A Durham technology company is suing both a former customer and a well-known law firm in North Carolina, claiming it was never paid for its work on a “brain fitness” app.
Pathos Ethos, which provides startup services, from product engineering to marketing, is suing Braintap Technologies and law firm Ward & Smith, neither of which immediately returned requests to comment on the case.
James White, a Chapel Hill-based attorney, is representing Pathos Ethos. Defendants do not yet have an attorney listed in the case, which focuses on Braintap's app.
Pathos claims it built the app in exchange for company stock — shares Braintap is alleging are invalid.
Tech startup Braintap, based in New Bern, approached Pathos Ethos in 2021 about an agreement for work on its app, according to the complaint. Braintap initially issued more than 74,500 shares of Series A preferred stock to Pathos Ethos in exchange for $100,000 worth of work on the app, the lawsuit says.
The companies then entered into a more comprehensive master services agreement in 2022 involving a $250,000 recurring quarterly retainer, where Braintap could either issue a Simple Agreement for Equity (SAFE), granting Pathos Ethos the right to $250,000 in shares of Braintap, or pay cash in the amount of $83,333 a month.
A SAFE, giving Pathos Ethos the right to $250,000 worth of stock, was issued for the June to August quarter.
Braintap then terminated the arrangement in December 2022, but not before Pathos Ethos had continued to do work on the agreement. The company claims it was owed “at a minimum an additional $250,000” for work performed in that second quarter.
Pathos Ethos claims it entered into an escrow agreement where money could be released in exchange for certain files. But while it claims it fully complied with the terms of the escrow agreement, “Braintap refused to allow for the release of the $200,000 held in escrow by Ward & Smith," the lawsuit says.
Braintap sent a letter announcing its plans to void Pathos Ethos’ $100,000 equity stake in the firm and rescind its $250,000 SAFE.
In the lawsuit, Pathos Ethos claims breach of contract, and is asking the court to force Braintap to pay $500,000 plus interest.
Ward & Smith was named in the suit due to its role as an escrow agent.
The case was transferred to North Carolina Business Court this week.