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Geometwatch Corp. v. Hall

United States District Court, D. Utah

August 20, 2019

GEOMETWATCH CORP., a Nevada corporation, Plaintiff,
ALAN E. HALL, et al., Defendants.


          Jill N. Parrish, United States District Court Judge.

         This matter comes before the court on cross-motions for summary judgment on a breach of contract counterclaim asserted by counterclaim-plaintiff Advanced Weather Systems Foundation (“AWSF”) against counterclaim-defendant GeoMetWatch Corp. (“GeoMet”). On the basis of the memoranda in support of those motions (ECF Nos. 870 & 876), the responses thereto (ECF Nos. 904 & 909), the ensuing replies (ECF Nos. 930 & 931), a review of relevant law, and for the reasons below, each motion for summary judgment is granted in part and denied in part.

         I. BACKGROUND

         This counterclaim emanates from a multi-defendant lawsuit involving a fledgling satellite-hosted weather sensor venture. In that suit, plaintiff GeoMet asserts that AWSF-an entity created for the purpose of designing and manufacturing the weather sensors-colluded with others to deprive GeoMet of the business opportunity it had developed.[1] In response, AWSF asserts a breach of contract counterclaim against GeoMet. The parties each seek summary judgment on that counterclaim.

         A. Statement of Facts

         1. GeoMet and AWSF Enter into Three Agreements

         On September 19, 2013, GeoMet and AWSF entered into a Preferred Provider Agreement (the “PPA”). Despite having been executed in September, the PPA's effective date is April 19, 2013. In addition to several proscriptive provisions, the PPA requires that GeoMet “enter into, maintain, and fulfill . . . the October 1, 2013 [STORM[2] 001 contract], ” and that “[m]aintenance of the . . . contract specifically includes complying with the payment schedule set forth [in the STORM 001 contract].” The PPA grants AWSF the right to terminate that agreement by giving written notice of material breach to GeoMet if, among other things, GeoMet fails to comply with the payment schedule set forth in the STORM 001 contract. The PPA's termination would be effective thirty days after AWSF provided written notice unless GeoMet cured the material breach.

         On October 4, 2013, GeoMet and AWSF executed the STORM 001 contract-“for the design, manufacture, test and calibration” of the sensor system-as contemplated by the PPA. On the same day, GeoMet and AWSF executed the STORM 002 contract, for “Field Support” of the sensor system. Under both contracts (collectively the “Build Agreements”), GeoMet was obligated to “ensure adequate funding to comply” with the payment schedules prescribed in the respective agreements. Under each of the Build Agreements, GeoMet's failure to make any of the milestone payments amounts to an “Event of Default, ” entitling AWSF to immediately cease performance and terminate the Build Agreements.

         Under the STORM 001 payment schedule, GeoMet was required to pay AWSF a total of $124, 933, 872, with the first payment of $5, 384, 022 coming due on January 6, 2014. Under the STORM 002 payment schedule, GeoMet was required to pay AWSF a total in excess of $25 million, with the first payment coming due on February 4, 2014.

         The PPA and the Build Agreements contain: (1) choice-of-law provisions declaring that the agreements are “governed by” Utah law; (2) integration clauses; and (3) provisions withholding effect from any purported contractual supplement or modification not embodied by a writing signed by both GeoMet and AWSF.

         2. Precontractual Negotiations and Expenditures

         AWSF and GeoMet began negotiating the relevant agreements as early as February of 2013, which process continued into October of the same year. On September 3, 2013, GeoMet sent an inquiry to AWSF, asking whether, under the current drafts of the Build Agreements, it was correct that, “if for some reason we are not able to make the payment schedule, we will prepare and execute a contract mod rather than enforce or highlight the ‘material contracts breach' language.” AWSF responded that “[i]f funding does not come in time, we will be required to modify the contract. It would not be our intent to assert ‘breach', but we could only take that position for a limited period of time (certainly not indefinitely).”

         Gene Pache-one of GeoMet's founders and owners-testified that, on October 4, 2013, he told AWSF that he would sign the Build Agreements “under one condition[:] you [AWSF] agree to amend this to say that this contract depends on the ExIm loan and that without the ExIm loan this is basically null and void.” Mr. Pache testified that he asked AWSF if it “will amend the contract to say that it's dependent on the ExIm loan, ” and he further testified that AWSF responded, “yes.” Mr. Pache testified that he signed the Build Agreements only after AWSF agreed to amend them the following day.

         From March to October of 2013, AWSF incurred expenses totaling $1, 979, 769.11 to satisfy “salaries, staff benefits, various operating expenses including telephone, IT, computer charges, office supplies, and other equipment necessary to AWSF's operations.”

         3. AsiaSat and the ExIm Loan

         To fund the construction and launch of the first STORM sensor, GeoMet intended to secure a loan through the Export-Import (“ExIm”) Bank of the United States. The ExIm bank originates loans to foreign entities to finance the purchase of goods exported from the United States. Accordingly, GeoMet entered into a cooperation agreement with AsiaSat-a Hong Kong-based commercial satellite company that had planned to host the first STORM sensor on one of its satellites-whereby AsiaSat would undertake to procure a $125 million loan from the ExIm bank, the proceeds of which would be used by GeoMet to, among other things, pay AWSF to design and construct the STORM sensor.

         Before AsiaSat had any obligation to submit its application for the ExIm loan, GeoMet was required to have secured financial guarantees acceptable to AsiaSat to reduce its default exposure under the proposed ExIm loan. GeoMet was unable to procure sufficient financial guarantees, and despite two extensions of GeoMet's time to obtain them, on December 3, 2013, AsiaSat wrote GeoMet to inform it that, because “the necessary guarantees” had not been obtained, it did not intend to further extend GeoMet's time to perform. Mr. Pache responded to thank AsiaSat for its cooperation, remarking that “[i]t is an awful ending. . . . I am so sorry we could not make it work.”

         In January of 2014, GeoMet renewed discussions with AsiaSat, but the parties never extended GeoMet's time to perform the conditions precedent under the cooperation agreement.

         4. GeoMet Breaches the STORM 001 Agreement, Thereby Materially Breaching the PPA

         Three days after being informed that AsiaSat would not renew its ExIm loan cooperation agreement, GeoMet received an invoice from AWSF for the first STORM 001 milestone payment in the amount of $5, 384, 022. GeoMet did not seek a modification to extend the payment deadline at that time. On January 3, 2014, GeoMet wrote AWSF to explain that it was attempting to gather funds that would enable AWSF to maintain a “skeleton crew . . . in order to buy more time so-to-speak.” GeoMet's email made no reference to any potential funding to facilitate its compliance with the milestone payment schedule, and it made no request to execute a contract modification extending the first payment.

         On January 6, 2014, GeoMet failed to make the first milestone payment of $5, 384, 022 as required by the STORM 001 agreement. The next day, AWSF notified GeoMet that its failure to make the $5, 384, 022 payment constituted (1) an Event of Default under the STORM 001 Contract and (2) a material breach of the PPA. Consequently, AWSF notified GeoMet that it was (1) terminating the STORM 001 Contract and discontinuing performance under the contract and (2) terminating the PPA on the condition that GeoMet did not cure the breach within thirty days. On February 4, 2014, GeoMet failed to make the STORM 002's first payment.

         In a January 28, 2014 email, Mr. Pache asked a representative of AWSF's parent organization, Utah State University, to “back [him] on” his recollection of representations made before he signed the STORM 001 agreement in October of 2013. Mr. Pache recounted that at the signing, he was concerned that ExIm funding would not close by January 1, 2014, but that AWSF and GeoMet's Chief Development Officer told Mr. Pache not to worry-that the contract would be extended “to coincide with the ExIm loan.” Mr. Pache represented that he “signed the contract based on [AWSF's] verbal commitment to extend the contract as necessary.”

         On February 6, 2014-the final day of the PPA's 30-day cure period-GeoMet wrote AWSF requesting (1) either a 60-day or an “open-ended” extension to the STORM 001 milestone payment schedule; and (2) to “mutually extend” the PPA. In support of these requests, GeoMet outlined “some of the milestones that [GeoMet] has achieved that demonstrate [its] intentions to complete a successful GeoMetWatch/STORM program.” GeoMet further asserted that AWSF and GeoMet “have collectively agreed on many occasions that extensions may be necessary in order to accommodate the difficulty associated with starting this contract and generating funds through the ExIm bank loan process.” Although the letter indicated that GeoMet was still communicating with AsiaSat about obtaining the financial guarantees necessary to submit the ExIm loan application, it made no representations about the likelihood or timeline of securing the funding necessary to meet the milestone payments required by the STORM 001 agreement.

         On February 10, 2014, AWSF responded, explaining that it could not “accept the milestone achievements outlined in your letter as a cure that would justify the extension of the . . ‘STORM 001' [contract] or the . . . [PPA].” AWSF further explained that “[t]he timelines, projections, and goals outlined in your letter, though admirable, do not provide adequate assurances that [GeoMet] will be in a position to meet the immediate needs of AWSF and our employees from a funding perspective.” The letter further informed GeoMet that the STORM 001 contract was terminated as of January 7, 2014 (the day after GeoMet failed to make that contract's first milestone payment), the STORM 002 contract was terminated as of February 5, 2014 (the day after GeoMet failed to make that contract's first milestone payment), and that the PPA was terminated as of February 6, 2014 (thirty days after AWSF asserted material breach).

         II. ANALYSIS

         GeoMet seeks summary judgment on three grounds: (1) that the bulk of AWSF's damages were incurred before any agreement was executed and that AWSF's post-contractual damages are fully offset by “bridge” payments made by GeoMet in the fall of 2013; (2) that the agreements were fraudulently induced and are therefore voidable at GeoMet's election; and (3) that AWSF's damages are consequential damages barred by the agreements. AWSF's motion presents the flip-side of GeoMet's arguments, and further asserts: (1) that GeoMet's affirmative “first breach” defense fails as a matter of law; and (2) that the summary judgment record is sufficient to grant summary judgment in favor of AWSF and to award AWSF $1, 979, 796.11 in actual, compensatory damages as a matter of law.

         The court analyzes each argument in turn.

         A. GeoMet's Fraudulent Inducement Defense

         GeoMet asserts three representations allegedly made by AWSF as the bases of its fraudulent inducement defense: (1) AWSF's statement that “[i]f funding does not come in time, we will be required to modify the contract. It would not be our intent to assert ‘breach', but we could only take that position for a limited period of time (certainly not indefinitely)”; (2) AWSF's “verbal commitment to extend the contract as necessary;” and (3) AWSF's representation ...

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