By Matthew Santoni

Law360 (April 2, 2021, 4:03 PM EDT) -- A Pittsburgh-based online ticketing and marketing company didn't repay the bank backing a corporate credit card account it used to stay afloat during its sale to a venture-capital firm amid the pandemic, the bank claimed in a lawsuit filed in Pennsylvania state court.

TriState Capital Bank said it had extended a $1 million line of credit to ShowClix and its affiliated companies, but was left with unpaid bills despite ShowClix's September 2020 acquisition by Vector Capital where creditors were supposed to get repaid from the proceeds of the sale.

"ShowClix continued to rack up charges on its Visa commercial credit card throughout 2020 at Tristate's expense, with no intent to repay … It also sold its assets without providing any means to repay the increasing TriState debt," the complaint said. "In doing so, the officers and directors of ShowClix committed breaches of their fiduciary duties to creditors, namely, TriState."

The complaint, filed Thursday and made public Friday in the Allegheny County Court of Common Pleas, included claims of breach of contract and unjust enrichment against ShowClix and its affiliates, and breach of fiduciary duty against its executives.

Patron Technology, the parent company of ShowClix, PatronManager and GrowTix, had signed an agreement with TriState for the credit card account in 2019, the suit said.

When the pandemic struck, the lawsuit said it had a "severe negative impact on live events," and by extension, ShowClix, causing the company to fall behind on its payments and the bank to reduce its credit limit to $300,000. The company appeared to be in financial trouble and was leaning on its credit card while looking for additional investment, and was under the control of a "chief restructuring officer," the suit said.

"Despite having its balance down under $20,000 in early June 2020, by the statement that closed September 30, 2020, ShowClix had nearly maxed out the $300,000 credit limit under the Visa card agreement, with an ending balance of $273,167.97," the complaint said. As of late March 2021, TriState said the bill stood at $222,000, with interest continuing to accumulate.

At about the same time that it was charging things to  the credit card, Patron was being acquired by San Francisco-based Vector Capital — through a new company, "Nortap Technology" — under Article 9 of the Uniform Commercial Code, also known as a "friendly foreclosure" sale where creditors can take or sell the collateral securing their debts. But TriState said the company's credit card debt went unpaid, and the company's press releases suggested the transaction was more like an acquisition by investment than an Article 9 sale.

"According to the Article 9 sale documents, it appears that ... Nortap attempted to purchase substantially all of the assets of the Patron Group entities, while assuming only select liabilities which it views as beneficial and leaving those creditors (e.g. TriState) who were not deemed essential to the continuing operation of the business unpaid and out in the cold," the complaint said. "The parties liable under the Visa card agreement looked to TriState to continue providing credit when they needed it most, only to turn around and leave TriState high and dry by keeping TriState in the dark regarding the Article 9 sale."

ShowClix and Patron had breached their credit agreement and been unjustly enriched by running up their bill and refusing to pay, while seven company officers and executives had breached their fiduciary duties to their creditors, the suit said. Instead, the bank claimed ShowClix had deepened its insolvency by continuing to run up the credit card bill.

"When in the zone of insolvency, a corporation's controlling persons … owe fiduciary duties of care and loyalty to creditors to manage the corporation's affairs in a way to maximize the recovery of debt for creditors," the complaint said. "Patron Technology and ShowClix knew months in advance of the sale date that the entities were insolvent and would likely become subject to an Article 9 sale."

Nortap was responsible for ShowClix's debts because the business had continued after the sale with the same employees, offices and management, including three "c-suite" officers who remained, the suit said.

But in a statement to Law360 Friday, the new ownership said that under the Article 9 sale, the remaining debt was the responsibility of the previous iteration of the company.

"In September of 2020, Vector Capital, our current owners, purchased the certain assets of Patron Technology from its previous owners," the statement said. "As in all asset purchases, it is the responsibility of previous owners to manage any remaining assets and liabilities. Our entity does not have and has not had a business relationship with TriState Capital Bank."

The company's statement said Vector's acquisition gave it a strong financial position. Morris Aaron, the chief restructuring officer for the old company, said TriState was one of several unsecured creditors who couldn't be completely repaid from the sale of the company's assets once the secured creditors had divided up the proceeds, but it was apparently the only one that had filed suit in the hope of recovery that way.

Counsel for TriState did not immediately respond to requests for comment Friday.

TriState is represented by Timothy P. Palmer and Tyler S. Dischinger of Buchanan Ingersoll & Rooney PC.

Counsel information for Nortap/ShowClix was not immediately available.

The case is Tristate Capital Bank v. Nortap Technology Inc. et al, case number GD-21-003197, in the Court of Common Pleas of Allegheny County, Pennsylvania.

--Editing by Amy Rowe.

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