701 Fed.Appx. 138 (3rd Cir. 2017), 16-1091, Petron Scientech, Inc. v. Zapletal

Docket Nº:16-1091, 16-1119
Citation:701 Fed.Appx. 138
Opinion Judge:ROTH, Circuit Judge
Party Name:PETRON SCIENTECH, INC.; Yogendra Sarin, Appellants/Cross-Appellees in No. 16-1091 v. Ronald P. ZAPLETAL; Aluchem, Inc. a/k/a The Aluchem Group a/k/a The Aluchem Group Companies, Appellees/Cross-Appellants in No. 16-1119
Attorney:Kevin P. Meehan, Esq., Princeton, NJ, for Appellants/Cross-Appellees. Mitchell H. Kizner, Esq., Flaster Greenberg, Cherry Hill, NJ, Michael A. Roberts, Esq., Graydon Head & Ritchey, Cincinnati, OH, Appellees/Cross-Appellants
Judge Panel:Before: CHAGARES, RESTREPO and ROTH, Circuit Judges
Case Date:July 14, 2017
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

Page 138

701 Fed.Appx. 138 (3rd Cir. 2017)

PETRON SCIENTECH, INC.; Yogendra Sarin, Appellants/Cross-Appellees in No. 16-1091

v.

Ronald P. ZAPLETAL; Aluchem, Inc. a/k/a The Aluchem Group a/k/a The Aluchem Group Companies, Appellees/Cross-Appellants in No. 16-1119

Nos. 16-1091, 16-1119

United States Court of Appeals, Third Circuit

July 14, 2017

NOT PRECEDENTIAL

Editorial Note:

This opinion is not regarded as Precedents which bind the court under Third Circuit Internal Operating Procedure Rule 5.7. (See Federal Rule of Appellate Procedure Rule 32.1)

Submitted under Third Circuit LAR 34.1(a) on January 26, 2017

On Appeal from the United States District Court for the District of New Jersey (D. C. Civil Action No. 3-11-cv-07122), District Judge: Honorable Peter G. Sheridan

Kevin P. Meehan, Esq., Princeton, NJ, for Appellants/Cross-Appellees.

Mitchell H. Kizner, Esq., Flaster Greenberg, Cherry Hill, NJ, Michael A. Roberts, Esq., Graydon Head & Ritchey, Cincinnati, OH, Appellees/Cross-Appellants

Before: CHAGARES, RESTREPO and ROTH, Circuit Judges

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OPINION[*]

ROTH, Circuit Judge

Petron Scientech, Inc., and Yogendra Sarin had numerous business dealings with Ronald P. Zapletal and Aluchem, Inc., over the course of several years. These dealings culminated in a joint venture that ultimately failed. Both sides then asserted contractual claims against each other. Zapletal and Aluchem also requested an award of attorney fees because they believed that Petron and Sarin had made frivolous claims. After a bench trial, the District Court held that no party was entitled to any damages or fees from any other party. Both sides appealed. We will affirm.

I. Background

A. Factual Background

In 1991, Sarin founded Petron, a chemical engineering company. Petron has developed a process that improves the environmental sustainability of an aspect of plastic-making. In 2007, hoping to profit from this technology, Zapletal and Sarin signed a Letter of Intent that proposed that a new company, to be formed and controlled by Zapletal and possibly several others, acquire Petron’s assets. On July 2, 2007, Zapletal paid a $100,000 down payment, which would convert to a loan to Petron if the acquisition was not completed by October 14th, 2007. Formalizing this arrangement, Zapletal sent a promissory note to Petron, which Sarin signed. The acquisition was never completed.

Subsequently, Sarin and Zapletal became aware of a business opportunity involving the construction of a chemical plant for Dow Chemical. In order to pursue this opportunity, on May 11, 2009, Sarin and Zapletal agreed to a joint venture. Their agreement, the " Green Biochemicals contract," created a new entity called Green Biochemicals, LLC. This entity was owned equally by Petron and Aluchem. The parties agreed that Zapletal, " as CEO of [Green Biochemicals], will arrange loans/grants, equity, government funding or private funding of $2.5 million for the first Dow project for [Green Biochemicals] as quickly as is possible." Then, " [f]rom initial funds arranged, [Green Biochemicals] will make a non recourse/non refundable cash payment of $1.0 million to Petron as upfront technology development and project support fee. Petron will retire a $100,000 Note to ... Zapletal ...." The parties further agreed that Sarin would contribute expertise in the development of these projects, for which he would be paid $250,000 annualy, and that Petron would receive certain technology license and development fees. While negotiating this agreement, Zapletal suggested to Sarin that he would be able to secure funding easily.

However, the Dow Chemical deal was never completed because Green Biochemicals was never able to secure a needed loan or grant from the Department of Energy. By December 2009, Sarin and Petron knew that the funding was not forthcoming, but the parties continued to seek licensing opportunities for Petron’s plastic-making process. In March 2010, Green Biochemicals began negotiating terms of a potential deal with Coca-Cola, which was interested in creating bottles using Petron’s green technology. During the Coca-Cola negotiations, Sarin told Zapletal that Petron’s financial situation was improving, and Zapletal requested payment on the promissory note, but no payment followed. By May 2011, the Coca-Cola deal failed

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because, again, Green Biochemicals was unable to secure loan or grant money.

In June 2011, after the Coca-Cola negotiations had failed, Zapletal sent Sarin a letter requesting payment on the promissory note by August 15, 2011. Sarin responded by letter, asserting that the amount owed under the promissory note was not yet due and that, because Petron and Sarin had fulfilled their obligations under the agreements creating Green Biochemicals, Zapletal and Green Biochemicals owed Sarin $1 million for four years of back pay and Petron $900,000 (that is, $1 million under the agreement offset by the $100,000 loan).

B. Procedural Background

On November 18, 2011, Sarin and Petron filed a lawsuit in New Jersey Superior Court of Middlesex County against Zapletal and Aluchem. The plaintiffs alleged breach of contract, breach of the covenant of good faith and fair dealing, tortious interference with economic benefit, knowing misrepresentation, and conversion. Sarin sought damages equal to the $1 million in salary that he had requested by letter from Zapletal, and Petron sought damages equal to the $1 million in technology development and project support fees that Sarin had requested in the same letter. On December 7, 2011, the defendants removed the case to federal court. On November 7, 2012, the defendants filed a counterclaim seeking damages of $100,000 for failure to satisfy the note. In addition, the defendants filed a motion for attorney fees on the ground that the plaintiffs’ claims were frivolous.

A five day bench trial began on December 3, 2015. At the end of the final day of trial, the District Court read its decision from the bench. The court concluded that neither party was entitled to any remedy.

II. Discussion1

Sarin and Petron have appealed, arguing that Zapletal breached the covenant of good faith and fair dealing and that the termination clause of the contract was not their sole remedy for breach. Thus, they argue that they should be awarded damages. Zapletal and Aluchem have cross-appealed the denial of their counterclaim, arguing that Petron still owes Zapletal under the terms of the promissory note and that their motion for attorney fees should have been granted.

A. Good Faith and Fair Dealing

On the good faith and fair dealing claim, the District Court found that Zapletal’s description of his ability to secure financing for Green Biochemicals’s deals was mere puffery and therefore not actionable. The plaintiffs do not contest that Zapletal’s statements were mere puffery. Instead, the plaintiffs argue that Zapletal, by engaging in puffery, breached the implied covenant of good faith and fair dealing in the Green Biochemicals contract,2 which entitles them to damages. They argue that puffery is inherently inconsistent with the duties imposed by the covenant of good faith and fair dealing.3 However, this argument is unpersuasive. A breach of the

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covenant of good faith and fair dealing requires doing something " which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract" 4 and requires bad motive or...

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