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Tidewater Equity Partners Appears Close To Reaching Lawsuit Settlement

By Johanna Cano, posted May 29, 2019
Wilmington-headquartered Tidewater Equity Partners, its founder Merrette Moore and Moore’s father, William, appear close to reaching a settlement on a more-than-yearlong lawsuit on how the Moores managed their investment firm Lookout Capital.

This month, parties agreed to a settlement in a lawsuit that accused the Moores and Tidewater of mismanaging Lookout and using Lookout to gain deals for Tidewater.

The settlement with the Lookout members, if approved by the N.C. Business Court, would require the Moores to pay $750,000 to Lookout and resign as managers of that firm and its connected entities.

Tidewater, which has Merrette Moore as its managing partner, announced the opening of its Wilmington headquarters in May 2017 and focuses on small, family-owned health care businesses as well as innovation consulting.

Efforts to reach Merrette Moore for comment on the decision to agree to a settlement and for updates on current Tidewater projects were not successful as of Wednesday afternoon.

Lookout Capital is a Raleigh-based early-stage investment firm founded by the Moores in 2010 that has a focus on health care, software and digital media companies.

Soon after Tidewater opened its Wilmington headquarters, the firm had already garnered two projects: $3.1 million in venture capital for Durham-based Phononic and $6.5 million in private equity funds for South Atlantic Packaging.

However, a lawsuit filed on Nov. 13, 2017, alleged that after Merrette Moore founded Tidewater, he took steps to wind down Lookout’s investment activities, undermine its credibility and move its investors, assets and business opportunities to Tidewater, according to the complaint.

The lawsuit alleged that Lookout members have been "misled, misinformed and ultimately fleeced due to the unsuitability, mismanagement and self-dealing of Lookout's father and son managers," the lawsuit stated.

“The Moores’ tenure as managers of Lookout has been characterized by inattentiveness, poor business decisions and a marked disregard for their fiduciary duties to Lookout,” stated the complaint.

In the case, the Moores and Tidewater representatives have denied the allegations made by the plaintiffs.

Tidewater filed a motion to dismiss all claims against it for "lack of subject matter jurisdiction, contending that the derivative plaintiffs lacked standing," court documents stated. 

"Defendants vigorously dispute the validity of these claims and contend that the facts revealed in discovery and the law controlling derivative claims support the dismissal of plaintiff's claims in their entirety," the settlement brief filing stated.

Lookout members John Kane and Michael O’Donnell were the original plaintiffs in the lawsuit on behalf of Lookout until O’Donnell was designated by the court as the most suitable representative for Lookout members.

One central part of their complaint is the formation of Tidewater, which the plaintiff alleged conflicts with Lookout due to similarities in their investment structures and for being under the same leadership of Merrette Moore.

“…assets and opportunities include at least four investments which were either originated or diligenced by Lookout, only to be usurped and closed by Tidewater, and marketed by Merrette Moore as ‘Tidewater deals,’” stated the complaint.

During the year-and-a-half of court proceedings, the court dismissed two motions, including a claim against the Moores and Tidewater for “unfair” and “deceptive” practices and another against Tidewater for aiding and assisting breach of fiduciary duty.

After two mediation sessions, both O’Donnell and the defendants agreed on a settlement on May 8 to clear all claims in the case.

Attorneys Paul Sun Jr., of Ellis & Winters, represented O’Donnell; Marla Bowman, of Ward and Smith, represented the Moores; and Alan Parry, of Parry Tyndall White, represented Tidewater.

Bowman and Parry declined to comment on the settlement, and Sun did not respond to a request for comment as of Wednesday afternoon.

According to a brief in support of a motion to approve the settlement, O’Donnell stated that he believed a settlement was in Lookout’s best interest and that the payment should be distributed by a new Lookout manager.

Tidewater’s Wilmington office was previously at tekMountain until December 2017. The firm's current office is at 1985 Eastwood Road.

In August 2017 the firm announced its first exit with the acquisition of InfaCare Pharmaceutical Corp. by Mallinckrodt Pharmaceuticals, a biopharma company. Tidewater’s initial involvement with InfaCare came via investment by Lookout Capital, according to a release.

According to filings with the Securities and Exchange Commission, Tidewater raised $300,000 in equity in October 2018, $1.36 million from 19 investors in September 2017, $6.4 million in equity in March 2017 and $830,000 in 2016.
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