## Facts

- A group of film-related companies used “Seven Arts” names and were managed by Peter Hoffman, including Seven Arts Pictures, Inc. (SAP), Seven Arts Pictures PLC (PLC), Seven Arts Filmed Entertainment Ltd. (SAFE), Seven Arts Entertainment, Inc. (SAE), and Seven Arts Filmed Entertainment Louisiana LLC (SAFELA).
- In 2006, a Seven Arts entity (through Hoffman) entered into a $1 million loan transaction with Arrowhead’s affiliated lender.
- The borrower entities defaulted, and Arrowhead obtained a roughly $2.5 million judgment against SAP and SAFE.
- Over time, SAP’s assets were transferred to SAFE, and SAFE’s assets and PLC’s business were shifted to SAE through a series of transactions that continued the operating business while leaving SAP and SAFE without assets.
- Corporate and regulatory filings described SAE as continuing PLC’s business and, in connection with the restructuring, reflected that SAE would take on some obligations associated with the prior enterprise.
- SAP and SAFE entered insolvency proceedings in the United Kingdom, and creditors recovered nothing.
- Arrowhead sued SAE and SAFELA in federal court seeking to enforce the note and judgment and to reach assets it claimed had been moved to avoid creditors.
- The parties filed cross-motions for summary judgment; Arrowhead also sought sanctions based on defendants’ conduct during the litigation.

## Issues

1. Whether SAE became liable on the note and the prior judgment through successor liability and/or express or implied assumption of obligations arising from the asset transfers and continuity of the enterprise.
2. Whether the asset-transfer history supported imposing liability on SAE to prevent evasion of creditor claims.
3. Whether SAFELA could be held liable on the same theories at the summary-judgment stage.
4. Whether defendants and their counsel engaged in bad-faith litigation conduct warranting sanctions.

## Decision

- Granted in part Arrowhead’s motion for summary judgment and denied defendants’ cross-motion.
- Entered declaratory relief that SAE was liable on the note and the state-court judgment to the same extent as SAFE.
- Denied summary judgment as to SAFELA, finding the record insufficient to impose liability as a matter of law.
- Imposed monetary sanctions on defendants and their counsel for bad-faith conduct during discovery and summary-judgment practice, including obstruction and frivolous evidentiary objections.

## Legal Principles

- A successor that continues the business of predecessor entities and takes their assets may be held liable for predecessor obligations where the circumstances show assumption of liabilities or an improper effort to leave creditors unpaid.
- Public filings and corporate representations regarding continuity and the taking on of obligations can support a finding of express or implied assumption of debt.
- Summary judgment is inappropriate where the record does not establish, as a matter of law, that a related entity assumed obligations or otherwise satisfies a recognized basis for successor or alter-ego liability.
- A federal court may impose sanctions under its inherent authority (and related procedural authority) when a party or counsel acts in bad faith and obstructs the litigation process.

## Conclusion

The court held SAE responsible for Arrowhead’s debt and prior judgment on successor/assumption grounds tied to the asset transfers and continuity of the Seven Arts enterprise, declined to impose the same liability on SAFELA at summary judgment, and sanctioned defendants and counsel for bad-faith litigation misconduct.


Arrowhead Cap. Fin., Ltd. v. Seven Arts Ent. Inc., 2016 WL 4991623 (S.D.N.Y. 2016)