Exteres Corp. v. The Connections Grp.

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EXTERES CORPORATION et al., Plaintiffs and Respondents. v. THE CONNECTIONS GROUP, INC., et al., Defendants and Appellants,

E078245

California Court of Appeals, Fourth District, Second Division

April 20, 2023

NOT TO BE PUBLISHED

APPEAL from the Superior Court of Riverside County. No. RIC1818410 Chad W. Firetag, Judge. Affirmed.

Reid &Hellyer, Michael G. Kerbs, Jenna L. Acuff, and Douglas A. Plazak for Defendants and Appellants.

Wolff Mascaro and Joshua M. Wolff, for Plaintiffs and Respondents.

OPINION

RAPHAEL J.

A business relationship, founded on verbal agreements collapsed. The parties to the agreements, who had intended to generate revenue from the sale of a now-patented invention that helps businesses communicate with their customers disagree whether they ever had a final and binding written contract.

Following a lawsuit, a jury found for the plaintiffs, a company and its principal, on several claims against the defendants, who include the inventors of the technology. After adjustments by the trial court, the amended judgment awarded plaintiffs $839,002 in compensatory damages and $1,430,000 in punitive damages. Defendants contend that the trial court erred in various ways during trial and in ruling on the posttrial motions. They request that we reverse the judgment against them and order a new trial or order judgment to be entered in their favor. We affirm the judgment.

I. FACTS

Defendant and appellant The Connections Group, Inc. (TCGI) provides technology that facilitates communication between businesses and their customers via text messages. TCGI's principals and sole shareholders are defendants and appellants Jay Conrad, Anthony Link, and Mark Sangree.^[1] Link and Conrad are the technology's inventors, and they now hold a patent on it; their patent application was still pending during the events here, but it was approved in March 2021. TCGI had an oral, nonexclusive license from Link and Conrad to use the now-patented technology.

Plaintiff and respondent eXteres Corporation (eXteres) provides "reputation management services" for businesses, particularly automotive dealerships. Plaintiff and respondent Richard Winch is the principal of eXteres.

In mid-2016, the parties began discussing doing business together. By December 2016, eXteres was marketing and reselling TCGI's technology to customers pursuant to an oral license for the technology and an oral revenue sharing agreement. Winch also understood that, in exchange for his "sweat equity," he had been granted the position of Chief Operating Officer (COO) of TCGI and eXteres would receive stock in TCGI.

While they proceeded with business based on their oral agreements, the parties engaged in protracted negotiations for a written agreement. Through 2017 and into 2018, they exchanged multiple drafts of a "Memorandum of Understanding" (MOU).

Link sent a revised version of the MOU to Winch by email on May 24, 2018. Link had signed the document in his capacity as Chief Executive Officer of TCGI. The document had a provision stating that "the MOU has been approved by the TCGI Board of Directors with the approval attached." The attached TCGI "Board Resolution," however, recited that the MOU was adopted at a meeting of the TCGI Board on May 25, 2018-the day after it was sent to Winch-and the attachment was signed only by Link, not by its other two members, Conrad and Sangree. The MOU, like its attachment, was dated May 25, 2018. Link's accompanying email stated that the MOU "is set to be dated tomorrow so we can get this executed for both sides." The email noted that Sangree "wants to have a final read-through later tonight to make sure there are not any wording changes," explaining that "'track changes'" had been unintentionally disabled while the latest revisions were being made. Link also wrote that "[a]ny final wording changes will be known by tomorrow so we can get this executed."

Among other things, the May 24, 2018 version of the MOU stated that it is to be considered effective January 1, 2017, regardless of when final signatures are affixed. It granted eXteres a 10 percent ownership interest in TCGI as of May 25, 2018. It gave Winch a seat on TCGI's Board of Directors, effective May 26, 2018, and the position of COO on TCGI's "executive/corporate management team . . . effective January 2017." It provided that TCGI grants eXteres "effective January 1, 2017, a General License . . . to sell [the technology] to the open business market", as well as "effective January 1, 2017, an Exclusive License" in the automotive industry in the United States and Canada. It added that Conrad and Link agree in their capacity as inventors that, once the patent on the technology issues, they will license to TCGI "the exclusive perpetual use of the Patent wherein TCGI will be the majority beneficial owner of the rights to the Patent." It also included revenue sharing provisions applicable to eXteres's use of both the exclusive and the general license for the technology in agreements with third parties.

The parties disagree about what happened after Link's May 24, 2018 email to Winch. According to Winch, he waited for any more wording changes, while "pursuing opportunities and continuing to execute" on the parties' oral agreements. Hearing nothing, on July 11, 2018, he signed the MOU and emailed it back to Link, believing that they had completed a final written agreement. The document Winch sent back to Link included the MOU with his signature added, but not the Board Resolution.

According to Link, on May 25, 2018, Winch called him and expressed that he disagreed with some changes in the latest draft MOU. Link told Winch that Conrad and Sangree would not agree to the MOU without those changes, and indeed they had requested additional changes before final approval. The conversation was contentious and did not result in a meeting of the minds; Link testified that Winch "was yelling and screaming and cussing at me, and then he, basically, hung up." In an email sent on May 26, 2018, Link acknowledged Winch's "desire to remove" a particular provision of the May 24th, 2018 draft of the MOU. Nevertheless, Link wrote, "this clause has to be part of the MOU for [Sangree] and [Conrad] to sign the Board minute[s]," and "[Sangree] is still reviewing the MOU and will probably have additional changes." At trial, Link testified that he was "completely shocked" to receive Winch's July 11, 2018 email, returning the MOU signed and without any changes, given their previous conversation and having heard nothing more in the interim. He was also "taken aback" that Winch was "trying to remove the [Board Resolution] page and pass this off as a valid contract."

On July 16, 2018, the TCGI board of directors (that is, Link, Conrad, and Sangree) met and voted not to approve the MOU. On July 19, 2018, TCGI's counsel sent Winch and eXteres a letter notifying them "that a majority of the Board of Directors voted against approval of the MOU and its contemplated future agreements." The letter requested that Winch "cease and desist from identifying [himself] as either an officer, shareholder, or board member" of TCGI. It also requested that he "refrain from any further contact with entities engaged in existing business relationships with TCGI." Nevertheless, the letter expressed that TCGI was "open to discussions in regard to engaging [eXteres] through a reseller arrangement," particularly as to one specific company, with which eXteres had a longstanding business relationship. The letter also stated "[a]ny existing revenue sharing contracts" between eXteres and TCGI "would be honored by TCGI."

Winch and eXteres filed their complaint in this lawsuit in September 2018. The operative first amended complaint asserted seven causes of action: (1) declaratory relief; (2) breach of contract; (3) breach of fiduciary duty; (4) tortious interference with contract; (5) intentional interference with prospective economic relations; (6) intentional misrepresentation; and (7) negligent misrepresentation.

The jury's findings on the contract and tort causes of action, expressed on a detailed special verdict form, largely favored plaintiffs. The jury found the defendants liable on each cause of action except intentional interference with prospective economic relations. The jury was instructed to determine damages for each cause of action separately, without considering whether they were duplicative. Thus, the jury awarded these compensatory damages: (1) for breach of contract, $678,049; (2) for breach of fiduciary duty, $839,002; (3) for tortious interference with contract, $745,875; (4) for intentional misrepresentation, $148,371; and (5) for negligent misrepresentation, $148,371. In the judgment, to "avoid duplicative damages," the trial court limited the plaintiffs' "compensatory recovery . . . to $839,002, jointly and severally, against (a) [TCGI, Link, Sangree, and Conrad] for $745,875 and (b) [Link, Sangree, and Conrad] for $93,127." The amount of $839,002 is, to the dollar, the amount plaintiffs' expert Eric Lane calculated to be the value of a 10 percent interest in TCGI, based on the value of forecasted royalties from Link and Conrad's patent, adjusted to present value.

Along with compensatory damages, the jury also decided punitive damages were appropriate: (1) against TCGI, $22,301,617; (2) against Link, $38,734,388; (3) against Sangree, $17,606,540 and (4) against Conrad, $38,734,388. This punitive damages award totaled $117,376,933, which, to the dollar, is the amount Lane described as the patent's "Forecasted Royalty Collections over 15 years." In testimony, Lane explained that this amount represents the "sum of the [projected] royalty collections" from Link and Conrad's patent...