Petruss Media Grp. v. Advantage Sales & Mktg.

• Docket Number: Civil Action 22-3278 (RC)
• Decision Date: 25 August 2023
• Parties: PETRUSS MEDIA GROUP, LLC f/k/a TAKE 5 MEDIA GROUP, LLC, et al. Petitioners, v. ADVANTAGE SALES & MARKETING, LLC, et al., Respondents.
• Court: U.S. District Court — District of Columbia

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PETRUSS MEDIA GROUP, LLC f/k/a TAKE 5 MEDIA GROUP, LLC, et al. Petitioners, v. ADVANTAGE SALES & MARKETING, LLC, et al., Respondents.

Civil Action No. 22-3278 (RC)

United States District Court, District of Columbia

August 25, 2023

RE DOCUMENT NOS.: 3, 15, 26, 30, 33

MEMORANDUM OPINION

RUDOLPH CONTRERAS UNITED STATES DISTRICT JUDGE

Denying Respondents' Motion to Dismiss or Stay; Denying Respondents' Motion for Sanctions; Denying Petitioners' Motion for Order; Denying Petitioners' Petition and Motion to Vacate Award; Granting Respondents' Petition to Confirm Award

I. INTRODUCTION

Petitioners seek to vacate an arbitration award finding that Petitioners fraudulently induced Respondents to buy their business. Petitioners are Petruss Media Group, LLC, which was formerly known as Take 5 Media Group, LLC (“Take 5”), and Take 5's owners-Alexander Radetich, a Take 5 founder who held a 44.45% ownership stake; Richard Gluck, a Take 5 founder who held a 44.45% ownership stake; and RJV Marketing Corporation (“RJV”), a Florida company that held the remaining 11.10% stake. See Pet'rs' Pet. Vacate Arb. Award (“Pet. Vacate”) ¶¶ 1-4, ECF No. 40.^[1] Respondents are Advantage Sales & Marketing LLC (“Advantage”) and its parent companies-Advantage Sales & Marketing Inc. (“ASM, Inc.”), the parent of Advantage; Karman Intermediate Corp. (“KIC”), the parent of ASM, Inc.; Advantage Solutions Inc. (“Advantage Solutions”), the parent of KIC; and Karman Topco L.P., the parent of Advantage Solutions. See Pet. Vacate ¶¶ 5-9.

Petitioners move to vacate an arbitration award to Respondents of over $70 million pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 6, 10, 12. See Pet'rs' Mot. Vacate Arb. Award (“Pet'rs' Mot. Vacate”), ECF No. 41.^[2] Respondents move to dismiss or stay Petitioners' motion, see Resp'ts' Mot. Dismiss or Stay (“Resp'ts' Mot. Dismiss”), ECF No. 15, for sanctions, see Resp'ts' Mot. Rule 11 Sanctions (“Resp'ts' Rule 11 Mot.”), ECF No. 26, and to confirm the arbitration award, see Resp'ts' Opp'n to Pet. Vacate and Pet. Confirm Award (“Resp'ts' Opp'n and Pet.”), ECF No. 30.^[3] For the reasons set forth below, the Court denies Petitioners' motion to vacate the award, denies Respondents' motion to dismiss and motion for sanctions, and grants Respondents' motion to confirm the award.

II. BACKGROUND

A. Factual Background^[4]

Mr. Radetich and Mr. Gluck founded Take 5 in 2003. Pet. Vacate ¶ 14. A “direct mail and digital consumer marketing and licensing business,” Take 5's most valuable asset was a large database that “contained demographic, lifestyle, and contact information” for consumers. Id. ¶¶ 14-15; id. Ex. 1 (“Interim Award”) at 2, ECF 40-9. After Take 5 began to market itself for sale in 2017, Advantage expressed interest and ultimately signed a letter of intent on December 18, 2017 commencing a period of due diligence that lasted until the parties entered into an asset purchase agreement (the “APA”) on March 15, 2018. See Interim Award at 2; Pet. Vacate ¶¶ 16-18. Under the APA, Advantage agreed to pay a base price of $77,000,000 and a performance based earn-out of up to $53,000,000. See Pet. Vacate Ex. 5 (“Asset Purchase Agreement”) at 7, 16, ECF No. 40-13. The sale closed on April 1, 2018, at which point Take 5 became a business unit of Advantage. See Interim Award at 2.

About a year after closing, in response to “complaints that it received and presentations by employees of the Take 5 business unit,” Advantage retained a consulting firm and, later, a law firm, to conduct an internal investigation of Take 5's business practices. Id. In early July 2019, Advantage management “concluded that the business practices were fraudulent” and shut down the Take 5 business unit on July 11, 2019. Id. In September 2019, Take 5 filed a demand for arbitration seeking payment of the earn-out amount and Advantage counterclaimed for damages. See id. Mr. Radetich and Gluck also brought claims against Advantage. See id. After amending their claims and counterclaims, the parties engaged in extensive discovery and motions practice culminating in a fifteen-day evidentiary hearing held on days in January, February, and May 2022. See id. at 2-3; Pet. Vacate ¶¶ 36, 37, 102.

The Arbitrator, the Honorable Judge James R. Eyler (Ret.), took evidence on Take 5's claims for breach of contract and an implied covenant of good faith and fair dealing, on Mr. Radetich's and Mr. Gluck's claims for defamation, and on Advantage's claims for breach of the APA, for breach of an implied covenant of good faith and fair dealing, for fraud in the inducement based on misrepresentations, for continuing fraud, and for violation of the RICO Act, 18 U.S.C. § 1961 et seq. See Interim Award at 3. After an extensive summary of the evidence, Judge Eyler found that “Take 5 LLC's database and email capability were not as represented.” Id. at 37. Specifically, he found that Take 5 misrepresented to Advantage

(1) the nature and quality of Take 5 LLC's database of email addresses, demographic overlay, and other data; (2) Take 5 LLC's in-house capability to send large numbers of targeted emails as part of advertising campaigns; and (3) that it had deployed/delivered emails for which it had billed clients and received payments when it had not done so.

Id. at 36.

Accordingly, Judge Eyler found that “Take 5 LLC and Messrs. Gluck and Radetich knowingly misrepresented material facts to Advantage with the intention of having Advantage rely on them,” that “Advantage justifiably relied on the misrepresentations,” and that “Advantage suffered harm in that the value of the assets was materially less than the value would have been had the facts been as represented.” Id. at 37. He thus concluded that “Take 5, including Messrs. Gluck and Radetich, committed civil fraud in connection with the sale of the Take 5 business to Advantage based on a knowing misrepresentation of the warranties” in breach of certain provisions of the APA. Id. He also found that “misrepresentations of fact before the acquisition by Take 5, with the intent to induce reliance by Advantage, constitute fraud independent of the APA.” Id. at 38.^[5] On August 4, 2022, Judge Eyler issued an Interim Award awarding Advantage $48,325,822.29. See id. at 43. On October 4, 2022, Judge Eyler issued a Final Award further awarding Advantage $22,032,263.60 in additional fees and costs. See Pet. Vacate Ex. 2 (“Final Award”) at 10-11, ECF No. 40-10. By consent of the parties, on October 19, 2022 Judge Eyler issued a Modified Final Award in the same amount to correct a tabulation error and provide certain additional clarifications. See Pet. Vacate Ex. 3 (“Modified Final Award”), ECF No. 40-11; Pet. Vacate ¶¶ 123-27.

B. Procedural Background

The Modified Final Award was transmitted to counsel for both parties on October 20, 2022. See Pet'rs' Opp'n to Resp'ts' Mot. Dismiss Ex. 80, ECF No. 24-2. Shortly thereafter on the same day, Respondents filed a petition to confirm the award in a Florida state court in Palm Beach County (the “Florida Petition”). See Resp'ts' Mot. Dismiss Ex. E, ECF No. 15-6. On October 26, 2022, Petitioners filed the Petition to Vacate and Motion to Vacate in this Court. See Pet. Vacate; Pet'rs' Mot. Vacate.

On November 14, 2022, Respondents filed both a motion to dismiss or stay (“Motion to Dismiss”) and an “interim response” (“Interim Response”) to Petitioners' Motion to Vacate. See Resp'ts' Mot. Dismiss; Resp'ts' Interim Resp. Mot. Vacate (“Resp'ts' Interim Resp.”), ECF No. 16. The Motion to Dismiss argues that the Court should dismiss or, in the alternative, stay, Petitioners' Petition to Vacate the award in light of Respondents' petition to confirm it in the Florida court pursuant to Colo. River Water Conservation Dist. v. United States, 424 U.S. 800 (1976).^[6] The Interim Response explains that, “[i]n light of the Motion to Dismiss, [Respondents] do not believe that their opposition to the Motion to Vacate is due, as the Motion to Dismiss explains why the Court should not hear that motion at all.” Resp't's Interim Resp. at 2. Accordingly, while it provisionally cites to and deems as “the response to the Motion to Vacate” the Interim Award, Respondents' post-hearing brief, and a Rule 11 letter to Petitioners in order “to avoid any risk of waiver,” the Interim Response “request[s] that the Court first consider the pending Motion to Dismiss and only if it subsequently determines that this matter should proceed, then set a date for a substantive response.” Id. at 2-3.

On December 27, 2022, Respondents filed a motion for sanctions under Federal Rule of Civil Procedure 11 (“Rule 11 Motion”). See Resp'ts' Rule 11 Mot. Respondents principally argue that Petitioners had “no valid legal grounds to attack” the arbitration award, and should have withdrawn their petition “once they learned that factual assertions in the Petition . . . are contradicted by the record.” Id. at 2-3. The motion thus reads much like the kind of substantive opposition to Petitioners' Motion to Vacate that Respondents declined to file earlier.

On June 20, 2023, Respondents filed a status report explaining that on June 16, 2023, the Florida court stayed consideration of the Florida Petition pending “resolution of the Federal Action.” See Resp'ts' Status Report, ECF No. 31 (quoting the Florida court's order). Concurrently, Respondents filed a substantive opposition to the Motion to Vacate and moved to confirm the award. See Resp'ts' Opp'n and Pet. Respondents cast the opposition as restating the arguments from their Rule 11 Motion. See id. at 2 (“[I]n the event the Court does not dismiss the Petition to Vacate based on the Colorado River Motion or the Rule 11 Motion, the Advantage Parties request that the Court dismiss it and...