News

New Frontier Settles Lawsuit with Investor

1/06/2002 7:00 PM Eastern

A three-year legal tussle between New Frontier Media Inc. and one of its investors came to an end late last month, after the adult pay-per-view provider agreed to a settlement.

In a press release, New Frontier said a federal judge in Boulder, Colo., issued a Dec. 26 order confirming the settlement, in which the programmer agreed to pay former investor and Colorado hog farmer J.P. Lipson $820,000 in cash.

As a result, the court is expected to vacate an earlier judgment Lipson had obtained against the company and two of its officers last year.

Lipson sued new Frontier in January 1999, claiming it had reneged on a deal through which he would invest $10 million in exchange for eventual control of the adult entertainment network. Lipson won that case in September 2000 and was awarded more than $11 million.

According to published reports, Lipson had invested about $1.25 million in New Frontier in 1998, money the company desperately needed to pay its bills. According to Lipson, New Frontier agreed to give him 70 percent equity control of the company after he invested a total of $10 million in the programmer.

But shortly after Lipson invested the $1.25 million, New Frontier executives tried to back out of the deal. Police were called to forcibly remove Lipson from New Frontier's corporate offices in October 1998, he claimed.

Lipson quickly sued, and named the two executives — New Frontier chairman Mark Kreloff and executive vice president Michael Weiner — separately.

In September 2000, a jury awarded Lipson $10 million for his claims of breach of contract and breach of the covenant of good faith and fair dealing; $1 million in punitive damages for fraudulent inducement and concealment; $1 million in actual damages; $125,000 from both Kreloff and Weiner individually for fraudulent inducement; and $125,000 from both Kreloff and Weiner individually for other punitive damages.

New Frontier, which owns The Erotic Network, Pleasure and several other pay-per-view adult channels, appealed the decision, and the award was whittled down to about $2 million in February 2001.

The company also countersued Lipson, claiming a major witness for the plaintiff was paid a substantial amount of money in connection with that witness's testimony in the September trial.

The settlement agreement calls for the counterclaim — for which an evidentiary hearing was set for January — to be dropped, New Frontier said. In a press release, the company said it expects the court to vacate the earlier judgment against New Frontier, Kreloff and Weiner.

"This settlement essentially is a repayment of the money that Mr. Lipson paid directly to one of our vendors in October 1998, plus interest on that money, as well as sharing in less than 10 percent of his trial expenses," Kreloff said in a prepared statement. "We are ready to put this litigation behind us and move forward with our plans to grow the business."

September