NINA Y. WANG, Magistrate Judge.
This civil action is before the court on the following motions:
These motions were referred to the undersigned pursuant to the Order Referring Case dated August 17, 2015 and memoranda dated May 12, 2016 [#76], June 3, 2016 [#86], June 17, 2016 [#90], and July 26, 2016 [#94]. For the following reasons, I respectfully RECOMMEND that the Motion to Dismiss be DENIED, Motion for Summary Judgment be GRANTED, and the First Motion for Sanctions be DENIED as moot, and ORDER that the Second Motion for Sanctions is GRANTED IN PART and DENIED IN PART.
This court finds that the factual and procedural history of this action is particularly relevant to the various pending motions and the requested relief, and thus provides an extensive discussion of the background of this lawsuit as follows.
The following facts derive from the Verified Complaint, which is signed by Mr. Ellerton "under oath," but does not include an attestation verifying the factual contentions under penalty of perjury. See [#4]. Mr. Ellerton is a founding member of Sefton, which was formed in January 1995. [Id. at ¶ 12]. Sefton became a public company traded on the London Exchange in December 2000. [Id. at ¶ 17]. After Sefton went public, Mr. Ellerton maintained his position as its largest individual shareholder. [Id. at ¶ 20]. In October 2010, Sefton and Plaintiff C&J Resources, Inc. ("C&J") entered into a Consultancy Agreement, whereby Mr. Ellerton contracted his services as an independent contractor to Sefton and its subsidiaries. [Id. at ¶ 35]. Mr. Ellerton alleges that pursuant to the Consultancy Agreement, C&J agreed to provide his services as Sefton's Chief Executive Officer and/or Chairman of the Board of Directors, provide his skill and expertise in running Sefton, promote the interests of Sefton, and insure Sefton's compliance with all applicable laws and regulations. [Id. at ¶ 36]. C&J and Plaintiff C&J Resources Pension Plan & Trust (the "Trust") (collectively, "Corporate Plaintiffs") are shareholders of Sefton. [Id. at ¶ 39].
Following an Annual General Meeting in June 2013, Sefton's Board of Directors was comprised of Mr. Ellerton and Mark R. Smith, Thomas G. Milne, and Keith A. Morris (collectively, "Individual Defendants"). [#4 at ¶ 28]. In August 2013, Mr. Ellerton agreed to temporarily step down as Sefton's Chairman and Chief Executive Officer "to allow Sefton's Board of Directors sufficient time to investigate certain allegations made against [him] on the internet in a personal lawsuit brought by a third party against [him] some years before." [Id. at ¶ 40]. Mr. Ellerton alleges that his agreement to temporarily step down was premised on two conditions: "that the Board act in such manner as to preserve the terms of the Consultancy Agreement with C&J," and that "the Board conduct a full and thorough investigation into the allegations as outlined in the August 22, 2013 press announcement by Sefton." [Id.] On August 20, 2013, "without Mr. Ellerton's or C&J's approval or consent," Sefton's Board announced that Mr. Ellerton's departure was permanent. [Id. at ¶ 42]. Mr. Ellerton alleges that Sefton unilaterally terminated and thereby breached the Consultancy Agreement on or about October 23, 2013. [Id. at ¶¶ 44, 49]. C&J thereafter initiated an arbitration proceeding ("Arbitration Proceeding") to assert a breach of contract claim. [Id. at ¶ 51]. Plaintiffs claim damages arising from the alleged breach as follows: Sefton owes C&J "in excess of $316,700," for breaching the Consultancy Agreement; Sefton owes C&J "over $40,000 for legal expenses and costs incurred by C&J" in "actions against Mr. Ellerton while performing his duties for Sefton"; and "Sefton owes the Trust approximately $19,546, for the unpaid pension plan contributions required under the Consultancy Agreement." [Id. at ¶¶ 52, 53, 54].
In addition, on or about August 29, 2013, while Mr. Ellerton served as an officer and director of Sefton, he provided a personal loan worth $10,000 to Sefton (the "Ellerton Loan"). [#4 at ¶ 56]. Mr. Ellerton expected that Sefton would repay the Ellerton Loan "upon demand with interest thereon at the current market rate." [Id. at ¶ 58]. Mr. Ellerton also incurred business expenses on behalf of Sefton (the "Ellerton Expenses"), for which he used his personal credit cards. [Id. at ¶ 59]. Plaintiff alleges that he incurred the Ellerton Expenses with the expectation that Ellerton would repay such funds upon demand, and claims that the total principal amount of the Ellerton Expenses approximates $35,700 as of the filing of the Verified Complaint. [Id. at ¶¶ 59, 61].
Of particular relevance to this Recommendation and Order, Mr. Ellerton alleges that the Board "engaged in several short term financing transactions and borrowings" in 2014 that increased the balance of Sefton's subordinated debt. [#4 at 10-11]. For instance, Hawker Energy, LLC, now known as Hawker Energy, Inc. ("Hawker"), advanced approximately $1,500,000 to Sefton in the first half of 2014. [Id. at ¶¶ 78, 79]. In July of 2014, the Board called an Extraordinary General Meeting (the "Meeting") to approve a restructuring of Sefton's activities and the financing from Hawker ("Hawker Transaction No. 1"). The restructuring proposed that Hawker acquire 80 percent of an oil field owned by Sefton's principal asset, TEG USA. TEG USA would own the remaining 20 percent. Hawker would pay TEG $3,000,000 in an unsecured promissory note to acquire a controlling interest in the oil field. [Id. at ¶ 80]. Mr. Ellerton alleges that prior to the Meeting, the Board issued new shares to the Individual Defendants, who then back dated the issuance to July 18, 2014 so as to vote the shares at the Meeting. [Id. ¶ 82]. Mr. Ellerton alleges that the Board "was in possession of price sensitive information, including Sefton's production and revenues, status of [debt], the engineering evaluation of Sefton's assets and reserves, and other pertinent financial data, as well as knowledge of the [Meeting] voting," and did not share this information with Sefton's shareholders, and did not share relevant information about Hawker's financial status. [Id. at ¶ 83]. According to Mr. Ellerton, the issuance of additional stock to the Individual Defendants diluted the shares held by him and the Corporate Plaintiffs and caused the price of Sefton's stock to decline. [Id. at ¶ 84]. The Board voted to approve the sale of 80 percent of the oil field to Hawker. Hawker was "effectively insolvent" at the time of the Meeting, and the insolvency was not disclosed to Sefton shareholders. [Id. at ¶¶ 86-88]. Following the Meeting, Hawker provided Sefton and TEG USA "with approximately $600,000 as a loan." [Id. at ¶ 92].
In January 2015, Sefton and Hawker entered into a revised agreement ("Hawker Transaction No. 2"), by which Hawker would acquire 100 percent of TEG USA "in exchange for an assumption of certain liabilities . . ., the issuances of 3,000,000 shares of stock in Hawker, and 5,000,000 warrants for Hawker stock," and would loan funds to TEG USA to acquire an additional forbearance of bank debt. [#4 at ¶¶ 93, 96]. Mr. Ellerton alleges that Hawker was insolvent at the time of Hawker Transaction No. 2, and the Board again failed to provide sufficient information to Sefton's shareholders to facilitate an informed decision. [Id. at ¶¶ 96, 97]. Furthermore, Sefton's "true financial condition" was not disclosed to the company's shareholders. [Id. at ¶ 98]. Ultimately, Mr. Ellerton asserts, the "net result of Hawker Transaction No. 2, left Sefton still liable on [bank debt], and holding worthless stock of an insolvent company." [Id. at ¶ 100]. Mr. Ellerton alleges that, "[b]ased upon the filings to the [Securities Exchange Commission] by Hawker and Sefton's own press releases, Sefton lacks sufficient assets to pay all of its liabilities, including the liabilities owed to the Plaintiffs," and that Sefton is insolvent. [#4 at ¶¶ 110, 111].
Mr. Ellerton alleges that he is a shareholder of Sefton and was a shareholder at all times relevant to the Verified Complaint, and that he has commenced this action "to enforce the rights that Sefton may properly assert but has failed to enforce." [#4 at ¶ 120]. Mr. Ellerton further alleges that he made "numerous written demands upon Sefton and its Board of Directors, including [the Individual Defendants], to correct the actions taken, including, but not limited to, restoring Mr. Ellerton to his status as Chairman and CEO of Sefton." [Id. at ¶ 124]. Mr. Ellerton participated in the July 2014 Meeting "but was denied the ability to ask questions or seek any additional information concerning the transactions approved by the Board." [Id.] Plaintiffs made demand upon Sefton for, and have been refused, the corporation's books, records, and financial information. [Id. at ¶ 125]. They assert that any additional demand that may be required would be fruitless because the Board is not disinterested and independent. [Id. at ¶ 126].
On May 14, 2015, Mr. Ellerton and the Corporate Plaintiffs initiated this action, through counsel, in the District Court for the City and County of Denver, Colorado. Sefton, as the only Defendant Plaintiffs had served, removed the matter to the United States District Court for the District of Colorado on June 10, 2015 on the basis of diversity. See [#1]. The Verified Complaint asserts as follows: First Claim for Breach of Fiduciary Duty brought by Plaintiffs on behalf of Sefton as to the Board; Second Claim for Civil Conspiracy brought by Plaintiffs on behalf of Sefton as to the Board; Third Claim for Breach of Duty of Good Faith and Fair Dealing brought by Plaintiffs on behalf of Sefton as to the Board; Fourth Claim for Breach of Fiduciary Duty brought by Plaintiffs against Sefton and the Board; Fifth Claim for Breach of Contract brought by Plaintiff Ellerton against Defendant Sefton; Sixth Claim for Breach of Contract brought by Corporate Plaintiffs against Sefton; and Seventh Claim for Unjust Enrichment & Quantum Meruit brought by Plaintiffs against Sefton. [#4].
On August 7, 2015, Sefton filed a "Notice of Filing of Counterclaims and Partially Unopposed Request to Confirm Automatic Stay and to Confirm Filing of Counterclaims," notifying the court that Plaintiffs had filed an Involuntary Petition in the United States Bankruptcy court for the District of Colorado listing each Plaintiff as "creditor" and asserting allegations of a breach of contract identical to the allegations of breach asserted in this matter. [#15]. The same day, Sefton filed a responsive pleading containing eleven counterclaims, noting its belief that the automatic stay prevented it from filing an answer or motion to dismiss at that time. See [#16 at n.1]. Plaintiffs thereafter filed a Suggestion of Bankruptcy confirming that they had commenced an involuntary proceeding under Chapter 7 of Title 11 of the United States Bankruptcy Code. [#17]. Plaintiffs filed a response to Sefton's counterclaims on August 28, 2015. [#32].
On October 16, 2015, counsel for Plaintiffs filed a Motion to Withdraw. [#35]. On December 14, 2015, Mr. Ellerton and Sefton filed a Joint Status Report, in which the Parties advised that the stay in the bankruptcy action had been lifted, Plaintiff Ellerton represented his intention to pursue this litigation, and Sefton represented its intention to defend against Plaintiffs' claims and pursue its counterclaims.
On February 10, 2016, Sefton filed its "Answer, Defenses, and Amended Counterclaims" against Plaintiffs. [#44]. The Counterclaims plead as follows: (1) Breach of Contract as to C&J; (2) Breach of the Duty of Good Faith and Fair Dealing as to C&J; (3) Fraud in the Inducement as to C&J; (4) Breach of Contract as to Mr. Ellerton; (5) Breach of the Duty of Good Faith and Fair Dealing as to Mr. Ellerton; (6) Fraud in the Inducement as to Mr. Ellerton; (7) Abuse of Process as to all Plaintiffs; (8) Malicious Prosecution as to all Plaintiffs; (9) Violation of the Colorado Consumer Protection Act as to Mr. Ellerton; (10) Vicarious Liability as to C&J and the Trust; (11) Violation of the Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. §§ 1962, 1964(c) as to all Plaintiffs; and (12) Violation of the Colorado Organized Crime & Control Act, Colo. Rev. Stat. §§ 18-17-101 to 108 as to all Plaintiffs. [#44]. Plaintiffs had not served the Individual Defendants by that time and thus those Defendants did not join in the "Answer, Defenses, and Amended Counterclaims." [Id.]. On February 23, 2016, Mr. Ellerton filed a Response to Sefton's Counterclaims. [#48]. However, the Response is dated February 5, 2016—five days before Sefton filed its Amended Counterclaims. See [id.] On March 9, 2016, Sefton filed a supplemented computation of its damages. See [#55].
On February 3, 2016, this court issued an Order to Show Cause as to the Corporate Plaintiffs to explain their lack of prosecution and failure to comply with a court Order, and as to all Plaintiffs as to why the Individual Defendants should not be dismissed for failure to timely effect process as to those Defendants. [#43]. On February 22, 2016, Mr. Ellerton, proceeding pro se, filed a Response to the Order to Show Cause, representing that his former counsel, Mr. Buechler, had previously withdrawn from this action on the basis of past-due invoices and that he could re-engage Mr. Buechler if he paid the invoices as well as a retainer for on-going services. [#46]. Mr. Ellerton further represented that his access to the assets needed to re-engage Mr. Buechler were the subject of a dispute currently being adjudicated in his divorce proceeding in Hawaii state court. [Id.] Plaintiff then requested that the court "provide a continuance on this action until more discovery is obtained in [the divorce proceeding] and the results of on-going discussions with Sefton, regarding a possible agreement/settlement to this action, are determined." [#46 at 4]. This court denied Plaintiff's request for an extension of the response deadline in a Minute Order dated February 23, 2016. [#51]. Mr. Ellerton's Response to the Order to Show Cause did not address the failure to serve the Individual Defendants. The Corporate Plaintiffs failed altogether to file a Response to the Order to Show Cause.
This court held a Scheduling Conference on February 24, 2016. The undersigned ordered in relevant part that the Parties complete discovery by June 24, 2016 and file dispositive motions by July 25, 2016. [#52]. At the Scheduling Conference, Mr. Ellerton admitted that the Corporate Plaintiffs were not currently represented by counsel, and the Individual Defendants had not been served. On February 25, 2016, this court issued a Recommendation that the Corporate Plaintiffs and Individual Defendants be dismissed and the First, Second, Third, and Sixth Claims be dismissed. With respect to the Verified Complaint, the Recommendation identified the Fourth, Fifth, and Seventh Claims as pending, to be limited to Mr. Ellerton as an individual and Sefton as the sole remaining Defendant. [#53]. On October 24, 2016, the court adopted the Recommendation. [#108].
The sole remaining Parties to this action are Mr. Ellerton, as Plaintiff and Counterclaim Defendant, and Sefton, as Defendant and Counterclaim Plaintiff. On April 26, 2016, this court held a Telephonic Status Conference to discuss matters of timing involving discovery. The same day, Sefton filed a Motion for Entry of Default as to all Plaintiffs, asserting that the Corporate Plaintiffs never responded to the Amended Counterclaims, and that Mr. Ellerton's Response (dated February 5 but filed February 23) failed to respond to either the Eighth Amended Counterclaim for Malicious Prosecution arising from the bankruptcy action or numerous factual allegations and allegations related to punitive damages. See [#68 at 3]. The Motion for Entry of Default asked the Clerk of the Court to enter default as follows: (1) Sefton's First, Second, and Third Claims for Relief asserted against C&J; (2) Sefton's Tenth Claim for Relief asserted against C&J and the Trust; (3) Sefton's Eighth Claim for Relief and its requests for exemplary or punitive damages under Colorado Revised Statute § 13-21-102(1)(a) against all Plaintiffs/Counterclaim Defendants; and (4) Sefton's Seventh, Eleventh, and Twelfth Claims for Relief as asserted against C&J and the Trust. [Id.] On May 6, 2016, Mr. Ellerton filed a "Declaration Regarding Sefton Resources, Inc.'s Motion for Entry of Default," reiterating his position that Sefton owes him money. See [#72]. Sefton then filed a Reply in support of the Motion for Entry of Default. [#79].
On May 12, 2016, Sefton filed the pending First Motion for Sanctions seeking dismissal of Mr. Ellerton's claims with prejudice citing his "numerous failures to comply with the rules and orders of this Court, including his failure to provide Initial Disclosures or otherwise advance this case." [#75 at 1]. Mr. Ellerton opposed the Motion, and filed a Motion to Dismiss his claims without prejudice the same day. See [#77]. Mr. Ellerton did not include a certificate of conferral in his motion.
In a Minute Order dated May 17, 2016, this court considered the Motion for Entry of Default, First Motion for Sanctions, and Motion to Dismiss and noted, among other things, that neither Party addressed how the court should resolve the Amended Counterclaims. This court directed the Clerk of the Court to enter default as to C&J and the Trust only and struck the Motion to Dismiss with leave to refile. See [#80]; see also [#81].
On June 3, 2016, Mr. Ellerton filed the pending Motion to Dismiss, to which he attached electronic correspondence from counsel for Sefton indicating Defendant's intention to pursue its Amended Counterclaims against all the Plaintiffs/Counterclaim Defendants. [#84; #84-5]. Sefton opposed the Motion and filed a Response the same day, articulating its position that the Amended Counterclaims remain pending against all Plaintiffs regardless of the disposition of the Motion to Dismiss and the only appropriate disposition of Mr. Ellerton's claims is with prejudice, and asking that the court award it fees and costs incurred in defending the lawsuit.
On June 10, 2016, notwithstanding Mr. Ellerton's failure to file a Response to the First Motion for Sanctions, Sefton filed a Reply, reiterating its position that the court should dismiss all claims against it with prejudice. Sefton also asked that the court enter default as to all Plaintiffs on all of its Amended Counterclaims due to Plaintiffs' failure to participate in the discovery process (as opposed to their failure to respond to the Amended Counterclaims). See [#88].
Also on June 10, 2016, Sefton filed the pending Second Motion for Sanctions seeking monetary sanctions for Plaintiffs' failure to appear for their depositions and failure to respond to interrogatories and other discovery requests. [#89]. On June 21, 2016, Mr. Ellerton filed a "Declaration Response Regarding Sefton Resources, Inc.'s Motion for Monetary Sanctions" again asserting his position that Sefton owes him money. See [#91]. Mr. Ellerton did not address the contention that he had failed to appear for his deposition or respond to discovery requests, other than to assert that the court should deny the Second Motion for Sanctions as "Sefton has for the most part ignored discovery rules." [Id. at 3]. On July 7, 2016, Sefton filed a Reply specifying that it seeks monetary sanctions as an alternative to dismissal and default, and reimbursement of its expenses in addition to the sanctions. [#92 at 1 n.1].
On July 25, 2016, Sefton filed the pending Motion for Summary Judgment seeking summary judgment on all claims asserted against it by Mr. Ellerton.
Mr. Ellerton has been proceeding pro se in this action since the court granted his attorney's motion to withdraw on November 6, 2015. See [#38]. "A pro se litigant's pleadings are to be construed liberally and held to a less stringent standard than formal pleadings drafted by lawyers." Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991) (citing Haines v. Kerner, 404 U.S. 519, 520-21 (1972)). "The Haines rule applies to all proceedings involving a pro se litigant, including . . . summary judgment proceedings." Id. at n.3 (citations omitted). However, the court cannot be a pro se litigant's advocate. Yang v. Archuleta, 525 F.3d 925, 927 n.1 (10th Cir. 2008). In addition, a pro se litigant is held to the same procedural rules and substantive law as a represented party. See Nielsen v. Price, 17 F.3d 1276, 1277 (10th Cir. 1994); Dodson v. Bd. of Cty. Comm'rs, 878 F.Supp.2d 1227, 1236 (D. Colo. 2012).
Sefton moves for sanctions under Rule 37(b),(c), and (d). Rule 37(b) pertains to a party's failure to obey a court order. Pursuant to Rule 37(b)(2)(A), the district court where the action is pending may order the following sanctions against a party who fails to obey an order to provide or permit discovery: (i) designating facts as established for purposes of the action; (ii) prohibiting the non-complying party from supporting or opposing designated claims or defenses, or from introducing designated matters in evidence; (iii) striking pleadings in whole or in part; (iv) staying further proceedings until the order at issue is obeyed; (v) dismissing the action; (vi) rendering a default judgment against the non-complying party; or (vii) treating as contempt of court the failure to obey the order. Fed. R. Civ. P. 37(b)(2)(A)(i)-(vii).
Rule 37(c) pertains to a party's failure to disclose, supplement an earlier discovery response, or admit. Specifically, a party who fails to provide information or identify a witness as required by Rule 26(a) or (e) may not use that information or witness as evidence in support of a motion or at a hearing or during trial, unless the failure is "substantially justified or is harmless." On motion and "after giving an opportunity to be heard," the court may also, or instead, order the non-complying party to pay his opponent's reasonable expenses caused by the failure to disclose, may inform the jury of the party's failure to disclose, or may impose any of the sanctions listed in Rule 37(b)(2)(A)(i)-(vi). Fed. R. Civ. P. 37(c)(1).
Finally, Rule 37(d) governs sanctions the court may impose following a party's failure to attend his own deposition or serve answers to interrogatories. In either instance, and on motion, the court where the action is pending may order any of the sanctions listed in Rule 37(b)(2)(A)(i)-(vi) where party with proper notice fails to appear for his deposition, or where a party who is properly served with interrogatories under Rule 33 fails to serve his answers, objections, or written response. Fed. R. Civ. P. 37(d)(1)(A). A motion filed pursuant to this Rule must include a certification that the movant engaged in a robust meet and confer with the party who has failed to act, in an effort to resolve the dispute without court intervention. Id. at 37(d)(1)(B). In addition to or instead of the sanctions listed in Rule 37(b)(2)(A)(i)-(vi), the court may order the party failing to act to pay the movant's reasonable expenses caused by the failure, "unless the failure was substantially justified or other circumstances make an award of expenses unjust." Id. at 37(d)(3).
Mr. Ellerton moves to dismiss his lawsuit without prejudice. Pursuant to Rule 41 of the Federal Rules of Civil Procedure, a plaintiff may dismiss an action without a court order only if the opposing party has not yet filed an answer or a motion for summary judgment, or if all parties who have appeared in the action stipulate to the dismissal. Fed. R. Civ. P. 41(a)(1)(A). Where the opposing party has filed an answer or motion for summary judgment and does not stipulate to dismiss, the plaintiff must move for dismissal by court order. Id. at 41(a)(1)(B). And, if a defendant has pleaded a counterclaim before receiving service of plaintiff's motion to dismiss, the court may dismiss the action over defendant's objection only if the counterclaim can remain pending for independent adjudication. Id. at 41(a)(2). Unless the court orders otherwise, an order of dismissal under Rule 41(a)(2) is without prejudice.
Sefton moves for summary judgment on Mr. Ellerton's three remaining claims. Summary judgment is appropriate only if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Henderson v. Inter-Chem Coal Co., Inc., 41 F.3d 567, 569 (10th Cir. 1994). "A `judge's function' at summary judgment is not `to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.'" Tolan v. Cotton, 134 S.Ct. 1861, 1866 (2014) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 249 (1986)). Whether there is a genuine dispute as to a material fact depends upon whether the evidence presents a sufficient disagreement to require submission to a jury or conversely, is so one-sided that one party must prevail as a matter of law. Anderson, 477 U.S. at 248-49; Stone v. Autoliv ASP, Inc., 210 F.3d 1132, 1136 (10th Cir. 2000); Carey v. U.S. Postal Service, 812 F.2d 621, 623 (10th Cir. 1987). A fact is "material" if it pertains to an element of a claim or defense; a factual dispute is "genuine" if the evidence is so contradictory that if the matter went to trial, a reasonable party could return a verdict for either party. Anderson, 477 U.S. at 248. "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no `genuine issue for trial.'" Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing First Nat. Bank of Ariz. v. Cities Service Com, 391 U.S. 253, 289 (1968)).
In reviewing a motion for summary judgment the court views all evidence in the light most favorable to the non-moving party. See Garrett v. Hewlett-Packard Co., 305 F.3d 1210, 1213 (10th Cir. 2002). However, the nonmovant must establish, at a minimum, an inference of the presence of each element essential to the case. Hulsey v. Kmart, Inc., 43 F.3d 555, 557 (10th Cir. 1994) (citation omitted). "Although [o]ur summary judgment standard requires us to view the facts in the light most favorable to the non-moving party[,] it does not require us to make unreasonable inferences in favor of the non-moving party." Carney v. City & Cnty. of Denver, 534 F.3d 1269, 1276 (10th Cir. 2008) (quoting Starr v. Downs, 117 F. App'x 64, 69 (10th Cir. 2004)).
When, as here, the moving party does not bear the ultimate burden of persuasion at trial, it may satisfy its burden at the summary judgment stage by identifying "a lack of evidence for the nonmovant on an essential element of the nonmovant's claim." Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998) (citation omitted). See also Anderson, 477 U.S. at 256 (The nonmovant "may not rest upon mere allegation or denials of his pleadings, but must set forth specific facts showing that there is a genuine issue for trial."). Conclusory statements based merely on speculation, conjecture, or subjective belief are not competent summary judgment evidence. See Bones v. Honeywell Int'l, Inc., 366 F.3d 869, 875 (10th Cir. 2004).
Because Mr. Ellerton failed to file a response to the Motion for Summary Judgment, the court may deem the properly supported facts offered by Sefton as true, insofar as they are not contradicted by admissible evidence. See Fed. R. Civ. P. 56(e)(2); Lammle v. Ball Aerospace & Techs. Corp., Case No. 11-cv-3248-MSK-MJW, 2013 WL 4718928, *1 (D. Colo. Sept. 1, 2013). As noted above, Mr. Ellerton initiated this action with a Verified Complaint. A Verified Complaint may be treated as an affidavit for the purposes of summary judgment in some instances and if it satisfies the standards for affidavits as set forth in Rule 56(c)(4) of the Federal Rules of Civil Procedure. Lantec, Inc. v. Novell, Inc., 306 F.3d 1003, 1018 (10th Cir. 2002). Under that Rule, an affidavit used to oppose a motion for summary judgment must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant is competent to testify on the matters stated. Fed. R. Civ. P. 56(c)(4). In considering a motion for summary judgment, the court will disregard allegations of a verified complaint that are conclusory, vague, or lacking in foundation. Lantec, 306 F.3d at 1019. With respect to the pending Motion for Summary Judgment, this court has reviewed the exhibits offered by Sefton so as to ascertain their content and context. Despite Mr. Ellerton's lack of response, the court may not enter summary judgment unless Sefton carries its burden under Rule 56 of the Federal Rules of Civil Procedure. See Fed. R. Civ. P. 56(e) (instructing summary judgment is appropriate only when the moving party has met its initial burden of production under Rule 56(c)). See also Reed v. Bennett, 312 F.3d 1190, 1194-95 (10th Cir. 2002) (holding that a party's failure to respond to a summary judgment motion is not a legally sufficient basis on which to grant the motion and enter judgment against that party).
Once again, the remaining claims asserted by Mr. Ellerton against Sefton are as follows:
Sefton's twelve Amended Counterclaims remain pending against Mr. Ellerton, C&J, and the Trust. Sefton does not move for summary judgment on these claims, but asks for default sanctions arising from purported discovery abuses. A default judgment as a result of discovery abuses is an "extreme sanction" that is only appropriate if there has been willful misconduct, see Gates Rubber Co. v. Bando Chemical Indus., Ltd., 167 F.R.D. 90, 106 (D. Colo. 1996). This court thus reviews the Motion to Dismiss and Motion for Summary Judgment first, before turning to Sefton's Motions for Sanctions. As a court sitting in diversity, I apply the substantive law of Colorado. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 495-97 (1941).
Mr. Ellerton moves the court to dismiss his claims without prejudice due to his inability to afford an attorney and his involvement in a time-consuming divorce action. See [#84]. Mr. Ellerton filed the Motion to Dismiss on June 3, 2016, which was approximately four months after Sefton filed its Answer and Amended Counterclaims. See [#44]. Sefton opposes the court dismissing Mr. Ellerton's claims without prejudice on the basis that Mr. Ellerton has filed actions against it in three different forums, each arising from Mr. Ellerton's work as Sefton's contract "Chief Executive Officer and/or Chairman" under a "Consultancy Agreement," and each action has caused Sefton to litigate "for a year or more" and expend "hundreds of thousands of dollars in fees and costs." [#85 at 3]. Sefton asserts that Mr. Ellerton is abusing the judicial system and the dismissal of these claims without prejudice will permit him to repeatedly litigate the issues against Sefton at Sefton's cost. Mr. Ellerton did not file a reply in support of the Motion to Dismiss.
"Rule 41(a)(2) is designed to prevent voluntary dismissals that adversely affect the opposing party." DeAtley v. Keybank National Association, No. 12-cv-02973-PAB-BNB, 2014 WL 4436808, at *4 (D. Colo. Sept. 9, 2014) (citing Brown v. Baeke, 413 F.3d 1121, 1123 (10th Cir. 2005)). A court should generally grant a plaintiff's request for dismissal without prejudice where legal prejudice to the defendant is not evident. Id. In reaching a determination regarding legal prejudice, the court should consider such factors as "the opposing party's effort and expense in preparing for trial; excessive delay and lack of diligence on the part of the movant; insufficient explanation of the need for a dismissal; and the present stage of litigation." Ohlander v. Larson, 114 F.3d 1531, 1537 (10th Cir. 1997). These factors are not exhaustive, and the court should examine the equities facing plaintiff as well as those facing defendant. Id. The factors need not all be resolved in favor of the moving party for dismissal to be appropriate, nor must all factors be resolved in favor of the opposing party for the court to deny the motion. Id. (citing Phillips U.S.A., Inc. v. Allflex U.S.A., Inc., 77 F.3d 354, 358 (10th Cir. 1996)). Whether to grant plaintiff's request for dismissal without prejudice lies within the court's discretion. Id.
In considering these factors, I note first that Mr. Ellerton brought the Arbitration Proceeding to assert the same claims regarding the breach of the Consultancy Agreement. He voluntarily dismissed the Arbitration Proceeding on November 19, 2014, eleven months after he initiated it and after Sefton had asserted counterclaims. See [#85 at 3; #85-1]. Mr. Ellerton then filed this action, through Mr. Buechler, on May 14, 2015, asserting claims raised in the Arbitration Proceeding plus additional claims. On July 7, 2015, Mr. Ellerton filed an Involuntary Petition for Bankruptcy against Sefton in the United States Bankruptcy Court for the District of Colorado, also through Mr. Buechler, naming himself and the Corporate Plaintiffs as creditors. [#85 at 3; #85-2]. On October 15, 2015, Mr. Buechler moved to withdraw as counsel in the bankruptcy action. See [#41-1 at 1]. The following month, Mr. Ellerton attempted to dismiss the bankruptcy action. See [#85-3]. He then failed to appear (and no counsel for the Corporate Plaintiffs appeared) at an evidentiary hearing scheduled by the court. See [#41-1 at 2]. Sefton asked for fees and costs and actual and punitive damages, all of which the bankruptcy court awarded after finding that Mr. Ellerton and the Corporate Plaintiffs had filed the involuntary petition in bad faith. See [id. at 6]. The court then dismissed the action with prejudice. See [id. at 7].
With respect to this litigation, there is no question that Sefton has incurred expense in defending itself (although the extent of the expense may be in some part due to Sefton's litigation strategy), while Mr. Ellerton has failed to show diligence in the prosecution of this action. Indeed, Mr. Ellerton's Motion to Dismiss comes only after a significant lapse of time and expenditure of efforts by Sefton. First, following Mr. Buechler's withdrawal in this matter, Mr. Ellerton repeatedly failed to inform himself of the Federal Rules of Civil Procedure, Local Rules of this District, and the Practice Standards of Judge Moore, see [#59; #80; #98], despite this court's clear admonition that it expected Mr. Ellerton to adhere to each set of Rules. See [#42]. Second, in December 2015, after the bankruptcy court dismissed the involuntary petition with prejudice, Mr. Ellerton unequivocally affirmed his intention to pursue this lawsuit. See [#41 at 1 ("I personally plan to advance this litigation . . . conduct full discovery to substantiate the facts set forth in the 6 claims . . . [and] defend[] the unsupported counterclaims filed by Sefton against myself . . .")]. Thus ensued two Status Conferences [#42; #67], Sefton filing an Answer and Amended Counterclaims [#44], a Scheduling Conference [#52], two motions for entry of default [#63; #68], and the pending First Motion for Sanctions [#75], before Mr. Ellerton moved to dismiss this lawsuit without prejudice, almost one year to the day from when Sefton removed the action to this court. See [#84]. Although this court has continued the Final Pretrial Conference twice, and thus the case is not yet postured for trial, see [#101; #106], Sefton has moved for summary judgment and there is no doubt that Sefton has conducted itself over the past year, including seeking written and deposition discovery, so as to prepare for an eventual trial. See DeAtley, 2014 WL 4436808 at *4 ("defendant appears to have expended sufficient effort in this case to proceed to trial, a factor which weighs in defendant's favor") (citation omitted). All the while, Mr. Ellerton, the docket reflects, has not been preparing for trial despite his position as the prosecuting party. Furthermore, as far as this court can discern, Mr. Ellerton's circumstances did not change materially from the time he affirmed his intention to pursue the litigation in December 2015 until the date he filed the Motion to Dismiss, six months later. The only change in circumstances is embodied in the First Motion for Sanctions, filed May 12, 2016, in which Sefton seeks dismissal sanctions for discovery violations. See [#75]. In considering these circumstances, this court finds that the first two factors weigh in favor of denying the Motion to Dismiss.
As for Mr. Ellerton's explanation for seeking dismissal without prejudice, he cites the loss of Mr. Buechler and his inability to afford a new attorney "in order to comply with the timetable and schedule set by the Court," and he cites his divorce action, in which he also proceeds pro se. [#84]. This court considers these reasons as insufficient to warrant dismissal without prejudice at this juncture in the proceedings. This court granted Mr. Buechler's motion to withdraw in November 2015, see [#38], and soon thereafter ordered the Parties to prepare a proposed scheduling order. See [#42]. This court then held a Scheduling Conference, on February 24, 2016, at which it set the pre-trial deadlines and dates for this matter. See [#52]. Mr. Ellerton was at all times aware of and appeared to endorse the pre-trial schedule. See [#45; #52]. There is no indication in the record that Mr. Ellerton, a sophisticated individual who describes himself in the Verified Complaint as the founder and former President of Sefton, [#4 at ¶¶ 12, 21], was unable to understand the applicable Rules and/or the court's orders. Indeed, Mr. Ellerton, by motion filed April 25, 2016, once asked for an extension of time "to comply with deadlines for March 2016 and April 2016," i.e., joinder of parties and amendment of pleadings and designation of principal experts. See [#65]. This court denied that motion during a Status Conference held on April 26, 2016, and ordered Mr. Ellerton to serve Initial Disclosures no later than May 3, 2016 and for all Parties to provide documents responsive to outstanding discovery requests on or before May 9, 2016. See [#67]. Thereafter, Mr. Ellerton never sought an extension of any pre-trial deadline. I find that Plaintiff has not exercised diligence in adhering to the pre-trial timeline as set forth in the Scheduling Order; and, by waiting to communicate his inability to meet the deadlines until one month after Sefton filed for discovery sanctions, has needlessly delayed the progress of this case. With respect to Mr. Ellerton's divorce, he was embroiled in that state court action, which he acknowledged was demanding of his time and financial resources, at the time he re-committed to pursuing this litigation. See [#41 at 1-2]. He thus knew of the impact the divorce proceeding might have on this lawsuit well before he filed the Motion to Dismiss. Cf. Ohlander, 114 F.3d at 1538 ("the most persuasive reason to file a motion to dismiss did not arise until eleven months following the initial proceeding's initiation").
Finally, as to the present stage of litigation, the court has not entered a final pretrial order or set a trial date, but Sefton has filed the pending Motion for Summary Judgment and expended significant resources in an attempt to resolve this matter. I find that this factor also weighs in favor of denying the Motion to Dismiss. See Clark v. Tansy, 13 F.3d 1407, 1411 (10th Cir. 1993) (observing that in exercising its discretion under Rule 41(a)(2), the court should consider "whether the opposing party will suffer prejudice in the light of the valid interests of the parties").
This court concludes that the Rule 41(a)(2) dismissal without prejudice that Mr. Ellerton seeks would result in legal prejudice to Sefton that is not offset by the equities facing Plaintiff, and, therefore, respectfully RECOMMENDS that the Motion to Dismiss without prejudice be DENIED.
Sefton moves for summary judgment on all claims asserted by Plaintiffs in their Verified Complaint. In light of the court's October 24, 2016 Order, this court examines the Motion for Summary Judgment only as to the three remaining claims for: (1) Breach of Fiduciary Duty, (2) Breach of Contract, and (3) Unjust Enrichment/Quantum Meruit, and as between Mr. Ellerton and Sefton. As noted above, Mr. Ellerton did not file a response to the Motion for Summary Judgment. Nevertheless, where appropriate, this court considers the statements made in Plaintiff's Verified Complaint [#4], which was signed under oath.
The following facts are taken from Sefton's "Statement of Undisputed Material Acts [sic] in Support of Its Motion for Summary Judgment," ("SUF") in accordance with Fed. R. Civ. P. 56(e). Sefton and C&J are parties to the Consultancy Agreement, effective October 1, 2010. [SUF ¶ 5; #93-5; #45 at 7, ¶ 7]. As part of the Consultancy Agreement, C&J agreed to provide Mr. Ellerton's services as "contract Chief Executive Officer (`CEO') and/or Chairman of the Client." [SUF ¶ 6; #93-5 at ¶ 2.1]. The Consultancy Agreement provides as follows:
Sefton's counsel took Mr. Ellerton's deposition on September 22, 2015 as part of the bankruptcy action. See [#93-7]. During the deposition, Mr. Ellerton testified that repayment of the Ellerton Loan was to be made under the "third-party expenses" provision of the Consultancy Agreement. [SUF ¶ 14; #93-7 at 133:5-14, 135:21-136:20, 138:24-139:3].
Mr. Ellerton claims that Sefton, as an insolvent company, held and controlled all of its assets for the benefit of its creditors and shareholders and owes a fiduciary duty to him in his role as a shareholder. [#4 at ¶¶ 150-153]. Plaintiff alleges that Sefton breached its fiduciary duty by "engaging in the Hawker Transactions at a time when both Sefton and Hawker were insolvent [and] wrongfully issuing the directors sufficient shares of stock to insure the approval of the Hawker Transactions." [Id. at ¶ 154]. Sefton argues that Colorado law does not recognize a fiduciary duty owed by an employer to an independent contractor or by a corporation to a creditor, and Mr. Ellerton as a shareholder lacks standing to assert this claim directly against Sefton. [#93 at 9-10].
Before there can be a breach of a fiduciary duty, a fiduciary relationship must exist. Vikell Investors Pacific, Inc. v. Kip Hampden, Ltd., 946 P.2d 589, 596 (Colo. App. 1997). Whether a legal duty is owed a party and the scope of such duty are questions of law for a court to decide. Glover v. Southard, 894 P.2d 21 (Colo. App. 1994). A confidential or fiduciary relationship may arise "when one party justifiably imposes special trust and confidence in another, so that the first party relaxes the care and vigilance that he would normally exercise in entering into a transaction." Nicholson v. Ash, 800 P.2d 1352, 1355 (Colo. Ct. App. 1990). Varying circumstances can give rise to this type of relationship, and, where it is shown to exist, "the person in whom the special trust is placed owes a duty to the other party similar to the duty of a fiduciary." Id. (citations omitted).
Directors of a corporation and its controlling stockholders owe a fiduciary duty to the remaining stockholders. Bithell v. Western Care Corp., 762 P.2d 708, 714 (Colo. App. 1998); United States v. Gates, 376 F.2d 65 (10th Cir. 1967). However, "courts routinely hold that a corporation owes no fiduciary duty to its shareholders or members." Town of Smyrna, Tennessee v. Municipal Gas Authority of Georgia, 129 F.Supp.3d 589, 602-03 (M.D. Tenn. 2015) (citing Bateman v. JAB Wireless, No. 2:14-cv-147-RJS, 2015 WL 4077923, at *4 (D. Utah Jul. 6, 2015) ("[Plaintiffs] have directed the court to no Utah or Colorado authority recognizing a fiduciary relationship between a corporation and its shareholders."). See e.g., Radol v. Thomas, 772 F.2d 244, 258 (6th Cir. 1985) ("Liability for breach of the directors' fiduciary obligation could not possibly run against the corporation itself, for this would create the absurdity of satisfying the shareholders' claims against the directors from the corporation, which is owned by the shareholders. There is not, and could not conceptually be any authority that a corporation as an entity has a fiduciary duty to its shareholders."). Without a fiduciary duty, there can be no breach.
Typically, dissatisfied shareholders assert claims for breach of fiduciary duty on behalf of the corporation against a director or third party. See Combs, 382 F.3d at 1200 (applying Colorado law to hold that "a stockholder cannot maintain a personal action against a director or other third party whose action causes harm to the corporation. Generally, it is the corporation, or a stockholder in a derivative action . . ., who must pursue such a claim.") (quoting Nicholson, 800 P.2d at 1356). Indeed, Colorado law expressly requires that claims of waste and corporate asset mismanagement, as well as claims regarding a corporation's failure to properly and timely inform its shareholders regarding offers to purchase, be brought as a derivative action. Id. (citing River Mgmt. Corp. v. Lodge Props. Inc., 829 P.2d 398, 404 (Colo. Ct. App. 1991); Colt v. Mt. Princeton Trout Club, Inc., 78 P.3d 1115, 1119 (Colo. App. 2003)). This is because generally such claims "allege injury to the corporation and, thus, can only be raised by the corporation itself or by the stockholders in a derivative suit." River Mgmt. Corp., 829 P.2d at 403 (citation omitted). Plaintiffs originally asserted this claim as to all Defendants and included "Derivative Allegations" in the Complaint, see [#4 at ¶¶ 120-130, 149-156]; and Sefton filed the Motion for Summary Judgment, which includes arguments against Plaintiffs' ability to bring a direct action versus a derivative action, before the court had dismissed the Corporate Plaintiffs or Individual Defendants. In its current and operative form, however, the Complaint does not provide for a derivative action because Sefton is the only remaining defendant.
An exception to the general rule that shareholders address malfeasance through a derivative action applies if the shareholder can demonstrate that he was "injured directly or independently of the corporation." Pernick v. Computershare Trust Co., Inc., 136 F.Supp.3d 1247, 1258, 1259 (D. Colo. 2015) ("Whether a cause of action is individual or derivative must be determined from the nature of the wrong alleged and the relief, if any, which could result if plaintiff were to prevail.") (quoting Kramer v. W. Pac. Indus., 546 A.2d 348, 351 (Del. 1988) (emphasis in original). See also Nicholson, 800 P.2d at 1357. In other words, the shareholder may bring a direct action against the corporation, its officers, directors, and other shareholders to enforce a right that is personal to him; in this scenario the individual shareholder recovers damages. See Murray v. Sevier, 145 F.R.D. 563, 573 (D. Kan. 1993). "A shareholder does not acquire standing to maintain a direct action when the alleged injury is inflicted on the corporation and the only injury to the shareholder is the indirect harm which consists of the diminution in the value of his or her shares." Pernick, 136 F. Supp. 3d at 1259 (citation omitted).
The Fourth Claim for Relief arises from the Hawker Transactions and the sale of Sefton assets. See [#4 at ¶¶ 64-106]. The claim does not appear to be personal to Mr. Ellerton, nor does he provide any basis for finding that he suffered an injury sufficiently unique so as to permit an individual lawsuit. Indeed, the Verified Complaint suggests that the Hawker transactions affected Mr. Ellerton and his fellow shareholders equally. See Barnes v. Harris, 783 F.3d 1185, 1194 (10th Cir. 2015) (observing that "debt is not an intrinsic harm") (citation omitted). For instance, Plaintiff alleges that "The Board of Directors, including Mr. Smith, Mr. Milne and Mr. Morris, did not share this information with Sefton's shareholders as a whole, nor did they share relevant information about Hawker's financial status." [#4 at ¶ 82 (emphasis added)]. The claim also references all of Sefton's creditors and shareholders with respect to the duties and obligations owed by Sefton and the Individual Defendants and the damages suffered. [Id. at ¶¶ 150-156].
In light of Mr. Ellerton's failure to show a fiduciary duty owed to him by Sefton, this court respectfully recommends that the Motion for Summary Judgment be granted as to this claim.
Mr. Ellerton alleges that he "entered into agreements with Sefton to loan the Ellerton Loan and for the reimbursement of the Ellerton Expense," that these agreements constitute contracts, and that the loan and sums were payable upon demand. [#4 at ¶ 158]. Mr. Ellerton further alleges that he has made a demand for the amount owing and Sefton refuses to pay. [Id. at ¶ 159]. Sefton argues that Mr. Ellerton cannot demonstrate he entered into a written contract with Sefton, and the Colorado statute of frauds would preclude enforcement of an oral contract. [#93 at 12-13].
Under Colorado law, a breach of contract claim requires the plaintiff to prove "(i) the existence of a binding agreement; (ii) the plaintiff's performance of its obligations (or some justification for its non-performance); (iii) the defendant's failure to perform its obligations; and (iv) resulting damages." Xtreme Coil Drilling Corp. v. Encana Oil & Gas (USA), Inc., 958 F.Supp.2d 1238, 1243 (D. Colo. 2013) (citing W. Distrib. Co. v. Diodosio, 841 P.2d 1053, 1058 (Colo. 1992)). "Contract formation in Colorado requires evidence `that the parties agreed upon all essential terms,'" and that a meeting of the minds occurred. Ragab v. Howard, 841 F.3d 1134, 1137 (10th Cir. 2016) (quoting I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882, 888 (Colo. 1986); Agritrack, Inc. v. DeJohn Housemoving, Inc., 25 P.3d 1187, 1192 (Colo. 2001)). The evidence may consist of the parties' "conduct, their oral statements and their writings, and other evidence illuminating the circumstances surrounding the making of an agreement." Id. (quoting I.M.A., 713 P.2d at 888). The court should not create or enforce a contract between parties "when the contract itself does not clearly demonstrate the parties' intent." Id. (citing Newton Oil Co. v. Bockhold, 176 P.2d 904, 908 (Colo. 1946)). Pursuant to Colorado's statute of frauds, with exceptions not relevant here, an agreement the terms of which prevent performance within one year of its execution is void if not reduced to writing and signed by the party whose performance is owed. Colo. Rev. Stat. § 38-10-112(1)(a).
According to the Verified Complaint, the scope of Mr. Ellerton's breach of contract claim is limited to the Ellerton Loan and Ellerton Expenses. See [#4 at ¶¶ 158-161]. While the question of whether a contract exists is generally a matter of fact to be determined by the jury, such is the case only where "the evidence is conflicting or admits of more than one inference." New York Life Ins. Co. v. K N Energy, Inc., 80 F.3d 405, 409 (10th Cir. 1996) (quoting I.M.A., Inc., 713 P.2d at 887). In considering the facts before it, this court concludes that there is no genuine issue of material fact that precludes summary judgment with respect to the breach of contract claim.
In his deposition relating to the bankruptcy proceeding, Mr. Ellerton referenced an audit report to support his claim that Sefton owes him repayment for the Ellerton expenses. [#93-7 at 125:7-126:7]. However, when asked expressly if he has a written contract "in which Sefton agreed to reimburse any credit cards," Mr. Ellerton identified the Consultancy Agreement and represented that he customarily used credit on Sefton's behalf and submitted, himself or through C&J, expense accounts to Sefton for reimbursement. [Id. at 126:8-17, 127:7-25, 127:25-128:4]. The Consultancy Agreement is not between Mr. Ellerton and Sefton, but rather is between C&J, no longer a plaintiff in this action, and Sefton. [#93-5]. The disbursement provision provides that the Client, i.e., Sefton, will reimburse the Consultancy Company, i.e., C&J, for payment of all necessary documented business expenses. [Id. at § 6].
With respect to the Ellerton Loan, Mr. Ellerton testified that he personally loaned the money to Sefton in September 2013, after the Board had "ousted [him] as the CEO and as a director," but before they had canceled the Consultancy Agreement. [#93-7 at 131:13-132:22]. When asked about the presence of a formal document memorializing the Ellerton Loan, he testified that "[i]t's on the financials,
With respect to a formal, written contract, Mr. Ellerton's testimony demonstrates that the Consultancy Agreement is the only relevant contract in existence and he was not a party to it. [#93-5 at ¶ 6; #93-7 at 126:23-127:11]. Generally, a nonparty who is not specifically referred to by the terms of an agreement cannot enforce contract provisions, or be bound by them. See Chandler-McPhail v. Duffey, 194 P.3d 434, 438 (Colo. App. 2008). Mr. Ellerton is referred to as the "Initial Consultant" in the Consultancy Agreement, which also refers to "other person(s) as the Consultancy Company may propose and the Client may accept, as a Suitable Substitute, as provided in Clause 2.1 in substitution of the Initial Consultant from time to time." [#93-5 at 5, 6, § 2.1]. The contract contemplates that Mr. Ellerton, as the "Initial Consultant" could be substituted with "any Consultant with a level of skill and expertise, in the opinion of the Client, broadly similar to those of the Initial Consultant for providing the Services and that is qualified under the AIM Rules if and to the extent applicable (any such substitute, a `Suitable Substitute')." [Id. at § 2.1]. There is no indication that Mr. Ellerton, as the Initial Consultant, or any Suitable Substitute, can enforce the Consultancy Agreement without C&J or the disbursement provision. Moreover, there are no loan provisions in the Consultancy Agreement. See [#93-5].
To the extent Mr. Ellerton claims his personal check or Sefton's publicly filed financial statements create a contract regarding the Ellerton Loan, this court respectfully disagrees. Under Colorado law a contract may be evidenced by two or more writings. Grizzly Bar, Inc. v. Hartman, 454 P.2d 788, 791 (Colo. 1969) (en banc). In determining whether a binding contract exists, I consider if the terms of the writings are specific enough to constitute a contract, and if the parties intended the writings to be a binding contract. See New York Life Ins. Co., 80 F.3d at 410. The personal check and the financial statements are not signed by Sefton as the party to be charged, and they do not include the terms or conditions of the contract, the interest or property affected, or the consideration to be paid. See id. at 409 ("a contract is an agreement to do or not to do a particular thing . . . `[i]f essentials are unsettled, and no method of settlement is agreed upon, there is no contract. . . . If the writing leaves the agreement of the parties vague and indefinite as to an essential element thereof, it is not a contract and cannot be made one by parol.'") (quoting Greater Serv. Homebuilders' Inv. Ass'n v. Albright, 88 Colo. 146, 293 P. 345, 348-49 (1930)). Furthermore, Mr. Ellerton has put forward no evidence to demonstrate that Sefton intended to be bound by a contract with him as an individual regarding the Ellerton Loan, the Ellerton Expenses, or any other subject. Mr. Ellerton testified that he expected Sefton would repay the Ellerton Loan "upon demand with interest thereon at the current market rate," and that he incurred the Ellerton Expenses with the expectation that Ellerton would repay such funds upon demand. [#4 at ¶¶ 58, 59, 61]. However, his deposition testimony demonstrates that he and Sefton never settled on essential terms to govern repayment of any money loaned or expenses incurred. See [#93-7 at 134:3-18, 135:8-10]. His deposition testimony also demonstrates that his expectation regarding reimbursement of the Ellerton Expenses derives from the business expenses clause in the Consultancy Agreement, to which he admits he is not a party. [Id. at 135:21-136:2].
Finally, to the extent Mr. Ellerton claims an oral contract exists between him and Sefton because he articulated that the money at issue was a loan, any such contract is subject to the state's statute of frauds. There is no indication that the purported oral contract would be performed within a year. See Colo. Rev. Stat. § 38-10-112(1)(a). Even accepting the Verified Complaint as an affidavit, there is no allegation that Mr. Ellerton expected to be repaid within a year. Indeed, his testimony shows that he had no specific anticipation for when Sefton would repay the loan. Rather, Mr. Ellerton thought the Consultancy Agreement governed the repayment of the loan, and the Consultancy Agreement was to be effective "October 1, 2010 until December 31, 2012, and continuing thereafter for consecutive annual calendar year periods . . . until terminated by either the Client or by the Consultancy Company." [#93-5 at 6, ¶ 3.1]. The fact that he believed the Ellerton Loan became due and payable when Sefton terminated the Consultancy Agreement, which happened mere days after he wrote the personal check, does not change the analysis or demonstrate an oral contract that would be performed within a year. See Whatley v. Crawford & Co., 15 F. App'x 625, 635 (10th Cir. 2001) (recognizing "the statute of frauds permits enforcement only of contracts that may be fully performed within one year," and observing that the "mere allegation that an employment contract was breached within one year does not place it beyond the reach of the statute of frauds.")). And, as mentioned above, the personal check and Sefton's financial statements are insufficient to remove any oral contract from the statute of frauds. See Peace v. Parascript Mgmt., Inc., 59 F.Supp.3d 1020, 1027 (D. Colo. 2014) (instructing that the "memorandum or note necessary to bring an oral contract outside of the Statute of Frauds must show on its face or by reference to other writings (1) the names of the parties, (2) the terms or conditions of the contract, (3) the interest or property affected, and (4) the consideration to be paid therefor," and the "writing must be in confirmation of the contract.") (quoting Nations Enters., Inc. v. Process Equip. Co., 579 P.2d 655, 658 (Colo. App. 1978) (internal quotation marks omitted).
Based on the record before it, this court finds that Mr. Ellerton has not marshaled evidence of a written or an oral contract with Sefton in response to the Motion for Summary Judgment, and thus recommends entry of summary judgment in favor of Sefton on this claim.
Finally, Mr. Ellerton claims unjust enrichment/quantum meruit to the extent a contract does not govern the debt Sefton allegedly owes to him, i.e. the Ellerton Loan, the Ellerton Expenses, and his services to Sefton. [#4 at ¶¶ 173, 174]. Sefton argues that Mr. Ellerton cannot pursue this claim against Sefton because the debt at issue is covered by the Consultancy Agreement and, as a subcontractor who worked for C&J, his remedy lies with C&J.
"Unjust enrichment is a claim in quasi-contract based on principles of restitution." West Ridge Group, LLC v. First Trust Co. of Onaga, 414 F. App'x 112, 120 (10th Cir. 2011) (citing DCB Constr. Co. v. Central City Devp. Co., 965 P.2d 115, 118 (Colo. 1998) (en banc)). It is a "remedy designed to avoid benefit to one to the unfair detriment of another." Id. (quoting Salzman v. Bachrach, 996 P.2d 1263, 1265 (Colo. 2000) (en banc)). "A party claiming unjust enrichment must prove that: (1) the defendant received a benefit, (2) at the plaintiff's expense, (3) under circumstances that would make it unjust for the defendant to retain the benefit without commensurate compensation." Sterenbuch v. Goss, 266 P.3d 428, 431 (Colo. App. 2011). Importantly, an unjust enrichment claim "is a remedy designed for circumstances in which other remedies are unavailable"; and thus, it is not available as a mere alternative legal theory when the subject is covered by an express contract." West Ridge Group, LLC, 414 F. App'x at 120 (citing Interbank Investments, LLC v. Eagle River Water & San. Dist., 77 P.3d 814, 819 (Colo. App. 2003)). Whether a party is entitled to recovery on a theory of unjust enrichment requires a trial court to "engage in a highly fact-intensive inquiry," Dudding v. Norton Frickey & Associates, 11 P.3d 441, 445 (Colo. 2000), and to "make extensive factual findings to determine whether a party has been unjustly enriched." Lewis v. Lewis, 189 P.3d 1134, 1140 (Colo. 2008). As many courts have noted, the third prong, i.e., whether enrichment of the defendant is unjust, poses the greatest challenge to trial courts. See, e.g., id. at 1142.
Sefton cites to the Verified Complaint and Mr. Ellerton's testimony during his deposition related to the bankruptcy proceeding to contend that Mr. Ellerton's unjust enrichment claim derives exclusively from expenditures that are covered by the Consultancy Agreement. [#93 at 17]. Indeed, Mr. Ellerton alleges that he "conferred benefits upon Defendant Sefton, including, but not limited to, the Ellerton Loan, the Ellerton Expenses," and his services. [#4 at ¶ 174]. In response, Sefton raises two arguments. Under the first, Mr. Ellerton cannot recover for unjust enrichment because the Consultancy Agreement covers the expenditures at issue; second, because he conferred a benefit on Sefton pursuant to a third party contract between C&J and Sefton, Mr. Ellerton as an individual cannot pursue recovery from Sefton. [#93 at 17].
To resolve this issue, this court examined the evolution of the common law unjust enrichment claim in Colorado courts. In DCB Construction Co., Inc. v. Central City Development Co., the Colorado Court of Appeals considered a situation in which a contractor, hired by a commercial lessee to perform improvements on a building, brought an unjust enrichment action against the lessor after the lessee failed to make payments under the contract, and relied on the Restatement of Restitution to hold, "[a] person who has conferred a benefit upon another as the performance of a contract with a third party is not entitled to restitution from the other merely because of a failure of performance by the third person." 940 P.2d 958, 963 (Colo. App. 1996) (quoting Restatement of Restitution § 110 at 455). Accord Redd Iron, Inc. v. International Sales and Services Corp., 200 P.3d 1133, 1138 (Colo. App. 2008). The DCB Construction court further held that, absent a showing that the contract with the third party is "rescindable because of fraud, mistake or duress," the fact that the third party (C&J here) fails to deliver to plaintiff, i.e. Mr. Ellerton, the consideration called for by the contract "provides no proper basis for a claim of unjust enrichment against a person [Sefton] who may have benefitted from [Mr. Ellerton's] performance of its contractual obligation." 940 P.2d at 963. The Colorado Supreme Court affirmed the ruling, and held in relevant part that for liability for unjust enrichment to attach to the lessor, the contractor must show the lessor has "engaged in some form of improper, deceitful, or misleading conduct." See DCB Const. Co., Inc. v. Cen. City Dev. Co., 965 P.2d 115, 117, 120 (Colo. 1998) (en banc) (observing that it was "important to articulate a general rule, applicable in this context, that provides more stability and predictability than an ad hoc review."). Accord R.A.S. Builders, Inc. v. Euclid & Commonwealth Associates, 965 P.2d 1242, 1244 (Colo. 1998). Thereafter, divisions of the Colorado Court of Appeals applied "differing conclusions regarding the applicability of DCB's `improper conduct' requirement in other contexts, before the Colorado Supreme Court announced that the `particularized analysis for the third prong of unjust enrichment' enunciated in DCB was limited to the landlord-tenant contractor context." Redd Iron, Inc., 200 P.3d at 1137 (quoting Lewis, 189 P.3d at 1143 and n.3) ("our DCB holding requiring malfeasance applies only in situations where a landlord receives a benefit from a failed contract between a tenant and a party working at the tenant's behest.").
The Colorado Court of Appeals then applied this framework in Redd Iron, Inc. v. International Sales and Services Corp, to determine what a subcontractor must demonstrate to establish that a landowner or general contractor's retention of benefits is unjust for purposes of the third prong. 200 P.3d at 1138 ("While the inquiry will depend to a large extent on the facts of the specific case, see DCB, 965 P.2d at 120, certain generally applicable principles can be gleaned from our supreme court's cases, from the authorities on which the supreme court has relied, and from cases from other jurisdictions that have addressed the issue."). Ultimately, the Redd Iron court concluded that the subcontractor must "establish some basis for finding injustice" beyond the mere showing that the owner or contractor benefitted from services provided and the subcontractor was not paid for his work. Id.
This court finds the Redd Iron test to be instructive in this case. I begin with the basic principle that "[a] person who has conferred a benefit upon another as the performance of a contract with a third party is not entitled to restitution from the other merely because of a failure of performance by the third person." DCB Construction Co., Inc. 940 P.2d at 963 (quoting Restatement of Restitution § 110 at 455). As Redd Iron observed, neither the rule articulated in Restatement of Restitution § 110 nor the illustrations that follow it, "suggest that the rule is limited to any specific context." 200 P.3d at 1138. Next, pursuant to Redd Iron and the law on which that court relied, I consider whether Mr. Ellerton has carried his burden of demonstrating the existence of circumstances that would make Sefton's retention of the alleged benefits conferred unjust. I need not conclude that Redd Iron's analysis pertains precisely to the set of facts presented here, or decide the type of circumstances that would render Sefton's retention unjust, because Mr. Ellerton has provided no evidence to satisfy his burden. See Redd Iron, 200 P.3d at 1139 ("[Plaintiff] was required to prove all three elements of [the unjust enrichment] claim, as well as the value of the benefit it conferred") (citation omitted). Even assuming that Sefton received a benefit at Mr. Ellerton's expense, Sefton's failure to pay either him or C&J for the Ellerton Loan and Ellerton expenses does not in isolation establish the third prong. See id. at 1140 ("[s]uch a determination requires a `highly fact-intensive inquiry'") (citing Dudding, 11 P.3d at 445). See also Restatement (First) of Restitution § 1 (1937), comment c ("Even where a person has received a benefit from another, he is liable to pay therefor only if the circumstances of its receipt or retention are such that, as between the two persons, it is unjust for him to retain it. The mere fact that a person benefits another is not of itself sufficient to require the other to make restitution therefor."). Nor does the Verified Complaint allege specific facts so as to create a genuine issue of material fact with respect to the elements of unjust enrichment. See generally [#4]. Mr. Ellerton does not describe the expenses or provide a standard by which the court or a factfinder could determine a reasonable reimbursement for those expenses. Similarly, there is no evidence regarding the terms of the Ellerton loan or how the parties anticipated repayment of the loan. Therefore, regardless of whether the claim for unjust enrichment derives from benefits Mr. Ellerton conferred on Sefton in furtherance of his "initial consultant" position with C&J, [#93-7 at 135:14-136:6], or from benefits he simply bestowed on Sefton absent any agreement with C&J, see [#93-7 at 138:3-140:22], Mr. Ellerton has provided no facts to counter Sefton's Motion for Summary Judgment, and he cannot rely on his pleading to create a genuine issue of fact.
Accordingly, based on the record before it, this court respectfully recommends that Sefton's Motion for Summary Judgment be GRANTED as to each of Mr. Ellerton's three remaining affirmative claims.
On May 12, 2016, Sefton filed the First Motion for Sanctions seeking dismissal of Mr. Ellerton's claims pursuant to Federal Rules of Civil Procedure 16(f)(1)(C), 37(b)(2)(A), 37(c)(1)(C), and 41(b), as well as D.C.COLO.LCivR 41.1, for his "numerous failures to comply with the rules and orders of this Court, including his failure to provide Initial Disclosures or otherwise advance this case." [#75]. Sefton argues the sanction of dismissal is appropriate because Mr. Ellerton has generally failed to adhere to court-ordered deadlines and has failed to meaningfully participate in the discovery process. For instance, Sefton asserts, Mr. Ellerton appeared at the April 26, 2016 Status Conference by telephone without first seeking leave of court; he failed to serve his Initial Disclosures and accompanying documents by the court-ordered deadline of May 3, 2016, and had not provided any documents by the time Sefton filed the Motion; Mr. Ellerton never responded to discovery requests served on him and rather propounded discovery requests in excess of the limit set forth in the Scheduling Order; he failed to appear for his noticed deposition in Colorado; he failed to serve the Individual Defendants, failed to properly respond to this court's Order to Show Cause, and failed to properly respond to Sefton's Amended Counterclaims; and he repeatedly fails to confer with Sefton's counsel prior to filing motions, and once failed to update the court with his mailing address. [Id. at 2-4]. Sefton argues that these transgressions warrant, at a minimum, precluding Mr. Ellerton from presenting any witnesses or evidence that he has not timely disclosed, but contends that dismissal sanctions are more appropriate.
Sefton, for the first time in its Reply in support of the First Motion for Sanctions, appears to seek entry of default as to its counterclaims against Mr. Ellerton for discovery violations. See [#88]. See also [#89 at 1, n.1 ("Sefton also seeks dismissal with prejudice of all claims against Sefton and entry of default on all of Sefton's Counterclaims, but these sanctions are addressed more fully in Sefton's separate Motion for Sanctions [ECF No. 75] and its Reply in Support of that Motion")]. Contrary to Sefton's assertion, it did not move for entry of default as to its counterclaims in the First Motion for Sanctions, but rather requested that discovery sanction for the first time in its Reply. Compare [#88] with [#89]. Indeed, the proposed order that accompanies the First Motion for Sanctions specifies that "Sefton's Amended Counterclaims [ECF No. 44] remain pending." See [#75-3]. As an initial matter, Mr. Ellerton never responded to the First Motion for Sanctions, and thus Sefton's Reply is essentially an improper supplemental brief to the Motion filed without leave of court. In addition, this court will not entertain a request for entry of default, or any other request, that is raised for the first time in a reply. See D.C.COLO.LCivR 7.1(d) ("A motion shall not be included in a response or reply to the original motion. A motion shall be filed as a separate document."). To the extent Sefton seeks entry of default on its Amended Counterclaims as a sanction for discovery violations, as opposed to dismissal of Mr. Ellerton's affirmative claims, it must move accordingly in compliance with the Federal Rules of Civil Procedure and the Local Rules of Civil Practice for this District. See Minshall v. McGraw Hill Broadcasting Co., Inc., 323 F.3d 1273, 1288 (10th Cir. 2003) (noting that an argument "first raised . . . in [a] reply brief . . . is waived") (citing Coleman v. B-G Maintenance Management of Colorado, Inc., 108 F.3d 1199, 1205 (10th Cir. 1997) ("It is not sufficient to merely mention an issue in a reply brief. Issues not raised in the opening brief are deemed abandoned or waived.").
Because the First Motion for Sanctions is directed at Mr. Ellerton's affirmative claims, and this court respectfully recommends that the court dismiss Mr. Ellerton's claims with prejudice pursuant to Sefton's Motion for Summary Judgment, I respectfully recommend that the First Motion for Sanctions be DENIED AS MOOT.
On June 10, 2016, Sefton filed the Second Motion for Sanctions seeking monetary sanctions against Plaintiffs pursuant to Rule 37(d)(1)(A)(i)-(ii), on the basis that Plaintiffs failed to respond to discovery requests and failed to appear for their individual and Rule 30(b)(6) depositions. [#89]. Sefton represents that its counsel conferred in good faith with Mr. Ellerton regarding the requested relief in an attempt to avoid court intervention, and that Mr. Ellerton "simply reiterated that Sefton is `well aware of [his] financial situation,'" and "refused to respond to discovery." [Id. at 1-2]. On June 21, 2016, Mr. Ellerton filed a Response that did not expressly address the contentions raised in Sefton's Motion, other than to assert that "Sefton's Counterclaim and requests for monetary sanctions should be denied, as Sefton has for the most part ignored discovery rules . . ." [#91]. Sefton filed a Reply on July 7, 2016.
Sefton argues that Plaintiffs failed to respond to discovery requests and failed to appear on June 6, 2016 for their depositions that were properly noticed on May 19, 2016, and attaches the propounded requests and notices of deposition to its Motion. [#89-2; #89-3]. See also [#89-4 through -6]. The Corporate Plaintiffs did not respond, and Mr. Ellerton does not refute Sefton's contentions in his Response. [#91]. While Mr. Ellerton's "Declaration Response Regarding Sefton Resources, Inc.'s Motion for Monetary Sanctions" is over 150 pages with attachments, Mr. Ellerton never correlates the attached documents to the propounded discovery requests and any correlation is not self-evident to this court. See [#91; #91-1]. Nor does it appear that Mr. Ellerton objected to the discovery requests, despite the fact that some of the requests are objectionable on their face. See, e.g., [#89-2 at 10 ("Identify all criminal, civil, domestic, bankruptcy, administrative agency, or other legal matters in which you have been involved, either as a party or a witness, by providing for each such matter the approximate date that the matter was initiated, the parties to the matter, the venue of the matter, and any other identifying information, such as case or matter numbers"); #89-2 at 12 ("Identify all communications between you and Carol Ellerton from July 14, 2014, to the present. For each and every communication, identify all individuals who participated in the communication(s); the time, date, and location for the communication(s); the topics discussed; the positions of each party to the communication(s); any representations made by you by the participating individual(s); any actions taken as a result of the alleged communication(s); and any witnesses to the alleged communication(s)")].
As to the failure to appear for deposition, Sefton noticed all depositions to be held at its counsel's office in Denver, Colorado. See [#89-3]. Mr. Ellerton lives in Hawaii and courts in this District expect and generally require parties to hold a deposition at a location convenient for the deponent, including parties. See D.C.COLO.LCivR 30.1 ("Before sending a notice to take a deposition, counsel or the unrepresented party seeking the deposition shall make a good faith effort to schedule it in a convenient and cost effective manner"); Metrex Research Corp. v. United States, 151 F.R.D. 122 (D. Colo. 1993). On June 6, 2016, the Clerk of the Court docketed a Declaration of Mr. Ellerton, dated May 25, 2016, representing that he was unable to travel to Colorado for the noticed depositions due to "limited financial capabilities." [#87]. In that same filing, Mr. Ellerton contends that Sefton took his deposition, and that of Carol Ellerton in the third quarter 2015. [Id. at 2]. The record before the court also includes copies of electronic correspondence between Mr. Ellerton and counsel for Sefton in which Mr. Ellerton writes on June 10, 2016, "You are well aware of my financial situation and yet you failed to propose alternate ways for my deposition (video conferences etc.,) as we did for Sefton's CEO last year."). [#91-1 at 79].
Although Mr. Ellerton's June 6 submission was not docketed or recognized as a motion for protective order when filed, this court construes it as such under the liberal interpretation provided for pro se filings. In its Reply in support of the Motion, filed after Mr. Ellerton's June 6 submission, Sefton does not address why it chose not to pursue the depositions through another mechanism, such as depositions noticed within the vicinity of Mr. Ellerton's residence in Hawaii or by video or telephone conference. Therefore, in its discretion, this court declines to sanction Mr. Ellerton for failing to appear in Denver for the depositions.
However, Mr. Ellerton's financial situation does not excuse his failure to propound Initial Disclosures or to respond to the written discovery requests, with objections if appropriate, as directed by the court on April 26, 2016 [#67]. See United States v. Distefano, 279 F.3d 1241, 1245 (10th Cir. 2002) (holding that litigants proceeding pro se must still comply with the same procedural standards as those represented by counsel). Indeed, Rule 37(d)(2) explicitly provides that "a failure described in Rule 37(d)(1)(a) is not excused on the ground that the discovery sought was objectionable, unless the party failing to act has a pending motion for protective order under Rule 26(c)." Fed. R. Civ. P. 37(d)(2). Accordingly, Sefton is entitled to its reasonable expenses, including attorney's fees, caused by Plaintiffs' failure to comply with written discovery, "unless the failure was substantially justified or other circumstances make an award of expenses unjust." Fed. R. Civ. P. 37(d)(3). This court does not find a basis in the record for applying this exception; therefore, this court GRANTS IN PART and DENIES IN PART the Second Motion for Sanctions and AWARDS Sefton its attorney's fees and costs associated with its efforts to obtain responses to its written discovery requests from Plaintiffs. To the extent the Parties cannot reach agreement as to the amount of expenses to be awarded, Sefton shall file a properly supported Motion for Attorney's Fees and Costs on or before
For the foregoing reasons, I respectfully
Alan C. Lammle, Parker, CO, pro se.
Kelly K. Robinson, Matthew M. Morrison, Sherman & Howard, L.L.C., Denver, CO, for Defendant.
MARCIA S. KRIEGER, Chief Judge.
Where a party fails to respond to a motion for summary judgment, the Court does not reflexively grant relief to the movant. Rather, it must examine the movant's submissions to determine whether the movant has met its burden of demonstrating that no material issues of fact remain for trial. Reed v. Bennett, 312 F.3d 1190, 1194-95 (10th Cir.2002); Fed.R.Civ.P. 56(e)(3). In doing so, however, the Court deems Mr. Lammle to have conceded the truth of any properly-supported facts alleged by the Defendant. Fed.R.Civ.P. 56(e)(2). With that standard in mind, the Court turns to the facts as asserted in the Defendant's motion.
In 2005, Mr. Lammle was hired by Ball Aerospace & Technologies Corporation (Ball), an information technology company, as a computer technician in the Information Management (IM) Department. In that position, Mr. Lammle served as the dedicated technician for engineers working at Ball. He was responsible for servicing and repairing their computers, troubleshooting software problems, and performing service calls to the engineers.
In June 2008, Mr. Lammle was hospitalized with pancreatitis. Due to his health problems, Mr. Lammle took a leave of absence from work until March 3, 2009. Upon returning to work, Mr. Lammle discovered that in his absence, the IM Department had been reorganized. Mr. Lammle was told that he would no longer be providing field support to the engineers. Instead, he was assigned to a service desk position. At the service desk, Mr. Lammle was responsible for providing remote computer service to all customers. Mr. Lammle continued to receive the same salary and benefits as he did before his leave of absence.
Shortly after returning to work, Mr. Lammle complained to his supervisors that he had been demoted. He also complained that he was not being provided with sufficient training for his new position. In an e-mail sent to the Human Resources manager, Toya Specman, Mr. Lammle stated that he thought he would eventually be laid off because of his age and his "perceived disability." About a week later, Mr. Lammle's wife and former attorney, Amy Jane Simmons, sent a letter to Ball's legal department, alleging that Mr. Lammle had been falsely accused of sleeping on the job and that the accusation was part of a scheme intended to bring about Mr. Lammle's termination. On March 27, 2009, Ms. Simmons sent another letter to Ball's legal department. Ms. Simmons alleged that Mr. Lammle was suffering "harassment" because his pay was not directly deposited into his bank account that afternoon.
On March 31, 2009, Mr. Lammle filed a Charge of Discrimination with the Equal Employment Opportunity Commission. In his Charge, Mr. Lammle alleged that he had been "discriminated against based on [his] age, 47, in violation of the [ADEA] and based on a perceived disability . . . in violation of the ADA." Specifically, he alleged that after his "demotion," he was "subjected to harassment and adverse terms and conditions of employment when [Ball] failed to give [him] appropriate training, and access to tools needed to perform the duties of [his] reassigned position." He further alleged that he was "issued a fabricated verbal warning [for sleeping on the job] under threat of termination on March 20, 2009."
In June 2009, Mr. Lammle was hospitalized again. After he was discharged, Mr. Lammle did not report back to work. Instead, he began a second leave of absence. When he returned to work on December 1, 2010, he was informed that his position had been filled.
Mr. Lammle received a right to sue letter from the EEOC in September 2011. He then commenced this action. As narrowed by earlier proceedings, Mr. Lammle has three remaining claims in this case: (1) disability discrimination under the Americans with Disabilities Act (ADA), (2) age discrimination under the Age Discrimination in Employment Act (ADEA), and (3) common law intentional infliction of emotional distress. Ball seeks summary judgment on each claim.
Rule 56 of the Federal Rules of Civil Procedure facilitates the entry of a judgment only if no trial is necessary. See White v. York Intern. Corp., 45 F.3d 357, 360 (10th Cir.1995). Summary adjudication is authorized when there is no genuine dispute as to any material fact and a party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). Substantive law governs what facts are material and what issues must be determined. It also specifies the elements that must be proved for a given claim or defense, sets the standard of proof, and identifies the party with the burden of proof. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Kaiser-Francis Oil Co. v. Producer's Gas Co., 870 F.2d 563, 565 (10th Cir.1989). A factual dispute is "genuine" and summary judgment is precluded if the evidence presented in support of and opposition to the motion is so contradictory that, if presented at trial, a judgment could enter for either party. See Anderson, 477 U.S. at 248. When considering a summary judgment motion, a court views all evidence in the light most favorable to the non-moving party, thereby favoring the right to a trial. See Garrett v. Hewlett Packard Co., 305 F.3d 1210, 1213 (10th Cir.2002).
If the movant has the burden of proof on a claim or defense, the movant must establish every element of its claim or defense by sufficient, competent evidence. See Fed.R.Civ.P. 56(c)(1)(A). Once the moving party has met its burden, to avoid summary judgment the responding party must present sufficient, competent, contradictory evidence to establish a genuine factual dispute. See Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir.1991); Perry v. Woodward, 199 F.3d 1126, 1131 (10th Cir.1999). If there is a genuine dispute as to a material fact, a trial is required. If there is no genuine dispute as to any material fact, no trial is required. The court then applies the law to the undisputed facts and enters judgment.
Mr. Lammle presents two theories of recovery for each of his statutory claims. First, he claims that he was subjected to disparate treatment because of his age and/ or perceived disability when he was reassigned to a service desk position and was not provided training related to his new position.
Mr. Lammle claims that when he returned to work in March 2009, he was "demoted" to an office position and was denied training on certain software systems.
The ADA provides that "[n]o covered entity shall discrimination against a qualified individual on the basis of the disability in regard to job application procedures, the hiring, advancement, or discharge of employees, employee compensation, job training, and other terms, conditions, and privileges of employment." 42 U.S.C. § 12112(a). To prevail on a disparate treatment or discrimination claim under the ADA, Mr. Lammle must show that Ball intentionally discriminated against him for a reason prohibited by the statute. Jaramillo, 427 F.3d at 1306. In so doing, Mr. Lammle must make out a prima facie case, showing that (1) he is a disabled person as defined by the Act; (2) he was qualified, with or without reasonable accommodation, to perform the essential functions of the job held or desired; and (3) his employer discriminated against him because of his disability. See Mackenzie v. City & Cnty. of Denver, 414 F.3d 1266, 1274 (10th Cir.2005). To demonstrate "discrimination" under the third element, Mr. Lammle must show that he suffered an "adverse employment action because of the disability." EEOC v. C.R. England, Inc., 644 F.3d 1028, 1037-38 (10th Cir.2011). Similarly, to establish a prima facie case under the ADEA, Mr. Lammle must prove that (1) he is a member of the class protected by the ADEA; (2) he was qualified for the position at issue; (3) he suffered an adverse employment action; and (4) he was treated less favorable than others not in the protected class. Jones, 617 F.3d at 1279.
When, as here, there is no direct evidence of discrimination, the Court applies the burden-shifting framework outlined in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802-02 (1973). The McDonnell Douglas framework applies to Mr. Lammle's discrimination claims under both the ADA and the ADEA. See Jaramillo v. Colo. Judicial Dep't, 427 F.3d 1303, 1306 (10th Cir.2005); Jones v. Oklahoma City Public Schools, 617 F.3d 1273, 1278 (10th Cir.2010). Under this framework, Mr. Lammle must first make out a prima facie case of discrimination, as described above. If he is successful, the burden shifts to Ball to articulate a legitimate, nondiscriminatory reason for its employment actions. If Ball proffers such a reason, the burden shifts back to Mr. Lammle to ultimately show that the stated reasons are merely "pretextual." McDonnell Douglas, 411 U.S. at 804-05.
An employee produces sufficient evidence of pretext when he shows "such weaknesses, implausibilities, inconsistencies, incoherencies, or contradictions in the employer's proffered legitimate reasons" for its actions that a reasonable fact finder could rationally find them unworthy of belief and therefore infer that the employer did not act for the asserted nondiscriminatory reasons. Jaramillo, 427 F.3d at 1308. The Court is mindful that when evaluating pretext, the pertinent question is not whether the employer's proffered reasons were right, wise, or fair, but whether the employer honestly believed those reasons and acted in good faith upon those beliefs. Stover v. Martinez, 382 F.3d 1064, 1076 (10th Cir.2004).
In support of their position, Ball proffered the affidavit of Toya Speckman, its Senior Human Resources Manager. Ms. Speckman testified that in 2008, budgetary constraints required that IM Department improve its efficiency and lay off several employees. The evidence shows that the reorganization of the IM Department resulted in greater use of outside contractors, thereby reducing the need for Ball's technicians to work in the field. Further, the IM Department began delegating a higher volume of service calls to the service desk, where computer technicians could resolve problems remotely. Ms. Speckman testified that to implement the necessary layoffs, the IM Department manager, John LaFalce, conferred with the Human Resources and together they compared each employee's skills and performance level to those possessed by other layoff candidates and Ball's operational requirements. Ms. Speckman testified that the review identified three candidates for layoff—Mr. Lammle was one of them. She testified that although Ball laid off the other two candidates, it did not lay off Mr. Lammle. Ball opted instead to reassess its needs when Mr. Lammle returned from his leave of absence. Ms. Speckman stated that the individuals who were laid off were 28 and 30 years old, and neither was disabled. The evidence shows that although Mr. Lammle previously provided dedicated support to Ball's engineers, after the reorganization, Ball employees no longer served in that capacity. Ms. Speckman testified that when Mr. Lammle returned to work in March 2009, no technician positions involving field work were available. She stated that because Ball needed a service desk position filled when Mr. Lammle returned, he was assigned to that position. Ms. Speckman testified that there were at least two other individuals who were formerly computer technicians who were assigned to the service desk during the reorganization. One of those individuals was 54 years old, and the other was 36 years old; neither of them was disabled.
Having reviewed the record, the Court finds that there is nothing to support an inference that Ball's proffered reasons for Mr. Lammle's reassignment and any denial of training are unworthy of belief. There is nothing implausible, inconsistent, or contradictory about Ball's reasons for its employment decisions. Rather, it appears that the decision-makers at Ball made choices that they determined were in the best interest of the company. Accordingly, the Court finds that nothing in the record that creates a genuine dispute of fact as to whether Ball's proffered reasons for changes in his employment were pretextual. Thus, Ball is entitled to summary judgment on Mr. Lammle's claims.
Mr. Lammle claims that, beginning in March 2009 when he returned to work, he was subjected to harassment. Ball moves for judgment in its favor on this claim, arguing that Mr. Lammle cannot prove that he was subjected to severe or pervasive harassment that altered the conditions of his employment, nor can he prove that the alleged harassment occurred because of his age or disability.
For a hostile environment claim to survive summary judgment, the plaintiff must show that a rational jury could find that the workplace was permeated with discriminatory intimidation, ridicule, and insult that were sufficiently severe or pervasive to alter the terms, conditions, or privileges of employment, and the harassment stemmed from age- or disabilityrelated animus. See Mackenzie, 414 F.3d at 1280; Lanman v. Johnson Cnty., Kansas, 393 F.3d 1151, 1155 (10th Cir.2004). To evaluate whether a working environment is sufficiently hostile or abusive, the Court examines the totality of the circumstances, including the frequency of the conduct, the severity of the conduct, whether the conduct was physically threatening or humiliating or a mere offensive utterance, and whether the conduct unreasonably interfered with the employee's work performance. Harris v. Forklift Sys., Inc., 510 U.S. 17, 23 (1993). Additionally, the environment must be both subjectively and objectively hostile. Id.
Applying these principles, the Court concludes that the record falls far short of showing age- or disability-related harassment. Several of Mr. Lammle claims of harassment relate to the employment decisions made by Ball, such as the reassignment and denial of training. These decisions cannot be considered "harassment" because they were not undertaken for the purpose of intimidation, ridicule, or insult. Mr. Lammle also alleges that (1) he was "falsely accused" of sleeping on the job, (2) a webcam allegedly was used to spy on him, (3) he was allegedly yelled at on two occasions by his manager, (3) he did not receive his direct deposit on time, and (4) someone allegedly stole a used syringe from his lunchbox. Mr. Lammle has not come forth with any evidence to establish the truth of each of these allegations. Assuming he could do so, and assuming that these incidents could be considered forms of harassment, there is simply nothing in the record to support an inference that what happened to Mr. Lammle was because of his age or a perceived disability. Accordingly, the Court finds that there is no genuine dispute of fact with regard to Mr. Lammle's hostile work environment claims under the ADA and ADEA, and Ball is entitled to judgment on these claims.
Under Colorado law, a plaintiff may recover for the tort of intentional infliction of emotional distress (otherwise known as "outrageous conduct") if the plaintiff proves that (1) the defendant engaged in extreme and outrageous conduct, (2) recklessly or with the intent of causing the plaintiff severe emotional distress, and (3) causing the plaintiff to suffer severe emotional distress. Han Ye Lee v. Colo. Times, Inc., 222 P.3d 957, 966-67 (Colo.App.2009). Ball argues that Mr. Lammle cannot prove any of these elements.
Before permitting a plaintiff to present a claim for outrageous conduct to a jury, however, the Court must rule on the threshold issue of whether the plaintiff has alleged conduct that is outrageous as a matter of law. Coors Brewing Co. v. Floyd, 978 P.2d 663 (Colo.1999). A claim for outrageous conduct contemplates only acts that are "so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community." Destefano v. Grabrian, 762 P.2d 275, 286 (Colo.1988).
Here, it appears Mr. Lammle alleges that Ball engaged in outrageous conduct when it took certain employment actions against him, and when it failed to prevent the "discrimination" from occurring. To the extent Mr. Lammle relies on the same conduct that formed the basis of his statutory claims, that conduct cannot be used as the basis of his claim for intentional infliction of emotional distress. See Emerson c. Wembley USA Inc., 433 F.Supp.2d 1200, 1228 (D.Colo.2006); see also Katz v. City of Aurora, 85 F.Supp.2d 1012, 1021 (D.Colo.2000) (noting under Colorado law, where the allegations forming the basis of a claim for outrageous conduct are the same as those forming the basis for a claim of discrimination, and nothing more, they fail to state an independently cognizable claim). Disregarding Mr. Lammle's allegations that form the basis of his statutory claims, his only allegations as to his outrageous conduct claim are that Ball failed to "assist and/or attempt to rectify the discrimination." As to those allegations, the Court finds that they are not sufficiently outrageous to support a claim for outrageous conduct. Indeed, as noted above, Mr. Lammle has failed to establish that he was subjected to discrimination. Accordingly, the Court finds that Ball is entitled to judgment on this claim.
For the forgoing reasons, the Defendant's Motion for Summary Judgment
Joseph Daniel Bariault, Business Advocate Law, Seattle, WA, for Plaintiffs.
Alan David Sweetbaum, Katherine Karamalegos Kust, Sweetbaum Sands Anderson, P.C., Brian J. Berardini, Brown, Berardini & Dunning, P.C., Denver, CO, for Defendant.
PHILIP A. BRIMMER, United States District Judge
On October 6, 2010, a Denver grand jury returned an indictment against Mr. DeAtley, charging him with several counts of criminal conduct in connection with the State of Colorado's conservation easement tax credit program. Docket No. 29-1. In July 2011, the state court allowed Mr. DeAtley's counsel to withdraw based upon irreconcilable conflicts and granted a continuance. Mr. DeAtley then retained substitute counsel ("criminal counsel"). People v. DeAtley ("DeAtley I"), 2014 WL 2708455, at *1 (Colo. June 16, 2014). On November 13, 2012, Mr. DeAtley wrote to the trial court, asking the court to permit criminal counsel to withdraw. Id. at *2. The court granted Mr. DeAtley the opportunity to retain substitute counsel, but did not permit criminal counsel to withdraw. Id. In February 2013, Mr. DeAtley filed a malpractice action pro se in the United States District Court for the Eastern District of Washington against criminal counsel, which was later transferred to this District. DeAtley v. Stuart ("DeAtley II"), No. 13-cv-01140-REB-BNB (Docket No. 1 at 1). Mr. DeAtley accused criminal counsel of failing to review supporting documents and failing to retain a tax or forensic expert for trial. Id. (Docket No. 3 at 1-2). Criminal counsel again filed motions to withdraw. The trial court found that a conflict of interest between Mr. DeAtley and criminal counsel existed, but again denied criminal counsel's motions to withdraw, concluding that Mr. DeAtley had caused the conflict in order to delay the trial. DeAtley I, at *2. On February 15, 2013, the trial court granted Mr. DeAtley another opportunity to secure different counsel, but Mr. DeAtley was unable to do so. Id. at *2-*3. On March 26, 2013, criminal counsel filed a motion for reconsideration, which the trial court denied. Id. at *3. The trial court found that, although Mr. DeAtley had a history of attempting to disqualify attorneys in order to delay the trial, the complexity of the issues and the pending May 2013 trial rendered highly unlikely the possibility of Mr. DeAtley acquiring substitute counsel. Id. On April 9, 2013, criminal counsel filed a Petition for Rule to Show Cause why their motion to withdraw should not be granted with the Colorado Supreme Court. DeAtley II, (Docket No. 42-6). On April 11, 2013, the Colorado Supreme Court issued a Rule to Show Cause and stayed the criminal proceedings. Id. (Docket No. 42-7).
On October 28, 2013, the magistrate judge in DeAtley II recommended that criminal counsel's motion for a prejudgment cost bond be granted and plaintiff's motion to stay be denied, finding that
Id. (Docket No. 43 at 3). The district judge adopted the magistrate judge's recommendation and dismissed the case without prejudice for Mr. DeAtley's failure to post a cost bond. Id. (Docket No. 56 at 7).
On June 16, 2014, the Colorado Supreme Court ruled that the state trial court erred in denying criminal counsel's motion to withdraw. It also ordered the trial court to determine if Mr. DeAtley had obtained substitute counsel and, if he had not, to advise Mr. DeAtley that he may be forced to proceed to trial without an attorney. DeAtley I, 2014 WL 2708455, at *5. The trial court was further directed to give Mr. DeAtley a short and reasonable time in which to determine how he would like to proceed. Id. Based upon a review of the docket sheet, Mr. DeAtley currently appears pro se and has been given until September 16, 2014 to acquire counsel. People v. DeAtley, 2010CR10309 (Denver Dist. Ct. August 22, 2014).
On July 3, 2012, plaintiffs filed this case in the United States District Court for the Western District of Washington and, on November 11, 2012, the case was transferred to this District. Docket No. 1-1; Docket No. 1. At the time of filing, the criminal case had been pending against Mr. DeAtley for nearly two years. Mr. DeAtley did not object to this case proceeding or raise any Fifth Amendment concerns during the pleading stage, briefing and resolution of a motion to dismiss, and into discovery. On March 20, 2013, the magistrate judge entered a scheduling order in this case. Docket No. 47. On April 4, 2013, defendant filed a notice of deposition of Mr. DeAtley for June 7, 2013. Docket No. 50. At the request of Mr. DeAtley's attorney, defendant canceled the deposition based upon the attorney's representation that Mr. DeAtley was undergoing a medical procedure on June 7. Docket No. 67 at 2. Rather than undergoing a surgical procedure, Mr. DeAtley consulted with a doctor on June 6, 2013. Id.; see also Docket No. 52 at 2, ¶ 3. Mr. DeAtley's attorney admitted that his own situation was "unresolved and now impaired due to [Mr. DeAtley's] total lack of financial resources." Docket No. 56 at 2, ¶ 3. On June 21, 2013, defendant filed a motion for sanctions for Mr. DeAtley's failure to appear at a deposition, which the magistrate judge construed as a motion to compel ("motion to compel"). Docket No. 52.
After defendant filed its motion to compel, plaintiffs filed a motion to stay, asserting, for the first time, that Mr. DeAtley's Fifth Amendment rights could be compromised if he were deposed. Docket No. 59 at 2. Although plaintiffs' motion to stay mentioned that the criminal proceedings against Mr. DeAtley were stayed and that Mr. DeAtley's attorneys in this case had retained a criminal law expert to advise them on how to proceed, plaintiffs did not argue that Mr. DeAtley's inability to secure substitute counsel in the criminal proceeding had any effect on his ability to proceed in the case. The magistrate judge ordered Mr. DeAtley to appear for his deposition and denied plaintiffs' motion to stay:
Docket No. 67 at 6.
On December 10, 2013, plaintiffs filed the instant motion, requesting the Court to dismiss this case without prejudice pursuant to Fed. R. Civ. P. 41(a)(2). Docket No. 71 at 1.
In the instant motion, plaintiffs argue that "DeAtley is without criminal representation. Therefore, until such time as DeAtley is able to retain new criminal counsel, civil counsel must exercise extreme caution to avoid inadvertently waiving DeAtley's Fifth Amendment privilege." Docket No. 71 at 2. Plaintiffs further claim that Mr. DeAtley's assertion of his Fifth Amendment rights at his deposition will "effectively deny[] him the benefit of a full and fair hearing on his rights in the civil case." Id. Plaintiffs dispute that Mr. DeAtley engaged in manipulative tactics and argue that the current circumstances were the result of two factors outside Mr. DeAtley's control. First, plaintiffs contend that Mr. DeAtley's effort to remove his criminal counsel was not an attempt to delay the proceedings, but was legitimately based on his criminal counsel's failure to review "millions of pages of documents, . . . emails, correspondence, and accounting records." Id. at 4. Plaintiffs are critical of the state judge's refusal to delay Mr. DeAtley's criminal trial date, which plaintiffs argue caused Mr. DeAtley to be unable to find an experienced criminal attorney willing to take on his case. Docket No. 78 at 4.
In terms of the defendant's effort and expense in preparing for trial, it appears that defendant has obtained the necessary discovery it needs and is prepared to proceed to trial. Defendant intends to call ten witnesses at trial, has endorsed an expert witness, and has prepared an exhibit list. Docket No. 99 at 5, 9-22. In addition, defendant, with leave of the Court, has filed a motion for summary judgment seeking dismissal with prejudice of plaintiffs' claims. Docket No. 101 at 7. Although plaintiffs claim that "little discovery has taken place by any party," Docket No. 71 at 3, defendant appears to have expended sufficient effort in this case to proceed to trial, a factor which weighs in defendant's favor. Compare Wimber By and Through Wimber v. Dept of Social & Rehabilitation Servs., 156 F.R.D. 259, 261 (D.Kan.1994) ("The only real investment in time and expense for the defendants has been their opposition to the plaintiffs' motion for preliminary injunction.").
With respect to considerations of delay and diligence, plaintiffs filed this case while Mr. DeAtley's criminal case was pending, more than two years after Mr. DeAtley was indicted. The Fifth Amendment concerns that Mr. DeAtley now complains of were apparent, or reasonably should have been, to plaintiffs and their attorneys at the outset of this case. Moreover, the prospect that Mr. DeAtley would be unable to secure substitute criminal counsel to assist in asserting his Fifth Amendment rights in this case should have been apparent to Mr. DeAtley and his civil attorneys as early as November 2012, when the trial court first granted Mr. DeAtley time to secure substitute criminal counsel and he was apparently unable to do so, and no later than February 2013, when Mr. DeAtley was given the same opportunity. Cf. Ohlander, 114 F.3d at 1538 ("the most persuasive reason to file a motion to dismiss did not arise until eleven months following the initial proceeding's initiation"). Nonetheless, plaintiffs continued to litigate this case until shortly after Mr. DeAtley's deposition was noticed. Cf. Clark v. Tansy, 13 F.3d 1407, 1412 (10th Cir. 1993) (finding no evidence of improper delay when pro se plaintiff filed motion to dismiss without prejudice prior to court's ruling on a motion to dismiss). Plaintiffs offer no explanation for their delay in raising issues related to Mr. DeAtley's Fifth Amendment rights. Meanwhile, defendant is prejudiced by the fact that, while this litigation remains pending, it cannot foreclose on property related to plaintiffs' claims in this case. Defendant is prepared to proceed to trial in an effort to permanently resolve plaintiffs' claims, efforts which could be wasted if this case were dismissed without prejudice and plaintiffs subsequently refile. Moreover, plaintiffs do not directly rebut the fact that plaintiffs' litigation conduct has, on multiple occasions, been judged to be manipulative. The Court concludes that plaintiffs' request for dismissal without prejudice evinces excessive delay and a lack of diligence.
Plaintiffs primarily argue that Mr. DeAtley was a victim of circumstances outside his control and, as such, should not have to accept the consequences of his assertion of his Fifth Amendment rights. Plaintiffs' argument is not persuasive. Multiple judges have found Mr. DeAtley's litigation conduct to be suspect and, after a thorough review of the record, the Court has no basis upon which to disagree. See Docket No. 67 at 6; Docket No. 76 at 1; DeAtley II, (Docket No. 43 at 2; Docket No. 56 at 4 ("The record in this case leaves no doubt that Mr. DeAtley has interfered with the judicial process in this case. The amount of interference is substantial."); DeAtley I, 2014 WL 2708455, at *2 (noting that the state trial court found that Mr. DeAtley had caused the conflict with criminal counsel in order to delay trial). Thus, the Court concludes that plaintiffs have failed to sufficiently explain the need for a dismissal without prejudice. See Phillips USA, Inc. v. Allflex USA, Inc., 77 F.3d 354, 358 (10th Cir. 1996) (noting importance of plaintiff's explanation for dismissal request).
The Court turns to the final factor, the present stage of litigation. Plaintiffs filed the instant motion while discovery was ongoing and after the resolution of a motion to dismiss. Subsequently, Mr. DeAtley was deposed, defendant completed discovery, and a final pretrial conference was held. Moreover, although the threat of plaintiffs refiling a second action forcing defendant to expend effort relitigating this case does not, by itself, create legal prejudice to the defendant, plaintiffs fail to suggest any conditions of dismissal "to avoid redundancy of [defendant's] effort should the case be refiled." See Brown, 413 F.3d at 1124; cf. Am. Natl Bank & Trust Co. of Sapulpa v. Bic Corp., 931 F.2d 1411, 1412 (10th Cir. 1991) (holding that, where plaintiff sought voluntary dismissal subsequent to timely removal of case, district court did not err in declining to attach conditions to dismissal without prejudice). The Court finds that dismissal of this case without prejudice at this stage in the case is unwarranted. As noted above, the Court is mindful of Mr. DeAtley's Fifth Amendment rights. It may indeed be easier for plaintiffs to litigate their claims once Mr. DeAtley's criminal case has concluded. See Ohlander, 114 F.3d at 1537. However, defendant litigated this case for more than a year before plaintiffs filed the instant motion, and plaintiffs will not be permitted to benefit from an untimely and insufficiently supported request for dismissal without prejudice. The Court finds that dismissing this case without prejudice would cause legal prejudice to defendant and will therefore deny plaintiffs' motion.
For the foregoing reasons, it is
Brian Matthew Kester, Frederick Jay Hegenbart, Staci Lynette Roberds, Rosenstein Fist & Ringold, Tulsa, OK, for Plaintiff.
Mia Vahlberg, Scott Randall Rowland, Cesar Tavares, Mia Vahlberg, Gable & Gotwals, Tulsa, OK, for Defendants.
JAMES H. PAYNE, District Judge.
After consideration of the briefs and for the reasons detailed below, Defendants' Motion for Summary Judgment [Doc. No. 56] is
All remaining motions will be
Plaintiff Richards Kelly Diamond ("Diamond") is an expert in non-destructive testing ("NDT") of stainless steel tubing. Diamond began developing his expertise through training he received as a member of the United States Navy. Both during and after his tenure with the United States Navy, Diamond received a number of certifications concerning or related to NDT, and has completed around 2800 hours of training on to further his expertise. Since leaving the United States Navy, Diamond has used his NTD skills in various capacities to assist in NDT. In 2002, Diamond went to work for RathGibson, Inc., a specialty tube manufacturer, where he assisted in developing processes for the manufacture and NDT of stainless steel tubing. In 2009, Diamond left RathGibson, Inc. to start Accurate NDT Services, Inc. ("Accurate"), a corporation organized by Diamond in 2009 through which he provides NTD consulting services.
In 2009, Webco, a specialty tube manufacturer headquartered in Sand Springs, Oklahoma, sought Diamond's consulting services in order to develop a new line of stainless steel tubing made from a super duplex material. Webco was referred to Diamond by one of its customers based on his experience in NDT, who believed Diamonds expertise would be necessary to develop Webco's new line of stainless steel tubing. On October 10, 2009, Webco and Diamond, who was acting on behalf of Accurate, entered into the "Webco Industries and Accurate NDT Services Agreement" ("Services Agreement"). The Services Agreement was for a one-year term commencing on October 15, 2009, with the option to extend for an additional year. Pursuant to the Services Agreement, Webco paid Accurate a $25,000 fee at the time the Services Agreement commenced, and an agreed upon hourly rate for services performed pursuant to the contract thereafter.
[Doc. No. 57, Ex. 1 at 2]. The Services Agreement also included a "Nondisclosure & Non-Use Agreement" ("NDNU"). [Id. at 4]. The NDNU provided that Accurate would not disclose or use confidential information for any purpose not necessary to the performance of the Services Agreement. [Id. at 5]. The NDNU defined confidential information as follows:
[Id.] Accurate's obligations under the NDNU survived the termination of the Services Agreement. [Id. at 5]. The NDNU also provided that Webco "shall be entitled to equitable relief, including injunction, in the event of [an actual or threatened breach by Accurate]. . . ." [Id.] Further, Section Eight of the services agreement required Accurate to "comply with Webco's policies concerning [its] conduct while at the Webco facilities or the facilities of its customers." [Id. at 3]. Webco's "Non-solicitation and Distribution of Literature Policy" ("Non-Solicitation Policy") provided the following:
After the Services Agreement was executed, Accurate began assisting Webco in developing its new line of stainless steel tubing. Webco and Accurate renewed the Services Agreement for an additional year concluding on October 15, 2011. From the start of the Services agreement until May of 2011, Accurate presented Webco with periodic invoices, and Webco tendered payment to Accurate for the services it received. After May of 2011, however, Webco received and approved Accurate's invoices, but never tendered payment to Accurate. Accurate continued to provide services to Webco upon request until August of 2011. On September 11, 2011, Accurate notified Webco that invoices totally $24, 831.20 were overdue and demanded payment of the outstanding balance to no avail.
While the Services Agreement was still in effect, Diamond and a business acquaintance, Ralph Gordon, made plans to start a tube manufacturing company and incorporated Coastal Specialty Tubes, Inc. ("Coastal") in Florida. Diamond was named as Coastal's President, and participated in developing Coastal's business plan, including evaluating potential sites for a manufacturing facility and e-mailing a potential customer, which was also one of Webco's customers, regarding Coastal's plans. Webco learned of Coastal's existence sometime in July of 2011, and, subsequently, began an investigation into the matter. As a part of this investigation, Webco interviewed Kranthi Pallegar. Pallegar told Webco's management that he had discussed Coastal with Diamond and spoke with other employees about Coastal. Another Webco employee, Robert Epperly, the director of maintenance and engineering, told Pallegar that he wanted to speak with Diamond about Webco. After Pallegar relayed Epperly's request to Diamond, Diamond contacted Epperly at his residence and discussed the details of Coastal at length. Epperly provided Webco with notes he took during this conversation. Webco subsequently fired Pallegar and two other employees because Webco believed these employees had a conflict of interest arising from their relationships with Diamond and Coastal.
On August 29, 2011, Webco commenced the instant action against Defendants. Subsequently, in October of 2011, Coastal was dissolved without ever having the ability to manufacture any products.
On September 28, 2012, Webco filed an Opposed Motion for Order of Voluntary Dismissal for Counts VII and VIII. [Doc. No. 44]. On November 6, 2012, Webco filed a second Opposed Motion for Order of Voluntary Dismissal for Counts II and III. [Doc. No. 86]. In both motions, Webco explains that it "admits no invalidity or infirmity as to the causes of action alleged and seeks only to streamline the litigation and reduce costs and expenses as the remainder of the case moves forward." [Id.]
A plaintiff who wishes to voluntarily dismiss its action but who cannot do so via notice or stipulation under Rule 41(a)(1) must seek an order of dismissal from the court. FED.R.CIV.P. 41(a)(2). Rule 41(a)(2) authorizes the voluntary dismissal of a cause of action, but only "upon order of the court and upon such terms and conditions as the court deems proper." Fed.R.Civ.P. 41(a)(2). Generally, a dismissal under Rule 41(a)(2) is addressed to the sound discretion of the court and the motion is granted unless the opposing party will suffer legal prejudice. See Ohlander v. Larson, 114 F.3d 1531, 1537 (10th Cir.1997); see also Clark v. Tansy, 13 F.3d 1407, 1411 (10th Cir.1993). However, Rule 41 "is designed primarily to prevent voluntary dismissals which unfairly affect the other side, and to permit the imposition of curative conditions." Phillips USA, Inc. v. Allflex USA, Inc., 77 F.3d 354, 357 (10th Cir.1996). The Tenth Circuit has identified four non-exclusive factors that should be considered when reviewing a request for voluntary dismissal: "the opposing party's effort and expense in preparing for trial; excessive delay and lack of diligence on the part of the movant; insufficient explanation of the need for dismissal; and the present stage of the litigation." County of Santa Fe, New Mexico v. Public Service Co. of New Mexico, 311 F.3d 1031, 1048 (10th Cir.2002).
The Court is also wary of allowing Webco to dismiss its claims in light of Defendants' June 15, 2012 Offer of Judgment pursuant to Federal Rule of Civil Procedure 68. Rule 68 is designed to encourage settlement as it allows a defendant to make a firm offer of judgment and shifts the costs of litigation onto plaintiff if plaintiff rejects the offer and is then awarded less than the Rule 68 offer. March v. Estate ofChesny, 473 U.S. 1, 5 (1985). If Webco were allowed to dismiss its claims without prejudice, then Defendants would be unfairly deprived of the benefits conferred upon them by Rule 68. To be sure, the Court finds that Webco has no reasonable explanation for the delay in filing its motion to dismiss, and the timing of events suggests that Webco is seeking to dismiss its claims to avoid a ruling on Defendants' motion for summary judgment. Therefore, the Court will impose curative conditions on Webco's motion to dismiss.
In order to prevent this voluntary dismissal from unfairly affecting Defendants, the Court has broad discretion to impose curative conditions, including, but not limited to, dismissal with prejudice and requiring plaintiff to compensate the defendants for costs and attorney's fees. Phillips USA, 77 F.3d at 357; See Gravatt v. Columbia University, 845 F.2d 54, 55 (2d Cir.1988); Andes v. Versant Corp., 788 F.2d 1033, 1037 (4th Cir.1986); Bridgeport Music, Inc. v. Universal-MCA Music Pub., Inc., 583 F.3d 948, 950 (6th Cir.2009); United States v. One Tract of Real Property, 95 F.3d 422, 425 (6th Cir.1996); Marlow v. Winston & Strawn, 19 F.3d 300, 304 (7th Cir.1994); Jaramillo v. Burkhart, 59 F.3d 78, 79 (8th Cir.1995).
Summary judgment is proper where the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). In making the summary judgment determination, the Court examines the factual record and draws reasonable inferences therefrom in the light most favorable to the nonmoving party. Simms v. Oklahoma, 165 F.3d 1321, 1326 (10th Cir.1999). The presence of a genuine issue of material fact defeats the motion. An issue is "genuine" if the evidence is significantly probative or more than merely colorable such that a jury could reasonably return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is "material" if proof thereof might affect the outcome of the lawsuit as assessed from the controlling substantive law. Id. at 249.
The parties filed cross-motions for summary judgment on the breach of contract claims asserted by Webco against Defendants. "To establish a breach of contract claim under Oklahoma law, a plaintiff must show: (1) formation of a contract; (2) breach of the contract; and (3) damages as a direct result of the breach." Tabernacle v. Church Mut. Ins. Co., Inc., 2012 WL 4128291 (W.D.Okla. Sept. 18, 2012) (citing Digital Design Group, Inc. v. Info. Builders, Inc., 24 P.3d 834, 843 (Okla.2001)).
Webco's primary contention is that Defendants breached the Services Agreement by providing technical development services to Coastal in violation of Section Four and soliciting Webco employees in violation of Section Eight. If the terms of the contract are "unambiguous, clear and consistent, they are to be accepted in their ordinary sense and enforced to carry out the expressed intention of the parties." Roads West, Inc. v. Austin, 91 P.3d 81, 88 (Okla.Civ.App.2004). The interpretation of an unambiguous contract is a question of law for the courts. Ferrell Const. Co., Inc. v. Russell Creek Coal Co., 645 P.2d 1005, 1007 (Okla.1982). After carefully reviewing the relevant provisions of the Agreement, the Court is convinced that the parties' intentions are clearly and unambiguously expressed in the contractual language.
Section Four of the Services Agreement states: "During Agreement Term, Accurate NDT will not provide Technical Development Services to other seam welded umbilical tube makers, including 19D umbilical tube products." (emphasis added). Technical Development Services is defined in Section Two of the Services Agreement as follows:
The plain language of these two provisions make it clear that Defendants' actions did not constitute a breach of contract.
While it is possible to interpret Technical Development Services to encompass a wide range of highly technical activities, the Court finds Defendants' actions were not technical in nature. There is no genuine dispute that Coastal was simply a newly organized corporate entity in the early stages of seeking investors and developing a business plan. Coastal had not progressed past the planning stages and did not have an established umbilical tube manufacturing process necessitating any technical development services. Accordingly, the Court finds that Defendants did not breach Section Four of the Services Agreement.
Webco also asserts that Defendants breached Section Eight of the Services Agreement by soliciting Webco employees. Webco's Non-Solicitation Policy prohibits solicitation by or of employees during working hours except during break periods, meal times, or other periods during the work day when employees are properly not engaged in performing their work tasks. It also prohibits non-employees from certain solicitations on Webco property. The Court has doubts as to whether the parties intended to be bound by this provision at the time the Services Agreement was formed; nevertheless, even if it was the parties' intent that Diamonds' conduct be governed by the Non-Solicitation Policy, the Court does not believe Diamonds' conduct violated this provision.
In support of its contention that the Non-Solicitation Policy was breached, Webco points to conversations Diamond had with two Webco employees, Pallagar and Epperly, regarding Coastal. However, Webco can produce no facts indicating that Diamond discussed Coastal with Pallager under the prohibited conditions. In addition, with regard to Epperly, it is undisputed that Diamond contacted Epperly at his home to discuss the details of Coastal. Webco fails to demonstrate that Defendants breached Section Eight of the Services Agreement. Accordingly, the Court finds that Defendants did not breach the Services Agreement.
Even if Webco could demonstrate that a breach of contract occurred, Webco's claim also fails because it cannot demonstrate that it was damaged by an alleged breach of contract. "Damages claimed for a breach of contract cannot be recovered unless they are clearly ascertainable, both in their nature and origin, and it must be made to appear that they are the natural and proximate consequence of the breach of the contract and not speculative and contingent." Fowler v. Lincoln County Conservation District, 15 P.3d 502, 507 (Okla.2000) (citation omitted). To determine if damage is the natural and proximate consequence of a breach of contract, Oklahoma courts follow the general rule of foreseeability first announced in Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Reprint 145 (1854). See Coker v. Southwestern Bell Tel. Co., 580 P.2d 151, 153 (Okla.1978); Missouri P.R.R. v. Ridley, 383 P.2d 227, 229 (Okla.1963) (following Hadley). This rule is summarized in Restatement (Second) of Contracts § 351 Comment A (1970) as follows:
"Moreover, under Oklahoma law, the amount awarded for breach of contract `must be ascertainable in some manner other than by mere speculation, conjecture or surmise, and by reference to some definite standard.' " Old West Annuity and Life Ins. Co. v. Progressive Closing & Escrows, Inc., 74 F. App'x 4, 8 (10th Cir.2003) (unpublished opinion) (quoting John A. Henry & Co., Ltd. v. T.G. & Y. Stores Co., 941 F.2d 1068, 1071 (10th Cir.1991)).
Webco argues that it suffered damages as a result of Defendants' breach of contract. Specifically, Webco asserts that it was forced to replace Pallegar and two other employees because those employees had a conflict of interest arising from their association with Diamond and Coastal. During his deposition, Webco's Chief Operating Officer, David Boyer, testified that as a result of terminating these employees, Webco was forced to transfer an employee from its Pennsylvania division to another facility and pay $8000 in relocation expenses. Consequently, this transfer left a vacancy in Pennsylvania that had to be filled by hiring two additional employees. Boyer estimated that the cost of hiring and training these new employees was $112,500, because, in his opinion, these employees were unable to make a contribution as employees for the first six months of their employment.
There is no doubt that Accurate's actions set in motion a sequence of events which ultimately led to Webco's damages. The relevant inquire, however, is whether the damages were foreseeable at the time of contracting, and were proximately caused by the breach of contract. Although the principles of legal causation sometimes receive labels in contract analysis different from the "proximate causation" label most frequently employed in tort analysis, these principles nevertheless exist to restrict liability in contract as well. Indeed, the requirement of foreseeability may be more stringent in the context of contract liability than it is in the context of tort liability. Restatement (Second) of Contracts § 351 and Comment a, pp. 135-136 (1979); 11 W. Jaeger, Williston on Contracts § 1344, pp. 227-228 (3d ed.1968); 5 A. Corbin, Corbin on Contracts § 1008, pp. 75-76 (1964); id., § 1019, at 113-116; 3 E. Farnsworth, Contracts § 12.14, pp. 241-243 (1990) ("Hadley `impose[s] a more severe limitation on the recovery of damages for breach of contract than that applicable to actions in tort or for breach of warranty, in which substantial or proximate cause is the test.'" (internal citations omitted)). Oklahoma recognizes that proximate cause may be defeated by an intervening cause that breaks the causal chain between the party at fault and the plaintiff's harm. Brigance v. Velvet Dove Restaurant, 756 P.2d 1232 (Okla.1988); Thompson v. Presbyterian Hosp., Inc., 652 P.2d 260, 264 (Okla.1982); see also Graham v. Keuchel, 847 P.2d 342 (Okla.1993); Oklahoma Uniform Jury Instructions—Civil § 9.8 (2005).
In order to establish a claim of tortious interference with a contract, Webco must show that: "(1) [it] had a business or contractual right that was interfered with; (2) the interference was malicious and wrongful, and that such interference was neither justified, privileged nor excusable; and (3) damage was proximately sustained as a result of the complained-of interference." Sw. Stainless, LP v. Sappington, 582 F.3d 1176, 1188 (10th Cir.2009) (quoting Mac Adjustment, Inc. v. Prop. Loss Research Bureau, 595 P.2d 427, 428 (Okla.1979)) (internal quotations omitted). For the same reasons discussed above, the Court finds that Webco has failed to meet its burden on the damages element of this cause of action. Accordingly, Accurate is entitled to judgment on this claim.
Webco seeks injunctive relief against Accurate pursuant to the NDNU between the parties. Accurate argues that Webco is not entitled to injunctive relief because the NDNU is void as a violation of public policy. Under Oklahoma law, "[e]very contract by which any one is restrained from exercising a lawful profession, trade or business of any kind, otherwise than as provided by Sections 218 and 219 of this title, or otherwise than as provided by Section 2 of this act, is to that extent void." Okla. Stat. Ann. tit. 15, § 217 (West). Section 217 has been construed by Oklahoma courts to invalidate only unreasonable restraints on trade. Bd. of Regents of Univ. of Oklahoma v. Natl Collegiate Athletic Ass'n, 561 P.2d 499, 506 (1977); see also Cooper v. Tanaka, 591 P.2d 1181 (Okla.App.1978). "The fundamental test of the reasonableness of a restraint is its effect on the public." Vanguard Envtl., Inc. v. Curler, 190 P.3d 1158, 1165 (Okla.App.2008) (quoting Board of Regents, 561 P.2d at 506). Determining the reasonableness of a restraint requires courts to balance "the public's and the individual's need and entitlement to free commerce and the right to earn a livelihood by employment and . . . the necessity of the restraint to protect and effectuate the basic transaction." Cooper, 591 P.2d at 1184. Oklahoma courts have explained that a "restrictive covenant is reasonable if it (1) is no greater than necessary to protect the employer from unfair competition, (2) does not impose an undue hardship on the employee, and (3) is not injurious to the public." Inergy Propane, LLC v. Lundy, 219 P.3d 547, 558 (Okla.App.2009).
Webco asserts that it only seeks to prevent Diamond from utilizing the know-how he obtained directly through his performance of the Services Agreement. Indeed, the NDNU does distinguish between know-how obtained directly from Webco and know-how already known to Diamond. Under the terms of the NDNU, however, Diamond's previously developed know-how only avoids restriction by the NDNU if he can produce files and records in his possession prior to receipt of the knowhow in question indicating it was known to Diamond before Webco disclosed the information to him. To be sure, it would be incredibly difficult for Diamond, or any other person who developed expertise over an extended period of time, to produce tangible evidence documenting his or her progressively increasing skillset. The practical result of enforcing the NDNU would be to preclude Diamond from using skills he developed through experiences prior to the Services Agreement or developing a competing enterprise. The Court finds the NDNU's practical effect and unlimited duration to be an unreasonable and unenforceable restraint on trade. Additionally, the Court will not engage in judicial modification of the unenforceable provision because the fundamentally flawed nature of the agreement would require "material judicial alteration and the provision of essential terms in order to come within the rule of reason." See Loewen Group Acquisition Corp. v. Matthews, 12 P.3d 977, 982 (Okla.App.2000). Accordingly, Defendants are entitled to summary judgment on the issue of injunctive relief.
Accurate asserted a counter-claim against Webco for breach of contract. Accurate seeks payment for inspection services performed pursuant to the Services Agreement. Webco argues that it is relieved from its obligation to perform under the contract because Accurate breached a material term the Services Agreement thereby relieving Webco from its contractual obligation to pay Accurate. As discussed above, the Court finds Accurate did not breach the unambiguous terms of the contract. Even if Webco could demonstrate that a breach occurred, the Court finds that when the facts are viewed in a light most favorable to Webco, Diamonds alleged actions still do not constitute material breach of the Services Agreement.
In Bonner v. Oklahoma Rock Corporation, the Oklahoma Supreme Court explained that the following factors are helpful to determining whether a failure to render or to offer performance is material:
863 P.2d 1176, 1186 n. 61 (Okla.1993) (quoting Restatement (Second) of Contracts § 240)). The factors outlined above reflect the reality that "[t]he standard for determining materiality must necessarily be both imprecise and flexible to further the purpose of securing for each party his or her expectation of an exchange of performances." 23 Williston on Contracts § 63:3 (4th ed.). While courts should consider the factors outlined above, " the test is whether the failure of performance defeats the object of the contract." Bonner, 863 P.2d at 1186 (quoting G.A. Nichols, Inc. v. Hainey, 122 P.2d 809, 811 (Okla.1942)) (emphasis original).
Applying the principles outlined above, the Court finds these allegedly violated provisions of the Services Agreement to be independent, incidental covenants. The primary purpose of the contract was to secure the provision of technical development services by Defendants. Defendants provided the bargained-for services to Webco's satisfaction; therefore, even if Defendants' actions constituted a violation of certain provisions contained in the Services Agreement, Webco is still obligated to fulfill its obligations under the contract.
For the reasons detailed above, Defendants' Motion for Summary Judgment [Doc. No. 56] is
Cole S. Cannon, Austin J. Hepworth, The Cannon Law Group PLLC, Salt Lake City, UT, for Plaintiffs.
Mark O. Morris, Snell & Wilmer, Richard Eric Shelton, Salt Lake City, UT, Sara Cantrick Van Deusen, Burns Figa & Will PC, Greenwood Village, CO, for Defendant.
ROBERT J. SHELBY, District Judge.
JAB Wireless moves to dismiss Plaintiffs' Second Amended Complaint, arguing that Plaintiffs have failed to assert viable causes of action. The court first offers a brief background, drawing on and assuming the truth of the factual allegations in Plaintiffs' Second Amended Complaint, and then analyzes JAB Wireless's arguments.
In 2006, JAB Wireless and Digis entered into a Share Purchase Agreement. The contract required JAB Wireless to acquire Digis in a two-part transaction. First, JAB Wireless was obligated to purchase a 51% interest in Digis. JAB Wireless did so, and held the 51% interest in Class A Digis shares. Plaintiffs held the remaining 49% interest in Class B Digis shares. Second, JAB Wireless was obligated to purchase Plaintiffs' remaining 49% interest in Digis upon Plaintiffs' demand.
In February 2008, Plaintiffs made their demand that JAB Wireless complete the second phase of the purchase. Pursuant to the Share Purchase Agreement, JAB Wireless was required to purchase the remaining 49% interest in Digis based on the value of the company, which was calculated to be $5,530,500. JAB Wireless paid a portion of the purchase price with cash in the amount of $1,618,000. JAB Wireless was to pay the remaining portion—$3,912,500—by issuing shares of its own stock to Plaintiffs. In other words, Plaintiffs were to receive JAB Wireless shares valued at $3,912,500 in total.
To determine how many shares to issue, the parties first needed to determine the value of the JAB Wireless shares. The Share Purchase Agreement provided that the shares of JAB Wireless's common stock would be valued at the lower of $2.50 per share or any price lower than $2.50 at which JAB Wireless sold any shares to a third party in the time period between the execution of the Share Purchase Agreement and the acquisition of the remaining 49% interest. The lower the per-share price, the more shares would be issued to pay for the remaining portion of the purchase price ($3,912,500). For example, if JAB Wireless issued shares to a third party for $2.00 per share, the shares issued to Plaintiffs in connection with the purchase of their remaining 49% interest in Digis would be valued at $2.00 per share rather than $2.50 per share, meaning Plaintiffs would receive more JAB Wireless shares.
In September 2007, JAB Wireless circulated a draft disclosure memorandum containing information related to the acquisition of the 49% interest. Between September 2007 and March 2009, Plaintiffs received at least seven different drafts of the memorandum. Plaintiffs made their formal demand for JAB Wireless to purchase the remaining 49% Digis interest in February 2008 based on the information in the September 2007 disclosure memorandum. Over a year later, in March 2009, JAB Wireless acquired Plaintiffs' 49% Digis interest.
After the ABRY-Koo transaction, Paul Lambert (a Digis shareholder) began communicating with JAB Wireless about the share price. Mr. Lambert spoke with Jeff Kohler (a founder and board member of JAB Wireless), who represented that the ABRY-Koo shares were valued at $3.50 to $3.75 per share. Mr. Kohler also used the term "nominal" to describe the price of the ABRKoo shares. Plaintiffs allege that Mr. Kohler led Mr. Lambert to believe that ABRY and Mr. Koo paid at least $3.50 per share, plus a nominal fee. Mr. Lambert also communicated with Jim Vaughn (the CEO and Chairman of the JAB Wireless Board of Directors), who stated that no shares had been issued to a third party for less than $2.50 per share.
The communications between Mr. Lambert and JAB Wireless employees occurred between November 2008 and March 2009. On March 20, 2009, JAB Wireless provided Plaintiffs with an updated disclosure memorandum. The memorandum stated that JAB Wireless had issued warrants to ABRY and Mr. Koo for "a nominal exercise price" and that ABRY and Mr. Koo "have the opportunity to acquire a substantial percentage of JAB's Common Stock by paying only nominal additional consideration." Plaintiffs allege that, based on their previous communications with JAB Wireless employees, they understood that the term "nominal" "referred to a value of greater than $2.50/share." The memorandum also confirmed that the price of the shares issued to Plaintiffs would be calculated in accordance with the Share Purchase Agreement (the lesser of $2.50 or any lower price at which shares were issued to a third party between the execution of the Share Purchase Agreement and the March 2009 acquisition). Plaintiffs do not allege that they further investigated the per-share price after receiving the disclosure memorandum. On March 31, 2009, the transaction closed and JAB Wireless acquired the remaining Digis shares.
Plaintiffs allege that they received JAB Wireless shares valued at $2.50 per share, even though JAB Wireless issued shares for less than $2.50 per share to ABRY and Mr. Koo. Plaintiffs claim that they were entitled to more JAB Wireless shares than they received based on a lower per-share price. ABRY eventually sold millions of shares to a third party, which generated a profit of at least $1.755 per share. Plaintiffs aver that they did not discover that ABRY and Mr. Koo received shares for less than $2.50 per share until October 2013, when JAB Wireless circulated shareholder payout calculations in advance of a potential merger. After further investigation between October 2013 and February 2014, Plaintiffs sued JAB Wireless. In their Second Amended Complaint, Plaintiffs bring several causes of action: breach of contract, breach of fiduciary duty, fraudulent nondisclosure, misrepresentation, breach of covenant of good faith and fair dealing, and violation of federal securities laws.
JAB Wireless argues that Plaintiffs' breach of contract claim is barred by novation. Novation has four requirements: "(1) a previous valid contract; (2) agreement between the parties to abide by the new contract; (3) a valid new contract; and (4) extinguishment of the old contract by substitution of the new one."
When the parties closed their transaction pursuant to the Share Purchase Agreement, they entered into a Merger Agreement. The Merger Agreement contained an integration clause:
JAB Wireless contends that the Merger Agreement was an independent, enforceable contract that extinguished the parties' obligations under the Share Purchase Agreement. This may be so. However, on a Rule 12(b)(6) motion, the court is generally limited to the factual allegations in the complaint.
The court notes that Plaintiffs attached a draft of the Merger Agreement to their Second Amended Complaint. The draft Merger Agreement contains an identical integration provision as the signed copy that JAB Wireless submitted with its papers. Courts often consider certain documents outside the pleadings at this stage, including "matters incorporated by reference or integral to the claim, items subject to judicial notice, matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint whose authenticity is unquestioned."
JAB Wireless argues that Plaintiffs' claim for breach of fiduciary duty cannot stand because a corporation does not owe a fiduciary duty to its shareholders. Plaintiffs contend such a duty exists in Utah law, and that Colorado law should similarly apply.
The burden here rests with Plaintiffs to show that they have stated a cognizable claim.
Other courts have considered and rejected the position urged by Plaintiffs. For example, the Sixth Circuit has held:
Similarly, the Fourth Circuit noted that it "doubts that a shareholder can maintain an action for breach of fiduciary duty directly against the corporation itself."
In the absence of controlling authority, the court declines to recognize a fiduciary relationship between Plaintiffs and JAB Wireless under Colorado or Utah law.
Generally, Utah statutes of limitations govern Utah lawsuits.
The parties have not squarely briefed the issue of which state's statute of limitations applies to the fraud claim in view of Utah's borrowing statute. Regardless of which statute applies, the court cannot determine the applicability of either state's statute of limitations in the absence of a factual record. Both Colorado and Utah have a three-year statute of limitations for fraud.
The court previously dismissed Plaintiffs' First Amended Complaint without prejudice because Plaintiffs failed to allege any facts that demonstrated Plaintiffs made any meaningful investigation after receiving the March 20, 2009 disclosure memorandum, which disclosed that JAB Wireless had issued shares to third parties for a "nominal exercise price." In their Second Amended Complaint, Plaintiffs still do not allege that they investigated the meaning of "nominal exercise price" after receiving the disclosure memorandum and before finalizing the purchase of the remaining 49% interest in Digis (i.e., between March 20, 2009 and March 31, 2009). However, Plaintiffs added a number of allegations concerning Mr. Lambert's communications with JAB Wireless representatives prior to receiving the disclosure memorandum. Plaintiffs allege that Mr. Lambert asked about the "nominal" price and that Mr. Kohler led him to believe that JAB Wireless issued shares for at least $3.50 per share, plus a nominal fee. In other words, Mr. Lambert understood, based on JAB Wireless's representations, that the nominal fee was in addition to the $3.50 per-share price. Plaintiffs argue that they had no reason to further investigate the term "nominal" in the disclosure memorandum because they had already thoroughly investigated the term's meaning in discussions with JAB Wireless after receiving earlier drafts of the disclosure memorandum.
Plaintiffs allege that JAB Wireless violated Section 10(b) of the Securities and Exchange Act of 1934 and SEC Rule 10b-5. The statute of limitations applying to those provisions, codified at 28 U.S.C. § 1658, limits actions to the earlier of two years after "discovery of facts constituting the violation" or five years after the violation occurred.
To prove a claim under Section 10(b) and Rule 10b-5, a plaintiff must prove that the defendant:
A plaintiff also must meet the pleading standard set out in the Private Securities Litigation Reform Act (PSLRA), which requires a plaintiff to (1) specify in the complaint "each statement alleged to have been misleading, the reason or reasons why the statement is misleading"
JAB Wireless contends that Plaintiffs have failed to meet the PSLRA pleading standard. The court disagrees. First, Plaintiffs allege that Mr. Kohler told Mr. Lambert that the ABRY-Koo price per share was at least $3.50. Also, Plaintiffs allege that Mr. Vaughn assured Mr. Lambert that JAB Wireless did not issue any shares to third parties for less than $2.50 per share. Plaintiffs allege that these statements were false because the ABRY-Koo price per share was below $2.50. Second, Plaintiffs have alleged with particularity facts that give rise to a strong inference of scienter. Scienter means "a mental state embracing intent to deceive, manipulate, or defraud."
SO ORDERED.
David C. Feola, Law Office of David C. Feola, P.C., Evergreen, CO, for Plaintiff.
Mary Hurley Stuart, Christopher Larry Ottele, Husch Blackwell Sanders, LLP, Denver, CO, for Defendant.
BOYD N. BOLAND, United States Magistrate Judge.
The defendant responded, objecting to the request insofar as some of the documents lacked Bates numbers, but responding by identifying the handwriting on 34 pages. The defendant did not, however, "identify what the handwriting states or says." The plaintiff complains that the response is inadequate because it "did not identify the substance of the handwriting, a great deal of which is not legible." Motion to Compel, at p. 3.
I have not been provided with a copy of the "compilation of documents" which was attached as Exhibit A to the discovery request and which is the subject of Interrogatory No. 1. Accordingly, I cannot say which documents, if any, contain handwriting which is not "plainly legible." Local rule of practice 37.1, D.C.COLO.LCivR, requires that discovery motions "shall set forth verbatim the interrogatory, request, and response to which the motion is directed." By not including the documents which composed Exhibit A, the plaintiff has failed to comply with this requirement.
In addition, local rule of practice 7.1A imposes the following requirement:
I previously have held, in Hoelzel v. First Select Corp., 214 F.R.D. 634 (D.Colo.2003), that the duty to confer imposed by Rule 7.1A "serves a particularly important function in connection with discovery disputes because the parties, through negotiation, frequently are able to narrow the discovery requests in a way which eliminates the need for judicial intervention." Id. at 635. To satisfy the requirements of Rule 7.1A, the parties must confer, preferably through face-to-face meetings, and must compare views and attempt to reach an agreement, including by compromise if appropriate. Id. at 636.
In this case, the plaintiff's certificate of compliance with Rule 7.1A states:
The plaintiff's attempt to confer is limited to a single demand letter. The substance of the letter includes, for example, with respect to Admission Request No. 11: "Nonesense. Your objections are utterly frivolous." Response, Exh.A at p. 6. Obviously, this is not an attempt to confer in good faith.
The letter concludes with the following ultimatum:
Id.
The defendant's counsel responded immediately, stating:
Id. at Exh.B.
There is no evidence of any response to this offer to confer other than an e-mail sent the Saturday before the Motion to Compel was filed, stating that "[o]n Monday we are filing the motion to compel as to your objections and your clients' [sic] answers, or lack thereof, as to Ms. Bat's first set."
The plaintiff has flagrantly violated the requirements of Rule 7.1 A. The Motion to Compel is DENIED with respect to Interrogatory No. 1.
Id. at pp. 186-87.
The Motion to Compel is DENIED with respect to Interrogatory No. 2.
The defendant answered the interrogatory as follows:
The plaintiff argues that the response is inadequate because:
Motion to Compel, at ¶ 4.
The interrogatory response indicates that all nonprivileged documents concerning the investigations have been produced. There is no allegation that this is not correct. There is no indication that the plaintiff cannot reasonably determine which of the documents produced concern the investigation. There is no indication that the plaintiff inquired of the defendant what documents were being referred to and that the defendant refused to identify them with greater particularity. There is no indication that the identity of the people interviewed cannot be obtained through a review of the documents evidencing the investigation or the deposition of Mr. Hoenninger. I find that the response to Interrogatory No. 4 is adequate, and that the plaintiff's objection to the response is disingenuous.
This is another example of an improper blockbuster interrogatory, as were disapproved in Hilt, 170 F.R.D. at 187. In addition, "interrogatories should not require the answering party to provide a narrative account of its case." Hiskett v. Wal-Mart Stores, Inc., 180 F.R.D. 403, 404 (D.Kan.1998).
The question is equivalent to asking an eye witness to a traffic accident to explain the factual basis for his statement that the traffic signal was red. In general, no further explanation is necessary or appropriate. If there is a particular factual assertion which requires explanation, a party may properly make a specific inquiry as to its basis, if any further basis exists.
To generally require a party to explain its factual assertions is nothing more than make-work. The Motion to Compel is DENIED with respect to Interrogatory No. 5.
The defendant objected to the interrogatory as vague, ambiguous, overbroad, and unduly burdensome. I agree. This interrogatory is improper for the same reasons Interrogatory No. 5 is improper.
The Motion to Compel is DENIED with respect to Interrogatory No. 6.
The defendant refused to answer, asserting the following objections:
The plaintiff claims that the requested information is relevant and necessary to her case because "Ms. Bat complained of widespread gender-discriminatory practices in this region of AGE's operations, and as a result, was terminated. As such she is entitled to information and documents which tend to support the fact that her complaints were subjectively and objectively made in good faith." Motion to Compel, at ¶ 7.
To prevail on a claim of retaliation, the plaintiff need not prove the validity of the complaint or grievance she alleges as the basis for the retaliation. As the Tenth Circuit Court of Appeals explained in Zinn v. McKune, 143 F.3d 1353 (10th Cir.1998):
Id. at 1362 (internal citation omitted). Similarly, in Robbins v. Jefferson County School Dist., the circuit court held that "a plaintiff does not have to prove the validity of the grievance she was allegedly punished for lodging; `opposition activity is protected when it is based on a mistaken good faith belief that Title VII has been violated.'" 186 F.3d at 1258 (quoting Love v. Re/ Max of America, Inc., 738 F.2d 383, 385 (10th Cir.1984).
The plaintiff's complaint does not allege that she complained of wide-spread gender-based discrimination in A.G. Edwards' Western Region. Her alleged complaints were substantially more narrow. See Complaint at ¶¶ 20-21, 23, 25, 35-36, 56, 63, 69, and 73-74. Consequently, I agree with the defendant that documents concerning "any and all" studies conducted by the defendant from 1998 to the present concerning under-representation of women in A.G. Edwards' Western Region are neither relevant to the matters in dispute in this case nor reasonably calculated to lead to the discovery of admissible evidence.
The Motion to Compel is DENIED with respect to Interrogatory No. 7.
The defendant answered the interrogatory as follows:
The plaintiff complains that the answer is inadequate because it "refers to unidentified documents, and refuses to identify what were the `personal attacks,' how it determined they were unfounded, and any information about its investigation that allegedly concluded the unidentified attacks were unfounded." Motion to Compel, at ¶ 8.
The interrogatory is poorly framed. Apparently the plaintiff wanted to know the specifics of the allegedly unfounded personal attacks referred to in the Position Statement. She did not ask for that information. Defendant has answered the interrogatory as posed. In any event, the defendant's reference to documents indicates that the details of the investigation are contained in those documents. Although it would have been a better practice for the defendant to specify the documents containing the information, the purpose of Rule 7.1A is to require the parties to work informally to resolve misunderstandings of this type. As discussed above, the plaintiff failed meaningfully to comply the requirements of Rule 7.1A.
The Motion to Compel is DENIED with respect to Interrogatory No. 8.
Interrogatory No. 9 is an improper blockbuster interrogatory which is overbroad and unduly burdensome on its face. Hilt, 170 F.R.D. at 186-87. It also is improper because it seeks to require the defendant to provide a narrative account of its case. Hiskett, 180 F.R.D. at 404. Even though the interrogatory is improper and no response was required, the defendant fully answered it.
The Motion to Compel is DENIED with respect to Interrogatory No. 9.
The defendant asserted objections but answered the interrogatory, stating:
The plaintiff complains that the answer is inadequate, arguing:
Motion to Compel, at ¶ 11.
The interrogatory requires the defendant to identify "all policies" of the defendant concerning probation and action plans. The defendant responded that it has no written policy "that applies in all situations." It is not clear from the answer whether separate departments or regions have their own written policies, or whether there are no written policies at all. The briefing sheds no light on the issue. This, again, is a matter which could have been developed and (probably) resolved had the plaintiff engaged in a meaningful consultation as required by Rule 7.1A and the Hoelzel decision. Nor would the plaintiff be entitled to "all policies" under the facts of this case. A proper request would be limited to those policies which applied to the plaintiff during the time of her employment.
Rule 7.1A is absolute in its prohibition against considering the merits of any motion until the parties have conferred in good faith to resolve the disputed matter. I have found that the plaintiff failed to meet the requirements of Rule 7.1A.
The Motion to Compel is DENIED with respect to Interrogatory No. 10.
The defendant made the following response:
The objection—that the defendant lacks sufficient information—is proper. The interrogatory does not seek facts, but instead requires the defendant to predict the future and then state the facts upon which it bases its prediction.
The answer also makes clear that the defendant is making no contention-either that the plaintiff's termination will or will not affect her ability to locate employment with major brokerage firms.
The Motion to Compel is DENIED with respect to Interrogatory No. 12.
The defendant objected to the interrogatory as overbroad and unduly burdensome. Notwithstanding its objections, the defendant produced documents evidencing written communications relating to the plaintiff's job performance and made the identified witnesses available for depositions to testify about oral communications.
This is another example of an improper blockbuster interrogatory. Hilt, 170 F.R.D. at 187. It is unreasonable to require a company to identify and describe "all communications" among four employees about a coemployee, apparently unlimited in time.
I also agree with the defendant that the oral communications between the employees sought by this interrogatory are more reasonably obtained through depositions and not by an interrogatory. As the court stated in Hilt:
170 F.R.D. at 187.
The Motion to Compel is DENIED with respect to Interrogatory No. 13.
In the Motion to Compel, the plaintiff argues that "AGE typically allows its management and professional level employees who have actual performance issues to resign in lieu of being terminated." Motion to Compel, at ¶ 15. There is no evidence supporting this assertion, however. Nor is there any evidence that the plaintiff offered to or was willing to resign.
I agree with the defendant that Interrogatory No. 15 springs from a fact not in evidence—that the plaintiff offered to or was willing to resign rather than be terminated—and its objection was proper. Consequently, the Motion to Compel is DENIED with respect to Interrogatory No. 15.
The defendant objected to the request:
Although the interrogatory might have been properly framed had it asked for specific information about specific male employees alleged to have been treated differently under hardships similar to those experienced by the plaintiff, or the interrogatory might have been narrowed in the course of a meaningful Rule 7.1A conference, it is improperly overbroad and unduly burdensome in its current form.
The Motion to Compel is DENIED with respect to Interrogatory No. 16.
Interrogatory No. 17 is objectionable for the same reasons as is Interrogatory No. 16, and the Motion to Compel is DENIED with respect it.
The defendant objected:
The defendant's objection to the interrogatory as overbroad "in time and scope" is proper. It should be limited to male employees subject to the U-5 reporting requirements, and it should be limited in time to a period reasonably related to the time of the plaintiff's termination in July 2003. These limitations could easily have been accomplished if the plaintiff had meaningfully complied with the requirements of Rule 7.1A. She did not.
The Motion to Compel is DENIED with respect to Interrogatory No. 18.
The defendant objected to the request as overbroad and unduly burdensome, but then responded that "the documents generally reflect an author and in response to Interrogatory No. 1 above, A.G. Edwards has identified the handwriting on various documents as requested."
In her Motion to Compel, the plaintiff argues without evidentiary support that:
Asking the identity of every person who provided input into "each written communication from AGE to Ms. Bat" spanning one year's time is another example of an improper blockbuster interrogatory indiscriminately seeking information about every conceivable detail. It reflects discovery written without the exercise of any professional judgment or prioritization. If the plaintiff had narrowed her request to information about the documents whose authorship is important, such as the action plans, final performance review, and e-mails sent to Ms. Bat in response to her complaints, a response would have been required. The plaintiff's blockbuster request is improper and the defendant's objections were appropriate.
The Motion to Compel is DENIED with respect to Interrogatory No. 19.
Five of the production requests—Nos. 3, 4, 18, 19, and 20—are blockbuster requests which are overbroad and unduly burdensome on their face. For example, Request for Production No. 3 commands the production of "all of AGE's document retention, destruction and fabrication policies from 2000 through the present." The request is relevant, if at all, only in connection with the collateral issue of whether the defendant "fabricated documents it provided to the EEOC in support of its alleged defenses. . . ." Motion to Compel at p. 10. The request appears to seek irrelevant information. Even if it were determined to be relevant, only the policies of the defendant (if any exist) concerning the fabrication of documents at the time of the EEOC response would be appropriate.
Similarly, Request for Production No. 4 requests the following:
The plaintiff argues that the request is relevant because "it appears that Timmins, Tulley, Hoenninger and AGE's in-counsel [sic] violated the part of this statute criminalizing the fabrication of documents provided to investigating federal agencies. . . ." Motion to Compel, at p. 10. The request is not reasonably tailored to seek the information that the plaintiff really would need—e.g., the training provided to Timmins, Tulley, Hoenninger, and the particular in-house counsel allegedly involved on fabrication of documents.
Request for Production No. 18 seeks "all emails concerning Ms. Bat"; Request No. 19 requests "all Action Plans for all AGE employees in the Western Region for 2002 and 2003"; and Production Request No. 20 calls for the production of "all drafts and other versions of each written communication from AGE to Ms. Bat or concerning Ms. Bat in 2002 and 2003." A party is entitled to reasonable, relevant discovery. The indiscriminate use of blockbuster production requests, such as these, calling for all possible information impose undue burden, cost, and delay, and are objectionable. Hilt, 170 F.R.D. at 186-87.
The Motion to Compel is DENIED with respect to Requests for Production Nos. 3, 4, 18, 19, and 20.
The remaining production requests at issue—Nos. 2, 8, 10, 12, 13, 14, 15, and 17—were objected to for various reasons. In some instances less than all requested documents were produced; in other instances, the defendant refused to produce any documents at all. I do not know whether some or all of these problems could have been resolved by the lawyers absent court intervention because the plaintiff failed meaningfully to meet and confer about the problems. Rule 7.1A requires such an effort.
With respect to the other five requests at issue—Nos. 6, 9, 10, 11, and 12—the defendant objected to the requests for various reasons, most often because certain terms in the request were not adequately defined. Whether the objections could have been resolved through a conference is unknown because the plaintiff failed to comply with the requirements of Rule 7.1A. The Motion to Compel is therefore DENIED as to Requests No. 6, 9, 10, 11, and 12.
Rule 37(a)(4), Fed.R.Civ.P., provides that if a motion to compel is denied a court may, "after affording an opportunity to be heard, require the moving party or the attorney filing the motion or both of them to pay to the party . . . who opposed the motion the reasonable expenses in opposing the motion, including attorney's fees. . . ." I will consider awarding the defendant its costs and attorney's fees in opposing the Motion to Compel if it files a motion seeking such an award, supported by an appropriate affidavit and detailed, contemporaneous time records.
