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DigaComm, LLC v. Vehicle Safety and Compliance

March 2, 2009

DIGACOMM, LLC, PLAINTIFF,
v.
VEHICLE SAFETY AND COMPLIANCE, LLC, PITTCO CAPITAL PARTNERS, LP, PITTCO CAPITAL PARTNERS II, LP, J.R. "PITT" HYDE, III, AND ANDREW SEAMONS, DEFENDANTS.



The opinion of the court was delivered by: George W. Lindberg Senior U.S. District Judge

Judge George W. Lindberg

MEMORANDUM OPINION AND ORDER

Plaintiff DigaComm, LLC ("DigaComm") brought this action against Defendants in the Circuit Court of Cook County. Defendants removed the case, based on diversity jurisdiction. Before the Court are Defendants' motion for summary judgment as to all claims, and Plaintiff's motion for partial summary judgment. For the reasons stated below, Defendants' motion for summary judgment is granted, and Plaintiff's motion for partial summary judgment is denied.

I. Factual Background

Unless otherwise noted, the following facts are undisputed. Defendant Vehicle Safety and Compliance, LLC ("VSAC") is the sole member of Vehicle IP, LLC ("VIP"), a patent licensing and enforcement company that is not a party to this action. Defendants Pittco Capital Partners, LP and Pittco Capital Partners, II, LP (collectively "Pittco Defendants") hold approximately 36% of the preferred interests in Defendant VSAC. Defendant J.R. Hyde is a partner of the Pittco Defendants. Defendant Andrew Seamons is a limited partner of the Pittco Defendants, and is Chairman of the Board of VIP and VSAC.

On February 7, 2007, DigaComm hosted a meeting attended by VIP Board of Directors member Bradley Larschan; VIP and VSAC's general counsel and vice president, Raymond Bilbao; DigaComm principal Jonathan Tunick; DigaComm managing member Peter Smith; and John Hall, a representative of General Electric Co. ("GE"). At this meeting, DigaComm introduced GE to VIP, and GE became interested in acquiring VIP's patents.

In early March 2007, DigaComm and VIP agreed that DigaComm would receive 5% of the "waterfall splits" from a deal between GE and VIP. However, according to DigaComm, VIP and VSAC's general counsel subsequently informed DigaComm that the agreement to pay 5% to DigaComm was no longer acceptable.

Between March 26, 2007 and March 30, 2007, DigaComm and VIP conducted further negotiations. On March 30, 2007, Bilbao sent an e-mail to Tunick that stated: "We have spoken to Andrew [Seamons]. He is okay in principle with the fees and has given VIP approval to execute the letter agreement." A Letter Agreement between DigaComm and VIP was executed on March 30, 2007.

The March 30, 2007 Letter Agreement acknowledged that DigaComm was providing assistance to VIP in negotiating an asset purchase agreement, under which GE was to acquire certain of VIP's patents. The Letter Agreement provided that if the transaction between GE and VIP was consummated, DigaComm would receive a portion of proceeds recovered from enforcement of the assigned patents (the "cash waterfall proceeds"), according to a sliding scale.

In addition, the March 30, 2007 Letter Agreement contained the following provisions:

DigaComm acknowledges that the distribution of any portion of the proposed Cash Waterfall Proceeds to DigaComm is subject to the approval of a majority of the VSAC Preferred Holders, and that such approval has not yet been obtained. Accordingly, this letter is executed by VIP subject to such approval of the majority of the VSAC Preferred Holders.

VIP's management agrees to recommend to VSAC Preferred Holders that it is in the best interests of such VSAC Preferred Holders to approve the distribution of Cash Waterfall Proceeds to DigaComm as described herein as soon as practicable.

According to DigaComm, Bilbao informed it that the approval provision was required by VIP's and VSAC's operating agreements because the proposed agreement was a "Significant Transaction," as defined by the operating agreements. The Letter Agreement also contained an integration clause.

On July 17, 2007, a meeting of VSAC's board of directors and preferred interest holders was held. According to Defendants, at the meeting, Larschan recommended to the preferred interest holders that it was in their best interests to approve a distribution of cash waterfall proceeds to DigaComm, as set forth in the Letter Agreement. Bilbao told the preferred interest holders at the meeting that DigaComm had not earned its fee on the merits, but that they should nevertheless approve the fee because DigaComm had threatened to kill the GE deal if they did not do so. Defendants claim that the preferred interest holders decided to table the vote on the Letter Agreement until the VIP/GE negotiations progressed further; DigaComm contends that the preferred interest holders voted against DigaComm's fee at the July 17, 2007 meeting.

The VSAC board of directors and preferred interest holders met again on August 10, 2007. Defendants claim that the same preferred interest holders who attended the July 17 meeting also attended the August 10, 2007 meeting. Defendants claim that Larschan again recommended to the preferred interest holders that it was in their best interests to approve the Letter Agreement. According to Defendants, at the August 10 meeting, the preferred interest holders voted unanimously against distributing cash waterfall proceeds to DigaComm.

The VSAC preferred interest holders approved the GE transaction on August 15, 2007, and the deal closed on August 16, 2007. On September 6, 2007, Larschan informed DigaComm that the VSAC preferred interest holders had rejected DigaComm's compensation.

DigaComm sued VSAC, the Pittco Defendants, Hyde, and Seamons here, alleging claims of fraud, tortious interference with contract, and unjust enrichment. Defendants have moved for summary judgment as to all counts in this action, and DigaComm has moved for partial summary judgment on the issue of whether VSAC's preferred interest holders were required to approve the March 30 Letter Agreement.

Meanwhile, pursuant to an arbitration provision in the Letter Agreement, DigaComm sued VIP and Larschan in a separate arbitration proceeding in Delaware for breach of contract, fraud, unjust enrichment, quantum meruit, and promissory estoppel. The arbitrator conducted a two-week hearing, during which the parties offered more than 350 exhibits. In addition, twenty witnesses testified, including Hyde and Seamons, who are defendants here, and other key players in the events at issue in this action, such as Tunick, Larschan, and Bilbao. On December 11, 2008, the arbitrator in the Delaware action issued a 43-page award, in which he found in favor of VIP as to DigaComm's common law fraud claim, and in favor of DigaComm as to the breach of contract (or equitable fraud) claim.

Defendants in this litigation contend that the arbitrator's decision bars all of DigaComm's claims here, under the doctrines of res judicata and collateral estoppel. The Court ordered supplemental briefing on the issue of the preclusive effect of the arbitrator's decision, and discusses that ...


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