PR guru fails in effort to collect $7.7 million

A Los Angeles judge on Friday blocked public relations executive Michael Sitrick from trying to collect on a $7.7-million legal judgment he won from Hollywood producer Ryan Kavanaugh more than five years ago.

Judge James C. Chalfant of Los Angeles County Superior Court found that Kavanaugh told the truth when he asserted at the time of the 2002 judgment against him that he was essentially penniless.

That assertion was the basis of a deal in which Sitrick agreed not to try to collect the money from Kavanaugh.

Sitrick will appeal the decision, said his attorney, Patricia Glaser. “We’re obviously disappointed,” she said. “We remain convinced that we have sufficient evidence” that Kavanaugh misrepresented himself as penniless to avoid paying the judgment.

Kavanaugh’s attorney, Carol Genis, said the “decision unequivocally confirms that Sitrick and his lawyers had no case here.”

“This is a great victory for Ryan Kavanaugh because truth prevailed,” she said.

Kavanaugh is head of Relativity Media, a West Hollywood investment firm that has co-produced such films as “3:10 to Yuma” and “Evan Almighty.”

A Feb. 16 story in The Times detailed his role as a promoter of an investment model that has produced some losses for Wall Street hedge funds backing Hollywood movies.

Chalfant’s ruling stems from a $6.2-million investment Sitrick made with Kavanaugh’s venture capital firm in 2001. A year later, he discovered that Kavanaugh had disregarded his express instructions to invest the money only in publicly traded companies. Instead, he had put it into a number of private start-ups that had become virtually worthless.

After an arbitrator ruled that Kavanaugh had been “clearly negligent” in managing the investment, Sitrick was awarded the $7.7-million judgment.

Kavanaugh, however, claimed that his losses in the dot-com bust had brought him to the verge of bankruptcy and that he could not afford to pay the judgment. The two then reached an agreement in which Kavanaugh would help Sitrick sue Kavanaugh’s corporate insurers for the money.

Sitrick said he later became convinced that Kavanaugh had stashed millions of dollars in offshore bank accounts when he claimed to be broke, and he attempted to collect on the old judgment. Kavanaugh sued Sitrick to forestall that effort.

In his ruling on Kavanaugh’s lawsuit, which followed a six-day trial last month, Chalfant concluded that Kavanaugh was indeed “impoverished” at the time of the agreement. He said he found no evidence that Kavanaugh had “squirreled away” money overseas, Sitrick’s key assertion.

On the contrary, he said, Kavanaugh “was literally living off relatives and friends. . . . People who hide money tend to live well, not from hand to mouth.”

Glaser, Sitrick’s attorney, said one possible point of appeal would be Kavanaugh’s failure to produce financial documents subpoenaed from a number of his subsidiary companies and partnerships, which she argued were required by law to be maintained and might have proved the diversion of substantial assets.

Kavanaugh claimed that the documents did not exist. Glaser said Chalfant’s ruling allowed Kavanaugh to be “rewarded for being a below-average record-keeper.”

But Chalfant wrote that “the issue is not whether the paper trail is complete for purposes of a criminal tax investigation. . . . [but] only insofar as it reflects on whether Kavanaugh moved money offshore or otherwise hid it.”

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michael.hiltzik@latimes.com