Plaintiff Airbnb, Inc. filed a complaint against defendant NGD Homesharing, LLC and its CEO, Harvey Hernandez, for breach of contract. The suit was filed in the California Northern District Court. Airbnb is represented by Covington & Burling.
Airbnb entered into an agreement with and invested approximately $11 million in NGD in January 2019. The complaint stated that “Airbnb was providing capital, expertise, and brand recognition to NGD and Hernandez, who were supposed to manage, operate, and market rental properties throughout the United States.” Under the alleged agreement, NGD was to create specialized properties for Airbnb. However, Airbnb discovered that “during the parties’ business relationship, NGD and Hernandez stole funds, made unauthorized loans to other Hernandez-controlled companies, fraudulently backdated documents, breached contracts, and then lied repeatedly in an attempt to cover their tracks.”
According to the complaint, NGD “misrepresented its capitalization in the Unit Purchase Agreement’s representations and warranties”; NGD had made commitments to other investors that essentially changed the value of Airbnb’s investment. Additionally, NGD allegedly did not disclose a lawsuit against its co-founder, Cindy Diffenderder, who accused Hernandez of “diverting funds from NGD for his personal use an of diverting corporate opportunities from the company to himself.” She also stated Hernandez and NGD backdated documents, a practice it allegedly continued with Airbnb.
As an example, Airbnb purported that “defendants siphoned at least $1 million from the parties’ joint business interests without authorization.” Hernandez loaned the money to his development company, Natiivo / Miami (6th Street Partners LLC), with expected payback in under 30 days; however, repayment is still outstanding and the loan is in default. Hernandez provided the loan without Airbnb’s prior approval. When asked about this, NGD allegedly attempted to delay, misdirect and provide false repayment promises. Hernandez claimed NGD’s general counsel was out of the office and would respond later. The documentation provided was vague and did not include the purpose of the loan. Additionally, “in their frantic efforts to conceal their duplicity, defendants eventually produced fraudulent and backdated documentation of an unauthorized ‘loan’ – reflecting Hernandez as the signatory on behalf of both borrower and lender – as purported justification for diverting the funds.”
Airbnb claims that NGD failed to honor the agreement as well. It did not create “more homesharing accommodations for the Airbnb community particularly in urban, multi-family buildings.” NGD promised but failed to open seven real estate projects in 2019, with the understanding that this development was key to Airbnb. For projects currently in the works, NGD breached the agreement by failing to “incorporate Airbnb’s input as to design, apparently sold units without Airbnb’s requisite written approval, and misused Airbnb’s name and trademarks.”
Airbnb accuses NGD and Hernandez of fraud and deceit, negligent misrepresentation, breaching their agreement, making a misleading statement leading to the purchase of a security by another, conversion, breach of fiduciary duty, breach of good faith and fair dealing, and unjust enrichment. Airbnb has sought to terminate its agreement and business relationship with NGD and Hernandez and for compensation for monetary damages and other relief.