United States District Court, D. Colorado
KATHLEEN M. TAFOYA, Magistrate Judge.
This matter is before the court on "Defendants' Motion for Summary Judgment." (Doc. No. 52, filed Feb. 24, 2014 [Mot.].) "Plaintiff Shannon Peace's Response to Defendants' Motion for Summary Judgment" was filed on March 20, 2014 (Doc. No. 53 [Resp.]) and Plaintiff's Reply was filed on April 7, 2014 (Doc. No. 54 [Reply]). For the following reasons, Defendants' Motion for Summary Judgment is GRANTED.
In his Amended Complaint, filed October 20, 2013, Plaintiff alleges that Defendants agreed to provide him with a guaranteed salary of $250, 000 for three years in exchanged for his management of hedge funds known as the Horus Fund and the Horus Fund II (the "Funds"). Plaintiff alleges the Defendants breached that agreement by withdrawing from Horus Capital Management LLC ("HCM"), the limited liability company responsible for the Funds, and paying Plaintiff only $375, 000 out of the total $750, 000 allegedly guaranteed to him. ( See generally Am. Compl., Doc. No. 39.)
Defendant Parascript LLC ("Parascript") develops, owns, and sells pattern recognition software, including stock selection software and software that reads handwriting and machine print. ( See Mot., Ex. A; Resp., Ex. 1, Deposition of William Pearlman [Pearlman Dep.], at 27:11-24.) Defendant Parascript Management, Inc. ("PMI") is the managing member of Parascript. ( Id. at 39:19-40:10.)
In the summer of 2010, Parascript's board of directors decided to open a hedge fund to make investments based on the investment model chosen by its stock selection software. ( Id. at 52:16-53:11.) However, because none of the members of Parascript's board of directors had any experience in establishing a hedge fund, Parascript's CEO, William Pearlman, contacted certain individuals who were considered knowledgeable about the hedge fund industry and who knew how to start a hedge fund. ( Id. at 57:18-22.) One of those individuals put Mr. Pearlman in touch with Plaintiff. ( Id. at 58:24-60:9.)
At the time, Plaintiff was managing his own hedge fund, the Alluviant Group, which had approximately $5 million in capital investments and a both solid and growing group of clients. (Mot., Ex. B; Resp., Ex. 2, Deposition of Shannon Peace [Peace Dep.], at 62:4-25.) One of the reasons Mr. Pearlman sought to move forward with Plaintiff in creating the hedge fund was that Plaintiff might be able to bring existing investors and capital from the Alluviant Group over to the new hedge fund. (Pearlman Dep. at 104:3-11.) Plaintiff shut down the Alluviant Group in December 2010, presumably at or around the time the Operating Agreement discussed infra was executed. ( See Peace Dep. at 62:14-20; 64:21-24.)
In September 2010, Plaintiff flew to Colorado to meet with Mr. Pearlman, Alexander Filatov, the future President and Chief Technical Officer of HCM, and Aron Katz, the Chairman of the Board of the Managing Member of HCM. ( Id. at 101:21-103:1.) As discussed in that meeting, Plaintiff's potential role in the new venture would be to "bring on the new investors as well as new and current existing investors in order to capitalize the fund and then manage the accounts or the account with the assistance of Alexander's [Filatov] stock selection process." ( Id. at 102:19-103:1.) At some point either during or prior to this meeting, Plaintiff alleges he made it clear that he required a guaranteed salary of $250, 000 for three years to make the move. ( Id. at 122:12-124:17.)
On September 16, 2010, Plaintiff sent Mr. Pearlman an email inquiring as to how his $250, 000 salary would be set up for accounting purposes. (Resp., Ex. C at PEACE001248.) Mr. Pearlman responded, "We have not finally decided the structure. You probably can get paid as an employee and get benefits or you can get paid as a guaranteed payment to a shareholder.'" ( Id. ) Plaintiff agreed that the discussion regarding his salary was "premature until we see how the deal will be structured." ( Id. at PEACE 001249.)
That same day, September 16, 2010, Mr. Pearlman sent Plaintiff, Mr. Filatov, and Mr. Katz a "Deal Points" memorandum summarizing the discussions of their in-person meetings. (Mot., Ex. C.) The Deal Point memorandum explicitly provided that it was "for discussion purposes only and is not binding upon any of the parties until incorporated into a letter of intent signed by all the parties." ( Id. ) The Deal Point memorandum stated that Plaintiff was to "receive a salary of $250, 000, which is guaranteed for three years, " subject to certain restrictions. ( Id. at PMI/Peace 000048.)
On some unspecified date, Mr. Katz prepared a memorandum regarding the "proposed deal" to create the hedge fund. (Resp., Ex. 4.) That memorandum provided that Plaintiff would "oversee the Fund." ( Id. at PEACE00079.) It also provided that the Fund would charge investors a two percent management fee, and that the principals of the funds would be entitled to 20 percent participation in the profits in the fund. ( Id. ) These fees would be used by a yet-to-be formed management entity to pay expenses, including Plaintiff's salary. ( Id. at PEACE00080.) Finally, the memorandum provided that Plaintiff would be hired as President with a guaranteed salary of $250, 000 for three years, subject to certain conditions. ( Id. )
On October 29, 2010, HCM was formed by filing Articles of Incorporation with the Secretary of State of Colorado. ( See Mot., Ex. E at 1.) On December 29, 2010, Plaintiff signed, as a member of HCM, the "Second Amended and Restated Operating Agreement of Horus Capital Management, LLC" (hereinafter "Operating Agreement"). ( Id. ) The Operating Agreement was also signed by all of the other members of HCM, namely Parascript, Mr. Katz, Mr. Pearlman, Mr. Filatov, Stephan Pachikov, Timofei Strunkov, Yelena Misureva, and four of Plaintiff's clients. ( See id. )
Generally, the Operating Agreement finalized the structure of HCM. ( See generally id. ) Although not entirely clear from the record, the Operating Agreement also may have established the Funds. ( See id., Ex. F.)
With respect to Plaintiff's compensation, Section 5.1.3 of the Operating Agreement provides that Plaintiff, in his capacity as the Chief Investment Officer of HCM, would be paid a "Services Payment" equivalent to $250, 000 per year for three years, subject to an annual adjustment based on the performance of the Funds. ( Id. at 8.) Under Section 5.1.1, Plaintiff's Services Payment would be paid from HCM's cash receipts. ( Id. at 8.)
Section 5.1.3 also states that the Services Payment is subject to the provisions of Section 3.6 of the Operating Agreement. ( Id. ) Section 3.6, in turn, allows HCM's members to voluntarily terminate their membership in HCM upon providing written notice to HCM and all other members. ( Id. at 4.) Section 11.9 of the Operating Agreement provides that a member who withdraws will be relieved of any rights or obligations under the Operating Agreement. ( Id. at 21.)
Section 5.8 of the Operating Agreement provides that Parascript was to fund HCM in the event of any Services Payment shortfalls. ( Id. at 10.) In particular, Parascript agreed that, "for so long as it is a Member of the [HCM], " it would loan to HCM "such amounts as may be necessary to cover Payment ...