PHILADELPHIA – Per a federal judge, America Online (AOL) was dismissed as a party to a lawsuit filed against one of its subsidiaries by a business group that sought to create a joint venture with that same subsidiary prior to AOL acquiring it.
Judge Michael M. Baylson of the U.S. District Court for the Eastern District of Pennsylvania ruled Tuesday AOL had not been shown to be “liable for pre-acquisition dealings” on the part of Vidible, Inc., a company that connects buyers and sellers of online video content, and Streamline Business Group.
According to the lawsuit, Vidible created a live exchange marketplace for video. Streamline contends that it entered into an oral agreement for a joint venture with Vidible, in which Streamline agreed to secure customer relationships for Vidible and its products, and Vidible agreed to pay Streamline a share of the revenues from each customer relationship it created.
The alleged oral contract deals with two different revenue streams. Streamline claims the agreement ran smoothly for six months, until Streamline’s 50 percent share of gross revenue generated by the video player grew to $100,000 per month.
At that point, Streamline alleges Vidible succumbed to investor pressure and attempted to modify the contract term from five years to two years, to modify the video player revenue calculation and to institute a $10,000-per customer monthly cap on fees.
In response, Streamline refused to make these changes and contends Vidible breached the agreement by stopping payments.
Streamline filed suit in March 2014, with amended complaints the following month and in February of this year, levying charges of breach of contract, unjust enrichment, breach of fiduciary duty and tortious interference against Vidible, two of its venture capital fund investors, and two of Vidible’s principals, Timothy Mahlman and Michael Hyman.
Streamline added AOL as a defendant in a second amended complaint in February 2015. AOL acquired Vidible in December, and Streamline contends AOL was responsible for assuming Vidible’s financial obligations – something the defense vigorously objects to, since it believes Vidible continues operation as both a corporate entity and AOL subsidiary.
Baylson ruled Streamline “failed to cite a case supporting its theory that AOL could be liable under a continuing breach theory, because of Streamline’s alleged entitlement to a five-year revenue stream under the oral contract, and failed to plead sufficient facts for the Court to hold AOL liable for Vidible’s pre-acquisition conduct under an alter ego or veil-piercing theory.”
Therefore, Baylson dismissed AOL from the litigation entirely.
Continuing, Baylson explained the following four factors are generally used to ascertain the existence of a joint venture under Pennsylvania law:
-Contribution to the joint venture by each member, which can be services, skills, knowledge materials or money;
-Sharing of profits among the parties;
-A joint proprietary interest and right of mutual control over the subject matter of the enterprise; and
-A single business transaction, rather than a general and continuous transaction.
“First, Streamline has sufficiently alleged the intent to form a joint venture. Although Vidible contends Streamline cannot cite any specific agreement between the parties to create a joint venture, Streamline relies on the alleged oral contract between the parties, which is sufficient at this stage of the litigation for Streamline to plausibly claim an agreement with Vidible that may have constituted a joint venture,” Baylson wrote.
“Second, Streamline has alleged that both parties contributed to the alleged joint venture. Streamline contends it contributed customers, and Vidible contributed technology.
“Third, Streamline has alleged that the parties agreed to share profits generated by the online video exchange and gross revenues from the video player generated by customers delivered by Streamline. Although defendants contend that the parties agreed to at most a limited service agreement under which Streamline would receive of percentage of revenues, not profits, Streamline’s allegations are sufficient at the motion to dismiss stage regarding the sharing of profits.
“Fourth, Streamline has alleged joint control over the online video exchange. Streamline alleges that Vidible controlled the development of the video player, and Streamline controlled the customer relationships. Streamline need not allege that it controlled Vidible or a separate enterprise. Streamline need only allege it had some joint control with Vidible over the subject of the joint venture – which need not be an independently established entity – and Streamline has advanced such allegations. Fifth, Streamline alleges that the joint venture relates to a single business transaction – revenues generated from the online video marketplace via the video exchange and play for a five-year term.”
Baylson also decided dismissal of the unjust enrichment claim would be “premature” since Streamline must be granted “discovery regarding the scope and nature of the agreement between the parties, which may impact the nature of its claims and remedies going forward.”
Baylson concluded by not just dismissing AOL from the litigation, but also denying a defense motion to dismiss SBG’s claims of breach of contract, unjust enrichment and breach of fiduciary duty.
The plaintiff is seeking judgment against Vidible, Inc., Mahlman, and Hyman, jointly and severally, for damages in excess of $22 million, plus interest, court costs and punitive damages for “their intentional, willful, wanton and reckless conduct, and for such other relief as the Court deems equitable and just in this case.”
The plaintiff is represented by Melissa A. Bozeman, Oliver D. Griffin and Peter Nathan Kessler of Kutak Rock and Gregory H. Mathews of Kang Haggerty & Fetbroyt, all in Philadelphia.
The defendants are represented by Arthur W. Lefco and Gregory W. Fox of Marshall Dennehey Warner Coleman & Goggin in Philadelphia, plus Brian T. Feeney, Gregory T. Sturges and Ryan C. Berry of Greenberg Traurig, in Philadelphia and McLean, Va.
U.S. District Court for the Eastern District of Pennsylvania case 2:14-cv-01433
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at email@example.com