Advsr, LLC v. Magistro LTD.

Background

Advsr alleged that it entered a May 22, 2017 agreement with Magisto Ltd. to help arrange an acquisition. The agreement provided for a fee totaling 3% of the acquisition price and included a nine-month period after termination during which Advsr could still be entitled to a fee for a covered transaction. Advsr alleged that it introduced Magisto to IAC, supported negotiations, prepared an economic analysis, and helped develop the transaction that ultimately closed on May 28, 2019.

Advsr alleged that Yahal Zilka, a major Magisto shareholder and board member, helped conceal the negotiations and Advsr’s role from Magisto’s board and shareholders, directed others to replace Advsr, sought a new letter of intent, and instructed others to delete correspondence. Advsr also alleged that Zilka helped cause Magisto not to pay Advsr’s fee. The opinion described these as allegations and stated that it was not resolving disputed facts.

Advsr asserted claims against Zilka for intentional interference with contractual relations and intentional interference with prospective economic relations. Zilka moved under Rule 12(b)(6), which permits dismissal when a complaint does not adequately state a legally recognizable claim.

Court’s analysis

For the contractual-interference claim, the court identified the required allegations as a valid contract with a third party, the defendant’s knowledge of the contract, intentional conduct designed to induce a breach or disruption, an actual breach or disruption, and resulting damage. The prospective-economic-relations claim required allegations of an economic relationship likely to produce future benefit, the defendant’s knowledge, intentional disruption, actual disruption, and resulting economic harm caused by wrongful conduct.

Zilka argued that only the allegation that he instructed Magisto’s chief executive officer not to pay Advsr’s fee had a causal connection to Advsr’s claimed damages. The court assumed for purposes of the motion that Zilka was correct about the other allegations, but concluded that the alleged instruction not to pay the fee was enough to satisfy causation at the pleading stage.

The court also considered California’s “manager’s privilege,” a defense that can protect a manager or agent who advises a company to breach a contract in order to protect the company’s interests. The court followed the California appellate decision in Huynh v. Vu and applied a “predominant motive” test. Under that test, the privilege does not protect a manager who had a personal benefit from the breach unless the manager’s predominant motive was to benefit the company. The court declined to follow the older mixed-motive approach described in a Ninth Circuit decision because the later California appellate decision had rejected that approach and the court found no convincing evidence that the California Supreme Court would reject Huynh.

The court recognized that some allegations suggested Zilka was motivated to save Magisto money. But Advsr also alleged that Zilka and the chief executive officer acted out of a personal desire to control the transaction and benefit early investors at the expense of more recent investors, and that paying Advsr would have exposed secret negotiations. The court therefore could not conclude from the complaint alone that Zilka’s predominant motive was to benefit Magisto.

Disposition

The court denied Zilka’s motion to dismiss the claims against him in Advsr’s first amended complaint. The ruling did not decide the ultimate truth of Advsr’s allegations or resolve disputed facts.