NewSpring Capital in legal battle with ProfitPoint founders

Tom Paine
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Radnor-based NewSpring Capital has responded to a lawsuit from the co-founders and former executives of Clifton Heights (Delaware County)-based ProfitPoint, LexisNexis's Law360 (subscription required) reports. ProfitPoint specializes in stored value gift card and customer loyalty programs for retailers. NewSpring Ventures II LP led a $6 million round in 2007, and in 2008 ProfitPoint moved its headquarters and many employees to Clifton Heights from Franklin, Tennessee.

ProfitPoint founders A. James Battista and Vaden Landers filed a complaint in July of this year against NewSpring, claiming the PE and VC firm went behind their backs to take control of the company away from them and remove them, and then engaged in an ongoing smear campaign against them that damaged their future business prospects.

In its "preliminary objections to plaintiff's amended complaint" filed on October 25, NewSpring says that a heads up from the company's chief financial officer in 2009 alerted them to possible irregularities at the firm, and a subsequent audit confirmed serious wrongdoing. A settlement reached between the parties led to Battista and Landers departing the firm in 2010. NewSpring said in its filing that "this is a case brought by two disgruntled founders of a company that, through their own misdeeds, failures and mismanagement, were terminated after they were caught using the company as their own personal piggy bank.”

NewSpring also objected on more technical grounds, saying the statute of limitations on the defamation allegations had expired, that NewSpring Capital was wrongly named as defendant since the firm had not invested in ProfitPoint (the LP had), and that Philadelphia County was an improper venue since all the principals involved were based in Delaware County.

Founded in 2003, ProfitPoint was ranked at 1379 on the 2010 Inc. 5000, with 2009 revenue of $12.4 million up from $4 million in 2006. In 2008, it ranked 59th on the Inc. 5000. But apparently revenue took a hit from various problems that occurred afterwards. ProfitPoint raised another $1.25 million in 2010 according to an SEC filing (possibly from NewSpring), and secured a $2.5 million credit facility from Square 1 Bank last year. ProfitPoint was a featured presenter at this week's IMPACT2012 Mid-Atlantic Venture Summit in Philadelphia, meaning that it is hunting for more capital.

Kutak Rock LLP represents the plaintiffs. NewSpring is represented by Pepper Hamilton LLP. A. James Battista et al. v. NewSpring Capital et al., is case number 120703905, in the Philadelphia County Court of Common Pleas. NewSpring principals Glenn Rieger and Michael DiPiano are also named as defendants.




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