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SGS Acquisition Co. Ltd. v. Linsley

United States District Court, D. Colorado

September 30, 2018




         THIS MATTER comes before the Court pursuant to a Motion for Summary Judgment by Defendants Linsley, Guarnera, Broadlands and Northern Zinc, LLC. Star Mountain Resources, Inc. (“Star Mountain”) (#82).[1] In addition to that Motion for Summary Judgment, the Court has reviewed the briefing and exhibits submitted by the parties (#86 and #87).

         I. Jurisdictional Statement

         The Court exercises jurisdiction in this matter pursuant to 28 U.S.C. § 1332. Colorado law applies to the claims asserted in this diversity case.

         II. Summary of Relevant Material Facts

         The Court begins with a brief summary of the relevant material facts and elaborates as necessary in its analysis. Undisputed facts[2] are treated as true, and disputed facts are construed most favorably to the non-movant, SGS Acquisition Company (“SGS”).

         During late 2013 and early 2014, SGS became interested in purchasing a closed zinc mine known as the Balmat mine located in upstate New York. To acquire the mine, on February 20, 2014, SGS entered into a Letter of Intent (the “LOI”) with Hudbay Minerals Inc. (“Hudbay”) to acquire all issued and outstanding shares and intercorporate debt of Balmat Holding Corporation and St. Lawrence Zinc Company (for convenience, the Court will use the term “Hudbay” to also refer to the object of the contemplated purchase). The SGS LOI provided that the sale price was $13 million, with $3 million to be paid on closing (to be financed through an initial public offering), $5.5 million when SGS decided to put the mine in production, and $4.5 million in periodic installments out of net cash flow from the mine's operations. The LOI gave SGS an exclusive 75-day window to conduct its due diligence and determine whether it wanted to proceed with the deal.

         SGS told David Linsley, Bernard Guarnera, and the firm with which they were associated, Centurion Private Equity Partners (“Centurion”), about the mine being offered for sale. Apparently, SGS did not intend to operate the mine, but instead wished to sell its acquisition or ownership rights to some third party - in essence, flipping the interest in the mine for a premium sale price. It approached Centurion for assistance in finding an interested third party buyer. Centurion agreed to solicit a buyer in exchange for payment of a procurement commission. For that purpose, SGS and Centurion also entered into a “Non-Compete and Non Disclosure Agreement” (the “NDA”) which was intended to cover information about the mine learned by Centurion as a result of the arrangement.

         During March and April 2014, Mr. Linsley dealt with SGS on behalf of Centurion, which focused its efforts on an entity referred to as the “Korean client.” There were many communications between Mr. Linsley on behalf of Centurion, and Jeremy Read on behalf of SGS, but by April 24, no deal had been struck between the Korean client and SGS and SGS informed Mr. Linsley that it no longer interested in dealing with Centurion or the Korean client. The 75-day exclusivity window in the LOI expired on May 2, 2014, without a sale to SGS or extension of the LOI.

         On July 7, 2014, Northern Zinc, LLC (“Northern Zinc”) (an entity in which Mr. Linsley and Mr. Guarnera had some ownership interest) made an offer to purchase the Hudbay interests. Hudbay accepted the offer on July 8, 2014, and the sale closed in November 2015, with the shares being transferred to Star Mountain Resources Inc.

         Contending that Mr. Guarnera, Mr. Linsley, and Centurion improperly deprived SGS of its opportunity to acquire the Balmat mine, SGS filed the instant lawsuit on October 4, 2016. SGS's Second Amended Complaint (#58) asserted five claims, all arising under Colorado state law: (i) Intentional Interference with Prospective Business Relations against Mr. Linsley and Mr. Guarnera; (ii) Intentional Interference with Contract against Mr. Linsley and Mr. Guarnera; (iii)

         Breach of Fiduciary Duty against Mr. Linsley and Mr. Guarnera; (iv) Misappropriation of Trade Secrets, ostensibly against all Defendants; and (v) Misappropriation of Business Value against Mr. Linsley and Mr. Guarnera. SGS also asserted a vicarious liability “claim” against Defendant Broadlands Mineral Advisory Services (“Broadlands”) for indemnification for acts by Mr. Guarnera.[3] Mr. Linsley, Mr. Guarnera and Broadlands seek summary judgment on all claims against them (#82). The parties agree that Colorado law governs the determination of all of those claims.

         III. Standard of Review

         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 Int'l Corp., 45 F.3d 357, 360 (10th Cir. 1995). Thus, the primary question presented to the Court in considering a Motion for Summary Judgment or a Motion for Partial Summary Judgment is: is a trial required?

         A trial is required if there are material factual disputes to resolve. As a result, entry of summary judgment is authorized only “when 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); Savant Homes, Inc. v. Collins, 809 F.3d 1133, 1137 (10th Cir. 2016). A fact is material if, under the substantive law, it is an essential element of the claim. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is genuine if the conflicting evidence would enable a rational trier of fact to resolve the dispute for either party. Becker v. Bateman, 709 F.3d 1019, 1022 (10th Cir. 2013).

         The consideration of a summary judgment motion requires the Court to focus on the asserted claims and defenses, their legal elements, and which party has the burden of proof. Substantive law specifies the elements that must be proven for a given claim or defense, sets the standard of proof, and identifies the party with the burden of proof. See Anderson, 477 U.S. at 248; Kaiser-Francis Oil Co. v. Producer's Gas Co., 870 F.2d 563, 565 (10th Cir. 1989). As to the evidence offered during summary judgment, the Court views it the light most favorable to the non-moving party, thereby favoring the right to trial. See Tabor v. Hilti, Inc., 703 F.3d 1206, 1215 (10th Cir. 2013).

         Motions for summary judgment generally arise in one of two contexts - when the movant has the burden of proof and when the non-movant has the burden of proof. Each context is handled differently. When the movant has the burden of proof, the movant must come forward with sufficient, competent evidence to establish each element of its claim or defense. See Fed. R. Civ. P. 56(c)(1)(A). Presumably, in the absence of contrary evidence, this showing would entitle the movant to judgment as a matter of law. However, if the responding party presents contrary evidence to establish a genuine dispute as to any material fact, a trial is required and the motion must be denied. See Leone v. Owsley, 810 F.3d 1149, 1153 (10th Cir. 2015); Schneider v. City of Grand Junction Police Dep't, 717 F.3d 760, 767 (10th Cir. 2013).

         A different circumstance arises when the movant does not have the burden of proof. In this circumstance, the movant contends that the non-movant lacks sufficient evidence to establish a prima facie case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The moving party must identify why the respondent cannot make a prima facie showing; that is, why the evidence in the record shows that the respondent cannot establish a particular element. See Collins, 809 F.3d at 1137. If the respondent comes forward with sufficient competent evidence to establish a prima facie claim or defense, then a trial is required. Conversely, if the respondent's evidence is inadequate to establish a prima facie claim or defense, then no factual determination of that claim or defense is required and summary judgment may enter. See Shero v. City of Grove, Okla., 510 F.3d 1196, 1200 (10th Cir. 2007).

         IV. Discussion

         A. Intentional Interference with Contract (Count II)

         The Court begins its analysis with SGS's claim against Mr. Linsley and Mr. Guarnera for intentional interference with contract. The contract in question is the SGS LOI[4] with Hudbay.

         The elements of the tort of intentional interference with contractual obligations under Colorado law are: (1) the defendant was aware of a contract between two parties, (2) the defendant intended that one of the parties breach the contract, and (3) the defendant induced the party to breach or make it impossible for the party to perform the contract.[5] Krystkowiak v. W.O. Brisben Cos., Inc., 90 P.3d 859, 871 (Colo. 2004); Lutfi v. Brighton Cmty. Hosp. Ass'n, 40 P.3d 51, 58 (Colo.App. 2001). Mr. Linsley and Mr. Guarnera essentially contend that summary judgment is appropriate on SGS's tortious interference with contract claim because SGS has not come forward with evidence to establish that they made it impossible for SGS to perform under the LOI.

         Greatly summarized, the LOI called for SGS to make an initial payment of $3 million to complete the first step of the Hudbay acquisition. The sale was not consummated, and the question presented is whether SGS has produced competent evidence that would suggest that Mr. Linsley and Mr. Guarnera engaged in actions that prevented SGS from making that payment and consummating the sale. SGS contends that Mr. Linsley and Mr. Guarnera interfered with the LOI by representing to it that Centurion “was obtaining financing (and in fact the Koreans would do the deal)” and that SGS relied on those representations such that, after negotiations with Centurion fell through, they were unable to “find[ ] other financing” before the LOI expired.

         Claim against Mr. Guarnera:

         No evidence in the record shows any act by Mr. Gaurnera that can reasonably be construed as making any representation to SGS about obtaining financing during the SGS LOI period. According to Mr. Linsley's declaration - which SGS has not disputed - Mr. Guarnera was simply a consultant to Centurion. There is no evidence that Mr. Guarnera made representations to SGS concerning obtaining financing; rather, all such communication with Centurion was with Mr. Linsley, and at most, Mr. Guarnera was copied as a recipient on such communications. Thus, there is no showing that Mr. Guarnera ever represented to SGS that Centurion was obtaining funding with the purpose of hindering SGS's ability to perform under its SGS LOI. Accordingly, Mr. Guarnera is entitled to summary judgment on SGS's claim against him for Intentional Interference With Contract.

         Claim against Mr. Linsley

          As noted, above, Mr. Linsley conducted the communications with SGS on behalf of Centurion. In early March 2014, after the SGS LOI was executed, SGS, through Mr. Read, wrote to Mr. Linsley expressing SGS's interest in “selling out to the Koreans and walking away if it were made worthwhile for us.” He also advised that SGS was talking to another entity - Glencore - and that SGS's Canadian brokers were also “keen to introduce capital, ” indicating that SGS was pursuing several different sets of possible investors in addition to Centurion's Korean client. In late March, Mr. Linsley advised that the Korean client was “happy to do a deal” with SGS and requested that SGS provide a copy of the LOI, but, as discussed below, it appears that Mr. Read initially either ignored or denied that request. Following a conversation on March 27, 2014 between Mr. Read and Mr. Linsley, Mr. Read e-mailed Mr. Linsley stating that SGS needed a firm decision in the “short term” as to the structure of the deal. He acknowledged that SGS could ask for an extension of the LOI deadline with Hudbay, but that it would need justification. Mr. Read then spelled out terms of the deal that would be acceptable to SGS.

         Mr. Linsley responded on April 8, 2014 by again requesting a copy of the SGS LOI, and he explained that the Koreans are “keen to do this deal” but indicated that they could not understand why they were unable to see the LOI and related documents. Between April 8 and 16, 2014, Mr. Linsley made a proposal on behalf of the Korean client, but it was rejected by SGS. By April 16, 2014, Mr. Read appeared to begin taking steps to distance from Centurion, telling Mr. Linsley that “[g]iven the huge differences between what we put on the table and apparent position of your investors, we don't think it fruitful to come back with another structure.” Although he indicated that SGS would remain open to another offer, he stated “[we] must assume that you won't be able to come up which an acceptable plan and make appropriate arrangements, which are agreeable to us in any case.”

         On April 23, 2014, Mr. Read again wrote to Mr. Linsley, stating that other SGS officials had become persuaded that there were other “credible investors who are serious about investing on acceptable terms, ” and suggesting that, if Centurion wanted to do the deal, “you have to give me something in writing with which I can try to change my colleagues' view.” (At another point in the same communication, Mr. Read again emphasized that SGS had “real potential investors in place” and assured Mr. Linsley that, to the extent Centurion was “waiting for our deal to fall over… it will not.”) Mr Linsley offered to send over a proposal subject to another site visit, but Mr. Read rejected the offer. Finally, on April 24, 2014, Mr. Read wrote to Mr. Linsley indicating that SGS was no longer interested in pursuing a deal with Centurion, stating that “we want to concentrate efforts on parties that we believe will invest alongside us.”

         The foregoing evidence is not sufficient to demonstrate a triable issue of fact as to whether Mr. Linsley's communications with SGS operated to prevent SGS from finding other financing. From the outset, the SGS LOI expressly represented that SGS's willingness to buy Hudbay was not dependent upon SGS obtaining financing. (Instead, it contemplated that SGS would finance the initial $3 million payment through an initial public offering.) Even during SGS's negotiations with Centurion, Mr. Read made clear to Mr. Linsley that SGS was also courting other interested investors who were themselves capable of reaching a deal. Whether Mr. Read's representations were true - that other investors did indeed exist - or simply stalking horses intending to induce Centurion into agreeing to a deal is irrelevant: Mr. Linsley can hardly be said to have intentionally interfered with SGS's deal with Hudbay ...

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