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Showdown in Texas, as Former Colleagues Fight Each Other Over Clawbacks

In an unusually public battle for the venture world, Bob Fabbio — the famed cofounder of Austin’s Tivoli Systems, later sold to IBM Corp. for $745 million, and of Austin-based Dazel Corp. in 1991, which HP picked up for more than $150 million eight years later — is battling with the venture firm TL Ventures in an ugly fight that looks to get uglier soon.

Fabbio, invited to run TL Ventures’s Austin office in the late ‘90s, is suing several of the firm’s management funds and a number of individuals at TL Ventures over $2.3 million in clawbacks that he was first asked to pay the firm last year.

Fabbio, who left TL Ventures in 2001 to become CEO of one of its portfolio companies, Vieo, is joined in his suit by  Stan Tims, a managing director who left the firm soon after Fabbio departed and who has been asked to pay back an undisclosed amount in clawbacks, and Stephen Andriole, a former TL Ventures principal who owes the firm $253,201 in clawbacks, according to TL Ventures.

At the crux of the fight isn’t just whether the trio owes what TL Ventures claims that they do but where the dispute will be settled — in a courtroom or before an arbitrator.

According to TL Ventures, Fabbio, Sims, and Andriole long ago signed away their right to sue TL Ventures as partners in their funds. Specifically, like all TL Ventures’s GPs, they agreed to arbitrate “any dispute…in connection with or in relation to this [Partnership] Agreement, or any breach thereof, or to the Partnership” before the American Arbitration Association in Philadelphia.

In fact, just one month after the former partners filed suit over the clawbacks, TL Ventures struck back by filing a demand for arbitration, from which it wants to get its “excess profits” back from Fabbio, Sims, and Andriole, along with interest, the costs of bringing the arbitration, and attorneys fees.

Meanwhile, Fabbio, Sims, and Andriole continue to push for the courtroom. In a petition first filed in the district court of Travis County, Texas in December, the three lay out a case for why they don’t owe TL Ventures anything, beginning with their argument that the funds they helped manage and in which they were GPs (namely, TL Ventures III and TL Ventures IV), haven’t been “legally or formally” dissolved or liquidated, a condition they say would be necessary for TL Ventures to initiate clawbacks.

More potentially damaging, they’re accusing their old colleagues of self-dealing, saying that “funds belonging to the management partnerships” have, since their departure, been “set aside by Defendants for the purpose of satisfying their own personal clawback liability and that not partners of the management funds are being treated in a “fair and equitable” manner.

Not last, they say that TL Ventures has been withholding documents, “including the most basic of information,  necessary to show how the funds at issue have been handled internally, despite repeated requests.”

Whether the judge abates the court case and forces Fabbio, Sims, and Andriole to arbitrate remains to be seen, as would an arbitration hearing’s impact on the case. (As many readers will know, discovery is comparatively limited in arbitration cases.) One source close to the situation says a decision should be made in the next 60 to 90 days.

In the meantime, I’ll have more on this story this week.