Beardmore v. Jacobsen

• Decision Date: 18 September 2015
• Docket Number: Civil Action No. 4:13–CV–361.
• Citation: 131 F.Supp.3d 656
• Parties: Patrick Scott BEARDMORE, et al., Plaintiffs, v. James JACOBSEN, Defendant.
• Court: U.S. District Court — Southern District of Texas

131 F.Supp.3d 656

Patrick Scott BEARDMORE, et al., Plaintiffs,

v.James JACOBSEN, Defendant.

Civil Action No. 4:13–CV–361.

United States District Court, S.D. Texas, Houston Division.

Signed Sept. 18, 2015.

D. John Leger, Leger Burke, Houston, TX, for Plaintiffs.

Michael Charles Falick, Rothfelder and Falick, Houston, TX, for Defendant.

CORRECTED OPINION AND ORDER ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

MELINDA HARMON, District Judge.

An Opinion and Order on Defendant's Motion for Summary Judgment, Doc. 40, was filed September 16, 2015. After finding a clerical error in the opinion, the Court now files a corrected opinion. Having considered the motions, supplements, response, replies, the facts in the record, and the applicable law, the Court concludes Defendant's Motion for Summary Judgment should be granted.

I. Background

This is a dispute over the ownership of the "Z.E.A.L. Rewards App" ("Zeal," the "App"), an iPhone application. The dispute arose during negotiations over the management structure of Z.E.A.L. Rewards, LLC, which was intended to own and manage the App. The record contains inconsistent testimony as to who owns what part of the App and the LLC, and what exactly the App comprises.

The undisputed facts are as follows. Plaintiff Beardmore and Defendant Jacobsen have been family friends for 35 years. Jacobsen invested in Beardmore's first company, Eternal Publishing, which published a religious comic-book series that was adapted into an iPhone app. In 2010, Beardmore and Plaintiff Galen Blom started a company to develop an iPhone app for local community events, outsourcing the software programming to Chris Reichard of Stratopy LLC. In 2011 or early 2012, Beardmore began designing Zeal, a "loyalty rewards app" patterned on frequent-shopper cards or paper punch cards, which allows shoppers to record purchases at participating stores and receive free items. Doc. 29–3 at 106–07 (describing Zeal as "buy 7, get 1 free"). Beardmore designed Zeal with the assistance of Blom, who contributed "diagramming, wire framing, assembling, and a lot of feedback of functionality to the app, a lot of brainstorming in the initial creation process." In return, Blom was awarded 5% of the business. Doc. 40–1 at 32, 35. Beardmore hired Reichard to write code for the App in exchange for 5% of the business. Id. at 27.

On May 9, 2012, Beardmore emailed Jacobsen a 19–page "pitch deck" including approximately 1,000 words summarizing the App and a disclaimer ("By receipt of these materials, you and your representatives acknowledge the for[e]going and agree not to disclose the contents or substance of these materials to any third party without prior consent of Zeal Rewards.") and copyright notice ("Copyright 2012 Patrick Scott"). Doc. 42–1 at 1, 4. The document describes Beardmore as "President & CEO of ZealRewards.com." Id. at 17. It includes seven screenshots and one page entitled "The Competitive Advantage" describing in general terms the way the App works:

It is fun to be rewarded loyalty points that can be redeemed for gift cards of your chose [sic] before any single punch card is filled. Users are in control!

It is fun to play and compete to win rewards / recognition for being one of the top seven (7) Zeal users in a community, (Zealots are ranked by points accumulated each month).

Each month Zeal awards gift cards to the top seven (7) Zealots in each community based on their cumulative loyalty rewards points;

(1st $25; 2nd $20; 3rd $1; 4th $10; 5th–7th $5)

It is fun to express your personality through your own customized game skin and avatars.

Doc. 42–1 at 12. On May 11, 2012, Jacobsen emailed Beardmore a letter of intent, stating:

I think the following outlines what I could move forward with fairly quickly.

1. $50,000 Commitment in exchange for 20% equity ownership. This is straight common equity ownership and will be identical in terms with you.

2. Not to complicate matters with a checking account I etc. I will pay all expenses from my personal checking account till I hit the $50,000. If additional funds are needed, we can review at a later date after we see how things progress towards the identified goals and objectives.

3. I will pay 50% of your fees for the 3 development projects we discussed earlier today immediately with the remaining 50% paid upon completion of each project. And you[r] salary will start immediately on the 15th of each month for the $2K.

Doc. 43–3. Beardmore replied, "This is acceptable. On the condition that if we need capital to grow we all agree to an equal dilution to raise additional funds." Doc. 40–2. On the same day, Jacobsen wrote Beardmore a check for $48,000, which Beardmore deposited in his personal checking account. Doc. 40–1 at 32, 83. Beardmore testified:

May 12th, the first day he agreed to fund the Pitch Deck, and I picked up a check from him.... I said, "I'll be the president and CEO," and I said, "Galen will do the marketing, and Chris will build the app, and we'll set up a company." And he said, "We'll set up the LLC stuff later." He said, "That's fine." And I said, "All right. Great."

Doc. 40–1 at 83. Beardmore spent the $48,000 on living expenses, as well as promotional materials. Id. at 32 ("I created the Web site, created the business cards, created the fliers, created the folders."). Jacobsen paid Beardmore an additional $5,000 to develop two personal websites and $5,000 to pay Chris Reichard to program a second app called "Trip Mine." Id. at 33. Beardmore testified Jacobsen agreed to contribute $50,000 to develop Trip Mine in return for an additional 25% of the business. Id. at 78 ("I agreed to match it and give him 45 in Zeal, so we'd have 45 together. They'd—he'd have both 45 in both properties."). Jacobsen texted him, "So just to confirm what equity I have in zeal? 45?" Beardmore replied, "OK and yes 45%." Id.

Beardmore's testimony is ambiguous as to whether Jacobsen, Blom, and Reichard's shares were in the App, the business, an informal partnership, or a not-yet-formed LLC; whether they were granted by Beardmore himself; and whether they were transferred orally or in writing. Id. at 27 ("We had given—I had given [Reichard] a position of equity in exchange for 50,000 dollars' worth of development time."); id. at 35 ("I would—I believe I sent it to them in an email. I will have to look at my e-mail. But it was verbally expressed to Mr. Blom 5 percent, and 5 percent to Mr. Reichard."

Q. What did Mr. Jacobsen get for the investment that he gave to you?

A. 20 percent of Zeal Rewards, LLC.

Q. Who owns the 80—the other 80 percent?

A. I own 70, Chris Reichard owns 5, and Galen Blom owns 5.

.........

Q. ... [O]wnership in what?

A. In Zeal Rewards.

Q. What is Zeal Rewards?

A. Zeal Rewards is an intellectual property that is an app that is a rewards program.

Q. Is it a corporation? Is it an LLC? Is it a partnership? Is it a sole proprietorship?

What kind of business entity is Zeal Rewards?

A. At the time it was a d/b/a, and the d/b/a was then—we were going to convert that d/b/a into an LLC....

Q. As a 70 percent owner, couldn't you [create] the LLC without anybody else's involvement?

A. Yes.

.........

Q. As [you] sit here today, do you agree that Mr. Jacobsen owns 20 percent of Zeal Rewards?

A. Yeah.... [M]y understanding is that if he completed his financial obligations, he would own 45 percent. But I believe he owns 20 percent now until he completes his obligation.

.........

A. [I]f he agreed to put the 50,000 to fund Trip Mine—he had 20 in Zeal—I agreed to match it and give him 45 in Zeal, so we'd have 45 together. They'd—he'd have both 45 in both properties.

Doc. 40–2 at 7–8, 12. Later in his deposition, Beardmore testified that Jacobsen did not currently own any share of the App, on grounds that the LLC did not exist at the time of the agreement and Beardmore had not formally assigned the App to the LLC.

Q. What documentation do you have to support that you are one of the owners of the app?

A. That I created it and that I was going to transfer the app to the LLC once we had agreed upon that transfer, once he had completed his part in the financial process and we agreed on the LLC, I would then assign the app to the LLC. So, I owned the app until we agreed on the LLC.

.........

Q. And no dispute that he owned—in your mind, at least, that he owns 20 percent?

A. 20 percent of the LLC Zeal Rewards.

Q. In the absence of the formation of an LLC, what does Mr. Jacobsen own?

A. Nothing.

Q. So, does he own 20 percent of the rights in the app?

A. No.

Q. So, how—how does his investment get counted?

A. He invested in 20 percent ownership in an equity position in the Zeal Rewards LLC. Once we agree on that document and we form the LLC and it's filed with the State of Texas, I would transfer the proprietary intellectual property rights of Zeal Rewards into that LLC.

Q. So, as we sit today, Mr. Jacobsen owns nothing, and he's out $50,000?

A. Yes.

.........

Q. What did Mr. Jacobsen get for that 5,000–dollar investment?

A. 25 percent—he got 45 percent ownership in the LLC of Zeal Rewards once the properties were transferred into the LLC. He gets nothing until he completes the LLC. I own 100 percent of all properties.

Doc. 40–2 at 15–16, 18. In an email to Beardmore, Jacobsen claimed that he, rather than Beardmore, owned 100% of the App and that he had intended to assign it to the yet-to-be-formed LLC.

First, no agreement was ever reached with regards to Zeal Rewards, LLC. Only discussions as to what a POTENTIAL DEAL may look like. TO DATE no agreement has been reached. All that exists with Zeal Rewards, LLC is a governing document which states you and I are co managers with no contribution of intellectual property to the entity. With that said, as you know I own the App Zeal Rewards personally and was going to contribute that into an entity once a final agreement was reached and the appropriate documents executed as outlined in the operating agreement I provided you. TO date, all checks have been written by me to you and others to develop the app for

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