EXCLUSIVE: A New York State judge dismissed a lawsuit filed by a dozen investors in Nerds, a musical about the tech titans Bill Gates and Steve Jobs that collapsed weeks before its first scheduled preview on Broadway.
The pre-trial victory for producers Carl Levin and Vicki Halmos illustrates the uphill battle theatrical angels face when trying to recover losses in court, even from a production that doesn’t make it to opening night.
In early 2016, the backers put $606,000 in Nerds, almost 10 percent of the $6.2 million minimum capitalization. Days after receiving the last of the checks, Levin — who was the lead producer of the show and is also the business manager of Tony Award Productions, which presents the Tonys — announced the indefinite postponement of Nerds, citing the loss of a major investor.
The investors, most of whom live in Florida or New York, alleged in court papers that the unnamed mystery backer never existed and that Levin misrepresented both the financial condition of the production and mismanaged it. They sued in 2018 for breach of contract, breach of fiduciary duty and fraud.
Zachary Kuperman, a lawyer for Levin and Nerds Broadway LLC, responded in a filing last year that any oral promises Levin was said to make are legally meaningless, because the investors agreed to rely on written representations. Kuperman also noted that the investors signed papers that authorized immediate use of their capital, without obligating the producers to pay refunds, even if the show never opened.
In siding with the producers, Judge Debra James cited the “business judgement rule” in her decision, which was filed on Monday. The judicial standard protects the decision-making of management or a corporate board from review unless a complaint makes a convincing case that decisions are tainted, such as those involving self-dealing. The judge wrote that the Nerds operating agreement gave the producers “broad managerial authority” and that the investors’ complaint failed to dispel the presumption that the producers’ action “was taken in good faith in what they thought was the best interests of the venture at the time.”
The lesson of the case’s dismissal: “If you’re suing your executive producer or partner of a limited liability company, you have to say more than, ‘we lost money,'” said Richard A. Roth, a litigator at the Roth Law Firm and a Broadway investor and co-producer. He added that it’s difficult for a theater investor to recover funds in court “unless you have real facts that money was diverted or they did something else that was incorrect.”
Instead of retrieving their $606,000 and earning punitive damages, the dozen investors must pay the producers’ court costs, which total $575.50, according to court papers.
Kuperman called the court’s decision “a total victory for us,” while declining an interview request. The investors’ lawyer, Ira Daniel Tokayer, didn’t return a call.
In other courtroom news, the four-year legal battle between the company that produced Shuffle Along, a musical that did open on Broadway in 2016, and its insurer, Lloyds, has been settled. Shuffle Along LLC, which is led by Scott Rudin, maintained that the pregnancy of its top-billed star, Audra McDonald, forced producers to close the show after just 100 performances, and the production should be compensated because it had taken out insurance in the event that she couldn’t perform “because of accident or illness.” Lloyds contended that the pregnancy was neither an accident nor an illness.
The New York Times‘ story is here.