SANTA ANA, CA -- A former Mentor Graphics employee today sued the company for fraud, negligent misrepresentation and breach of contract related to the CAD software vendor's acquisition of his former company.

Dino Ditta filed suit in Orange County Superior Court seeking $3.2 million plus interest and additional punitive damages from Mentor in connection with its 2006 acquisition of Router Solutions Inc.

The suit alleges that under terms of the acquisition, Mentor would pay up to $9 million to for RSI, $4.5 million in cash and the rest over four years via an "earn-out agreement."

Ditta, through his lawyers, claims that contract was "willfully breached" by Mentor and Henry Potts, vice president and general manager of Mentor’s Board Systems division, in order to "cheat" Ditta out of compensation for post-closing sales and support of both existing RSI software and Mentor software that eventually integrated the RSI features.

The suit alleges that Mentor fraudulently induced Ditta to enter into the stock purchase agreement and related earn-out agreement under which Mentor would pay Ditta when Mentor released RSI and its successor products, to third parties as either standalone products or bundled with Mentor tools. In the suit, filed in Orange County (CA) Superior Court, Ditta claims Mentor "secretly knew that it never had any intention of fully complying with these promises."

It further claims that Potts intentionally and negligently interfered with Ditta’s 2006 contract with Mentor, and alleges that in violation of their own responsibilities to Mentor, Potts and 20 defendants yet to be named, "intentionally engaged in wrongful acts designed to induce Mentor’s breach of its contractual relationship with Ditta and in in particular its contractual obligations to Ditta arising under the earn-out agreement."

Potts, the suit alleges, "acted in his own self-interest and out of personal animus toward Ditta" in causing Mentor to breach the contract.

Under terms of the earn-out agreement, Mentor was to pay Ditta 10% of the net revenue of any RSI or related tools, the suit states. Ditta claims Mentor failed to inform him that the company could bundle RSI software with Mentor tools yet not charge customers separately for the additional functionality, thus denying him the earn-out compensation.

Ditta said Mentor bundled RSI's products with its Expedition printed circuit board CAD suite, but failed to pay appropriate commissions. Ditta has to date received $1.29 million from Mentor in payouts from the earn-out agreement.

The complaint states Ditta suffered consequential damages of $3.2 million plus interest and special damages for recently enacted increased capital gains tax rates. The complaint also asks for unspecified punitive damages. Ditta claims RSI was worth at least $10 million at the time of the sale.

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