SECOND AMENDED COMPLAINT
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Gibson, Dunn &Crutcher LLP
GIBSON, DUNN & CRUTCHER LLPG. CHARLES NIERLICH, SBN 196611GNierlich@gibsondunn.comLINDSEY BLENKHORN, SBN 227484LBlenkhorn@gibsondunn.com555 Mission Street, Suite 3000San Francisco, California 94105-2933Telephone: 415.393.8200Facsimile: 415.393.8306Attorneys for PlaintiffsKATE PALEY AND WORD DIAMONDS, LLCSUPERIOR COURT OF THE STATE OF CALIFORNIAIN THE COUNTY OF SAN MATEOKATE PALEY and WORD DIAMONDS, LLC,a Delaware Limited Liability Company,Plaintiffs,v.RADAR NETWORKS, INC., a DelawareCorporation; NOVA SPIVACK; STEVE HALL;ROSS LEVINSOHN; EVRI, INC., a WashingtonCorporation; and DOES 1-100, inclusive,Defendants.
CASE NO. CIV-494701SECOND AMENDED COMPLAINT FOR:(1) FRAUD(2) FRAUDULENT CONVEYANCE -UNIFORM FRAUDULENTTRANSFER ACT(3) FRAUDULENT CONVEYANCE -UNIFORM FRAUDULENTTRANSFER ACT(4) BREACH OF CONTRACT(5) BREACH OF CONTRACT(6) BREACH OF COVENANT OF GOODFAITH AND FAIR DEALING(7) BREACH OF FIDUCIARY DUTY(8) DECLARATORY JUDGMENT(9) ACCOUNTING(10) CONVERSION(11) CONVERSION(12) CALIFORNIA UNFAIR COMPETITION LAW(13) CONSTRUCTIVE TRUSTDEMAND FOR JURY TRIAL
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SECOND AMENDED COMPLAINT
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Gibson, Dunn &Crutcher LLP
Plaintiffs Kate Paley and Word Diamonds, LLC allege and state as follows:
INTRODUCTION
1.
This action arises from the concerted efforts of Radar Networks, Inc. (“Radar”), andits executives, directors and agents, to take advantage of one of its angel investors. Radar and itschief executive, Nova Spivack, misled Kate Paley about Radar’s financial condition and prospects inorder to induce her to invest millions of dollars. When the money ran out, Mr. Spivack againreturned to Ms. Paley with more false promises of positive returns, and a new story about how hewanted to integrate her company, Word Diamonds, LLC (“Word Diamonds”), into Radar’s principal product, Twine.com. Based on Mr. Spivack’s misrepresentations, Ms. Paley invested millions moreand lost millions more.2.
In fact, there was no prospect of significant returns, and Radar lacked either the will or the ability to deliver on its promises concerning Word Diamonds. Instead, the overarching scheme,recently consummated, was to use Ms. Paley’s money to keep Radar afloat long enough for it tofraudulently convey its assets to a friendly company, leaving Ms. Paley with nothing.3.
Defendant Radar is a start-up company specializing in the development of semanticweb applications.4.
Ms. Paley is private individual who has spent much of her professional life pursuingvarious opportunities related to her strong Christian faith. Among other things, Ms. Paley hasdevoted millions of dollars, and thousands of hours of her time, to developing her own company,Word Diamonds.5.
Word Diamonds is a one-of-a-kind, patent pending, website that allows users toexplore and map connections between various words and phrases in the Bible in a visually engagingmanner.6.
In 2007 and 2008, Ms. Paley invested a total of $5 million in debt in Radar – $2million pursuant to a May 2007 Note and Warrant Purchase Agreement (the “2007 PurchaseAgreement”) and $3 million pursuant to an October 30, 2008 Note and Warrant Purchase Agreement(the “2008 Purchase Agreement”).
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SECOND AMENDED COMPLAINT
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Gibson, Dunn &Crutcher LLP
7.
In order to induce her to make these investments, Radar and its executives and agentsdeceived Ms. Paley by making misrepresentations to her concerning Radar’s financial condition and prospects. In addition, they preyed on her desire to expose Word Diamonds to a larger audience by promising to integrate Word Diamonds into Radar’s flagship product, Twine.com.8.
Radar also breached the 2008 Purchase Agreement by using the proceeds of Ms.Paley’s investment for a variety of improper purposes, most of which were designed to keep Radar afloat long enough for its assets to be fraudulently conveyed to a friendly company, Evri Inc.(“Evri”), with strong ties to Radar’s management and board of directors.9.
In addition, rather than develop Word Diamonds, as it had promised to do, Radar effectively destroyed much of the value that Ms. Paley had created.10.
Specifically, pursuant to a December 20, 2008 Cross-Licensing and ServicesAgreement (the “Services Agreement”) between Word Diamonds and Radar, Radar was supposed toimprove the cross-functionality of the Word Diamonds website, and integrate the Word Diamondswebsite with Twine.com.11.
Radar was unable or unwilling to execute on many of the tasks that it had agreed to perform, however, including making the visual interface of the Word Diamonds website morevisceral. And when Ms. Paley directed Radar to discontinue those efforts and move on to more productive work, Radar ignored her directive, and instead allowed an outside company, Stimulant, tocompletely dismantle the Word Diamonds site, which, in effect, tripled the complexity and workload,destroying its ability to function for the purpose for which it was built and designed.12.
In addition, for a period of nearly a year, Radar refused to allow Ms. Paley to accessthe site or correct any of the problems that Radar itself had created.13.
Unsurprisingly, Ms. Paley’s investment in Radar has proved disastrous. As a result of Defendants’ fraud, and Radar’s breaches of the Purchase Agreements, Ms. Paley’s entire investmenthas been lost. After three years, millions of dollars, and thousands of hours, she has been left withnothing to show for her efforts except a broken site with no functionality.
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