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652592/2015
NYSCEF DOC. NO. 131 RECEIVED NYSCEF: 02/14/2017

SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK

RKA FILM FINANCING, LLC,

Plaintiff,
v.

RYAN KAVANAUGH, COLBECK CAPITAL Index No. 652592/2015

MANAGEMENT, LLC, COLBECK CAPITAL, (Ramos, J.)
LLC, COLBECK PARTNERS IV, JASON Commercial Division
COLODNE, JASON BECKMAN, DAVID AHO,
RAMON WILSON, ANDREW MATTHEWS,
GREG SHAMO, TUCKER TOOLEY, and
STEVEN MNUCHIN,

Defendants.

DEFENDANT STEVEN MNUCHINS MEMORANDUM OF LAW

IN SUPPORT OF HIS MOTION TO DISMISS
THE SECOND AMENDED COMPLAINT AND FOR SANCTIONS

Robert A. Sacks
Andrew J. Finn
John P. Collins, Jr.
SULLIVAN & CROMWELL LLP
125 Broad Street
New York, NY 10004-2498
Telephone: (212) 558-4000
Facsimile: (212) 558-3588

Counsel for Steven Mnuchin

February 14, 2017

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TABLE OF CONTENTS

Page

PRELIMINARY STATEMENT ............................................................................................... 1

BACKGROUND ......................................................................................................................... 5
A. RKA Entered Into the Funding Agreement at Issue in
This Case in June 2014, Before Mr. Mnuchin Joined
Relativitys Board of Directors ............................................................................. 5
B. Mr. Mnuchin Later Became a Non-Executive Director
of Relativity After Investing in Relativity, But Never
Interacted With Anyone at RKA........................................................................... 6
C. OneWest Recovered on a Defaulted Relativity Loan
After Mr. Mnuchin Left Relativitys Board in May 2015 .................................... 8
D. Relativity Sought and Obtained Bankruptcy Protection
in March 2016, Releasing Claims Relating to OneWest ...................................... 8
E. RKA Named Mr. Mnuchin in this Lawsuit Without
Any Factual or Legal Basis, and the Court Dismissed
All of RKAs Claims ........................................................................................... 9
F. The Second Amended Complaint Asserts the Same Defective
Fraud and Misrepresentation Claims That This Court Dismissed ...................... 11
ARGUMENT ............................................................................................................................. 11
I. RKAS AMENDED FRAUD AND NEGLIGENT MISREPRESENTATION
CLAIMS AGAINST MR. MNUCHIN LACK ANY BASIS IN LAW
OR FACT ....................................................................................................................... 11
A. Mr. Mnuchin Could Not Have Induced RKA To Enter Into
the Funding Agreement as a Matter of Common Sense Because
He Joined Relativitys Board After It Was Executed ......................................... 12
B. RKA Still Fails To Allege Mr. Mnuchin Made Any Representation
to RKA, and Mr. Mnuchin Had No Duty To Disclose Information
to RKA ................................................................................................................ 14
C. RKA Fails To Allege Mr. Mnuchin Personally Participated in,
or Had Actual Knowledge of, Any Interactions With RKA
That Were Extrinsic to the Funding Agreement ................................................ 16
D. RKAs Allegations About OneWest Do Not State a
Claim Against Mr. Mnuchin ............................................................................... 19
II. THE COURT SHOULD SANCTION RKA AND ITS COUNSEL
FOR REPEATEDLY ASSERTING FRIVOLOUS AND HARASSING
CLAIMS AGAINST MR. MNUCHIN ........................................................................ 21
CONCLUSION ......................................................................................................................... 24

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TABLE OF AUTHORITIES

Page(s)

CASES

Alliance Network, LLC v. Sidley Austin LLP,

987 N.Y.S.2d 794 (Sup. Ct. N.Y. Cnty. 2014) ..........................................................................5

Bondi v. Beekman Hill House Apt. Corp.,

257 A.D.2d 76 (1st Dept 1999) .............................................................................................17

Borstein v. Henneberry,
132 A.D.3d 447 (1st Dept 2015) ............................................................................................21

CIFG Assur. N. Am., Inc. v. Bank of Am., N.A.,

41 Misc.3d 1203(A) (Sup. Ct. N.Y. Cnty. Sept. 23, 2013) .....................................................12

Eaves v. Designs for Finance, Inc.,

785 F. Supp. 2d 229 (S.D.N.Y. 2011)......................................................................................14

Ferro Fabricators, Inc. v. 1807-1811 Park Ave. Dev. Corp.,

127 A.D.3d 479 (1st Dept 2015) ............................................................................................11

High Tides, LLC v. DeMichele,

88 A.D.3d 954 (2d Dept 2011) .........................................................................................16, 18

Levin v. Kozlowski,
13 Misc.3d 1236(A) (Sup. Ct. N.Y. Cnty. Nov. 14, 2006) ........................................................5

Levine v. Yokell,
258 A.D.2d 296 (1st Dept 1999) ............................................................................................15

Levy v. Carol Mgmt. Corp.,

260 A.D.2d 27 (1st Dept 1999) ..............................................................................................23

Lichtenstein v. Willkie Farr & Gallagher LLP,

120 A.D.3d 1095 (1st Dept 2014) ..........................................................................................20

Lore v. N.Y. Racing Assn Inc.,

12 Misc.3d 1159(A) (Sup. Ct. Nassau Cnty. May 23, 2006) .....................................................5

Mandarin Trading Ltd. v. Wildenstein,

16 N.Y.3d 173 (2011) .............................................................................................................15

Marine Midland Bank v. John E. Russo Produce Co., Inc.,

50 N.Y.2d 31 (1980) ................................................................................................................16

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TABLE OF AUTHORITIES
(continued)

Page(s)

Markov v. Spectrum Grp. Intl, Inc.,

136 A.D.3d 413 (1st Dept 2016) ............................................................................................21

Mobil Oil Corp. v. Joshi,

202 A.D.2d 318 (1st Dept 1994) ......................................................................................15, 24

MP Cool Investments Ltd. v. Forkosh,

142 A.D.3d 286 (1st Dept 2016) ............................................................................................15

North Valley Partners, LLC v. Jenkins,

2009 WL 1058162 (Sup. Ct. N.Y. Cnty. Apr. 14, 2009) .........................................................18

NYCTL 1999-1 Trust v. 573 Jackson Ave. Realty Corp.,

55 A.D.3d 454 (1st Dept 2009) .............................................................................................15

U.S. ex rel. ODonnell v. Countrywide Home Loans, Inc.,

822 F.3d 650 (2d Cir. 2016).....................................................................................................13

Phoenix Light SF Ltd. v. Ace Sec. Corp.,

39 Misc.3d 1218(A) (Sup. Ct. N.Y. Cnty. Apr. 24, 2013).......................................................12

Prudential-Bache Metal Co., Inc. v. Binder,

121 A.D.2d 923 (1st Dept 1986) ............................................................................................16

P.T. Bank Cent. Asia, N.Y. Branch v. ABN AMRO Bank N.V.,
301 A.D.2d 373 (1st Dept 2003) ...........................................................................................15

Ramos v. Ramirez,
31 A.D.3d 294 (1st Dept 2006) ..............................................................................................11

RGH Liquidating Trust v. Deloitte & Touche LLP,

71 A.D.3d 198 (1st Dept 2009) ................................................................................................5

Sholder Rep. Servs. LLC v. Sandoz Inc.,

46 Misc.3d 1228(A) (Sup. Ct. N.Y. Cnty. Mar. 16, 2015) ......................................................13

Schulman v. Greenwich Assocs., LLC,

52 A.D.3d 234 (1st Dept 2008) ........................................................................................12, 14

Schwartzman v. Wertz,
153 Misc.2d 187 (Sup. Ct. N.Y. Cnty. 1991) ..........................................................................21

Semi-Tech Litig., LLC v. Ting,

13 A.D.3d 185 (1st Dept 2004) ..............................................................................................15

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TABLE OF AUTHORITIES
(continued)

Page(s)

Small v. Lorillard Tobacco Co., Inc.,

94 N.Y.2d 43 (1999) ................................................................................................................14

SNS Bank, N.V. v. Citibank, N.A.,

7 A.D.3d 352 (1st Dept 2004) ................................................................................................15

Sud v. Sud,
211 A.D.2d 423 (1st Dept 1995) ............................................................................................17

WorldCom, Inc. v. Segway Marketing Ltd.,

262 A.D.2d 164 (1st Dept 1999) ............................................................................................14

Zutty v. Rye Select Broad Market Prime Fund, L.P.,

33 Misc.3d 1226(A) (Sup. Ct. N.Y. Cnty. Apr. 15, 2011).......................................................14

RULES

New York Civil Practice Law & Rules

Rule 3016(b) ............................................................................................................................13
Rule 3211(a)...............................................................................................................................1

Administrative Rules of the Unified Court System

Section 130-1.1 ..................................................................................................................21, 24

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Pursuant to Civil Practice Law & Rules (CPLR) 3211(a)(5) and (7), Defendant

Steven Mnuchin respectfully moves to dismiss the Second Amended Complaint. Mr. Mnuchin

also requests that the Court impose sanctions against Plaintiff RKA Film Financing, LLC

(RKA) and its counsel for including Mr. Mnuchin in this complaint without any good faith

basis to do so, particularly after being told by the Court at the last hearing on October 11, 2016

that RKAs prior complaint was a mess and warning that any amended pleading must

specifically identify who said what to whom and what was false on a person-by-person basis.

(Affirmation of Robert A. Sacks (the Sacks Affirmation), dated February 14, 2017, Ex. G

(October 11, 2016 Motion Conference Transcript) at 23:12-13; 28:14.)1 As to Mr. Mnuchin,

RKA has not come close and could not reasonably have believed that it had.

PRELIMINARY STATEMENT

In its Second Amended Complaint, RKA attempts to revive spurious fraud and

negligent misrepresentation claims that this Court dismissed in January for failure to state a

claim. The Second Amended Complaint adds no relevant factual allegations with respect to Mr.

Mnuchin. To the contrary, it makes clear that Mr. Mnuchin never spoke to, corresponded with,

or otherwise dealt with RKA at any time on any subject.

Like before, RKA seeks to recover money it lent to affiliates of Relativity Media

LLC (Relativity) under a June 2014 agreement to finance certain expenses for several

Hollywood films (the Funding Agreement). (Second Amended Complaint (SAC) 3-4,

10.) And RKA again contends that, in entering into and performing under the Funding

Agreement, Relativity and certain of its current and former officers and directors (but not Mr.

1
Unless otherwise specified, all references to Ex. herein refer to the exhibits to the Sacks
Affirmation.

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Mnuchin) allegedly misrepresented how loan proceeds would be used, and that Relativity, which

filed for bankruptcy protection in July 2015, misused those funds as working capital.

RKA continues to falsely and illogically assert, without alleging any

particularized facts, that Mr. Mnuchin was involved in a purported fraud that began months

before the Funding Agreement was signed, and more than three months before Mr. Mnuchin had

any association with Relativity. In fact, in the Second Amended Complaints recitation of the

facts on which RKAs claims are based, Mr. Mnuchin is not alleged to have had any interaction

with RKA or its representatives, let alone made any statements, at any time on any subject.

RKAs sole basis for dragging Mr. Mnuchin back into this lawsuit is his brief tenure as a Non-

Executive Director and Co-Chairman of Relativitys Board of Directors (from October 2014 to

May 2015), and Mr. Mnuchins prior position as CEO of OneWest Bank (OneWest), a lender

that recovered funds on a defaulted loan to Relativity after Mr. Mnuchin left Relativitys Board.

This mere association with Relativity and one of Relativitys lenders is not a legitimate basis to

assert a fraud claim against Mr. Mnuchin personally in connection with the Funding Agreement.

RKAs new complaint repackages the same allegations from RKAs last

complaint into a series of charts purporting to identify allegedly false representations and who

made them. Tellingly, as to Mr. Mnuchin RKA has either disregarded the Courts instructions or

implicitly conceded it has no plausible claim against Mr. Mnuchin because Mr. Mnuchin is not

alleged to have made a single one of those allegedly false representations himself. Instead,

having never actually dealt with Mr. Mnuchin, RKAs claims against him rest solely on what

information Mr. Mnuchin supposedly knew or had access to as a Director of Relativity months

after RKA had already entered into the allegedly fraudulently-induced Funding Agreement. But

even those speculative contentionswhich could not state a claim in any eventare undermined

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by RKAs own allegations that Mr. Mnuchin (i) invested more than RKA did in Relativity but

gained nothing from the supposed scheme about which RKA complains (SAC 47 n.11), and

(ii) was provided with a legal opinion from the law firm of Jones Day that the money loaned by

RKA to Relativity under the Funding Agreement could be and was being used for working

capital (SAC 48)the very use that RKA claims was somehow improper and is at the heart of

the supposed fraud.

The Second Amended Complaint fails to allege any claim against Mr. Mnuchin,

and should be dismissed for numerous reasons:

First, RKAs fraud in the inducement claim remains factually (and logically)

impossible, because Mr. Mnuchin could not have induced RKA to enter into the Funding

Agreement more than three months before he joined Relativitys Board in October 2014.

Second, RKA still has not pleaded any fraud or negligent misrepresentation claim

against Mr. Mnuchin. Despite this Courts admonishment that RKA must identify separately

what Mr. Mnuchin said to RKA and what was false (Ex. G at 23:12-13), RKA does not

identify a single statement that Mr. Mnuchin made to RKA, let alone what was false about it. It

does not allege any conduct extrinsic to the Funding Agreement. Nor has RKA pleaded any

facts demonstrating that Mr. Mnuchin owed a duty to RKA to disclose anything, either as a Non-

Executive Director of Relativity or as an executive of OneWest. Mr. Mnuchin is not alleged to

have been engaged in the day-to-day management of Relativity, and RKAs self-serving

allegations that Relativitys Board members must have actively participated in, or known about,

some scheme to defraud RKA by virtue of their position is precisely the type of non-specific,

conclusory and unsupported assertion that this Court and other courts have held does not suffice

to plead a fraud or misrepresentation claim.

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Third, RKAs allegations about OneWest are a complete red herring, and do not

support any claim against Mr. Mnuchin. Mr. Mnuchin was not part of Relativitys Board when

OneWest allegedly seiz[ed] certain Relativity assets in May 2015. Moreover, RKA has never

allegednor can itthat OneWests conduct was improper, or that RKA even had a right to the

assets that OneWest allegedly seized. If RKA had a legitimate claim with respect to OneWests

enforcement of its security interestswhich is entirely irrelevant hereit could and should have

raised that claim in Relativitys bankruptcy proceedings. It did not, and is foreclosed from doing

so here.

As the Court informed RKA at the last hearing, this was their last shot to state a

claim (Ex. G at 29:11-13), and as a result its claims against Mr. Mnuchin should now be

dismissed with prejudice. Additionally, RKA and its counsel have engaged in frivolous and

sanctionable conduct by continuing to include Mr. Mnuchin in this lawsuit, and they should be

held accountable for doing so. It is now clear that RKA never had any good faith basis in law or

fact for asserting a fraudulent inducement or fraud claim against Mr. Mnuchin. By again

publicly branding Mr. Mnuchin a fraudster, RKA and its counsel have repeated defamatory

allegations that would be actionable had they not been made in a pleading filed in court. RKA

and its counsel have harassed Mr. Mnuchin by using his name to gain media attention for RKAs

commercial dispute with others associated with Relativity. And they refiled these baseless

accusations, without remotely complying with the Courts October 11, 2016 ruling, at a time

they knew the accusations would be most sensitive and attract widespread media attention given

Mr. Mnuchins nomination to be Secretary of the U.S. Department of the Treasury.

Accordingly, this Court should impose sanctions on RKA and/or its counsel, and order

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reimbursement of Mr. Mnuchins fees and costs in having to needlessly respond to RKAs

baseless complaints.

BACKGROUND2

A. RKA Entered Into the Funding Agreement at Issue in This Case in June
2014, Before Mr. Mnuchin Joined Relativitys Board of Directors.

As this Court is aware, RKA is a media financing company that decided in 2014

to lend money to Relativity (SAC 29), a privately-held global media company that finances,

produces, advertises and distributes Hollywood films through numerous affiliates and

subsidiaries, including so-called film special purposes entities (Film SPEs) (SAC 20). From

April 2014 through June 2014, RKA alleges that it negotiated terms of financing with

representatives of Relativity and Defendants Colbeck Capital Management, LLC, Colbeck

Capital, LLC and Colbeck Partners IV (together, Colbeck), part of a New York-based financial

advisory firm that also invested in, and loaned money to, Relativity. (SAC 10, 29-41.) Mr.

Mnuchin is not alleged to have taken any part in those negotiations or to have had any affiliation

with Relativity at the time.

On June 30, 2014, RKA executed the Funding Agreement with several of

Relativitys Film SPEs, each of which were set up to finance, produce, advertise, and distribute

2
On a motion to dismiss, the Court may consider documents referenced in a complaint,
even if the pleading fails to attach them, Alliance Network, LLC v. Sidley Austin LLP, 987
N.Y.S.2d 794, 798 n.1 (Sup. Ct. N.Y. Cnty. 2014), as well as documents attached as an
exhibit . . . or incorporated by reference . . . and documents that are integral to the plaintiffs
claims, even if not explicitly incorporated by reference, Lore v. N.Y. Racing Assn Inc., 12
Misc.3d 1159(A), at *3 (Sup. Ct. Nassau Cnty. May 23, 2006) (internal quotation marks
omitted). It is also well-established that a court may take judicial notice of undisputed court
records and files. RGH Liquidating Trust v. Deloitte & Touche LLP, 71 A.D.3d 198, 207-08
(1st Dept 2009) (citation omitted) (taking judicial notice of bankruptcy filings in federal court),
revd on other grounds, 17 N.Y.3d 397 (2011); see also Levin v. Kozlowski, 13 Misc.3d
1236(A), at *2 n.1 (Sup. Ct. N.Y. Cnty. Nov. 14, 2006) (considering other court filings,
including declarations filed in a federal action, on CPLR 3211(a)(7) motion).

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a specific film. (SAC 20.) Under that agreement, the Film SPEs could request and draw up to

$81 million from RKA to help fund print and advertising expenses. (SAC 41.)3 Mr. Mnuchin

is not a party to the Funding Agreement and again was not affiliated with Relativity when it was

executed.

RKA alleges that certain individuals affiliated with Relativity and Colbeckbut

not Mr. Mnuchininduced RKA to enter into the Funding Agreement and lend the Film SPEs

money through representations that RKAs funds would be used only for [print and advertising]

expenses of particular films (SAC 92), and that RKA relied on those representations when it

entered into the Funding Agreement, continued to make money available to the Film SPEs, and

agreed to forbear from taking action to recover its investments (SAC 93). From June 30, 2014

to March 17, 2015, RKA advanced a total of $73.6 million under the Funding Agreement to

finance the [print and advertising] for ten films. (SAC 52.) RKA alleges that each time it

advanced funds to the Film SPEs, Relativitys founder and former CEO, Defendant Ryan

Kavanaugh (SAC 9)but again, not Mr. Mnuchinrepresented in borrowing certificates that

the loan proceeds would be used solely by the borrowing Film SPE for [print and advertising]

expenses of a given film. (SAC 52.) RKA speculates that the Film SPEs borrowing was

done with the knowledge and consent of the Relativity Board. (SAC 53.)

B. Mr. Mnuchin Later Became a Non-Executive Director of Relativity After

Investing in Relativity, But Never Interacted With Anyone at RKA.

In October 2014, more than three months after the Funding Agreement had been

entered into and after RKA began advancing funds under that agreement (SAC 52), Mr.

Mnuchin joined Relativitys Board as a Non-Executive Director and Co-Chairman when he and

3
RKA alleges that it initially agreed in June 2014 to fund up to $58.5 million, but agreed
in August 2014 to increase its commitment by an additional $22.5 million. (SAC 38, 44.)

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his private investment firm, Dune Capital, allegedly invested $104 million in Relativity. (SAC

48.) At that time, Mr. Mnuchin also was CEO and Chairman of OneWest, a commercial

lender to Relativity. (SAC 18.) RKA alleges that in 2012, two years before RKA entered

into the Funding Agreement, OneWest made financial commitments to Relativity totaling

$160 million. (SAC 45.)

Mr. Mnuchin was never an officer or executive of Relativity, and is not alleged to

have played any role in the day-to-day operations of Relativity or any of its affiliated companies.

And, like the Amended Complaint, the Second Amended Complaint does not identify a single

statement or communication (false or otherwise) made or directed by Mr. Mnuchin to anyone at

RKA. Instead, RKA alleges that after he joined Relativitys Board, Mr. Mnuchin had access

to information about Relativitys use of funds that RKA advanced under the Funding Agreement

by virtue of his Board position and the due diligence he conducted prior to investing in or

lending money to Relativity. (SAC 45-47, 50-51.)

RKA further alleges that in October 2014, in connection with his $104 million

investment in Relativity, the Jones Day law firm provided Mr. Mnuchin with a legal opinion

regarding each of Relativitys debt facilities, including the RKA Funding Agreement.

According to RKA, Mr. Mnuchin was advised by the Jones Day firm that money Relativity

received from RKA under the Funding Agreement could be and was being used for working

capital (SAC 48), which is contrary to RKAs current position that such use was not only

improper but fraudulent. RKA also contends that at the time he invested in Relativity (months

after RKA had already entered into the Funding Agreement with Relativity), Mr. Mnuchin had

knowledge of unspecified marketing materials and other information provided to RKA

relating to how its lending facility to the Film SPEs would operate. (SAC 47.) But there is no

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allegation that Mr. Mnuchin had any role in drafting or approving those materials, which

presumably had been presented to RKA months earlier, before RKA had entered into the

Funding Agreement. Nor does RKA allege specifically what that material or information

was or what was false about it when provided.

Mr. Mnuchin left Relativitys Board on May 29, 2015, and is not alleged to have

had any involvement in Relativity after that time. (SAC 71.)

C. OneWest Recovered on a Defaulted Relativity Loan After Mr. Mnuchin Left

Relativitys Board in May 2015.

On May 30, 2015, after Mr. Mnuchin left Relativitys Board, RKA alleges that

Relativity defaulted on a loan from OneWest, and that OneWest seiz[ed] approximately $50

million from Relativitys accounts to recoup amounts owed to OneWest. (SAC 72.) RKA

speculates that Mr. Mnuchin must have caused this recoupment due to his executive position at

OneWest, and labels it a misappropriation of RKAs funds. (SAC 72.) However, like the

deficient Amended Complaint, the Second Amended Complaint still does not contain any factual

allegation suggesting that actions taken by or on behalf of OneWest were in any way improper or

that Mr. Mnuchin could be personally liable for actions that OneWest, as a secured lender, took

with respect to Relativity, a defaulted borrower. In fact, RKAs allegations compel the opposite

conclusion: that OneWest simply was a long-standing creditor bank that exercised its

contractual rights to recover amounts owed to it after Relativitys default. By contrast, Mr.

Mnuchin is not alleged to have recovered any of his own investments in Relativity.

D. Relativity Sought and Obtained Bankruptcy Protection in March 2016,

Releasing Claims Relating to OneWest.

On July 30, 2015, Relativity filed for bankruptcy protection under Chapter 11 of

the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New

York. See In re Relativity Fashion, LLC, Case No. 15-11989 (S.D.N.Y. Bankr.) (MEW), Dkt.

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No. 1. On August 11, 2015, RKA filed a motion for adequate protection of its security interests

arising from funds it provided to the Film SPEs under the Funding Agreement. See id., Dkt. No.

147. No claim or allegation was made in the bankruptcy suggesting anything untoward occurred

with respect to OneWests recovery of its loan to Relativity. On February 8, 2016, the

Bankruptcy Court confirmed Relativitys Fourth Amended Plan of Reorganization (the Plan of

Reorganization), which provided (among other things) that Relativity shall issue to RKA the

five (5) Replacement Pre-Release P&A Notes for the full amount of its pre-Bankruptcy petition

loans with interest. (Ex. K (Plan of Reorganization) at 41 & Plan Ex. K.)4 Upon confirmation,

the Plan of Reorganization also provided a broad release by Relativity of OneWest and its related

persons, including Mr. Mnuchin, for all claims that in any way relate to OneWests pre-

bankruptcy lending to Relativity. (Ex. K at 73.) On March 18, 2016, the Bankruptcy Court

reaffirmed its confirmation of the Plan of Reorganization. In re Relativity Fashion, LLC, Dkt.

No. 1676.

E. RKA Named Mr. Mnuchin in this Lawsuit Without Any Factual or Legal
Basis, and the Court Dismissed All of RKAs Claims.

On March 9, 2016, RKA filed its first Amended Complaint seeking to recover the

money it loaned to the Film SPEs under the Funding Agreement from Mr. Kavanaugh, Colbeck,

and several other individuals associated with Relativity, including Mr. Mnuchin. RKA asserted

claims for (i) fraud; (ii) fraud in the inducement; (iii) conspiracy to commit fraud; (iv) negligent

4
RKA recently filed a separate lawsuit in this Court complaining about the legal advice it
received with respect to the Funding Agreement, asserting claims of legal malpractice against its
former lawyers. (See Ex. I (Complaint in RKA Film Financing, LLC v. Katten Muchin
Rosenman LLP, Index No. 159980/20016).) According to the complaint, RKA entered into an
intercreditor agreement to dilute its right to movie ticket proceeds under the Funding Agreement,
which in turn allowed more junior creditors to take a superior position to RKA in Relativitys
reorganization. (Ex. I at 12, 73, 77.)

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misrepresentation; (v) conversion; (vi) breach of the covenants of good faith and fair dealing;

and (vii) breach of fiduciary duty. (Amended Complaint (AC) 110-45.) Despite conceding

that Mr. Mnuchin was not involved in any way in the formation of the Funding Agreement, and

not alleging that Mr. Mnuchin had any interaction with RKA, ever, the Amended Complaint

claimed that Mr. Mnuchin somehow, in some unspecified way, through no contact whatsoever,

induced RKA to lend money to the Film SPEs and should have disclosed information to RKA

about Relativitys use of that money. (AC 52.)

On April 22, 2016, Mr. Mnuchin and the other Defendants moved to dismiss the

Amended Complaint for failure to state any claim. On January 3, 2017, the Court granted Mr.

Mnuchins motion for the reasons stated during an October 11, 2016 motion conference. (Ex. H

(Order Granting Mr. Mnuchins Motion to Dismiss).) Specifically, the Court held that RKAs

Amended Complaint alleged nothing more than a fraudulent breach of contract against Mr.

Kavanaugh, a claim that does not exist under New York law (Ex. G at 15:4-5), and that any

cognizable fraud claim has to be something extrinsic to the contract and this is not (Ex. G at

14:17-19). To plead such a fraud claim, the Court told RKA that it needed to identify

separately what each defendant (including Mr. Mnuchin) said to RKA and what about those

statements was false and extrinsic to the Funding Agreement. Finding that the Amended

Complaint did not do so, the Court dismissed it, (Ex. G at 23:12-13) but granted RKA a last

shot to amend its complaint again (Ex. G at 29:11-13). The Court warned RKA that [y]ou

cant just name all the defendants and say they were all guilty of this. (Ex. G at 23:4-6.)

Instead, RKA had to identify the specific misrepresentations made at specific times. (Ex. G at

23:6-7.)

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F. The Second Amended Complaint Asserts the Same Defective Fraud and
Misrepresentation Claims That This Court Dismissed.

On February 2, 2017, RKA filed the Second Amended Complaint, but did not

heed this Courts warning. In it, RKA abandons previously asserted claims of conspiracy,

conversion, breach of the covenants of good faith and fair dealing, and breach of fiduciary duty,

but doubles down on its fraud in the inducement, fraud and negligent misrepresentation claims.

As to Mr. Mnuchin, the Second Amended Complaint is as deficient as its predecessor. It simply

repackages the Amended Complaints insufficient allegations in a form that makes it even more

obvious that RKA has no conceivable basis to maintain any claimmuch less a fraud or

misrepresentation claimagainst him. RKA still does not plead a single representation made by

Mr. Mnuchin, a single interaction that it had with Mr. Mnuchin, or a single dealing with Mr.

Mnuchin in any capacity whatsoever. Instead, the Second Amended Complaint once again seeks

to impose personal liability on a non-executive director for a corporations supposed fraudulent

breach of contracta claim that this Court has already recognized does not existwhile failing

to allege any conduct by that director was remotely improper, much less fraudulent.

ARGUMENT

I. RKAS AMENDED FRAUD AND NEGLIGENT MISREPRESENTATION

CLAIMS AGAINST MR. MNUCHIN LACK ANY BASIS IN LAW OR FACT.

It is well-settled that fraud or misrepresentation claims must be pleaded with

particularity, and the circumstances constituting the wrong shall be stated in detail. Ramos

v. Ramirez, 31 A.D.3d 294, 295 (1st Dept 2006) (quoting CPLR 3016(b)); see also Ferro

Fabricators, Inc. v. 1807-1811 Park Ave. Dev. Corp., 127 A.D.3d 479, 479-80 (1st Dept 2015)

(dismissing fraud and negligent misrepresentation claims). When a dispute involves a contract,

like here, a fraud claim can only be asserted if it is separate and distinct from [a] breach of

contract claim and extrinsic to a contract. (Ex. G at 14:18-19, 15:11-12.) Thus, as this Court

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clearly explained, RKA must identify separately what each defendant said to RKA, what was

false about those statements, and what about those statements were extrinsic to the Funding

Agreement. (Ex. G at 23:12-13); see also Schulman v. Greenwich Assocs., LLC, 52 A.D.3d 234,

234 (1st Dept 2008) (dismissing fraud claims where plaintiff failed to allege what

misrepresentations, if any, were made by the individual defendant); CIFG Assur. N. Am., Inc. v.

Bank of Am., N.A., 41 Misc.3d 1203(A), at *3 (Sup. Ct. N.Y. Cnty. Sept. 23, 2013) (Ramos, J.)

(A claim involving multiple defendants must make specific and separate allegations for each

defendant.). RKA has once again failed to meet its burden, making it clear that RKA has never

had any factual or legal basis on which to assert a claim against Mr. Mnuchin.

A. Mr. Mnuchin Could Not Have Induced RKA To Enter Into the Funding
Agreement as a Matter of Common Sense Because He Joined Relativitys
Board After It Was Executed.

In the Second Amended Complaint, RKA continues to advance the factually

impossible claim that Mr. Mnuchin somehow induced RKA to agree to lend money to the Film

SPEs, even though it remains undisputed that Mr. Mnuchin joined Relativitys Board in October

2014, more than three months after RKA signed the Funding Agreement. RKAs fraud in the

inducement claim against Mr. Mnuchin also is a legal impossibility, because [t]o establish a

claim for fraudulent inducement, [RKA] must allege that the elements of fraud occurred prior to

the execution of the subject contract. Phoenix Light SF Ltd. v. Ace Sec. Corp., 39 Misc.3d

1218(A), at *4 (Sup. Ct. N.Y. Cnty. Apr. 24, 2013) (emphasis added) (citing Centro Empresarial

Cempresa S.A. v. Am. Movil, S.A.B. de C.V., 17 N.Y.3d 269, 276 (2011)). RKA does not allege

(nor could it) that Mr. Mnuchin did anything to induce RKA to enter into the Funding

Agreement, and thus its fraud in the inducement claim fails as a matter of law.

Moreover, RKAs conclusory assertions that Defendants made

misrepresentations that allegedly induced RKA to continue performing under the Funding

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Agreement or forbear enforcing terms of that agreement also fail to state any fraud claim

against Mr. Mnuchin. [A] contractual promise can only support a claim for fraud upon proof of

fraudulent intent not to perform the promise at the time of contract execution. Absent such

proof, a subsequent breach of that promiseeven where willful and intentionalcannot in itself

transform the promise into a fraud. U.S. ex rel. ODonnell v. Countrywide Home Loans, Inc.,

822 F.3d 650, 662 (2d Cir. 2016) (emphasis added). Thus, no fraud claim could be made against

Mr. Mnuchin, because he is not alleged to have been involved in the negotiation or execution of

the Funding Agreement.

Even taking as true RKAs allegations that it continued to perform under the

Funding Agreement because of representations made by others at Relativity, the Second

Amended Complaint does not state an individual claim against Mr. Mnuchin because he is not

alleged to have said anything to RKA, ever. The charts RKA has included in the Second

Amended Complaint identifying the supposed misrepresentations make this clear. And RKAs

generalized group pleading about what Defendants supposedly did collectively (e.g., SAC

48, 57, 60-61, 66, 76) does not meet the specificity requirements of CPLR 3016(b) as to Mr.

Mnuchin. See Sholder Rep. Servs. LLC v. Sandoz Inc., 46 Misc.3d 1228(A), at *7-8 (Sup. Ct.

N.Y. Cnty. Mar. 16, 2015) (collecting cases) (dismissing fraud claim; plaintiffs group pleading

falls far short of CPLR 3016(b)s pleading requirements). In any event, RKAs allegations

about being induced to perform under the Funding Agreement are nothing more than a classic

attempt to plead a fraudulent breach of contract claim, which this Court already held does not

exist under New York law. As before, nothing alleged in the Second Amended Complaint is

extrinsic to the Funding Agreement.

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B. RKA Still Fails To Allege Mr. Mnuchin Made Any Representation to RKA,
and Mr. Mnuchin Had No Duty To Disclose Information to RKA.

As this Court recognized in dismissing RKAs first Amended Complaint, fraud

and negligent misrepresentation claims require, at a minimum, particularized factual allegations

that a defendant made a representation of material fact to the plaintiff. Small v. Lorillard

Tobacco Co., Inc., 94 N.Y.2d 43, 57 (1999) (emphasis added); see also Eaves v. Designs for

Finance, Inc., 785 F. Supp. 2d 229, 254 (S.D.N.Y. 2011) (negligent misrepresentation);

Shulman, 52 A.D.3d at 234 (fraudulent inducement). Incredibly, the Second Amended

Complaint still fail[s] to allege th[is] most rudimentary element of a fraud claimthat [Mr.

Mnuchin] ever made a representation to [RKA]. Zutty v. Rye Select Broad Market Prime Fund,

L.P., 33 Misc.3d 1226(A), at *13 (Sup. Ct. N.Y. Cnty. Apr. 15, 2011); see also WorldCom, Inc.

v. Segway Marketing Ltd., 262 A.D.2d 164, 164 (1st Dept 1999) (affirming dismissal of fraud

claims for fail[ure] to articulate a misrepresentation). Indeed, the Second Amended Complaint

makes clear that Mr. Mnuchin never did so. The pleading contains several charts that purport to

identify misrepresentations allegedly made to RKA and when, but glaringly absent from those

charts is even one alleged representation made by Mr. Mnuchin. This alone dooms RKAs fraud

and negligent misrepresentation claims predicated on alleged affirmative misstatements.

Further, RKAs allegations that Mr. Mnuchin helped to conceal (SAC 80(f))

or did not disclose and purposefully withheld from RKA (SAC 54) information about

Relativitys use of funds do not state a claim for fraud or negligent misrepresentation, because

the Second Amended Complaint does not allege that Mr. Mnuchin owed a duty to disclose

anything to RKA. (See also SAC 73.) [I]n the absence of a confidential or fiduciary

relationship between [RKA] and [Mr. Mnuchin] imposing a duty to disclose, [Mr. Mnuchins]

mere silence, without some act which deceived [RKA], cannot constitute a concealment that is

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actionable as fraud. Mobil Oil Corp. v. Joshi, 202 A.D.2d 318, 318 (1st Dept 1994).5

Likewise, to plead a negligent misrepresentation claim, RKA must allege the existence of a

special or privity-like relationship imposing a duty on the defendant to impart correct

information to the plaintiff. Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 180 (2011)

(affirming dismissal of fraud and negligent misrepresentation claims).

It is well-established in corporate law that, as a non-executive director, Mr.

Mnuchin d[id] not owe a fiduciary duty to the creditors of a solvent corporation. Semi-Tech

Litig., LLC v. Ting, 13 A.D.3d 185, 188 (1st Dept 2004) (affirming dismissal of omission-based

fraud claim against corporate director). And the Second Amended Complaint does not allege

that Mr. Mnuchin did anything to form any relationship with RKAlet alone one of confidence,

privity or that of a fiduciarybecause Mr. Mnuchin never interacted with RKA. Thus, RKAs

fraud and negligent misrepresentation claims based on an alleged concealment of information

also fail as a matter of law. MP Cool Investments Ltd. v. Forkosh, 142 A.D.3d 286, 291 (1st

Dept 2016) (allegations corporate insider had superior knowledge of the company but did

not correct[] misinformation allegedly provided by others insufficient to plead fraud claim);

SNS Bank, N.V., 7 A.D.3d at 356 (fraud by omission claim dismissed where plaintiff failed to

plead a fiduciary relationship with defendant); Levine v. Yokell, 258 A.D.2d 296, 296 (1st Dept

1999) (fraud claims dismissed since plaintiff did not plead that defendant[] had a duty to

disclose the allegedly withheld information based on a contractual or confidential relationship).

5
See also NYCTL 1999-1 Trust v. 573 Jackson Ave. Realty Corp., 55 A.D.3d 454, 454 (1st
Dept 2009), affd, 13 N.Y.3d 573 (2009); SNS Bank, N.V. v. Citibank, N.A., 7 A.D.3d 352, 356
(1st Dept 2004) (an omission does not constitute fraud unless there is a fiduciary relationship
between the parties); P.T. Bank Cent. Asia, N.Y. Branch v. ABN AMRO Bank N.V., 301 A.D.2d
373, 376 (1st Dept 2003) (A cause of action for fraudulent concealment requires, in addition to
the four foregoing elements (of fraudulent misrepresentation), an allegation that the defendant
had a duty to disclose material information and that it failed to do so.).

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C. RKA Fails To Allege Mr. Mnuchin Personally Participated in, or Had Actual
Knowledge of, Any Interactions With RKA That Were Extrinsic to the
Funding Agreement.

Even if RKA had pleaded that some other Defendant made some material

misrepresentation extrinsic to the Funding Agreementit has notdirectors like Mr. Mnuchin

cannot be held personally liable for a fraud involving corporate assets, unless they personally

participate[d] in it, or ha[d] actual knowledge of it at the time it occurred. Marine Midland

Bank v. John E. Russo Produce Co., Inc., 50 N.Y.2d 31, 44 (1980); Prudential-Bache Metal Co.,

Inc. v. Binder, 121 A.D.2d 923, 926 (1st Dept 1986) (fraud claim dismissed because there are

no substantive allegations [in] the complaint to the effect that [defendant] was responsible for,

knew about, or participated in the alleged fraud). The Second Amended Complaints sparse

allegations about Mr. Mnuchin only confirm that Mr. Mnuchin had nothing to do with any

purported misconduct directed at RKA.

First, RKAs allegations that in or about August 2014, after RKA signed the

Funding Agreement but before Mr. Mnuchin joined Relativitys Board, Mr. Mnuchin became

aware of the Funding Agreement and how Relativity was using funds advanced thereunder, and

that he received unspecified marketing material (SAC 47), only confirm that Mr. Mnuchin did

not participate[] in, or ha[ve] actual knowledge of any alleged statements or representations

when they were made to RKA. High Tides, LLC v. DeMichele, 88 A.D.3d 954, 958-59 (2d

Dept 2011) (affirming dismissal of fraud claims against officers and directors where, like here,

plaintiff alleged no facts that defendants participated in the preparation of the allegedly

fraudulent statements).

Second, RKAs allegation that, in October 2014, the Jones Day law firm rendered

an opinion to Mr. Mnuchin that Relativitys use of the money that RKA advanced was

permissible under the terms of the Funding Agreement contradicts the Second Amended

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Complaints conclusory assertion that Mr. Mnuchin was aware that Relativity was misusing

those funds. Sud v. Sud, 211 A.D.2d 423, 424 (1st Dept 1995) (court need not credit

allegations consisting of bare legal conclusions, as well as factual claims either inherently

incredible or flatly contradicted by documentary evidence). By pleading that Mr. Mnuchin

received a legal opinion that Relativity was acting in accordance with its contractual rights under

the Funding Agreement, RKA has undermined the theory of its entire case against Mr. Mnuchin

and pleaded itself right out of court. See Bondi v. Beekman Hill House Apt. Corp., 257 A.D.2d

76, 81 (1st Dept 1999) (a motion to dismiss should be granted where the essential facts have

been negated beyond substantial question by documentary evidence), affd, 94 N.Y.2d 659

(2000).

Third, RKAs allegations that, from April to May 2015, Mr. Mnuchin had

access to general information about Relativitys finances (SAC 50, 73), was aware of a $50

million loan outstanding to OneWest (SAC 73), or was aware that RKA was negotiating a

forbearance agreement with Relativity (SAC 69) do not demonstrate that Mr. Mnuchin was

aware of or involved in any effort to defraud RKA. RKA does not allege that Mr. Mnuchin had

any involvement in negotiating the terms of RKAs forbearance agreement, that he had any say

in the terms of OneWests pre-existing loan to Relativity, or that he was aware of what, if any,

information had been provided to RKA during that time period concerning Relativitys financial

condition.6 Thus, RKAs vague and conclusory allegations do not permit an inference that Mr.

6
In addition, RKAs vague assertion that [e]ach borrowing from the [print and
advertising] Facility was done with the knowledge and consent of the Relativity Board (SAC
53) is unsupported by any facts demonstrating Mr. Mnuchin was aware of alleged
misrepresentations being made to RKA in connection with that borrowing. And even if it was,
RKA has pleaded that Mr. Mnuchin had been advised by counsel that such borrowings were
permissible (SAC 48), negating any plausible inference of fraud.

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Mnuchin, by virtue of [his] position[] and responsibilities within [Relativity], would have

participated in any purported misconduct. High Tides, 88 A.D.3d at 958-59.

RKAs scant allegations about Mr. Mnuchin are similar to those that Justice

Bransten held insufficient to plead a cause of action in North Valley Partners, LLC v. Jenkins,

2009 WL 1058162 (Sup. Ct. N.Y. Cnty. Apr. 14, 2009). Like RKA here, the North Valley

Partners plaintiffs sought to recover their lost investment in a bankrupt company by asserting

fraud claims against the companys former non-executive directors. Id. at *1. And like the

Second Amended Complaint here, the complaint in that case alleged that the companys

management had misrepresented the companys financial health to investors, and that the

director defendants must have been aware that the representations that these other defendants

were making were false and each participated in, approved of, and lent support to, the

Management Defendants in their fraudulent scheme. Id. at *2 (citation omitted). The court

rejected these allegations, because plaintiffs failed to allege the directors had made a single

misrepresentation of a material fact or otherwise . . . had any contact with any investor. Id. at

*6. And [e]ven where it is alleged that a document containing misrepresentations was prepared

with the knowledge, consent, authority, and/or assistance of all defendants, plaintiffs must

plead facts sufficient to establish how each defendant came to know that it contained

misrepresentations at the time it was distributed. Id. (citation omitted).

Here too, RKA fails to allege Mr. Mnuchin made a single misrepresentation of

material fact, and the Second Amended Complaint does not even attempt to plead facts

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suggesting that Mr. Mnuchin had contemporaneous knowledge of, consented to or authorized

any document to be distributed to RKA that contained a misrepresentation of material fact.7

D. RKAs Allegations About OneWest Do Not State a Claim Against Mr.

Mnuchin.

As it did in its first Amended Complaint, RKA attempts to equate some nefarious

intent to its allegation that OneWest seize[ed] approximately $50 million from Relativitys

accounts on May 30, 2015, after Relativity defaulted on a OneWest loan and after Mr. Mnuchin

left the Relativity Board. (SAC 45, 72.) RKA speculates that Mr. Mnuchin caused this

recoupment by virtue of his position at OneWest, and that the money recouped included a

substantial portion of money RKA advanced under the Funding Agreement. (SAC 72.)8

These allegations, which have nothing to do with RKAs complaint that it was fraudulently

induced to enter into the Funding Agreement and to advance funds thereunder, fail as a matter of

law to plead any claim, let alone one for fraud or negligent misrepresentation. In any event,

RKA does not have standing to assert a claim against Mr. Mnuchin based on OneWests conduct

as a creditor of Relativity. That claim, if it exists at all, belongs to Relativitys estate and should

have been brought in the bankruptcy that ended with a confirmed plan of reorganization and a

release for OneWest and Mr. Mnuchin.

7
Further, RKA has not even attempted to explain how Mr. Mnuchins limited knowledge
about the Funding Agreement or Relativitys performance under that agreement could constitute
some independent tortious act that is extrinsic to the contract.
8
The Second Amended Complaint contains contradictory and conclusory allegations that
appear to ignore well-settled corporate veil principles. Although RKA concedes that it was
OneWest that collected on a debt it was owed as a lending bank, RKA also alleges that Mr.
Mnuchin personally began seizing money from Relativity on May 30, 2015 based on
OneWests debt. (SAC 72.) But Mr. Mnuchin was no longer associated with Relativity at that
time and OneWests lending to Relativity is not alleged to have been anything other than an
arms-length lending arrangement between a company (Relativity) and a bank (OneWest).

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As set forth above, supra at 14-15, RKA has not alleged that Mr. Mnuchin owed

RKA any duty whatsoever (contractual, fiduciary or otherwise), particularly at a time when Mr.

Mnuchin was no longer associated with Relativity (on or after May 30, 2015). Nor has RKA

alleged that OneWest owed it any duty. Even if RKA could allege such a duty (which after three

tries it has yet to do), the Second Amended Complaint is entirely devoid of any factual

allegations demonstrating that OneWests conduct was in any way improper or unauthorized.

Indeed, RKA does not allege that it had any legal right to the money that OneWest seiz[ed] by

exercising its rights as a secured lender.

Moreover, RKAs conclusory allegation that Mr. Mnuchin was somehow

involved in OneWests actions is plainly contradicted by a document on which RKA expressly

relied in drafting its latest complaint. In responding to questions from the Senate Finance

Committee as part of his recent confirmation hearing to be the next Secretary of the U.S.

Department of the Treasury, Mr. Mnuchin made clear that he was not involved in any

discussion about, and his resignation from Relativitys Board was not related to, OneWest

sweeping funds from Relativitys accounts. (Ex. J (Questions for the Record, Hearing on the

Nomination of Steven Mnuchin to be Sec. of the Treasury, Senate Finance Comm., U.S. Senate,

January 2017) at 5.)9

Even if RKA had alleged some plausible misconduct by OneWest, RKA has no

claim as a matter of law. As a mere creditor, RKA has no standing to challenge Mr. Mnuchins

decisions as a Relativity Board member. See Lichtenstein v. Willkie Farr & Gallagher LLP, 120

A.D.3d 1095 (1st Dept 2014). And any purported derivative claim RKA could have made on

9
RKA selectively quotes this document in the Second Amended Complaint. (E.g., SAC
47 n.11, 50 n.12, 72 n.14.)

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behalf of Relativity against OneWest (or Mr. Mnuchin as an executive of OneWest) is barred by

the releases approved by the Bankruptcy Courts confirmation of Relativitys reorganization.

(Ex. K at 73 (at confirmation, Relativity shall forever release, waive and discharge all claims,

causes of action, or liabilities of any kind against the production loan lenders, including

OneWest and its officers and directors).)10

II. THE COURT SHOULD SANCTION RKA AND ITS COUNSEL FOR
REPEATEDLY ASSERTING FRIVOLOUS AND HARASSING CLAIMS
AGAINST MR. MNUCHIN.

This Court is authorized to impose sanctions in the form of costs and fees on

parties and their counsel where, as here, they pursue claims that are completely without merit in

law and cannot be supported by a reasonable argument for an extension, modification or reversal

of existing law, and where they assert[] material factual statements that are false or engage in

conduct that is undertaken primarily to . . . harass or meticulously injure another. 22

N.Y.C.R.R. 130-1.1(c)(1)-(3); Markov v. Spectrum Grp. Intl, Inc., 136 A.D.3d 413, 413-14

(1st Dept 2016) (affirming imposition of sanctions); Borstein v. Henneberry, 132 A.D.3d 447,

452 (1st Dept 2015) (affirming award of costs where plaintiff repeatedly t[ook] a position that

[wa]s not legally tenable and forced the defendant to expend unnecessary resources in

defense); Schwartzman v. Wertz, 153 Misc.2d 187, 189 (Sup. Ct. N.Y. Cnty. 1991) (Ramos, J.)

(imposing sanctions where, as here, there was not the slightest semblance of any basis for

joining [a] party as a defendant, and because subjecting them to extensive litigation expenses

cannot be tolerated). RKA and its counsel have engaged in all three types of misconduct here.

10
In reality, RKAs inability to recover its loans to Relativity as OneWest did was a
problem of its own making. As RKA has admitted in attempting to plead a legal malpractice
claim against its former counsel, RKA entered into intercreditor agreements that left it as an
unsecured lender with no ability to recoup[] any of the funds it provided to Relativity. (Ex. I
at 12, 73, 77.)

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The effect of this improper conduct is particularly serious here, where RKA filed

baseless claims accusing Mr. Mnuchin of fraudfor the second timewhile Mr. Mnuchins

nomination to be the next Treasury Secretary was pending. The mere fact that RKAs claims

were made, which in truth involve a run-of-the-mill corporate matter, triggered extensive press

scrutiny and calls from some that RKAs allegations should have a bearing on Mr. Mnuchins

confirmation before the Senate. While RKAs frustration is understandableindeed as RKA

alleges, Mr. Mnuchin and his related entities lost more money than RKAfrustration does not

justify accusing someone of fraud without any good faith basis to do so, particularly where RKA

and its counsel had to know that making such a claim against Mr. Mnuchin in the current

circumstances was certain to cause an outsized and very public reaction.

As this Court recognized in dismissing the mess that was RKAs first Amended

Complaint, RKA and its sophisticated counsel attempted to assert a fraudulent breach of contract

claim against Mr. Mnuchin, even though such a claim has never existed under New York law,

and Mr. Mnuchin (like most of the other defendants) was not a party to the Funding Agreement.

(Ex. G at 15:5-12.) Nevertheless, RKA continues to assert a legally and factually impossible

fraud in the inducement claim against Mr. Mnuchin.

RKAs repeated allegations and assertions that Mr. Mnuchin, as a Defendant,

made misrepresentations or induced RKA to enter into the Funding Agreement also are

demonstrably false. See supra at 5-8. There is no dispute that Mr. Mnuchin joined Relativitys

Board months after RKA entered into the Funding Agreement, and that Mr. Mnuchin has never

spoken to or interacted with RKA or its representatives. Further, Mr. Mnuchins counsel

repeatedly alerted RKA and its counsel to these fundamental flaws. Most recently, on November

12, 2016, after this Court announced its ruling dismissing the Amended Complaint, counsel for

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Mr. Mnuchin pointed out to RKAs counsel that Mr. Mnuchin was not properly part of this case

under this Courts rulings, and urged RKA to drop Mr. Mnuchin as a defendant. (Ex. F

(November 2016 Sacks Letter to RKA).)11 RKA ignored that request.

Further, RKA and its counsel plainly have harassed Mr. Mnuchin through these

meritless claims and false allegations, using them to garner media attention for its dispute with

others associated with Relativity. Since the President nominated Mr. Mnuchin to be Treasury

Secretary, RKA and its counsel have actively spread a false narrative that Mr. Mnuchin was

involved in a fraud. The very same day that Mr. Mnuchins counsel requested that Mr.

Mnuchin be dropped from this lawsuit, RKAs counsel was quoted by the Los Angeles Times as

saying that Steve Mnuchin played an integral role in executing that fraud and misappropriating

RKAs investment to his and others benefit, which is demonstrably false under RKAs own

pleadings. (Ex. L (Los Angeles Times Article) at 4.) Unsurprisingly, RKAs inclusion of Mr.

Mnuchin in the Second Amended Complaint also gained widespread media coverage. (Exs. M

(Wall Street Journal Article) and N (USA Today Article).) The fact that RKAs improper

conduct was continued when it became apparent, or should have been apparent, that the conduct

was frivolous, further supports imposition of sanctions here. Levy v. Carol Mgmt. Corp., 260

A.D.2d 27, 34 (1st Dept 1999).

RKAs efforts to drag Mr. Mnuchins name through the mud in its dispute with

others associated with Relativity have already imposed significant litigation costs and required

11
Prior to bringing its April 2016 motion to dismiss the Amended Complaint, counsel for
Mr. Mnuchin also wrote to RKAs counsel to point out that Mr. Mnuchin was not properly
named as a defendant, explaining why each claim was defective and requesting his dismissal.
Counsel for RKA sarcastically respondedjust two minutes after receiving the 4-1/2 page
letterwith the retort [t]hanks for your thoughts. (See Exs. D (March 2016 Sacks Letter to
RKA) and E (Clark Response to Sacks Letter).)

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Mr. Mnuchin to answer for allegations with no basis in fact or law. RKA and its counsel should

be held accountable for their conduct. Mr. Mnuchin respectfully requests that the Court sanction

RKA and/or its counsel, and award actual expenses reasonably incurred and reasonable

attorneys fees for responding to this frivolous lawsuit. 22 N.Y.C.R.R. 130-1.1(a).

CONCLUSION

For the foregoing reasons, the Court should dismiss all claims against Mr.

Mnuchin, and as the Court made clear at the last hearing when it told RKAs counsel it would

give them one last shot, that dismissal should be with prejudice. See Mobil Oil Corp., 202

A.D.2d at 319 (Leave to amend should not be granted where, as here, the proposed amendment

is obviously without merit). In addition, this Court should impose sanctions in the form of costs

and fees on RKA and/or its counsel for knowingly pursuing this frivolous litigation.

Dated: February 14, 2017

Respectfully submitted,

/s/ Robert A. Sacks

Robert A. Sacks
Andrew J. Finn
John P. Collins, Jr.
SULLIVAN & CROMWELL LLP
125 Broad Street
New York, NY 10004-2498
Telephone: (212) 558-4000
Facsimile: (212) 558-3588

Counsel for Steven Mnuchin

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