Goldeneye Advisors, LLC v. Hanaco Venture Capital, Ltd.

Background

Goldeneye Advisors sued Hanaco Venture Capital, Lior Prosor, and David Frankel. The claims concern Goldeneye’s alleged $1 million investment in STL Namos, a fund used by Hanaco to invest in Israeli startup companies. The investment was then invested in Vesttoo, Ltd. Goldeneye alleged that Vesttoo’s reported success was fraudulent and that it ultimately lost its investment after Vesttoo filed for bankruptcy.

Goldeneye asserted a claim under Section 10(b) of the Securities Exchange Act and Rule 10b-5, along with state-law claims for fraudulent misrepresentation and negligence. The relevant agreements included an STL Namos limited partnership agreement and Goldeneye’s subscription agreement. The partnership agreement included an arbitration clause covering disputes arising from or connected with the agreement or a limited partner’s subscription agreement.

Goldeneye had also started an arbitration against STL Namos in Israel concerning the same underlying events. That arbitration was still ongoing when STL Namos moved to intervene in the federal case.

Motion to Intervene

STL Namos, which was not originally a party to the federal action, sought intervention under Rule 24 of the Federal Rules of Civil Procedure for the limited purpose of moving to compel arbitration. Hanaco, Prosor, and Frankel supported the motion. Goldeneye did not respond or oppose it.

The court analyzed intervention as of right under Rule 24(a)(2). It considered whether the request was timely, whether STL Namos had a legally protectable interest in the case, whether that interest could be impaired without intervention, and whether the existing parties adequately represented STL Namos’s interests.

Court’s Analysis

The court found the motion timely because STL Namos filed it 38 days after the complaint and the case was still in its preliminary stages, with no scheduling order in place. The court also noted that Goldeneye had not opposed intervention.

The court found that STL Namos had a direct, substantial, and legally protectable interest because it was a party to the agreements forming the contractual basis for Goldeneye’s investment and claims. The court also noted that STL Namos had an obligation to indemnify the defendants, meaning rulings in the case could directly affect STL Namos.

The court concluded that STL Namos’s interests could be impaired without intervention. Rulings about exculpatory and warranty provisions in the subscription agreement could affect STL Namos in the Israeli arbitration and could have consequences because of its indemnification obligation. The court also identified a risk of inconsistent results and duplicative proceedings if the federal case and Israeli arbitration proceeded at the same time.

Finally, the court found that the existing defendants might not adequately represent STL Namos. The defendants were not parties to the partnership agreement, creating uncertainty about their ability to enforce its arbitration clause. STL Namos also had an indemnification obligation to the defendants, which could create differences in litigation strategy and settlement positions.

Disposition

The court held that STL Namos satisfied all four requirements for intervention as of right under Rule 24(a)(2). It therefore granted STL Namos’s motion to intervene and directed the Clerk of Court to terminate the motion at ECF No. 21. The opinion did not rule on whether STL Namos’s request to compel arbitration should ultimately be granted.