Erik Everhard Awarded $141,000 In Red Light District Lawsuit
By: Mark Kernes
Posted: 12/18/2007
CHATSWORTH, Calif. — Normally, the party in a lawsuit that receives a check is the winner, while
the party that writes the check is
the loser ... but in the case of Erik
Everhard Entertainment vs. World Wide Red Light District, RLD Distribution and
David Joseph, both sides are claiming victory ... and to the outside
observer, the attorneys for each side make compelling cases for their
positions.
For instance, it's uncontested that on Tuesday, the jury in
the two-week-long trial awarded Everhard $141,000 for breach of contract by
World Wide and RLD Distribution, and for "conversion" – that is,
failure to return inventory and/or master disks/tapes to Everhard after the
contract was terminated – by RLD Distribution, with Joseph, a principal in both
companies, having been dismissed from the suit halfway through the trial, at
roughly the same time that RLD Distribution was added as a defendant.
However, that's about where any agreement between the
parties ends. Sean Macias, Everhard's attorney (and one of the big winners in
the Evil Angel/Jules Jordan piracy case), claims that World Wide Red Light
District and its successor corporation RLD Distribution owe Everhard $474,000 – reduced from an earlier claim of nearly $650,000 when Red Light provided
receipts and invoices shortly before trial.
Red Light's lead counsel Larry
Isenberg, on the other hand, disputes that figure, claiming that the company's
own account books show that Everhard is owed a mere $52,000, which is roughly
the amount Macias says Red Light offered Everhard just before trial began – and
even that figure is contested!
Isenberg responds that his client offered Everhard over $100,000 several months
earlier, which offer, Isenberg says, was rejected.
So who won?
"They offered us $50,000 the day before the
trial," Macias told AVN, "and we got three times that amount in our
win, so I think the jury spoke. It wasn't exactly what we wanted them to say,
but it's our win and it's great that Erik was able to stand up for his rights
and not to be bullied."
"I saw the result as being a favorable result for Red
Light District, because we prevailed on 12 of the 15 claims that had been
asserted by the plaintiff in the case," Isenberg countered. "We
defeated any claim for punitive damages which plaintiff wanted in this case,
and the plaintiff initially was seeking $639,000; that went down to about
$475,000 by the time of trial."
The lawsuit stems from an oral contract between
World Wide and Everhard, where Everhard agreed to allow World Wide to replicate
and distribute 23 of his movies, with Everhard receiving 70% of the net profits
and World Wide 30%, at a minimum wholesale price of $8 per unit.
But how much was actually
owed?
"The amount that our records showed due and owing was
$52,000 and change," said Isenberg, "so those are the numbers, and
again, the jury rejected the analysis of their expert accountant Mr. Sills and
basically did some of their own math and gave them an additional $89,000. I
don't know where that came from, but I'm fairly certain it did not come from
the analysis done by Mr. Sills, because the numbers he was putting out were
dramatically higher than the $89,000. So I'm not sure how the jury did its math
and its analysis but ultimately that's what they came up with. And as I said,
the costs, between the experts' fees and the attorneys' fees and other costs of
bringing this to trial for the plaintiff more than eats up that additional
$89,000."
Au contraire, says
Macias.
"This is where it gets so crazy," Macias
explained. "We asked them for all the documents. It was a two-tier
process. We went in there, we did a physical inventory, August 6, 2006, two
days after the lawsuit was filed. With that, we asked them where everything was
located, and we discovered that there were 14,000 missing units. Even their own
inventory documents showed that there were negative numbers in their inventory;
what should have been there and what was there was negative, and what should
have been there was positive on something else. We said, okay, we would like to
do an audit, and they said okay, and we said we want back-up on everything over
$3000, and we want to take a look at all payments to Erik Everhard
Entertainment and we want to take a look at the replication. During this audit,
we found out that they were overcharging us a dollar for a single disk and
$1.75 for a double, which was not part of the original oral contract. And when
pushed on it, they said, 'Well, that was because of packaging and storage.'
Well, as you know, these disks came already packaged, and then they said,
'Well, it's for printing.' We said, 'Well, you're already billing us for
printing.' Then we discovered that David Joseph would write huge amounts of checks
to [replicator] Cam and to [art house] Vance Photo and get these huge
discounts. Like he would write a check for $100,000 and get work valued at
$150,000 or $125,000. So there you would expect the benefits to trickle down.
None of that was done."
"The second thing we fought over was, there was cash
payments," Macias continued. "As David Joseph called it, 'I gave
[Erik Everhard] bricks of cash' – that's a real nice way to call it – '$25,000
at an El Pollo Loco; $15,000 in the hallway on a Saturday' – and there were no
receipts. We denied that we got any of those bricks of cash. And the third
thing was, there were supposed to be wire transfers that were counted against
my client. There were checks written to cash, and they were cashed either by
the bookkeeper or [former Red Light partner] Dion Giarrusso, and then they were
allegedly wired by Western Union, so you would expect a Western Union receipt.
There was none of that."
"Then we had the coup de grace, which I love the best,
was David Joseph on the stand testifying, when I asked him, 'Did you get
anything else besides cash or checks for the goods sold for Erik Everhard
Entertainment?' Answer: 'Yes.' 'What was it?' 'Well, I got cars.' 'Oh, you
did?' 'Yes, I did.' 'What type of cars?' 'I got a Cadillac Escalade.' And I
said, 'Well, how would you book that?' And he's like, 'Well, this would be for
multiple directors.' So I said, 'So, what? Would you give a steering wheel to
Erik Everhard and a tire to Mike John?' The jury got the idea. But the problem
with that is that we're in Chatsworth and they [the jury] thought $140,000 was
a lot of money, and we got them on all counts on the breach of contract and the
conversion by Dion Giarusso of the theft in 2003."
(Giarrusso, once a partner with half-brother David Joseph in
World Wide Red Light District, was accused in late 2003 of certain
improprieties related to the business, and the two parted company, with Joseph
retaining control of Red Light.)
Of course, that's not how Isenberg sees it.
"We produced to the other side reams of receipts and
invoices and checks, etc. – back-up support, basically – and they finally went
down from $639,000 to I guess $475,000," Isenberg recounted, "so that
difference, they ultimately acknowledged that we provided support for, but they
still went into this trial and argued to the jury during closing that they were
entitled to $475,000 more and we, meaning Red Light District, argued to the
jury that we only owed $52,000. So what ended up happening is, the plaintiff
received $89,000 more than everybody agreed upon, basically, and the way I saw
it was a resounding defeat for Mr. Everhard or his company because they could
have basically gotten that through a voluntary settlement months ago, and I'm
sure it cost them quite a bit of money to bring this case to trial."
And what of the "bricks of cash," as Macias
characterized it?
"We paid the plaintiff some cash, sure," Isenberg
agreed. "There were company records produced at trial to show that these
transactions occurred: Banking records, wire transfer records, journal entries
on the company's accounting software that tracked each and every payment."
And the SUV?
"I would not say that that's an accurate analysis of
what happened," Isenberg disputed. "There was apparently one instance
where we received a vehicle as part of the transaction, but I want to make it
very clear that the vehicle was sold for its fair market value, and the
proceeds of that sale credited to the various accounts to which payments were
due."
One remaining bone of contention is the master tapes and
disks used to create saleable product. Macias claims that although his client
had an agreement with World Wide not to sell any Everhard product after the day
Everhard filed suit, January 4, 2006, that Everhard was not made aware that RLD
Distribution had been incorporated and opened for business four days earlier,
and Macias argued to the jury that RLD, as World Wide's successor, sold
Everhard product for nearly nine months after the date of the agreement.
"Finally, we had to go in there and do a destruction of
all of the movies," Macias summarized. "And on top of that, they
didn't return any of the masters or DLTs or the VHS. We still don't have them,
and they said they destroyed them, but we just don't believe them. There was an
entry on their books for a remaster of one of the movies, and you know how this
business goes: Why would you remaster something if you're not selling it?
That's what I told the jury: 'I'm from Indiana. I don't put my gloves on and my
hat on if I don't walk outside.'"
Isenberg flatly denies that claim.
"My understanding is, those [masters] were all returned
long ago," he told AVN. "If
Red Light has in its possession any of those, I don't see any reason why they
would not give them back, but I don't believe Red Light has any such things at
this point."
Macias doesn't deny that Everhard could recreate the masters
from the source material still in his possession, but he considers it bad faith
on RLD's part not to have returned them.
But like so many issues in this suit, the question of
whether or not masters were returned remains open ... and with both sides
claiming victory here, it's doubtful that a judge and jury will ever have an
opportunity to try to sort that out.
And that, as they say, is what makes horse races.
