ConcealFab Corporation v. Sabre Industries, Inc. et al

Filing 129

ORDER. Plaintiff's Motion for Partial Summary Judgment (Doc. # 94 ) is GRANTED as to its claim for declaratory judgment (Claim Eight) and to Sabre's counterclaim for fraudulent inducement (Counterclaim One). Defendants' Motion for Partial Summary Judgment (Doc. # 97 ) is GRANTED IN PART AND DENIED IN PART. It is GRANTED as to the claims for trade disparagement (Claim Five). It is DENIED as to all other claims. By Judge Christine M. Arguello on 11/11/2017. (athom, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Christine M. Arguello
Civil Action No. 15-cv-01793-CMA-KLM
CONCEALFAB CORPORATION, a Colorado corporation,
Plaintiff,
v.
SABRE INDUSTRIES, INC., a Delaware corporation, and
MIDWEST UNDERGROUND TECHNOLOGY, INC., an Illinois corporation,
Defendants.
ORDER GRANTING PLAINTIFF’S MOTION FOR PARTIAL
SUMMARY JUDGMENT AND GRANTING IN PART
DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
This matter is before the Court on Plaintiff’s Motion for Partial Summary
Judgment (Doc. # 94) and Defendants’ Motion for Partial Summary Judgment (Doc.
# 97). For the reasons discussed herein, the Court grants Plaintiff’s Motion for Partial
Summary Judgment, and grants in part and denies in part Defendants’ Motion for Partial
Summary Judgment.
I.

BACKGROUND

The following facts are undisputed. Plaintiff ConcealFab Corporation
(“ConcealFab”) and Defendants Sabre Industries, Inc. and Midwest Underground
Technology, Inc. (collectively, “Sabre”) participate in the small cell, distributed antenna
system (“DAS”), and outdoor distributed antenna system (“oDAS”) segments of the
telecommunications market. In 2014, the parties began discussions to merge their

businesses and, thereafter, negotiated several contracts, including a Mutual NonDisclosure Agreement (“NDA”), a Term Sheet, an Interim Plan/Licensing Operating
Agreement (“LOA”), and an Employment Agreement between ConcealFab’s CEO and
Sabre. The NDA, Term Sheet, and LOA were executed on August 4, 2014, February 3,
2015, and March 13, 2015, respectively. The Employment Agreement, however, was
never fully executed. (Doc. # 97 at 4.)
On May 27, 2015, Sabre recorded a UCC-1 Financing Statement (“UCC Lien”)
with the Colorado Secretary of State encumbering ConcealFab’s intellectual property.
On May 28, 2015, Sabre delivered to ConcealFab a draft promissory note pursuant to
which ConcealFab committed to paying $621,559.30 to Sabre. ConcealFab refused to
sign the note. On June 3, 2015, Sabre terminated the LOA, which effectively dissolved
the parties’ cooperative arrangement. On July 24, 2015, ConcealFab demanded that
Sabre terminate its UCC Lien, but Sabre refused to do so.
The operative complaint in this case is ConcealFab’s First Amended Complaint,
filed on June 13, 2016. (Doc. ## 1, 68.) ConcealFab alleges that Sabre never intended
to complete the merger contemplated by the Term Sheet and used the LOA as a means
of obtaining access to ConcealFab’s confidential and propriety information in order to
unfairly compete with ConcealFab. (Id.) Specifically, ConcealFab’s Amended
Complaint alleges the following claims: (1) breach of contract – NDA; (2) breach of
contract – LOA; (3) breach of implied covenant of good faith and fair dealing; (4) breach
of fiduciary duty; (5) misappropriation of trade secrets; (6) tortious interference with
contractual relationships; (7) tortious interference with prospective business relations;

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(8) trade disparagement; (9) declaratory judgment pursuant to 28 U.S.C. §§ 2201 and
2202 that the UCC Lien is invalid; (10) fraud in the inducement; (11) unjust enrichment;
and (12) breach of contract – Employment Agreement. (Doc. # 68.)
On July 5, 2016, Sabre filed its Answer, denying every allegation. (Doc. # 70.)
Sabre brings counterclaims against ConcealFab for (1) fraudulent inducement; (2)
unjust enrichment; (3) trade disparagement; (4) tortious interference with contractual
relations; and (5) breach of contract – LOA. (Id.)
On April 28, 2017, ConcealFab moved for partial summary judgment on its
declaratory judgment claim (Claim 9) and Sabre’s fraudulent inducement claim
(Counterclaim 1). (Doc. # 94.) Also on April 28, 2017, Sabre moved for partial
summary judgment on its breach of LOA counterclaim (Counterclaim 5) and all of
ConcealFab’s claims (Claims1–8, 10, 12), except the claims for unjust enrichment and
declaratory judgment (Claims 9, 11). (Doc. # 97.) Both motions are ripe for
determination.
II.

STANDARD OF REVIEW

When reviewing a motion for summary judgment, the Court must view the
evidence in the light most favorable to the non-moving party. Hinsdale v. City of Liberal,
19 F. App’x 749, 754 (10th Cir. 2001). Summary judgment is warranted when the
movant shows that there is no genuine issue as to a material fact and the movant is
entitled to judgment as a matter of law. DP-Tek, Inc. v. AT&T Glob. Info. Sols. Co., 100
F.3d 828, 831 (10th Cir. 1996). A dispute is “genuine” if the evidence is such that it
might lead a reasonable jury to return a verdict for the nonmoving party. Allen v.

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Muskogee, 119 F.3d 837, 839 (10th Cir. 1997). A fact is “material” if it is essential to the
proper disposition of the claim under the relevant substantive law. Wright v. Abbott
Labs., Inc., 259 F.3d 1226, 1231–32 (10th Cir. 2001).
The moving party bears the initial burden of demonstrating the absence of a
genuine dispute of material fact and entitlement to judgment as a matter of law. Bones
v. Honeywell Int’l, Inc., 366 F.3d 869, 875 (10th Cir. 2004). In attempting to meet this
standard, however, a movant that does not bear the ultimate burden of persuasion at
trial does not need to disprove the non-moving party’s claim. Rather, the movant need
simply point out to the Court a lack of evidence for the non-moving party on an essential
element of that party’s claim. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th
Cir. 1998). After the movant has met its initial burden, the non-moving party must
provide “significantly probative evidence” that would support a verdict in its favor.
Jaramillo v. Adams Cty. Sch. Dist. 14, 680 F.3d 1267, 1269 (10th Cir. 2012) (citing
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249–50 (1986)).
III.

ANALYSIS

Upon review of the parties’ briefing and the evidence referenced therein, the
Court finds that disputed issues of material fact preclude the Court from granting
summary judgment as to all claims, except the three discussed below.
A.

PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT
1.

ConcealFab’s Claim for Declaratory Judgment that the UCC Lien Is Invalid

ConcealFab requests that the Court declare Sabre’s UCC Lien invalid because
Sabre did not have an authenticated security agreement at the time it recorded the lien

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with the Colorado Secretary of State, as is required by the Uniform Commercial Code.
(Doc. # 94 at 4.) Sabre responds that ConcealFab’s request for declaratory judgment is
moot because Sabre filed an amendment terminating the UCC Lien on the same day as
filing its Response. 1 (Doc. # 104-1 at 49–52.) ConcealFab replies that its request for
declaratory judgment is not moot because the voluntary cessation exception applies in
that there is nothing preventing Sabre from re-recording the UCC Lien at a later date.
(Doc. # 110 at 2–5.)
a.

Mootness

The doctrine of mootness does not apply if a party who has voluntarily ceased an
allegedly illegal practice is free to resume the practice at any time. See Ind v. Colo.
Dep’t of Corr., 801 F.3d 1209, 1213–14 (10th Cir. 2015). The voluntary cessation
exception to mootness “exists to counteract the possibility of a defendant ceasing illegal
action long enough to render a lawsuit moot and then resuming the illegal conduct.”
Chihuahuan Grasslands All. v. Kempthorne, 545 F.3d 884, 892 (10th Cir. 2008).
However, voluntary cessation may moot a claim if (1) it can be said with
assurance that there is no reasonable expectation that the alleged violation will recur,
and (2) interim relief or events have completely and irrevocably eradicated the effects of
the alleged violation. Rio Grande Silvery Minnow v. Bureau of Reclamation, 601 F.3d
1096, 1115 (10th Cir. 2010). The defendant bears the “heavy burden of persuading” the
Court that the challenged conduct cannot reasonably be expected to start up again. Id.
at 1116 (citing Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S.
1

Sabre filed a UCC-3 Financing Statement Amendment terminating the UCC Lien on May 18,
2017 (Doc. # 104-1 at 50) and filed its Response with the Court on May 18, 2017 (Doc. # 104).
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167, 189 (2000)). Moreover, it must be clear that the defendant “has not changed
course simply to deprive the court of jurisdiction.” Ind, 801 F.3d at 1214.
Sabre fails to meet this burden. Sabre argues ConcealFab’s claim is moot
because it “has filed a UCC Termination . . . as to its previously filed lien.” (Doc. # 104
at 3.) Sabre offers no further reason supporting its mootness argument and fails to
persuade the Court that it would not file a subsequent UCC Lien encumbering
ConcealFab’s intellectual property, especially considering that it appears that the first
lien was wrongfully filed and Sabre refused to terminate the lien until its response to this
motion was due—nearly two years after ConcealFab’s demand that required Sabre to
do so. The Court finds that the voluntary cessation exception to the doctrine of
mootness applies here. ConcealFab’s request for declaratory judgment, which the
Court now turns to, is not moot.
b.

The Validity of the UCC Lien

Relevant to this case, a person may file a UCC-1 Financial Statement only if the
“debtor authorizes the filing in an authenticated record” or “by authenticating or
becoming bound as a debtor by a security agreement.” Colo. Rev. Stat. §§ 4-9509(a)(1), (b) (emphasis added). A security interest is enforceable against the debtor
with respect to collateral if “[t]he debtor has authenticated a security agreement that
provides a description of the collateral.” Colo. Rev. Stat. § 4-9-203(b)(3)(A) (emphasis
added); see also Compass Bank v. Kone, 134 P.3d 500, 502 (Colo. App. 2006)
(discussing the statutory requirements for a security interest to be enforceable).

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It is undisputed that Sabre filed the UCC Lien on May 27, 2015. However, there
was no security agreement between Sabre and ConcealFab on May 27, 2015. The
LOA stated, “If for some reason the LOA is terminated, the amounts paid related to
these . . . obligations would revert to a 1-year note due Sabre guaranteed by all IP.”
(Doc. # 94-1 at 10–11.) Sabre did not terminate the LOA until June 3, 2015, and the
LOA therefore did not revert into a note until June 3, 2015. Thus, when Sabre recorded
the UCC Lien one week prior, on May 27, 2015, the LOA was not a note. Sabre had no
security agreement binding ConcealFab as a debtor when it recorded the UCC Lien.
Stated differently, there was no note or debt obligation to which the UCC Lien could
attach. The UCC Lien is, and always has been, invalid as a matter of law. ConcealFab
is therefore entitled to summary judgment on this claim.
2.

Sabre’s Fraudulent Inducement Counterclaim

Sabre counterclaims that ConcealFab made several misrepresentations in order
to induce it to enter into the LOA, including: (1) ConcealFab had upcoming purchase
orders that would provide significant revenue; (2) ConcealFab had purchase orders that
would provide considerable revenue; (3) ConcealFab would enter into a Hill Air Force
Base (“Hill AFB”) contract in March 2015, at the latest; (4) Conceal Fab stated the
lifetime value of the Hill AFB contract was $21 million, when it knew it was $7.9 million;
and (5) ConcealFab received 100% shareholder approval prior to entering into the LOA.
(Doc. # 70 at 26–27.) ConcealFab moves for summary judgment on this counterclaim.
(Doc. # 94 at 8–15.)

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Under Colorado law, the elements of a claim for fraudulent inducement are: (1)
the plaintiff’s misrepresentation of a material fact; (2) the defendant’s justifiable reliance
on that representation; and (3) such reliance resulting in damage to the defendant.
Kirzhner v. Silverstein, No. 09-cv-02858, 2011 WL 4382560, at *9 (D. Colo. Sept. 20,
2011) (citing J.A. Walker Co., Inc. v. Cambria Corp., 159 P.3d 126, 132 (Colo. 2007)).
The Court agrees with ConcealFab’s argument that Sabre’s fraudulent
inducement counterclaim fails as a matter of law. First, the first and second alleged
representations about future revenue were not statements of past or existing facts. See
Moshner v. Long Beach Morg. Co., No. 12-cv-0729, 2014 WL 287441, at *3 (D. Colo.
Jan. 27, 2014) (the plaintiff must show that the defendant made a false representation
of a past or present fact). Under Colorado law, statements and projections regarding
future profitability are “mere puffery” and cannot be the basis of any misrepresentation
claim. See Steak n Shake Enters., Inc. v. Globex Co., LLC, 110 F. Supp. 3d 1057,
1083 (D. Colo. 2015).
Next, Sabre could not have justifiably relied upon the third and fourth alleged
representations about contracting with Hill AFB. It is undisputed that on March 6, 2015,
six days before Sabre entered into the LOA, ConcealFab informed Sabre that
ConcealFab had lost the Hill AFB contract. (Doc. ## 94 at 13, 104 at 5.) Regardless of
the lifetime value that ConcealFab purported the contract to be, Sabre was informed,
before signing the LOA on March 13, 2015, that ConcealFab was not awarded the Hill
AFB contract. (Doc. # 104 at 5.) Thus, Sabre could not have relied upon the third and
fourth representations in entering into the LOA.

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Similarly, with respect to the fifth representation about shareholder approval, it is
undisputed that prior to entering into the LOA, ConcealFab informed Sabre by email on
March 12, 2015, that a “majority”—and not 100%, as Sabre contends—of both
shareholder classes had voted in favor of the LOA. (Doc. # 94-1 at 12.) Therefore,
Sabre could not have relied upon the fifth representation in entering the LOA.
Because Sabre could not have justifiably relied upon these five representations
as a matter of law, its counterclaim for fraudulent inducement fails. ConcealFab is
therefore entitled to summary judgment on this counterclaim.
Though not asserted in Sabre’s Counterclaim, Sabre attempts to introduce in its
Response an additional counterclaim for fraudulent nondisclosure by alleging
ConcealFab did not disclose the “true nature” of a consulting agreement that
ConcealFab had with its former CEO. (Doc. # 104 at 6.) The Court rejects Sabre’s
newly introduced counterclaim because ConcealFab was at no point during litigation
given fair notice of a fraudulent nondisclosure claim. Bio Med Techs. Corp. v. Sorin
CRM USA, Inc., No. 14-cv-0154, 2015 WL 4882572, at *8 (D. Colo. Aug. 17, 2015) (a
claim or theory not adequately raised in the complaint typically will not be considered on
summary judgment). Although the Court may interpret the inclusion of new allegations
in a response to a summary judgment motion as a potential request by Sabre to amend
its counterclaim, the Court declines to do so in this case. 2 (Doc. # 104 at 4.)

2

To date, Sabre has not sought leave to amend its Counterclaim to assert a fraudulent
nondisclosure claim, despite stating more than five months ago in footnote 1 of its Response
that it intended to do so. See (Doc. # 104 at 4.)
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For these reasons, ConcealFab is entitled to summary judgment on Sabre’s
fraudulent inducement counterclaim.
B.

DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
1.

ConcealFab’s Trade Disparagement Claim

Sabre moves for summary judgment on ConcealFab’s trade disparagement claim
(Claim 7) on the grounds that ConcealFab lacks evidence to support the claim. (Doc. #
97 at 26–27); see also (Doc. # 68 at 16–17.)
Under Colorado law, a claim for disparagement consists of the following
elements: (1) a false statement; (2) published to a third party; (3) derogatory to the
plaintiff’s business in general, to the title to his property, or its quality; (4) through which
the defendant intended to cause harm to the plaintiff’s pecuniary interest, or either
recognized or should have recognized that it was likely to do so; (5) malice; and (6)
special damages. TMJ Implants, Inc. v. Aetna, Inc., 405 F. Supp. 2d 1241, 1249 (D.
Colo. 2005) (citing Teilhaber Mfg. Co. v. Unarco Materials Storage, 791 P.2d 1164,
1166 (Colo. App. 1989)).
ConcealFab has not come forward with evidence to establish a genuine issue as
to whether Sabre disparaged ConcealFab. Specifically, ConcealFab failed to meet its
burden by failing to address the claim in its Response. (Doc. # 106.) As the nonmoving party, ConcealFab “may not rest on his pleadings but must set forth specific
facts showing that there is a genuine issue for trial as to those dispositive matters for
which he carries the burden of proof.” Travis v. Park City Mun. Corp., 565 F.3d 1252,

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1258 (10th Cir. 2009). Accordingly, Sabre is entitled to summary judgment on this
claim.
C.

REMAINING CLAIMS
With respect to the remaining claims at issue, the Court finds that disputed

issues of material fact preclude the Court from granting summary judgment as to
Sabre’s counterclaim for breach of contract – LOA and ConcealFab’s claims for (1)
breach of contract – NDA; (2) breach of contract –LOA; (3) breach of implied covenant
of good faith and fair dealing; (4) breach of fiduciary duty; (5) misappropriation of trade
secrets, (6) tortious interference with contractual relations; (7) tortious interference with
prospective business relations; (8) fraud in the inducement; and (9) breach of contract –
Employment Agreement.
V.

CONCLUSION

Accordingly, it is ORDERED that Plaintiff’s Motion for Partial Summary Judgment
(Doc. # 94) is GRANTED as to its claim for declaratory judgment (Claim Eight) and to
Sabre’s counterclaim for fraudulent inducement (Counterclaim One). It is
FURTHER ORDERED that Defendants’ Motion for Partial Summary Judgment
(Doc. # 97) is GRANTED IN PART AND DENIED IN PART. It is GRANTED as to the
claims for trade disparagement (Claim Five). It is DENIED as to all other claims.
DATED: December 11, 2017

BY THE COURT:

_______________________________
CHRISTINE M. ARGUELLO
United States District Judge
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