W. Prop. Holdings, LLC v. Aequitas Capital Mgmt., Inc.

284 Or.App. 316

392 P.3d 770

WESTERN PROPERTY HOLDINGS, LLC, an Oregon limited liability company, Plaintiff-Appellant,

v.AEQUITAS CAPITAL MANAGEMENT, INC., an Oregon corporation, Defendant-Respondent.

A155841 (Control)

A156875

Court of Appeals of Oregon.

Argued and submitted September 1, 2015.

March 15, 2017

Cody Hoesly, Portland, argued the cause for appellant. With him on the briefs was Larkins Vacura LLP.

Robyn Ridler Aoyagi, Portland, argued the cause for respondent. With her on the brief were Christopher J. Pallanch, Steven M. Wilker, and Tonkon Torp LLP.

Before Sercombe, Presiding Judge, and Ortega, Judge, and Tookey, Judge.

SERCOMBE, P. J.

Plaintiff appeals a judgment for defendant, assigning error to the trial court's grant of defendant's motion for summary judgment. Defendant made a secured loan to a third party. Plaintiff agreed to pay defendant a portion of the loaned money, and defendant agreed to pay plaintiff its share of the loan repayment or any proceeds from a foreclosure sale of the collateral. Plaintiff claimed that defendant blocked a potential sale of the collateral that would have allowed plaintiff to recoup all of the money that it provided, and brought claims for breach of contract, breach of the implied duty of good faith and fair dealing, breach of duties under a special relationship, and negligence. On defendant's motion for summary judgment, the trial court concluded that there were no genuine issues of material fact precluding summary judgment and granted the motion. We affirm.¹

On appeal from the grant of a motion for summary judgment, "we will affirm the trial court's judgment if we agree that ‘there is no genuine issue as to any material fact and the moving party [was] entitled to a judgment as a matter of law.’ " O'Dee v. Tri-County Metropolitan Trans. Dist. , 212 Or.App. 456, 460, 157 P.3d 1272 (2007) (quoting Robinson v. Lamb's Wilsonville Thriftway , 332 Or. 453, 455, 31 P.3d 421 (2001) (brackets in O'Dee )); see also ORCP 47 C. No issue of material fact exists if, viewing the evidence in the light most favorable to the nonmoving party—in this case, plaintiff—" ‘no objectively reasonable juror could return a verdict for the adverse party on the matter that is the subject of the motion for summary judgment.’ " O'Dee , 212 Or.App. at 460, 157 P.3d 1272 (quoting ORCP 47 C). We state the facts in accordance with that standard.

This dispute arose out of the merger of Catcher Holding, Inc. (Catcher) and Vivato Networks, Inc. (Vivato). Catcher was a public company that owned computer-related assets, and Vivato was a company that owned intellectual property related to wireless technology. Defendant, Aequitas Capital Management, is an investment management company, and one of defendant's affiliates, Aequitas Investment Management (AIM), was part of a group of investors (the Catcher Note Holders) who loaned Catcher $ 4.8 million; AIM contributed $ 500,000 to that amount. In November 2007, Vivato sought defendant's assistance to raise new equity. Defendant and Vivato developed a plan to merge Vivato into Catcher as a wholly owned subsidiary and for Catcher to then sell its preferred stock in order to raise $ 8 million.

In order to provide interim financing prior to the completion of the merger, defendant agreed to loan Vivato $ 1 million. The loan was secured by Vivato's assets—primarily patents—which were transferred to a newly formed company called Vivato Holdings, Inc. (Vivato Holdings). The patents were valued at approximately $ 800,000. Vivato Holdings then granted defendant a security interest in the patents. After the merger, Vivato Holdings would remain a separate entity from Catcher, but it agreed to grant Catcher an exclusive license and an option to purchase the patents.

Additionally, to reduce the risk of default, defendant required Vivato's owners to have a personal financial stake in the loan. To that end, some of Vivato's shareholders formed plaintiff, a limited liability company, which then entered into a loan participation agreement (LPA) with defendant. Under the LPA, plaintiff agreed to contribute up to 30 percent of the funds loaned to Vivato, and defendant agreed to remit a proportionate share of any loan repayments by Vivato to plaintiff. Additionally, plaintiff would receive a proportionate share of any net proceeds from a sale of the collateral in the event of default.

On November 30, 2007, the Catcher-Vivato merger, the loan agreement, and the LPA became effective. Four days later, the agreement granting Catcher a license and option to purchase the patents went into effect. Catcher's interest in the patents under the license agreement was expressly made junior to defendant's security interest in the patents. From November 2007 to February 2008, defendant loaned Vivato $ 987,750, of which plaintiff contributed $ 287,750.

In early 2008, Vivato defaulted on the loan. It also became clear that Catcher's $ 8 million preferred stock offering would not be successful. Beginning in December 2007, Vivato Holdings had been negotiating a sale of the patents to a company called Intellectual Ventures (IV), which offered to purchase them for $ 1.8 million. If the sale was successful, the proceeds would be used to pay off the loan, with the remainder going to Catcher to support its operations while Catcher attempted to raise additional funds. At the end of February 2008, IV and Vivato Holdings executed a sales agreement.

Before IV would close on the deal, it required assurance that it would receive clear title to the patents. There were two encumberances on the title that needed to be removed before the deal could go through—defendant's security interest and Catcher's exclusive license and option to purchase. The security interest would be released when the sales proceeds were used to repay defendant for the outstanding balance of the loan. In an attempt to eliminate the license and option to purchase, on March 24, 2008, Catcher and Vivato Holdings amended the licensing agreement to eliminate the option to purchase and made Catcher's license nonexclusive. Vivato Holdings and IV renegotiated the price to $ 1.6 million, and they hoped that the sale could be completed by the end of April.

On April 1, 2008, Catcher stopped doing business and terminated all of its employees. Shortly thereafter, some of the Catcher Note Holders became concerned about the validity of the licensing agreement amendment and the advisability of selling the patents to IV. Those note holders demanded that defendant's affiliate, AIM, resign as collateral agent. The note holders asserted that AIM was acting in the interest of defendant and plaintiff to sell the patents and secure repayment for the Vivato loan, rather than acting in the interest of the Catcher Note Holders, who wanted Catcher to retain an interest in the patents.

AIM responded by writing a memorandum to the Catcher Note Holders on May 1, 2008. Although AIM contended that it had "at all times * * * acted appropriately, with full disclosure, and in the best interests of the Note Holders," it resigned as collateral agent, because its "objectivity ha[d] been called into question." AIM then noted that the note holders had "concerns" about the sale of the patents to IV and the validity of the licensing agreement amendment. AIM explained that one of the effects of the amendment would be to remove the patents from the collateral that secured the note holders' note, and thereby place them "out of the reach of the Note Holders." It further explained that the consideration for the amendment was "unclear" and that it shared the note holders' "concerns" that the amendment "was not properly authorized and, for that and other reasons, should be rescinded." AIM urged the note holders to decide whether the sale to IV was in their best interest and stated that it had requested legal counsel to investigate "the rights of Catcher * * * to acquire" the patents and "the rights of Catcher * * * with regard to the proposed sale of the [patents] by Vivato Holdings to Intellectual Ventures, and, derivatively, the rights of the Note Holders under the Collateral Agreement with regard to the [patents] and any proceeds of the sale of the [patents]." It also pledged to comply with the decision of the majority of the note holders on all issues discussed in the memorandum.

At that point, IV remained interested in the patents, but it would not close until the issue with the licensing agreement amendment was resolved. The note holders, however, continued to challenge the validity of the amendment. Defendant hired a law firm to attempt to negotiate a settlement between the note holders and Vivato Holdings and to initiate judicial proceedings to foreclose on the patents. Defendant filed a foreclosure action in Oregon Federal District Court on June 20, 2008.

The foreclosure proceedings dragged on for more than a year.² Ultimately, defendant successfully obtained a judgment of foreclosure on April 29, 2009, and then, on June 2, 2009, obtained clear title to the patents at a sheriff's sale. By that point, IV had lost interest in purchasing the patents, stating in March 2009 that they "no longer met its qualifications." Thereafter, defendant sold the patents to a different company, XR Communications, for $ 800,000.

Defendant did not promptly inform plaintiff of the sale to XR Communications and transfer to plaintiff its share of the proceeds. When plaintiff learned of the sale, it filed this action, raising claims of breach of contract, breach of the implied duty of good faith and fair dealing, breach of duties under a special relationship, and negligence. After plaintiff filed the action, defendant paid plaintiff $ 220,481.60, which defendant had calculated as plaintiff's share of the proceeds of the XR Communications sale plus interest to account for the delay in payment.

After accepting that payment, plaintiff filed a motion for leave to amend its complaint, which the court granted. Plaintiff...