Court: WPP Can Sue Spot Runner Founders Alone
WPP's long legal battle with Spot Runner, a TV-ad startup it invested $10 million in back in 2006, is far from over. In the latest decision in a case that 's been ongoing for two years, an appeals court has given WPP grounds to pursue its securities fraud grievances solely with cofounders Nick Grouf and David Waxman.
In a decision released last week, U.S. Court of Appeals for the Ninth District also takes Spot Runner investors Battery Ventures and Index Ventures, the company as a whole and Spot Runner legal counsel Peter Huie off the hook in federal court. (The appeals decision affirmed a district court's dismissal of claims against those parties.) However, a WPP lawsuit in state court against all the defendants is still pending. WPP declined to comment.
Spot Runner CEO Mr. Grouf and former chief technology officer Mr. Waxman were not so lucky. The court reversed the dismissal of WPP's claims that the pair did not disclose the sale of $4 million in personal shares during a period when Spot Runner was losing money, even though they were contractually obliged to tell investors about such sales. Mr. Waxman left Spot Runner in 2010, according to his LinkedIn profile. A former employee also confirmed he was no longer with the company.
"Here, the close relationship between WPP and Founders in a closed company, the Founders' knowledge that WPP was relying upon the protections of [an agreement] in making their share purchase, the Founders' superior access to information, and the benefit the Founders derived from the business relationship with WPP suggest that some general duty to disclose may exist," the Aug. 23 decision reads.
In 2009, when Spot Runner began to flounder, WPP first filed suit against it for securities fraud, seeking at least $13 million to recoup its investment, plus legal fees. Three years earlier, WPP had invested $10 million in Spot Runner, a hot startup looking to place and create TV ads for small businesses through a web-based tool, according to the appeals court decision. In 2007, WPP purchased additional shares from Spot Runner for a sum near $1.8 million.
WPP alleges that the founders admitted that Spot Runner had approximately $70 million in losses and less than $15 million in revenue in 2007 and 2008.
Today, Spot Runner's current status is unclear. Press releases on the company's website were last updated in 2010. A call to the phone number listed Spot Runner's website redirects to an individual's cellphone. This individual said the company was still in business and directed calls to legal counsel Peter Huie. However, John W. Spiegel, defense counsel, in a statement said: "WPP's federal claims have twice been dismissed by the district court for failure to even allege a viable claim. The appellate court agreed with all the dismissals but one and ruled as to the remaining claim that WPP could try to prove its allegations are true. WPP's allegations are false, as we look forward to demonstrating as the case proceeds."