Cardot v. Synesi Group, Inc., No. A07-1868 (Minn. App. 9/23/2008)
| Decision Date | 23 September 2008 |
| Docket Number | No. A07-1868.,A07-1868. |
| Parties | Stephen C. Cardot, Appellant, v. Synesi Group, Inc., f/k/a Portogo, Inc., Respondent. |
| Court | Minnesota Court of Appeals |
Appeal from the District Court, Hennepin County, File No. 27-CV-06-14558.
David E. Albright, (for appellant)
Jodi L. Johnson, Thomas P. Kane, Hinshaw & Culbertson, LLP, (for respondent)
Considered and decided by Halbrooks, Presiding Judge; Hudson, Judge; and Collins, Judge.
UNPUBLISHED OPINION
Appellant challenges the district court's grant of summary judgment in favor of respondent, arguing that the district court erred by concluding that appellant's claims are barred by a waiver and release provision, and that there are genuine issues of material fact that preclude summary judgment. We reverse and remand.
Synesi Group, Inc.1 is an inactive Minnesota corporation that currently has no assets. Synesi was formed in 1999 for the purpose of generating licensing revenue through two patents, U.S. Patent #6922720 and U.S. Patent #7020692 (the patents) relating to the securing, bonding, insurance, and underwriting of Internet transmissions. Stephen Cardot is one of the founders of Synesi, and he, along with two other individuals, authored the patents and filed provisional patent applications in September 1999, although the patents were not granted until July 26, 2005, and March 28, 2006. Cardot also was Synesi's president and chief executive officer (CEO) from its inception until March 2003.
In 2001, Marcellus Knoblach of the Marcellus P. Knoblach Revocable Trust (Knoblach) became involved with Synesi. Knoblach provided financing to Synesi, and during Cardot's tenure as president and CEO, Knoblach loaned Synesi approximately $2,000,000. Knoblach also owned stock in Synesi, and, by the summer of 2002, Knoblach had become Synesi's largest shareholder.
On May 15, 2001, Cardot entered into an "Assignment of Interest Regarding US Patents" (the first assignment) with Synesi, transferring "any and all right, title, interest or claim he has or may have" regarding the patents in exchange for Synesi's agreement to pay him a royalty of "one-third of one percent (.333%) of [Synesi's] gross revenue for a period of twelve (12) years."
Approximately two months later, Cardot entered into an "Amendment to Assignment of Interest Regarding US Patents" (the amended assignment) with Synesi. The amended assignment reaffirms the first assignment but provides that Synesi's obligation to pay royalties did not apply to its first $2,000,000 in gross revenue. It also provides that, if substantially all of Synesi's assets or the majority of its stock were sold to a third party, Cardot would agree to offer to sell his right to receive royalties for 0.333% of the gross sales price or $1,700,000, whichever is greater.2
On December 9, 2002, Cardot entered into an "Intellectual Property Agreement" (the IP agreement) with Synesi. The IP agreement reaffirms the first assignment and the amended assignment and provides that its purpose is to "enhance the opportunity for [Synesi] to be able to continue ongoing operations by clarifying and reaffirming existing assignment and royalty obligations and by supplementing such assignments, thereby aiding the company in attracting additional investment or increasing the marketability of [Synesi's] products and services." Further, the IP agreement provides that Cardot received "consideration in the form of potentially increasing the value of [his] stock holdings in [Synesi] or potentially increasing the possibility that [he] will obtain royalties or a buy out of [his] royalties," as set forth in the amended assignment. In exchange, Cardot "assign[ed] and reaffirm[ed] the assignment to [Synesi] of any and all intellectual property . . . including but not limited to ideas, inventions, software, writings, discoveries, developments, plans, strategies, lists, information and data" regarding the patents and Cardot's involvement with Synesi.
Cardot resigned as president and CEO of Synesi in March of 2003, and entered into a "Severance Agreement and Release" (the severance agreement) on March 17. At that time, the parties agreed that Synesi owed Cardot $97,166 in past-due wages. The severance agreement provided that in satisfaction of this obligation, Synesi would convert half of this amount into "a warrant . . . to purchase an aggregate of 48,583 shares of [Synesi's] common stock . . . at $1.00 per share," and that the balance would be paid "pursuant to the terms of a one-year 6% promissory note in the amount of $48,583.12." The severance agreement also provides that, in exchange for Cardot's agreement to waive any claims that he may have against Synesi, Synesi would issue Cardot two warrants to purchase 500,000 shares of common stock at a price of one dollar per share.
Also on March 17, 2003, Synesi and Knoblach entered into numerous agreements regarding loans that Knoblach had made to Synesi. Under these agreements, Synesi granted Knoblach a "first priority perfected security interest" in Synesi's intellectual property and in its interest and rights in the patents and the patent applications. The agreements provide that, in the event of a default, including a failure by Synesi to pay its loan obligations when due, Knoblach would have the right to, among other actions, take possession of Synesi's interest and rights in the patents without a judicial proceeding and sell or otherwise transfer the patents. In exchange, Knoblach made loans to Synesi in the amount of $1,596,113 and $424,446, both of which were due and payable in full on December 17, 2003. When these agreements were entered into, Cardot was still a member of the board of directors and executed a "Written Action of the Board on March 10, 2003, approving the Amended, Restated and Consolidated Secured Convertible Term Promissory Note Due December 17, 2003 for $1,596,113.60." The written action incorporated by reference all of the other March 17, 2003 agreements.
Over the next two and one-half years, Knoblach continued to make loans to Synesi, and, ultimately, Knoblach had loaned a total of $3,583,355 to Synesi. Although it is not entirely clear from the record what happened between Cardot's departure and the initiation of this lawsuit, it appears that by December 2004 Synesi was in default on its loan obligations to Knoblach. Knoblach agreed to grant Synesi a forbearance until February 28, 2005, which the parties later extended to March 31, 2005, and then extended a second time to August 1, 2006.
By letter dated September 18, 2006, Synesi's board of directors notified the shareholders that the company was in default on its loan obligations to Knoblach, that Knoblach was unwilling to negotiate any further forbearances, and that Knoblach had requested that Synesi voluntarily agree to the foreclosure of assets pledged to Knoblach as collateral—namely, the interest and rights in the patents—but that the board of directors had refused. The letter also informed the shareholders that Synesi had no funds and did not have the ability to cure the default. On October 2, 2006, Knoblach sent a "Notice to Assemble Collateral" to Synesi requesting that the company make the collateral available to TranSurety, LLC, the company to which Knoblach had assigned its rights to the collateral. The board of directors unanimously voted to not cooperate with Knoblach's request without a court order, and it notified the shareholders of that decision.
On November 17, 2006, Cardot wrote to Synesi advising the company that he was "rescind[ing] his assignment of patent rights to [Synesi]" and that he "expects that Synesi will return the patent rights forthwith." In December 2006, TranSurety removed the patents from Synesi.
Cardot, acting pro se, filed this lawsuit against Synesi on August 1, 2006, claiming that Synesi had failed to pay him the $48,583 due on the promissory note for past wages. Cardot later hired an attorney to represent him and, in January 2007, moved the district court for leave to amend the complaint. The district court granted the motion, and Cardot filed an amended complaint adding a claim seeking to rescind his assignment of his interest and rights in the patents. The amended complaint asserts that Cardot is entitled to a rescission of the three assignment agreements, that is, the first assignment, the amended assignment, and the IP agreement (collectively, the three assignments) on the grounds that Synesi: (1) materially breached its contractual duties, including the duty of good faith and fair dealing; (2) fraudulently induced Cardot into entering into certain agreements; and (3) frustrated the purpose and hindered the performance of the three assignments. Synesi moved for summary judgment, which the district court granted, and Cardot appeals.
When reviewing a grant of summary judgment, this court determines whether there are any genuine issues of material fact and whether the district court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). There is no genuine issue of material fact when the record, taken as a whole, would not permit a rational fact-finder to find for the nonmoving party. DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997). We review the record in the light most favorable to the nonmoving party. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993). All factual inferences and ambiguities must be resolved in favor of the nonmoving party. Wistrom v. Duluth, Missabe & Iron Range Ry., 636 N.W.2d 611, 613 (Minn. App. 2001).
As an initial matter, Synesi argues that Cardot's brief is "devoid of appropriate citation to the district court's record," and thus, violates Minn. R. Civ. App. P. 128.02, subd. 1(c) (...
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