News

Funimation v. ADV Lawsuit Settled, Dismissed

A court document filed on May 16 with the Harris County district clerk reveals that Funimation's lawsuit against A.D. Vision has been dismissed on agreement of all parties. An earlier document filed on April 28 states that the lawsuit reached a settlement through mediation. Another court date is scheduled for June 2.

Funimation's legal representative, Evan Stone, stated to ANN, "We have mutually settled all claims in this litigation and dismissed the lawsuit and are satisfied with the result."

Section 23's Mike Baliff responded to ANN's request for comment with, "The dispute between the Parties has been resolved and the case has been dismissed."

History

Funimation's Original Claim

On November 4, 2011, FUNimation Entertainment filed a lawsuit in the district court of Harris County, Texas against John Ledford, as well as companies A.D. Vision, AEsir Holdings, Sxion 23 (A.K.A. Section23 Films), Valkyrie Media Partners, Seraphim Studios, Sentai Filmworks, Sentai Holdings, and Unio Mystica Holdings (A.K.A. Switchblade Pictures) for breach of contract and other claims. Ledford is the CEO and co-founder of A.D. Vision. In the lawsuit, Funimation claimed that the defendants owed Funimation "an amount to be proven at trial but currently estimated" to be approximately US$8 million plus interest, costs, and attorneys' fees.

Funimation's lawsuit alleged that it became a creditor of ADV in regard to a debt ADV owed ARM Corporation, which was a third-party licensing entity jointly owned by Sojitz Corporation and several other companies. The lawsuit notes that ADV had purchased anime licenses from ARM after May 2006, and in September 2007 defaulted on its payments to ARM. ADV lost the rights to more than 30 anime properties, and ARM began seeking a buyer for them.

ADV, in turn, sued ARM for breach of contract, breach of fiduciary duty, failure to provide proper notice of ARM's intended sale of the ARM titles, and seeking to pierce the corporate veil with an alter ego theory in April 2008. ADV sought a temporary restraining order to prevent ARM from selling the ARM titles. The state court of Texas denied the request. ARM filed a countersuit to regain control of its titles, which the court granted. ADV was ordered to pay ARM US$11,202,361.09 plus fees. ARM sold the rights to those titles to Funimation along with the debt owed by ADV in July 2008.

In the lawsuit, Funimation claimed that ARM also gave Funimation the right to enforce ARM's agreement with ADV, specifically in regard to the debt that ADV owed ARM — making Funimation a creditor. The suit alleged that ADV never paid this debt, and instead sold its assets for below market price to several companies owned by former ADV executives and shut down.

The suit went on to claim that ADV's transfer of assets "was made with the intent to defer, hinder or defraud the creditors of ADV," including Funimation, and that the new companies "succeeded ADV's contractual liability" in regard to the outstanding debt.

Funimation also requested that the court declare ADV's transfer of assets "as null, voided and without effect," restoring those assets to the parent company.

Counterclaim

On December 23, 2011, Sentai Filmworks, Seraphim Studios, Sentai Holdings, Valkyrie Media Partners, Unio Mysteica Holdings, AEsir Holdings, and Section23 Films filed a counterclaim against Funimation. The companies claimed, among other things, that they do not have a contract with Funimation and are not liable to the company. They claimed that the companies did not exist when Funimation acquired the rights from ARM to enforce ADV's contract with ARM. In addition, the companies claimed that Funimation's lawsuit was filed after the two-year statute of limitations, and that Funimation was not involved with the original contract and cannot claim any direct damages.

The companies asked that the court declare that Funimation's contract "is not a valid agreement binding on the Defendants," that the companies owe "no duties or performance of any obligations" to Funimation, and that Funimation pay for the companies' attorney's fees, costs, and expenses.

ADV's Third-Party Claim

On May 8, 2012, ADV filed a counterclaim and a third-party claim in the lawsuit. The claims are part of the ongoing lawsuit and are not a separate case. The parties named in A.D. Vision's third-party claim include Funimation, FUNimation Productions, LTD., AnimeOnline Ltd., Funimation GP LLC, Anime LP Holdings LLC, Funimation LP LLC, and Funimation CEO Gen Fukunaga.

In the counterclaim and third-party claim, ADV asserted that the case is "the culmination of Funimation's illicit scheme designed to obliterate competition in the market for Japanese anime." ADV also claimed that "Funimation is, or is dangerously close to becoming, a monopolist." ADV additionally claimed that Funimation's original claims "are a baseless attempt to drive out competition, and Funimation should be held accountable for its actions."

ADV claimed, among other things, that Funimation had violated the Federal Sherman Act and the Texas Free Enterprise Act. The company claimed that Funimation is "a monopolist in the various downstream [and upstream] markets for Japanese anime" or that it is "attempting to achieve a monopoly" in these markets and "is dangerously close to doing so." ADV additionally claimed that Funimation "willfully and intentionally" interfered with the agreement between ADV and ARM Corporation — which was a third party licensing entity jointly owned by Sojitz Corporation and several other companies — and that Fukunaga, Funimation, Sojitz, ARM, and Japan Contents Investments LPS (JCI) "conspired, agreed and otherwise had a meeting of the minds to defraud ADV."

ADV's counterclaim and third-party claim asked the court to judge in favor of ADV in Funimation's original lawsuit, judge in favor of ADV in ADV's third-party claim, and award ADV its "actual, consequential, direct, indirect, and exemplary damages," as well as its "attorney's fees, interests, and costs of court." Additionally, ADV asked the court to order that Funimation not attempt to "enforce any rights it claims to have secured from ARM and from obtaining any assets owned by the defendants," and grant any other "relief to which ADV and [ADV CEO and co-founder John Ledford] may be entitled in equity or law."

Judge Dismisses ADV's Counterclaim and Third-party Claim and Remands Case to State Court

U.S. District Court Southern District of Texas Houston Division Judge Keith P. Ellison dismissed A.D. Vision, Inc.'s (ADV) counterclaim and third-party claim against Funimation on May 20, 2013. In his court order, Judge Ellison denied ADV's Motion to Strike and granted Funimation's Motion to Dismiss.

On October 23, 2012, Funimation had filed a motion to ask the court to dismiss ADV's counterclaim. In the Amended Motion to Dismiss, Funimation claimed that ADV and Ledford's counterclaim "contained 25 causes of action ... and yet not a single clause is properly stated or legally viable." Funimation also claimed that "ADV and Mr. Ledford have suffered no injury that needs to be vindicated."

On November 11, 2012, ADV and Ledford filed a motion to exclude evidence listed in Funimation's Motion to Dismiss. ADV and Ledford claimed in its motion that Funimation "references and asks the Court to consider exhibits outside the pleadings." ADV and Ledford additionally claimed that these exhibits were not actually attached to Funimation's Motion to Dismiss and were attached to a previous filing in the case, were not referred to in ADV's original countersuit, are not central to ADV's claims, and are "subject to reasonable dispute." These exhibits referred to a previous case between ARM and ADV.

The Court denied the Motion to Strike, stating that the documents provided by Funimation are related to ADV's countersuit because the previous ADV/ARM case is related to ADV's coutersuit. Additionally, the documents attached to an earlier filing also do not fall outside of the court's jurisdiction when considering evidence.

The Court noted that ADV's third-party claim pleaded nine claims that fall into six categories, but the Court at this time only considered and ruled on one of the categories regarding a federal antitrust claim. ADV had claimed that it had been injured by an antitrust violation. (Antitrust laws regulate the conduct of businesses to promote fair competition.) The court decided that ADV "has not sufficiently alleged that FUNimation caused ADV's alleged injuries, nor has ADV alleged that the harms it suffered constituted an antitrust injury." The Court thus decided to dismiss ADV's federal antitrust claim, and said that without antitrust standing, "ADV has not pled a plausible federal claim."

The case was then remanded from federal to state court on June 14, 2013, and was designated as "trial ready" on September 10, 2013.

Thanks to ravegrl for the news tip.