Celebrity Fund Management, LLC v. Humans, Inc., doing business as Flipfit

Background

Celebrity Fund Management, LLC (CFM) alleged that Humans, Inc., doing business as Flipfit (Flip), hired CFM to help promote Flip’s shopping-focused social-media application. CFM alleged that it introduced Flip to celebrities and influencers, helped negotiate agreements, and performed substantially under a services agreement. In return, the agreement provided for equity warrants and an opportunity for CFM or the contemplated investment fund to invest in Flip’s first qualifying financing round.

The agreement identified CFM as acting on behalf of a venture capital fund that was still being formed. That fund was never created. CFM alleged that the agreement nevertheless remained enforceable between CFM and Flip because CFM signed the agreement, performed the services, and was identified in other parts of the agreement and the attached warrant form.

CFM alleged that it introduced Flip to, among others, Kalani Hilliker and Mads Lewis, who qualified under the agreement as “Main Celebrities,” and helped Flip negotiate agreements with them. CFM alleged that Flip did not issue the promised vested warrant, did not give CFM notice or an opportunity to invest in Flip’s financing rounds, and continued engaging with celebrities CFM had introduced after cutting CFM out of the relationship. CFM also alleged that Flip effectively terminated the agreement and failed to compensate CFM.

The Motion to Dismiss

Flip moved to dismiss CFM’s amended complaint under Rule 12(b)(6), which asks whether the complaint alleges enough facts to state a legally plausible claim. At this stage, the court accepted CFM’s factual allegations as true and drew reasonable inferences in CFM’s favor.

Breach of Contract

The court held that CFM plausibly alleged an enforceable contract with Flip. Although the agreement referred to a fund that never existed, the court relied on the contract principle that an agreement signed on behalf of a nonexistent principal can remain enforceable against the person or entity that acted as the purported agent. The court also found the agreement ambiguous because some provisions referred to CFM and others referred to the contemplated fund. That ambiguity prevented dismissal at this stage.

The court further held that CFM adequately alleged three contract breaches:

1. Vested warrant. CFM alleged that it introduced Flip to at least two Main Celebrities and helped negotiate and execute agreements with them. The court concluded that these allegations plausibly showed that CFM performed the required services and that Flip failed to issue the vested warrant. The court also found the agreement ambiguous about whether certain valuation and notice steps were prerequisites to issuing the warrants.

2. Opportunity to invest. CFM alleged that Flip’s August 2021 Series A financing qualified under the agreement, that Flip did not give CFM the required notice, and that CFM could have invested approximately $3.062 million for an approximately 2.433% equity stake. The court held that these allegations sufficiently pleaded Flip’s failure to perform and CFM’s resulting damages.

3. Contractual restriction on dealing with introduced celebrities. CFM alleged that Flip continued receiving services from celebrities CFM had introduced while excluding CFM. The court held that the alleged dispute over whether the agreement had been formally terminated was a factual issue not suitable for resolution on a motion to dismiss. It also concluded that the agreement’s restriction applied during the agreement’s term and for six months after termination or expiration, so CFM plausibly alleged a breach.

Good-Faith-and-Fair-Dealing Claim

CFM also alleged that Flip improperly used its contractual discretion when negotiating celebrity agreements and rejecting Maddie Ziegler. Ordinarily, a claim for breach of the implied duty of good faith and fair dealing cannot simply duplicate a contract claim. The court nevertheless allowed CFM to pursue this claim in the alternative because the parties disagreed about what the agreement’s express terms required, including whether the listed celebrity deliverables could be modified.

The court emphasized that finding CFM’s allegations plausible did not decide whether CFM would ultimately prove that Flip breached the agreement or whether CFM’s interpretation of the agreement was correct.

Unjust-Enrichment Claim

CFM pleaded unjust enrichment in the alternative, alleging that Flip benefited from CFM’s introductions and efforts, that CFM incurred time and expense and used its reputation to provide those benefits, and that it would be unfair for Flip to keep the benefits without compensating CFM.

The court allowed this claim to proceed because Flip disputed CFM’s status under the agreement and its liability to CFM. The court explained that a plaintiff may pursue contract and unjust-enrichment theories in the alternative when it remains uncertain whether an enforceable contract covers the dispute.

Disposition

The court denied Flip’s motion to dismiss CFM’s amended complaint. The order did not decide whether CFM will ultimately win or whether Flip breached the agreement; it decided only that CFM’s allegations were sufficient to continue the case. The earlier motion to stay discovery had also been denied, but that ruling was not the disposition of the motion addressed in this opinion.