Bard v. GSV Asset Management, LLC

Background

Stephen D. Bard and Michael T. Moe co-founded GSV Asset Management, LLC (GSVAM) in 2009. Under a Repurchase Agreement, Bard agreed to sell his stock interest in GSVAM back to the company for $5 million: $1.5 million up front and the remaining $3.5 million in monthly installments.

The agreement generally set the monthly payment at $29,166.66. It also provided that the payment would be reduced if the company’s trailing twelve-month revenues from specified entities fell below $2.5 million. GSVAM alleged that it paid Bard the full monthly amount from September 2017 through September 2022, even though the relevant revenues had fallen below the threshold in September 2020 and reached zero in October 2021. GSVAM also alleged that it underpaid Bard from November 2018 through April 2019 and, after offsetting those amounts, overpaid him $488,675.16.

GSVAM sought repayment, but Bard refused. GSVAM then asserted six counterclaims: breach of contract, breach of the implied duty of good faith and fair dealing, unjust enrichment, money had and received, mistaken receipt, and declaratory judgment. Bard moved to dismiss the amended counterclaims under Federal Rule of Civil Procedure 12(b)(6), which requires dismissal when a pleading does not state a legally sufficient claim for relief.

Breach of Contract

The court dismissed the breach-of-contract claim, with leave to amend. GSVAM alleged that Bard breached the agreement by refusing to return the overpayments, but the court found that GSVAM did not identify a contractual provision requiring Bard to repay overpayments, verify the payment calculations, or control the payment amount.

The agreement instead required GSVAM to adjust the monthly payment when the specified revenue declined. GSVAM alleged that it mistakenly continued making the full payments, but it did not plausibly allege that Bard breached the agreement by accepting those payments. The court stated that this did not mean GSVAM could not recover the alleged overpayments, only that breach of contract was not the proper theory as pleaded.

Implied Duty of Good Faith and Fair Dealing

The court also dismissed the claim that Bard breached the implied duty of good faith and fair dealing, with leave to amend. California law implies this duty in contracts, but it does not allow a party to use the duty to add obligations that the contract itself does not contain.

GSVAM alleged that Bard unfairly frustrated its contractual rights by refusing to return payments he allegedly knew he was not entitled to receive. The court concluded that GSVAM had not plausibly alleged that Bard had a contractual duty to repay the money, confirm the payment amount, or otherwise verify GSVAM’s performance. Imposing those duties through the implied-duty claim would improperly add terms to the agreement.

Equitable Claims

The court denied the motion as to GSVAM’s claims for unjust enrichment, money had and received, and mistaken receipt. These claims were based on GSVAM’s allegation that it mistakenly calculated the payments, overpaid Bard, and that it would be unfair for him to keep money that did not belong to him.

The court explained that California law permits similar equitable or restitution-based claims at the pleading stage when a party alleges a mistaken payment made while performing a contract. The existence of a contract covering the general subject matter did not require dismissal because GSVAM alleged a mistake in carrying out its contractual payment obligations. The court also noted that Bard’s argument that the parties had not yet reached the full $5 million payment was persuasive but could not defeat the claims at this stage because the amended counterclaims could plausibly be read to allege that the contract no longer required further payments.

Disposition

Judge Orrick granted in part and denied in part Bard’s motion to dismiss the amended counterclaims. The breach-of-contract and implied-duty claims were dismissed with leave to amend. The unjust-enrichment, money-had-and-received, and mistaken-receipt claims survived the pleading stage. The order states that any amended counterclaims were due by January 17, 2024.