Business litigation targets Bain Capital merger activities

This year’s presidential election campaign may have introduced Bain Capital for the first time to many Baton Rouge news followers by way of accusations that the private equity firm engineered corporate raids and outsourced American jobs. In a recently filed business litigation action, a former partner of a firm that developed software for the insurance industry accuses the private equity firm of acting in bad faith by reneging on promised performance bonuses tied to its acquisition of the software company.

The former principal of Artizan Internet Services, LLC claims that the private equity firm and insurance software competitor Applied Systems, Inc. of fraudulently inducing his firm’s equity holders into selling the company for less than what they could have received from other purchasers. According to the complaint, the principal and his former partners were promised they could stay with the firm after its acquisition and earn no less than $5 million over a five year time frame. Instead, the principal claims that he and his partners were pushed out of the company shortly after the merger and were denied their anticipated performance bonuses.

The lawsuit raises claims of unjust enrichment and interference with contract rights against the private equity firm and the competitor software company. The former chairman of the software firm is named individually as a defendant in a claim of fraudulent inducement.

An unjust enrichment claim generally seeks to recover the value of benefits conferred upon another where compensation for the benefits should be reasonably expected. A claim of unjust enrichment usually comes into play when there is no valid contract between the parties, so the former principal’s competing claim of interference with contract rights raises an interesting question of business law.

Similarly, the merits of the former principal’s fraudulent inducement claim will most likely focus on the terms of any contractual agreement between the parties. With questions of intent, reasonable expectations and interpretations of contract terms at play, all parties involved will need to rely on experienced business litigation counsel to reach a fair outcome.

Source: Bloomberg, “Bain Capital Sued by Ex-Software Executive Over Buyout,” Andrew Harris, Nov. 19, 2012