Fraudulent Inducement; Breach of Contract; Breach of Fiduciary Duty; and Conversion
J. Stewart, M. Weber, and the 180 Group, LLC v. S. Yari, Triyar Companies, Sonic Global Holdings, et al.
Superior Court of the State of California, County of Los Angeles, Case No. BC 410837
| Counsel for Plaintiffs: | Larry R. Feldman, Julian Brew of Kaye Scholer LLP |
| Expert for Plaintiffs: | Marc S. Margulis, C.F.A., A.S.A., M.B.A |
In May 2002, The Parties entered into a Partnership Agreement to pursue investment opportunities in the form of private equity investments in operating companies. Plaintiffs agreed to source opportunities, evaluate prospects, craft appropriate offers, negotiate transactions and participate in managing and/or supervising the management of one or more portfolio companies with the intent of increasing value for possible future disposition. Defendants would provide capital and assist Plaintiffs. Although never formally executed, the Agreement remained unrepudiated through the 6 ½ years between the purchase and the sale of the acquired company in March 2009.
In 2002, Plaintiffs identified a parts supplier to aerospace companies in Chapter 11 bankruptcy proceedings and successfully acquired the company in a competitive auction on behalf of the partnership. Plaintiffs served continuously on the company’s board of directors and served for a period of time as the company’s CEO. In 2009, the company was sold to a publicly-traded aerospace company for cash in an amount in excess of 6 times the initial investment plus a “side letter” for a future sum equal to another 1 times the initial investment – an IRR of 46% per year.
Pursuant to the Agreement, Plaintiffs were to receive upon disposition i) a 2 ½ % preferred return subordinate to a 10 % preferred return to the Defendants; ii) a 20 % “carried interest” on any and all additional returns; iii) a bonus for exceeding agreed upon return thresholds; and iv) a mutually agreed upon minimum [transaction] fee. The Plaintiffs received none of these compensation elements from the Defendants following the closing of the sale transaction.
Kaye Scholer filed a lawsuit on behalf of the Plaintiffs. Marc Margulis of Mammoth Advisors was retained as the expert witness to audit the cash flows into the portfolio company from the Defendants and the cash flows out of the portfolio company over the term of the partnership to the Defendants, then to calculate and testify as to each element of compensation due under the Agreement to the Plaintiffs, plus prejudgment interest. In addition, Mr. Margulis surveyed and testified as to customary terms of compensation found in private equity funds.
This case settled shortly before trial commenced for an undisclosed sum paid to Plaintiffs.