Dozens of Hollywood Business Managers Sue to Invalidate Noncompetes

Ashley Cullins
·5 min read

NKSFB, one of the most prominent business management firms in Hollywood and the largest in the country, is asking an L.A. judge to invalidate noncompetes for dozens of business managers. They claim their parent company, Focus Financial Partners, is trying to evade California law and illegally bar them from pursuing their careers if they leave.

On Wednesday, about 50 Nigro Karlin principals — including THR Power Business Managers Mickey Segal, Michael Karlin, Richard Feldstein, David Bolno, Dian Vaughn, Larry Tyler, Matt Segal, Bernard Gudvi, David Weise, Harley Neuman, Carrie Malcolm and Ryan Conlon — filed a lawsuit challenging the noncompete provision in their management agreement with Focus.

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It’s important to note up front that this situation involves some confusingly similar-named companies. The original firm was Nigro Karlin Segal Feldstein & Bolno legally, but colloquially it has been known as NKSFB. When Focus Financial Partners bought the firm in 2018, it created a new LLC that’s legally named the acronym NKSFB, while the Nigro Karlin partners formed a new LLC called KSFB. The business managers operated through KSFB and were contracted to work for NKSFB.

In connection with the 2018 Focus sale, many of the business managers signed a contribution and purchase agreement that included a five-year noncompete. According to the complaint, that expired April 1.

The contract at issue is a July 2022 amended and restated management agreement. “The non-compete provision in the ARMA expressly states that it is being entered into ‘[i]n consideration of the compensation to be paid to the Management Company’ (but not Focus’s acquisition of Nigro Karlin Segal Feldstein & Bolno),” states the complaint, which is embedded below. “As the original five-year non-competition restriction contained in the Contribution and Purchase Agreement has expired, the new non-compete provision in the ARMA is the sole non-compete provision that Plaintiffs are challenging.”

The business managers argue that because it isn’t connected to the sale of a company, this noncompete runs afoul of California law. Section 16600 of the California Business and Professions Code severely restricts “contract[s] by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind.”

The complaint states: “Focus has asserted that it will seek to enforce [the noncompete provisions] if the Principals terminate their relationship with the Management Company and seek to work in the same line of business as the Management Company. The Principals have stated these provisions are violating California law and are unenforceable.”

The Nigro Karlin principals are asking an L.A. judge for a declaratory judgment that the choice of Delaware law in the agreement is improper and unenforceable and that, under California law, the noncompetition provisions are also unenforceable to the extent they include services rendered in California. They’re also seeking an injunction that would bar Focus from “being able to pursue their professional and business interests following termination of their employment with the Management Company.”

This complaint doesn’t outright say it, but it appears this is more than a theoretical issue and the NKSFB business managers want out. It’s not unsurprising, as there has been bad blood with Focus for some time.

KSFB and Segal in March filed a breach of contract suit against Focus and Goldman Sachs, alleging they spoiled the market for a sale of NKSFB to a third party by simultaneously seeking buyers for Focus. KSFB alleges Focus pushed it to hire Goldman Sachs in connection with the deal even though they felt there was a conflict. They ultimately agreed and spent five weeks negotiating an NDA for protection.

“The October 25, 2022 NDA prohibited the use of any information the parties received (from Focus and KSFB) for anything but their efforts to finalize the sale of the NKSFB Business. It also required transparency as to any information KSFB or Focus provided to Goldman, so that each of the joint clients would know what the other was doing with respect to the proposed transaction,” explains attorney Diane Cafferata of Quinn Emanuel in the complaint. “This was essential because bidders interested in buying the NKSFB Business certainly could be interested in buying the entire public entity, Focus. The last thing KSFB wanted to do was share information with Goldman and Focus that they could use to sell off just NKSFB as part of a separate deal for Focus, as such a sale would negatively impact the attractiveness of KSFB as an acquisition target.”

That’s what happened, according to KSFB’s complaint. KSFB claims that when the ink was barely dry on the NDA, Focus and Goldman were already exploring a sale of the parent entity. A “secret deal” between Focus and Goldman resulted in a $7 billion offer from private equity firm Clayton Bubilier & Rice for all of Focus, including its 90 partner firms, that was announced in February. (Those partner firms include Hollywood go-tos Altman Greenfield & Selvaggi, Gelfand Rennert & Feldman, Provident Financial Management and The Colony Group as well as Neuman & Associates and David Weise & Associates, which are divisions of NKSFB.)

In a May 15 filing, Focus and Goldman say they “vigorously dispute that narrative” and there were multiple buyers for NKSFB and KSFB, including five that submitted bids, but “Segal shut down the NKSFB/KSFB sale process so he would be in a position to buy NKSFB from Focus at a steep discount.”

On top of all of this, Segal is suing Focus for defamation, alleging it was badmouthing him in an email to the other KSFB principals. Focus disputes that, arguing it shared a “cease-and-desist letter, and Segal’s email to which it responded, with other KSFB principals on whose behalf Segal claimed to speak.” In May, Focus filed a motion to compel to arbitration Segal’s defamation claim.

Focus and Goldman are also arguing that pursuant to their engagement agreement, the matter should be litigated in New York, and alternatively filed a demurrer to six of the eight causes of action, arguing failure to state a claim for everything but breach of contract. A hearing on those matters is currently set for Aug. 2.

Focus has not yet responded to a request for comment on the new lawsuit.

KSFB v Focus by THROnline on Scribd

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