Tough Mudder Faces Legal Battle From Co-Founder
Author: Brett Stewart
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Guy Livingstone, one of the founders of Tough Mudder is suing Tough Mudder, Inc. and Active Network for $4.3 million dollars for breach of contract
Read the full 16-page complaint in PDF form here
COMPLAINT JURY TRIAL DEMANDED
Plaintiff, Guy D. Livingstone (“Plaintiff” or “Livingstone”), by his attorneys, Golenbock Eiseman Assor Bell & Peskoe LLP, for his Complaint against defendants, Tough Mudder Incorporated (“TMI”) and Active Network, LLC (“Active”), alleges on knowledge as to his own actions, and otherwise on information and belief, as follows.
NATURE OF THE ACTION
1. This action arises out of TMI’s willful and material refusal to honor contractual obligations to its minority shareholder, Livingstone. Instead of honoring those obligations, TMI has conveyed valuable consideration to its majority shareholder at Livingstone’s expense.
2. Some of TMI’s breaches were facilitated and coordinated by its lender, Active. For the last several years, following Livingstone’s departure as an officer of TMI, TMI has been in continuous financial distress, despite Active’s extension of approximately $18 million of credit to TMI in 2017 and 2018. In December, 2018, following unsuccessful efforts to find a buyer for TMI, Active induced TMI to make payments and other financial promises to TMI’s majority shareholder, on the condition that the majority shareholder resign from TMI’s board of directors, appoint Active’s designees to TMI’s board of directors, and Case resign as TMI’s chief executive officer. This resulted in Active – and its ultimate parent company, non-party Global Payments Inc. – gaining control over TMI’s operations and management, and in TMI breaching contractual obligations to Livingstone.
3. As a result of TMI and Active’s actions, Livingstone has been injured in an amount not less than $4.3 million.
THE PARTIES
4. Plaintiff, Guy D. Livingstone, is an individual residing in Switzerland. Livingstone is a citizen of the United Kingdom of Great Britain and Northern Ireland. He is not a citizen of the United States of America, is not admitted for permanent residence in the United States, and is not domiciled in any State within the United States.
5. Upon information and belief, Defendant Tough Mudder Incorporated is a corporation organized under the laws of the State of Delaware, with its principal place of business located within this District at 15 Metrotech Center, 7th Floor, in Brooklyn, New York. TMI is registered with the New York State Department of State to do business within New York.
6. Defendant Active Network, LLC, is a limited liability company organized under the laws of the State of Delaware, with its principal place of business located at 717 N Harwood Street, Suite 2500, in Dallas, Texas. Active is registered with the New York State Department of State to do business within New York.
Key Points of Interest
(see additional details in the complete complaint)
After Livingstone Exits Day-To-Day Operations, Tough Mudder Falters
After Livingstone ceased his involvement in TMI’s operations (editor’s note: 2013), TMI suffered a continuous and precipitous financial decline. For example, in 2012 – the last full year of Livingstone’s involvement in TMI’s operations and management – TMI posted a yearly profit of approximately $10 million. In 2013 – the year of Livingstone’s departure – TMI’s yearly profit fell to $4 million. Since 2013, TMI has posted a yearly loss in every calendar year except for 2015, when it posted a small profit.
Active Network Extends Nearly $18 Million in Credit to Tough Mudder
TMI and Active 18. In 2017, Active extended credit to TMI by advancing approximately $10 million in cash to TMI, pursuant to an “Active Exchange” agreement, a ticket pre-purchase agreement extended, upon information and belief, to some of Active’s largest customers. Under that agreement, Active “pre-purchased” tickets for future TMI events. TMI was obligated to repay approximately $12 million to Active. In early 2018, and despite the fact that TMI had not paid back the existing credit, Active extended an additional $3 million in credit to TMI through the “pre-purchase” of tickets for TMI events. 20. Active made additional extensions of credit throughout 2018 such that, towards the end of that year, it had extended a total of approximately $18 million in credit to TMI through the ticket “pre-purchase” program
Tough Mudder Inc. misses payments to Livingstone in 2017, 2018, & 2019
…TMI was obligated to pay to Livingstone all accrued Extension Payments and obligated to commence paying all Extension Payments on the agreed-to schedule.
38. Despite these obligations, TMI has failed to make Extension Payments to Livingstone, in an amount not less than $314,084.
39. Additionally, the terms of the Redemption Agreement require TMI to pay for, or reimburse Livingstone for, the cost of Livingstone’s operation of a cellular telephone in the United States. Beginning in December, 2018, TMI ceased paying for, or reimbursing, this expense.
40. Finally, the terms of the Redemption Agreement require TMI to make a $12,000 annual payment to Livingstone, due on January 15 of each year. TMI failed to make this payment in 2019.
41. On or about August 15, 2018, Livingstone and TMI entered into a Promissory Note (the “Note”), with TMI as the obligor and Livingstone as the Payee. The Note is for the principal amount of $3,000,000.
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