Advsr, LLC v. Magistro Ltd.

ADVSR, LLC, Plaintiff, v. MAGISTO LTD., et al., Defendants.

No. 19-cv-02670-JCS

United States District Court, N.D. California

August 13, 2021

Re Dkt. Nos. 110, 111

ORDER REGARDING MOTIONS FOR SUMMARY JUDGMENT

JOSEPH C. SPERO, Chief Magistrate Judge.

I. INTRODUCTION

Plaintiff Advsr, LLC asserts, among other related theories, that Defendant Magisto Ltd. breached a contract to pay Advsr a commission for work securing Magisto's acquisition by another company, and Defendant Yahal Zilka induced Magisto to do so. Defendants have each filed a motion for summary judgment on all claims against them. The Court held a hearing on July 30, 2021. For the reasons discussed below Zilka's motion is GRANTED as to both claims against him, and Magisto's motion is GRANTED in part and DENIED in part. All of Advsr's claims against Magisto may proceed, but some are limited to certain conduct as addressed in more detail below, generally occurring near or after the conclusion of a tail period of the parties' contract in the fall of 2018.^[1]

II. BACKGROUND

A. Factual Overview

This summary of the factual background of the case is intended as context for the analysis below, and not as a complete recitation of the evidentiary record. In light of the procedural context of these motions, the facts are generally presented in a light favorable to Advsr. This background section should not be construed as resolving any issue of fact that might be disputed.

1. Key Players

Defendant Magisto was a software startup focused on video content creation technology, cofounded by Oren Boiman. One of its major investors was the Magma venture capital firm, whose managing partner Defendant Yahal Zilka was a member of Magisto's board of directors. Plaintiff Advsr is a firm that advises companies seeking to be acquired on mergers and acquisitions, headed by Ezra Roizen and focused around a framework for negotiations called the “Magic Box Paradigm, ” which involves emphasizing the added value of synergy between the acquiror and acquiree and avoiding intermediate concrete steps before a final deal is reached, a strategy Roizen believes maximizes the eventual purchase price. See Roizen Decl. (dkt. 120-1) ¶¶ 1-2, 5.

IAC, which eventually purchased Magisto's assets, is a media holding company that owned, among other companies, Vimeo, an internet video publishing service.^[2] Anjali Sud is Vimeo's chief executive officer.

2. Magisto's Retention of Advsr

On April 28, 2017, Advsr's general manager Roizen emailed Boiman a proposed master services agreement (the “MSA”), statement of work for consulting services, and statement of work for pursuing a transaction (the “Transaction SOW”). Boiman Decl. (dkt. 110-1) Exs. 1, 26; Roizen Decl. ¶ 6. The draft Transaction SOW called for Advsr to receive a four-percent commission “[i]n the event any Covered Transaction (as defined herein) is entered into during the term of this SOW or within the 12 month period following termination of this SOW (the ‘Tail Period').” Boiman Decl. Ex. 3. Boiman forwarded that email to Defendant Yahal Zilka-a managing partner of the Magma venture capital firm, and a director of and major investor in Magisto-and others stating that Advsr's proposed four-percent commission was high, but that Advsr was well connected and appeared to be Magisto's best option. Boiman Decl. Ex. 1.

Boiman liked that Advsr appeared to be more engaged than other potential investment bankers and came with a recommendation from someone he trusted. Daniel Decl. (dkt. 110-3) Ex. 2 (Boiman Dep.) at 46:1-7.

On May 12, 2017, after Roizen met with Zilka, Boiman responded to Roizen and requested changes to some of the terms, specifically a three percent rather than four percent commission, a monthly rather than quarterly retainer, and the following concerns about the tail period:

* The tail definition includes every kind of transaction with any company for a long period.

Obviously, if we end up working together, we hope and expect you'd be able to deliver an effective process with us dedicating all required resources to make it effective.

However from a legal perspective, we need to take into account a worst case scenario that “you don't deliver” and the agreement will be terminated.

In that case, we might need to take another investment banker and we can't accrue the banker compensation in that case.

We can make the tail shorter (6 months) and general, or longer but more specific (e.g., for company discussions that materializes beyond some threshold).

Boiman Decl. Ex. 26. Roizen's complete response reads as follows:

Hey Oren -

We can do monthly billing - not our preference, but in this case not worth fighting over.

We can meet you in the middle and do a 9 month tail.

Let me know if this works for you.

Ezra.

Id.

According to Roizen, he and Boiman discussed the nature of the tail period and reasons for keepings its scope broad and the bar low for meeting it-particularly, ensuring that Advsr would be incentivized by having “more ways in which [it] could earn its fee”-at length during telephone calls. Roizen Decl. ¶¶ 11-14.

Boiman responded by email that Magisto would “like to move forward, ” and asked Roizen to send him the documents “in a Word or editable format[], preferably with the additions above as tracked changes so that we can finalize.” Boiman Decl. Ex. 26. Roizen sent Boiman revised documents with a three-percent commission and a nine-month tail period, among other changes not at issue here. Boiman Decl. Ex. 4. On May 19, 2017, Boiman asked Zilka if he would prefer to use a different banker, and Zilka responded that he would defer to Boiman's decision. Zilka Decl. (dkt. 110-2) Ex. 7. Zilka testified that his usual practice was to make recommendations to entrepreneurs with whom he had invested but ultimately defer to their decisions to manage their companies. Daniel Decl. Ex. 1 (Zilka Dep.) at 78:11-24.

Based on Boiman's recommendation, the Magisto board decided to engage Advsr. Daniel Decl. Ex. 1 (Zilka Dep.) at 73:3-24. The Transaction SOW executed by the parties, with an effective date of May 22, 2017, includes the following relevant provisions:

2. Description of Compensation

In the event any Covered Transaction (as defined herein) is entered into during the term of this SOW or within the 9 month period following termination of this SOW (the “Tail Period”), the Company [i.e., Magisto] shall pay to Advsr in cash at the closing of such Transaction a transaction fee (the “Covered Transaction Fee”) that is equal to 3.0% of the Transaction Value (as defined herein).

Payment of a Covered Transaction Fee shall be a condition of closing of any Covered Transaction. Advsr agrees that the Covered Transaction Fee is contingent on the closing of a Covered Transaction and the Company will not be obligated to pay a Covered Transaction Fee unless a Covered Transaction is consummated. The Company agrees it shall not intentionally structure or delay any transaction for the purpose of circumventing the definition of “Covered Transaction” or the obligation to pay any Covered Transaction Fee. Any adjustments to Covered Transaction Fees must be agreed by the Company and Advsr in writing by amending or replacing this SOW.

This SOW does not and will not constitute any commitment, express or implied, on the part of Advsr to ensure the successful arrangement or completion of a Covered Transaction.

3. Term and Termination

This SOW shall remain in effect until either terminated or replaced by a new SOW. This SOW may be terminated by either Advsr or Company for any reason giving 30 days prior written notice of termination to the other. If replaced, a new SOW clearly stating that it is replacing this SOW and executed by both Advsr and Company shall serve as its replacement. The Company's obligation in Sections

2 and 5 to pay Advsr the Covered Transaction Fee shall survive the termination of this SOW. Termination of this SOW shall not be deemed to terminate the MSA. Termination of the MSA must be in accordance with the Termination provision of the MSA.

[. . .]

5. Terms Defined in SOW

“Covered Transaction” means any change of control transaction or extraordinary transaction involving the Company that may occur, including by way of any of the following in a single transaction or series of related transactions:

(i) the sale to or acquisition by one or more persons of at least a majority of the outstanding voting membership interests, partnership interests or stock of the Company;

(ii) the sale or transfer of at least a majority of the assets of the Company to one or more persons (including by way of the settlement of claims); [other similar examples of transactions transferring control or meaningful assets of Magisto.]

The definition of a Covered Transaction shall be interpreted as follows:

(i) In a manner that recognizes that it is difficult to categorize every possible transaction that will effectively constitute a change of control of the Company or other extraordinary transactions and that the intent is for a transaction to be viewed contextually and equitably and not narrowly.

(ii) As applicable, the Company shall include subsidiaries of the Company.

(iii) In no event shall a Covered Transaction result merely from a merger or consolidation of the Company with a wholly-owned subsidiary of the Company, or a reincorporation of the Company in a different jurisdiction.

Boiman Decl. Ex. 5. All told, the parties went through five versions of the agreement before reaching that final document. Roizen Decl. ¶ 8 & Exs. 2, 6-9 109-14. Zilka testified that he had no role in negotiating the SOWs. Daniel Decl. Ex. 1 (Zilka Dep.) at 86:7-10.

At his deposition, Roizen testified that he understand the Transaction SOW's trigger for payment...