Celtig, LLC v. Patey

489 F.Supp.3d 1275

CELTIG, LLC, a Tennessee limited liability company, Plaintiff,

v.Aaron A. PATEY, an individual; Evergreen Strategies, LLC, a Nevada limited liability company; PSD International, LLC, a Utah limited liability company; and Relay Advanced Materials, Inc., a Delaware Corporation, Defendants.

Case No. 2:17-cv-01086

United States District Court, D. Utah.

Signed September 24, 2020

Richard D. Burbidge, Abigail M. Dizon-Maughan, Beau R. Burbidge, Burbidge | Mitchell, Salt Lake City, UT, for Plaintiff.

Michael J. Davidson, Cedar Hills, UT, for Defendants.

MEMORANDUM DECISION AND ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

Jill N. Parrish, United States District Court Judge

This contract dispute is before the court on Plaintiff Celtig, LLC's ("Plaintiff" or "Celtig") Motion for Summary Judgment (the "Motion"). Plaintiff alleges that there remain no genuine disputes of material fact that Defendants Evergreen Strategies, LLC ("Evergreen"), Relay Advanced Materials, Inc. ("RAM"), PSD International, LLC ("PSDI"), and Aaron A. Patey ("Patey") (collectively "Defendants") breached their contract with Celtig. After considering the parties’ briefing, the court GRANTS Plaintiff's Motion.

I. BACKGROUND¹

This case arises from a business dispute over the alleged breach of contractual agreements to buy and sell graphene, a substance used in various industrial applications. Celtig, a Tennessee limited liability company, created a process allowing for the mass production of graphene at low cost. Aaron Patey is a citizen of Utah.

Patey owned and operated the following entities: Evergreen, a Nevada limited liability company whose members are citizens of Utah; PSDI, a Utah limited liability company whose members are citizens of Utah; and RAM, a Delaware corporation with its principal place of business in Utah. The court has previously ruled that Celtig plausibly alleged that these four entitles are alter egos of each other. See Celtig, LLC v. Patey , No. 2:17-CV-01086, 2019 WL 4779285, at *5–7 (D. Utah Sept. 30, 2019).

A. INITIAL NEGOTIATIONS

On or about January 3, 2017, representatives of PSDI, including Patey and an officer of PSDI named David Nielsen ("Nielsen"), traveled to Celtig's office in Knoxville, Tennessee to propose a business agreement under which PSDI would purchase graphene produced by Celtig and then resell the graphene on the global market. At the meeting, Patey offered to purchase all the graphene currently in Celtig's inventory for testing and reiterated Defendants’ offer over email. Patey represented that he already had buyers waiting to purchase graphene and asked Celtig to increase its production to meet Defendants’ demand.

B. THE AGREEMENT

On or about January 23, 2017, PSDI and Celtig executed a Memorandum of Understanding ("MOU") to purchase an initial supply of graphene. Celtig agreed to sell 120 kilograms of graphene to PSDI for $78,000.00. Under the MOU, the parties then undertook a thirty-day due diligence period and Defendants had samples of the graphene tested for approval at a third-party facility. After the January meeting and execution of the MOU, Patey's other company, Evergreen, assumed PSDI's place in the negotiations with Celtig. On or about March 28, 2017, Patey, on behalf of Evergreen, signed two contracts with Celtig: the Definitive Agreement and the Exclusive License and Distribution Agreement ("Licensing Agreement") (collectively the "Agreement"). As the court has previously ruled, these two contracts are integrated and form one Agreement under Utah law. See Celtig, LLC v. Patey , No. 2:17-CV-01086, 2019 WL 4751918, at *5 (D. Utah Sept. 30, 2019).

1. The Definitive Agreement Terms

The Definitive Agreement establishes Defendants’ obligation to purchase graphene from Celtig. Paragraph one of the Definitive Agreement required Evergreen to pre-pay $750,015.00 for the purchase of 833,350 grams of graphene from Celtig within three business days following execution of the agreement. ECF No. 212–3 at 2. The parties were to agree on the quality standards, tolerances, and specifications for the graphene sold and purchased thereunder, and agreed that the timing of the deliveries would be decided in writing at a later date. Id. Under Paragraph five, Defendants promised to "purchase all of output from [Celtig's] production facility during the production ramp-up period" as well as $20,000,000 worth of graphene for the first twelve-month purchase period, $40,000,000 worth of graphene for the second twelve-month period, and $60,000,000 for the third twelve-month purchase period. Id. at 3. Under paragraph three, Defendants also agreed "to provide support and infrastructure for Global Supply Chain management" and "to provide sales, and marketing services, contracting and managing any and all Graphene purchase agreements as specified in the [Licensing Agreement]." Id.

In return, Celtig agreed to amend its operating agreement to join Evergreen as a voting member of Celtig, transfer through an appropriate legal instrument a 30% voting ownership interest in Celtig to Evergreen, and guarantee Evergreen at least 30% of the voting membership on the board. Id. at 3. Accordingly, Celtig sent Evergreen a draft amended Operating Agreement on May 11, 2017. Celtig asked for Evergreen's comments and requested that Evergreen name the representative who would sit on Celtig's board. But Evergreen never responded. As a result, Celtig has not amended its Operating Agreement to make Evergreen a member of Celtig, and the five current members of Celtig have not approved the transfer of any voting membership interest to Evergreen.

The parties also assented to certain termination terms in the Definitive Agreement. First, the Definitive Agreement states that if Celtig fails to produce or deliver the graphene according to the terms of the Agreement, or if Evergreen is "unable to purchase the year-to-year volumes specified," then either party "may elect to terminate this Agreement and the Exclusive License and Distribution Agreement, terminate Evergreen's board representation and observation rights," and return the 30% ownership interest transferred to Evergreen "for a purchase price of $1.00." ECF No. 212–3 at 5. The Definitive Agreement also states that "[t]his Agreement may also be terminated by the parties for other reasons," and termination would be "achieved by the buyout by one party of the other for an amount determined to be the fair market value of the selling party's interests hereunder." Id. The Definitive Agreement then states that the specified "termination rights" as described above "are in addition to any other remedies available at law or in equity for a breach of this Agreement." Id.

2. The Licensing Agreement Terms

Under the terms of the Licensing Agreement, Evergreen repeated its promise from the Definitive Agreement to use its "best efforts" to "promote, market, and sell" the graphene purchased from Celtig and to "regularly purchas[e] [graphene] from Celtig in sufficient quantities to meet the reasonably anticipated inventory and purchase demand for such." ECF No. 212–4 at 3–4. In exchange, Celtig agreed to sell Evergreen all the graphene that Celtig could produce. The Licensing Agreement included a provision allowing for termination of the Agreement if the "non-terminating party ... fails to provide within fourteen (14) days after a request for adequate and reasonable assurance of its financial and operational capacity to perform timely any of its obligations under this Agreement." Id. at 7.

C. PERFORMANCE OF THE AGREEMENTS

On or about April 4, 2017, Celtig received a $750,015.00 prepayment from PSDI under paragraph one of the Definitive Agreement. On or about April 14, 2017, Patey and Nielsen requested that Celtig immediately ship one ton of graphene to Evergreen and PSDI. Brian Edwards ("Edwards"), the CEO and manager of Celtig, informed PSDI and Evergreen that Celtig did not have that amount of graphene in stock, that the production would take six weeks, and that it would need to acquire some of the requested graphene from a production partner in China called Sinagraphene. Defendants did not object to this plan. Using the $750,015.00 prepayment and the proceeds of an additional $350,000.00 loan, Celtig purchased the raw materials and equipment necessary to begin production. On or about April 30, 2017, Edwards emailed Patey and informed him that Celtig would produce 1,250 kilograms of graphene in May 2017 and 1,250 kilograms in June 2017, and disclosed the specifications of the graphene, which were consistent with the graphene previously sold to Defendants under the January 2017 MOU. On May 18, 2017, Edwards contacted Patey and Nielsen and requested that Defendants immediately pay for their graphene order. Nielsen indicated that he would speak to Patey and get back to Edwards. But Celtig did not hear from the Defendants for several weeks.

On or about May 26, 2017, Edwards advised Defendants that 1,000 kilograms of graphene would be available for pickup by mid-June and requested a Purchase Order. When Defendants failed to respond, Edwards notified Defendants that they were not complying with the terms of the Agreement and that Evergreen would need to rectify its noncompliance. Edwards stated in his email to Defendants that he had information that Defendants’ "funding for this project has, at least temporarily, fallen through," "that Evergreen is in default" concerning a different business deal, and Celtig "ha[s] become increasingly concerned about Evergreen's financial ability to keep the purchase commitments it has made to Celtig." ECF No. 212–8 at 2–3. Edwards stated that based on this information, "Celtig must conclude that Evergreen is failing to comply with the terms of its agreement with Celtig" and that "[t]his situation must be rectified soon." Id. at 3. Patey responded by asking for a "spec verification," which Celtig sent. Upon receipt, Patey represented that Evergreen would issue the...