• by Steve McClellan  @mp_mcclellan, April 4, 2017

The trustee for defunct media agency KSL Media has filed a brief with the U.S. Circuit Court (Ninth Circuit) in California appealing a lower court’s decision to summarily dismiss the trustee’s suit alleging breach of fiduciary duty by three of the firm’s former officers including founder Kal Liebowitz, former CEO Harold “Hank” Cohen and former CFO Russell Meisels.

According to the trustee, David Gottlieb, for years before its collapse in 2013, the agency’s revenues fell short of its operating expenses, and in order to keep afloat the agency used client dollars earmarked for ad purchases to make up the difference.

“This unsustainable method of 'robbing Peter to pay Paul' ultimately led to the collapse of KSL’s operations after it lost one of its largest clients, Bacardi,” the trustee stated in the appeal brief.

The lower court erred in its ruling that past precedent required Gottlieb to allege and prove "bad faith" on the part of the defendants, the trustee argued. He contended that the bad-faith standard applied to directors of a company, not its officers. Thus he asserted that the appeals court should remand the case back to the U.S. District Court for trial.

The former company officers, Gottlieb alleged, were repeatedly warned by outside accountants about the firm’s precarious financial position. The defendants, he added, "chose to ignore numerous and substantial dire warnings … but rather decided to act by maintaining the same failed course of action that over the years grew its working capital deficit from $1.5 million in 2001 to $32 million at the time it ceased operations" in September of 2013.

In the initial lawsuit against the three former KSL executives, Gottlieb told the District Court they were liable for a minimum of $6 million each to the KSL estate.