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Internet Execs Failed to Click
ADVERTISING: Hydra feud comes to a head in court.
By JOEL RUSSELL
Los Angeles Business Journal Staff
Nine months ago Hydra LLC was riding high.The Internet advertising company in Beverly Hills was clicking with customers and had achieved buzzword status among marketers. It ranked sixth on the Business Journal’s list of Fastest-Growing Private Companies with a two-year revenue growth of 333 percent. By the end of 2008, it reported revenue of $108 million.
But today, three of the four partners are no longer with the company. Revenue has been chopped in half, according to the exiled partners. And simmering disagreements have turned into lawsuits.
The ball started rolling downhill in November when tensions between Chief Executive Zac Brandenberg and his three partners – Doug Walker and his sons, Jason and Adam – reached a breaking point.
According to the original lawsuit filed by Hydra, the Walkers “adopted an increasingly adversarial stance toward Hydra and Brandenberg on numerous matters,” including business strategy and employment agreements. In response, Brandenberg and executives from Kayne Anderson Private Investors LP, a limited partnership that invested $10 million in the company, used their control of the board to fire the Walkers. (Based in Century City, Kayne Anderson is controlled by billionaire investor John E. Anderson.)
By April, Brandenberg was the sole partner left at the company. The following month the Walkers formed W4, a Venice-based Internet marketing company. Hydra sued, claiming the company violated the Walkers’ noncompete agreements. A judge agreed, but the appeals court granted a temporary stay, allowing the Walkers to continue owning and running W4.
Meanwhile, the Walkers filed their own suit, alleging that Brandenberg and Kayne Anderson’s decision to remove the Walkers has decimated the value of Hydra. The Walkers still own nearly 40 percent of the company.
“Before the defendants engaged in their misconduct, Hydra was projected to generate some $150 million in revenue and substantial profits in 2009,” the suit states. “Today, Hydra will be lucky to generate revenue of half that amount and avoid a loss. This dramatic decline in financial performance is directly attributable to the defendants’ wrongful acts.”
Adam Walker told the Business Journal that he believes the core conflict was caused by Brandenberg’s efforts to get the Walkers out of the company. Walker said Brandenberg had been meeting with lawyers since early 2008 to engineer the ouster. The conflict “may sound like a lot of business reasons, but mostly they were not business reasons.”
The suit claims that “Brandenberg sought to affect the ouster of the Walkers for his personal benefit – both to eliminate any challenge to his authority and allow him to steal back the Walkers’ equity stake.”
In response to these allegations, Mason Wiley, senior vice president of marketing at Hydra, referred to the court filings that cited disagreements over how the business should be run. The documents state that after Adam Walker was terminated over such disagreements, the other Walker family members grew increasingly adversarial.
“Both sides seem like reasonable people, so some things are better left to a court of law,” Wiley said.
As for the noncompete issue, Robyn Crowther, an attorney at Caldwell Leslie & Proctor who represents the Walkers, said her clients don’t deny that W4 competes against Hydra. However, they don’t believe the noncompete clauses are enforceable and their alleged wrongful discharge from Hydra makes them invalid.
Internet Execs Failed to Click
ADVERTISING: Hydra feud comes to a head in court.
By JOEL RUSSELL
Los Angeles Business Journal Staff
Nine months ago Hydra LLC was riding high.The Internet advertising company in Beverly Hills was clicking with customers and had achieved buzzword status among marketers. It ranked sixth on the Business Journal’s list of Fastest-Growing Private Companies with a two-year revenue growth of 333 percent. By the end of 2008, it reported revenue of $108 million.
But today, three of the four partners are no longer with the company. Revenue has been chopped in half, according to the exiled partners. And simmering disagreements have turned into lawsuits.
The ball started rolling downhill in November when tensions between Chief Executive Zac Brandenberg and his three partners – Doug Walker and his sons, Jason and Adam – reached a breaking point.
According to the original lawsuit filed by Hydra, the Walkers “adopted an increasingly adversarial stance toward Hydra and Brandenberg on numerous matters,” including business strategy and employment agreements. In response, Brandenberg and executives from Kayne Anderson Private Investors LP, a limited partnership that invested $10 million in the company, used their control of the board to fire the Walkers. (Based in Century City, Kayne Anderson is controlled by billionaire investor John E. Anderson.)
By April, Brandenberg was the sole partner left at the company. The following month the Walkers formed W4, a Venice-based Internet marketing company. Hydra sued, claiming the company violated the Walkers’ noncompete agreements. A judge agreed, but the appeals court granted a temporary stay, allowing the Walkers to continue owning and running W4.
Meanwhile, the Walkers filed their own suit, alleging that Brandenberg and Kayne Anderson’s decision to remove the Walkers has decimated the value of Hydra. The Walkers still own nearly 40 percent of the company.
Adam Walker told the Business Journal that he believes the core conflict was caused by Brandenberg’s efforts to get the Walkers out of the company. Walker said Brandenberg had been meeting with lawyers since early 2008 to engineer the ouster. The conflict “may sound like a lot of business reasons, but mostly they were not business reasons.”
The suit claims that “Brandenberg sought to affect the ouster of the Walkers for his personal benefit – both to eliminate any challenge to his authority and allow him to steal back the Walkers’ equity stake.”
In response to these allegations, Mason Wiley, senior vice president of marketing at Hydra, referred to the court filings that cited disagreements over how the business should be run. The documents state that after Adam Walker was terminated over such disagreements, the other Walker family members grew increasingly adversarial.
“Both sides seem like reasonable people, so some things are better left to a court of law,” Wiley said.
As for the noncompete issue, Robyn Crowther, an attorney at Caldwell Leslie & Proctor who represents the Walkers, said her clients don’t deny that W4 competes against Hydra. However, they don’t believe the noncompete clauses are enforceable and their alleged wrongful discharge from Hydra makes them invalid.
