relativity's general account for months earning
virtually zero interest while simultaneously accruing high rates of interest owed to RKA until
12
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P&A expenses actually were paid.5 Aside from the inherent incredibility of this position, this is
not what the Funding Agreement provides.
To the contrary, the Funding Agreement expressly provides that fonds could be
drawn for P&A Expenses "to be paid, committed or incurred." (Frank Ait Ex. 4, 1.3(b).) This
is repeatedly recognized in the definitions of both "Advertising Costs" and "Release Print Costs."
(Id. 15.3, 15.97.) Thus, RKA's current insistence that money loaned under the Funding
Agreement was to be spent contemporaneously on P&A expenses is at odds with the terms of the
Funding Agreement, which specifically recognized the reality that money would be borrowed for
expenses not yet paid, committed or incurred.
RKA's entire complaint is premised on its contention that the Funding Agreement
required Relativity to immediately use funds drawn under the Funding Agreement for P&A
expenses. Because this fundamental underpinning of RKA's Amended Complaint is wrong, all
of its causes of action fall away.
C. The Fraud Claims Asserted Against Mr. Kavanaugh Fait (Counts One and Two)
"The elements of a cause of action for fraud require a material misrepresentation
of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff
and damages. A claim rooted in fraud must be pleaded with the requisite particularity under
CPLR 3016(b)." Eurycleia Partners, LP y. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009)
(citation omitted).
As a threshold matter, a close read reveals that the Second Amended Complaint
(like its predecessors) fails to allege the existence of any specific alleged misrepresentation made
RICA concededly knew that funds it loaned were sent to Relativity's general account. (See SAC lj 33 n.9.)
13
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by Mr. Kavanaugh prior to execution of the Funding Agreement.6 Instead of specific allegations,
RKA gratuitously attaches Mr. Kavanaugh's name to non-specific allegations in hopes of
camouflaging the absence of any representations by Mr. Kavanaugh which it then proceeds to
insert in charts and subdivide into phases. To this end, RKA baldly offers statements such as
"Kavanaugh, Matthews, Colbeck, Aho, and Wilson made a series of misrepresentations
regarding the P&A Facility to induce RKA to invest" (SAC 30), "upon information and belief,
Kavanaugh, Matthews, Wilson, and Aho helped create and knew of the contents of the
presentation" (ict. 1131, n.8), and "Kavanaugh and Colbeck fiirther directed Aho, Wilson, and
Matthews to represent to RICA ..." (Id. 33.) Of course, RKA offers nota single fact
supporting any of these conclusory assertions regarding contact with Mr. Kavanaugh pre-
execution of the Funding Agreement. See, e.g., Ferro Fabricators, Inc. y. 1807-1811 Park Ave.
Dev. Corp., 127 A.D.3d 479, 480 (lst Dep't 2015) (affirming dismissal pursuant to CPLR
3016(6) where "the third-party complaint only contains general allegations as to the alleged
misrepresentations and virtually no information as to when and by whom these representations
were made."); Gregor y. Rossi, 120 A.D.3d 447, 447 (lst Dep't 2014) ("Fraud and fraudulent
inducement are not pleaded with the requisite particularity under CPLR 301604, because the
words used by defendants and the date of the alleged false representations are not set forth.")
To be sure. RKA alludes to some vague and unspecified "[c]onversations throughout June 2014" with Mr.
Kavanaugh. (SAC 1*, 26.) Setting aside the Jack of specificity itself fatal pursuant to CPLR 3016(b) the
alleged representations do not corne close to stating a fraud daim, as the non-specific representations were
limited to the statement that Relativity (at that lime) was "in good financial health" and that "Relativity had
'between eight and ten films' on lis release schedule." See MMCT. LLC y. 1111 Coll. Point. LLC, 122 A.D.3d
497, 498 (lst Dep't 2014) (statement that "project was in a 'great area'" and that defendant "would prefer to
invest his own money rather than rely on his family" are "non-actionable opinion or puffery.") In any event,
RKA alleges it funded 10 films, and any allegation that the company was "in good financial health" is too
amorphous to state a daim for fraud, especially where RKA admitted in the Funding Agreement that it had
reviewed trie financial information it deemed necessary. To the extent RKA alleges unspecified conversations
about how the Funding Agreement was to operate, those daims are deficient for the reasons set forth in more
detail below.
14
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The date and content of alleged representations made by Mr. Kavanaugh to RKA are not things
that would be in the exclusive possession of defendants. See Pludeman v. N. Leasing Sys., Inc.,
10 N.Y.3d 486, 491-92 (2008). To the contrary, if RKA representatives had any such
discussions, such information should be readily available to RKA. Instead, all RKA can offer
are supposed vague statements allegedly made at indeterminate times "throughout June 2014."
In the end, allegations against Mr. Kavanaugh lack any specificity whatsoever
and, as such, fail to satisfy the heightened pleading requirements of CPLR 3016(b).
1. RKA Cannot Base a Fraud Claim on an Alleged Breach of the

Funding Agreement
Although RKA states it numerous times and in numerous ways, at bottom, RKA
is alleging that promises were made to it that the parties to the Funding Agreement would use the
funds as required by the Funding Agreement, but they never intended to do so. (SAC 31, 36.)
Indeed, in paragraphs 31 and 36 of the Second Amended Complaint (constituting RKA's "Phase
1" allegations), RKA purports to identify 21 supposed misrepresentations predating execution of
the Funding Agreement. Of chose 21 supposed misrepresentations, 19 circle directly back to the
allegation that money was promised to be used one way pursuant to the Funding Agreement but,
in actuality, was used for different purposes (complaining in some instances that the fonds were
used "for general corporate purposes" and in other instances that the loan was treated "as a
working capital facility"). The other two concerning supposed "projected earnings" (i.e.
estimated future) and a statement that "Relativity was in good financial health" (SAC 36) not
only Jack specificity, but such vague statements cannot be sufficient in view of RKA's
representation in the Funding Agreement that it had reviewed all financial statements and
documents that h deemed appropriate to make its own credit determination.
15
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A fraud daim requires a representation regarding an existing fact, not a future
intention, and New York courts repeatedly have rejected fraud daims premised on an alleged
intent not to perform pursuant to a contract. See Cohen Ritz Retail Co. v. Manhattan ASC, LLC,
No. 650288/2014, 2015 N.Y. Slip Op. 30652(U), at *12 (Sup. Ct. N.Y. Cty. Apr. 17, 2015) ("An
allegation of a misrepresentation of present intent to perform an act in the future is not sufficient
to support a daim sounding in fraud."); see also N.Y. Univ. v. Cont'I Ins. Co. 87 N.Y.2d 308,
318 (1995) ("General allegations that defendant entered into a contract while lacking the intent to
perform it are insufficient to support the daim [for fraud]."); Carbures Europe, S.A. v. Emerging
Markets Intrinsic Cayman Ltd., No. 3307, 2017 N.Y. Slip Op. 01631, at *3 (lst Dep't Mar. 2,
2017); Jeffers v. Am. Univ. of Antigua, 125 A.D.3d 440, 442-43 (1st Dep't 2015); Lucker v.
Bayside Cemetery, 114 A.D.3d 162, 175 (l st Dep't 2013); Caniglia v. Chi. Tribune N.Y. News
Syndicate, 204 A.D.2d 233, 234 (lst Dep't 1994); Sandra Greer Real Estate, Inc. v. Johansen
Org., 182 A.D.2d 468, 469 (lst Dep't 1992). RKA's fraud daims therefore are defective as a
matter of law.7
Independently, the fraud daims also are defective because they consist of nothing
other than contract daims with an added (but deficient) allegation of scienter. Indeed, RKA
specifically alleges that some of the alleged misrepresentations were memorialized in the
Funding Agreement (SAC 40), and the damages RKA seeks is recovery of the benefit of its
7
RKA apparently intends to invoke cases that have held that "a preconceived and undisclosed intention" not to
perform can, in certain circumstances, constitute fraud. See Sabo y. Delman. 3 N.Y.2d 155, 160 (1957). To
constitute the basis for a fraud daim, however, the "preconceived and undisclosed intention" must be collateral
to the contract and concem an existing fut, not merely a promise toperform in the future pursuant to its ternis.
See Wvle Inc. v. 111 Corp., 130 A.D.3d 438, 439 (lst Dep't 2015) ("In the context of a contract case, the
pleadings must allege misrepresentations of present fact, not merely misrepresentations of future intent to
perform under the contract, in order to present a viable daim that is not duplicative of a breach of contract
cbim."). Justice Singh recently explained just titis distinction. See Wal-Mart Stores. Inc. y. Visa U.S.A, No.
652530/2016, 2017 N.Y. Slip Op. 30367(U), at *5-8 (Sup. Ct. N.Y, Cty. Feb. 27, 2017). Here, RKA complains
that what is at issue is an alleged intention not to perform pursuant to the Funding Agreement the very type of
daim the First Department has repeatedly concluded may not be maintained.
16
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bargain quintessential contract damages. "The courts of this State have consistently held .
that a cause of action for fraud does not arise when the only alleged fraud relates to a breach of
contract." Metro. Transp. Auth. v. Triumph Advert. Prods. Inc., 116 A.D.2d 526, 527 (lst Dep't
1986); see also Vue Mgmt., Inc. y. Photo Assocs., 81 A.D.3d 569, 569 (lst Dep't 2011); Glenn
Partition, Inc. y. Trs. of Columbia Univ., 169 A.D.2d 488, 489 (lst Dep't 1991). Moreover,
RKA does not adequately plead any legal duty owed by Mr. Kavanaugh separate and apart from
the duties owed by the signatories to the Funding Agreement, rendering the fraud claims
insufficient. See Rivas y. AmeriMed USA, Inc., 34 A.D.3d 250, 250 (lst Dep't 2006)
("[P]Iaintiffs fail to allege that the individual defendants, who were members of the corporate
defendant's board of directors, breached any duty owed to them separate and apart from the
alleged contractual obligations [of the corporate defendant]."); Borges v. Entra Am., Inc., 18
Misc. 3d 134(A), 2008 N.Y. Slip Op. 50167(U), at *1 (App. Term lst Dep't 2008); Bondoc v.
Sklar, 2017 N.Y. Slip Op. 30058(U), at *16 (Sup. Ct. N.Y. Cty. Jan. 12, 2017) ("To be legally
viable, a fraud daim must arise out ofa duty to the plaintiff separate and apart from any
contractual duty."); MW Partners, LLC v. Cyberlux Corp., 21 Misc. 3d 1109(A), 2008 N.Y. Slip
Op. 52020(U), at *3 (Sup. Ct. N.Y. Cty. 2008) (Ramos, J.) ("[A] daim of fraudulent inducement
ofa contract is defectively pied if the acts alleged to constitute fraud 'do not arise from
circumstances extraneous to, and not constituting elements of, the contract, and therefore do not
represent the breach ofa legal duty independent of the contract.'" (emphasis added) (citation
omitted)). (See Tr. 14-15.)
Finally, the fraud claims RKA attempts to assert plainly are duplicative of the
contract daim RKA would have asserted against the signatories to the Funding Agreement, but
could not because of the bankruptcy filing and its acceptance of replacement notes at the
17
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conclusion of the process. (See Tr. 14.) New York courts regularly reject fraud daims where
they are duplicative of contract daims. In this respect, Justice Bransten's opinion in Gluckman
v. Laserline Vulcan Energy Leasing, LLC, is instructive. In that case, Justice Bransten
compared the allegedly fraudulent statements with the contractual representations that plaintiffs
alleged had been breached, and matched the damages sought in connection with the fraud daim
with the damages sought in connection with the contract daim, and concluded that the fraud
daims "are clearly duplicative of [the] contract daim." Gluckman y. Laserline Vulcan Energy
Leasing, LLC, No. 601687/08, 2009 N.Y. Slip Op. 33080(U), at *13-15 (Sup. Ct. N.Y. Cty. Dec.
17, 2009). Based on this conclusion, the court dismissed the fraud daims asserted both against
the contractual counterparty, and individuals who were not contractual parties. This Court
reached a similar conclusion in California Capital Equity, LLC v. IJKG, LLC, 50 Misc. 3d
1215(A), 2016 N.Y. Slip Op. 50112(U) (Sup. Ct. N.Y. Cty. 2016). See also MMCT, LLC, 122
A.D.3d at 499 ("[T]he fraudulent inducement daim duplicates the breach of contract daim
because plaintiff has not alleged any representation that is collateral to the contract."); ESBE
Holdings, Inc. v. Vanquish Acquisition Partners, LLC, 50 A.D.3d 397, 398-99 (lst Dep't 2008);
RGH Liquidating Tr. ex rel. Reliance Grp. Holdings, Inc. y. Deloitte & Touche LLP, 47 A.D.3d
516, 517 (lst Dep't 2008).8 Here, RICA simply has repackaged a contract daim against the
contractual counterparties as a fraud daim against the officers of those contractual
counterparties. Such a dressed-up contract daim fails as a matter of law.
8
To be sure, there is some authority that a fraud daim is not duplicative of a contract daim where no contract
daim has been asserted against the defendant in question. Sec Allenby. LLC v. Credit Suisse. AG, 134 A.D.3d
577, 581 (lst Dep't 2015). Here, however, the fmud daim is leveled against Mr. Kavanaugh, the officer that
executed the contract in question. Allowing the contractual counterparty to assert fraud daims against the
corporate officer in these circumstances would undermine the fundamental precept of New York law that an
officer executing a contract in his corporate capacity is not liable in his personal capacity for a breach of that
contract. Of course, the daim also remains subject to dismissal for each of the other reasons discussed above in
addition to the fact that it is duplicative.
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2. Alleged Misrepresentations After Execution of the Funding

Agreement But Before the Final Disbursement
RKA purports to identify three misrepresentations made on a July 5, 2014
telephone call. These "misrepresentations," however, concem an alleged statement that
"Relativity planned to release up to 15 films in 2015," as well as statements regarding how the
borrowed money would be used. (SAC 42.) These statements do not state a daim for fraud for
multiple reasons. First, as to the number of films expected to be released in 2015, RKA admits
that it funded ten separate films. (Id.1152.) Thus, RKA's pleading undermines its conclusory
assertion that a statement that Relativity planned to release "up to" 15 films was false.
Moreover, the number of films to be released has nothing to do with how the money was used,
which is the crux of RKA's complaint. Indeed, RKA's complaint is limited to the funds it loaned
in connection with the four Unreleased Films not the six other films it was repaid on. And,
several of the Unreleased Films now have been released. The number of films Relativity
expected to release simply has nothing to do with RKA's alleged loss. See Laub y. Faessel, 297
A.D.2d 28, 31 (lst Dep't 2002) ("'[T]here [must] be some reasonable connection between the act
or omission of the defendant and the damage which the plaintiff has suffered.'" (citation
omitted).) The other supposed misrepresentations all concern how the money was to be used
pursuant to the Funding Agreement and fail for the same reasons outlined above.
To the extent RKA attempts to premise its fraud daims on the Borrowing
Certificates, its daim is premised on misdirection. RKA alleges that "[e]ach time a Film SPE
requested funds, Kavanaugh represented that the P&A fonds would be used solely by the
borrowing Film SPE for P&A expenses of a given film." (SAC 52.) Notably, RKA does not
quote from or attach the form Borrowing Certificates. This is not surprising as the Borrowing
Certificates contain no such representation. Instead, the Borrowing Certificates contained a
19
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much more limited statement (by the company) that the "representations and warranties set forth
in the [Funding Agreement] . . are on the date hereof and shah be true and correct in all
material respects on the Funding Date .. ." (Frank Aff. Ex. 7 (emphasis added).)9 RKA is
disputing compliance by the contractual counterparties with Section 1.3 of the Funding
Agreement, not the accuracy of a representation or warranty in the Funding Agreement. As
Section 1.3 is neither, RKA's reliante on the Borrowing Certificates therefore is misplaced.
3. Any Claims Concerning Representations Made After the Last

Disbursement Fail Because of an Absence of Reliance/Damages
RKA devotes pages of the Amended Complaint to detailing the events that
transpired after the disbursements pursuant to the Funding Agreement were made, including
alleged efforts to forestall RKA's efforts to inspect Relativity's books and records. (See SAC
65.) But, elsewhere, RKA alleges that it knew of the supposed misuse of fonds no later than
April 1, 2015 (see id. 59) and, knowing of the alleged misrepresentations, RKA repeatedly
agreed to forebear/extend the loan. (See id. 68 ("Nevertheless, in an effort to reach an
amicable resolution, RKA forwent legal action for several months to allow Defendants the
chance to explain the whereabouts of the P&A fonds.")) Thus, armed with the alleged facts,
RKA admits it took no action. Thus, by RKA's own admissions, it neither relied on nor was
damaged by any alleged misrepresentations occurring after the last disbursement. I9
In these circumstances, RKA's fraud daim premised on these alleged
misrepresentations cannot stand because the essential elements of reliante, loss causation and
RKA attached certain borrowing certificates to its opposition to Mr. Kavanaugh's first motion to dismiss. An
example of one is attached as Exhibit 7 to the Frank Aff.
10
Notably, RKA also has alleged in the Malpractice Complaint that, for al least two of the Unreleased Films,
RICA was prevented "from foreclosing on ils collateral once Relativity defaulted under the Funding Agreement"
and "filf RICA had the rights it expected, it could have foreclosed on the calfaterai ." (Malpractice Complaint
74.)
20
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damages are missing. See Laub, 297 A.D.2d at 31; see also Bank Hapoalim B.M. y. WestLB
AG, 121 A.D.3d 531, 535 (lst Dep't 2014) ("Moreover, since plaintiffs' case depends on an
attenuated chain of events and series of hypothetical transactions, they have not pleaded the
causation element with sufficient particularity."), appeal denied, 24 N.Y.3d 914 (2015); Starr
Found. y. Am. Int'l Grp., Inc., 76 A.D.3d 25, 28 (lst Dep't 2010).11
The absence of loss causation also is illustrated by RKA's allegation that, as late
as May 30, 2015, Relativity had at least $50 million available in its accounts, "includ[ing] a
substantial portion of RKA's P&A fonds." (SAC 72.) Thus, by RKA's own allegations, its
fonds were lost as a result of the sweep of fonds from Relativity's accounts to OneWest in late
May, 2015 (an action RKA notably does not allege was wrongful).
4. All Fraud Claims Fail Because of an Absence of Falsity
As explained above, the use of the fonds disbursed pursuant to the Funding
Agreement was in full compliance with the terms of the Funding Agreement. As such, none of
the ternis of the Funding Agreement were breached. Accordingly, all of RKA's daims fail
because there were no false statements.
5. RKA's Claims Fail For A Lack of Reasonable Reliance
"To plead a daim for fraud in the inducement or fraudulent concealment, plaintiff
must allege facts to support the daim that it justifiably relied on the alleged misrepresentations."
ACA Fin. Guar. Corp. y. Goldman, Sachs & Co. 25 N.Y.3d 1043, 1044 (2015). White
11
This can be contrasted with allegations that a lender was induced "to forbear from taldng stops to collect a
debt," Starr Found. 76 A.D.3d at 33 n.5, in that RKA acknowledges that it knew of the alleged falsity of the
representations, yet elected to forbear. Compare Foothill Capital Corp. y. Grant Thomton. L.L.P. 276 A.D.2d
437, 438 (lst Dep't 2000) ("Whether or not earlier efforts to collect the debt would have had greater success
than the collection efforts plaintif actually made after leaming of the inaccuracy of the relevant financial
statements is an issue of fact to be deterrnined at trial or on a motion for sununary judgment." (emphasis
added)).
21
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questions of reliance are not always proper for resolution as a matter of law, id. at 1045, there are
instances, such as those presented here, where such resolution is proper.
First, to the extent RKA is claiming it relied on representations contrary to the
terms of the Funding Agreement, such reliance is not justifiable as a matter of law. See StarVest
Partners IL L.P. v. Emportai, Inc., 101 A.D.3d 610, 613 (lst Dep't 2012) (reliance unreasonable
where contradicted by written agreement).
Second, to the extent RKA asserts that it relied on alleged misrepresentations
conceming how Relativity's prior fimding arrangements worked, (see, e.g. SAC 31), certain
12
unspecified financial projections or statements that the company "was in good financial health,"
(see, e.g. id. 36) or refusais to provide financial information, (see, e.g. id.), RKA has not
adequately allegedly reasonable reliance. Indeed, RKA specifically represented in the Funding
Agreement that: (i) it is a sophisticated lender (Frank Aif. Ex. 4 16.1); (ii) "it has received and
reviewed ail Loan Documents, financial statements, and such other documents and information
as it deems appropriate to make its own credit analysis and decision to become a party to this
Agreement and to make Loans hereunder" (id.); and (iii) "[t]his Agreement supersedes any and
ail prior oral or written agreements relating to such subject matter ..." (Id. 12.16.) Further,
RKA admits that it was represented by sophisticated counsel and that those attorneys had
represented Relativity's prior lenders. (Frank Aff. Ex. 6 in 34, 37.) In these circumstances,
RKA could not have justifiably relied on any representations concerning Relativity's financial
condition or prior funding agreements. See MP Cool Invs. Ltd y. Forkosh, 142 A.D.3d 286, 287
(lst Dep't 2016) ("[p]laintiff s allegations do not establish justifiable reliance as required to prove
12 The Funding Agreement further contains an express statement that "no assurance is given that the results
forecasted in such Projections will be achieved." (Frank Aff. Ex. 4 8.17(a).)
22
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fraud because plaintiff is a sophisticated investor that had the means available to it to learn the
true nature and real quality of the investment it made."); Katzrin Fin. Grp., LLC y. Arcapex
LLC, No. 651129/2014, 2015 N.Y. Slip Op. 31971(17), at *10 (Sup. Ct. N.Y. Cty. Oct. 22, 2015)
(no justifiable reliance where "plaintifs were [] sophisticated business entities with the benefit of
legal counsel. The plaintiffs were aware that defendants had not supplied all the information that
they were entitled to but failed to take actions necessary to protect their interests." (citation
omitted)).
Finally, to the extent RKA attempts to state a claim based on alleged
representations about the financial position of Relativity or film release dates made after the last
funding in March was made (SAC111158-75), such claims must fail because any reliance would
not have been justified as a matter of law. "[W]hen the party to whom a misrepresentation is
made has hints of its falsity, a heightened degree of diligence is required of it. It cannot
reasonably rely on such representations without making additional inquiry to determine their
accuracy." ACA Fin. Guar. Corp., 25 N.Y.3d at 1044 (quoting Centro Empresarial Cempresa
S.A. y. America Movil, S.A.B. de C.V., 17 N.Y.3d 269, 279 (2011)). Here, RKA alleges that it
knew it had been provided with false information no later than April 1. (SAC 58.) It also
allegedly knew that the release dates would not be met, and that it had been provided with
incomplete financial information. (Id. 111162, 65.) RKA's alleged blind acceptance of
contemporaneous conflicting representations (id. 69) is unreasonable as a malter of law.
D. The Negligent Misrepresentation Claim Fails Because There Was No Special

Relationship Between Mr. Kavanaugh and RKA (Count Three)
"[L]liability for negligent misrepresentation has been imposed only on Chose
persons who possess unique or specialized expertise, or who are in a special position of
confidence and trust with the injured party such that reliance on the negligent misrepresentation
23
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is justified." Greenberg, Tracer & Herbst, LLP y. HSBC Bank USA, 17 N.Y.3d 565, 578 (2011)
(citation omitted).
It is well-settled that commercial transactions between sophisticated parties as
RKA represented itself to ben do not give rise to a special relationship. See Sebastian
Holdings, Inc. v. Deutsche Bank AG, 78 A.D.3d 446, 447 (lst Dep't 2010). Indeed, the
insufficient nature of RKA's pleas of a "special relationship," are best illustrated by paragraph 98
of the Second Amended Complaint, where RKA attempts to explain why a "special relationship"
arose. That paragraph spells-out an ordinary commercial transaction, including "marketing" and
"negotiation" (SAC 98) things customary in any transaction that certainly do not give rise
to a special relationship. See Sebastian, (negligent misrepresentation daim failed where "the
parties engaged in arm's-Iength transactions pursuant to contracts between sophisticated business
entities that do not give rise to fiduciary duties.")I4 It is equally well-settled that a relationship
between a borrower and its lender is not a fiduciary relationship and cannot support a negligent
misrepresentation daim. See Greenberg, Trager & Herbst LLP, 17 N.Y.3d at 578. Indeed, it is
particularly absurd for RKA the tender to daim it was owed a special relationship by
principals of the borrower, and RKA pleads nothing supporting the counterintuitive conclusion
that it, as lender, gave principals of the borrower the type of control that would supporta special
relationship. Moreover, to the extent RKA premises its allegation of a "special relationship" on
the obligations contained in the Funding Agreement, such allegations are insufficient as a matter
13
RKA represented in the Funding Agreement that "it is sophisticated with respect to decisions to acquire assets
such as the Loans proposed to be made hereunder and either it, or the Person exercising discretion in making its
decision to make Loans hereunder, is experienced in acquiring assets of such type." (Frank Aff. Ex. 4.
16.1(iii).) Having represented to its own sophistication, RKA should not be heard to daim otherwise.
14
Notably, RKA has abandoned its previous efforts to assert fiduciary duty daims against Mr. Kavanaugh and
others.
24
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of law. See Bd. of Managers Of Soho N. 267 W. 124th St. Condo. v. NW 124 LLC, 116 A.D.3d
506, 507 (1st Dep't 2014) ("A daim for negligent misrepresentation is not separate from a breach
of contract daim where the plaintif faits to allege a breach of any duty independent from
contractual obligations.") Because there is no special relationship, RKA's negligent
misrepresentation daim should be dismissed as a matter of law. See Camacho v. 10
Practiceware Inc., 136 A.D.3d 415, 416 (lst Dep't 2016) ("Plaintiff failed to allege specific facts
establishing a 'special relationship' sufficient to state a daim for negligent misrepresentation.")
These daims fait for the additional reason that, as discussed above, all conduct
was consistent with the terms of the Funding Agreement and nothing was misrepresented.
1V. CONCLUSION
For all of the foregoing reasons, all daims asserted against Mr. Kavanaugh in the
Amended Complaint should be dismissed with prejudice.
Dated: March 7, 2017

New York, New York
Respectfully submitted,
SKADDEN, ARPS, SLATE, MEAGHER

& FLOM LLP
By: tain
nathan L. Frank
nathan.frank@skadden.com
Jeffrey S. Geier
Jeffrey.geier@skadden.com
Four Times Square
New York, New York 10036
Tel: (212) 735-3000
Fax: (212) 735-2000
Attorneys for Ryan Kavanaugh
25
937540-NYCSRO6A NISW
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FILED: NEW YORK COUNTY CLERK 03/07/2017 09:45 PM INDEX NO.

SUPREME COURT OF THE STATE OF NEW YORK

Plaint Hon. Charles E. Ramos

MEMORANDUM OF LAW IN SUPPORT OF RYAN KAVANAUGH'S

SKADDEN, ARPS, SLATE, MEAGHER

Attorneys for Ryan Kavanaugh

II. Statement of Facts 3

A. The Parties and Relevant Non-Parties 3

B. RKA's "Due Diligence" 4

C. The Funding Agreement 5

D. Borrowing Under the Funding Agreement 8

E. Discussions After the Funding Agreement Was Executed 8

F. RKA Interferes With Relativity's Ability to Obtain Financing 9

G. The Replacement Notes 10

H. The Malpractice Lawsuit 10

A. Applicable Pleading Standards 11

B. The Funding Agreement 12

1. Mr. Kavanaugh Is Not Liable For Relativity's Contracts 12

2. All Conduct Was Consistent with the Funding Agreement 12

1. RKA Cannot Base a Fraud Cairn on an Alleged Breach of the

2. Alleged Misrepresentations Mer Execution of the Funding

3. Any Claims Concerning Representations Made Atter the Last

4. AIl Fraud Claims Fail Because of an Absence of Falsity 21

5. RKA's Claims Fail For A Lack of Reasonable Reliance 21

The Negligent Misrepresentation Claim Fails Because There Was No

ACA Financial Guaranty Corp. y. Goldman, Sachs & Co.

AJW Partners, LLC y. Cyberlux Corp.,

Allenby, LLC y. Credit Suisse AG,

Bank Hapoalim B.M. y. WestLB AG,

Borges y. Entra America, Inc.,

California Capital Equity, LLC y. IJKG, LLC,

Camacho y. IO Practiceware, Inc.,

Caniglia y. Chicago Tribune New York News Syndicate,

Carbures Europe, S.A. y. Emerging Markets Intrinsic Cayman Ltd.

Cohen Ritz Retail Co. y. Manhattan ASC, LLC,

ESBE Holdings, Inc. y. Vanquish Acquisition Partners, LLC,

Eurycleia Partners, LP v. Seward & Kissel, LLP,

Ferro Fabricators, Inc. y. 1807-1811 Park Avenue Development Corp.,

Foothill Capital Corp. y. Grant Thornton, L.L.P.,

Georgia Malone & Co. y. Rieder,

Glenn Partition, Inc. y. Trustees of Columbia University,

Gluckman y. Laserline Vulcan Energy Leasing LLC,

Greenberg, Trager & Herbst, LLP y. HSBC Bank USA,

Jeffers y. American University of Antigua,

Katzrin Finance Group, LLC y. Arcapex LLC,

Lucker y. Bayside Cemetery,

Metropolitan Transportation Authority y. Triumph Advertising Productions, Inc.,

MMCT, LLC v. JTR College Point, LLC

MP Cool Investments Ltd. y. Forkosh,

New York University y. Continental Insurance Co.,

Pludeman v. Northern Leasing Systems, Inc.,

Rivas y. AmeriMed USA, Inc.,

Sandra Greer Real Estate, Inc. y. Johansen Organization,

Sebastian Holdings, Inc. v. Deutsche Bank AG,

Shea v. Hambros PLC,

Starr Foundation v. American International Group, Inc.,

StarVest Partners II, LP y. Emportai, Inc.,

Vue Management, Inc. v. Photo Associates,

Wal-Mart Stores, Inc. y. Visa U.S.A.,

Wyle Inc. v. ITT Corp.,

Ryan C. Kavanaugh ("Mr. Kavanaugh") respectfillly submits this memorandum

("RKA") with prejudice pursuant to CPLR 3016(b), 3211(a)(1) and 3211(a)(7).

to the contract and this is not." (Tr. 14-15.)

Notwithstanding the Courts previous explication of the applicable law, RKA's