Bard v. GSV Asset Management, LLC

Background

HMF Partners, LLC and its owners, Thomas C. Franco and Felipe Held, collectively called the HMF defendants, moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss the fifth and sixth causes of action in Stephen D. Bard’s First Amended Complaint. The fifth claim alleged aiding and abetting fraud; the sixth alleged intentional interference with contractual relations.

Bard alleged that, during negotiations for a repurchase agreement with GSV Asset Management, LLC, Michael Moe and GSV Asset Management represented that Moe would transfer personal interests in certain revenue streams to GSV Asset Management so those revenues could fund payments owed to Bard. Bard alleged that Moe instead transferred those interests to GSV Legend LLC under an agreement with HMF. The HMF agreement stated that it was subject to Bard’s rights under the repurchase agreement.

Bard also alleged that the HMF defendants later learned about Moe’s obligations to Bard and discussed how to avoid or stop payments to him. The opinion refers to emails in which the defendants discussed getting out of the “Bard obligation” and no longer paying Bard. Bard alleged that GSV Asset Management continued making payments for three months after those exchanges, stopping in September 2019.

Aiding and Abetting Fraud

Under California law, aiding and abetting fraud requires, among other things, actual knowledge of the specific underlying wrongdoing and substantial assistance or encouragement. The HMF defendants argued that knowing about the transfer of Moe’s interests was not the same as knowing about the alleged fraud because they were not parties to the promise made to Bard.

The court rejected that characterization at the motion-to-dismiss stage. It treated the alleged fraud as an effort to deprive Bard of payments due under the agreement and found that Bard plausibly alleged the HMF defendants knew about both the promise to Bard and Moe’s later intent to breach his agreement. The court relied on allegations that the defendants received drafts of the repurchase agreement, were discussing the related HMF agreement with GSV Asset Management, required the transfer of interests that had been offered to Bard, and exchanged emails indicating awareness of Moe’s obligations.

The court also found substantial assistance adequately pleaded. Bard alleged that the HMF defendants required Moe to transfer his interests to GSV Legend LLC, that the HMF agreement was important to GSV Asset Management’s ability to pay Bard, and that the defendants knew this because the agreement expressly referenced Bard. The court concluded that these allegations were sufficient to survive dismissal.

Intentional Interference with Contractual Relations

The court stated that this claim requires plausible allegations of a valid contract between the plaintiff and a third party, the defendant’s knowledge of that contract, intentional acts designed to induce a breach or disruption, an actual breach or disruption, and resulting damage. The HMF defendants conceded that Bard had adequately pleaded the first two elements. The court had already found that Bard plausibly pleaded actual breach and resulting damage.

The remaining issue was whether Bard plausibly alleged intentional acts designed to induce a breach or disruption. The court found this requirement satisfied based on allegations that the HMF defendants discussed how GSV Asset Management could avoid its payment obligations to Bard and terminated their contract with GSV Asset Management while knowing that HMF’s payments were important to GSV Asset Management’s ability to pay Bard. The court noted that HMF might have had legitimate business reasons for ending the contract but held that this argument could be raised at summary judgment rather than on the motion to dismiss.

Motions to Seal

The parties also asked to seal substantial portions of the First Amended Complaint, motion papers, and exhibits. The court applied the “compelling reasons” standard, which requires a party seeking to seal judicial records connected to a dispositive motion to provide specific reasons outweighing the public’s strong interest in access.

The court found that the proposed redactions covered large amounts of information unrelated to proprietary business information and appeared partly directed at avoiding embarrassment. The defendants also sought to seal the written agreements in their entirety. The court held that the parties had not shown compelling reasons for such broad sealing requests. It provisionally denied the motions to seal and allowed the defendants to submit renewed, narrower motions within ten days. The court stated that nothing in the order qualified for sealing.

Disposition

The court denied the HMF defendants’ motions to dismiss and provisionally denied the parties’ motions to seal. The order did not dismiss the fifth or sixth causes of action.