Aspen Biotech Corp. v. Wakefield

• Decision Date: 10 August 2021
• Docket Number: 1 CA-CV 20-0384
• Parties: ASPEN BIOTECH CORPORATION, et al., Plaintiffs/Appellees, v. JASON K. WAKEFIELD, Defendant/Appellant. JASON K. WAKEFIELD, Counterclaimant/Appellant, v. JON NIKOLAI CARLSON, Counterdefendant/Appellee. VIKING RESOURCES, LLC, Cross-Claimant/Appellee, v. JASON K. WAKEFIELD, Cross-Defendant/Appellant.
• Court: Arizona Court of Appeals

ASPEN BIOTECH CORPORATION, et al., Plaintiffs/Appellees, v. JASON K. WAKEFIELD, Defendant/Appellant.

JASON K. WAKEFIELD, Counterclaimant/Appellant, v. JON NIKOLAI CARLSON, Counterdefendant/Appellee.

VIKING RESOURCES, LLC, Cross-Claimant/Appellee, v. JASON K. WAKEFIELD, Cross-Defendant/Appellant.

No. 1 CA-CV 20-0384

Court of Appeals of Arizona, First Division

August 10, 2021

Not for Publication - Rule 111(c), Rules of the Arizona Supreme Court

Appeal from the Superior Court in Maricopa County No. CV2015-013984 The Honorable Christopher Whitten, Judge

Sparks Law Group, PLLC, Scottsdale By James D. Sparks (argued) Counsel for Plaintiffs/Appellees

Law Office of Craig Stephan, Scottsdale By Craig Stephan (argued) Counsel for Defendant/Counterclaimant/Cross-Defendant/Appellant

Manning & Kass, Ellrod, Ramirez, Trester LLP, Phoenix By Anthony S. Vitagliano (argued) & Robert B. Zelms Counsel for Counterdefendants/Appellees Edward and Kysa Britt

Stoops Denious Wilson & Murray, PLC, Phoenix By Michael T Denious (argued) Counsel for Cross-Claimants/Counterdefendant/Appellees Jon Nikolai Carlson and Viking Resources, LLC

Presiding Judge Paul J. McMurdie delivered the Court's decision, in which Judge Cynthia J. Bailey and Judge Lawrence F. Winthrop ^[1] joined.

MEMORANDUM DECISION

McMURDIE, JUDGE

¶1 Jason Wakefield appeals from several judgments and post-trial motions entered by the superior court following a jury trial. For the following reasons, we affirm the judgments and the superior court's orders.^[2]

FACTS^[3] AND PROCEDURAL BACKGROUND

¶2 At its core, this case centers on three men, Jason Wakefield Edward Britt, and Jon Nikolai Carlson, and the corporate reorganization of two companies, Aspen Biotech Corporation ("Aspen"), a Delaware corporation, and Applied Biologics, LLC ("Applied"), a New Mexico limited liability company (collectively, the "Company").^[4] Wakefield, Britt, and Carlson met in 2005 and became friends. At the time, Wakefield worked in the medical-sales industry selling spinal implants. In 2008, Britt, a licensed Arizona attorney providing occasional legal advice and representation to Wakefield, assisted him in founding a distributorship, Ethos Medical. In time, Carlson joined Wakefield at Ethos Medical.

¶3 In 2010, Wakefield and Carlson became interested in selling medical products containing amniotic fluid and made a deal with a supplier. To facilitate this new business, Wakefield organized Applied. Although Wakefield was officially the sole member-manager of Applied, he and Carlson had an oral agreement for Carlson to acquire a fifty-percent stake in Applied for $50 at his discretion.

¶4 Over the next three years, Wakefield and Carlson succeeded in growing Applied's business. During this period, Britt aided Applied by providing legal services and entered an advisory board agreement with Applied, where he was paid a retainer through his business, Martin Castleberry Co., Inc. ("Martin Castleberry"). In late 2013, Britt entered a second agreement with Applied for legal services. The contract contemplated a retainer of $12, 000 for a minimum period of six months, beginning November 2013 and ending April 2014.

¶5 At the same time, Wakefield, Britt, and Carlson began to discuss reorganizing Applied. They planned to form a new corporation and transfer ownership of Applied to it. They decided that Britt would become the CEO of this new corporation. Before the reorganization took place, Wakefield and Carlson drafted their agreement as a written contract, and Carlson exercised his option to purchase a fifty-percent membership stake in Applied.

¶6 On January 8, 2014, Britt filed articles of incorporation for Aspen in Delaware. Two days later, Wakefield, Britt, and Carlson each entered an agreement to reorganize Applied and other related companies as wholly owned subsidiaries of Aspen BioTech, Inc., entitled the "Reorganization &Buyback Agreement" (the "Reorganization Agreement"). In this agreement, Wakefield, Britt, and Carlson agreed that Applied would become a wholly owned subsidiary of Aspen, and each would own equal shares of Aspen. The Reorganization Agreement itself noted, however, that it was entered between Aspen BioTech, Inc., Applied Biologics incorporated in New Mexico, Applied Biologics incorporated in South Dakota, Metropole Biogenics, Wakefield, Martin Castleberry, and Viking Resources, LLC ("Viking"), an entity associated with Carlson.

¶7 On January 21, 2014, Aspen received its incorporation certificate from Delaware. The next day, Aspen and Wakefield entered two interrelated agreements entitled the "Exchange Agreement" and the "Assignment of Membership Interest" (collectively, the "Exchange Agreement"). In the Exchange Agreement, Wakefield and Aspen agreed to exchange "all interest" Wakefield owned in Applied for 1 million shares of stock in Aspen. The agreement was signed by Wakefield and Britt, with Britt signing on behalf of Aspen as the president and director.

¶8 Following the reorganization of Aspen and Applied and Britt's ascent within the Company, however, the relationship between Wakefield, Britt, and Carlson deteriorated. Wakefield, who was displeased about the reorganization, threatened to dismantle the Company by cutting off its suppliers, distributors, and customers. Wakefield also separately solicited Britt and Carlson to join him while ousting the other. In the summer of 2014, Wakefield retained outside counsel to negotiate a buyout of his interest in the Company. Eventually, Britt and Carlson terminated Wakefield from the Company in October 2014.

¶9 After his termination, Wakefield's threats regarding the Company proved prophetic. In December and January 2015, Wakefield met with Shannon McPherson, from Applied's largest distributor, Mac Medical, and other medical-sales industry members involved with the Company. During this time, Mac Medical was under contract with Applied and was subject to non-compete provisions preventing it from selling competing products. By a second meeting in January 2015, Wakefield worked as a consultant for Spectrum Medical ("Spectrum").

¶10 In February 2015, Mac Medical stopped placing orders with Applied for a particular product. Instead, it began to buy the product from a competing business, ReGen Biosolutions, Inc. ("ReGen"), violating its still-active contract with Applied. ReGen and Spectrum shared the same management, and Wakefield received between $10, 000 and $20, 000 per month working as a consultant for Spectrum.

¶11 The ongoing buyout negotiations for Wakefield's Applied stock broke down. In October 2015, the Company issued a resolution stating that Britt and Carlson's original intent in forming the Company was to give 1 million shares of stock to them. The resolution did not mention Wakefield's interest in the Company.

¶12 The Company eventually filed suit against Wakefield and several other parties, alleging, inter alia, that Wakefield: (1) breached the terms of the Exchange Agreement; (2) breached the implied covenant of good faith and fair dealing for the same contracts; (3) breached his fiduciary duties as an employee of Applied; and (4) tortiously interfered with Applied's existing relationships and contracts with vendors, distributors, and customers. The Company also sought a declaratory judgment that Wakefield was not entitled to any shares of Aspen stock because he breached the Exchange Agreement.

¶13 In response, Wakefield joined Carlson and Viking as parties to the suit and filed an eleven-count counterclaim against the Appellees, all arising from the reorganization of Aspen and Applied. He asserted the following claims relevant to this appeal: (1) breach of contract for violating the Reorganization Agreement by failing to issue him 1 million shares of Aspen stock and allocate distributions to him; (2) breach of the implied covenant of good faith and fair dealing, again arising from the Reorganization Agreement; (3) breach of the fiduciary duties owed by Britt to Wakefield as his attorney related to the reorganization; (4) constructive fraud, for essentially the same claim; (5) common-law promissory fraud against Britt and Carlson for promising to perform their obligations under the Reorganization Agreement without intent to do so; and (6) fraudulent concealment against Britt for concealing the fraudulent nature of the reorganization of Aspen and Applied. Viking subsequently filed a cross-claim against Wakefield, seeking recovery for an agreement to settle a $20, 000 debt between Carlson and Wakefield.

¶14 After nearly four years of litigation too labyrinthian to summarize here, the court held a ten-day trial in October 2019. Before the trial, Wakefield elected to pursue only his tort claims, and the parties ultimately presented a total of eight claims, including counterclaims and crossclaims. The jury returned the following verdicts: (1) in favor of the Company and against Wakefield for $124, 156 on its interference claim; (2) in favor of Wakefield and against Britt for $562, 000 on his breach-of-fiduciary and constructive fraud claims; and (3) in favor of Viking and against Wakefield for $20, 000 on its breach-of-contract crossclaim. The jury found no liability for the remaining claims. After receiving briefing on the Company's outstanding declaratory-judgment claim and the parties' respective applications for attorney's fees and costs under A.R.S. §§ 12-341 and -341.01, the court issued a detailed order finding the declaratory judgment action moot and awarding attorney's fees to Appellees.

¶15 In May 2020, the court entered separate final judgments for Carlson and Viking. After several amendments, the court issued a final judgment in June 2020, offsetting Wakefield's recovery on his claims against the...