EVOLVE files Motion to Dismiss FloSports lawsuit

November 28, 2017

WWN, Inc., the owner of the EVOLVE wrestling promotion, has filed a motion to dismiss for lack of personal jurisdiction and/or motion to dismiss for failure to state a claim against Flosports, Inc.  The lawsuit, which originally filed in state court in Texas, was sent to federal court in the state earlier this month.  FloSports claims that WWN misrepresented its live streaming data to entice the company to invest in its live stream and internet PPVs.

FloSports has a niche in the online industry by streaming a broad spectrum of smaller sporting events to a direct-to-consumer subscriber base.  The business model has grown significantly since its inception and even drew an investment from the WWE.  The company offers streaming of professional wrestling events of which it had a deal with EVOLVE

The crux of the Complaint filed on September 15, 2017 [now Amended Complaint filed on 11/27/17] is that FloSports claims it was induced into a 5-year Exclusive Media Agreement due to a misrepresentation of the number of wrestling fans purchasing viewership access to WWN’s events.  Prior to FloSports, it appears that EVOLVE ran its own iPPVs and Video-on-Demand.  FloSports claims it invested “hundreds of thousands of dollars” in reliance on this information.  But, the numbers were false.  WWN claims that the numbers were based on previous ownership.

Motion to Dismiss for Lack of Jx by JASONCRUZ206 on Scribd

The parties disagreed on which entity contacted the other first.  WWN claims FloSports contacted it about potentially streaming on its web site while WWN claims in its Motion to Dismiss that it was FloSports that attempted to recruit the Florida-based company.

FloSports’ original complaint had scant facts about the background behind the filing of the complaint and causes of action.  WWN removed the case to federal court in Texas and then filed a Motion to Dismiss on the grounds that there is a lack of jurisdiction and for a failure to state a claim upon which relief can be given.  The Amended Complaint provides a deeper factual picture including a timeline of events.  This was filed with its response to the Motion to Dismiss which may address perceived holes in the plaintiffs’ original lawsuit.

Amended Complaint FloSports by JASONCRUZ206 on Scribd

In it’s Motion to Dismiss, WWN argues that even if the court finds jurisdiction over the Florida company, it must dismiss FloSports’ cause of action for negligent misrepresentation since it is essentially a tort claim.  Under what is known as the “Economic Loss” rule, a party suffering only economic harm may recover damages for that based upon a contract theory and not on a theory for negligence or strict liability.  In its Amended Complaint, FloSports does away with the negligent misrepresentation claim and inserts a claim for fraudulent inducement and fraud.  Similar to its original cause of action for negligent misrepresentation, FloSports claims that it was given false data by WWN to invest in the EVOLVE franchise.

The 5-year Exclusive Media Agreement is included in the FloSports opposition brief and is embedded below.

Exclusive Media Event Agreement by JASONCRUZ206 on Scribd

The Agreement allows an out for FloSports starting in January 2018.  However, they must give a 12 month notice which appears to mean that they would have to pay the rights fee for the year.  According to the Agreement, FloSports paid $75,000 in 2016; $500,000 in 2017; $550,000 in 2018; $605,000 in 2019; $670,000; $740,000 in 2021.  There are also incentives in the contract if EVOLVE exceeded certain benchmarks.  Obviously, the glaring step-up is from 2016 to 2017 where the rights fee shoots up from $75,000 to $500,000.

Payout Perspective:

The legal part of the matter involves a basic civil procedure question one might find itself answering on a first-year law school exam.  Does FloSports have the right to sue WWN in Texas when the Florida-based company claims it has no ties to Texas and has only minimal contacts with the state?  If not, then the court would dismiss the action in Texas although FloSports would be able to refile in Florida.  This first question would determine whether it is necessary to answer the second question which is whether FloSports’ claim for negligent misrepresentation is viable.  According to WWN, it cannot stand since it argues that the “economic loss” rule prevails here which precludes a party from repackaging a breach of contract claim into a tort claim.  This is a moot point if we are to accept the Amended Complaint.  Still, I would assume that WWN argues that the Fraud claim not stand as it is the same/similar to the original claim.  From an anecdotal standpoint, fraud claims are hard to prove and while the Court may allow it past the initial pleading stage, the real issue here is the breach of contract.

The story here is that FloSports is not receiving its anticipated return on investment from the EVOLVE shows and believes that they were duped into believing that this was a popular promotion that had followers that purchased its iPPVs.  Notably, EVOLVE does not address the veracity of the data it provided FloSports but the focus is on the jurisdictional issue because if the Court has no jurisdiction it cannot rule on the underlying facts.  EVOLVE may have a explanation for the data but I assume it is strategically withholding that until a ruling on the procedural issue.

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