Sunday, March 3, 2019

A Win For The Winklevi

The Delaware Court of Chancery dismissed counterclaims brought against the real Armie Hammer[s]

Plaintiffs, brothers Tyler and Cameron Winklevoss, through Winklevoss Capital Fund, LLC, made a substantial investment in an upstart magazine operated by Defendant, Treats! LLC, and founded by Defendant, Stephen Shaw. Plaintiffs allege they have not achieved the return on investment promised them by Defendants and that Shaw’s mismanagement of Treats! is to blame. Defendants deny the allegations of mismanagement and bring counterclaims against the Winklevoss brothers in which they allege the brothers breached commitments to allow Treats! to announce and capitalize on the publicity surrounding the brothers’ investment.

According to the counterclaims, the brothers made their investment in Treats! soon after the release of the movie The Social Network in which their association with the social networking site, Facebook, was depicted. Shaw allegedly accepted the investment, in part, based on the brothers’ commitment that Treats! could announce (presumably with some fanfare) that the brothers had selected Treats! as one of the first investments of their newly created firm, Winklevoss Capital Fund, LLC. The counterclaims purport to state claims for fraud, fraudulent inducement, “fraudulent misrepresentation” and promissory estoppel.

Defendants have moved to dismiss the counterclaims on multiple grounds, including that the claims are barred by laches and by a fully integrated contract governing the parties’ relationship that makes no mention of the brothers’ alleged commitment to promote Treats!. In rare circumstances, the Court may apply laches at the pleadings stage to bar a claim when it is clear on the face of the claim that it is untimely and that equity would not be offended by the claim’s dismissal. This is especially so when the claimant brings common law claims and seeks common law remedies after the applicable statute of limitations has expired. That is what Defendants/Counterclaim Plaintiffs have done here. Accordingly, Plaintiffs’ Motion to Dismiss Defendants’ Counterclaims as time barred must be granted.

The allegations

In early 2011, a mutual friend introduced Shaw to Cameron and Tyler. When they met Shaw, Cameron and Tyler were seeking to strengthen their Los Angeles network. Shaw, a professional photographer well known to many celebrities, opened the door to his social circle for Cameron and Tyler by introducing them to his friends, inviting them to exclusive dinners and parties and photographing their various girlfriends.

When Cameron and Tyler learned about Treats!, they were intrigued and offered to invest in the company. They emphasized to Shaw the potential significance of the fact that Treats! would be the first investment they made through their newly-formed investment firm, WCF. Shaw believed Treats! would develop into a lifestyle brand and he thought a partnership with WCF would provide the perfect launch pad. The notoriety of the Winklevoss brand following the release of the blockbuster film, The Social Network, in which the brothers were depicted, was the main attraction for Shaw as he sought to secure their investment in, and promotion of, Treats!.

WCF invested 1.31 million dollars.

Following WCF’s investment, the parties’ relationship was marked by a consistent refrain. Shaw pressed the brothers to promote Treats! while the brothers pressed Shaw to enhance their personal and professional profiles. For example, Defendants allege that, on October 4, 2012, Tyler asked Shaw to arrange a “special casting” with multiple women he selected from Facebook and a modeling agency’s website. Tyler followed this request on October 17, 2012, with further direction to Shaw: “[d]on’t hire any of them . . . get their details and call the hot ones up, invite them, and then I can shag them ;).” Shaw refused.

It got worse

As Shaw was accusing the brothers of failing to honor their promise to promote Treats!, the brothers were accusing Shaw of mismanagement and failing to grow Treats! as promised.

Litigation followed as night follows day.

As to the counterclaims

Delaware’s statute of limitations for claims sounding in fraud or promissory estoppel claims is three years...

The allegations in the counterclaims reveal that Defendants’ claims accrued for statute of limitations (and laches) purposes no later than June 17, 2013.

The counterclaim came two years too late but

For the reasons stated above, I am satisfied Defendants’ counterclaims must be dismissed as time-barred because they were filed after the expiration of three year statute of limitations and no tolling doctrine applies. With that said, Defendants may present evidence of Plaintiffs’ alleged fraud and broken promises in order to set off any potential damages arising from the affirmative claims asserted against them. In this regard, I note that Defendants have asserted as affirmative defenses fraud, fraudulent inducement, fraudulent misrepresentation, and unclean hands, among others, based on the same facts alleged in the counterclaims. I can discern no basis to restrict Defendants from presenting evidence of the Defendants’ failure to honor agreements to promote Treats! as grounds to defend against Plaintiffs’ claim that Defendants have not delivered all that was promised. Counterclaims based on this evidence, however, are time-barred.

Vice Chancellor Slights authored the opinion. (Mike Frisch)

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