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Problem:

The biggest customer and venture capital source of our high tech startup client was a group of utility company affiliates which filed Chapter 11 in Fort Worth. We acted as co-counsel to the large West Coast firm which had prepared the venture capital documents. The venture capital documents prevented our client from raising new capital or obtaining new loans. The venture capital documents made the utility and its affiliates the major secured creditor, equity holder, and members of our client’s Board of Directors. The utility delayed the demonstration testing of our client’s state of the art technique for protecting fish eggs in water being used in power plant cooling towers. The utility had lost interest in the technology. This dispute was “bet the company” litigation for the startup.

Solution:

M+M substantially amended a proof of claim by the startup to seek recovery of $95 million, the amount the utility had predicted our start up would be worth if the utility had performed as predicted, with claims of fraud, breach of fiduciary duty, breach of contract, and bad faith, and alternatively seeking rescission or reformation. Extensive expedited discovery occurred.

The startup’s claim was settled by the utility giving up its blocking debt and equity positions, withdrawing from the Board, restarting the environmental demonstration project and assuming the ongoing contracts as modified. The startup reached its business objectives. It refinanced, survived, was able to demonstrate its technology and is operating.