United States District Court, D. Colorado
FINDINGS OF FACT AND CONCLUSIONS OF LAW
CHRISTINE M. ARGUELLO, UNITED STATES DISTRICT JUDGE
This
case involves a dispute between two competing businesses over
whether either party breached agreements concerning their
merger or acquisition and, if so, the extent of damages
caused by any such breach.
Beginning
on March 26, 2018, the Court presided over the three-day
bench trial on Plaintiff ConcealFab Corporation's claims
for: (1) breach of contract of the parties' Licensing
Operating Agreement and of their Non-Disclosure Agreement;
(2) breach of the implied covenant of good faith and fair
dealing; (3) breach of fiduciary duty; (4) misappropriation
of trade secrets; (5) tortious interference with contractual
relationships; (6) tortious interference with prospective
business relations; (7) fraud in the inducement; and (8)
breach of contract of the Employment Agreement between
ConcealFab's CEO and Defendant Sabre Industries, Inc.,
[1]
see (Doc. # 68 at 10-20); and on Defendants Sabre
Industries, Inc. and Midwest Underground Technology,
Inc.'s (together, “Sabre”) counterclaims for:
(1) unjust enrichment, and (2) breach of contract of the
Licensing Operating Agreement, [2] see (Doc. # 70 at
26-31). (Doc. ## 137-43.) Having heard the evidence presented
at the trial and having reviewed the parties' proposed
findings of fact and conclusions of law (Doc. ## 148-49), the
Court now enters its findings of fact and conclusions of law.
I.
FINDINGS OF FACT
A.
THE PARTIES
Plaintiff
ConcealFab and Defendant Sabre are competitors in the small
cell Distributed Antennae System (“DAS”) and
outdoor Distributed Antennae System (“oDAS”)
segments of the telecom market, and each has product lines,
customer relationships, and intellectual property. (Doc. #
126 at 8.)
ConcealFab
is a Colorado corporation that engineers and manufactures
small cell DAS and oDAS products for the commercial wireless
industry and for the government. (Testimony of Fitzhugh, Doc.
# 141 at 5-6.) It was founded by Michael Slattery. Since
March 2013, Jonathan Fitzhugh has been ConcealFab's CEO
and a member of its Board of Directors. (Id. at 6.)
At all relevant times, Chris Odell and Duncan Stewart were
members of ConcealFab's Board of Directors. (Id.
at 56.) Richard Denton was a member of the Board of Directors
between 2011 and 2013 and then again from June 2015 through
the present, and he was the sole member of ConcealFab's
Special Litigation Committee. (Testimony of Denton, Doc. #
142 at 310- 13.)
Sabre[3] is a Delaware corporation
that has been in the telecom industry for 40 years.
(Testimony of Rossetti, Doc. # 143 at 487.) Sabre sought to
diversify into the small cell DAS and oDAS segments of the
telecom industry, and in April 2014, Sabre's parent
company acquired 180 Logistics, LLC (“180
Logistics”), a company that engineered and manufactured
products for the small cell DAS and oDAS markets.
(Id. at 487-88; Testimony of Cochran, Doc. # 142 at
363-64.) At all relevant times, Peter Sandore was the CEO and
President of Sabre, and he is currently the Chair of the
Board of Sabre. (Testimony of Rossetti, Doc. # 143 at 482.)
Timothy Rossetti was Sabre's Executive Vice President and
Chief Financial Officer; he presently serves in those
positions and as Sabre's Chief Administrative Officer.
(Id. at 420.) Patrick Cochran founded 180 Logistics
and, in 2015, was the Vice President for Engineering
Solutions for Sabre. (Testimony of Cochran, Doc. # 142 at
335.) Cochran is now a Senior Vice President. (Id.)
Douglas Huff was the President of Sabre's telecom
division until early March 2015. (Testimony of Fitzhugh, Doc.
# 141 at 25, 100.) Tony Sabatino, Sabre's Chief
Development Officer, replaced Huff as the President of
Sabre's telecom division upon Huff leaving the employ of
Sabre. (Id. at 101; Testimony of Rossetti, Doc. #
143 at 436.)
B.
THE NON-DISCLOSURE AGREEMENT
ConcealFab
and Sabre began discussions to combine the two businesses in
2014. (Doc. # 126 at 8; Testimony of Rossetti, Doc. # 143 at
479.) In late July 2014, Sabre suggested that the parties
enter into a non-disclosure agreement. (Trial Ex. 5.) Sabre
provided a draft agreement, to which ConcealFab did not make
any material changes. (Testimony of Cochran, Doc. # 142 at
336; Testimony of Fitzhugh, Doc. # 141 at 10-11.)
The
parties executed the Non-Disclosure Agreement
(“NDA”) on August 4, 2014. (Trial Ex. 1 at 5.)
The preamble to the NDA explained that “the Parties
wish to explore a business opportunity of mutual interest,
and in connection with this opportunity, each Party may
disclose to the other certain business and/or technical
information that is non-public, confidential or proprietary
in nature.” (Id. at 1.) The NDA defined
“Confidential Information” broadly; the term
included, among other information:
(a) past, present and future business affairs such as
finances, customer and/or supplier information, products,
services, organizational structure and internal practices . .
. and all business, marketing, development, sales and other
commercial strategies;
(b) know-how, trade secrets, tools, methods, techniques,
designs, and other information which derives economic value,
actual or potential, from not being generally known to, or
readily ascertainable through proper means by persons who can
obtain economic value from its disclosure or use
(collectively “Trade Secrets”); [and]
(c) all designs, specifications, documentation, components,
source code, object code, images, icons, schematics,
drawings, protocols, processes or depictions, in whole or in
part, of any of the foregoing[.]
(Id.) The NDA obligated the parties to keep in
confidence “all Confidential Information disclosed to
either of them by the other” and to “use such
Confidential Information only for the purposes of evaluating
and engaging in discussion concerning a potential business
relationship between the Parties.” (Id. at 2.)
Finally, the NDA also required the parties to agree
“that any violation or threatened violation of [the
NDA] may cause irreparable injury to the other Party,
entitling the other Party to seek . . . injunctive relief . .
. and . . . [to] pursue any other available remedy, at law or
in equity, including the recovery of damages.”
(Id. at 3.)
The
parties have not amended or cancelled the NDA, and it remains
in effect. (Testimony of Fitzhugh, Doc. # 141 at 15-16.)
C.
THE TERM SHEET
Between
November 2014 and February 2015, the parties exchanged drafts
of a Term Sheet, in which they sought to outline the key
terms from which a definitive agreement to combine ConcealFab
and Sabre could be developed. (Doc. # 126 at 8.) Fitzhugh
represented ConcealFab and Huff represented Sabre in these
discussions. (Trial Exs. 10-14, 33; Testimony of Fitzhugh,
Doc. # 141 at 26-37.)
The
parties executed the Term Sheet on February 3,
2015; Fitzhugh signed the agreement on
ConcealFab's behalf, and Sandore signed it on Sabre's
behalf. (Trial Ex. 2 at 6.) The Term Sheet began with an
overview of each entity's “product lines, customer
relationships, and intellectual property, ” which
included:
• [Sabre] brings the following: manufacturing
capability, engineering expertise as it relates to power,
battery back-up, and radio enclosures . . ., backed by a
large and credible parent organization, Sabre, and customer
credibility with key accounts such as CCI [Crown Castle],
AT&T, VzW [Verizon], Sprint, and others.
• [ConcealFab] brings the following: RF expertise as it
relates to antenna concealment, PIM mitigation, and RF
interference mitigation, engineering expertise as it relates
to sound suppression, electrical integration, and total
system integration. In addition, [ConcealFab] has significant
customer penetration at key accounts including CCI, Verizon,
and AT&T; plus an established marketing/sales footprint
with several leading Manufacturing Reps, National
Distributors, and OEM partners. [ConcealFab] is working in
both the commercial and government markets and an important
aspect of the government market in maintaining small business
status . . . as [it] works to be an approved secure facility
with appropriate clearances.
(Id. at 1); see (Testimony of Fitzhugh,
Doc. # 141 at 173-75.)
The
Term Sheet explicitly stated that it was “non-binding
on ether party and establishes only the intent of the
organizations to work diligently to develop a formal
agreement around the basics of the key points as outlined in
[the Term Sheet].” (Id. at 5.) It called for
the parties to “establish an interim plan/agreement
that [would] allow for combined efforts in the marketing,
business development, customer relationships, and
manufacturing areas” within ten days of the execution
of the Term Sheet. (Id.) The Term Sheet also
provided for a 60-day “exclusivity period”
“to allow for [the parties] to formulate an agreement
acceptable to both parties” and during which ConcealFab
could not “solicit, receive, share documents, or take
any other action that would be in conflict with the goal of
developing a formal agreement.” (Id. at 6.)
Two
provisions of the Term Sheet are notable, as they informed
the parties' subsequent discussions about acquisition.
First, the Term Sheet contemplated Sabre paying $1.2 million
for the “[p]urchase of all the non-cash assets of
ConcealFab . . . (including but not exclusive to all IP,
processes, designs, etc.).” (Id. at 2.) The
purchased assets were to be “setup in a new Sabre
entity within [Sabre's] products group” that would
“manage all commercial and governmental products and
complementary services that are awarded, ” and what
remained of ConcealFab post-acquisition was to “change
its name to ‘CFG Systems.'” (Id.)
ConcealFab was to use the $1.2 million to, among other
things, “[f]und employee obligations of ~$250,
000.00” (Id.) The Term Sheet also stated that
“[a]ll existing shareholders and option holders must
vote (per [ConcealFab's] bylaws) to approve this
transaction, ” and that “[f]ull releases will be
provided by each shareholder and option holder.”
(Id.)
Second,
the Term Sheet contemplated Fitzhugh leaving the employ of
ConcealFab and becoming the “Executive VP of Engineered
[P]roducts serving the Small Cell/oDAS/DAS segment” of
Sabre upon Sabre's acquisition of ConcealFab.
(Id. at 5.) It also called for “[a]n agreed
upon employee base” to transition from ConcealFab to
Sabre, where they would “accept employment packages
(including non-compete language) and become key team
members.” (Id.)
Finally,
the Term Sheet also included an appendix, “Addendum A,
Base & Upside Case, ” that was created by Fitzhugh
and other ConcealFab employees and identified
ConcealFab's business opportunities at the time the
parties agreed to the Term Sheet. (Id. at 7;
Testimony of Fitzhugh, Doc. # 141 at 166-67.) Among
ConcealFab's identified opportunities was “Hill
AFB” (Hill Air Force Base), with a “potential
lifetime value” of $21 million. (Trial Ex. 2 at 7.)
Fitzhugh knew at the time that the value of the contract for
Hill Air Force Base was $7.9 million, according to the
request for proposal (“RFP”), but
“believe[d] that the value of [the] contract was going
to be greater than just what was represented in the
RFP.” (Testimony of Fitzhugh, Doc. # 141 at 168-69.)
On
March 6, 2015, approximately one month after the parties
executed the Term Sheet, ConcealFab informed Sabre that it
had lost that opportunity to provide services to Hill Air
Force Base. (Doc. # 126 at 9.)
D.
NEGOTIATION OF AN EMPLOYMENT AGREEMENT
While
Fitzhugh and Huff negotiated the Term Sheet, they also
collaborated on an Employment Agreement for Fitzhugh's
future employment by Sabre, which the Term Sheet
contemplated. Fitzhugh represented ConcealFab and Huff
represented Sabre in these discussions in January 2015.
See (Trial Exs. 4, 18, 20-24, 26-27.) Fitzhugh
represented to Huff that ConcealFab's Board of Directors
needed to review and approve an Employment Agreement before
they signed off on the Term Sheet. (Trial. Ex. 15; Testimony
of Fitzhugh, Doc. # 141 at 36, 43-44.) Sabre's vice
president for human resources drafted an Employment
Agreement, the first draft of which Sabre emailed to Fitzhugh
on January 7, 2015. (Trial Ex. 18; Testimony of Fitzhugh,
Doc. # 141 at 44.) Fitzhugh's and Huff's subsequent
drafts reflected changes to the definitions of
“cause” for termination and “good
reason” for resignation, and to the conditions upon
which Fitzhugh's signing bonus would be returned or his
severance would be paid. (Trial Exs. 20-22, 24, 26-27.)
The
parties finalized the Employment Agreement on or about
January 15, 2015, prior to the execution of
the aforementioned Term Sheet. (Trial Ex. 4; Testimony of
Fitzhugh, Doc. # 141 at 57, 216.) Fitzhugh assigned his
rights to the $125, 000.00 sign- on bonus and the $300,
000.00 in severance pay to ConcealFab. (Testimony of
Fitzhugh, Doc. # 141 at 60-61.) At some point thereafter,
ConcealFab's Board of Directors approved the January 15,
2015 version of the Employment Agreement. (Testimony of
Fitzhugh, Doc. # 141 at 59, 220.) However, neither
party executed the Employment
Agreement at the time because it was intended to go
into effect when Fitzhugh became any employee of Sabre.
(Trial Ex. 4; Testimony of Fitzhugh, Doc. # 141 at 59-60, 98;
Testimony of Odell, Doc. # 142 at 244.)
Under
the terms of the final, non-executed Employment Agreement,
Fitzhugh was to become an employee of Sabre “on the
date of consummation of the acquisition of [ConcealFab] . . .
by Sabre . . . (such date, the ‘Effective
Date').” (Trial Ex. 4 at 2.) The Employment
Agreement also provided:
This Agreement shall automatically terminate without any
action on the part of any person and be void ab
initio if the Asset Purchase Agreement is terminated in
accordance with its terms, and neither Sabre nor any other
person shall have any liability to [Fitzhugh] under this
Agreement if the Closing (as defined in the Stock Purchase
Agreement) does not occur.
(Id.) Neither an asset purchase agreement or a stock
purchase agreement ever occurred between the parties.
(Testimony of Fitzhugh, Doc. # 141 at 216.)
The
Employment Agreement provided that Fitzhugh's title at
Sabre was to be “Executive Vice President - DAS and
Small Cell Product Segment” and that he was to report
to the president of Sabre's Telecom Segment. (Trial Ex. 4
at 2.) Fitzhugh's annual salary was to be $300, 000.00,
plus a $725.00 per month stipend for his vehicular costs.
(Id.) Within 30 days of Fitzhugh's hire date,
Sabre was to pay him a $125, 000.00 sign-on bonus.
(Id. at 3.) The Employment Agreement required that
Fitzhugh repay the sign-on bonus to Sabre if he was
terminated for cause or resigned without good reason within
the first year of his employment. (Id.)
The
Employment Agreement also detailed conditions of any
potential severance pay:
If Sabre terminates [Fitzhugh] without “Cause”
(as defined in Paragraph 25) after expiration of the
Non-Termination Period, or [Fitzhugh] resigns at any time for
“Good Reason” (as defined in Paragraph 25) . . .,
[Fitzhugh] shall receive severance pay equivalent to his base
salary at the end of employment . . . for a period of one (1)
year.
. . . If [Fitzhugh] ends his . . . employment voluntarily, or
is terminated for “Cause” as set forth in
Paragraphs 24 and 25, [Fitzhugh] shall not be entitled to any
severance.
(Id. at 2.) Paragraph 25 of the Employment Agreement
defined “Cause” as:
[T]he material failure by [Fitzhugh] to observe Sabre written
policies . . .; willful misconduct by [Fitzhugh] in the
performance of [his] duties hereunder; insubordination; [and]
willful unauthorized disclosure or misuse of Confidential
Information. . . “Cause” shall not include
termination as a result of a job elimination or staff
reduction, including any that might occur during a
re-organization or restructuring.
(Id. at 6.) “At the conclusion of Year
2” of Fitzhugh's employment by Sabre, the
definition of “Cause” was to expand to include
“the material failure by [Fitzhugh] to meet financial
and performance criteria as established for the business
segment that [Fitzhugh] is directing.” (Id.)
Paragraph 25 defined “Good Reason” as:
[T]he occurrence of any of the following without
[Fitzhugh's] consent: (1) a materially [sic] reduction in
[Fitzhugh's] duties; (B) [Fitzhugh's] annual base
salary or annual bonus potential is reduced or [Sabre] fails
to pay any material amount of compensation when due; (; [sic]
Sabre relocates [Fitzhugh's] principal place of business
more than . . . 50 miles away from his current residence; or
(E) Sabre materially breaches any material provision of this
Agreement.
(Id.)
Neither
party has ever signed the Employment Agreement. See
(Trial Ex. 4 at 10.)
E.
THE LICENSING OPERATING AGREEMENT
The
Term Sheet established target deadlines for the parties'
formalized agreements: within ten days of its execution, the
parties were to “establish an interim plan/agreement
that [would] allow for combined efforts, ” and within a
maximum of 75 days, the parties were to “clos[e]”
on a deal. (Trial Ex. 2 at 5, 6.) After the parties executed
the Term Sheet on February 3, 2015, ConcealFab tried
unsuccessfully to schedule a series of meeting to reach these
target deadlines, but Huff cancelled them on Sabre's
behalf. (Testimony of Fitzhugh, Doc. # 141 at 63-64.)
On or
about February 14, 2015, Huff contacted Fitzhugh to inform
him that Sandore and Rossetti had not given their approval to
an acquisition and that Sabre wanted to restructure their
deal as a licensing operating agreement to together secure
near-term business opportunities and to satisfy
ConcealFab's need for capital. (Id. at 64-65.)
ConcealFab was, as Fitzhugh well knew, in a precarious
financial position at the time. (Id. at 24; Trial
Ex. 102 at 3-4.) It had a significant amount of outstanding
accounts payable, many of which were well past due; its total
accounts payable was $422, 968.26 as of March 11, 2015, for
example. (Trial Ex. 55; Trial Ex. 102 at 3-4; Testimony of
Rossetti, Doc. # 143 at 494-96.) On February 16 and 18, 2015,
Fitzhugh responded to Huff's suggestion with
“thought document” and a draft list of the
party's responsibilities under a licensing operating
agreement. (Trial Exs. 37, 41; Testimony of Fitzhugh, Doc. #
141 at 65-69.) In turn, Huff proposed a first draft of an
agreement on February 23, 2015. (Trial Ex. 45.) The parties
continued to exchange drafts through late February and early
March 2015. See (Trial Exs. 47, 50, 51; Testimony of
Odell, Doc. # 142 at 252; Testimony of Fitzhugh, Doc. # 141
at 85-88.)
On or
about March 10, 2015, Huff informed Fitzhugh that he was
leaving his employment with Sabre. (Testimony of Fitzhugh,
Doc. # 131 at 100-01.)
On
March 12, 2015, Fitzhugh informed Huff that ConcealFab had
“received an affirmative vote from a majority [of] both
the Preferred class standalone and the Common plus Preferred
classes combined” in support of the parties' draft
agreement. (Doc. # 126 at 9; Trial Ex. 57.)
On
March 13, 2015, the parties executed a final
Licensing Operating Agreement (“LOA”). (Doc. #
126 at 9; Trial Ex. 3.) Fitzhugh signed the LOA on behalf of
ConcealFab, and Sandore signed it on behalf of Sabre. (Trial
Ex. 3 at 4.)
The LOA
began with a preface explaining that in support of their
previous agreement to pursue current opportunities, the
parties “agree to amend the [T]erm [S]heet with . . .
adjustments to facilitate an accelerated ability to execute
business opportunities and to support the working capital
requirements” of ConcealFab. (Id. at 1.) The
LOA's initial term was from the date of execution through
August 30, 2015, and during this period, Sabre had “the
sole exclusive right to effectuate [an] acquisition” of
ConcealFab. (Id.)
The LOA
provided that Sabre would “set up a financial reporting
segment under their engineered product group
[(‘EPG')]” to “capture all
financial-related results associated” with the
parties' collaboration, (id.), which the Court
henceforth refers to as the “new Sabre EPG segment,
” see (id. at 3). “All
commercial and non-small business/non-cleared facility work
and opportunities” were to be “marketed, closed,
[and] operated” through the new Sabre EPG segment, as
were “[a]ny orders post-execution of [the LOA] not
depending on [ConcealFab's] small business or cleared
facility status.” (Id. at 2, 3.) The new Sabre
EPG segment was also to capture all financial transactions
related to such work. (Id. at 2.) The working
capital for the new Sabre EPG segment would be funded by
Sabre, but the LOA clarified that none of ConcealFab's
pre-existing accounts payable would “move over to the
new Sabre EPG segment.” (Id. at 3.)
The
remaining ConcealFab entity-that which was not absorbed into
the new Sabre EPG segment-was to be renamed
“CFG.” (Id. at 2.) “Any Sabre
products requiring small business or a cleared facility
status” were to run through CFG, “when
possible.” (Id. at 2, 3.)
With
respect to employees, the LOA stated that Fitzhugh and
“agreed upon employees [would be] terminated from
[ConcealFab] as of an agreed upon date (targeted for [March
9, 2015])” and onboarded at Sabre through its
“typical . . . onboarding process.” (Id.
at 1.) ConcealFab was responsible for all liabilities of
these employees “prior to the Sabre hire date.”
(Id.)
The LOA
affirmed the Term Sheet's contemplated “purchase
price of $1.2 [million], ” approximately $250, 000.00
of which was to “[f]und employee obligations.”
(Id. at 2.) The LOA detailed that $120, 000.00 of
this $250, 000.00 in employee obligations was to be directed
to an “Employee/Contractor buyout, ” would
“funded through a prepayment/deposit fee licensing
fees, ” and would be paid to ConcealFab in
“scheduled payment amounts to be determined.”
(Id. at 2, 3.) Elsewhere, the LOA again restated
that this same $120, 000.00 “must be utilized to
effectuate a buyout of the current consulting agreement,
” implicitly referring to the consulting agreement
between ConcealFab and its founder, Slattery. (Id.
at 3; Testimony of Fitzhugh, Doc. # 141 at 92; Testimony of
Rossetti, Doc. # 143 at 429.) That consulting agreement,
executed November 18, 2014, required ConcealFab to pay
Slattery a monthly fee of $12, 000.00 for 12 months, for a
total of $144, 000.00. (Trial Ex. 8; Testimony of Fitzhugh,
Doc. # 141 at 21-22.) If the LOA was terminated, the amounts
paid by Sabre towards the $250, 000.00 in employee
obligations “would revert to a 1-year note due [to]
Sabre guaranteed by all IP [(intellectual property)] at a
rate equivalent to their incremental borrowing rate.”
(Trial Ex. 3 at 2.)
Under
the terms of the LOA, both parties were responsible for
licensing fees. As the new Sabre EPG segment acquired
business, Sabre would “accrue licensing fees due [to]
CFG at the rates and per the calculations outlined” in
the Term Sheet. (Id. at 3.) And as CFG generated
business, it would accrue licensing fees “due [to]
Sabre at the rate of 45% of the EBITDA [(earnings before
interest, tax, depreciation, and amortization)] generated by
the CFG entity.” (Id.)
Significantly,
the LOA called for Sabre to “provide working capital at
an amount to be determined to CFG at Sabre's incremental
cost of capital, ” with the “method of funding to
be determined.” (Id. at 3.) The LOA specified:
Sabre will pre-pay/deposit licensing fees to
CFG at an amount to be agreed upon at the execution
of and during the duration of this LOA. This amount must be
repaid to Sabre prior to any distributions to CFG
shareholders. This includes an immediate infusion of
cash to ConcealFab in the amount of [$160, 000.00]
on March 13[, 2015, ] to be utilized as source of funds to
pay current [accounts payable] as per listing received [March
11, 2015, ] and as per agreement, 2015 [sic] and an
additional [$120, 000.00] (with scheduled payment
amounts to be determined) for the Employee/Contractor which
must be utilized to effectuate a buyout of the current
consulting agreement.
(Id.) (emphases added.) These pre-pay/deposit
licensing fees paid by Sabre were to be repaid by CFG
“or offset against licensing fees earned and due to CFG
from Sabre.” (Id.)
In the
event that “the LOA is terminated without an
acquisition and the licensing fees due [to] CFG from Sabre
are not sufficient to offset balances due to Sabre from CFG,
” the LOA required that the balance due from CFG to
Sabre to repay the licensing fees would “revert to the
form of a 1-year note at Sabre's incremental borrowing
rate payable in monthly installments.” (Id.)
This note was to be guaranteed by a security interest in
ConcealFab's intellectual property. (Id.)
The LOA
included three “[a]dditional provisions” bearing
on the parties' claims. First, the LOA required that
“[a]ll existing shareholders and option holders [of
ConcealFab] must vote (per ConcealFab's Corporation's
By-Laws) to approve this LOA structure in accordance with
ConcealFab's corporate governance documents.”
(Id. at 4.)
Second,
in the event that the LOA was terminated, Fitzhugh's
“employment agreement shall terminate as
‘resignation for good reason.'”
(Id.) This was the only mention of an employment
agreement in the LOA.
Third,
the LOA identified the parties' respective licensing
rights in the event that the LOA was terminated.
(Id.) Licensing rights “for the concealed
shelters and back lobe suppressors” would belong to
ConcealFab, though ConcealFab would provide “most
favored nation” status and offer reduced pricing on
these products to Sabre. (Id.) Sabre would
“retain the exclusive IP [(intellectual property)]
rights to their radio cages and shroud portfolio as outlined
in Exhibit A, ” though ConcealFab would receive a ten
percent discount on these products. (Id.) Any
intellectual property developed by the new Sabre EPG segment
would become the property of Sabre. (Id.) And
finally, the parties agreed that they “each have
specific pole capability and designs that will be shared, and
that upon the termination of the LOA, will compete on this
product line with no restrictions.” (Id.)
F.
PERFORMANCE OF THE LICENSING OPERATING AGREEMENT
The
parties vociferously debate the extent to which they
performed their obligations under the LOA. Although there is
insufficient evidence to resolve all of these disputes, the
Court makes the following findings of fact.
First,
in accordance with the LOA, see (Trial Ex. 3 at 1),
Sabre set up “a financial reporting segment under their
engineered product group” to “capture all
financial related results” associated with the new
Sabre EPG segment. (Testimony of Rossetti, Doc. # 143 at 493,
535.) Additionally, what remained of ConcealFab after the
parties' attempted integration was renamed
CFG.[4]
See (Testimony of Fitzhugh, Doc. # 141 at 121.)
As to
Fitzhugh's employment, Fitzhugh immediately began working
at Sabre upon the execution of the LOA, and his title was
Executive Vice President of the new Sabre EPG segment.
(Testimony of Fitzhugh, Doc. # 141 at 107.) Between March 13,
and May 26, 2015, Sabre paid Fitzhugh a gross annual salary
of $300, 000.00, the same salary that was identified in the
Employment Agreement. (Id.; Trial Ex. 4 at 2.) In
the days after he was onboarded at Sabre, Fitzhugh made
multiple inquiries to Sabre about the status of the
Employment Agreement, which he and Huff had finalized but not
executed some two months prior. (Testimony of Fitzhugh, Doc.
# 141 at 98-101; Trial Ex. 60.) At the end of March 2015,
Sandore told Fitzhugh that Sabre did not intend to execute
the Employment Agreement because he, Rossetti, and Sabatino
did not understand it to be a part of the parties' deal,
to which Fitzhugh responded that execution of the Employment
Agreement was part of the deal. (Testimony of Fitzhugh, Doc.
# 141 at 101.) On April 20, 2015, Sabatino sent an email to
Huff-at his personal email address, as he was no longer
employed by Sabre-and Fitzhugh, stating that he needed
Huff's “help on what was agreed upon specific to
the LOA working rules of engagement” because Sandore
and Rossetti were “telling [him] that the deal we have
right now is not the deal that was agreed upon.” (Trial
Ex. 66 at 2.) The following day, April 21, 2015, Fitzhugh
responded by directing Sabatino to the LOA's text that
“Jon Fitzhugh's employment agreement shall
terminate as resignation for ‘good reason' in the
event of termination of the LOA.” (Id. at 1.)
Fitzhugh argued that this language in the LOA
“[c]learly . . . point[ed] to [his] employment
agreement and impl[ied] is [sic] was to be executed as part
of the LOA.” (Id.) Sabatino replied to Huff,
stating that it appeared to him that Fitzhugh “has
documents that [he] d[id] not have as part of this deal,
” including “a January Employment agreement that
[he] also did not see, ” and asking Huff for the
history of the Employment Agreement. (Trial Ex. 67.) At some
point thereafter, Sabatino, Huff, and Fitzhugh had a joint
phone conversation about the Employment Agreement, from which
Fitzhugh formed the impression that Sabatino would impress on
Sandore and Rossetti that Sabre needed to live up to its deal
and execute the Employment Agreement. (Testimony of Fitzhugh,
Doc. # 141 at 105-06.) As the Court has already explained,
Sabre never executed the Employment Agreement. Sabre did not
pay Fitzhugh the $125, 000.00 sign-on bonus, grant him 250,
000 stock options, or pay him the monthly stipend of $725.00
for transportation costs contemplated by the Employment
Agreement, nor did it award Fitzhugh any severance pay upon
termination of his employment with Sabre. (Id. at
107, 121; Doc. # 149 at 18- 19; Doc. # 148 at 24.)
With
regard to the LOA's requirement that Sabre
pre-pay/deposit licensing fees to CFG in the amount of $120,
000.00 “(with scheduled payment amounts to be
determined) for the Employee/Contractor which must be
utilized to effectuate a buyout” of Slattery's
consulting agreement, see (Trial Ex. 3 at 3), Sabre
sought to pay this amount in monthly installments of $12,
000.00 for a period of ten months. (Testimony of Fitzhugh,
Doc. # 141 at 108.) Sabre made two $12, 000.00 payments for
the March and April 2015 payments (a total of $24, 000.00) on
May 5, 2015, which ConcealFab accepted. (Doc. # 126 at 9.)
Sabre did not make any payments of this sort in May 2015 or
at any point thereafter. (Testimony of Fitzhugh, Doc. # 141
at 109.) CFG/ConcealFab was subsequently unable to make the
monthly payments to Slattery required by their consulting
agreement. (Id.)
Sabre
complied with the LOA's provision that it would provide
working capital to CFG by pre-paying licensing fees,
including an “immediate infusion of case to ConcealFab
in the amount of [$160, 000.00] on March 13[, 2015, ] to be
utilized as source of funds to pay current [accounts
payable].” See (Trial Ex. 3 at 3.) Sabre
timely paid $160, 000.00 to ConcealFab. (Testimony of
Fitzhugh, Doc. # 141 at 195; Doc. # 148 at 10.)
G.
TERMINATION OF THE LICENSING OPERATING AGREEMENT AND FILING
OF THE UCC LIEN
On May
26, 2015, Sandore informed Fitzhugh on a telephone call that
Sabre was terminating the LOA. (Testimony of Fitzhugh, Doc. #
141 at 120.) Several stakeholders from both entities,
including Fitzhugh, Sabatino, Sandore, and Rossetti,
participated in a joint call the next day, in which they
debated how much CFG/ConcealFab owed Sabre upon termination
and whether Sabre was obligated to pay Fitzhugh a $300,
000.00 severance. (Id. at 121.)
On May
27, 2015, Sabre recorded a UCC-1 Financing Statement with the
Colorado Secretary of State (the “UCC Lien”).
(Trial Ex. 86; Testimony of Rossetti, Doc. # 143 at 450.) The
UCC Lien identified ConcealFab as the debtor and listed as
collateral “[a]ll right, title, and interests of the
Debtor in any Intellecutal Property.” (Trial Ex. 86 at
2.) Sabre did not inform ConcealFab of the UCC Lien.
Late in
the evening of May 28, 2015, Rossetti emailed Fitzhugh a list
of “expenses incurred on behalf of ConcealFab [for]
which [Sabre was] seeking reimbursement in the form of a note
per the LOA” and attached a promissory note. (Trial Ex.
90.) Rossetti wrote, “[Sabre] will keep the employees
on for another week and [ConcealFab] agree[s] to execute the
note in consideration thereof” by 12:00 PM EST the
following day, May 29, 2015. (Id. at 1; Testimony of
Fitzhugh, Doc. # 141 at 122.) The promissory note required
ConcealFab to pay a principal of $621, 559.30 by May 31,
2016, subject to an 11% interest rate. (Trial Ex. 90 at 2.)
ConcealFab did not sign the promissory note because it took
issue with Sabre's accounting of amounts owed under the
LOA. (Testimony of Fitzhugh, Doc. # 141 at 128; Trial Ex. 91;
Testimony of Odell, Doc. # 142 at 269-72.)
On June
3, 2015, Sabre emailed Fitzhugh a letter from Sandore, dated
May 29, 2015, in which Sandore formally terminated the LOA
and “remind[ed]” ConcealFab of its
“obligation to execute a promissory note for the
amounts owed to Sabre.” (Trial Ex. 92; Testimony of
Fitzhugh, Doc. # 141 at 128-29.)
ConcealFab
did not learn of the UCC Lien until later in June or July
2015, when it was applying for financing and a potential
financier informed ConcealFab that it needed to amend its
term sheet because ConcealFab had a lien against it.
(Testimony of Fitzhugh, Doc. # 141 at 132.)
On July
24, 2015, ConcealFab demanded that Sabre terminate the UCC
Lien. (Doc. # 126 at 9-10.) Sabre refused to do so.
(Testimony of Fitzhugh, Doc. # 141 at 134.)
On
August 19, 2015, ConcealFab initiated this action against
Sabre. (Doc. # 1.)
On
September 11, 2015, ConcealFab filed an initial financing
statement with the Colorado Secretary of State, stating the
Sabre's UCC Lien against it “was wrongfully filed
because no security agreement exists between [Sabre] and
[ConcealFab].” (Trial Ex. 87; Testimony of Fitzhugh,
Doc. # 141 at 134-35.)
Nearly
two years after Sabre filed the UCC Lien, Sabre terminated it
on May 18, 2017. (Trial Ex. 88; Doc. # 126 at 10.)
Neither
party has ever repaid any monies that may be owed pursuant to
the LOA. ConcealFab concedes that it owes Sabre $184, 000.00
for Sabre's initial cash infusion of $160, 000.00 and for
Sabre's two $12, 000.00 payments towards the buyout of
Slattery's consulting agreement with ConcealFab but
argues that this sum must be reduced “by any licensing
...