SGM Magnetics Corporation et al v. Valerio et al
Filing
63
OPINION and ORDER granting Defendants' 54 Renewed Motion for Partial Judgment on the Pleadings for Counts I, II, and III of Plaintiffs Amended Complaint Dkt. 38 . Because the Court has ruled on the underlying motion, the Court DENIES AS MOOT Defendants Motion for Oral Argument Dkt. 58 . Signed by Judge Michael L. Brown on 6/26/19. (jta)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
SGM Magnetics Corporation, and
Rewest LLC,
Case No. 1:16-cv-01656
Plaintiffs,
Michael L. Brown
United States District Judge
v.
Thomas A. Valerio, et al.,
Defendants.
________________________________/
OPINION & ORDER
Defendant Thomas Valerio owed Plaintiffs about $22 million. They
agreed to forgive that debt if he gave them several patents for scrap metal
recycling and sorting technologies. Defendant Valerio did so. Plaintiffs
now claim the patents were worthless and Defendant Valerio always
knew they were. They sued Defendant Valerio to get their money back.1
Defendants moves for partial judgment on the pleadings, arguing that
Counts I, II, and III of Plaintiffs’ amended complaint should be dismissed
Plaintiffs also sued several companies associated with Defendant
Valerio. Those allegations are not relevant to this order.
1
based on a binding release agreement. (Dkt. 54.) The Court agrees and
grants Defendants’ motion to dismiss these counts.
I.
Factual Background
Since
2003,
Plaintiffs’
principal,
Didier
Haegelsteen,
and
Defendant Valerio “have collaborated in the design, manufacture, and
sales of technology and equipment related to the recycling of scrap
metals.”2
property,”
(Dkt. 38 ¶ 12.)
while
Plaintiffs
Defendant Valerio supplied “intellectual
provided
“expertise
in
engineering,
manufacturing, marketing, selling, and implementing equipment
incorporating that intellectual property.”
(Id. ¶ 14.)
Plaintiff SGM
Magnetics also supplied Defendant Valerio with a revolving line of credit,
the rights to which it later assigned to Plaintiff Rewest LLC. (Id. ¶ 17.)
As of January 20, 2012, Defendant Valerio owed more than $22,000,000
on a note he gave Plaintiff Rewest connected to that line of credit. (Id.
¶ 22.)
The parties’ business relationship spurred other events and
transactions that gave rise to other claims and counts in the complaint.
Yet those events do not affect the Court’s resolution of the present motion
and thus are not mentioned.
2
2
On or about that day, Plaintiff Rewest and Haegelsteen entered
into a transaction with Defendant Valerio for the purpose of resolving his
debt. (Id. ¶ 23.) They executed several documents, including one known
as the “DHTV Assignment Agreement.” (Id. ¶ 24.) In it, Defendant
Valerio transferred ownership of a company known as DHTV Holdings,
LLC, (“DHTV”) to Plaintiff Rewest. (Id.) At the time, DHTV held certain
intellectual property rights. (Id. ¶¶ 24–25.) “DHTV’s entire business
consisted of granting sublicenses to third parties [in the European Union]
to utilize certain intellectual property rights that Valerio had previously
licensed to DHTV.” (Id. ¶ 29.) As part of the transaction, the parties
executed other documents, including an operating agreement, that made
Valerio the sole manager of DHTV. At the heart of the entire transaction
were four patent applications that Valerio owned and to which he had
granted DHTV sublicenses within the European Union.
(Id. ¶ 29.)
Through the transaction, Rewest acquired DHTV’s sublicenses.
(Id.
¶ 32.)
Before the January 20, 2012, transaction, Valerio had represented
to Plaintiffs that his patent portfolio was worth hundreds of millions of
dollars and that the European rights he had granted DHTV (and Rewest
3
wanted to acquire) were worth more than the $22 million he owed
Rewest.
(Id.)
In the Assignment Agreement, Valerio expressly
represented that he knew of no fact “which materially adversely affects
the business, operations, prospects, or condition of [DHTV] or of its
properties or assets which has not been set forth in this Agreement.” (Id.
¶ 33.)
The deal was not what Rewest expected. It believes the sublicenses
are worthless because the inventions at issue have already been
commercialized, with three of the four licenses now having been
abandoned or withdrawn. (Id. ¶ 35–36.) Plaintiffs claim that, at the time
of the January 21, 2012, transaction, Valerio knew the European Union
would never grant the patents and thus knew the rights he was assigning
to Rewest were worthless but never disclosed that information to Rewest.
(Id. ¶ 38.)
Plaintiffs sued Valerio claiming “Valerio avoided repayment of
$22,000,000 in debt by transferring to Rewest an LLC interest now worth
nothing or close to nothing.” (Id. ¶ 37.) Plaintiffs asserted claims for
breach of contract (Count I), unjust enrichment (Count II), and fraud
(Count III).
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Defendant Valerio then came forward with a written release
agreement that he believes prevents Plaintiffs from asserting these
claims against him. The Release is dated March 15, 2015. (Dkt. 46-1 at
3.) Haegelsteen signed it on his own behalf and as the General Manager
of Rewest. (Id.) Broad in scope, the Release purports to relinquish and
discharge all contract and tort claims Plaintiffs may have against Valerio
arising from the January 20, 2012, transaction:
I, DIDIER HAEGELSTEEN, individually and as General
Manager of REWEST LLC, . . . in consideration of one
hundred ($100.00) dollars and other good and valuable
consideration including maintaining goodwill, do for myself,
REWEST LLC, and heirs, executors, administrators,
successor corporations or companies, corporate officers,
members, release and forever discharge THOMAS A.
VALERIO, his heirs, executors, administrators or assigns
from all manner of actions, cause of actions, suits, debts, sums
of money, claims, demands whatsoever, in law or equity which
I now have in contract or tort, as a result of a sale of DHTV
LLC on January 20, 2012.
(Id. at 1.)
The Release also contains a warranty provision that the
signatories “fully understand it . . . to be a final release of all claims
arising out of the above facts and dispute and one that cannot be
reopened at any time in the future regardless of what may take place or
later occur.” (Id. at 2.) Valerio moved for judgment on the pleadings
arguing that the Release bars Counts I, II, and III. (Dkt. 54 at 1.)
5
II.
Legal Standard
“After the pleadings are closed — but early enough not to delay trial
— a party may move for judgment on the pleadings.” FED. R. CIV. P. 12(c).
When considering a motion for judgment on the pleadings under Rule
12(c), a court may grant the motion only
where there are no material facts in dispute and the moving
party is entitled to judgment as a matter of law. In
determining whether a party is entitled to judgment on the
pleadings, [the court] accept[s] as true all material facts
alleged in the non-moving party’s pleading, and . . . view[s]
those facts in the light most favorable to the non-moving
party. If a comparison of the averments in the competing
pleadings reveals a material dispute of fact, judgment on the
pleadings must be denied.
Perez v. Wells Fargo, N.A., 774 F.3d 1329, 1335 (11th Cir. 2014) (citations
omitted).
A court, however, “need not accept inferences drawn by
plaintiffs if such inferences are unsupported by the facts set out in the
complaint. Nor must the court accept legal conclusions cast in the form
of factual allegations.” S.W. v. Clayton Cty. Pub. Schs., 185 F. Supp. 3d
1366, 1373 (N.D. Ga. 2016) (internal quotation marks omitted). So “[i]f
upon reviewing the pleadings it is clear that the plaintiff would not be
entitled to relief under any set of facts that could be proved consistent
6
with the allegations, the court should dismiss the complaint [or claims].”
Horsley v. Rivera, 292 F.3d 695, 700 (11th Cir. 2002).
“[T]he same standard as a motion to dismiss under Rule 12(b)(6)”
thus guides the court. Carbone v. Cable News Network, Inc., 910 F.3d
1345, 1350 (11th Cir. 2018) (citing Hawthorne v. Mac Adjustment, Inc.,
140 F.3d 1367, 1370 (11th Cir. 1998)). A court thus considers only the
pleadings before it, which for a 12(c) motion includes the complaint and
the answer.
A court may also consider documents attached to the pleadings, but
only if the documents are “(1) central to the plaintiff’s claim; and
(2) undisputed.” Horsley v. Feldt, 304 F.3d 1125, 1134 (11th Cir. 2002).
In the context of a judgment on the pleadings, “undisputed” means “the
authenticity of the document is not challenged.” Id.
III. Discussion
A.
The Law of the Case Doctrine Does Not Apply
Plaintiffs argue that the Court has already decided the Release is
ambiguous, making it unenforceable under the law of the case doctrine.
Plaintiffs are mistaken.
7
Under the law of the case doctrine, “an issue decided at one stage
of a case is binding at later stages of the same case.” United States v.
Escobar-Urrego, 110 F.3d 1556, 1560 (11th Cir. 1997). “A federal court
enunciating a rule of law to be applied in a particular case establishes
the ‘law of the case,’ which other courts owing obedience to it must, and
which itself will, normally apply to the same issues in subsequent
proceedings in that case.” Westbrook v. Zant, 743 F.2d 764, 768 (11th Cir.
1984) (emphasis removed) (internal quotation marks omitted). The law
of the case thus requires “a court to follow what has been decided
explicitly, as well as by necessary implication, in an earlier proceeding.”
In re Justice Oaks II, Ltd., 898 F.2d 1544, 1549 n.3 (11th Cir. 1990)
(emphasis removed).
This Court’s previous order did not establish the law of the case or
explicitly enunciate a legal ruling about the ambiguity of the release. See
id. (“[L]aw of the case bars only those legal issues that were actually, or
by necessary implication, decided in the former proceeding . . . .”). The
February 28, 2017, order denying Defendants’ motion to dismiss and
motion for sanctions did not involve the Release, as Defendant Valerio
had not answered the complaint and asserted release as an affirmative
8
defense. Indeed, the Court specifically stated that it could not “consider
defendants’ release-based affirmative defense when deciding the present
motion” because the Release was not part of the pleadings at that time.
(Dkt. 36 at 7.) The Court explained that “[h]ad Defendants answered the
complaint, asserted release as an affirmative defense, attached the
Release and any other supporting documents, and filed a motion for
judgment on the pleadings, [it] could consider the defense before
discovery commences.” (Id. at 7 n.4.) The Court went on to explain that
“Defendants may still walk that path.” (Id.)
Defendant Valerio now takes that walk, having done what the
Court said he must do to bring the Release properly into this dispute. It
is hard to understand how the Court could have issued a binding
interpretation of the Release when it said it could not even consider it.
Plaintiffs nevertheless point to Judge Jones’s characterization of
the Release as ambiguous. But, again, the Release was not properly part
of the record at that time. The Court mentioned its apparent ambiguity
in a footnote when denying Defendants’ motion for sanctions, stating “the
Release’s ambiguity makes it a plausible but not sure-fired affirmative
defense that lacks the heft to undergird sanctions.” (Dkt. 36 at 12 n.6.)
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The Court considered the Release only to deny sanctions while refusing
to consider it an affirmative defense absent the proper procedural steps
to put it before the Court. It would be wildly erratic and unfair for a court
to refuse to consider a document, advise a party how it may place the
document before the court for proper consideration, and then, when a
party does as instructed, rule that a former footnote involving sanctions
precludes any substantive consideration of the document. The Court
simply did not consider the Release, its alleged ambiguity, or its
applicability to Counts I through III, as it was not properly part of the
record.
B.
The Release Bars Counts I, II, and III
Plaintiffs claim the Release is ambiguous and should be interpreted
not to preclude the claims asserted in Counts I, II, and III. Defendant
Valerio, on the other hand, argues that the provision is clear and
unambiguous, releasing all claims arising out of the January 20, 2012,
transaction.
According to its terms, Georgia law governs the enforceability of the
Release. (Dkt. 46-1 at 3.) Under Georgia law, a release is a complete and
affirmative defense. See GA. CODE ANN. § 13-5-7 (“[A] release by the other
10
contracting party shall be a complete defense.”); Arnold v. Neal, 738
S.E.2d 707, 711 (Ga. Ct. App. 2013) (affirming summary judgment on
basis of limited release). Georgia law also provides that a release “is a
form of contract subject to construction by the court.”
Campos v.
Williams, 457 S.E.2d 243, 245 (Ga. Ct. App. 1995) (affirming grant of
summary judgment in favor of releasing insurer despite finding
settlement contract ambiguous). As such, it is subject to the standard
rules of construction, the primary goal of which is to fulfill the parties’
intent. GA. CODE ANN. § 13-2-3; see also Glazer v. Crescent Wallcoverings,
Inc., 451 S.E.2d 509, 512 (Ga. Ct. App. 1994) (“As in any situation
involving the construction of a contract, magic words are not required,
and the goal of the court is to look for the intent of the parties.”).
Releasing parties may release one another not only from claims already
in existence, but also from liability for future conduct and unknown
claims. Dennis v. City of Atlanta, 751 S.E.2d 469, 472 (Ga. Ct. App. 2013).
When interpreting a contract under Georgia law, a court must first
“decide whether the language is clear and unambiguous.” CareAmerica,
Inc. v. S. Care Corp., 494 S.E.2d 720, 722 (Ga. Ct. App. 1997). “If it is,
the court simply enforces the contract according to its clear terms.” Id.
11
When the language of a contract is plain and unambiguous, no additional
construction is required or permissible and “the terms of the contract
must be given an interpretation of ordinary significance.” Fernandes v.
Manugistics Atlanta, Inc., 582 S.E.2d 499, 502 (Ga. Ct. App. 2003). If the
contract is ambiguous in some respect, however, a court “must apply the
rules of contract construction to resolve the ambiguity.” CareAmerica,
494 S.E.2d at 722. “[I]f the ambiguity remains after applying the rules
of construction, the issue of what the ambiguous language means and
what the parties intended must be resolved by a jury.”
Id.
“The
construction of a contract is a question of law for the courts, as is the
existence or nonexistence of an ambiguity in a contract.” Avion Sys., Inc.
v. Thompson, 666 S.E.2d 464, 467 (Ga. Ct. App. 2008) (internal citations
omitted).
Of particular relevance here, “O.C.G.A. § 13-2-2(4) instructs courts
to look at the whole contract to instruct the interpretation of any part of
it, thereby giving meaningful effect to as much of the contract as
possible.” In re Wright Med. Tech. Inc., Conserve Hip Implant Prods.
Liability Litig., No. 1:16-cv-3044-WSD, 2017 WL 1178082, at *3 (N.D. Ga.
Mar. 29, 2017).
Courts “should avoid any construction that renders
12
portions of the contract language meaningless.”
Deep Six, Inc. v.
Abernathy, 538 S.E.2d 886, 888 (Ga. Ct. App. 2000).
The Court finds the Release unambiguous.
In it, Haegelsteen
acted for himself and for Rewest to “release and forever discharge”
Valerio “from all manner of actions, causes of actions, suits, debts, sums
of money . . . in law or equity which I now have in contract or tort, as a
result of the sale of DHTV LLC on January 20, 2012.” (Dkt. 46-1 at 1.)
The Release then makes it clear that the transaction for which any and
all claims are being released “involves the sale of the limited liability
company DHTV LLC in exchange for the debt forgiveness,” identifies the
line of credit that was involved, and explains that the balance of the debt
was $22,356,696.39.
(Id.)
The Release unambiguously states the
signatories’ intention to waive any and all tort or contract claims that
arise from the transaction.
Counts I, II, and III arise from that
transaction and thus fall within the scope of the Release.
Plaintiffs argue the reference to claims “which I now have in
contract or tort” renders the provision ambiguous. They say the use of
the word “I” creates ambiguity about whether only Haegelsteen is
releasing claims he may have or whether he and Rewest are releasing
13
claims. But, in the very first sentence of that paragraph, Haegelsteen
stated that he is executing the document individually and as the General
Manager of Rewest. (Dkt. 46-1 at 1.) He stated that he was giving the
release for himself, for Rewest, and “heirs, executors, administrators,
successor corporations or companies, corporate officers, [and] members.”
(Id.) And Rewest — not Haegelsteen — was the entity that held the note,
was a party to the DHTV transaction, and acquired DHTV on January
20, 2012. Similarly, the third paragraph of the Release “precludes [Didier
Haegelsteen] or [Rewest] LLC from instituting any actions” against
Valerio. (Id.) This point is underscored by the three signature lines after
the Release — one for Didier Haegelsteen individually, one for Rewest
LLC by Haegelsteen, and one for Thomas A. Valerio. (Id. at 3.) Rewest
would not be a signatory if it was not releasing any claims it might have
had.
Haegelsteen also warranted, again for himself and for Rewest, that
both entities had read the Release and understood it to be a “final release
of all claims” arising out of the DHTV Transaction that “cannot be
reopened at any time in the future regardless of what may take place or
later occur.” (Id. at 2.) The parties executed this document fourteen
14
months after the DHTV transaction. By signing this, Haegelsteen clearly
and unambiguously expressed his intent to waive all tort and contract
claims he or Rewest might have against Valerio from the transaction.
This finding is strengthened by the warranty in the Release that each
signatory has “made a full, complete, and independent investigation of
the circumstances surrounding this matter, and [has] full knowledge of
all facts involved.” (Id.)
Plaintiffs also claim the Release is ambiguous because of the
sentence stating that, while the parties have not yet recognized a dispute
between them, the Release “contemplates the possibility that one may
develop in the future and precludes [Defendants] from instituting any
actions to recover the consideration paid by Valerio.” (Id. at 1 (emphasis
added).) They claim this language raises ambiguity about whether the
claims released, therefore, are only those seeking the return of $100.00
consideration identified in the Release itself rather than claims arising
from the 2012 transaction. It may be that there was a drafting error and
the parties intended this paragraph to state Plaintiffs were releasing
their right to seek recovery of consideration paid to Valerio.
15
But, even if that were the case and this sentence contains a
mistake, that ambiguity would not invalidate the entire Release. The
document contains a provision stating that the invalidity of any provision
renders no other provision unenforceable. The parties clearly intended
to execute a severable contract. Such provisions are enforceable under
Georgia law. See Bulloch S., Inc. v. Gosai, 550 S.E.2d 750, 755 (Ga. Ct.
App. 2001) (“[T]he primary task in determining contract severability
remains that of ascertaining the intention of the parties.” (internal
quotation marks omitted)).
And Georgia courts have explained that
Georgia law “is against the destruction of contracts on the grounds of
uncertainty if it is possible in [the] light of the circumstances under which
the contract was made to determine the reasonable intention of the
parties.” Id. at 754. Even excluding the paragraph with the language
Plaintiffs claim is ambiguous, the rest of the Release evidences Plaintiffs’
clear intent to release all claims they may have against Defendant
Valerio arising from the January 20, 2012, transaction.
Plaintiffs contend that until discovery occurs, they cannot
determine when future claims in fact accrued, whether it was after the
DHTV transaction or the execution of the Release. (Dkt. 55 at 13.) Yet
16
this is not an ambiguity requiring discovery. The Release is necessarily
broad enough to cover any and all disputes related to this transaction
that could arise in the future, whether that be after the transaction or
even after the execution of the Release.
Contrary to Plaintiffs’
contention, the Release clearly expresses the intent to release claims
related to the transaction that may arise in the future, regardless of when
they may have “accrued.”
IV.
Conclusion
The Court thus GRANTS Defendants’ Renewed Motion for Partial
Judgment on the Pleadings (Dkt. 54) for Counts I, II, and III of Plaintiffs’
Amended Complaint (Dkt. 38). Because the Court has ruled on the
underlying motion, the Court DENIES AS MOOT Defendants’ Motion
for Oral Argument (Dkt. 58).
SO ORDERED this 26th day of June, 2019.
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