The lawsuit by Broadstream, a merchant bank that assists with mergers and acquisitions, was originally filed in Los Angeles Superior Court in December and moved to federal court in February. The basic allegations have remained the same throughout the case, that Penthouse breached a 2006 contract to acquire Various Inc. — the company that owns and operates AdultFriendFinder.com and other social networking sites — as a joint venture with Broadstream.
The contract in question is a nondisclosure agreement between Penthouse and Broadstream that has an effective date of Dec. 20, 2006. A copy of the agreement is attached to the amended complaint. The signature of the individual who purportedly signed on behalf of Penthouse is illegible, but Broadstream attorney Deborah Klar told XBIZ that it is her understanding that the signatory was a Penthouse employee.
"I believe it was signed by Cory Hill, who I believe worked for Penthouse at the time," Klar said.
The agreement states, "Recipient [Penthouse] agrees that for a period of 12 months from the date hereof, it will not, without the prior consent of Broadstream Capital Partners Inc knowingly acquire, or knowingly provide more than the 20 percent of the financing to, any person group or entity to acquire various Inc. or any of its subsidiaries."
On Dec. 12, 2007, Penthouse issued a press release announcing its acquisition of Various.
In its Aug. 5 response to the second amended complaint (SAC), Penthouse claims, among other things, that "the individual who purportedly executed the agreement alleged in the SAC did not have the requisite authority to do so," and also that "there was no meeting of the minds and/or mutuality of obligation; consequently, there was no valid enforceable agreement as alleged in the SAC."
XBIZ was able to reach Penthouse attorney Ira Rothken, who declined to make any comment with respect to the nondisclosure agreement, except to confirm that the case does in fact hinge on the accuracy and legitimacy of the document.
"It’s axiomatic that given that the nondisclosure agreement is what the lawsuit is about, we want to ere on the side of caution and not talk about a nondisclosure agreement," he said. "I just think that it makes no sense that since the lawsuit is over a breach of the non-disclosure agreement then one ought not to comment about a nondisclosure agreement."
Rothken also confirmed that with the filing of the second amended complaint and the subsequent response, the case has entered the discovery phase.