Baseless: RHI Entertainment Hit with Class Action Suit

| About: RHI Entertainment (RHIE)

As a shareholder, I am incensed that the company will have to spend money to defend garbage like this. Let’s look at this poster child of abuse of the US civil litigation system. The definition of frivolousYou can download a copy of the suit here (.pdf):

Essentially it charges that the following statement in their IPO filing was intentionally misleading:

They claim:

Essentially they are claiming that RHIE execs should have predicted in June 2008, the collapse of Lehman Brothers (OTC:LEHMQ) in the fall 2008 and the utter collapse of credit markets that followed. If this holds, expect thousands of shareholder suits against almost every other company that failed to predict the same scenario and saw business suffer as a result.

Let’s look at what RHIE execs did say.

After the quarter ending 6/30/2008m when business conditions were still strong (click to enlarge):

Then, after the quarter ended Sept. 30th (reported Nov.):

Key phrase:

Mr. Halmi continued,

Current economic conditions have presented challenges for all companies, RHI included. As a result, the number of productions we will deliver in 2008 will be reduced to between 30 and 35 films.

This was in the immediate aftermath of the Lehman collapse and the carnage that struck. The firm bringing this suit would like us the believe and accept that RHIE execs should have predicted in June the conditions in Sept/Oct of that year that non other than Ben Bernanke, Hank Paulson, Members of Congress etc. have said nearly caused the “world financial system to collapse”.

Really? Is this a joke?

What did RHIE actually deliver DESPITE what happened that fall?

Production revenue totaled $79.5 million in 2008, compared to $133.1 million in the prior year. During 2008, the Company delivered 35 movies (eight miniseries and 27 MFT movies), compared to 43 movies (five miniseries, 37 MFT movies and one episodic series) in 2007. The decrease in production revenue resulted primarily from a decrease in the average revenue per MFT movie and mini-series, as well as the aforementioned decrease in the number of MFT movies delivered in 2008.

So, they are getting sued because they said they would deliver APPROXIMATELY 40 movies in June, the world economy ground to a halt that fall, they then said they would deliver 30-35 and still hit the high end of that.

This is essentially extortion. “Pay us a settlement or we will run up your legal costs and waste management’s time” is what this is all about.

Shareholder won’t get squat from any settlement (maybe a $5 rental ticket for an RHIE movie at Blockbuster (BBI)) while the “lawyers” in the case reap hundreds of thousands (millions?) in legal fees for simply giving management the unpleasant choice, “pay us or pay your lawyers to defend the malignant litigation”.

I will follow this. My hope is that the filing gets used for what it it worth, toilet paper.