paidContent - Spot Runner Files Motion To Dismiss WPP's $13 Million Suit

This story was written by David Kaplan.
The drama continues: Web-based TV ad agency Spot Runner has filed a motion to dismiss the $13 million lawsuit by Dublin-based ad holding firm WPP Group. Last April, WPP, which holds a 3 percent stake in the LA-based company, accused Spot Runner of securities fraud and breach of contract. Specifically, WPP said it was not informed of the sale of Spot Runner shares between Feb. 2006 and March 2008.

Spot Runner’s motion says that WPP has no cause for damages because it can’t point to any decline in the value of Spot Runner common stock that the agency holding company bought in May 2007. The complaint Furthermore, Spot Runner claims that WPP sold some of the stock for a 30 percent profit several months later. WPP representatives could not be reached for comment. The next hearing is scheduled for Sept. 14.

In any case, sources with knowledge of Spot Runner’s business tell paidContent that the suit has prevented on it from adding several clients since April, or continuing work on its long-promised digital-media buying platform Project Malibu.

The fine points: Spot Runner has three other arguments it wants the court to consider. Aside from charging the company itself with fraud and breach of contract, Spot Runner says that WPP has no direct agreement with the others it has named in the suit, including Spot Runner CEO Nick Grouf, co-founder David Waxman, general counsel Peter Huie, investors Bob Pittman (Pilot Group), Danny Rimer (Index Ventures), and Roger Lee (Battery Ventures)—and therefore, no basis to sue.

Secondly, Spot Runner says in filing the suit as a “derivative claim,” WPP action reflects Alice In Wonderland logic—in other words, how can they say they’re bringing a lawsuit on behalf of another party, when that other party is itself? Lastly, when WPP says it wants the proceeds from the defendants’ stock sales to be put in “a constructive trust” as a a remedy, Spot Runner seeks to make the point that WPP has failed to show harm.

For its part, WPP says that they have been harmed by alleging to have been cut out of a stock sale when market conditions were much better than they are today. Plus, WPP’s claim centers on the allegation that Spot Runner tried to exploit the fact that WPP was an investor in the company to entice others to buy its stock.

Waiting for Malibu: As the lawsuit drags on, amid a severe recession that has touched all advertising agencies from one degree to another, Spot Runner sources insist that the lawsuit hasn’t deterred new business. Sources, however, are vague on how many marketers have signed on to its service since April. One bigger concern is whether the resources devoted to the legal proceedings have distracted the company from delivering on Project Malibu, which was slated to be launched this fall. The company has not stated publicly when it will be released, only that it will be ready “sometime in the near future,” sources said. In the past year, Spot Runner, which has raised $111 million in its 3 and 1/2 years of existence, has laid off roughly 170 staffers out of 500 employees.  Until the downturn, the company had been typically been ranked a top acquisition target, with WPP considered likely to one day buy the whole thing. It’s a fairly safe bet that WPP will have little to do with Spot Runner however the suit is decided. A settlement is entirely between the two is very likely. And if Spot Runner can then ride out the recession, it just might—a big might at this point—be able to rebuild its reputation as company to watch again. 

SR Motion to Dismiss

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By David Kaplan