REVZIP, LLC v. McDonnell

1

REVZIP, LLC AND POWER HOUSE SUBS CORPORATE, LLC, Plaintiffs, v. MICHAEL MCDONNELL d/b/a SUBPREME FUNDRAISNG AND CATERING, CHRISTOPHER MCDONNELL, JACOB BEARER, DANA BEARER, SUPREME FUNDRAISING AND CATERING, LLC, POWER HOUSE ENTERPRISES, LLC, POWER HOUSE II, LLC, AND POWER HOUSE CATERING, LLC, Defendants.

No. 3:19-cv-191

United States District Court, W.D. Pennsylvania

May 4, 2023

MEMORANDUM OPINION

KIM R GIBSON, UNITED STATES DISTRICT JUDGE.

Before the Court is a Motion for Summary Judgment filed by defendants Michael McDonnell ("Mike") d/b/a Subpreme Fundraising and Catering ("Subpreme") Christopher McDonnell ("Chris"), Jacob Bearer ("Jake"), Dana Bearer ("Dana"), Supreme Fundraising and Catering, LLC ("Supreme"), Power House Enterprises, LLC ("PHE"), Power House II, LLC ("PH2"), and Power House Catering, LLC ("PHC") (collectively, "Defendants"). (ECF No. 148). Defendants seek judgment as a matter of law against plaintiffs REVZIP, LLC ("REVZIP"), and Power House Subs Corporate, LLC ("PHCorp") (collectively, "Plaintiffs"), who filed the operative Second Amended Complaint in the present action on June 23, 2020. (ECF No. 80). For the following reasons, the Court GRANTS IN PART and DENIES IN PART Defendants' Motion for Summary Judgment.

I. BACKGROUND

This case centers on a submarine sandwich ("sub") business called Power House Subs. Mike started this business in 2017 and sold it to Plaintiffs in 2018. Shortly thereafter, Mike departed from Power House Subs and Mike's nephew Jake opened a competing sub business called Supreme. Plaintiffs have sued Mike, Jake, other members of their family, and the corporate entities operated by these individuals, asserting sixteen claims that relate in various ways to the sale of Power House Subs and its aftermath.

Given the many individuals, entities, and agreements relevant to this dispute, the Court provides below a detailed summary of this case's factual background. This summary provides both material facts and immaterial facts that are nonetheless necessary for understanding the issues presented. These facts are undisputed unless otherwise provided. As explained in Section HI, infra, many of these undisputed facts are those which were inadequately disputed by the parties and have consequently been deemed admitted.

a. CREATION OF POWER HOUSE SUBS

Mike opened Power House Subs on February 3, 2017. (ECF No. 150 at 10 ¶ 50; ECF No. 160 at 6 ¶ 50). Mike is the legal owner of three entities related to this business: PHE, PH2, and PHC (collectively, the "Seller Entities"). (ECF No. 150 at 5-6 ¶¶ 7,15-20; ECF No. 160 at 4-5 ¶¶ 7,15-20).

Shortly thereafter, two of Mike's relatives joined him in operating Power House Subs: Mike's nephew-Jake-became the business' front-of-house manager, (ECF No. 150 at 10 ¶ 48; ECF No. 160 at 6 ¶ 48), while Mike's brother-Chris-assisted Mike in overseeing the business' fundraising operations. (ECF No. 150 at 10 ¶ 49; ECF No. 160 at 6 ¶ 49). Mike and Chris also received help with business operations from their sister-Dana-who is also Jake's mother. (ECF No. 150 at 5 ¶¶ 13-14,10 ¶ 55; ECF No. 160 at 4 ¶¶ 13-14, 6 ¶ 55).

b. ACQUISITION OF POWER HOUSE SUBS

In June 2018, Mike was approached by nonparty Ryan DelBaggio ("Ryan"), who informed Mike that nonparty EMG Brands, LLC ("EMG") was interested in buying Power House Subs from him. (ECF No. 150 at 11-12 ¶¶ 59, 70-71; ECF No. 160 at 7 ¶¶ 59, 70-71). EMG is owned by three nonparty individuals: Brice Mertiff ("Brice"), John Russell ("John"), and William Russell ("William"). (ECF No. 150 at 12 ¶ 65; ECF No. 160 at 7 ¶ 65). EMG is also an affiliate of nonparty Elevation Holdings, LLC ("Elevation"). (ECF No. 150 at 12 ¶ 69; ECF No. 160 at 7 ¶ 69).

In the fall of 2018, EMG presented Mike with an offer to purchase Power House Subs. (ECF No. 150 at 13 ¶ 74; ECF No. 160 at 7 ¶ 74).^[1] In November 2018, Mike, EMG, and other stakeholders executed two agreements effectuating the sale of Power House Subs: the Operating Agreement ("OA") and the Asset Purchase Agreement ("APA") (collectively, the "Acquisition Agreements"). The Acquisition Agreements were executed between Mike, Elevation, Ryan, and three other parties that the Court must briefly introduce.

The first is John Wesley Cook ("Wes"), about whom the parties have left much unclear. Defendants refer to an individual named "John Cook," (ECF No. 150 at 11 ¶ 83), but Plaintiffs assert that "Wes Cook and John Cook are the same person." (ECF No. 160 at 8 ¶ 81). As explained in Section III, infra, because Plaintiffs improperly assert this fact without any record citation, the Court must consequently disregard this clarificatory response. (See id.). The Court nonetheless finds for purposes of this memorandum opinion that "Wes Cook" and "John Cook" are in fact the same person, given Defendants' reference to this individual elsewhere as "John W. Cook," (ECF No. 150 at 17 ¶ 122), as well as Plaintiffs' identification of a defendant named "John Wesley Cook." (ECF No. 80 at 1). Although Plaintiffs assert claims against Wes in the Second Amended Complaint, (see ECF No. 80 at 44 ¶¶ 292-93, 298), they appear to abandon those claims in their briefings. See infra Section IV.a.v.3. Plaintiffs do not even include Wes in the list of named defendants in the case captions of more recent briefings. (See, e.g., ECF No. 160 at 1). But, there is no dispute that Wes was a party to both of the Acquisition Agreements.

The second is Power House Subs Corporate, LLC ("PHCorp"). The parties' concise statements of material facts do not provide adequate background on PHCorp, but their exhibits indicate that PHCorp is "[t]he purchasing entity of [Power House Subs'] assets and operations" formed as a "joint venture between EMG, [Mike], and Ryan." (See ECF No. 164 at 211). Once this entity was created by the OA, it purchased through the APA "[a]ll future business and opportunities" relating to Power House Subs. (See id. at 210).

The third is REVZIP, LLC ("REVZIP"). REVZIP is not an original signatory of either the OA or the APA, (ECF No. 150 at 13-14 ¶¶ 80, 87; ECF No. 160 at 8 ¶¶ 80, 87), but Elevation (an affiliate entity of EMG that appears to contract on its behalf) later assigned its majority membership interest in PHCorp to REVZIP. (ECF No. 150 at 21 ¶ 132; ECF No. 160 at 11 ¶ 132). Brice was formerly the Chief Strategy Officer of PHCorp and now owns REVZIP. (ECF No. 150 at 4 ¶ 2, 5; ECF No. 160 at 4 ¶ 2, 5).

This background is necessary for understanding the following material portions of the Acquisition Agreements:

i. OPERATING AGREEMENT

On November 8, 2018, Mike, Wes, Elevation, and Ryan formed PHCorp by executing the entity's OA. (ECF No. 150 at 13 ¶ 79; ECF No. 160 at 8 ¶ 79). Pursuant to this agreement, Mike, Ryan, and Wes held 15%, 15%, and 5% of the membership interest in PHCorp, respectively, while Elevation held a 65% majority interest. (ECF No. 150 at 14 ¶ 81; ECF No. 160 at 8 ¶ 81). Two sections of the OA are material:

• Section 5.03: Under this section, Mike and Ryan agreed "to not take any actions to compete with [PHCorp] unless approved by Elevation Holdings, LLC" for two years beginning on the date of separation. (ECF No. 155 at 8-9 § 5.03).

• Section 10.04: This section provides that the OA "has been adopted to govern the operation of the Company, and shall be binding on and inure to the benefit of the Members and their respective heirs, personal representatives, successors, and assigns." (ECF No. 155 at 16 § 10.04). A "Member" is "[a]ny person or entity who at the time is a record holder or record owner of Units." (Id. at 2 § 1.01).

ii. ASSET PURCHASE AGREEMENT

On November 12, 2018, the Seller Entities, Mike, and Wes (collectively, the "Sellers") executed the APA with Power House Subs, LLC and Power House Subs Investments, LLC (collectively, the "Buyers"). (ECF No. 150 at 14 ¶ 86; ECF No. 160 at 8 ¶ 86). Despite identifying the "Buyers" as two entities-"Power House Subs, LLC" and "Power House Subs Investments, LLC"-the APA makes clear that there is a single buyer involved: PHCorp. (ECF No. 155 at 35). The following six provisions of the APA are material:

• Background Paragraph C: This paragraph states that, through the APA, the Sellers "desire to sell and assign to [PHCorp] substantially all of the assets associated with the operation of [PHE, PH2 PHC, and Power House Subs, LLC ('the Businesses')]." (ECF No. 150 at 14 ¶ 88; ECF No. 160 at 8 ¶ 88).

• Section 1 - Purchased Assets: This section provides that, "[a]t the Closing . . . [Sellers] shall sell and deliver to [PHCorp], free and clear of all encumbrances, all of the assets, rights, and interests of every conceivable kind or character, whatsoever, whether real, personal, or mixed, tangible or intangible (including all goodwill), in electronic form or otherwise, that on the Closing Date are owned by [Sellers] or in which [Sellers have] an interest of any kind, including without limitation [to] those assets set forth in Schedule la (the 'Purchased Assets')...." (ECF No. 150 at 15 ¶ 89; ECF No. 160 at 8 ¶ 89) (emphasis omitted).

• Subsection 1.1.6: Although there is no Schedule la attached to the APA identifying the Purchased Assets, (ECF No. 150 at 15 ¶ 90; ECF No. 160 at 8 ¶ 90), section 1.1 provides what appears to be a list the Purchased Assets. (See ECF No. 155 at 20 § 1.1). Material here is subsection 1.1.6, which provides that "[Power House Subs, LLC] shall purchase from [PHE] and [PH2] [t]he business conducted as a going concern, including . . . telephone and fax numbers." (ECF No. 150 at 15 ¶ 91; ECF No. 160 at 8 ¶ 91).

• Section 7.11 - Name Change Documents: This section states that "Sellers shall have taken all required actions to change all entity names and transfer or terminate all fictitious names

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