In an amended petition in a fraud and conspiracy lawsuit, an Austin businessman alleges Andrews Kurth engaged in legal malpractice when working on a financing agreement for a venture capital company to fund his startup.
On Feb. 8, Kyle Samani added Andrews Kurth as a defendant in the suit he filed Jan. 8 against S3 Ventures, a venture capital firm in Austin; related company S3 Ventures V; Brian Smith, managing director of S3 Ventures; and Charlie Plauche, vice president of S3.
Samani alleges Andrews Kurth did legal work on the financing agreement between his company, Pristine, and S3.
“Andrews Kurth purported to represent the company’s interests; however, what Andrews Kurth actually did was represent S3′s interests to the detriment of Kyle Samani,” Samani alleged in the first amended petition.
In the first amended petition in Samani v. S3 Ventures, Samani alleged that even though Pristine paid Andrews Kurth for legal work on the financing agreement, the firm had a long relationship with S3, providing legal work to a number of S3 portfolio companies.
Samani alleged that after drafting the financing agreement, a lawyer at Andrews Kurth told him, “‘I am about to send you a bunch of documents. It is my job to read them, so you should probably just go through and docusign them.’”
He alleged that he took that lawyer’s advice and that no one ever fully and competently explained to him that Andrews Kurth was representing Pristine and not him personally.
“When Mr. Samani engaged Andrews Kurth, he was the founder and CEO of a company he worked tirelessly on. After the financing agreement was executed, the same one he was instructed not to read, Mr. Samani was put in the position of being stripped of his job without cause, and stripped of his ownership of the company without compensation,” Samani alleged in the petition.
Through a spokeswoman, Andrews Kurth declined to comment on the allegations, because the litigation is pending.
In the first amended petition, Samani alleged that S3 Ventures purports to be a venture capital firm that invests in newly formed technology companies, and it “suggests” it helps struggling entrepreneurs get their companies going for the mutual benefit of S3 Ventures and the company founder.
“However, as evidenced by this case, S3 Ventures’ real goal is to invest in newly formed companies in order to ultimately take the companies from their founders—just as the company becomes successful,” Samani alleged in the petition.
He alleged that S3 invested in Pristine, his company, but a year later terminated him “without any basis” and purported to take a substantial portion of his shares for far less than their value.
Samani brings a legal malpractice cause of action against Andrews Kurth, alleging the firm failed to advise him of obvious conflicts between S3 Ventures, its employees and the firm, failing to advise him of the conflict of interest between him and Pristine, failing to advise him to hire his own counsel before he signed the financing agreement, placing the interests of S3 over the interests of Samani, failing to advise him of his potential downside in the financing agreement, and advising him not to read important documents before signing them.
Samani brings breach of contract, fraud, tortious interference and civil conspiracy against the other defendants. He also seeks a declaratory judgment that the defendants improperly purchased 700,000 unvested shares from him and must return them. He seeks unspecified actual and punitive damages, interest and costs.
In the first amended petition, Samani alleged that he and a partner created Pristine, which provides technology for experts to do remote inspections, in 2013, and the company is a now a vendor for large insurers.
In the fall of 2014, Samani alleged, S3 Ventures, through S3 Ventures V, invested in Pristine, and Smith also personally invested in Pristine. He alleges the defendants represented to him that their intent was to help Pristine grow and develop.
“Despite their representations, defendants instead had plans to take over Pristine from its co-founder the moment it became successful,” Samani alleged.
He alleged that once it became clear the company was nearing profitability, the defendants terminated Samani as chief executive officer, “claimed the right to force a sale of Mr. Samani’s roughly 700,000 unvested shares in Pristine for $0.01 each” and barred him from participating in governance of the company even though he is a board member.
Samani alleged the defendants took the actions against him because they learned that some of Pristine’s shares had traded privately for $1.20 a share and because the company was on the verge of closing several more large sales contracts. He alleged the defendants bought 700,000 unvested shared owned by him for only $7,000 when they were worth more than $1 million.
Samani alleged that even though Pristine paid Andrews Kurth for legal work on the financing agreement, the firm had a long relationship with S3, providing legal work to a number of S3 portfolio companies.
In answers filed Feb. 5, S3 Ventures, S3 Ventures V, Smith and Plauche each generally deny the allegations in the original petition. They also seek a change of venue to Travis County, seek a take-nothing judgment, and costs and attorney fees.