Drabinsky-Livent Suits

Drabinsky-Livent Suits

Theatre impresario Garth Drabinsky hailed the April, 1998 arrival of a team of executives led by superagent Michael Ovitz as a blessing. Sure, it meant that Drabinsky and his longtime partner Myron Gottlieb would have to relinquish control of Livent Inc., their Toronto-based live theatre company. But Drabinsky clearly held Ovitz in high esteem - in his 1995 autobiography, Closer to the Sun, the Livent chairman and CEO had described him as "the supreme dealmaker in Hollywood." More important, Ovitz, American financier Roy Furman and a group of investors would be putting $30 million into Livent, bolstering the sagging fortunes of the company, which had produced such hit musicals as Show Boat and Ragtime and helped make Toronto one of the world's major theatrical centres. "I am finally able to do what I really want to do now, for the next 20 years of my life," Drabinsky, who was demoted to vice-chairman and chief creative director, told Maclean's. "I am a happy man."

The happiness was short-lived. On Nov. 18, Livent fired 49-year-old Drabinsky as well as Gottlieb, who had been named Livent's vice-president of Canadian administration. The company is suing Drabinsky and Gottlieb for $225 million in damages. Livent's statement of claim, filed at the Ontario Court (General Division), reads like the plot of a John Grisham thriller. It alleges that Drabinsky and Gottlieb committed a string of transgressions, stating that "Drabinsky and Gottlieb conducted themselves in an entirely dishonest and fraudulent manner throughout every aspect of their dealings with Livent." It charges the pair with accepting $7.5 million in kickbacks, keeping a hidden set of financial records and perpetrating a host of accounting irregularities. The claim goes so far as to accuse Gottlieb of misappropriating 6 million company air-mile points (valued at $100,000) for his personal use. None of the allegations has been proved in court. Along with the civil suit, Livent's affairs could also be raised in criminal court. RCMP spokeswoman Michelle Paradis says the Mounties are "in the preliminary stages of an investigation" into the company's activities. In the United States, the FBI is also reported to be investigating. Meanwhile, the Ontario Securities Commission began an inquiry in August, and the U.S. Securities and Exchange Commission has reportedly taken depositions from senior Livent accounting staff.

Once the toast of the world's theatre community, Livent is now a disaster. On Nov. 18, the company was declared insolvent and filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Livent also announced two years of restated financial results, wiping out $85.1 million of earnings, along with $334 million in debt and $309 million in assets. On Nov. 19, after the Canadian Imperial Bank of Commerce refused to extend a $50-million line of credit, the company received an emergency bail-out of $8.5 million raised by seven Livent directors, including Ovitz and media mogul Conrad Black. It arrived the same day that Livent filed for protection from its 15,000 Canadian creditors under the Companies Creditors' Arrangement Act. Furman places the responsibility for the company's demise on Drabinsky and Gottlieb. "The massive scale of the accounting irregularities and inappropriate business practices uncovered at Livent has left us no choice but to file for protection," he said in a written statement.

Drabinsky quickly answered Livent's opening salvo. The afternoon after being hit, he filed a $100-million suit against several Livent players, including Ovitz and Furman. Gottlieb is also expected to file a claim. Drabinsky and Gottlieb called Livent's restatement "an accounting sleight of hand." They argue that Furman and other Livent executives conspired to wrestle control of the company from them and shift blame for the new management's shortcomings onto the outgoing regime. "The lawsuit is a sustained effort to discredit Drabinsky and Gottlieb," says Drabinsky spokesman David Weiner. "This is a way for them (Livent) to buy some time and build sympathy. The lawsuit allows them to make serious allegations that, were they not contained in a court document, would be considered libelous. They call it taking a bath. You come in, wipe it clean and put the blame on the heads of previous management."

The dispute ignited last July. Livent's new management team - headed by Furman, who replaced Drabinsky as the company's chairman and CEOÐclaimed they discovered "accounting irregularities and inappropriate business practices." On Aug. 10, trading in Livent stocks was halted on the Toronto Stock Exchange and later on the U.S. Nasdaq exchange. Drabinsky and Gottlieb were suspended shortly afterward. Livent then initiated an aggressive internal audit. The results, released last week, show a company on life support. Livent reported a second-quarter loss of $45.8 million, compared to a $15-million net loss during the same period in 1997. On Nov. 20, the trade halt was lifted and the market reaction was quick, and negative. Livent shares closed that day at 45 cents, a far cry from the level of $10.15 when the halt was imposed. Its market value in August was $211 million, on Nov. 20 it was $9.4 million. For the second time in a week, Moody Investors Service in New York City downgraded Livent's debt, warning that the company could face liquidation. Livent also announced plans to sell off their four theatres in Toronto, Vancouver, Chicago and New York City.

Some doubt that the lawsuits will ever go to court. A lawyer close to the case told Maclean's that they will likely be settled out of court before the cases go to the discovery stage, where evidence is first presented. Meanwhile, actors, directors and other theatre professionals are worried about fall-out. Livent's productions were income generators. "Investors consider the theatre a risky business and this, perhaps, will scare them," says Toronto actor Al Waxman. "But you don't knock Garth Drabinsky out of the ring. He is a man who has gone through a number of careers in one short life span." He is also a man with a self-professed sense of history. Shortly before the Ovitz takeover, Drabinsky declared: "I just want this company to thrive for many generations. I don't want it to be a comet. I want it to be around and to provide great contributions to the arts long after I decide to truly leave the business." He may not get his wish.

A Life of Ambition and Bombast

Garth Drabinsky hates to lose - and does anything he can to avoid it.

Actor Christopher Plummer, in his foreword to Drabinsky's 1995 autobiography Closer to the Sun, wrote that as a young child, Drabinsky was already planning "to do battle with the future demons and dragons that would attempt to bar the gateway to his treasures." Sure enough, when Drabinsky learned in 1986 that rival Famous Players Inc. had not renewed a lease covering one half of a six-screen movie theatre it ran, he pulled one of his most famous escapades. Drabinsky took over the lapsed lease and brought in workers to fence off half the building, including the entrance. The move was in response to slights Drabinsky felt he had suffered from Famous Players: his message, he said later, was "don't ever, ever, ever try to hurt me again."

Drabinsky's life has seemed as improbable as some of the theatrical productions he has staged. He was a character given to bullying, bombast and boasting, with the ambition and drive to build two companies - Cineplex Odeon and Livent - into huge successes, only to see each teeter on the edge of ruin.

One of three sons of a middle-class Toronto family, Drabinsky contracted polio at age 3 and had to undergo seven operations, which left him with a permanent limp. He was drawn to entertainment as a distraction from his illness. After studying law at the University of Toronto, he produced several films. Then, with business partner Myron Gottlieb, he started the Cineplex theatre chain, which became the second largest in North America. After setbacks that left the company $757 million in debt, Drabinsky was ousted as chairman in 1989 and left with a single Toronto theatre. He began Livent, and by 1996 the company also had theatres in Vancouver, Chicago and New York City and was one of the biggest producers of live entertainment in North America.

Drabinsky has always gone to extremes: in recent years he averaged 500,000 km of travel overseeing his empire. As a Toronto impresario, he wooed theatregoers by conducting exit polls as they left productions. Drabinsky has conceded that his lifestyle has sometimes strained his marriage to his wife of 27 years, Pearl, with whom he has a son, Marc, and a daughter, Alicia. In business, even in good times, critics complained about his fondness for extravagant gestures at the expenseof the bottom line.

In his memoir, he concluded that his major decisions in life were motivated by "anxiety and fear and opportunity and desire." But, he added: "I don't run and hide." His present problems may provide the biggest test of that.

Maclean's November 30, 1998