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Valparaiso Univ. Law School

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Sunday, April 27, 2008

"Greed Is Good" Guy Sued

Michael_douglas_navy3As TMZ.com puts it, "A guy that once starred in a movie with Michael Douglas, then became his business partner, is suing the Oscar winner, claiming he got screwed out of millions."  Now that's good reporting.  Want to know the details?  Well, TMZ says it's complicated but provides a link to the complaint, which alleges six causes of action including breach of contract and inducement to breach of contract, against Douglas and other individuals and business entities.

Plaintiff, Howard Zuker, aka Zack Norman, sues on his own behalf and derivatively on behalf of an LLC in which he has a 20% stake.  Plaintiff alleges that he managed the LLC while also active as a producer of Hollywood films.  The LLC's main asset seems to be a library of "owned or managed intellectual property rights."  Plainitff alleges that Michael Douglas prevented the LLC from advertising its existence, making it harder for the LLC to attract potential users of its assets.  Still, as of January 31, 2008, the complaint alleges that the LLC was involved in 31 active projects.

The complaint also relates the close personal relationship between plaintiff and Douglas.  According to TMZ, Douglas is plaintiff's former "BFF," but the complaint does not go that far.  It merely alleges that Douglas was kind to plaintiff and loaned him a lot of money.  The LLC was created to purchase a company that held the assets that are now the primary asset of the LLC.  According to the complaint, Douglas originally promised to put up half the capital necessary for that purchase but in the end put up much less, and the LLC was thus perpetually short of working capital.

Plaintiff alleges that he and Douglas created a joint venture agreement around January 2000 whereby the LLC would repay Douglas the loan he made at its founding plus 8% interest.  After that loan was repaid, the partners would share profits from the venture on a 50/50 basis.  But the complaint also alleges that Douglas made further loans to the LLC from 2001 to 2003 and that other parties who promised to provide capital did not perform.

Between 2002 and January 2006, plaintiff worked to created a new funding vehicle for the LLC, the AEHC Film Fund.  Plaintiff was supposed to receive a $1 million bonus for putting together the Film Fund, and he borrowed money from a banker (Baker) involved in the deal in order to tide him over until the work was completed.  In March 2006, according to the complaint, Douglas sent Plaintiff a new plan for the Film Fund, which was now renamed.  Under the new plan, the LLC's stake in the Film Fund would drop from 50% to 4%, with the remaining stakes going to film production companies controlled by Douglas and his wife. and the LLC would transfer its assets to a new entity, Granite-Glass, L.P. controlled by Douglas and Baker.  Recently, the LLC has stopped paying plaintiff his salary as manager and has refused to reimburse his business expenses.

Unfortunately, the complaint fails to allege that in pitching the new Film Fund to potential investors, Michael Douglas gave a rousing speech about the benefits of greed.

Plaintiff's main claim is for breach of fiduciary duty.  He seeks lost wages and the $1 million bonus he would have made for putting together the Film Fund.  He also seeks unspecified damages for harm done to the LLC.  Plaintiff's breach of contract claim is against the LLC, alleging that he is owed a part of his annual $192,000 salary as manager of the LLC.  Plaintiff names Baker as responsible for inducing the breach.

[Jeremy Telman]

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