Bad breakup: Investors launch $200M-lawsuit in Tinder spat

The Tinder dating app in use.
The Tinder dating smartphone app is pictured in this handout photo. Courtesy of Tinder/HO

It’s too bad lawsuits can’t be swiped to the left.

Once upon a time, five friends established a venture capital fund in Toronto that had investments in various startup tech companies. Among other things, the fund had a stake in the company that developed the technology behind Tinder — the extremely popular dating app.

Now, they’re suing each other over that slice of the Tinder pie.

Three of the five are suing the other two, alleging the interest in Tinder was concealed and bought out right from under them. The defendants say the deal was fair and square and nothing was concealed from the sellers, because Tinder was not even fully developed then.

Tinder is a smartphone dating app that connects users based on GPS locations. The app is not very complicated. As soon as you log in, you can view profiles of people around you. If you like a person’s profile, you can swipe their picture to the right. If they do the same on your picture, you’re matched and can start chatting within the app. If you aren’t interested, you simply swipe to the left.

In 2012, three co-founders of the Extreme Venture Partners Fund — Ray Sharma, Imran Bashir, and Ken Teslia — were paid $10 million by their other two colleagues — A. Varma and S. Madra — for their share in Xtreme Labs. The trio alleges this deal was not clean, because the buyers did not disclose what was being exchanged: a stake in Tinder technology.

The plaintiffs’ claim mostly concerns fiduciary duties, says Scott Miller, the co-managing partner of Ottawa-based MBM Intellectual Property Law LLP.

“This means the directors can’t benefit from pursuing an opportunity to the exclusion of the corporation,” he clarifies.

Essentially, when it comes to transactions, directors may not withhold information to benefit themselves to the corporation’s detriment. In this lawsuit, the defendants — Varma and Madra — maintain they acted appropriately, because they themselves did not know about Tinder at the time. It will be for the courts to decide which side will prevail, insists Miller.

The plaintiffs say they sold Xtreme Labs. However, Xtreme Labs apparently had a stake in a company named Hatch Labs, which was developing the technology that later became Tinder.

Sharma, Bashir, and Teslia say their business associates conspired with a former vice-president of Facebook, C. Palihapitiya, to conceal what Hatch was all about when the sale was entered into. They are demanding more than $200 million in damages.

Varma and Madra say they didn’t hide anything from their former colleagues, because they themselves didn’t know Hatch was hashing out concepts such as Tinder at the time.

Tinder came out in August of 2012, two months before the deal was signed. By October of 2012, it only had 2,000 members. Tinder is currently worth $1 billion (USD).  As of October 2014, an average of 50 million accounts used Tinder every month across the world, with an average of 12 million matches per day. Impressive, isn’t it? So is this lawsuit.

Varma and Madra have retained the law firm of Borden Ladner Gervais LLP to represent them in this lawsuit. Their lawyer, Ira Nishisato, said this is a frivolous claim and a case of “seller’s remorse.” The defendants are counterclaiming for $10 million in punitive damages among other things.

What does this all mean for Tinder users? Well, not much. Keep swiping.

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