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Internal billings trigger M&A damages; GPCM prevails

A case in Delaware Chancery Court shows that the court will not award damages from an M&A transaction gone bad when the calculations are based on speculative lost synergies.

NetApp, Inc. v. Cinelli

The defendant hid improper recording of revenue from use of internal software in unaudited financial statements that were represented to be GAAP-compliant. The defendant was held to have breached the merger/sale contract in a manner that resulted in fraud. The plaintiff was awarded damages. The court accepted the expert’s GPCM as the most “responsible estimate” of the private company’s value as it was presented to the plaintiff.

Seller Breached Terms of Merger Agreement Including That Statements Were GAAP-Compliant—Expert’s GPCM Accepted

The defendant hid improper recording of revenue from use of internal software in unaudited financial statements that were represented to be GAAP-compliant. The defendant was held to have breached the merger/sale contract in a manner that resulted in fraud. The plaintiff was awarded damages. The court accepted the expert’s GPCM as the most “responsible estimate” of the private company’s value as it was presented to the plaintiff.

Golock Capital, LLC v. VNUE, Inc.

The plaintiffs sued for breach of obligations on convertible promissory notes issued to the defendant. The defendant admitted it had not repaid the loans but contended that the rates of interest on the loans were “criminally usurious” and were, therefore, void. Following a bench trial, the U.S. District Court (New York) found that the interest rates were not usurious and ruled in favor of the plaintiffs, including an award for attorneys’ fees.

U.S. District Court (New York) Rules Interest Rates on Loans Are Not Usurious

The plaintiffs sued for breach of obligations on convertible promissory notes issued to the defendant. The defendant admitted it had not repaid the loans but contended that the rates of interest on the loans were “criminally usurious” and were, therefore, void. Following a bench trial, the U.S. District Court (New York) found that the interest rates were not usurious and ruled in favor of the plaintiffs, including an award for attorneys’ fees.

City of Fort Collins v. Open Int’l, LLC

In a breach of contract suit concerning failure of vendor to deliver software, the court considered and ruled on motions to exclude certain expert witnesses. The court denied most motions while granting some motions in part.

U.S. District Court (Colorado) Rules on Motions to Exclude Testimony of Expert Witnesses

In a breach of contract suit concerning failure of vendor to deliver software, the court considered and ruled on motions to exclude certain expert witnesses. The court denied most motions while granting some motions in part.

Subsequent Transaction Used to Find Damages Without Trial in New York Case

In this surmised summary judgment as to damages, a New York trial court awarded damages to the plaintiff in a breach of contract suit. The determination of damages was made without a trial but “on paper.” Additionally, the court used a subsequent sale of the stock to determine the damages and opine that the company was “worthless.”

A valuation trial—on papers only?

Yes, but only in New York?

Bougie v. Garth-Niggeman

The case originated at trial court on issues of the buyout of a deceased member’s interest in an LLC restaurant. Among the issues was the use of the LLC’s recipes by the acquirer of the deceased’s interest in violation of the operating agreement. The two remaining LLC members claimed the use of the LLC’s recipes in other restaurants irreparably harmed them. However, the remaining members did not seek, nor did they prove, any damages resulting from the use of the recipes. The appellate court affirmed the trial court’s denial of a permanent injunction against the use of the recipes.

Trial Court’s Denial of Permanent Injunctive Relief for Irreparable Harm Is Upheld

The case originated at trial court on issues of the buyout of a deceased member’s interest in an LLC restaurant. Among the issues was the use of the LLC’s recipes by the acquirer of the deceased’s interest in violation of the operating agreement. The two remaining LLC members claimed the use of the LLC’s recipes in other restaurants irreparably harmed them. However, the remaining members did not seek, nor did they prove, any damages resulting from the use of the recipes. The appellate court affirmed the trial court’s denial of a permanent injunction against the use of the recipes.

Quattro Parent LLC v. Rakib

In this surmised summary judgment as to damages a New York trial court awarded damages to the plaintiff in a breach of contract suit. The determination of damages was made without a trial but “on paper.” Additionally, the court used a subsequent sale of the stock to determine the damages and opine that the company was “worthless.”

New York Trial Court Determines Damages Without a Trial and Uses Subsequent Transaction to Determine the Amount

In this surmised summary judgment as to damages a New York trial court awarded damages to the plaintiff in a breach of contract suit. The determination of damages was made without a trial but “on paper.” Additionally, the court used a subsequent sale of the stock to determine the damages and opine that the company was “worthless.”

Paganelli v. Lovelace

This case resulted in the court issuing a partial summary judgment in favor of the defendant (and counterclaimant) in a matter regarding a sale/purchase contract between the plaintiff and the defendant. The cross-allegations resulted from the defendant allegedly breaching the purchase contract, while the defendant alleged that the plaintiff first breached the contract and committed fraud in entering into the contract.

Court Issues Partial Summary Judgment in Favor of Party Alleging Breach of Contract

This case resulted in the court issuing a partial summary judgment in favor of the defendant (and counterclaimant) in a matter regarding a sale/purchase contract between the plaintiff and the defendant. The cross-allegations resulted from the defendant allegedly breaching the purchase contract, while the defendant alleged that the plaintiff first breached the contract and committed fraud in entering into the contract.

Aureus Holdings, LLC v. Kubient, Inc.

In this civil action, the defendant/counterclaim plaintiff (Kubient) filed a partial motion to dismiss the claims of unjust enrichment and tortious interference with business relations by the plaintiff/counterdefendant (Lo70s). The complaint showed that Kubient took actions not covered in the LOI, such as taking without permission the business and assets of Lo70s and persuading specific customers away from Lo70s and to Kubient. As a result of this and other actions of Kubient, the court did not allow a dismissal at this point in the process. The motions were denied.

Court Denies a Partial Motion by Defendant to Dismiss Claims of Unjust Enrichment and Tortious Interference With Business Relations

In this civil action, the defendant/counterclaim plaintiff (Kubient) filed a partial motion to dismiss the claims of unjust enrichment and tortious interference with business relations by the plaintiff/counterdefendant (Lo70s). The complaint showed that Kubient took actions not covered in the LOI, such as taking without permission the business and assets of Lo70s and persuading specific customers away from Lo70s and to Kubient. As a result of this and other actions of Kubient, the court did not allow a dismissal at this point in the process. The motions were denied.

Defendants’ Force Majeure Defense Related to Hurricane Devastation Does Not Excuse Breach of Contract

In rent payment dispute, court rejects defendant restaurant’s force majeure claim that devastating hurricane was act of God that interfered with restaurant’s use of property and excused performance where lease did not contain force majeure provision and rent payments stopped before storm.

Bayou Place Limited Partnership v. Alleppo’s Grill, Inc.

In rent payment dispute, court rejects defendant restaurant’s force majeure claim that devastating hurricane was act of God that interfered with restaurant’s use of property and excused performance where lease did not contain force majeure provision and rent payments stopped before storm.

New York’s high court OKs minority discount in wrongful dissolution context

New York’s highest court recently weighed in on a long and ugly partnership dispute in which a minority shareholder had unilaterally dissolved the partnership.

In Wrongful Dissolution, New York’s High Court Approves FMV Valuation

In wrongful partnership dissolution, New York high court finds, under applicable statute, exiting partner’s interest may be valued under FMV standard of value; where exiting partner’s interest is minority interest, DLOM and minority discount may apply.

Congel v Malfitano (II)

In wrongful partnership dissolution, New York high court finds, under applicable statute, exiting partner’s interest may be valued under FMV standard of value; where exiting partner’s interest is minority interest, DLOM and minority discount may apply.

Radiologix, Inc. v. Radiology & Nuclear Medicine, LLC

Court admits expert calculation that determines one set of damages for two related plaintiff entities and that relies on data from nonparty parent entity; court finds calculation need not precisely track corporate structure to meet Daubert requirements.

Under Daubert, Damages Calculation Need Not Replicate Corporate Structure

Court admits expert calculation that determines one set of damages for two related plaintiff entities and that relies on data from nonparty parent entity; court finds calculation need not precisely track corporate structure to meet Daubert requirements.

No ‘Circular Reasoning’ in Expert’s Lost Profits Calculation

Appeals court upholds lost profits award, finding expert’s damages model was admissible under Daubert; market survey was only one of “competing principles or methods” to gather facts on sales, and failure to use it does not make opinion per se unreliable.

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