Se. Fin. Credit Union v. Coll. Network, Inc.

SOUTHEAST FINANCIAL CREDIT UNION, Plaintiff, v. THE COLLEGE NETWORK, INC., MARK IVORY,GARY L. EYLER, ETEST OUT LEARNING SYSTEMS, LLC,CAREER LEARNING & ACADEMIC SUPPORT SERVICES, LLC,and GARY FAIR, Defendants.

No. 1:15-cv-01507-LJM-TAB

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION

February 27, 2017

ORDER ON DEFENDANT GARY FAIR'S MOTION FOR PARTIAL SUMMARY JUDGMENT

This matter comes before the Court on Defendant Gary Fair's ("Fair's") Motion for Partial Summary Judgment. Dkt. No. 135. Fair requests that the Court dismiss Count I of Plaintiff Southeast Financial Credit Union's ("SFCU's") Complaint, alleging breach of contract, as it relates to him individually. Dkt. No. 136 at 1. SFCU, however, opposes Fair's Motion for Partial Summary Judgment, arguing that (1) the corporate veil of The College Network, Inc. ("TCN"), should be pierced to render Fair, a former Vice President of TCN, personally liable for TCN's breaches of contracts formed between TCN and SFCU; and (2) Fair participated in a civil conspiracy to facilitate TCN's breaches of contract. See generally, Dkt. No. 175.

For the reasons stated herein, the Court GRANTS Fair's Motion for Partial Summary Judgment.

I. BACKGROUND

TCN was formed in 1995 by Gary L. Eyler ("Eyler"). Dkt. No. 137, Ex. 1 ("Fair Aff."), Ex. A. TCN's main business was selling online study materials to college students to help them test out of particular classes required for their degrees. Dkt. No. 175, Ex. 2 ("Fair CLASS Dep."), 65:20-23.

To purchase TCN's products, most TCN customers obtained financing from external financial sources. Id. at 46:19-47:5. TCN entered into two agreements with SFCU, dated July 21, 2003, and May 30, 2014, respectively, through which SFCU agreed to provide financing to TCN's customers to help them purchase TCN's educational products (the "Agreements"). Dkt. No. 1, Ex. A & B. Under the Agreements, SFCU deposited the full amounts it financed to TCN customers into accounts TCN maintained with SFCU. Id. at ¶ 3. If a TCN customer canceled or defaulted on its loan from SFCU, the Agreements required TCN to pay SFCU the amount owed on that loan through its SFCU reserve account ("Chargebacks"). Id. at ¶ 3d.

Fair was hired by Eyler in 2006, as TCN's Vice President, Western Regional Officer. Fair CLASS Aff., 41:24-42:9. Fair was responsible for managing TCN's operations in Las Vegas, Nevada, including TCN's financial services and customer support operations. Id. In 2011, Fair's job title changed to Vice President of Call Center Operations, which required him to manage all of TCN's customer support services. Id. at 48:5-13. Fair was listed as an officer of TCN with the Nevada Secretary of State for a period of time between March 2006 and May 13, 2016. Dkt. No. 175, Ex. 7 at 3.

As Vice President of Call Center Operations for TCN, Fair was not involved in TCN's relationships with its finance partners and was not privy to TCN's contracts with itsfinance partners. Fair CLASS Dep., 47:16-18; 53:21-23. Fair was not a party to the Agreements and did not personally guaranty the Agreements. Fair Aff., ¶¶ 9-10. Fair was also not involved in negotiating the Agreements with SFCU and had no knowledge of their specific terms prior to the start of this litigation. Id. at ¶ 11. Furthermore, Fair had no access to TCN's reserve accounts and had no authority to make payments from TCN's accounts with SFCU or to make decisions regarding TCN's deficits in its SFCU reserve account. Id. at ¶¶ 14, 19-20.

In January 2014, TCN began experiencing financial difficulties, and failed to pay SFCU Chargebacks, which constituted a breach of the Agreements. Dkt. No. 1, ¶¶ 27-33; Dkt. No. 120, ¶¶ 29-35. On November 14, 2014, SFCU held a teleconference with TCN representatives, including Fair, and sent TCN a "Cease and Desist" letter in order to address TCN's negative balance and to demand that TCN stop making loan arrangements with SFCU's borrowers. Fair Aff., ¶ 21.

On January 8, 2015, Eyler sent an email to various TCN managers, including Fair, regarding TCN's poor financial condition and announced the formation of the "Rapid Rebuild Committee," which was tasked with forming a plan to stop TCN's financial decline. Fair Aff., Ex. B. The Rapid Rebuild Committee was comprised of outside consultant Ken Knapik, Eyler, and eight TCN executives, including Fair. Fair Aff., Ex. D. While Fair claims to not understand all of the factors that caused TCN's financial issues, it became apparent to Fair by the summer of 2015 that TCN could not survive. Fair CLASS Dep., 63:22-64:6.

The Rapid Rebuild Committee created a business plan, which included the sale of TCN's main asset, the online portal used for its educational products (the "Portal"). Dkt.No. 175, Ex. 1 ("Fair eTest Out Dep."), 176:17-177:15. TCN planned to sell the Portal to eTest Out Learning Systems LLC ("eTest Out"). Id. at 178:10-170:2. eTest Out is a Nevada limited liability corporation that was formed on June 8, 2015, with the intention of selling study materials to individuals in the nursing industry to help them earn college credit. Id. at 51:9-15; Fair Aff., Ex. J. Eyler owns 70% of eTest Out and acts as eTest Out's Chief Executive Officer. Dkt. 175, Ex. 4 ("Eyler eTest Out Dep."), 96:20-97:1; Fair eTest Out Dep., 216:18-218:25. Fair was appointed Chief Operating Officer of eTest Out in late 2015 and has a small ownership interest in that company. Fair eTest Out Dep., 55:22-23; Eyler eTest Out Dep., 80:4-15. eTest Out intended to purchase the Portal from TCN for $1,246,000.00 through a promissory note funded by eTest Out's expected sales revenue. Fair eTest Out Dep., 188:20-24.

The Rapid Rebuild Committee's business plan also included the creation of a support mechanism to handle TCN's customer service operations. Fair CLASS Dep., 63:22-64:8. Career Learning & Academic Support Services, LLC ("CLASS"), was created as a Nevada limited liability corporation on July 29, 2015. Dkt. No. 139, Ex. 2. CLASS was meant to provide TCN's customers with customer support services after TCN could no longer provide such services. Fair eTest Out Dep., 125:18-20. Eyler is the sole grantor, trustee, and beneficiary of the CLASS Management Trust, which is the Manager and sole member of CLASS. Fair CLASS Dep., 94:5-16. Eyler is also the Chief Executive Officer of CLASS. Id. at 89:3-90:11. Fair was named the successor trustee of the CLASS Management Trust and acted as the initial Chief Operating Officer of CLASS until November 2015. Id. at 12:2-6; 95:3-6. Fair is currently the Senior Vice President forCLASS. Id. at 90:12-13. Additionally, CLASS is wholly owned by eTest Out. Fair Aff., Ex. H.

When formulating its business plan, the Rapid Rebuild Committee assumed that each of the finance companies providing loans to TCN's customers would be willing to enter into a Customer Services Agreement with CLASS in order to provide their borrowers with continued access to the Portal. Id. Under the Customer Services Agreement, each finance company would be required to pay CLASS a service fee of $7.00 per month for each active loan account it has with TCN, in exchange for CLASS's support services for the Portal. Id.; Fair CLASS Dep., 139:4-25. Fair presented SFCU with the business plan developed by the Rapid Rebuild Committee and the proposed Customer Services Agreements on September 9, 2015. Fair Aff., Ex. E. Fair was also present when Eyler explained to SFCU that TCN was going out of business due to its financial problems and could no longer provide customer support services to SFCU's borrowers. Fair Aff., ¶ 23. TCN ceased its operations in October 2015. Fair CLASS Dep., 52:3-20.

SFCU filed this action on September 25, 2015, seeking actual and punitive damages, as well as injunctive relief to prevent the Defendants from restricting SFCU's customer's access to the Portal¹. Dkt. No. 1. SFCU alleged, among other things, thatTCN breached its contracts with SFCU. Id. On December 21, 2015, in response to SFCU's Motion for Judgment on the Pleadings, TCN admitted that it was liable to SFCU for breaching the Agreements, and this Court ordered that TCN was liable for SFCU for breach of contract, pending a determination of damages. Dkt. No. 64; Dkt. No. 88. In addition to seeking liability against TCN for breach of contract, SFCU also seeks to hold Fair liable for TCN's breaches by employing piercing the corporate veil and civil conspiracy theories. Dkt. No. 1.

II. SUMMARY JUDGMENT STANDARD

As stated by the Supreme Court, summary judgment is not a disfavored procedural shortcut, but rather is an integral part of the federal rules as a whole, which are designed to secure the just, speedy, and inexpensive determination of every action. See Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986); see also United Ass'n of Black Landscapers v. City of Milwaukee, 916 F.2d 1261, 1267-68 (7th Cir. 1990). Motions for summary judgment are governed by Rule 56 of the Federal Rules of Civil Procedure, which provides in relevant part: "The Court shall grant summary judgment 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).

Once a party has made a properly-supported motion for summary judgment, the opposing party may not simply rest upon the pleadings but must instead submit evidentiary materials showing that a fact either is or cannot be genuinely disputed. Fed. R. Civ. P. 56(c)(1). A genuine issue of material fact exists whenever "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, (1986). The nonmoving partybears the burden of demonstrating that such a genuine issue of material fact exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); Oliver v. Oshkosh Truck Corp., 96 F.3d 992, 997 (7th Cir. 1996). It is not the duty of the...