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Preventive Energy Solutions v. NCAP Ventures 5, LLC

United States District Court, D. Utah

July 3, 2019

NCAP VENTURES 5, LLC; NCAP VENTURES 11, LLC; ANTHONY J. SUTERA; and RHETT SPENCER, Defendants. NCAP VENTURES 5, LLC; and NCAP VENTURES 11, LLC, Counterclaim Plaintiffs/Third-Party Plaintiffs,
PREVENTIVE ENERGY SOLUTIONS, LLC, and KEVIN OLESEN, Counterclaim Defendant/ Third-Party Defendant.


          Paul M. Warner Chief United States Magistrate Judge.

         All parties in this case have consented to Chief Magistrate Judge Paul M. Warner conducting all proceedings, including entry of final judgment, with appeal to the United States Court of Appeals for the Tenth Circuit.[1] See 28 U.S.C. § 636(c); Fed.R.Civ.P. 73. Before the court is a motion for summary judgment[2] filed by Defendants, Counterclaimants, and Third-Party Plaintiffs nCap Ventures 5, LLC (“nCap 5”) and nCap Ventures 11, LLC (“nCap 11”), and Defendants Anthony Sutera (“Sutera”) and Rhett Spencer (“Spencer”) (collectively, “Defendants”). Also before the court is a motion for partial summary judgment[3] filed by Plaintiff Preventive Energy Solutions, LLC (“Preventive” or “Plaintiff”). Both motions have been fully briefed, and the court heard oral argument on the motions.[4] At the hearing, Defendants were represented by Daniel Brough. Plaintiff was represented by Ryan Pahnke. After hearing the arguments of counsel, the court took the motions under advisement.


         This is a fraud case. In December 2015, Preventive and Defendants entered into a Manufacture and Supply Agreement (the “MSA”). Under the MSA, Defendants agreed to manufacture, package, and sell to Preventive a battery recharging system (the “Product”), as defined by the MSA.[5] Prior to the MSA's execution, Preventive delivered to nCap 5 a $500, 000 advance (the “Advance”).[6] As additional compensation, the MSA requires Preventive to issue to nCap 11 a 20% membership in Preventive.[7] Plaintiff's complaint alleges that Defendants “knowingly and intentionally made fraudulent misrepresentations to Plaintiff to induce Plaintiff into” the MSA.[8] The complaint brought eight claims for relief: fraud, fraud in the inducement, fraudulent misrepresentation, negligent misrepresentation, breach of contract, conversion, unjust enrichment, and theft.[9] In January 2017, this court entered an order granting in part Defendants' motion to dismiss (the “January 2017 Order”), [10] which dismissed Plaintiff's (1) breach of contract claim against nCap 11; (2) unjust enrichment claim against nCap 11, Sutera, and Spencer; (3) conversion and theft claims against all Defendants.


         Rule 56(a) of the Federal Rules of Civil Procedure provides that “[t]he 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). “A disputed fact is ‘material if it might affect the outcome of the suit under the governing law; the dispute is genuine if the evidence is such that it might lead a reasonable jury to return a verdict for the nonmoving party.'” Id. (quoting Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997)). In evaluating a motion for summary judgment, the court reviews the facts in a light most favorable to the nonmovant and draws all reasonable inferences in the nonmovant's favor. See Jones v. Norton, 809 F.3d 564, 573 (10th Cir. 2015).


         The court will first address Defendants' motion for partial summary judgment, followed by Plaintiff's motion for partial summary judgment.


         Defendants seek partial summary judgment on Plaintiff's remaining claims for (1) fraud against all Defendants; (2) fraud in the inducement against all Defendants; (3) fraudulent misrepresentation against all Defendants; (4) negligent misrepresentation against all Defendants; (5) breach of contract against nCap 5; and (6) unjust enrichment against nCap 5.

         In addition, Defendants filed a “supplemental memorandum”[11] in further support of their motion for partial summary judgment, in which Defendants argue that recently-decided case law creates a basis for dismissing Plaintiff's fraud and negligent misrepresentation claims not available to the court when it denied Defendants' motion to dismiss: the economic loss rule. Based on this argument, Defendants ask the court to now dismiss Preventive's First, Second, Third, and Fourth Claims for relief (for fraud, fraud in the inducement, fraudulent misrepresentation, and negligent misrepresentation, respectively) in their entirety, as well as defendants Sutera and Spencer.

         a. Supplemental Memorandum

         As an initial matter, the court disposes of Defendants' “supplemental memorandum.” The court concludes that the additional briefing submitted to the court was procedurally improper. The Federal Rules of Civil Procedure do not permit such a filing. The Rules of Practice for the United States District Court for the District of Utah (the “Local Rules”) allow for a “notice . . . setting forth . . . citations . . . without argument” when “pertinent and significant authorities come to the attention of a party after the party's memorandum in support of . . . a summary judgment motion has been filed.” DUCivR 56-1(e). However, Local Rule 56-1(e) only applies when the supplemental authority relates to arguments properly before the court on the motion for summary judgment. Here, Defendants have included substantial additional argument in their supplemental memorandum, including argument for reconsideration of the January 2017 Order. Because the court concludes that the arguments set forth in the supplemental memorandum are not properly before the court, the court will not consider those arguments, and declines to reconsider the January 2017 Order on Defendants' motion to dismiss.

         a. Expert Testimony on Fraud and Misrepresentation Claims

         Defendants first assert that they are entitled to summary judgment on Plaintiff's fraud and misrepresentation claims. Defendants argue that in order to prevail on those claims, expert testimony is required, and because Plaintiff has not designated an expert witness, Defendants are entitled to summary judgment on those claims. Courts in this district and in the Tenth Circuit have granted summary judgment where an expert witness had been precluded, or where the court found that expert testimony was required, but no expert had been designated. See Harvey v. United States, 685 F.3d 939, 950-51 (10th Cir. 2012) (holding that “failure to provide expert evidence on the issues of injury, causation, negligence, or wrongful act or omission rendered summary judgment appropriate” on a Federal Tort Claims Act claim); Trugreen Cos., LLC v. Mower Bros., Inc., No. 1:06CV00024, 2007 WL 1696860, *1 (D. Utah June 8, 2007) (unpublished) (granting summary judgment on claims following striking of expert witness).

         However, Preventive has identified several alleged misrepresentations which they assert do not require expert testimony to establish that they were false when they were made.[12] These alleged misrepresentations may be supported by other evidence and lay testimony. Accordingly, the court will not grant summary judgment in favor of Defendants on the basis that Plaintiff has not designated an expert witness.

         b. Reasonable Reliance

         Defendants argue that this is a case where the court should conclude that there was no reasonable reliance as a matter of law, and therefore the court should grant summary judgment in favor of Defendants on Preventive's fraud claims. “While the question of reasonable reliance is usually a [question of fact], there are instances where courts may conclude that, as a matter of law, there was no reasonable reliance.” Gold Standard, Inc. v. getty Oil Co., 915 P.2d 1060, 1067 (Utah 1996). According to Defendants, by the time the MSA was executed on December 21, 2015, Preventive knew that the Product would not start an inverter or power a home all night with enough power to start an inverter the next morning.[13] However, the facts related to what Preventive knew, and when it knew the information upon which Preventive alleges it relied, are in dispute. Defendants' statement of undisputed material fact (“SOF”) 11 states:

On December 15, 201[5], Preventive conducted a test of a prototype of the Product. In Oleson's mind, though, it wasn't a prototype - he understood he was testing the product he intended to buy.[14]

         But, Preventive disputes this, citing deposition testimony that the overnight test took place from December 16 to 17, 2015, after Preventive had already delivered the Advance, on December 15, 2015.[15] Preventive also disputes when Preventive's owner, Kevin Oleson (“Oleson”), knew that the Product would require more batteries and that the Product would not power a home overnight and start an inverter the next day. According to SOF 13 and 14, Oleson knew this information on December 17, 2015.[16] But, Preventive maintains, citing to deposition testimony, that Oleson did not know this information until December 24, 2015, after the MSA was executed on December 21, 2015.[17]

         The court concludes that there are genuine disputes of material fact as to the element of reasonable reliance on Preventive's claims, and therefore, to the extent Defendants' motion for partial summary judgment relies on this argument, it fails.

         c. Breach of Contract Claim

         Next, Defendants argue that they are entitled to summary judgment on Preventive's breach of contract claim “[b]ecause Preventive cannot demonstrate a breach of the MSA, cannot excuse its own prior, material breach of the MSA, ...

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