Broadstream Capital Partners Alleges Breach of Contract by Penthouse
Acquisition of AdultFriendFinder parent company was supposed to be joint venture, according to suit
Posted Mar 11th, 2008 11:44 AM by Mike Albo
— A merchant bank has filed suit against Penthouse Media Group Inc. as a result of Penthouse's acquisition
of Various Inc., the company that owns and operates AdultFriendFinder
, among other social networking sites. Originally making the acquisition Dec. 20, 2006, Penthouse did not go public with the news that it done so until nearly a year later, on Dec. 12, 2007.
Broadstream Capital Partners, described as a merchant bank that makes investments in and provides advisory services to companies in the lower middle market, alleges that Penthouse perpetrated a "breach of contact" in the purchase of Various, which Broadstream claims was initially planned as a joint venture between itself and Penthouse.
In addition to the breach of contract claim, Broadstream alleges that Penthouse committed breach of the covenant of good faith and fair dealing, breach of fiduciary duty and constructive fraud. The suit was initially filed in Los Angeles Superior Court in December. In February, the suit was moved to U.S. District Court.
Broadstream says in its complaint that the company became aware of an opportunity to acquire Various Inc. in December of 2006. Broadstream then began seeking partners to put in a joint bid to obtain Various. In January 2007, Broadstream alleges that it was contacted by Penthouse, which, according to court documents, "agreed to join with Broadstream in submitting a bid to acquire Various."
The complaint also alleges that in proceeding with plans to buy Various, Penthouse and Broadstream entered into a nondisclosure agreement sometime around Jan. 15, 2007.
The agreement, attached as an exhibit to Broadstream's complaint, stated, "For a period of 12 months from the date hereof, [Penthouse] will not, without the prior consent of Broadstream ... knowingly acquire, or knowingly provide more than 20 [percent] of the financing to any person, group or entity to acquire Various Inc. or any of its subsidiaries."
However, Broadstream alleges that it was during this bidding process that it discovered Penthouse had contacted Various and offered a second bid, one that turned out to be higher than the Broadstream offer, and one which, ultimately, sank the joint venture and turned the acquisition into one for Penthouse alone.
While damages would be according to proof, Broadstream believes them to be more than $20 million.
Court records indicate that the last document filed in the case was on March 5, in which Broadstream demanded a jury trial in the matter.
Penthouse litigation counsel Ira Rothken told AVN the company had no immediate comment on the matter, as it had just been served with the lawsuit. Representatives from Broadstream could not be reached for comment by posting time.
Please check back to AVN.com for more details on this developing story as they become available.