Cinedigm Sues Gaiam Claiming Fraud Over 2013 Division Deal

Cinedigm Corp. accused Gaiam Inc. of overvaluing the working capital of the home-entertainment division that it sold to the New York-based film distributor for $51.5 million in 2013.

Cinedigm seeks a judge’s order requiring arbitration of its claim that Gaiam’s working capital calculations were a “complete sham and fraud,” according a complaint filed Wednesday in Los Angeles County Superior Court.

The acquisition of Gaiam’s entertainment unit in October 2013 was expected to add more than $15 million of annual earnings before interest, tax, depreciation and amortization, Cinedigm said at the time.

Cinedigm said in a November regulatory filing that it was seeking a working capital adjustment in excess of $13 million, and that it had notified Gaiam in August 2014 of claims it was making as a result of the acquisition. Those claims related generally to alleged misrepresentations of its finances and business.

Cinedigm said in Wednesday’s complaint it has identified more than $30 million in claims, a substantial part of which is recoverable as working capital adjustments.

Lynn Powers, the chief executive officer of Gaiam, didn’t immediately respond Wednesday to a phone message seeking comment on the lawsuit. Lawyers representing the company at Brownstein Hyatt Farber Schreck LLP didn’t immediately respond Wednesday to an e-mail message seeking comment.

‘Little Choice’

“Obviously, we are disappointed that we had to resort to the courts to resolve this dispute, but Gaiam gave us little choice,” Jill Newhouse Calcaterra, a spokeswoman for Cinedigm, said in a statement. “We are confident in the merits of our case and that we will prevail in this matter.”

Cinedigm assisted theaters in the transition from film to digital over the past decade. It is now a global distributor of independent content and its film library includes documentaries and independent movies.

Cinedigm fell 2.4 percent to $1.60 Wednesday in New York, where the company is based. The shares have declined 44 percent in the past 12 months.

Gaiam, a Louisville, Colorado-based maker of lifestyle, fitness and yoga DVDs, dropped 3.4 percent to $7.06 and is up 4.4 percent over the past year.

The case is Cinedigm Corp. v. Gaiam Inc., BC572217, Los Angeles County Superior Court.

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