Whitlock Packaging Corporation v. Stearns et al
Filing
175
ORDER by Magistrate Judge Kathleen M. Tafoya on 4/9/15 granting 86 Motion for Summary Judgment. (nmarb, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Magistrate Judge Kathleen M. Tafoya
Civil Action No. 13–cv–02453–KMT
WHITLOCK PACKAGING CORPORATION,
Plaintiff,
v.
BRIAN STEARNS, and
FUZZEEBEE BEVERAGE, LLC,
Defendants.
ORDER
This matter is before the court on “Plaintiff/Counterclaim Defendant Whitlock Packaging
Corporation’s Motion for Summary Adjudication of Counterclaims and Brief in Support” (Doc.
No. 86 [Mot.], filed November 7, 2014). Defendants/Counterclaimants Brian Stearns and
Fuzzee Bee Beverages, LLC filed their response on November 28, 2014 (Doc. No. 95 [Resp.]),
and Plaintiff/Counterclaim Defendant filed its reply on December 12, 2015 (Doc. No. 103
[Reply]). This motion is ripe for ruling.
STATEMENT OF THE CASE
Defendant/Counterclaimant Brian Stearns (“Steans”) formulated an energy drink called
ZŪN and a unique “rocket” bottle and then created Defendant Fuzzee Bee Beverages, LLC
(“Fuzzee Bee”) to develop, patent, and sell ZŪN across the United States. (See Doc. No. 167 at
2.) Defendants and Plaintiff Whitlock Packaging Corporation (“WPC”) entered into two
contracts—the first for the purchase of membership in Fuzzee Bee as a strategic investor and the
second for a co-packaging agreement. (See id. at 2-3.)
Defendants/Counterclaimants Brian Stearns and Fuzzee Bee Beverages, LLC assert four
claims against Plaintiff: (1) Breach of Contract related to a Manufacturing and Packaging
Agreement (“Packaging Agreement”); (2) Breach of Contract related to an Amended Contract
Manufacturing and Packaging Agreement (“Amended Packaging Agreement”); (3) Fraud; and
(4) Breach of Fiduciary Duty.1 (See Doc. No. 44 [Countercl.], ¶¶ 113-150.)
UNDISPUTED FACTS
1.
Fuzzee Bee was formed as a Colorado, LLC in 2008, to sell and market ZŪN
energy drink. (See Mot., Ex. 1, Stearns depo., 19:15-17; 27:13-14.)
2.
At all pertinent times, WPC has been a full-service manufacturer and packager of
non-carbonated beverages. (See http://www.whitlockpkg.com.)
3.
On June 4, 2010, WPC, through its President, Peter H. Rosso (“Rosso”), and
Fuzzee Bee, through its Manager, Stearns, executed a Letter of Intent concerning WPC acquiring
30% of Fuzzee Bee’s issued and outstanding membership units in exchange for cash and the
extension of credit to Fuzzee Bee. (See Mot., Ex. 4.)
4.
On or about June 21, 2010, FBB, WPC, and Stearns entered into a Membership
Interest Purchase Agreement. (See Mot., Ex. 5, WPC 0033-0042 [“Membership Agreement”].).
5.
On or about June 21, 2010, WPC and Fuzzee Bee entered into a Packaging
Agreement. (See Mot, Ex. 6.)
1
Defendants/Counterclaimants remaining claims have been dismissed. (See Doc. Nos. 66, 167.)
2
6.
Prior to June 2010, Fuzzee Bee had a relationship with a co-packer, Carolina Beer
& Beverage. (See Mot., Ex. 7.)
7.
CBB, as WPC’s third-party provider, began production of ZŪN in August 2010.
(See Mot., Ex. 8.)
8.
During the time between June 2010 and April 2012, there were issues with
production, packaging and shipping of Fuzzee Bee’s products. (See Countercl.; Mot., Ex. 9.)
9.
On August 24, 2011, Rosso emailed Stearns to arrange a discussion of open items
including the upcoming CBB shutdown in November, the supplier cost structure, and pricing of
can product to QuikTrip. (See Mot., Ex. 12.)
10.
Stearns responded on the same date and added additional discussion items
numbered 4 – 10 to Rosso’s list, including no. 9, seeking a short term loan and extension of
invoice payment terms. (See Mot., Ex. 13.)
11.
On November 23, 2011, Rosso advised Stearns by email of his analysis of the
ZŪN business and advised Stearns that WPC’s Board was not “willing to extend a loan and
recommend [sic] that Fuzzee Bee issue a capital call and look for other investors.” (See Mot.,
Ex. 14.)
12.
Rosso’s November 23, 2011, email triggered a series of communications between
Stearns and Rosso. (See Mot., Ex. 15.) This email exchange included the following:
a.
Rosso’s email to Stearns of November 23, 2011. (See Ex. 15 at
Stearns_11242-_11243.)
b.
Stearns’ email to Rosso dated November 28, 2011, where he copied
FBB’s legal counsel, Brendan Chatham, stated:
3
Pete:
In re-reading your email over the holiday…there are several things that need to be
discussed in regards to your email:
1) I need the report I’ve requested repeatedly as it relates to the $500,000 line of
credit.
2) I have records of damaged product that I need credit for and need to send
directly to you so your staff doesn’t create more problems.
3) Your fiduciary obligations to my company and how to manage the ongoing
conflict of interest due to the structure of our co-packaging/equity deal.
4) Moving forward with my improving the manufacturing of my product line and
extension of payment terms.
5) Finished goods inventory in Denver.
As for your costs & profit and loss, I hope I don’t need to point out that you
invested in a start up. Or maybe I do… My sales have not been soft for a brand at
my stage and I take offense to that. I’ve exceeded my obligations to my investors
and have reach [sic] accounts generally only accessible by big brands. You imply
that ZŪN is not doing well; however we are doing exceptionally well in light of
very limited resources and continuous subpar product WPC has turned out that
customers keep rejecting.
Let’s get real here…the loss you report is due 100% to poor WPC
management and performance and not at all due to my progress or dedication. I
am very disappointed with your criticism in light of my repeated efforts to get
WPC to focus on performing your co-packing obligations and also have the best
interest of ZŪN in mind when doing so. You know all the problems that have
been caused by WPC’s staff to date as we’ve discussed this numerous times, and
I’ve politely put you on notice, but it is now past due that you correct these issues.
The main reason for restructuring the co-packing agreement with the equity
kicker that gives WPC 30% of my company was to give WPC a long term interest
in the growth of the ZŪN brand. Basically, Fuzzee Bee is supposed to get the
favorable pricing and $500k line of credit to help manage cashflow while WPC
gets a big equity stake in Fuzzee Bee. Fuzzee Bee was supposed to be able to
grow the ZŪN brand off retained earnings without having to raise a bunch of new
capital which would dilute both of us. Now all you are focusing on is WPC’s loss
on the co-packaging side of the deal which is all due to WPC mismanagement and
performance failures. That couldn’t be a more unfair perspective and I’m not
happy about it.
I’m also very concerned that you are selling my inventory without notifying me. I
found out through [sic] from Big Lots, a discount chain. I think this should have
been discussed and also raises more questions if you have Fuzzee Bee’s best
interests in mind. Putting aside that you have no contractual right to sell my ZŪN
inventory, I’ve asked for some type of sampling allowance for over a year and
you never would do it, but now you’re okay selling my inventory at a reduced
case price to a bargain bin?
4
I’ve also overlooked that WPC was supposed to provide me finished goods at a
Denver designated location and I have been paying for shipments [sic] here when
this should have been delivered by WPC per the co-packing agreement. For 2012
we plan on local expansion and will need that reasonable level of product here in
Denver ASAP for samples and for expansion. I will submit the request next week.
I’ve arranged for national distribution and [sic] in process of closing other deals.
So it is evident that I have a viable brand poised for growth. However, WPC’s
failure to perform is holding us back.
That’s why it makes sense for WPC to step up with a loan to help bridge my
company’s additional capital requirements. Now you tell me that you’re not going
to make the loan anymore basing your decision on WPC’s supposed loss on ZŪN.
That’s pretty messed up in my view. I want to resolve our issues and have a
compatible relationship, however I believe WPC needs to become proactive and
not reactive. The bottom line is that WPC is in default of our co-packing
agreement and has been for some time.
You’ve also made a lot of empty promises to me in regards to your abilities to
help my company, put me in front of other investors and potential distribution
partners. You need to revisit these promises and open up your contacts to help
find additional capital for Fuzzee Bee. Of course, I will ask my board and
advisors to do the same, but they are going to be dumbfounded that WPC has
dropped the ball so badly on this project.
I will work on my 12 week rolling forecast (I assume that’s what you meant
instead of “12 month”) for you and have that for you by the 1st of the year. The
8000 cases of inventory you mentioned should be good till then, provided its
quality is up to specs. Pete, our bottom line here is that WPC’s repeated failures
have put us in a difficult spot and we now need to figure out how best we can
repair out relationship. It’s not going to be easy since you clearly have forgotten
the purpose of putting our deal together the way (sic) did. However, I think we
need to sit down and determine what we can do for each other to make the
relationship work better. If that means reviewing and reworking the co-packing
agreement, by all means, let’s meet and talk about it ASAP. For instance, if you
need higher margins to give WPC more incentive to improve performance to the
standard required by the co-packing agreement, let’s look at that. Of course,
you’ll need to give on the equity kicker and be accommodating on the payment
terms and be committed to helping with the capital needs in some way.
I copied Brendan on this email and he is ready and able to help us with reworking the co-packing agreement. Let’s not waste any more time and piss away
our opportunity with ZŪN. Call me this week to set up a time to meet and get this
deal back on track
Sincerely,
Brian Stearns
(See Mot., Ex. 15, Stearns_11239 – _11241 [emphasis in original].)
5
c.
Rosso responded by his email to Stearns of November 28, 2011, at 4:19
p.m., which provided:
6
7
8
9
(See Mot., Ex. 16 [highlighting in original]; Ex. 15, Stearns_11239-_11240.)
d.
On November 28, 2011, at 7:34 p.m., Stearns responded to the breach of
fiduciary duty allegation by email to Rosso that stated, in part:
Pete, thanks for the quick response, my answers to your answers are in red.
****
(See Mot., Ex. 15, Stearns_11239.)
e.
Pete Rosso responded by email at 8:08 p.m. on November 28, 2011, which
stated:
10
(See Mot., Ex. 15, Stearns_11237.)
13.
On December 27, 2011, at 8:30 a.m., Rosso sent Stearns an email discussing the
foregoing correspondence, the disposal of 6000 cases of product for packaging issues, and the
identification of 840 cases to be destroyed for off-code issues. That email stated:
Unless there is an objection on your part we plan to close out the 3 date codes of
regular and 1 date code of lite to Big Lots this month since we stand to lose
almost $60k on this inventory when it expires. In addition, you requested that this
inventory NOT be sent to your newer customers because of short coding. Unless i
[sic] hear back we will be moving this out in the next 2 weeks.
(See Mot., Ex. 17, Stearns_0209-_0211, attached as Exhibit 17.)
14.
Rosso sent another email on December 27, 2011, at 9:12 a.m., stating: “Sounds
good… the other immediate thing we want to get done is close out the short coded items. (See
Mot., Ex. 17, Stearns_0208, included in Exhibit 17.)
15.
Stearns conditionally approved the Big Lots transaction by an email of December
27, 2011, at 10:15 a.m., which stated:
11
(See Mot., Ex. 17, Stearns_0207.)
16.
Continuing to pursue the resolution of the issues between the parties, Stearns
negotiated with Rosso regarding the co-packing problems. (See Mot., Ex. 19.)
17.
On April 13, 2012, Fuzzee Bee and WPC entered into a First Amendment
Relating to Contract Manufacturing and Packaging Agreement, which modified the terms and
conditions of the parties’ previous Packaging Agreement, eliminating WPC’s obligation to
produce the rocket bottle, removing all provisions, commitments or references pertaining to the
rocket bottle, providing for various credits to FBB, and providing for destruction at WPC’s
expense of the finished goods and materials related to the bottle product. (See Mot., Ex. 20.)
18.
On or about April 23, 2012, Fuzzee Bee and WPC entered into a Redemption
Agreement whereby it was agreed that FBB redeem from WPC 5,910 of its FBB membership
units. As a result, after April 23, 2012, WPC’s interest in FBB was reduced to 12,206
membership units. WPC also executed an Acknowledgement to the FBB Operating Agreement
setting forth the number of membership units owned. (See Mot., Ex. 21.)
19.
On or about April 23, 2012, WPC, Fuzzee Bee, and Stearns entered into a Release
Relating to Fuzzee Bee Beverage, LLC, which provided, in part:
12
(See Mot., Ex. 22.)
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LEGAL STANDARD
Summary judgment is appropriate 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). The moving party bears the initial burden of showing an absence of evidence to support
the nonmoving party’s case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). “Once the
moving party meets this burden, the burden shifts to the nonmoving party to demonstrate a
genuine issue for trial on a material matter.” Concrete Works, Inc. v. City & Cnty. of Denver, 36
F.3d 1513, 1518 (10th Cir. 1994) (citing Celotex, 477 U.S. at 325). The nonmoving party may
not rest solely on the allegations in the pleadings, but must instead designate “specific facts
showing that there is a genuine issue for trial.” Celotex, 477 U.S. at 324; see also Fed. R. Civ. P.
56(c). A disputed fact is “material” if “under the substantive law it is essential to the proper
disposition of the claim.” Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998)
(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A dispute is “genuine” if the
evidence is such that it might lead a reasonable jury to return a verdict for the nonmoving party.
Thomas v. Metropolitan Life Ins. Co., 631 F.3d 1153, 1160 (10th Cir. 2011) (citing Anderson,
477 U.S. at 248).
When ruling on a motion for summary judgment, a court may consider only admissible
evidence. See Johnson v. Weld County, Colo., 594 F.3d 1202, 1209-10 (10th Cir. 2010). The
factual record and reasonable inferences therefrom are viewed in the light most favorable to the
party opposing summary judgment.
Concrete Works, 36 F.3d at 1517.
At the summary
judgment stage of litigation, a plaintiff’s version of the facts must find support in the record.
Thomson v. Salt Lake Cnty., 584 F.3d 1304, 1312 (10th Cir. 2009). “When opposing parties tell
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two different stories, one of which is blatantly contradicted by the record, so that no reasonable
jury could believe it, a court should not adopt that version of the facts for purposes of ruling on a
motion for summary judgment.” Scott v. Harris, 550 U.S. 372, 380 (2007); Thomson, 584 F.3d
at 1312.
ANALYSIS
1.
Breach of Packaging Agreement Claim
WPC argues Counterclaim I for Breach of the Packaging Contract is without merit given
the undisputed fact related to the negotiated release of the rocket bottle claims in April 2012.
(Mot. at 27.) As such, WPC argues it is entitled to summary judgment. (Id.)
To prevail on a claim for breach of contract under Oklahoma law2, a litigant must prove
(1) formation of a contract, (2) breach of the contract, and (3) damages as a direct result of the
breach. Digital Design Group, Inc. v. Info. Builders, Inc., 24 P.3d 834, 843 (Okla. 2001). The
first step in contract interpretation is to “give effect to the mutual intention of the parties, as it
existed at the time of contracting, so far as the same is ascertainable and lawful.” McKissick v.
Yuen, 618 F.3d 1177, 1184 (10th Cir. 2010). When a written contract exists, the intention of the
parties, “is to be ascertained from the writing alone, if possible.” McKissick, 618 F.3d at 1184
(quoting Okla. Stat. tit. 15, § 155). “Several contracts relating to the same matters, between the
same parties, and made as parts of substantially one transaction, are to be taken together.” Okla.
Stat. tit. 15, § 158. When contractual language is clear and unambiguous, interpretation is a
question of law for the court and properly decided on summary judgment. 618 F.3d at 1184.
The parties do not dispute that Section 18.2 of the Packaging Agreement provides the contract
is to be “governed by, construed and enforced in accordance with the laws of the State of
Oklahoma.” (Mot., Ex. 6 at 11, ¶ 18.)
2
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The primary contracts that must be examined with respect to this claim were executed in
April 2012, as part of a settlement agreement between WPC, Fuzzee Bee, and Stearns, and
consist of four separate documents: (1) the Amended Packaging Agreement; (2) the Redemption
Agreement; (3) the Release Relating to Fuzzee Bee ; and (4) the Acknowledgement of
Redemption. (See Mot., Exs. 19-22.) WPC argues these documents, taken together, were the
result of lengthy negotiations and revisions between the parties with the advice and assistance of
their respective counsel. (Id. at 28 [citing Ex. 1 (“Stearns Depo.”) at 169:13-172:15, 172:22-25,
174:8-175:4; Ex. 19.)
WPC argues that, continuing from the November 2011 discussions between FBB and
WPC, Stearns sent emails to Rosso on February 7, 2012, and February 12, 2012, detailing his
thoughts on the challenges and problems that had occurred in packaging ZŪN in the rocket bottle
and the damage he perceived such challenges and problems were having on the ZŪN brand. (Id.
[citing Exs. 14-15].) In this correspondence, Stearns described the bottle production contract as
an “epic failure” that “continues to cause major damages to my brand and my investors and
partners and equally taints the reputation of my product in consumer’s eyes.” (Id. [citing Ex.
19].) Stearns also presented some thoughts on resolving the issues between the parties and
moving forward with production of ZŪN in cans only. (Id.)
Rosso followed up with Stearns a few days later proposing terms of an agreement on a go
forward basis which, among other things, would eliminate the requirement of WPC to produce
ZŪN in the rocket bottle, release WPC from any and all claims related to the quality issues
experienced on the bottle product since the effective date of the original contract, and provide
certain credits to FBB. (Id., 02/15/12 email Rosso to Stearns.) Stearns responded the next day
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reiterating the difficulties the packaging problems had allegedly created and stated that “other
items need to be addressed if we are to agree to” eliminate the requirement of WPC to package
the rocket bottle and release WPC from any and all claims related to quality issues on the bottle
product since the effective date of the Co-Packaging Agreement. (Id., 02/16/12 email Stearns to
Rosso.)
Following additional conversations between the parties, Rosso responded to Stearns on
February 22, 2012, setting out the terms of a settlement agreement. (Id., 02/22/12 email Rosso to
Stearns.) After further discussion, the parties reached an agreement which led to the drafting and
execution of the aforementioned settlement documents. (Ex. 19.) The Release expressly
provides:
1. RELEASE BY FB PARTIES: The [Fuzzee Bee] Parties for themselves, any
spouse, heir, executor, administrator, or assign, hereby unconditionally release
and forever discharge WPC and their past or present predecessors, successors,
assigns, employees, agents, representatives, related corporate and business
affiliates, attorneys, and all persons acting by, through, under or in concert with
any of them, from any and all payment obligations, claims, liabilities, obligations
promises, agreements, controversies, costs and expenses, of any nature
whatsoever whether known or unknown, with respect to or arising in any way in
connection with the 12 oz. plastic bottle in a rocket ship configuration that has
sometimes been used by FB to produce and market the ZŪN Energy drink as
contemplated by the Existing Agreements.
(Ex. 22.)
The court agrees with WPC that, based on the evidence presented, Stearns and Fuzzee
Bee were fully aware of all alleged problems pertaining to packaging ZŪN in the rocket bottle
prior to execution of the settlement documents and release of WPC from any and all claims,
known or unknown. In his November 28, 2011, email, which Stearns copied to his counsel,
Stearns suggested that the parties review “reworking the co-packing agreement.” (Ex. 15,
17
Stearns_11239 – _11241.) The Release, First Amendment, and related documents resulted from
the parties’ discussions and negotiations, which included their respective counsel. Moreover,
Stearns described the re-negotiations as successful and agreed, in his deposition, that they were
successful because they resulted in the amended documents in April 2012. (Ex. 1, Stearns
Depo., at 176:12-177:9.)
A release bars claims that “existed by reason of ‘matters’ that occurred on or before” the
effective date of the release. McKissick, 618 F.3d at 1185. The plaintiff in McKissick, a former
Gemstar executive, brought claims against the company sounding in fraud. The district court
granted summary judgment in favor of Gemstar finding that McKissick had released her claims
at the end of her employment. Id. at 1180. McKissick appealed. The Tenth Circuit Court of
Appeals affirmed the district court’s grant of summary judgment finding, under Oklahoma law,
that the language in the release absolving Gemstar from any and all claims of any form or nature
whatsoever, broadly and unambiguously, barred McKissick’s claim for fraud that occurred
before the agreement was signed, even if the alleged fraud was not discovered until after
execution of the release. Id. at 1184-85, 1188.
In McKissick, the Tenth Circuit cited and relied upon Cassity v. Pitts, 839 P.2d 192
(Okla. 1992), in which the Oklahoma Supreme Court addressed the issue of whether release
language that “release[d] forever any and all claims of whatsoever nature” barred a claim for
fraud that arose subsequent to execution of the settlement agreement. The Oklahoma Supreme
Court held that such broad language:
. . . clearly contemplates some possible liability or possible future claim in
addition to that under discussion by the parties at the time the release was
executed. We think the language in the release was broad enough to cover all
demands or rights to demand, or possible causes of action, and constituted a
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complete discharge of liability, whether or not the various demands or claims
were discussed or mentioned when the release was signed, and whether or not the
possible future claims were known.
Cassity, 839 P.2d at 195. The Oklahoma Supreme Court affirmed the trial court’s grant of
summary judgment in favor of the released parties finding that even though the cause of action
for fraud had not actually arisen until after the release was signed, the releasing parties suspected
fraud had occurred before the release was signed and took no steps to carve out from the release
any future claims. Thus, the court held the releasing party was “bound by the unqualified,
unambiguous, language of release in the settlement agreement.” 839 P.2d at 195.
The only conduct pleaded by Defendants/Counterclaimants in their counterclaim for
breach of the Packaging Agreement is pre-settlement, pre-release conduct concerning packaging
ZŪN in the rocket bottle. (Countercl. at ¶¶113-121.) The court agrees with WPC that Stearns
and Fuzzee Bee were specifically and expressly aware of the problems with respect to the 12 oz.
rocket bottle configuration for ZŪN and ZŪN Lite. Correspondence between Stearns and WPC
confirms the fact that these problems were continually discussed. Stearns, FBB, and WPC
executed the settlement documents in 2012 in order to resolve their disputes concerning the
rocket bottle configuration and move forward with packaging only the cans. Because Stearns
and FBB were admittedly aware of the packaging problems, suggested reworking the agreement,
and knowingly entered into the settlement agreement, of which the Release is part, they cannot
now allege breach of contract for matters that arose prior to the settlement.
A release may be set aside where it can “ ‘be shown that the release was obtained by
fraud or misrepresentations . . . which misled the injured party into signing the instrument.’ ”
Evans v. Bridgeston-Fireston, Inc., 904 P.2d 156, 156 (Okla. App. 1995) (quoting St. Louis &
19
S.F. Ry. v. Chester, 138 P. 150 (1914)). The burden of proof is on the party attacking the release
to show by clear and convincing evidence that the release was obtained by fraud or
misrepresentation. Evans, 904 P.2d at 156 (quoting Birch v. Keen, 449 P.2d 700 (Okla. 1969)).
In their response, Defendants/Counterclaimants argue that there was no meeting of the minds and
no consideration in the making of the release. (Resp. at 17-20, 28-29.) However,
Defendants/Counterclaimants make only conclusory statements that “the record shows” and “the
evidence shows” there was no meeting of the minds or consideration. (See id. at 18, 26.)
Defendants/Counterclaimants do not cite to where in the record such evidence can be found. The
court has no obligation to sift through all of Defendants/Counterclaimants’ evidence to determine
if there is a trial-worthy issue. See Mitchell v. City of Moore, Okla., 218 F.3d 1190, 1199 (10th
Cir. 2000) (holding that the court is “not obligated to comb the record in order to make [a
party’s] arguments for [it].”). “[O]n a motion for summary judgment, ‘it is the responding
party’s burden to ensure that the factual dispute is portrayed with particularity, without
depending on the trial court to conduct its own search of the record.” Cross v. The Home Depot,
390 F.3d 1283, 1290 (10th Cir. 2004).
Defendants/Counterclaimants’ Response has utterly failed to meet this burden and this
failure, in and of itself, is sufficient reason to grant summary judgment on the Breach of
Packaging Agreement Claim in favor of WPC, as Defendants/Counterclaimants have failed to
demonstrate a genuine issue for trial on a material matter. See Mitchell, 218 F.3d at 1199
(holding summary judgment is appropriate when an opposition is “limited to conclusory
statements and . . . void of cites to the specific portions” of the record containing relevant
evidence).
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2.
Breach of Amended Contract Manufacturing and Packaging Agreement
Defendants/Counterclaims allege in Count II that WPC breached the Amended Packaging
Agreement by failing to destroy the remaining rocket bottle inventory and by failing to provide
the quality of 16 oz. can product promised. (Countercl., ¶¶ 122-130.) WPC argues that
Defendants/Counterclaimants’ inability to prove each of the breach of contract elements entitles
WPC to summary adjudication on this claim. (Mot. at 33-35.)
Specifically, WPC argues that the Amended Packaging Agreement altered the parties’
initial agreement by eliminating WPC’s obligation to produce the 12 oz. rocket bottle, adding an
agreement by WPC to produce a 16 oz. can product, removing the exclusivity provision,
providing a number of credits to Fuzzee Bee, and providing for destruction, at WPC’s expense,
of the remaining finished goods inventory and raw materials inventory. (Id. at 33; see Ex. 20.)
First, WPC argues there is no evidence that it failed to destroy the bottle inventory and, instead,
sold the inventory to Big Lots as alleged by Defendants. WPC argues that documents produced
by Big Lots, pursuant to a subpoena, debunk Defendants’ contention. (Id.) These documents
evidence two separate purchase orders for product ordered by Big Lots in January 2012 and
nothing further. (See Ex. 18.) Moreover, evidence provided by WPC shows that WPC did what
it contracted to do in the Amended Packaging Agreement and destroyed the ZŪN bottle
inventory. (See Ex. 24, emails from April 2012 regarding destruction of ZŪN Inventory,
destruction of Packaging Material, and disposal of Plastic Components.)
Second, WPC argues there is no evidence that any alleged defective production of canned
product was the fault of WPC as opposed to damage, if any, which may have occurred during
shipping or at the hands of third-persons over which WPC had no control. (Mot. at 34.) WPC
21
also argues there is no evidence that any alleged actions of WPC resulted in alleged defective
inventory of canned product or was the cause of damages to FBB and/or Stearns. (Id.)
In their response, Defendants/Counterclaimants argue in a conclusive manner “the record
evidences WPC’s breaches of both promises.” (Resp. at 20.) However, again, do not cite to any
documents or evidence whatsoever in the record to support this claim. This is sufficient reason
to grant summary judgment on the Breach of Amended Contract Manufacturing and Packaging
Agreement Claim in favor of WPC. See Mitchell, 218 F.3d at 1199. Moreover, to the extent
Defendants/Counterclaimants attempt to rely on the opinion of their expert, James Hinkle, to
show WPC breached its contractual obligations, Mr. Hinkle is a damages expert, and his
opinions do not go to the issue of liability and whether the contract was breached.
Again, Defendants/Counterclaimants have failed to bring forth evidence of a genuine
issue for trial. Accordingly, summary judgment is granted in favor of WPC on the Breach of
Amended Contract Manufacturing and Packaging Agreement Claim.
3.
Fraud Claim
WPC argues that Stearns has never articulated any basis for a fraud claim against WPC,
and thus it is entitled to summary judgment on this claim. (Mot. at 35-39.)
Fraud is never presumed. Roberts v. Wells Fargo AG Credit Corp., 990 F.2d 1169, 1173
(10th Cir. 1993). To prevail on a claim for fraud, all of the following must be shown by clear
and convincing evidence: (i) WPC made a material representation that was false; (ii) that WPC
knew when it made the representation that it was false; (iii) that WPC made the false
representation with the intention that it should be acted upon by Defendants; (iv) that Defendants
acted in reliance upon it; and, (v) that Defendants thereby suffered detriment. Silk v. Phillips
22
Petroleum Co., 760 P.2d 174, 176-77 (Okla. 1988). The absence of any one element of fraud is
fatal to a party’s claim. Silk, 760 P.2d at 180. “The mere fact that fraud is claimed will not
justify the submission of that issue [to the jury] unless facts are produced from which an
irresistible deduction of fraud reasonably arises.” Silk, 760 P.2d at 177.
The first and most fundamental element of a fraud claim is a misrepresentation of
a past or present fact. Generally, to constitute actionable fraud, false
representations cannot be predicated upon a promise to perform in the future. . . .
To render nonperformance of a promise to be performed in the future fraudulent,
the promise to perform must be ‘made with the intent to deceive the promisee into
acting where he otherwise would not have done so’ and be ‘accompanied by an
intention not to perform.’
Pine Telephone Co., Inc. v. Alcatel-Lucent USA, Inc., No. CIV-11-353-JHP, 2014 WL 318331,
at *7 (E.D. Okla. 2014) (internal citations omitted).
There is a wide distinction between the nonperformance of a promise and a
promise made mala fide, only the latter being actionable fraud. . . . Eventual
failure to perform is not evidence of intent not to do so. Thus, an allegation that a
defendant intended to deceive because the alleged promise was not met is
insufficient as a matter of law.
Pine Telephone, 2014 WL 318331, at *7 (internal citations omitted). Summary judgment will
not be defeated when the only proof in the record to support a claim of intent not to keep
promises made is the fact that such promises were not kept. Id., at *8 (“Statements that turn out
to be untrue do not prove falsity at the time the statements were made.”). Moreover, steps taken
to fulfill the promise made, by one against whom fraud has been alleged, removes the issue from
the concept of fraud. Citation Co. Realtors, Inc. v. Lyon, 610 P.2d 788, 791 (Okla. 1980).
Defendants/Counterclaimants allege in Count III that WPC made four specific false
representations. (Countercl., ¶¶ 132-135.) Defendants/Counterclaimants allege these
representations were knowingly false when made. (Id., ¶ 136.) WPC disputes and denies the
23
claims and argues that there is no evidence in the record to support any allegation of fraud.
(Mot. at 35-39.)
In support of their contention, WPC provides evidence that Stearns testified in deposition,
both individually and as the Rule 30(b)(6) designee for Fuzzee Bee, that the fraud counterclaim
is based only on allegations of unfulfilled promises. In his individual deposition, Stearns
testified as follows:
228
25 Q. (BY MR. ASKEW) Okay. So -- and I'm asking
229
1 you, do you think that Rosso and Mallick [sic] made promises to
2 you that just got -- never got fulfilled?
3 A. They made statements to me that I believe that
4 -- now -- I believe now that they had no intention of
5 fulfilling, so -6 Q. Why do you believe they had no intention of
7 fulfilling any statements they made?
8 A. Because I was a passionate founder who
9 continuously asked for those things to happen, and they
10 never happened, so that’s why. So they lied to me.
11 Q. So because they never happened, you believe
12 they were false when made. Is that it?
13 A. Yes. Of course.
14 Q. That’s it, that’s all you have for me?
15 A. No, that’s not all I have. I mean, there’s
16 more things that I’ve discussed with my attorney, but
17 we’re not going to disclose that right now.
18 Q. Do you have any other answer for my question as
19 to whether you can specifically identify any basis for
20 your allegations as to whether Whitlock made any false
21 representation of any type to Fuzzee Bee?
22 MR. KEESLING: Other than what he’s already
23 said.
24 A. Not at this time.
25 Q. (BY MR. ASKEW) Similar question, and if your
24
230
1 answer is the same, just tell me.
2 A. Okay.
3 Q. But do you have any factual basis for the
4 allegation that Whitlock knew that representations were
5 false when they made them?
6 A. Not at this time, I can’t think of specifics,
7 but I’m sure we have some.
(Mot., Ex. 1 at 24-26.) In his Rule 30(b)(6) testimony concerning the fraud claim, Stearns
testified as follows:
212
16 Q. (By Mr. Askew) Let me withdraw the
17 question and ask this: Mr. Stearns -18 A. Uh-huh.
19 Q. -- can you identify anything for me today
20 that you believe constitutes evidence of fraud by
21 Whitlock Packaging?
22 MR. KEESLING: Objection; clear legal
23 conclusion.
24 A. Yeah. I mean, Fuzzee Bee Beverage has
25 hired expert attorneys and we're talking with them and
213
1 they’re – they’re using our information, and they’re the
2 legal experts.
3 Q. (By Mr. Askew) Anything else?
4 A. Based on 134 and 135, no, It’s – it’s
5 attorney-client privilege.
(Ex. 31 at 25-26.)
It is clear from the record that Stearns, either individually or as the person most
knowledgeable on behalf of Fuzzee Bee, can offer no factual basis, other than alleged unfulfilled
promises, to establish the first required element, false representation, in support of the fraud
25
counterclaim. An unfulfilled promise is not fraud absent proof in the record that a promise to
perform was made with the intent not to keep the promise. Roberts, 990 F.2d at 1173.
In their response, Defendants/Counterclaimants again generally conclude that their claim
for fraud, which encompasses the Packaging Agreement and the Membership Agreement, is
supported by “circumstantial evidence.” (See Resp. at 23, 24.) Though it is true that in
Oklahoma and Colorado3, circumstantial evidence may be used to prove fraud, see Griffith v.
Scott, 261 P. 371, 376 (Okla. 1927) and Kopeikin v. Merchants Mortg. And Trust Corp., 679
P.2d 599, 602 (Colo. 1984), Defendants/Counterclaimants again fail to cite to any circumstantial
evidence, either circumstantial or direct, in the record that supports their fraud claim.
Accordingly, summary judgment is granted in favor of WPC on the fraud claim and fail
to provide evidence of any material matter for trial. See Mitchell, 218 F.3d at 1199.
4.
Breach of Fiduciary Duty Claim
Finally, WPC moves for summary judgment on Defendants/Counterclaimants’ breach of
fiduciary duty claim. (Mot. at 40-44.)
Defendants’ Counterclaim alleges that WPC’s fiduciary duties are contractual and arose
by way of its membership in Fuzzee Bee. (Countercl., ¶¶ 142-143.) The Membership
Agreement is governed by Colorado law, which provides that to prevail on a claim for breach of
fiduciary duty, Defendants/Counterclaimants are required to prove a fiduciary duty existed, the
defendant breached that duty, and the breach was the proximate cause of damages. Aller v. Law
Office of Carole C. Schriefer, 140 P.3d 23, 26 (Colo. App. 2005).
3
The parties do not dispute that the Membership Agreement is governed by Colorado law.
26
The undisputed evidence shows WPC was a member of Fuzzee Bee. However, the
undisputed evidence also shows WPC was not a Manager of Fuzzee Bee and did not have the
managerial authority set forth in the Fuzzee Bee Operating Agreement. (See Mot., Ex. 4,
Operating Agreement, Stearns_0026-0045.) It is undisputed that the Manager of Fuzzee Bee is
Stearns. (See id.) Defendants/Counterclaimants’ response (see Resp. at 26) is devoid of
reference to any document which shows WPC owed a fiduciary duty to
Defendants/Counterclaimants and is devoid of any explanation or evidence that a fiduciary duty
existed. See Mitchell, 218 F.3d at 1199.
As Defendants/Counterclaimants have failed to establish the first element of a fiduciary
duty claim, WPC is entitled to summary judgment on the claim.
WHEREFORE, for the going reasons, it is
ORDERED that “on “Plaintiff/Counterclaim Defendant Whitlock Packaging
Corporation’s Motion for Summary Adjudication of Counterclaims and Brief in Support” (Doc.
No. 86) is GRANTED. It is further
ORDERED that, at the conclusion of this case, judgment shall enter in favor of
Plaintiff/Counterclaim Defendant Whitlock Packaging Corporation, and against the
Defendants/Counterclaimants, Brian Stearns and Fuzzee Bee Beverages, on the counterclaims. It
is further
27
ORDERED that, at the conclusion of the case, Plaintiff/Counterclaim Defendant
Whitlock Packaging Corporation will be awarded its costs related to defending the Counterclaim,
to be taxed by the Clerk of Court in the time and manner prescribed by Fed. R. Civ. P. 54(d)(1)
and D.C.COLO.LCivR 54.1.
Dated this 9th day of April, 2015.
28
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