Bay Venture Elyria, LLC v. Advanced Plastics Reclaiming, LLC

• Decision Date: 13 December 2013
• Docket Number: CASE NO. 1:12-CV-2866
• Parties: BAY VENTURE ELYRIA, LLC, PLAINTIFF, v. ADVANCED PLASTICS RECLAIMING, LLC, et al., DEFENDANTS.
• Court: U.S. District Court — Northern District of Ohio

BAY VENTURE ELYRIA, LLC, PLAINTIFF, v. ADVANCED PLASTICS RECLAIMING, LLC, et al., DEFENDANTS.

CASE NO. 1:12-CV-2866

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION

Dated: December 13, 2013

JUDGE SARA LIOI

MEMORANDUM OPINION

In this diversity action, plaintiff Bay Venture Elyria ("plaintiff" or "BVE") seeks to recover $2,275,688.40, plus interest and associated costs and fees incurred on a loan. This case is presently before the Court for disposition of plaintiff's motion under Federal Rule of Civil Procedure 56 for summary judgment on plaintiff's contract and warranty claims. (Doc. No. 29.) Plaintiff originally filed a motion for judgment on the pleadings as to these claims (Doc. No. 19), to which defendants responded (Doc. No. 22), and plaintiff replied. (Doc. No. 25.) On June 25, 2013, the Court advised the parties that it would convert plaintiff's motion for judgment on the pleadings to one for summary judgment, and that it would afford the parties an opportunity to supplement their briefs with supporting materials. (Minute Order, dated June 25, 2013.) The present summary judgment motion represents plaintiff's supplement. Defendants filed their own supplement in opposition (Doc. No. 31), and plaintiff filed a supplemental reply. (Doc.No. 34.) The summary judgment motion is now fully briefed.¹ For the reasons set forth below, plaintiff's motion for partial summary judgment is granted.

I. BACKGROUND

All of the following facts are either undisputed or taken in the light most favorable to defendants as the non-moving parties. MTD America Ltd. ("MTD") and defendant Broadview Group, LLC ("Broadview") are each in the recycling business. (Doc. No. 29-1, Declaration of John Camozzi, at ¶ 4.) Broadview is a consulting engineering company, which had developed a hydro-gravity recycling process for separating plastics from other materials. It utilized this process, first in a small plant in Westlake, Ohio beginning in September 2005, and later in a plant in Elyria, Ohio beginning in May 2009. (Doc. No. 31-2, Affidavit of Joseph Bork, at ¶¶ 2-6.) In 2006, defendant Advanced Plastics Reclaiming, LLC ("APR") was formed to be the operating entity to administer Broadview's hydro-gravity recycling process. Broadview, in turn, provided management services to APR. (Id. at ¶¶ 7-8.) When Broadview moved its operations from Westlake to Elyria, it leased a building that was owned by Paspek Leasing, LLC, whose single member was defendant Stephen Paspek. Paspek, Joseph Bork, and Alan Schroeder are principals in Broadview. (Id. at ¶ 9; Doc. No. 29-1 at ¶ 3.)

The Parties' Joint Business Projects

In fall 2007, MTD entered into a non-binding term-sheet agreement with Broadview to develop certain technologies associated with the separation and reclamation of recyclable materials. (Doc. No. 29-1 at ¶ 7.) Pursuant to the term-sheet agreement, on November 16, 2007, MTD and Broadview entered into a consulting services agreement, in which Broadview agreed to consult with MTD regarding the use of the hydro-gravity technology at MTD's joint venture processing facility in Toledo, Ohio. Under the consulting agreement, Broadview assigned to MTD its patentable or copyrightable work product.² (Id. at ¶ 8 [citing Doc. No. 29-2].) In July 2008, MTD and another company, Rewest, formed BVE for the purpose of interacting with defendants, and BVE became the assignee of MTD. (Id. at ¶ 19.)

Also in July 2008, BVE and Broadview entered into a bullet-point agreement, which related to a new venture to convert Broadview's Elyria plant into a facility for the processing of post-industrial and post-consumer polyethylene material into recyclable polyethylene terephthalate ("PET") flakes. The process to be used in the modified Elyria plant was a new application, and the principals from Broadview discussed with MTD and BVE the risks associated with this new production system.³ (Doc. No. 29-1 at ¶ 20; Doc. No. 31-2 at ¶¶ 18-21.)

Defendants suggest that, at the time, the pairing seemed ideal, as "Broadview and Paspek had ideas and MTD and its associates had capital." (Doc. No. 31 at 555.) Indeed, the business seemed destined to flourish. The redesigned Elyria plant initially operated at full capacity, running five to six days per week, three shifts per day. However, it appears from the record that the relationship between BVE and defendants quickly soured. In October 2008, Thomas Valerio, one of BVE's principals, reduced production to one shift per day, five days a week. In a meeting held November 3, 2008 in Florida with Bork and Paspek, Valerio ordered that the Elyria plant be closed.⁴ (Doc. No. 31-2 at ¶¶ 31-34.)

The Settlement and the Resulting Agreements

In January 2009, in the wake of the failed Elyria business venture, the parties entered into a settlement agreement, which, among other things, released the parties from past claims and required the parties to enter into a series of new agreements setting forth the parties' mutual rights and duties going forward. Two of these agreements are especially relevant to the present litigation. (Doc. No. 29-1 at ¶ 21; Doc. No. 29-6, Settlement Agreement.)

First, on February 9, 2009, APR, as maker, executed a promissory note ("the Note"), payable to BVE, as holder, in the amount of $2,255,705.33, payable with interest in 2019. (Doc. No. 29-7, Promissory Note.) The Note provided for an acceleration of payment when an "Event of Default" occurred. According to the Note, an"Event of Default" can occur when "the holder [BVE] in good faith believes that the prospects of payment or performance by any APR Party hereunder or under any other agreement between Holder and such APR Party have been impaired." (Id. at 454.) The Note also provided that "[i]n the event the indebtedness evidenced by this Note is collected by legal action or through an attorney-at-law, the Holder shall be entitled to recover from the Maker all costs of collection, including, without limitation, fifteen percent (15%) of the outstanding principal and earned interest as reasonable attorneys' fees if collected through an attorney-at-law." (Id.) Finally, the Note stated that "[t]he Maker [APR] and all endorsers waive presentment, notice of dishonor and protest." (Id.)

Second, also on February 9, 2009, the parties entered into a Limited Recourse Guaranty and Security Agreement. (Doc. No. 29-8, Guaranty.) Both Paspek and Broadview signed the Guaranty, wherein each "guarantees to the extent provided herein to [BVE] . . . the prompt payment at maturity, or whenever they may become due in accordance with any of their terms, of all now existing and hereafter arising liabilities, indebtedness and obligations of [APR] to [BVE], whenever and however arising or acquired by [BVE], whether direct or indirect, absolute or contingent[.]" (Id. at 456.) As part of the agreement, Paspek and Broadview agreed that their liability to pay the Note "shall be direct, immediate, absolute, continuing, unconditional and unlimited and not conditional or contingent upon the pursuit by [BVE] of whatever remedies it may have against [APR] . . . ." (Id. at 457.) While the Guaranty was limited recourse, it provided that both Paspek and Broadview "SHALL BE LIABLE WITHOUT LIMITATION AS TO RECOURSE IF THE ASSET REPRESENTATION OR ANY OTHER MATERIAL REPRESENTATION OR WARRANTY OF THE UNDERSIGNED IS UNTRUE INANY RESPECT AS OF THE DATE WHEN MADE." (Id. at 458) (capitalization in original).

The Asset Representation, in turn, was attached to the Guaranty and included numerous schedules, including Schedule B that listed three of Broadview's patent applications. (Doc. No. 29-8 at 461.) Broadview warranted that it did not own any patent applications other than those listed on Schedule B. (Id. at 457.) In the Guaranty, Broadview acknowledged and agreed that "the Asset Representation is a material representation upon which [BVE] is relying in making the financial accommodations available to [Broadview] . . . ." (Id.)

Also in connection with the Guaranty, Broadview executed a Collateral Assignment and Security Agreement, by which Broadview conveyed to BVE a security interest in all of the patent applications listed in Schedule I attached to the agreement. (Doc. No. 29-9.) Schedule 1, in turn, included the same three patent applications identified in Schedule B of the Guaranty. (Id. at 467.) Plaintiff's Request for Assurance

BVE represents, and defendants do not dispute, that on August 23, 2010, Broadview sent BVE notice that it was liquidating certain equipment. (Doc. No. 29-1 at ¶ 34.) While the parties dispute whether the equipment was ever owned by APR,⁵ there appears to be no dispute that the manager of BVE, John Camozzi, wrote to William Hunt,APR's counsel, on August 30, 2010, requesting certain information and supporting documentation to assist BVE in determining whether the liquidation of the equipment had impaired the prospect of payment on the Note. According to BVE, attorney Hunt's response, dated September 7, 2010, did not address any of the requests or questions enumerated in the August 30, 2010 letter. (Id. at ¶ 37.) Defendants concede that, in December 2010, APR closed the Elyria plant and sold equipment at auction and the proceeds were used to pay existing APR Elyria obligations. (Doc. No. 31-2 at ¶ 48.)

It appears from the record that BVE took no further action to accelerate payment on the Note for more than eighteen months. On March 8, 2012, counsel for BVE and MTD, Peter Silverman, wrote to attorney Hunt and advised that BVE had become concerned that the prospects of payment or performance by APR had become impaired. (Doc. No. 29-11.) Attorney Silverman reiterated Camozzi's prior request for information and documentation.

Under the heading of "Other concerns," Silverman stated that BVE also believed that Broadview and its principals concealed from BVE the existence of two patent applications in contravention to the Asset Representation contained in the Guaranty: (1)...