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IN THE UNTED STATES DISTRICT COURT
FOR THE DISTRICT OF DELA WARE
DigaComm, LLC,
) )
)
Plaintiff,
v.
Civil Action No. 08-78 (SLR)
) )
) )
Vehicle Safety & Compliance, LLC,
Pittco Capital Parners, L.P., Pittco Capital Parners II, L.P.,
) )
)
Andrew Seamons, J.R. "Pitt" Hyde,
Defendants.
)
) )
Related Docket Nos.: 1 & 2
OPPOSITION TO MOTION FOR PROTECTIVE ORDER TO QUASH THE SUBPOENAS ISSUED TO MORGAN KEEGAN EMPLOYEE INVESTMENT FUND, LP AND MORGAN KEEGAN EARLY STAGE FUN. LP
In their motion to quash, Morgan Keegan Employee Investment Fund, LP and Morgan
Keegan Early Stage Fund, LP (collectively, the "Morgan Keegan Funds") contend that DigaComm should be required to accept affidavits or written interrogatory responses in lieu of
depositions. But the Morgan Keegan Funds do not dispute that DigaComm is entitled to
discovery from them. The Morgan Keegan Funds also cannot dispute the relevance of this
discovery to DigaComm's claims in the underlying litigation, which concerns DigaComm's right
to compensation for facilitating a $4 bilion transaction between a subsidiary of defendant
Vehicle Safety and Compliance, LLC ("VSAC") and General Electric. The Morgan Keegan Funds are each investors in VSAC. Because the Morgan Keegan Funds possess information that
is both relevant and reasonably calculated to lead to the discovery of admissible evidence,
DigaComm must be allowed to depose them.
The Morgan Keegan Funds also claim that Delaware is not a proper location for the
depositions since the Funds allegedly have their principal place of business in Memphis,
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Tennessee. It is unclear how DigaComm was expected to divine the Morgan Keegan Funds'
principal places of business, if they have one at all, given that the Funds have 79 and 82 partners,
respectively, who reside in 18 and 14 states, respectively. In the face of this uncertainty,
DigaComm elected to issue the deposition subpoenas out of the District of Delaware, where the
Morgan Keegan Funds are registered as limited partnerships. DigaComm's choice of forum is
also proper because the Morgan Keegan Funds waived any objections to the subpoenas, including objections to the locations of the depositions, both through their course of conduct in
previously agreeing to the subpoenas and due to the lateness of their motion to quash. The
motion to quash should be denied.
BACKGROUN
I. The underlying litigation
This discovery dispute arises out of litigation pending in the Northern District of Ilinois
before the Honorable George W. Lindberg. In that litigation, DigaComm has brought claims for
fraud, unjust enrichment, and tortious interference with contract against each of the five
defendants relating to their role in denying DigaComm its agreed compensation for facilitating a
$4 bilion deal between Vehicle IP, LLC (a wholly-owned subsidiary of Defendant VSAC) and
General Electric.
VSAC and its subsidiary, Vehicle IP, LLC ("VIP"), possess a portfolio of patents valued
at $4 bilion. (See Am. CompL., lj 1.) (A copy of DigaComm's complaint is attached as Exhibit
A.) Believing they lacked the necessary capital and skill to successfully monetize the patent
portfolio, they approached DigaComm to seek its assistance in finding a monetization parner.
(See id. at ljlj 19-21.)
DigaComm was well-positioned to help VIP and VSAC. Indeed, DigaComm had
recently completed a deal with General Electric in which a GE special-purpose entity acquired a
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portfolio of patents from a company called SightSound Technologies. (See id. at lj 22.) VIP and
VSAC were aware of the SightSound deal and were eager for a similar deal with GE. (See ide at
ljlj 21,27.) The paries connected and worked out an arangement (the "March 9 Agreement") in
which DigaComm would facilitate a deal similar to SightSound in return for 5% of any
transaction. (See ide at ljlj 32-37.)
On the eve of a meeting between GE and VSAC's Preferred Holders, however, VSAC's
general counsel, J. Raymond Bilbao, repudiated the March 9 Agreement, informng DigaComm
that the "optics of the deal" had to change. Evidence developed during discovery indicates that
Pitt Hyde was the source of the directive to renegotiate the deaL. Believing they had no choice in
the matter and that litigation might threaten the GE venture, DigaComm reluctantly agreed to a
reduction of its compensation, memorialized in a written fee schedule. (See ide at lj 39.)
As the paries reached agreement on this fee schedule, VIP and VSAC, for the first time,
demanded a provision that purported to condition DigaComm's compensation on approval by
VSAC's Preferred Holders. (See id. at lj 41.) DigaComm opposed this eleventh-hour addition,
but was assured by Mr. Larschan and Mr. Bilbao that the approval was a mere formality and a
foregone conclusion. (See id.) To demonstrate that approval would not be a problem, VSAC's
Mr. Bilbao solicited approval from Andrew Seamons, VIP's Chairman and the representative of
the Pittco defendants, VSAC Preferred Holders controlled by Pitt Hyde. (See ide at ljlj 8-11, 42.)
Mr. Bilbao received Mr. Seamons' approval and informed DigaComm the same day. (See ide at
lj 42.) VIPNSAC's management also promised to recommend approval to "the VSAC Preferred
Holders" and to do so "as soon as practicable." (See id. at lj 41.) Based on these representations,
DigaComm entered into a letter agreement with VIP on March 30, 2007. (See id. at lj 44.)
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After March 30, DigaComm continued its efforts to advance the potential GE/VIP deaL.
Those efforts were successful: GE and VIP closed on a
joint venture on August 16,2007. (See
id. at i. 2.) DigaComm, however, heard nothing from VIP until Mr. Larschan telephoned
DigaComm Managing Member Peter Smith on September 6,2007. (See id. at i. 57.) Mr.
Larschan informed Mr. Smith that despite the fact that GE and VIP had successfully concluded a
deal, the VSAC Preferred Holders had rejected DigaComm's compensation at a
joint meeting of
VSAC's Board and Preferred Holders on August 10, 2007. (See id.)
In response, DigaComm initiated the instant litigation, and asserted claims for tortious
interference with contract, fraud, and unjust enrichment against Defendants. In its tortious
interference counts, DigaComr claims that Defendants interfered with both the March 9
Agreement and the March 30 letter agreement by demanding that those agreements be
repudiated. DigaComm's fraud claim alleges that Defendants or their agents made material
misrepresentations of fact concerning the approval provision. For example, Defendant Andrew
Seamons approved DigaComm's compensation, and his approval was communicated to
DigaComm by VIP's and VSAC's General Counsel, Ray Bilbao. (March 30, 2007 email from Ray Bilbao, Ex. A at Ex. 3.) Four months later, however, Mr. Seamons voted against
DigaComm's compensation - the same compensation he had previously approved. In its unjust
enrichment count, DigaComm alleges that Defendants were unjustly enriched because they
received the benefits of the GE Deal without compensating DigaComm for its efforts.
In addition to these theories of direct liability, DigaComm has also alleged that VSAC is
liable for the actions of VIP, its subsidiary, on theories of alter ego and direct participation.
DigaComm's alter ego theory is based in part on the almost complete overlap between VSAC
and VIP. They operate as a single, unitary entity and share boards, management, and offices.
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(Compl. at i. 74.) Indeed, through discovery, DigaComm has leared that even their operating
agreements are essentially identicaL. DigaComm's direct paricipation theory provides that even
if VSAC and VIP are not alter egos, VSAC should stil be liable for VIP's actions because it
exercised control over VIP for the purposes of this transaction that far exceeded the control
normally exercised as an incident of ownership. (Compl. at i. 78.)
Defendants' sole defense to DigaComm's claims is the alleged failure of the condition
precedent they contend was embodied in the approval provision discussed above. To that end,
Defendants have alleged that the VSAC Preferred Holders had the "legal right" to vote against
DigaComm's compensation after DigaComm had delivered the GE transaction they sought.
VSAC alleges that both the recommendation and the votes occurred at the July 17 and August 10
meetings. VSAC also alleges that its management made the recommendation required by the March 30 letter agreement at those two meetings. The Morgan Keegan Funds are both VSAC
Preferred Holders. DigaComm seeks to depose the Morgan Keegan Funds in order to
understand, among other things why they have never heard of DigaComm and were never
presented with management's recommendation that DigaComm's letter agreement be approved.
DigaComm also seeks discovery from the Morgan Keegan Funds on the subjects of corporate governance and organization, the business history of VSAC, and the details of how the investor
group was formed. These subjects all relate to a number of issues in the case, including
DigaComm's alter ego and direct participation theories of liabilty, and are discoverable on that
basis.
II. Procedural history
The litigation underlying this dispute is before Judge Lindberg in the Northern District of
Ilinois. Judge Lindberg runs a "rocket docket," in which the paries have only four months to
complete discovery. Defendants have consistently sought to delay discovery in this case.
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Indeed, DigaComm has already brought a motion to compel Defendants to produce documents in
an effort to keep discovery moving apace. That motion was granted in par. Because of
Defendants' tactics, just over two months of discovery remain, and yet DigaComm has not taken
a single deposition.
Early in the discovery process, counsel for DigaComm requested that counsel for
Defendants attempt to make contact with the third-party Preferred Holders such as the Morgan
Keegan Funds and coordinate their voluntary participation in discovery. Counsel for Defendants
declined to do so. DigaComm then began the more cumbersome and expensive process of
issuing document and deposition to subpoenas to the VSAC Preferred Holders, including the
Morgan Keegan Funds.
The deposition subpoenas at issue here were issued out of this Court on March 14,2008. They were served on the Morgan Keegan Funds' registered agents in Delaware. The depositions
were scheduled for April 1,2008 at the offices of
DigaComm's local counsel in Wilmington,
Delaware. DigaComm also issued document subpoenas to the Morgan Keegan Funds out of this
Court on February 27,2008, and those subpoenas were served on the Funds' registered agent in
Delaware on February 29,2008. The document subpoenas were returnable on March 19,2008.
On March 19, the day responses to the document subpoenas were due, John Lee, counsel
for Defendants, contacted counsel for DigaComm to inform them that Mr. Lee's firm, Freeborn
& Peters, would be representing the Morgan Keegan Funds. Mr. Lee requested a two-week
extension to respond to the document subpoenas, and asked to reschedule the depositions set for
April 1,2008. DigaComm agreed to the two-week extension and to reschedule the depositions,
but requested that new deposition dates be proposed soon. Counsel for the Morgan Keegan
Funds agreed to get back promptly with alternative dates. No mention was made of any
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objections. In an email of
that
same
day,
Mr.
Lee wrote that "(w)e wil get back to you shortly
with alternative dates." (A copy of
Mr. Lee's March 19,2008 email is attached as Exhibit B.)
On March 20, after hearing nothing from counsel for the Morgan Keegan Funds on
alternative deposition dates, counsel for DigaComm emailed Mr. Lee regarding dates. Counsel
for DigaComm received no response until March 24, when counsel for the Morgan Keegan
Funds wrote that they stil did not have deposition dates for the Morgan Keegan Funds, but
stated that "I wil get back to you regarding the Morgan Keegan funds." (A copy of Ms.
Fabian's March 24, 2008 email is attached as Exhibit C.)
After again hearing nothing on deposition dates, counsel for DigaComm sent another
reminder to counsel for the Morgan Keegan Funds on March 25 and requested that the dates line
up with other scheduled depositions. That same day, counsel for the Morgan Keegan Funds gave
the impression that new dates would be proposed soon, informng counsel for DigaComm that "I am talking to Morgan Keegan tomorrow and wil try to get a date at the same time for convenience." (A copy of Ms. Fabian's March 25, 2008 email is attached as Exhibit D.)
Thereafter, counsel for DigaComm heard nothing on the subject of deposition dates for
the Morgan Keegan Funds until April 1, when counsel for the Funds offered, by letter, either an
affidavit or written interrogatories in lieu of a deposition of the Morgan Keegan Funds. Ms.
Fabian's letter concluded, however, by stating that "if you are not wiling to take alternate steps
in lieu of immediately scheduling the depositions, please let me know so that I may work to
coordinate scheduling." (A copy of Ms. Fabian's April 1,2008 letter is attached as Exhibit E.)
The proffered alternatives to a deposition were unacceptable to DigaComm, and counsel for
DigaComm informed so informed Ms. Fabian.
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On April 8, notwithstanding weeks of delay premised on counsel's promise to provide
new dates, counsel for the Morgan Keegan Funds informed DigaComm that they would move to
quash the deposition subpoenas if DigaComm did not accept the proffered alternatives of an
affidavit or written interrogatories. This new position represented a radical deparure from the
Morgan Keegan Funds' prior position. The proffered alternatives were unacceptable to
DigaComm, and the Morgan Keegan Funds filed their motion to quash on the next day.
ARGUMNT
The scope of discovery is broad under the Federal Rules and requests for information
should be deemed relevant so long as there is any possibility that the information sought may be
relevant to the subject matter of the action. See Breeze v. Royal Indem. Co., 202 F.R.D. 435, 436
(B.D. Pa. 2001) (information is relevant for the purposes of discovery if it "appears reasonably
calculated to lead to the discovery of admissible evidence"); Goodyear Tire & Rubber Co. v.
Kirk's Tire & Auto Servicenter, 211 F.R.D. 658, 663 (D. Kan. 2003) ("A request for discovery
should be allowed unless it is clear that the information sought can have no possible bearng on
the claim or defense of a party." (citation omitted)).
The broad definition of relevance for purposes of discovery extends to discovery of third
parties. See Breeze, 202 F.R.D. at 436; Dexia Credit Local v. Rogan, 231 F.R.D. 538, 541 fn. 2
(N.D. IlL. 2004) ("Rule 45 draws no distinction between paries and non-parties concerning the
scope of discovery.") Thus, "(a) party has a general right to compel any person to appear at a
deposition, through issuance of a subpoena if necessary." CSC Holdings, Inc. v. Redisi, 309 F.3d
988, 993 (7th Cir. 2002). Though a district court may quash a subpoena that subjects a third
pary to an undue burden, it rests on the pary seeking to quash the subpoena to demonstrate that
a burden is undue. See Jones v. Hirschfeld, 219 F.R.D. 71, 74-75 (S.D.N.Y. 2003). In order to
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demonstrate undue burden, a third pary must do more than simply state that he knows nothing
about the case and that others know more. See CSC Holdings, Inc., 309 F.3d at 993.
In CSC Holdings, the district court rejected a motion to compel a deposition on the
ground that the deposition was not relevant. The district court based its decision on the "bare
representation that (the deponent) knew nothing about the case" and that others knew as much as
he did. See ide The Seventh Circuit reversed, holding (1) that the deponent's testimony was
critically important, and (2) that the bare representation that the deponent lacked knowledge was
"not enough to establish an undue burden under Rule 45 or to show some other exceptional
circumstance that would justify prohibiting the deposition altogether." Id.
The Morgan Keegan Funds ask this Court to quash the deposition subpoenas on grounds
almost identical to those at issue in CSC Holdings. Specifically, they claim to lack knowledge
regarding DigaComm's claims, and claim that others know more than they do. But these
allegations are insufficient to establish undue burden, paricularly where, as here, the Morgan
Keegan Funds possess information that is highly relevant to the claims and defenses at issue in
this litigation. Moreover, as demonstrated above, the absence of knowledge on the par of
VSAC Preferred Holders like the Morgan Keegan Funds is itself compellng evidence which
undermnes Defendants' positions. Because Movants have failed to demonstrate that the
deposition subpoena subjects them to an undue burden, the motion to quash should be denied.
I. The Morgan Keegan Funds waived any objections to the subpoenas.
DigaComm believes that the motion to quash should be denied on its merits. However, a
further justification for denial is the Morgan Keegan Funds' waiver of any objections to the
subpoena. Under Rule 45, motions to quash must be brought in a timely fashion. "Timely" has
been interpreted to mean no later than the noticed date of the deposition. See Innomed Labs,
LLC V. Alza Corp., 211 F.R.D. 237, 240 (S.D.N. Y. 2002) ("it is reasonable to assume that the
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motion to quash should be brought before the noticed date of the scheduled deposition"). Here,
the Morgan Keegan Funds did not assert any objections to the deposition until April 8, and did
not move to quash until April 9. By raising objections for the first time and moving to quash
more than a week after the date originally scheduled for the deposition, the Morgan Keegan Funds have waived any objections they may have based on burden or location. In addition, the Morgan Keegan Funds waived their objections when they agreed through
counsel to provide alternative deposition dates. Between March 19 and April 1, counsel for the
Morgan Keegan Funds promised to obtain deposition dates on no fewer than four occasions. A
string of promises to obtain deposition dates is inconsistent with a pary's subsequent objection
to the entire subpoena. Movants attempt to use the common professional courtesy regarding
scheduling to gain tactical advantage.
The Morgan Keegan Funds' waiver has prejudiced DigaComm. DigaComm believes that
a deposition of the Morgan Keegan Funds, both of which are Delaware limited parnerships, is proper in the District of Delaware. However, if DigaComm had been aware that the Morgan
Keegan would object to the location, DigaComm could have, as an accommodation, issued new
deposition subpoenas out of the Western District of Tennessee. But because the Morgan Keegan
Funds sat on their objections, DigaComm did not take this step. If, for example, this Court found
that the depositions are not proper in the District of Delaware, then DigaComm would be
required to subpoena the Morgan Keegan Funds in the Western District of Tennessee. The
Morgan Keegan Funds would presumably then assert many of the same objections they have
asserted here and force DigaComm to litigate those objections before a different court. Delay
tactics like these line up exactly with the tactics used by the Defendants to delay discovery in the
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underlying litigation. The motion to quash should be denied and the depositions should be
ordered to go forward in the District of Delaware.
II. The deposition subpoenas seek testimony that is highly relevant to DigaComm's
claims.
The Morgan Keegan Funds contend that their lack of personal knowledge makes their
depositions unduly burdensome. But the fact that the Morgan Keegan Funds apparently lack
knowledge of DigaComm is precisely why DigaComm must take their depositions. The Morgan
Keegan Funds are VSAC Preferred Holders, but they apparently never received a
recommendation concerning DigaComm's compensation, even though VSAC's subsidiary was
obligated to recommend approval to the VSAC Preferred Holders. (Ex. A at Ex. 1, p.2.) The
Morgan Keegan Funds apparently also never voted on DigaComm's compensation. These
subjects are directly relevant to the principal defense mounted by the Defendants in this case.
DigaComm is also entitled to inquire after subjects relating to VSAC's corporate governance, the
GE Deal, and the value of the patents at issues. As Preferred Holders in the entity that now
claims it had the right to bar its subsidiary from complying with its agreements, the Morgan
Keegan Funds are an important source of discovery. The absence of knowledge regarding certain facts is a compellng basis for the depositions, not a reason to quash them.
As an alternative to depositions, the Morgan Keegan Funds have offered to provide
affidavits or responses to written interrogatories concerning their lack of personal knowledge.
But DigaComm is not required to accept counsel's offer of an affidavit or responses to written
interrogatories. By offering these alternatives, the Morgan Keegan Funds admit that DigaComm
is entitled to the discovery, but they seek to dictate the way in which that discovery is obtained.
The Morgan Keegan Funds' proffered alternatives are, however, unacceptable to DigaComm. In
paricular, the Morgan Keegan Funds fail to establish that these alternatives would be admissible
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in the Northern District of Ilinois. They also do not address the practical dilemma regarding
how DigaComm could possibly draft affidavits for witnesses it has never met and about whom it
knows little. In short, DigaComm's subpoena to the Morgan Keegan Funds is appropriate under
Rules 26 and 45. The motion to quash should be denied.
III. Depositions are proper in Delaware because the Morgan Keegan Funds are
Delaware Limited Partnerships.
While the general rule is that the deposition of a corporation should generally take place at the corporation's principal place of business, "the rule is not inflexible and is subject to
modification." Bra-Tech Corp. v. Thermax, Inc., Civil Action No. 05-2330, 2006 WL 3337496,
at *2 (E.D. Pa. Nov. 16,2006). Indeed, the Court retains considerable discretion to determne
the location of a deposition. See Triple Crown America, Inc. v. Biosynth AG, No. CIV.A. 96-
7476, 1998 WL 227886, at *3 (E.D. Pa. April 30, 1998). The Court should exercise its
discretion to require the depositions to take place in Delaware for three reasons. First, the
Morgan Keegan Funds are Delaware limited parnerships. Though the Morgan Keegan Funds
undoubtedly formed in Delaware to take advantage of this state's expertise in the law of business
organizations, this choice is not without costs. The Morgan Keegan Funds should not, therefore,
be allowed to invoke the protections of Delaware law, only to protest when their choice imposes
corresponding obligations.
Second, the Morgan Keegan Funds assert that their principal places of business are
located in Memphis, Tennessee, but fail to explain why DigaComm should be required to divine
this information. Nor did the Morgan Keegan Funds provide any evidence to support their
assertion that their principal places of business are located in Memphis, Tennessee. The Morgan
Keegan Funds are both Delaware limited parnerships, but their partners are spread throughout
the country. Morgan Keegan Employee Investment fund has 82 individual parners, and those
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parners reside in Alabama, Arkansas, California, Colorado, Florida, Georgia, Kentucky,
Louisiana, North Carolina, New York, Rhode Island, Tennessee, Texas, and Virginia. Morgan
Keegan Early Stage Fund's 79 parners are even more widely scattered, residing in Arkansas,
Arizona, California, Connecticut, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi,
North Carolina, New York, South Carolina, Tennessee, Wisconsin, West Virginia, and South
Africa. As far as DigaComm knows, the Morgan Keegan Funds' principal places of business
could be in any of these states and foreign countries.
In the face of considerable uncertainty, DigaComm issued the deposition subpoenas out of this Court because the Morgan Keegan Funds were formed and registered as limited
parnerships in Delaware and maintain registered agents there to accept service of process.! It
should also be noted that the Morgan Keegan Funds, on whom the burden falls to demonstrate
that the subpoenas at issue should be quashed, have not supported their assertion that their
principal places of business are in Memphis, Tennessee with affidavits or any other form of
evidence. Thus, the Court has no basis to determne, on this record, where the Morgan Keegan
Funds' principal places of business are located.
Third, as discussed above, the Morgan Keegan Funds waived any objections to the
deposition taking place in Delaware by failing to object within a reasonable time and by leading counsel for DigaComm to believe, for nearly three weeks, that deposition dates would be
forthcoming. Moreover, on April 2, the Morgan Keegan Funds responded to document
subpoenas issued out of this Court. At no time prior to serving their responses did the Morgan
Under the Morgan Keegan Funds' theory, the only way that DigaComm could actually find out where the Funds' principal places or business or representative deponents were located would be to issue a subpoena from Delaware and await a motion to quash identifying the appropriate district. DigaComm would then issue a subpoena from that district. After all, DigaComm cannot be expected to know the principal place of business or the location of an unspecified corporate representative of a limited partnership with partners in multiple states. The more obvious approach is that a Delaware limited partnership should well know when it forms itself in Delaware that a Rule 30(b)(6) deposition may take place there.
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Keegan Funds object to the subpoenas on the grounds that they were issued out of an improper
court. Havig accepted this Cour's jursdiction with respect to the document productions, the
Morgan Keegan Funds canot walk away from that choice when it comes time for them to be
deposed. For these reasons, the Morgan Keegan Funds are properly subject to deposition in
Delaware, and the motion to quash should be denied.
CONCLUSION
DigaComm respectfly requests that the Cour (1) deny the motion to quash; (2) order
representatives of the Morgan Keegan Funds to appear for deposition withi 10 days; and (3)
grant all other necessary and
proper relief
Dated: April J.2008
PACHUSKI STANG ZIEHL & JONES LLP
a fa Davis Jones (Bar No. 243 )
ames E. ONeil (Bar No. 4042) Timothy Cairns (Bar No. 4228)
919 North Market Street, 17th Floor
P. O. Box 8705 Wilmington, DE 19899-8705 Telephone: (302) 652-4100 Facsimile: (302)-652-4400
and
KILAND & ELLIS LLP
Reed S. Oslan, P .c. Stephen C. Hackney
Mattew E. Nirider 200 East Randolph Drive Chicago, Ilnois 60601 Telephone: (312) 861-2000 Facsimile: (312) 861-2200
Attorneys for DigaComm, LLC.
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EXHIBIT A
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IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS LAW DIVSION
DigaComm, LLC, )
v. )
)
Plaintiff, )
)
)
. _.. .
No.2007L013795
LFILED aw Div."2304
DEC 1 3 2007
Vehicle Safety and Compliance, LLC, )
Pittco Capital Parners II, LP, )
Pittco Capital Partners, LP, )
J.R. "Pitt" Hyde III, and Andrew Seamons, ) )
CLER~i~OTHY BROWN Hon. i)anel J. Kelley' OF cob~ecc¿ßij¥V aOURT
JURY TRIAL DEMANDED
I)efendants. )
)
FIRST AMENDED COMPLAINT FOR FRAUD, TORTIOUS INTERFERENCE. AND UNJUST ENRICHMENT
In support of its Complaint, DigaComm, LLC ("DigaComm") states as follows:
1. Through this complaint, I)gaComm seeks compensation it is due for introducing
Vehicle IP, LLC ("VIP"), a wholly-owned subsidiary of
Vehicle Safety and Compliance, LLC
("VSAC"), to General Electric ("GE") and facilitating a deal in which GE would parter with
VIP and VSAC to monetize a portfolio of
valuable patents. The patents in question are valued at
$4 billon dollars.
2. Afer the paries negotiated an agreement to compensate DigaComm with a
portion of the proceeds generated by the GE joint ventue, I)gaComm went to work. Its efforts
for the benefit of
VIP and VSAC quickly bore frit. On August 16,2007, GE and VIPNSAC
closed on their joint yenture agreement.
3. Apparently not content with the bilions they stood to make from the GE joint
venture, VSAC and its Preferred Holders caused VIP to renege on its agreement to compensate
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. (:,:¡ c:
DigaComm. On September 7, 2007, VIP Chief
Executive Officer Brad Larschan informed
DigaComm's Managing Member Peter Smith that DigaComm would be paid nothing for
procurng the GE joint ventue.
4. DigaComm brings this action against VSAC, Pittco Capital Parners, LP, Pittco
Capital Parners II, LP, l.R. "Pitt" Hyde II, and Andrew Seamons.
PARTIES
5. Plaintiff
DigaComm is a Delaware limited liabilty company headquarered in
Chicago, Ilinois. Its address is 400 North Michigan A venue, Suite 520, Chicago, Ilinois,
60611. DigaComm was founded in 1997 and is a Chicago private investment firm specializing
in early stae venture capital rounds. DigaComm's managing members are Peter Smith and
Robert Spilane.
6. Defendant VSAC is a Delaware limited liability company headquarered in
Memphis, Tennessee. Its address is 5101 Wheelis Drive, Suite 100, Memphis, Tennessee,
38117. VSAC is the sole member of VIP, and thus, the sole owner of VIP.
7. Related Par VIP is a Delaware limited liability company headquarered in
Memphis, Tennessee. Its address is 5101 Wheelis Drive, SUite 100, Memphis, Tennessee, .
38117. VSAC is VIP's sole member. VIP is not a named defendant in this complaint because
DigaComm's dispute with VIP is subject to an arbitration clause. DigaComm has initiated
arbitration proceedings against VIP, and those proceedings are ongoing.
8. Defendant lR. "Pitt" Hyde II is aresident of
Tennessee. His address is 6058
Shady Grove Road, Memphis, Tennessee, 38103. Mr. Hyde is a prominent Memphis
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businessman and is the founder of the AutoZone chain of auto pars stores. Upon inormation
and belief, Mr. Hyde is one of the parners of Pitt
co Capital Parers, LP and Pittco Capital
Parners II, LP.
9. Defendant Pittco Capital Parers, LP is a Tennessee limited parership with its
pnncipal place of
business at 6075 Poplar Avenue, Suite 335, Memphis, Tennessee, 38119.
Pittco Capital Parers, LP is a Preferred Holder ofVSAC.
10. Defendant Pittco Capital Parers II, LP is a Tennessee limited parnership with
its principal place of
business at 17 W. Pontotoc, Suite 200, Memphis, Tennessee, 38103. Pittco
Capital Parers II, LP is a Preferred Holder ofVSAC.
11. Defendant Andrew Seamons is a resident of Tennessee. His address is 2910
Garden Lane, Memphis, Tennessee, 38111. Upon inormation and belief, Mr. Seamons is one of
the parners of Pittco Capita Parers, LP and Pittco Capita Parters II, LP. Upon information
and belief, Mr. Seamons is J.R. "Pitt" Hyde Ill's agent. Mr. Seamons is also Chairman of
the
Board of
VIP. .
JURISDICTION AND VENU
12. This Cour has personal jursdiction over the defendants because they,
individually and though agents, transacted business
"in TIinois by engaging DigaComm, a
limited liabilty company headquarered in Chicago, Ilinois, to introduce VIP to John Hall, then
a GE executive based in Chicago, TIinois. The introduction and at least two other meetings took
place in Chicago, TIinois. In addition, the harm caused to DigaComm by the defendants
occured in Ilinois.
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13. Ths complait arses out ofthe defendants' and their agents' transaction of
business in Chicago, Ilinois.
14. The exercise of
jursdiction over the defendants in ths case is consistent with the
requirements of due process.
15. Venue is proper because all of
the portions of
the transaction that occured in
the defendants are
Ilinois occurred in Cook County. Venue is fuher proper because all of
nonresidents of
Ilinois.
STATEMENT OF FACTS
16. VSAC and VIP are patent "trolls" - entities whose pricipal assets are
intellectual propert but which do not otherwse operate active businesses. The patents at the
center of
this lawsuit involve motor vehicle communcation technology. VIP and VSAC value
these patents at $4 bilion.
17. The patents in question were acquired during the banptcy of
then-holder
Remote Dynamics, Inc. in 2004. Raymond Bilbao, formerly General Counsel to Remote
Dynamics, Inc., followed the patents to VIP and now serves as VSAC's General Counsel.
18. The capital used to acquire the patents and develop them was provided to VIP by
VSAC, its sole member. VSAC is believed to have invested approximately $5 milion in capital,
by way of loans or capital contrbutions.
19. Afer acquirng the patents, VIP set about its effort to monetize those patents.
The principal method for a patent troll to monetize intellectual propert is to sue patent infingers
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for damages. Alternatively, a patent troll can monetize a patent by entering into licensing
agreements with businesses interested in utilizing the technology.
20. In 2006, VIP entered into discussions regarding its patent portfolio with the
Boston intellectual propert firm Fish & Richardson. Under the proposals, Fish & Richardson
agreed to invest between 30 and 100% of its fee in retun for participation in any damages or
. licensing fees received through its suits against infnngers of certain patents.
21. In December 2006, an attorney at Fish & Richardson named Michael Bunis
contacted DigaComm Principal Jonathan Tunck and encouraged DigaComm to investigate the
VIP portfolio. Mr. Bunis was aware ofDigaCoip.rls work on a previous transaction between
SightSound Technologies, Inc. ("SightSound") and GE and believed that DigaComm was well-
positioned to assist VIP to achieve a similar venture with GE.
22. DigaComm was, indeed, well-positioned to assist VIP. In July 2005, it had
entered into an agreement with SightSound under which it had agreed to assist SightSound to
form a joint ventue with General Electric. The SightSoundlGE joint ventue was structued as
follows: (a) SightSound would contribute its patents to a special purose entity; and (b) GE
would contribute necessary capital and would use its experience and sophistication to monetie
the patents, either by negotiating license agreements or by enforcing SightSound's patents
against infingers.
23. In return for faciltating the SightSoundlGE joint ventue, DigaComm was to
receive 5% of any amounts generated by the joint ventue after certain amounts (such as GE's
capital investment) were repaid.
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24. The SightSound/GE joint ventue closed successfully in mid-2005. Though the
patents in that matter are curently under re-examination by the Patent and Trademark Offce,
DigaComm wil receive the 5% owed to it for facilitating the transaction once the patents emerge
from the re-examination process.
25. Aware of
DigaComm's experience and success on the SightSound transaction,
Fish & Richardson's Mr. Bunis contacted Jonathan Tunck of
DigaComm and suggested that
DigaComm tak to Bradley
Larschan, VIP's CEO.
the
26. In Januar 2007, Mr. Tunick contacted Mr. Larschan in order to explore
possibility of facilitating a joint ventue between VIP and GE. Mr. Larschan had been waiting
for Mr. Tunck's call and was receptive to the idea. Upon information and belief, VSAC and its
Preferred Holders authorized and/or approved all actions taken by VIP in connection with its
communcations with DigaComm.
27. Mr. Larschan eagerly embraced the idea of a joint ventue with GE because GE
was a market paricipant in the very fields encompassed by the VIP patents. Because of GE' s
status as a market parcipant, Mr. Larschan believed that GE had a stronger legal footing for
enforcing the patents and that GE could do so without being perceived as a patent trolL. In fact,
Mr. Larschan had previously authored an article in which he explained how a recent intellectual
property decision by the United States Supreme Cour made a market paricipant like GE a
valuable, if not indispensable, ålly in enforcing patents. (A copy of
Mr. Larschan's aricle is
attached as Exhibit 1.)
28. On Februar 6, DigaComm hosted Mr. Larschan and Mr. Bilbao at its offces in
Chicago. During ths meeting, DigaComm again raised the idea of
working with VIP to secure
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an agreement with GE similar to the SightSound transaction. Mr. Larschan reiterated his interest in the idea. The next day, Mr. Larschan called from the airport and told Mr. Tunick that VIP
"really liked" the idea of pursuing a deal with GE and inquied about the next steps. Mr. Tunick
promised to coordinate with John Hall of GE, the executive involved in the SightSound
transaction.
29. On February 13,2007, Mr. Larschan emailed to Mr. Hall ofGE a set of
financial
projections for each of
VIP's three intellectual propert groups. Acknowledging DigaComm's
of
role as the facilitator
the transaction, on Februar 16,2007, Mr. Larschan asked whether Mr.
Tunick would follow up with General Electric. Mr. Tunick agreed to do so the same day.
30. On Februar 17,2007, Mr. Larschan thaned Mr. Tunck for his continued efforts
with respect to GE and requested a copy of
the SightSound transaction so that he could
"advocate for it" with VSAC and the VSAC Preferred Holders. DigaComm complied with Mr..
Larschan's request.
31. On Februar 27, 2007, Mr. Larschan again thaned Mr. Smith and Mr. Tunck for
"pushig
along the GE deal," noting tht it "could be a great opportty."
32. On March 7, Mr. Tunick and Mr. Larschan spoke by telephone regarding
DigaComm's compensation. By ths time, DigaComm had scheduled a meeting with John Hall
of GE that was to take place the followig day in Chicago. Mr. Tunck said that DigaComm was
lookig for a 10% piece of any transaction in return for bringing the transaction to VIP's
attention. Mr. Tunick emphasized that if
VIP and DigaCorn were not able to agree on
DigaComm's compensation, the March 8 meeting with GE would be cancelled.
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33. Mr. Larschan pushed back. He said that 10% was not acceptable to vip or
VSAC, but that 5% was "not a problem" and wasthe "market rate." Mr. Tunick agreed that
DigaComm would accept 5%.
34. On March 8, 2007, John Hall of General Electric met with Mr. Larschan and
others of ViP and made a power-point presentation reflecting GE's view of
how best to monetize
the patents in question.
35. At the conclusion of
the meeting, Mr. Hall asked what VIP wanted from GE. Mr.
Larschan said "we want what you did on the SightSound deaL." The meeting ended on a positive
note. Mr. Hall agreed to speak with Todd Dickinson, GE's head of
intellectual propert.
36. On March 9, Mr. Tunick emailed Mr. Larschan to report on a conversation he had
had with John Hall of GE. In his email, he noted the paries agreement with respect to
DigaComm's 5% compensation:
Brad - I will report to you on John Hall's conversation with Todd Dickenson,
but before doing so i want to ensure that we have agreement on our own workig arrangement. As you and i agreed prior to our meeting, the waterfall splits wil be 50% GE, 45% VIP and 5% DigaComm. Please fire me back an email confrming our prior understanding.
37. Eager to lear of
the new development and keep the deal on track, Mr. Larschan
confrmed Mr. Tunck's understanding of
the paries' agreement as to DigaComm's
compensation:
Jonathan, Ths represents our understading of
the percentage split. I look forward to hearng about John's conversation with Todd.
this email chain is attched as Exhibit 2.)
(A copy of
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38. With the GE deal progressing smoothly and with VIP having established direct
contacts with GE, VSAC apparently felt free to interfere with VIP's March 9, 2007 promise to
pay DigaComm 5%. On March 29,2007, VSAC's Mr. Bilbao inormed Mr. Tunck during a
telephone call that VI was no longer willing to pay DigaComm 5%. Mr. Bilbao said that 5%
"did not work optically" and that Mr. Larschan was no longer willing to pay the 5% he had
previously promised. Upon inormation and belief, VSAC and its Preferred Holders authorized
and/or approved Mr. Bilbao's and Mr. Larschan's actions.
39. DigaComm viewed Mr. Bilbao's and Mr. Larschan's position as a radical change
from the prior agreement to pay 5%. Rather than allow a complete breakdown in the relationsrup
that might theaten the GE deal, Mr. Smith and Mr. Tunck proposed a tiered fee schedule. On
March 30,2007, DigaComm and VIP agreed to a tiered fee agreement under which DigaComm
would receive the following percentages of amounts generated by the GENIP joint ventue (less
the VSAC and GE capital contributions):
Amounts generated by the joint ventue
DigaComm's share
5%
Up to $300 milion
Between $300 and $500 milion
4%
Between $500 and $750 millon
3.5%
2.5%
2;0%
1.5%
1%
Between $750 millon and 1 bilion
Between $1 bilion and $1.5 bilion Between $1.5 bilion and $2 bilion
Over $2 bilion
40. Under the agreed upon compensation schedule, DigaCommstood to ear up to
$76 milion for briging the GE opportty to VIP's $4 bilion patent portfolio.
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41. As Friday, March 30, 2007 wound to a close, VIP insisted for the fist time that
the letter agreement be "subject to the approval of a majority of
the VSAC Preferred Holders."
DigaComm objected to this change. Mr. Larschan assured Mr. Smith, however, that the
approval process was a mere formality. VIP promised to recommend to the VSAC Preferred
Holders that they approve the DigaComm letter agreement "as soon as practicable."
42. As a fuer sign that the approval process was nothing to be concerned about,
VIP solicited Andrew Seamons' approval of
the DigaCommIP letter agreement on March 30,
the VSAC Preferred Holders.
Mr. Seamons' approvaL. (A copy of
2007. That same day, Mr. Seamons approved the deal on behalf of
VSAC's Mr. Bilbao informed DigaComm of
this email is
attached as Exhbit 3.)
43. In addition, Mr. Larschan told Mr. Tunick that the other VSAC Preferred Holders
would "follow the lead" of
Mr. Seamons. Mr. Larschan emphasized that the approval provision
was not a problem because "you already have the votes."
Mr. Larschan's, Mr. Bilbao's, and Mr. Seamons' representations,
44. On the basis of
DigaComm entered into a letter agreement with VIP late in the day on March 30, 2007. (A copy
of
this letter agreement is attched'as Exhbit 4.)
and was gratefu for DigaComm's efforts in
45. At all relevant times, GE approved of
bringing to its attention the VIP opportty and understood that DigaComm would receive a
parcipation percentage for its efforts.
2, DigaComm coordinated a meeting in Memphis so that VSAC's
46. On April
Preferred Holders could meet Mr. Hall of GE in person. Because cif flight delays, Mr. Smith of
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DigaComm was not able to make the initial meeting. Mr. Hall reported to hi that the meeting
had gone welL. The VSAC Preferred Holders had believed GE to be too good to be tre. Mr.
Hall's understanding was that the VSAC Preferred Holders were very receptive to a deal with
GE, and wanted to advance the deal by meeting with the GE licensing personnel who would also
be involved in the joint ventue.
2 meeting did VSAC, Mr. Seamons, Mr. Hyde, Pittco
47. At no point during the April
Capita Parers, LP, or Pittco Capita Parers II, LP, or any VSAC Preferred Holder ever
disparage DigaComm's role in the GENIP transaction or inform DigaCorn that the VSAC
Preferred Holders had yet to approve its compensation.
48. Mr. Smith's flght arved in time for dinner in Memphis on April 2. That dinner
was attended by Smith, Mr. Hall, Mr. Larschan and J.R. "Pitt" Hyde Ill's representative Mr.
Seamons. At no time during this dinner did Mr. Seamons question DigaComm's paricipation or
inform DigaCömm that the VSAC Preferred Holders had not yet approved the DigaComm letter
agreement. Mr. Hall also told Mr. Smith that he had informed the VSAC Preferred Holders of
the importance of DigaComm to the effort and had received no objections.
49. On May 8, a second meeting was held in Memphis so that the VSAC Preferred
Holders could meet the GE licensing people. Jonathan Tunck attended this meeting on behalf of
DigaComm. At no point during ths meeting did VSAC, Mr. Seamons, Mr. Hyde, Pittco Capital
Parners, LP, or Pittco Capital Parers II, LP, or any VSAC Preferred Holder ever question
DÌgaComm's role in the GE transaction or inform DigaCorn that the VSAC Preferred Holders
had yet to approve its compensation.
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50. The May 8 meeting was a success - the VSAC Preferred Holders decided to
proceed with the GE joint ventue.
51. On June 12,2007, John Hall contacted Mr. Smith and informed him that GE's
law firm, Latham & Watks, needed a copy of
the DigaComm letter agreement so that they
could wrte in DigaComm's compensation to the joint ventue agreement. Mr. Smith obliged by
sending Mr. Hall a copy of
the DigaComm letter agreement with VIP. Mr. Snuth's letter states
"I am sending a copy of this letter to Brad Larschan in the event that you or your associates need
additional information from either of us." (A copy of
Mr. Smith's letter is attached as Exhibit 5.)
52. At no time did Mr. Larschan, VSAC, Mr. Seamons, Mr. Hyde, or any ofVSAC's
Preferred Holders object or inform Mr. Smith that the DigaComm letter agreement was invalid
or that it had not yet been approved.
53. Mr. Larschan did take action, however. Mr. Larschan directed VIP's lawyers to
object to any inclusion of
DigaComm in the joint ventue documents, Upon information and
belief, VSAC and its Preferred Holders authorized and/or approved of
Mr. Larschan's action. At
no point did anyone inform DigaComm that VIP was once again reneging on its promise to pay
DigaComm.
54. As far as DigaComm knew, the joint ventue negotiations were proceeding
smoothy. On several occasions, Mr. Smith contacted Mr. Larschan to check in. At no time did
Mr. Larschan inorm Mr. Smith that there was any problem with either DigaComm's contract or
the GE deal as a whole.
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55. By mid-August, DigaComm was of
the belIefthat the joint venture closing was
iminent. On August 21,2007, Mr. Smith wrote Mr. Larschan and Mr. Bilbao to congratulate
them on closing the GE deaL.
56. On August 27,2007, Mr. Smith again wrote Mr. Larschan to congratuate him on
closing the GE deaL.
57. Mr. Smith received no response to his emails until September 6, 2007. On that
day, Mr. Larschan dropped a bombshell: VIP was refusing to pay DigaComm because "a
majority of
the VSAC Preferred Holders had not approved the deaL." He offered to pay
the world's
DigaComm $250,000 for its efforts in securing a $4 billon opportity with one of
largest companies.
58. An angered Mr. Smith informed Mr. Larschan that he would contact GE and his
litigation counsel about this unortate development.
59. On September 7, 2007, VIP officially reneged on its obligations to DigaComm.
In a letter of
that day, Mr. Larschan informed Mr. Smith that,
joint meeting ofthe Board of
(o)n Augu 10,2007, a
Directors ofVSAC
and VSAC's Preferred Interest Holders W8ß held at VSAC's corporate
offices in Memphis, Tennessee. At such meeting, the management of VIP recommended to VSAC's Preferred Interest Holders that they should approve the terms of the Letter Agreement including the distribution of
Cash Waterfall Proceeds as set fort therein. Unfortnately, despite
majority ofVSAC's Preferred Interest Holders voted against the approval of the Letter Agreement including the distribution of Cash Waterfall Proceeds as set forth herein. Thus, as the Letter Agreement was contingent upon the approval ofVSAC's Preferred Interest Holders, VIP's failure to obtain such approval renders the Letter Agreement null and void.
management's recommendation, a (A copy of
this letter is attached as Exhibit 6.)
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60. At no time prior to September 6,2007, did anyone from VIP, VSAC, Mr.
Seamons, Mr. Hyde, Pittco Capital Partners, LP, Pittco Capita Parers II, LP, or any VSAC
Preferred Holders ever inform anyone from DigaComm that the VSAC Preferred Holders had
not approved the DigaComm letter agreement. To the contrary, VIP, VSAC, Mr. Seamons, Mr.
Hyde, Pittco Capital Parers, LP, Pittco Capita Partners II, LP, and the other VSAC Preferred
Holders took pains to give DigaCorr the ilusion that everyhing was on track.
61. DigaComm brings ths action to recover damages equal to 5% of the value of the
joint ventue's patent portfolio.
COUNT I (FRAUD)
62. DigaCorr realleges and incorporates the allegations contaied in paragraphs 1
through 61 above as
if fully set fort herein.
63. VSAC, Andrew Seamons, J.R. "Pitt" Hyde III, Pittco Capita Parers, LP, and
Pittco Capital Parners II, LP conspired with and aided and abetted VIP and Bradley Larschan to
defraud DigaCorr out its compensation for facilitating a $4 bilion
joint venture between VIP
and GE.
64. VIP and Mr. Larschan made material misrepresentations to DigaComm
concerng the status of its compensation in order to induce DigaComm to continue to faciltate
the GE transaction. Upon information and belief, VSAC, Mr. Seamons, Mr. Hyde, Pittco Capital
Parners, LP, and Pittco Capita Parers II, LP authorized and/or approved of
VIP's and Mr.
Larschan's misrepresentations.
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65. VIP and Mr. Larchan knew their statements were false at the time they made
them.
66. . VIP and Mr. Larschan intended that DigaComm would rely on these
misrepresentations.
67. DigaComm relied on those misrepresentations. .
68. Mr. Seamons paricipated in the fraud and acted in fuherance of
the conspiracy
by indicating his approval of the DigaCommIP letter agreement and causing his approval to be
communicated to DigaComm by VSAC's General Counsel, J. Raymond Bilbao. Upon
information and belief, VSAC, its Preferred Holders, and Mr. Hyde authorized and/or approved
Mr. Seamons' action.
69. In addition, VSAC, Mr. Seamons, Mr. Hyde, Pittco Capital Parers, LP, and
Pittco Capital Parers II, LP paricipated in the fraud and acted in fuherance of the conspiracy
by rejecting DigaComm's compensation in the face of
Mr. Seamons' prior approval.
70. Whle complete detals of
the conspiracy are exclusively within the knowledge
atd control of the conspirators, DigaComm is aware of the following facts giving rise to a strong
inference ofVSAC's, Mr. Seamons', Mr. Hyde's, Pittco Capital Parers, LP's, and Pittco
Capital Parers II, LP's paricipation in a conspiracy to defral1d DigaComm:
(a) The provision purorting to condition DigaComm's compensation onthe
approval ofVSAC's Preferred Holders was an eleventh-hour addition to the
DigaComm~ letter agreement.
(b) VIP's Mr. Larschan and VSAC's General Counsel, J. Raymond Bilbao, told
DigaComm repeatedly that the approval condition "would not be a problem."
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(c) DigaComm was told that Mr. Seamons, on behalf of
the 30% preferred interest holding in VSAC controlled by Mr. Hyde, approved of its fee and that the remaining VSAC Preferred Holders would follow Mr. Seamons' lead.
(d) VSAC's Preferred Holders attended multiple meetings regarding the GE deal and at no time did they indicate that DigaComnls compensation should be rejected.
(e) VIP claims that it recommended that VSAC's Preferred Holders approve
DigaComm's compensation, demonstrating that
DigaComm complied with its
obligations.
(f) VSAC~ Andrew Seamons, l.R. "Pitt" Hyde II, Pittco Capital Partners, LP, and
Pittco Capital Parers II, LP rejected DigaComm's compensation only months repeated after Mr. Seamons had communcated their approval and in the face of
assurances that approval "would not be a problem."
(g) . VSAC, Andrew Seamons, J.R. "Pitt" Hyde II, Pittco Capital Parners, LP, and Pittco Capital Parers II, LP had no basis upon which to deny DigaComm its compensation.
(h) VSAC, Andrew Seamons, J.R. "Pitt" Hyde II, Pittco Capital Parers, LP, and
their rejection of Pittco Capital Parners II, LP stad to profit handsomely off of DigaComm's compensation since DigaComm stood to receive as much as $200
millon.
71. Mr. Hyde is liable for Mr. Seamons' actions in furtherance of
the conspiracy to
defraud DigaComm under the theory of
respondeat superior. Upon inormation and belief, Mr.
Hyde is also liable as one of the parers of the Pittco entities.
72. Upon information and belief, Mr. Seamons is liable as one of
the parners of
the
Pittco entities.
73. VIP and VSAC share a unty of interest such that their separate personalities no
longer exist and VIP is, in reality, a sham for VSAC.
74. Whle the complete detals of
the relationship between VIP and VSACare
control and unavailable to outsiders like DigaComm,
exclusively within their possession and
DigaComm is aware ofthe followig facts indicating that VIP is the mere alter ego ofVSAC:
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(a) VSAC owns 100% of
the membership interests in VIP.
(b) There is considerable overlap between the officers and employees of VIP and
VSAC. DigaComm is aware that J. Raymond Bilbao, VSAC's General Counsel, is also an employee of VIP. In addition, DigaComm is aware that Andrew Seamons is both the Chairman of VIP's Board and a representative ofVSAC Preferred Holders Pittco Capital Parers, LP and Pittco Capita Parers II, LP. Upon information and belief, other offcers and employees of VSAC are also
offcers and employees of VIP.
(c) VIP and VSAC curently share the offce space at 5101 Wheelis Drive, Suite 100,
Memphis, Tennessee, 38117. Prior to September
2007, both VSAC and VIP
maintained offces at 3150 Lenox Park Boulevard, Suite 108, Memphis,
Tennessee,
38115.
(d) VSAC domiates and controls VIP such that VIP lacks the authority to enter into
agreements without approval from VSAC and VSAC's Preferred Holders. For example, VIP claims that it could not undertake the GE tranaction without the approval ofVSAC and VSAC's Preferred Holders.
(e) The GENIP joint ventue was not finalized until after VSAC's Preferred Holders blessed the GE personnel involved.
75. Adherence to the fiction that VIP and VSAC are separate entities would sanction
a fraud and promote injustice.
76. DigaComm believes that VSAC is liable for VIP's and Mr. Larschan's
misrepresentations under the doctrne of alter ego because VSAC and VIP have ignored the
formalities of separate corporate existence. But because the full details ofVSAC's relationship
with VIP are unquely withi the knowledge ofVSAC and VIP, DigaComm also alleges that
VSAC is liable for VIP's and Mr. Larschan's misrepresentations under the doctrine of diect
paricipation.
77. VIP's failure to compensate DigaComm for its efforts in facilitating a $4 billon
transaction between VIP and GE can be 'traced directly to VSAC though the actions ofVSAC's
Preferred Holders in rejecting DigaComm's compensation without
justification.
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78. VSAC has interfered with VIP's operations in a way that far surasses the control
ordinarly exercised by a parent company as an incident of ownership. Whle the details of
VSAC's interference in VIP's operations are within the exclusive knowledge and control of
VSAC and VIP and are unavailable to an outsider like DigaComm, DigaComm is aware ofthe
following facts strongly suggestive of
undue interference by VSAC in VIP's operations:
(a) VSAGand its Preferred Holders rejected DigaComm's compensation in the face of VIP's recommendation that DigaComm's compensation be approved.
(b) VSAC and its Preferred Holders exercised continuous and direct supervision over the VIP/GE joint ventue, including by attending meetings with GE representatives.
(c) VSAC and its Preferred Holders had the ability to veto the GE joint ventue at any time, regardless of VIP's desire to continue with the joint ventue.
(d) The GENI joint ventue was not finalized until afer VSAC's Preferred Holders
blessed the GE personnel involved.
79. DigaComm seeks compensatory and puntive damages.
COUNT II (TORTIOUS INTERFERENCE WITH THE MARCH 9, 2007 CONTRACT)
80. DigaComm realleges and incorporates the allegations contaned in paragraphs 1
though 61 above as if
fully set fort herein.
81. DigaComm's March 9,2007 agreement with VI is a valid and enforceable
contract.
82. VSAC, Andrew Seamons, l.R. "Pitt" Hyde III, Pittco Capita Parners, LP, and
Pittco Capital Parers II, LP were aware of the March 9, 2007 agreement and were aware that it
was a valid and enforceable agreement.
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83. VSAC, Andrew Seamons, 1.R. "Pitt" Hyde III, Pittco Capita Parners, LP, and
Pittco Capita Parners II, LP purosefully interfered with VIP's performance of
the March 9,
2007 agreement.
84. Upon information and belief, Mr. Hyde also used Pittco Capital Parners, LP and
Pittco Capital Parers II, LP to intedere with DigaComnls contractual relationship with VIP.
85. Mr. Hyde is liable for Mr. Seamons' intederence under the theory of respondeat
superior. Upon information and belief, Mr. Hyde is also liable as one of the parners of
the
Pittco entities.
86. Upon information and belief, Mr. Seamons is liable as one of
the parers of
the
Pittco entities.
87. VSAC's, Andrew Seamons', 1.R. "Pitt" Hyde Ill's, Pittco Capital Parters, LP's,
and Pittco Capital Parers II, LP's intederence was done with actual malice. Whle the
complete details surounding the defendants' state of
mind when they intedered with the March
9,2007 agreement are peculiarly known to them and not to outsiders like DigaComm,
DigaComm is aware of the followig indicia of actual malice:
(a) VSAC, Andrew Seamons, J.R. "Pitt" Hyde II, Pittco Capital Parers, LP, and
Pittco Capita Parers II, LP interfered with the March 9,2007 agreement even
though that intederence was opposed to their economic interests. All were aware that reneging on the March 9, 2007 agreement could cause GE to back out of the
joint ventue, thus upsetting a $4 billon opportity.
(b) VSAC, Andrew Seamons, 1.R. "Pitt" Hyde II, Pittco Capital Parers, LP, and
Pittco Capita Parners II, LP interfered with DigaComm's compensation weeks
afer authorizing and/or approving of
their agent Mr. Larschan's agreement to pay
DigaComm 5%.
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Page 21 of 70
(c) VSAC, Andrew Seamons, lR. "Pitt" Hyde III, Pittco Capital Parers, LP, and
Pittco Capital Parners II, LP had no basis upon which to assert that DigaComm was not entitled to its agreed-upon compensation.
(d) VSAC, Andrew Seamons, lR. "Pitt" Hyde III, Pittco Capital Parers, LP, and
Pittco Capital Parers II, LP stad to profit handsomely off oftheIr rejection of DigaComm's compensation since DigaComm stood to receive as much as $200
millon.
88. DigaComm has suffered damages as a result ofVSAC's, Andrew Seamons', lR.
"Pitt" Hyde Ill's, Pittco Capital Parers, LP's, and Pittco Capital Parers II, LP's interferen~e.
89. DigaComm seeks damages in the amount of $200 millon.
COUNT III (TORTIOUS INTERFERENCE WITH THE MARCH 30,2007 CONTRACT)
90. DigaComm realleges and incorporates the allegations contained in paragraphs 1
through 61 above as if fully set forth herein.
91. DigaComm's March 30,2007 letter agreement with VIP is a valid and
enforceable contract.
92. VSAC, Andrew Seamons, J.R. "Pitt" Hyde III, Pittco Capital Parers, LP, and
Pittco Capital Parters II, LP were aware of the March 30, 2007
letter agreement and were aware
that it was a valid and enforceable agreement.
93. VSAC, Andrew Seamons, J.R. "Pitt" Hyde III, Pittco Capita Parers, LP, and
Pittco Capital Parters II, LP purosefuly interfered with VIP's performance of
the March 30,
2007 letter agreement.
94. Upon information and belief, Mr. Hyde also used Pittco Capital Parers, LP and
Pittco Capital Partners II, LP to interfere with DigaComm's contractual relationship with VIP.
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95. Mr. Hyde is liable for Mr. Seamons' interference under the theory of respondeat
superior. Upon information and belief, Mr. Hyde is also liable as one of the parers of
the
Pittco entities.
96. Upon information and belief, Mr. Seamons is liable as one of
the parers of
the
Pittco entities.
97. VSAC's, Andrew Seamons', IR. "Pitt" Hyde Ill's, Pittco Capital Parners, LP's,
and Pittco Capital Parers II, LP's interference was done with.actual malice. While the
complete details surounding the defendants' state of mind when they interfered with the March
30, 2007 letter agreement are peculiarly known to them and not to outsiders like DigaComm,
DigaComm is aware of the following indicia of actual malice:
(a) The provision purorting to condition DigaComm's compensation on the
approval ofVSAC's Preferred Holders was an eleventh-hour addition to the
DigaComrIP letter agreement.
(b) VSAC, Andrew Seamons, IR. "Pitt" Hyde III, Pittco Capital Parners, LP, and
letter agreement even though that interference was opposed to their economic interests. All were aware that reneging on the March 30, 2007 letter agreement could cause GE to
Pittco Capital Parters II, LP interfered with the March 30, 2007 back out of
the joint venture, thus upsetting a $4 bilion opportity.
(c) VSAC, Andrew Seamons, l.R. "Pitt" Hyde III, Pittco Capital Parers, LP, and
Pittco Capital Parners II, LP attended meetings relating to the GENIP joint
ventue and at no point indicated that they felt that DigaComm's compensation
should be rejected.
(d) VIP claims that it recommended that VSAC's Preferred Holders approve
DigaComm's compensation, demonstrating that DigaComm complied with its obligations.
(e) VSAC, Andrew Seamons, l.R. "Pitt" Hyde III, Pittco Capital Parers, LP, and
Pittco Capita Parers II, LP rejected DigaComm's compensation only months
after Mr. Seamons had communicated their approval and in the face of repeated assurances by their agent Mr. Larschan that approval "would not be a problem."
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(f) VSAC, Andrew Seamons, 1.R. "Pitt" Hyde II, Pittco Capita Parers, LP, and
Pittco Capital Parers II, LP had no basis upon which to deny DigaComm its compensation.
(g) VSAC, Andrew Seamons, 1.R. "Pitt" Hyde II, Pittco Capital Parers, LP, and
Pittco Capital Parers II, LP stad to profit handsomely off of
their rejection of DigaComm's compensation since DigaComm stood to receive as much as $76
millon.
98. DigaComm has suffered damages as a result ofVSAC's, Andrew Seamons', 1.R.
"Pitt" Hyde Il's, Pittco Capital Parners, LP's, and Pittco Capita Parers II; LP's interference.
99. DigaComm seeks damages in the amount of$76 millon.
COUNT iv
(UJUST ENRCHMENT)
100. DigaComm realleges and incorporates the allegations contained in paragraphs 1
through 61 above as if fully set forth herein.
101. DigaComm has conferred a benefH on VSAC, Andrew Seamons, 1.R. "Pitt" Hyde
II, Pittco Capital Parners, LP, and Pittco Capital Parers II, LP