NEW YORK WPP Group suffered a major setback when its lawsuit  against Spot Runner was dismissed in federal court.
In a ruling issued earlier this month, the U.S District Court of Central California dismissed the case, which alleged Spot Runner's founders engaged in a "pump and dump" scheme that cheated WPP out of millions of dollars. WPP invested $10 million in Spot Runner in 2006.
The judge, Percy Anderson, ruled that WPP misinterpreted a response from Spot Runner general counsel Peter Huie to its query whether Spot Runner executives and existing investors were selling shares in a follow-on offering. The judge found Huie did not misrepresent the fact that Spot Runner founders Nick Grouf (shown above) and David Waxman and investors Battery Investment Partners and Index Ventures had sold shares in "this offering," while not offering that they had participated in earlier sales.
"Plaintiff may have misread Huie's e-mail, but such a misunderstanding cannot form the basis for a claim, absent any facts indicating that plaintiff was likely to misinterpret Huie's truthful statements," Anderson wrote.
WPP said it would amend its filing and continue with the case. The firm is required to file a new complaint by Oct. 12.
"We continue to believe strongly in the merits of those claims as well as the other state law claims that the court did not pass upon, and we remain committed to pursuing all of our legal remedies," the company said in a statement. "In rendering its decision, the court rejected important defenses offered by the named defendants and granted us ample opportunity to replead our securities fraud claims. We intend to take full advantage of this opportunity to replead."
In the meantime, Spot Runner will remain a black mark in WPP's portfolio. The ad group is now in the unusual position of being a shareholder in a company that's founders it has publicly accused of lying to selling over $50 million worth of stock while the company was floundering. According to WPP's suit, Spot Runner has lost more than $80 million since it was founded in 2004.
What's more, WPP agencies make up a large part of WPP's potential customer base. Begun as a tech platform for local businesses to efficiently advertise on TV, it is pinning its future on the Malibu Media Platform, a media planning and buying tool it is rolling out to bring Web-style dynamics to the old-school ad world of TV buying. Spot Runner has said holding companies and major media owners are testing Malibu and that version 2.0 is in development.
In a statement today, Spot Runner said, "We are very pleased with the court's decision to dismiss the case and we look forward to putting this matter behind us. Our primary focus is continuing the strong progress we are making on the Malibu Media Platform."
Spot Runner was among a series of investments WPP has made in advertising technology companies over a three-year span. Some of those plays have turned out well: WPP stands to make an estimated $36 million from Adobe's deal earlier this month to scoop up Omniture.
See also: "When Ad Men Play Venture Capitalists"