Ex-Production Co. Execs Say Insurer Abandoned Them In Suit

By Kat Sieniuc

Law360, New York (August 31, 2016, 8:49 PM ET) — Former executives of now defunct post-production studio Modern VideoFilm Inc. are suing its insurer, Argonaut Insurance Company, for abandoning them in a more than $77 million counter-fight against a hedge fund that ran the media company into the ground, telling a California federal judge Argo gave them the run-around and then stopped answering their letters.

In the complaint, filed earlier this month and removed to federal court on Wednesday, plaintiffs Moshe Barkat and Modern VideoFilm Holdings said they reasonably expected their insurer to “deal with them fairly, equitably and in good faith,” but Argo instead ignored their tenders for defense and indemnity, refusing to pay or acknowledge defense costs, failed to timely communicate their coverage decision and even canceled previously agreed-upon mediation.

“Plaintiffs … are completely in the dark about Argo’s position with respect to their demands for coverage,” the complaint said.

“Argo has hung out to dry … its insureds … in a horrific case of bad faith by an insurer. In this action, plaintiffs seek compensatory and punitive damages for Argo’s wrongful abandonment of them and abrogation of its legal duties.”

MVF was a Hollywood post-production company that had HBO, ABC, CBS, Apple and Netflix as clients. Its former Chief Financial Officer Hugh Miller filed a separate lawsuit against Argo in Los Angeles Superior Court for similar bad faith claims.

Barkat and Modern VideoFilm Holdings also accuse Argo of making a belated tender to Barkat in an attempt to avoid a lawsuit.

The suit arises out of the plaintiffs’ underlying actions against Medley Capital Corporation, a hedge fund that took control of MVF and in 2014 fired Barkat and Miller, who both had employment agreements, and appointed its own director, Charles Sweet, who allegedly mismanaged the company into the ground, leaving it “a shell with no assets and no business,” according to Barkat and MVF Holdings.

Barkat and MVF Holdings brought a lawsuit against MVF, Sweet and Medley Capital — Barkat suing for breaking his employment agreement and MVF Holdings suing for breach of fiduciary duty — alleging damages in excess of $100 million.

Miller also sued MVF, Medley Capital and Sweet for similar claims.

In March of this year, after Medley Capital brought a cross-claim against Miller in arbitration blaming the former CFO and Barkat for the demise of MVF, and in anticipation that Medley Capital would file a second cross-claim against Barkat and MVF Holdings, Barkat, MVF Holdings and Miller requested insurance coverage from Argo. They also made a settlement demand to MVF and Sweet that was within the policy’s limits, they said.

But Argo never responded to their request or follow-up letter, leaving the settlement up in the air and leading to Medley Capital filing a $77 million counter-claim against the plaintiffs for breach of fiduciary duty and fraud.

“The policy was intended to cover just the kinds of claims raised in the cross-claim,” Barkat and MVF Holdings said, adding that “Argo’s motivation for failing to acknowledge its duty to defend and indemnify was to save money even though the policy is supposed to protect plaintiffs against exactly the type of claim that Medley brought against plaintiffs.”

“Despite this, Argo intentionally, maliciously and wantonly refused to meaningfully engage in any kind of indemnity or defense,” Barkat and MVF Holdings said.

Barkat and MVF Holdings say they’ve suffered reputational and emotional distress damages exceeding $2 million.

Attorneys for both sides did not immediately return a request for comment on Wednesday.

Plaintiffs are represented by Louis R. Miller of Miller Barondess LLP.

Argo is represented by Richard Ray Johnson of Locke Lord LLP.

The case is Barkat et al. v. Argonaut Insurance Company, case number 2:16-cv-06545, in the U.S. District Court for the District of Central California.

–Editing by Jack Karp.