PROVO — Disney and a group of movie studio plaintiffs that just won a $62 million award against video filtering service VidAngel are claiming the Utah company is trying to hide assets ahead of the collection of those damages.
In filings with the U.S. Bankruptcy Court in Utah, the studio group said it believes a transfer of intellectual property from VidAngel to a company called Skip Foundation, Inc. on the eve of the damages trial was a "sham transaction" aimed at concealing assets.
"On June 10, 2019, the day before the damages trial in the California action was set to begin, (VidAngel) executed a contract pursuant to which it agreed to transfer its valuable intellectual property assets to an entity named Skip Foundation, Inc.," the filing from June 14 reads. "This is a brazen attempt to shield its assets from the substantial money judgment that is about to be entered against it in California."
According to state records, Skip Foundation, Inc. registered as a Utah nonprofit company on June 10, 2019. Bill Aho, former CEO of ClearPlay, another Utah-based video filtering service, is shown as the registered agent in that business registration.
VidAngel filed for Chapter 11 bankruptcy in October 2017. The preceding has been on hold pending the outcome of the company's defense of a lawsuit centering on copyright issues filed by Disney, Warner Bros., 20th Century Fox and other studios in 2016. A California federal court jury earlier this week awarded the plaintiffs' $62.4 million on a finding of willful copyright infringement.
In the same June 14 bankruptcy court filing, the studio group also claims VidAngel earlier this year improperly sold equity to another business owned and operated by VidAngel CEO Neal Harmon and appealed to the court to appoint a trustee to review and oversee VidAngel's transactions.
"This improper transfer is compounded by (VidAngel's) recent sale in January 2019, without court approval or any transparency, of the debtor's equity interest in VAS Portal, LLC to Harmon Ventures, LLC ("Harmon Brothers"), an entity owned and managed by (VidAngel) CEO Neal Harmon, for $1, and (VidAngel's) subsequent loans to VAS Portal, also done without court approval, of at least $100,000," the filing reads.
In the filing, the plaintiffs also ask the court to appoint a Chapter 11 trustee and claim that VidAngel's bankruptcy precludes it from transferring assets or making "substantial loans to its former entities" without court approval. The studio group also claims that "Chapter 11 debtors … cannot without consequence engage in, or even attempt to engage in, fraudulent conduct designed to hinder, delay or defraud their creditors."
In a statement, Harmon said the studio group has been aware of details raised in the filings, including the transfer of assets to the new nonprofit company.
"The studios have known about the $1 transaction and $1 option to purchase back since April," Harmon said. "It's in our public filings to all our investors. They've known about putting the filtering assets into a nonprofit even before we told the bankruptcy court. Any assets being transferred must be approved by the BK (bankruptcy) court and must take into account the judgment against VidAngel.
"Post trial, I've sent Disney's CEO a letter on how we can make the studios whole and give families what they're asking for. He has yet to respond. It's available for the public on VidAngel's blog."
A subsequent plaintiffs filing with the bankruptcy court, dated June 21, asks that the court convert VidAngel's current Chapter 11 status, which allows a company time to formulate a financial plan and reorganization to address outstanding debt to a Chapter 7, or liquidation bankruptcy, in which the court oversees a sell-off of unexempt assets to pay creditors.
"Conversion of the bankruptcy case to Chapter 7 is appropriate … and is the only option to prevent (VidAngel) from squandering the estate's remaining assets," the filing reads.
The studio group also asserts that at the start of the copyright action some 20 months ago, VidAngel had $3.5 million in cash and over $6 million in assets but was now down to $1.8 million in cash and less than $3.9 million in total assets.
"The time has come for this Chapter 11 case to transition into Chapter 7," the filing reads. "VidAngel must stop wasting assets that belong to its creditors, not VidAngel. Under the (bankruptcy) code, a Chapter 11 case should be converted for 'cause,' which is shown by a 'substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of reorganization.'"