Victory for Private Equity Firm Dolphin in 2nd Circuit Court of Appeals Ruling

Hughes Hubbard recently scored a win for Dolphin Direct Equity Partners LP (“Dolphin”), after the Second Circuit Court of Appeals affirmed summary judgment in favor of the client. In its ruling, the Circuit Court affirmed in total the grant of summary judgment and awarded the damages which had been recommended by the U.S. District Court, Southern District of New York last year.

Dolphin, a private investment firm, entered into a series of agreements to buy race car simulators from Interactive Motorsports and Entertainment Corporation, Perfect Line, Inc. and Race Car Simulators, Inc. The sellers, in turn, agreed to place the simulators into revenue-generating agreements for Dolphin’s benefit. The sellers guaranteed that Dolphin would receive certain minimum payments based on revenue generated by the race car simulators. The corporate entities and William Donaldson, a chief executive officer, executed non-competition agreements, in which they agreed not to compete against Dolphin’s race car simulators.

Defendants later breached the agreements by placing their own race car simulators into competition with Dolphin’s and failing to make the guaranteed minimum payments. Dolphin brought suit in the Southern District and Judge Richard Berman granted summary judgment in favor of Dolphin. Later, Magistrate Judge Theodore Katz issued a report and recommendation, which adopted Dolphin’s application for damages in its entirety and held Mr. Donaldson and the corporate defendants jointly and severally liable for the bulk of the damages. Judge Berman adopted Judge Katz’s report and recommendation in full.

The issues on appeal in the Second Circuit included Mr. Donaldson’s personal liability and the assessment of damages. The Second Circuit rejected all of the defendants’ arguments and found that the plain reading of the agreements supported personal liability and that the evidence in the record supported the District Court’s damages award.

Dan Weiner and Christine Stecura represented Dolphin.