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Celtig, LLC v. Patey

United States District Court, D. Utah

September 30, 2019

CELTIG, LLC, a Tennessee limited liability company; Plaintiff,
v.
AARON A. PATEY, an individual; EVERGREEN STRATEGIES, LLC, a Nevada limited liability company; PSD INTERNATIONAL, LLC, a Utah limited liability company; and RELAY ADVANCED MATERIALS, INC., a Delaware Corporation; Defendants. EVERGREEN STRATEGIES, LLC, a Nevada limited liability company; and RELAY ADVANCED MATERIALS, INC., a Delaware Corporation; Counterclaimants,
v.
CELTIG, LLC, a Tennessee limited liability company; Counterclaim-Defendants, EVERGREEN STRATEGIES, LLC, a Nevada limited liability company; and RELAY ADVANCED MATERIALS, INC., a Delaware Corporation; Third-Party Plaintiffs,
v.
BRENT BENJAMIN WOODSON; PHILLIP COX; MICHAEL GUNDERSON; DAVID NIELSON; IMPEL SALES, LLC, a Utah Limited Liability Company; and UTAH LAKE LEGACY COALITION LLC, a Utah limited liability company; Counterclaim-Defendants

          MEMORANDUM DECISION AND ORDER DENYING DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT

          Jill N. Parrish United States District Court Judge.

         District Judge Jill N. Parrish This matter is before the court on the partial Motion for Summary Judgment (the “Motion”) filed by Defendants Evergreen Strategies, LLC (“Evergreen”), Relay Advanced Materials, Inc. (“RAM”), PSD International, LLC (“PSDI”), and Aaron A. Patey (“Patey”) (collectively “Defendants”). Defendants urge the court to enter summary judgment in their favor on Plaintiff Celtig LLC’s (“Celtig”) third cause of action, which seeks a declaratory judgment that Plaintiff properly terminated the contractual agreements at issue in this case, and Defendants’ Third Counterclaim, which seeks specific performance requiring Celtig to comply with the termination provisions in the contractual agreements. Because of Defendants’ conduct during discovery, including failing to appear for properly noticed depositions in November 2018 and January 2019, the court imposed sanctions on the Defendants and entered an order striking all the Defendants’ counterclaims against Celtig. See ECF No. 192 at 3. Therefore, the court addresses only the Defendants’ Motion for Summary Judgment concerning Plaintiff’s third cause of action for a declaratory judgment.

         I. FACTUAL BACKGROUND

         This case arises from a business dispute over the alleged breach of contractual agreements to buy and sell graphene, a substance used in various industrial applications. Celtig, a Tennessee limited liability company, [1] created a process allowing for the mass production of graphene at low cost. Aaron Patey is a citizen of Utah. Patey owned and operated the following entities: Evergreen, a Nevada limited liability company whose members are citizens of Utah; PSDI, a Utah limited liability company whose members are citizens of Utah; and RAM, a Delaware corporation with its principal place of business in Utah.[2]

         Celtig alleges that Patey operated the three entities with unity of interest and ownership, such that an alter ego relationship existed among them. In support, Celtig alleges that Patey dominated and controlled the three entities and that the three entities were essentially equivalent because they commingled business operations and funds, shared headquarters and employees, and acted interchangeably in relation to the Agreements.

         A. Initial Negotiations

         On or about January 3, 2017, representatives of PSDI, including Patey, traveled to Celtig’s offices in Knoxville, Tennessee, to propose a business agreement under which PSDI would purchase graphene produced by Celtig and then resell the graphene on the global market. At the meeting, Patey offered to purchase all the graphene currently in Celtig’s inventory for testing. Patey represented that he already had buyers waiting to purchase graphene and asked Celtig to increase its production to meet his demand.

         On or about January 23, 2017, PSDI and Celtig executed a Memorandum of Understanding (“MOU”). Celtig agreed to sell 120 kilograms of graphene to PSDI for $78, 000.00. After the January meeting, Patey’s other company, Evergreen, assumed PSDI’s place in the negotiations. On or about March 28, 2017, Evergreen signed two business agreements with Celtig: the Definitive Agreement and the Exclusive License and Distribution Agreement (“Licensing Agreement”) (collectively the “Agreements”).

         B. Definitive Agreement

         Paragraph 1 of the Definitive Agreement required Evergreen to pre-pay $750, 015.00 for the purchase of 833, 350 grams of graphene from Celtig within three business days following execution of the agreement. Evergreen then agreed to purchase from Celtig up to two tons per month of graphene over the next three years. The Definitive Agreement established that the parties were to agree on the quality standards, tolerances, and specifications for the graphene sold and purchased thereunder. The parties agreed that the timing of the deliveries would be decided in writing at a later date.

         In return, Celtig agreed to amend its operating agreement to join Evergreen as a voting member, transfer through an appropriate legal instrument a 30% voting ownership interest in Celtig to Evergreen, and guarantee Evergreen at least 30% of the voting membership on the board. See ECF No. 17–1 at 3. On May 11, 2017, Celtig sent Evergreen an amended Operating Agreement. Celtig requested Evergreen’s comments and requested that Evergreen name the individuals who would sit on the board. Evergreen never responded. To date, Celtig has not amended its Operating Agreement to make Evergreen a member of Celtig, and the five current members of Celtig have not approved the transfer of any voting membership interest to Evergreen.

         The parties also assented to certain termination terms contained in the Definitive Agreement. First, the Definitive Agreement states that if Celtig fails to produce or deliver the graphene according to the terms of the Agreements, or if Evergreen is “unable to purchase the year-to-year volumes specified, ” then either party “may elect to terminate this Agreement and the Exclusive License and Distribution Agreement, terminate Evergreen’s board representation and observation rights, ” and return the 30% ownership interest transferred to Evergreen “for a purchase price of $1.00.” ECF No. 17–2 at 5. The Definitive Agreement also states that “[t]his Agreement may also be terminated by the parties for other reasons, ” and termination would be “achieved by the buyout by one party of the other for an amount determined to be the fair market value of the selling party’s interests hereunder.” Id. The Definitive Agreement then states that the “termination rights” as described above “are in addition to any other remedies available at law or in equity for a breach of this Agreement.” Id.

         C. Licensing Agreement

         The parties also executed a Licensing Agreement. See ECF No. 17–1. Under the terms of the Licensing Agreement, Evergreen agreed to use its best efforts to promote, market, and sell graphene purchased from Celtig and to be responsible for the cost of marketing and selling the graphene. In exchange, Celtig agreed to sell Evergreen all the graphene Celtig could produce. The Licensing Agreement included a provision allowing for termination of the Agreement if the “non-terminating party . . . fails to provide within fourteen (14) days after a request for ...


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