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MOD Systems CEO, COO Placed on Leave After Judge Dismisses Countersuit Against Lieberfarb

8 Apr, 2009 By: Chris Tribbey

MOD Systems

Soon after a judge overseeing the Warren Lieberfarb vs. MOD Systems lawsuit in Seattle dismissed the digital technology company’s countersuit April 2, MOD Systems CEO Mark Phillips and COO Kenneth Gordon were placed on leave from the company, the Puget Sound Business Journal of Seattle reported.

Calls and e-mails to MOD Systems to confirm the moves were not returned.

Phillips and Gordon are also named in a lawsuit, along with co-founder Anthony Bay and the company itself, filed by investor Robert Arnold, who put a reported $3 million into the company. He accuses MOD executives of misusing funds for personal use, and misrepresenting the benefits of a deal MOD made with Toshiba and NCR Corp. in September 2008.

That deal, where Toshiba and NCR invested $35 million in MOD, aims to create a new digital delivery system where retail kiosks would offer movies to consumers via SD cards. Paramount and Warner Bros. have agreed to have their content sold on the system.

Lieberfarb’s suit — first filed in mid-2008 — claimed MOD owed him nearly $750,000 in loans, fees and business expense reimbursements. Since then, MOD has paid back a loan of $500,000, Lieberfarb’s lawyers said. Lieberfarb joined MOD in October 2006 as a consultant and was given the title of vice chairman. His suit claims MOD agreed to pay him 5% of any investment the company received but failed to do so when Toshiba invested $3 million in MOD in 2007.

MOD countersued in January, using Washington’s Consumer Protection Act (CPA), claiming Lieberfarb overstated his connections and expertise, and breached his contract by sharing proprietary information to an investment firm.

In dismissing MOD’s counterclaim, Judge John Coughenour wrote that MOD “has not alleged sufficient facts to suggest that it private dispute with [Lieberfarb] is covered by the CPA.” Washington’s CPA can only be used in a suit if there is a clear “public interest impact,” which MOD failed to show, the judge wrote.

The court has set a trial date of Oct. 19. However, court records show the two have discussed the possibility of a settlement.

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