Genutec v. Danna, et al., Case No.: 07CC07918

In March 2013, after a trial lasting nearly five months, the Orange County Superior Court awarded over $9 million in damages to Shulman Bastian Friedman & Bui LLP client, Genutec Business Solutions, Inc. Genutec is a provider of emergency notification and voice broadcasting services. In early 2005, Genutec was profitable and its prospects looked bright. However, in September 2005, Genutec made an ill-conceived acquisition, purchasing a company called Smart Development for $14 million with the hope that Smart’s customer base, annual revenues and technology would enable Genutec to one day enjoy a public offering.

Put simply, this acquisition should never have occurred. However, pushed forward by a chief executive officer and director with a substantial financial stake in the acquisition who instructed Genutec’s acquisition attorneys to reduce necessary legal due diligence on Smart and with virtually no technical due diligence on Smart, the acquisition closed and the integration of the two companies began.

Unfortunately, not only at the time of the Smart acquisition was Smart operating illegally in violation of federal regulatory guidelines, but the Smart and Genutec technological systems were incompatible and the main asset Genutec acquired from Smart, its software, was not adequately licensed. This ultimately led to a total rewrite of the acquired software, resulting in system crashes, a massive loss of customers and Genutec’s rapidly deteriorating financial condition. Genutec eventually became insolvent in February 2007 – a mere 15 months after borrowing $20 million for the Smart Acquisition.