A securities lawsuit against Huron Consulting Group Inc. over its acquisition of Sky Analytics Inc. will be allowed to proceed, a federal court ruled Aug. 12.
Huron purchased Sky, a legal analytics company, in 2015. The parties agreed that the deal would include an initial cash payment and subsequent earn-out payments whereby each dollar of revenue earned by Huron’s legal division above a specified threshold would be paid to Sky shareholders.
Huron allegedly presented Ronald Gruner, Sky’s co-founder and former chief executive officer, with overly-optimistic projections about its legal division’s ability to earn certain revenue amounts. After the deal closed, Huron reportedly didn’t focus on selling Sky products and made little effort to achieve the revenue threshold necessary to trigger the earn-out payments. During the first earn-out period, Huron delivered less than 20% of its projected revenue amount, Gruner claimed.
Gruner accused Huron of violating Illinois securities law and engaging in common law fraudulent inducement. The lawsuit also names Consilio Inc., a subsequent purchaser of Huron’s legal division, as a defendant. Gruner claims that Huron fraudulently induced him and the other shareholders into entering the contract by making false representations about its intentions and ability to achieve the earn-out payments.
Gruner’s lawsuit on behalf of himself and other former Sky shareholders can move forward, the U.S. District Court for the Northern District of Illinois ruled.
The court rejected the defendants’ arguments that Gruner’s case is subject to collateral estoppel by a previous arbitration Gruner unsuccessfully pursued against Huron and Consilio. The issues presented in that arbitration, which dealt with breach of contract claims, either weren’t identical to those raised here or weren’t essential to the arbitrator’s judgment, the court said.
“Gruner’s focus in this case is not on whether Huron performed its contractual duties under the agreement the parties reached, but whether it misled Gruner into agreeing to those terms,” the court said.
The court also rejected the defendants’ arguments that Illinois securities law doesn’t provide a remedy for sellers and that Gruner failed to comply with the statute’s procedural requirements.
Gruner is represented by Tomlinson & Shapiro P.C. Huron is represented by Williams Montgomery & John Ltd. Consilio is represented by Palmersheim & Mathew LLP.
The case is Gruner v. Huron Consulting Grp., Inc., N.D. Ill., No. 1:18-cv-02143, 8/12/19.
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