Some shareholders have asked for an update on the litigation matter between Hannover House and the National Bank of California. As of Friday, the court finally made a ruling that was exactly what the attorneys for Hannover House had been seeking (and was not what NB Cal had been seeking).
As a point of background, Hannover borrowed "Prints
& Ads" funds from NB Cal for the release of the film "All's Faire
In Love." The original draw down
against the $500,000 credit line had
been reduced down to about $320,000 during the first year, and an
"oral" agreement had been made between Hannover House and the bank
officers to extend the note for another year.
The rationale' behind the extension of the note was that the
subscription V.O.D. payments from Netflix were substantial (about $225,000 gross), and that ongoing home video sales and a
pending sale to Basic Cable TV would fully retire the balance.
In support of the agreement to extend the note, NB Cal sent
documents to Hannover House, which were promptly signed and returned to the
bank. However, unbeknownst to Hannover
House (and as testified, to the Bank as
well), one of the documents referred to in the amended note was not sent to
Hannover House. The first quarterly
installment was due at the end of January, 2013. During the final months of 2012, the bank
officer at NB Cal left and was replaced.
In early January, rather than contact Hannover House to determine the
status of the "missing document," the bank's attorneys preemptively
filed a lawsuit for breach of the original note. During discovery, it became clear that it was
the bank's negligence in not sending the missing document to Hannover House to
fully complete the amendment agreement.
When this document was finally provided (June, 2013), Hannover House
promptly signed and returned it, along with an agreement to immediately
"catch up" on payments that Hannover had withheld as a result of the
lawsuit being filed. The bank did not
accept these terms, and pressed forward in hope of also winning the right to
collect additional penalties and attorney's fees. Rather than accept this obligation (about $100,000), Hannover instructed
counsel to file an opposition to some aspects of the bank's filing for judgment,
but not disputing the actual balance due.
The point that Hannover wanted to make was that the bank should have NEVER
filed the lawsuit... that all of the documents provided to Hannover House were
promptly signed... and that quarterly payments stopped only after the bank
filed the lawsuit. The court had to
review a tremendous amount of evidence and pleadings. but ultimately agreed with
the conclusions of Hannover's position.
In her opinion released last Friday, U.S. District Court
Judge Margaret M. Morrow writes "...
it is therefore now undisputed that defendant signed the note, delivered it to
NBC, and that the amendment has taken effect" (page 9, line 6). As a result, the attempts by NBCal's attorneys
to enforce interest penalties (and to
add-in their own legal fees) was denied, and the amount determined as owed
was precisely the amount that Hannover House acknowledged and was performing on
prior to the filing of the lawsuit. As
oft stated in our filings to the court (and
our disclosure documents on the OTC Markets site), Hannover never denied the
validity of the loan balance; the Company only disputed the due date of the
loan and the bank's subsequent attempts to charge penalties and legal fees.
In her Conclusion, Judge Morrow writes: "... For the reasons stated, the court grants in part and denies
in part NBC's motion for partial summary judgment" (Page 15, line 2).
The amount due on this item is the amount that Hannover has
listed in our payables and disclosures, namely $331,466, plus $25,574 in
interest. The Company expects this debt
to be fully covered by the balance remaining on the Netflix SVOD contract, plus
the Basic Cable TV sale and current home video (budget bin) revenues. Hannover
was very pleased with the quality of the legal work and pleadings from our L.A.
Counselors, Mark Hankin and Nima Darouian.
While there are certainly "performing obligations"
still active as a result of prior litigations, Hannover House is pleased to
hear from our corporate counsel that there are no other "open cases"
awaiting adjudication before the courts.
The long struggle to overcome the debts from "Twelve" (and that title's impact to our cash flow),
has made it past the court-litigation stages and is now a part of our
performing debt obligations. Removing the distraction and cost of defendant litigation
is a major step forward, and marks the closing of a journey we do not wish to ever
travel on again.