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Cinedigm Seeks $30 Million in Damages From Gaiam Vivendi Entertainment Acquisition

12 Feb, 2015 By: Erik Gruenwedel

Cinedigm Feb. 12 filed a lawsuit against Gaiam Inc. regarding its $51.5 million acquisition of Gaiam Vivendi Entertainment (GVE) in 2013, according to a regulatory filing. Cinedigm is also pursuing separate arbitration with Gaiam on the matter before the American Arbitration Association.

Cinedigm is seeking more than $30 million in damages, in addition to unspecified compensatory damages, attorneys’ fees, costs and interest, resulting from the acquisition.

Specifically, Los Angeles-based Cinedigm alleges Gaiam materially breached financial details within GVE, including working capital. It claims Gaiam engaged in “fraud and tortious [litigious] acts” in connection with the sale, including the non-collection of accounts receivables, transfer of cash from collected accounts receivables, and mishandling post-closing collections, among other charges.

At the time of acquisition, Gaiam cited multiyear relationships with numerous content suppliers, including WWE, NFL, Hallmark, National Geographic, Discovery, Scholastic and The Jim Henson Co. It also had key direct sales and marketing relationships with most major physical and digital retailers such as Walmart, Target, iTunes, Netflix and Amazon.

“Obviously, we are disappointed at this point that we have to resort to the courts to resolve the dispute, but Gaiam really gave us little choice. But we're very confident in the merits of our case and that we're going to prevail in the matter,” said Cinedigm CEO Chris McGurk on the company's Feb. 12 fiscal call.

Boulder, Colo.-based Gaiam operates a health and fitness business, which includes packaged-media workout videos by Jillian Michaels, among others. It disputes Cinedigm’s allegations and filed its own arbitration claims seeking working capital reimbursement from Cinedigm of more than $6 million.

Eric Wold, analyst with B. Riley & Co., said Cinedigm’s elevated damage claim (from $14 million) and pursuit of legal recourse underscores the case’s fiscal impact. Wold said $30 million would represent 16% of the company’s share price.

“While it is impossible to speculate on the outcome or timing, we believe the post-acquisition difficulties have been clear,” Wold wrote in a Feb. 13 note.

Mediation efforts between the two companies in January were unsuccessful.

Arbitration before the American Arbitration Association is final and binding, subject to review by a court only on a very limited basis, according to a Cornell University Law School brief on the matter.

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