Arrowhead Capital Finance, Ltd. v. Seven Arts Entertainment, Inc.

Lender Arrowhead Capital Finance, Ltd. (Arrowhead) (plaintiff) sued Seven Arts Entertainment, Inc., and affiliate Seven Arts Entertainment Louisiana (collectively SAE) (defendants) to recover a $2.5 million judgment Arrowhead obtained against SAE’s bankrupt predecessors. Peter Hoffman formed five film-related companies incorporating the name “Seven Arts” over a 12-year period and was chief executive officer or managing director of all the companies. Hoffman incorporated Seven Arts Pictures, Inc. (SAP), in Nevada in 2002. In 2004, Hoffman acquired a business in the United Kingdom, renamed it Seven Arts Pictures PLC (PLC), and formed wholly owned subsidiary Seven Arts Filmed Entertainment Limited (SAFE), which purchased all SAP’s assets. In 2006, Hoffman signed a promissory note on behalf of SAP, PLC, and SAFE to repay Arrowhead $1 million. In 2010, PLC moved to Nevada by transferring all its assets to SAE, including all the shares of SAFE, making PLC SAE’s wholly owned subsidiary. In regulatory filings, PLC said SAE had acquired some of PLC’s debts and that the transfer would not materially change PLC’s business or operations. In January 2012, Hoffman transferred all SAFE’s assets to SAE, again with filings that acknowledged SAE was continuing PLC’s business as its successor. In sum, SAP sold all its assets to SAFE, which sold all its assets to SAE. Their shares went directly to the shareholders of the acquiring companies, bypassing creditors and leaving SAP and SAFE without assets and unable to pay debts. Both entities went through involuntary liquidation proceedings in the United Kingdom, but creditors recovered nothing. Meanwhile, SAP, PLC, and SAFE defaulted on the Arrowhead note. Arrowhead obtained a $2.5 million judgment against SAP and SAFE and sued SAE to collect. Both sides moved for summary judgment. In part, Arrowhead requested a declaration that SAE had assumed PLC’s obligations under the note.