Beats Electronics, which is close to being sold to Apple Inc for $3.2 billion, has been sued by the founder of a music service Beats bought two years ago claiming he has been cheated out of his share of the company.
David Hyman, the founder of the music subscription service MOG Inc, filed a lawsuit on Wednesday in Los Angeles superior court claiming he was purposely terminated so that Beats could avoid granting him his equity stake in the company.
Hyman is suing the company for $20 million, but it could have far reaching consequences as Apple announced it was interested in purchasing Beats for over three billion dollars.
Hyman claims that as part of the agreement Beats made to buy MOG in 2012, he would have been granted, over a period of time, 2.5 percent of the outstanding equity interest in Beats if the company reached a market value of $500 million or more. But Hyman was terminated less than a year after the deal, which prevented him from “receiving the fruits and benefits” of the transaction, according to the lawsuit.
Beats Electronics, owned by Hip Hop star Dr. Dre – who is not part to the lawsuit – is being accused of breaking contractual agreements with Hyman, the lawsuit says. Beats fired Hyman after the former MOG boss attempted to fire a marketing executive who had been giving him trouble, but Beats turned around and fired the same employee shortly thereafter, the accusations say.
MOG was sold to Beats in 2012 for what was reported between $15 and $20 million. Hyman, who has worked at Gracenote and MTV Interactive, is now based in San Francisco with start-up Chosen.fm.
MOG is a leader in the music streaming subscription service, with over 16 million songs to its name.
Both Beats and Hyman have not spoken publicly to reporters on the lawsuit, which could be a litmus test for acquisitions and the claims to ownership and rights of executives in similar deals.