Lieberfarb suing MOD Systems over Toshiba intro

Industry veteran says startup owes him $700,000

By Jennifer Netherby -- Video Business, 9/25/2008

SEPT. 25 | Today’s announcement from MOD Systems that it has raised $35 million in a round of venture funding led by Toshiba Corp. comes a month after Warren Lieberfarb filed suit against the startup over fees he claims are owed to him for connecting the two.

Lieberfarb, who served as a MOD consultant and board member before resigning in March, filed a breach of contract lawsuit against the company in U.S. District Court in Seattle Aug. 19, claiming to be owed more than $700,000 for consultant work and an unpaid loan.

Among the charges is a claim that MOD cut Lieberfarb out of consulting fees for an introduction to Toshiba. Lieberfarb has worked as a consultant for Toshiba, Microsoft, MOD and others since being forced out as president of Warner Home Video in 2001.

Lieberfarb signed on as a consultant with MOD in November 2006 and as part of a deal signed in June 2007 the company agreed to pay him 5% of funds it got from any investment they got through an introduction he made, according to the suit. As per the deal, Lieberfarb was paid $200,000 by MOD after an introduction to Toshiba resulted in an investment of $4 million. But, according to the filing, when Toshiba invested an additional $3 million, MOD refused to pay Lieberfarb his fee and classified the investment as “‘a non-recurring engineering fee’ as an artifice in order to avoid payment of any fee due and owing to plaintiff for Toshiba’s investment.” Lieberfarb is seeking $150,000 for consulting fees from that investment.

In the suit, filed a month before today’s venture funding announcement from MOD and Toshiba, Lieberfarb refers to another investment he believes Toshiba is in the process of making to MOD and asks that the court order MOD to provide him with information and documentation on any investments or financing it has received.

Lieberfarb claims the company also owes him $79,560 in expenses for business done on behalf of MOD. He also claims MOD has “failed and/or refused” to confirm the number of stock options he has vested in the company.

Lieberfarb also charges that MOD has continued to tell investors and potential investors that he is working with them, even after ending the relationship.

Lieberfarb didn’t immediately return calls for comment. An assistant said he was out of the country.

A spokeswoman for MOD Systems said the company couldn’t comment on legal proceedings.