On Law

July 7, 2015

July 21, 2015

August 4, 2015


A cautionary tale of lawyers as venture capitalists

Like other lawyers, I sometimes fantasize about investing in ventures other than my own law practice. The ideal for the fantasy is, of course, the California Pizza Kitchen chain.

In 1985, two Los Angeles-based lawyers, Larry Flax and Rick Rosenfield, had gotten weary of the courtroom. After scraping together cash from family and friends, they started California Pizza Kitchen.

Today, the chain is a $677 million, publicly traded company with more than 280 stores in the United States and abroad. The Wall Street Journal has glowingly chronicled the two lawyers' vision and success.

I reckon no one who has spent an evening drafting interrogatory responses can honestly claim not to have envied them, if only a little bit.

And so it came to pass that I invested in a feature film production, "The Married Men's Club," in 2002. My experience in no way resembled Flax's and Rosenfield's.

In the end, it was more like United Artists' investment in "Heaven's Gate" — a movie whose name is now synonymous with epic failure, a movie so colossally expensive and bad it wiped out the studio financially.

The ill-starred venture began when a good lawyer friend of mine — let's call him Greg — introduced me to a gentleman named Dan Dieffenbach. Dieffenbach had a film script, Greg told me, which was (to Greg) hilarious.

The three of us met for dinner at Trophy's in Mission Valley. Dieffenbach was tall, dark and handsome. He combined the easy swagger of a former college jock with the earnest fervor of a man whose pet project depends on other people's money.

He pitched his script, "The Married Men's Club," to us as a feel-good romantic comedy. The plot involved a protagonist, Norton, who tries to save his troubled marriage with help from other married guys who form a marriage-consulting company together.

I munched a salad and listened. When it was time to go, I promised Dieffenbach I would read the script, and asked him, "Where do we go from here?" Dieffenbach didn't hesitate. "Let's make this movie," he replied.

I knew nothing about the film business, of course. I read the script at home, annotating the margins ("not funny," I wrote next to a joke about oral sex). I didn't get it.

"It's funny," Greg insisted. I trusted Greg a lot. He was a partner in a large local law firm and longtime friend. He had what I thought was a conservative streak when it came to investments. I was willing to give Dieffenbach the benefit of the doubt on Greg's say-so, and I did.

I looked at the business plan. Dieffenbach and Greg had drawn it up together. It seemed impressive. It touted a strategy predicated on "packaging finances, an experienced and talented production crew with rising stars," resulting in "making a splash at film festivals, with distribution channels and studios."

The plan identified several films that had debuted in 2001 at the Sundance Film Festival and had been picked up for millions of dollars by Fox Searchlight, Miramax and Sony Pictures.

The business plan devoted one line to risk factors: Dieffenbach, despite his experience in acting in commercials, films and theater, was a "first-time filmmaker." This, however, was no obstacle to the distribution deal described at the end: "We are currently looking for a distribution deal in the $2 million to $4 million range."

Who needed mutual funds or blue chip stocks? I cut a check, signed the operating agreement, and called Greg to tell him the good news. Dieffenbach would direct. Greg would be executive producer. What could possibly go wrong?

A few things.

The San Diego Padres gave permission to allow shooting of a scene in Qualcomm Stadium, but rescinded the permission at the last minute after a front-office executive read the script and discovered the words "duck" and "snow job," or words that rhymed with them.

Dieffenbach, a proud artist, refused to remove the offending words from his script, so he had to shoot the scene in a tiny minor league ballpark in Lake Elsinore.

Pacers, a local strip club, gave permission to allow shooting on its premises, so long it happened early on a Sunday morning and featured some of its dancers as extras. When the dancers failed to appear on the Sunday morning, Dieffenbach called me to ask if my girlfriend (whom he considered "hot") would mind appearing without pay as a stripper in the film.

Dieffenbach had a short temper and a penchant for throwing tantrums on the set. He antagonized the managers of properties that had agreed to allow shoots at their locations, resulting in at least two near-fistfights during filming. And so forth.

In the end, Dieffenbach completed shooting on schedule, but couldn't finish editing the movie in time to enter the film in competition at Sundance. As consolation, he managed for "The Married Men's Club" to premiere at the San Diego Film Festival on Sept. 19, 2003, at the Pacific Theatres in the Gaslamp Quarter.

My girlfriend was still speaking to me after the Pacers incident, so I invited her. We took our seats. The lights dimmed. The opening credits rolled. My grouchiness faded, replaced by an innocent thrill. At last — the big screen!

The thrill was fleeting. "The Married Men's Club" was god-awful. The actors had gamely done their best, but the dialogue was bad, the jokes unfunny. Our movie was a stink bomb.

The rest is history. "The Married Men's Club" achieved the cinematic fate it deserved: sheer oblivion. No studio picked it up. Our "distribution deal in the $2 million to $4 million range" never materialized.

In advance of tax time in 2004, Greg dutifully sent me my K-1 for The Married Men's Club LLC. It recorded the value of my investment in the film, which was now approximately squat.

About the same time, I saw a late-night TV commercial for Big O Tires. It was a goofy comic sketch involving a little old lady and a guy in a Big O jumpsuit. As I watched, it dawned on me the actor portraying the guy in the jumpsuit was none other than our director, Dan Dieffenbach. If your film director is acting in a goofy commercial on late-night TV, should you be concerned?

We can't all be like Larry Flax and Rick Rosenfield of California Pizza Kitchen. Still, we lawyers are little different than the rest of the investing public when it comes to falling prey to vanity, flimflam and our own dumbness.

Adequately vetting the manager of my investment (our director), resisting blind trust in a charming promoter (my friend Greg), and avoiding a speculative venture, would have been good things for me to have done. That I didn't do them embarrasses me still.

As for Larry Flax and Rick Rosenfield, good for them. I wonder if they are still looking for investors.


Lawton is the principal of Lawton Law Firm in downtown San Diego. His column appears twice monthly.


July 7, 2015

July 21, 2015

August 4, 2015