Opinion
Civil Action No. 03-6454.
May 5, 2005
MEMORANDUM AND ORDER
On February 10, 2005, the parties filed a notice of consent to have me conduct all further proceedings in this action. See Docket Entry No. 79. Presently before me is the post-trial motion of Defendants Brian Cooke and Samuel Jensen. Following a two-week trial, a jury found that Brian Cooke had breached his fiduciary duties owed to Plaintiff GivingCapital, Inc. [GivingCapital] and that Samuel Jensen had aided and abetted in that breach. GivingCapital was awarded $800,000.00 in damages — Mr. Cooke was found accountable for $400,000.00, and Mr. Jensen was held accountable for $400,000.00. However, the jury determined that Defendants did not interfere with GivingCapital's business relationship with Putnam Lovell Equity Partners. Defendants move for the entry of judgment as a matter of law in its favor. For the reasons stated below, Defendants' motion is denied.
I. FACTUAL BACKGROUND
The factual history is compiled from a review of the complaint; the amended complaint; Defendants' answer to the amended complaint; Defendants' Motion for Judgment as a Matter of Law, inclusive of all exhibits thereto; Plaintiff's response to Defendants' motion; and D efendants' reply memorandum. All facts, and reasonable inferences therefrom, are considered in the light most favorable to the non-moving party.
GivingCapital provides financial service companies with technology-centered solutions for collecting, managing and distributing charitable assets. In April, 2000, Newhouse Capital Partners, LLC [Newhouse] was formed; it is a private equity fund that invests in financial service companies. 98% of Newhouse is owned by Nationwide Mutual Insurance Company [Nationwide] and its wholly owned subsidiary, Gartmore Global Investments, LLC [Gartmore]. The remaining 2% is split equally between Brian Cooke and Samuel Jensen. They are both Managing Directors of Newhouse.
In October, 2000, Newhouse made a $2 million investment in GivingCapital as part of a "Series B round of capitalization". With that investment, Mr. Cooke became a member of GivingCapital's Board of Directors, and Mr. Jensen was given "board observation rights". In July, 2001, Newhouse increased its investment in GivingCapital to $4 million on principally the same terms and conditions as the Series B round. In December, 2001, Newhouse's ownership interest in GivingCapital increased to 26.8%. In connection with the Series C investment, Newhouse received certain safeguards including, inter alia, anti-dilution protections designed to protect Newhouse's purchase price and ownership interest, when, and if, subsequent funding was obtained. The Series C round, however, did not give GivingCapital sufficient funds, and GivingCapital went to the market with the Series D round. In the summer of 2002, CapZ offered to lead the Series D round with a $2 million investment. CapZ prepared a term sheet recognizing a $20 million valuation of GivingCapital. When the market reacted adversely, CapZ lowered its valuation of GivingCapital to $15 million. By October, 2002, GivingCapital had failed to attract new investors despite meeting with over seventy firms and individuals.
In the Series "B" round of capitalization, Capital Z Equity Partners [CapZ] invested $7 million through a predecessor affiliated entity called efinanceworks.com. With its $7 million investment, CapZ also got a seat on the Board of Directors of GivingCapital.
At that point, Newhouse had a total investment of $6.5 million. In May, 2001, Newhouse had purchased Series B and common stock securities that had been owned by Arthur Lutchaunig [then-CEO of GivingCapital] for $500,000.00.
The contemplated total Series C round raise was approximately $6 million. The total actual raise was $4.2 million.
In September, 2002, Putnam Lovell presented an initial term sheet to GivingCapital. This term sheet, if accepted, would have reduced Newhouse's ownership interest to 13.7%. Putnam Lovell's September 12, 2002, term sheet called for a raise in capital of $6 million ($4 million to be provided by Putnam Lovell). Putnam Lovell valued GivingCapital at $8 million. The term sheet rated Series A, B, and C shares as common stock, thereby eliminating any individual rights that the Series A, B, and C investors had, and it contained a liquidation preference. Under that term sheet Newhouse would lose its Board seat. On October 3, 2002, Putnam Lovell submitted a proposed revised term sheet, which, GivingCapital asserted, increased Newhouse's ownership interest to 20.4%.
On October 6, 2002, GivingCapital's Board met to discuss the proposed revised Putnam Lovell term sheet. On October 11, 2002, Putnam Lovell submitted a final revised term sheet. GivingCapital's Board met on October 14, 2002, to decide whether to accept Putnam Lovell's October 11, 2002, term sheet. The term sheet was unanimously rejected by GivingCapital's Board. The Board and all shareholder classes agreed that it was preferable to raise money internally from existing shareholders, rather than seek outside capital.
On October 9, 2002, Christopher Blunt (CEO of GivingCapital) met with representatives of Nationwide and made a presentation relating to a proposed distribution arrangement between GivingCapital and Nationwide. During the October 9, 2002, trip, Mr. Blunt was introduced to Ryan Helon of Nationwide Strategic Investment Fund [NSIF], a newly created subsidiary of Nationwide.
Prior to the October 14, 2002, Board meeting, Richard Masterson had presented a "Swiss" term sheet proposal for financing. Mr. Masterson's proposal contemplated financing through GivingCapital's existing investors.
After the decision to pursue an internal round of financing, representatives of the shareholder classes (including Cooke and Jensen) immediately proceeded to negotiate an internally led term sheet. An agreement was reached on November 5, 2002, under which Newhouse's post-finding ownership would increase to 33%. Each share class, including Newhouse on behalf of the Series C investors, agreed to contribute $1,667,000.00.
In early November, 2002, Mr. Helon met with Christopher Blunt, Gretchen Nickel (CFO) and other representatives of GivingCapital to discuss a potential business relationship between Nationwide and GivingCapital. Defendants spoke with, and sent information regarding GivingCapital to, Mr. Helon in an effort to build NSIF's interest in investing in GivingCapital. On November 27, 2002, a draft term sheet was presented by NSIF to GivingCapital, and it was discussed at a December 12, 2002, Board meeting. At that meeting, the Board adopted a resolution which stated that the Board members would "not hold each other liable for self-dealing". GivingCapital accepted the NSIF conditional offer with a bridge loan to be supplied by CapZ and some of the Series A investors, and a term sheet was signed on December 16, 2002.
Prior to reaching an agreement with NSIF, CapZ approached Inlumen (one of CapZ's portfolio companies) to take NSIF's place. Inlumen submitted an offer, with a $1 million unconditional funding in December, 2002, and a second closing in January. Mr. Masterson also offered to provide GivingCapital with $4 million of working capital by providing $1 million in December and $3 million in January, with an offer to buy GivingCapital for $20 million.
Under this NSIF term sheet: 1) GivingCapital was valued (pre-investment) at $10 million; 2) $4-5 million in funding was to be raised from NSIF, CapZ and Series A investors; and 3) the existing shareholders would fund a $500,000.00 bridge loan (for working capital) that would be converted to stock upon closing of the remainder of the financing. As a condition of NSIF's funding obligation to be triggered, GivingCapital was required to raise $150 million in new donor advised fund assets during the giving season from November 25, 2002, to January 7, 2003 (Asset Hurdle). CapZ set the terms of the bridge loan. Under its terms, if NSIF did not close, there would be a default on the bridge loan. Upon default, GivingCapital's Board of Directors would be reconstituted and reduced in membership from seven members to three, and the existing shareholders would lose their veto rights to financing transactions. CapZ would effectively gain control of the Company if the defined financing did not transpire.
On December 30, 2002, Mr. Blunt told Mr. Helon that GivingCapital's raise for the giving season from November 25, 2002, through December 27, 2002, was $47 million. A revised term sheet was discussed. On January 5, 2003, Mr. Jensen and GivingCapital agreed that the Company's minimum valuation would be $7 million, and the maximum raise $6 million, and these terms were reflected in the Bridge Loan documentation which closed on January 8, 2003. The revised NSIF term sheet provided that NSIF invest $3 million upon closing and an additional $3 million in January, 2004, if GivingCapital had $600 million in assets under management. This term sheet was discussed during a January 23, 2003, Board meeting, at which time, the Board determined that the exclusivity provisions of the December 16, 2002, NSIF term sheet were terminated. The Board was then reconstituted, with the new Board consisting of Messrs. Blunt, Schotz and Rahe (CapZ partner).
NSIF and GivingCapital engaged in further negotiations, but no funding transaction was finalized. Between February and July, 2003, GivingCapital engaged in efforts to sell the Company, all of which were unsuccessful. In July, 2003, GivingCapital entered into a merger agreement with Braveheart Ventures, a concern formed by Mr. Blunt, for $769,000.00. Under the merger agreement, GivingCapital was valued (pre-investment) at $269,000.00. After the merger was completed on July 31, 2003, the name GivingCapital was maintained. The Board of Directors of the new GivingCapital consists of Messrs. Masterson, Blunt and Schotz.
On November 26, 2003, GivingCapital filed the instant matter, which alleges causes of action against Brian Cooke and Samuel Jensen for breach of fiduciary duty and aiding and abetting in that breach, respectively.
GivingCapital claims that, in the spring of 2001, Newhouse sought to increase its investment in GivingCapital by $2,000,000.00. In July, 2001, its desired investment increased to $4,000,000.00 on principally the same terms and conditions of the Series B round. But it asserts that Mr. Cooke materially changed the terms, delayed the anticipated September Series C round closing until December, 2001, and forced GivingCapital to accept onerous terms because its cash needs were critical. As a result, Newhouse's ownership interest rose to 26.8% of GivingCapital.
GivingCapital also claims that the decision not to accept Putnam Lovell's October 11 term sheet at the October 14, 2002, Board meeting was predicated upon Mr. Cooke and Mr. Jensen's advice that an internal round was quicker, cheaper and better and that Newhouse could now participate in an internal round of financing. It avers that they were not candid with GivingCapital in that they did not tell GivingCapital that Nationwide had not yet agreed to invest, that the investment would have to meet strict investment criteria, that NSIF would perform intensive due diligence, and that Newhouse did not have the ability to fund its share. The term sheet that was presented to GivingCapital on November 27, 2002, rather than being an inside deal, required a delayed closing and was subject to a sales hurdle, full due diligence, investment committee approval, and other conditions. GivingCapital states that it had not actively pursued financing alternatives as it was under the erroneous belief that the existing shareholders were going to fund and close in December. GivingCapital also asserts that Mr. Cooke and Mr. Jensen supplied NSIF with confidential information, including communications from the Board to its shareholders, communications from the CEO to the Board, the Masterson offer and the Inlumen offer.
Because of the actions of Mr. Cooke and Mr. Jensen, GivingCapital claims that its enterprise value was destroyed, and it was approaching bankruptcy. Mr. Blunt negotiated to buy the Company for $239,000.00 and inject $500,000.00 of working capital. The sale was ultimately effectuated by a merger with Braveheart, but GivingCapital alleges that it could not recover from the damages caused by Defendants.
Defendants move, pursuant to F.R.C.P. 50(b), for judgment as a matter of law, renewing its prior Rule 50 motions made at the conclusion of GivingCapital's case in chief and following the presentation of all of the evidence. I denied these motions and allowed the case to be decided by the jury.
II. DISCUSSION
A. Legal Standards
Judgment as a matter of law is appropriate only when "there is no legally sufficient basis for a reasonable jury to have found for the nonmoving party". Shesko v. Coatesville, 324 F.Supp.2d 643, 647, (E.D.Pa. 2004). "[D]efendants must demonstrate that the record is critically deficient of that minimum quantity of evidence from which a jury might reasonably afford relief." Montgomery County v. Microvote, 2001 U.S.Dist. LEXIS 8727, *23 (E.D.Pa., June 25, 2001) (citations omitted). See also LBL Skysystems v. APG-America, 319 F.Supp.2d 515, 525 n. 5 (E.D.Pa. 2004). "The reviewing court should not grant a judgment as a matter of law merely because its view of the evidence differs with that manifest in the jury's verdict. Such action on the part of the reviewing court would constitute a usurpation of the jury's province as factfinder." Larami Corp. v. Amron, 1995 U.S.Dist. LEXIS 3672, *15-16 (E.D.Pa., March 22, 1995). "When deciding a motion for judgment notwithstanding the verdict, the trial judge must determine whether the evidence and justifiable inferences most favorable to the prevailing party afford any rational basis for the verdict." Bhaya v. Westinghouse, 832 F.2d 258, 259 (3d Cir. 1987).
In the awarding of damages, though mathematical certainty is not typically required, the general rule is that damages must be proven with reasonable certainty. See ATACS Corporation v. Trans World Communications, 155 F.3d 659,669 (3d Cir. 1998). "At a minimum, reasonable certainty embraces a rough calculation that is not too speculative, vague or contingent upon some unknown factor (citations omitted). Id. However, evidence of damages may consist of probabilities and inferences. See Aircraft Guaranty Corporation v. Strato-Lift, Inc., 991 F.Supp. 735, 740 (E.D.Pa. 1998). "Doubts are construed against the breaching party" (citations omitted). ATACS Corporation, 155 F.3d at 670 (3d Cir. 1998).
B. Analysis
1) Legally Sufficient Evidence to sustain the Jury's Award of Damages
Defendants first assert that GivingCapital did not present legally sufficient evidence at trial to sustain the jury's award of damages against Brian Cooke for a breach of fiduciary duty and against Samuel Jensen for aiding and abetting in this breach. GivingCapital responds that the jury's damage award was predicated upon competent evidence.
During this nine-day trial, the jury listened to numerous individuals testify as to the facts involved in the transactions at issue, and they were presented with volumes of exhibits to review. Ms. Gretchen Nickel explained in detail the various attempts at funding addressed by GivingCapital and its Board of Directors. See Defendants' Exhibit G. We all learned of the Putnam Lovell term sheet, its revisions [Plaintiff's Trial Exhibits 27, 36, 40], and its eventual rejection by the Board on October 14, 2002. See Defendants' Exhibit E, 16, 111; Exhibit G, 36. Mr. Richard Masterson testified that he voted to reject the Putnam Lovell term sheet because an internally led deal had been agreed upon, and, further, Mr. Jensen had said that Newhouse could participate in this internally led term sheet and funding round. See Defendants' Exhibit D, 14. It had been previously stated that Newhouse did not have money available to contribute. See Defendant's Exhibit E, 18; Exhibit F, 8; Exhibit G, 34, 37. Mr. Blunt, too, testified that it was the assurances of Mr. Cooke and Mr. Jensen that they had money to invest that influenced his vote regarding Putnam Lovell. See Defendants' Exhibit F, 28, 34. The final draft of the "insider deal" term sheet presented by GivingCapital was admitted into evidence [ See Plaintiff's Trial Exhibit 20.], along with the term sheet returned to GivingCapital by NSIF. See Plaintiff's Trial Exhibit 69. The term sheet which was ultimately signed by GivingCapital and NSIF, too, was admitted into evidence. See Plaintiff's Trial Exhibit 80. The voting on the NSIF deal and the discussion of self-dealing was introduced into trial and admitted into evidence. GivingCapital's inability to achieve the asset hurdle, and all that transpired as a result, was well documented and admitted into evidence. Witnesses testified as to their beliefs that confidential information was shared with others by Defendants. See Defendants' Exhibit D, 57, 96, 97. The change of the GivingCapital/NSIF agreement from an "inside term sheet" to an "outside term sheet" was thoroughly explained. See Defendants' Exhibit D, 125; Exhibit E, 23; Exhibit F, 37-38. During the course of this trial, witnesses testified at length and in detail about Defendants' roles in the various transactions explored in an effort to raise money and keep GivingCapital afloat. Numerous exhibits were admitted into evidence documenting the roles of Defendants and others in dealing with the problems facing GivingCapital.
Many figures and documents were admitted into evidence and testimony was presented concerning GivingCapital's decrease in value during the time period at issue. The NSIF deal, the Masterson buyout offer, and the Inlumen deal were explained and documents memorializing their terms were admitted into evidence. GivingCapital's value, as determined by Putnam Lovell in October, 2002, was $8 million. See Defendants' Exhibit G, 201. NSIF, as time went on, reduced its valuation from $10 million to $7 million. See Defendants' Exhibit G, 95-96. Inlumen valued GivingCapital at $7,200,000.00. Finally, GivingCapital entered into a merger agreement with Braveheart Ventures in which GivingCapital was valued at $269,000.00.
Having found Mr. Cooke liable for a breach of fiduciary duty and Mr. Jensen liable for aiding and abetting Mr. Cooke in this breach, the jury turned to damages, and it awarded GivingCapital $800,000.00.
In viewing the evidence in the light most favorable to GivingCapital, and in giving it the benefit of all logical inferences that could be drawn from the evidence presented at trial, Defendants' motion will be denied. Defendants have not demonstrated that the record is critically deficient of the minimum quantity of evidence from which a jury might reasonably afford relief. Further, in assessing damages, the jury found that the evidence established a basis for an award of damages, and I will not disturb their finding.
2. The December 12 Board Resolution
Defendants also assert that the resolution adopted by the GivingCapital Board of Directors at the second December 12, 2002, Board meeting precludes a finding of breach of fiduciary duty on the part of Mr. Cooke. GivingCapital avers that the resolution pertains only to the vote approving the NSIF transaction and not to the actions of which the Company complains.
The resolution reads:
No Liability for Self-Dealing
RESOLVED, the members of the Board recognize that they are interested parties and as such, there are no uninterested parties available to vote the deal and as such, will not hold each other liable for self-dealing. Defendants' Trial Exhibit 142.
"Corporate resolutions alone do not constitute a contract." Haft v. Dart Group Corp., 877 F.Supp. 896, 905 (D.Del., 1995). "However, there is no doubt that a resolution may be so specific and in such terms as itself to constitute a contract where accepted and relied on by the other party." Id. It would appear, and the jury's verdict demonstrates their belief, that the resolution at issue is specific to the actual execution of the transaction at hand, rather than the surrounding actions of the parties. In considering the NSIF resolution's language, the circumstances surrounding its signing, and the evidence presented at trial, the jury found evidence of a breach of fiduciary duty by Defendants. Indeed, Judge Savage, in his denial of Defendants' Motion for Summary Judgment, concluded that there were genuine issues of material fact as to the meaning and scope of the December 12, 2002, Board resolution. There is legally sufficient basis for a reasonable jury to have found for GivingCapital, and I will not usurp its province as factfinder.
III. CONCLUSION
For the reasons stated above, I find that Defendants have not demonstrated that the record is critically deficient of that minimum quantity of evidence from which a jury might reasonably afford relief. Defendants' motion is denied.
ORDER
AND NOW, this 5th day of May, 2005, upon consideration of Defendants' Motion for Judgment as a Matter of Law Pursuant to Fed.R.Civ.P. 50(b); Plaintiff's Response to Defendants' Motion for Judgment as a Matter of Law Pursuant of Fed.R.civ.P. 50(b); and Defendants' Reply Memorandum of Law in Further Support of Defendants' Motion for Judgment Pursuant to Federal Rule of Civil Procedure 50(b), it is hereby ORDERED that Defendants' Motion for Judgment as a Matter of Law Pursuant to Fed.R.Civ.P. 50(b) (Docket Entry No. 109) is DENIED.