Concealfab Corp. v. Sabre Indus., Inc.

Decision Date22 July 2019
Docket NumberCivil Action No. 15-cv-01793-CMA-KLM
PartiesCONCEALFAB CORPORATION, a Colorado corporation, Plaintiff, v. SABRE INDUSTRIES, INC., a Delaware corporation, and MIDWEST UNDERGROUND TECHNOLOGY, INC., an Illinois corporation, Defendants.
CourtU.S. District Court — District of Colorado

Judge Christine M. Arguello

FINDINGS OF FACT AND CONCLUSIONS OF LAW

This case involves a dispute between two competing businesses over whether either party breached agreements concerning their merger or acquisition and, if so, the extent of damages caused by any such breach.

Beginning on March 26, 2018, the Court presided over the three-day bench trial on Plaintiff ConcealFab Corporation's claims for: (1) breach of contract of the parties' Licensing Operating Agreement and of their Non-Disclosure Agreement; (2) breach of the implied covenant of good faith and fair dealing; (3) breach of fiduciary duty; (4) misappropriation of trade secrets; (5) tortious interference with contractual relationships; (6) tortious interference with prospective business relations; (7) fraud in the inducement; and (8) breach of contract of the Employment Agreement between ConcealFab's CEO and Defendant Sabre Industries, Inc.,1 see (Doc. # 68 at 10-20); and on Defendants Sabre Industries, Inc. and Midwest Underground Technology, Inc.'s (together, "Sabre") counterclaims for: (1) unjust enrichment, and (2) breach of contract of the Licensing Operating Agreement,2 see (Doc. # 70 at 26-31). (Doc. ## 137-43.) Having heard the evidence presented at the trial and having reviewed the parties' proposed findings of fact and conclusions of law (Doc. ## 148-49), the Court now enters its findings of fact and conclusions of law.

I. FINDINGS OF FACT
A. THE PARTIES

Plaintiff ConcealFab and Defendant Sabre are competitors in the small cell Distributed Antennae System ("DAS") and outdoor Distributed Antennae System ("oDAS") segments of the telecom market, and each has product lines, customer relationships, and intellectual property. (Doc. # 126 at 8.)

ConcealFab is a Colorado corporation that engineers and manufactures small cell DAS and oDAS products for the commercial wireless industry and for the government. (Testimony of Fitzhugh, Doc. # 141 at 5-6.) It was founded by Michael Slattery. Since March 2013, Jonathan Fitzhugh has been ConcealFab's CEO and a member of its Board of Directors. (Id. at 6.) At all relevant times, Chris Odell and Duncan Stewart were members of ConcealFab's Board of Directors. (Id. at 56.) Richard Denton was a member of the Board of Directors between 2011 and 2013 andthen again from June 2015 through the present, and he was the sole member of ConcealFab's Special Litigation Committee. (Testimony of Denton, Doc. # 142 at 310-13.)

Sabre3 is a Delaware corporation that has been in the telecom industry for 40 years. (Testimony of Rossetti, Doc. # 143 at 487.) Sabre sought to diversify into the small cell DAS and oDAS segments of the telecom industry, and in April 2014, Sabre's parent company acquired 180 Logistics, LLC ("180 Logistics"), a company that engineered and manufactured products for the small cell DAS and oDAS markets. (Id. at 487-88; Testimony of Cochran, Doc. # 142 at 363-64.) At all relevant times, Peter Sandore was the CEO and President of Sabre, and he is currently the Chair of the Board of Sabre. (Testimony of Rossetti, Doc. # 143 at 482.) Timothy Rossetti was Sabre's Executive Vice President and Chief Financial Officer; he presently serves in those positions and as Sabre's Chief Administrative Officer. (Id. at 420.) Patrick Cochran founded 180 Logistics and, in 2015, was the Vice President for Engineering Solutions for Sabre. (Testimony of Cochran, Doc. # 142 at 335.) Cochran is now a Senior Vice President. (Id.) Douglas Huff was the President of Sabre's telecom division until early March 2015. (Testimony of Fitzhugh, Doc. # 141 at 25, 100.) Tony Sabatino, Sabre's Chief Development Officer, replaced Huff as the President of Sabre's telecomdivision upon Huff leaving the employ of Sabre. (Id. at 101; Testimony of Rossetti, Doc. # 143 at 436.)

B. THE NON-DISCLOSURE AGREEMENT

ConcealFab and Sabre began discussions to combine the two businesses in 2014. (Doc. # 126 at 8; Testimony of Rossetti, Doc. # 143 at 479.) In late July 2014, Sabre suggested that the parties enter into a non-disclosure agreement. (Trial Ex. 5.) Sabre provided a draft agreement, to which ConcealFab did not make any material changes. (Testimony of Cochran, Doc. # 142 at 336; Testimony of Fitzhugh, Doc. # 141 at 10-11.)

The parties executed the Non-Disclosure Agreement ("NDA") on August 4, 2014. (Trial Ex. 1 at 5.) The preamble to the NDA explained that "the Parties wish to explore a business opportunity of mutual interest, and in connection with this opportunity, each Party may disclose to the other certain business and/or technical information that is non-public, confidential or proprietary in nature." (Id. at 1.) The NDA defined "Confidential Information" broadly; the term included, among other information:

(a) past, present and future business affairs such as finances, customer and/or supplier information, products, services, organizational structure and internal practices . . . and all business, marketing, development, sales and other commercial strategies;
(b) know-how, trade secrets, tools, methods, techniques, designs, and other information which derives economic value, actual or potential, from not being generally known to, or readily ascertainable through proper means by persons who can obtain economic value from its disclosure or use (collectively "Trade Secrets"); [and]
(c) all designs, specifications, documentation, components, source code, object code, images, icons, schematics, drawings, protocols, processes or depictions, in whole or in part, of any of the foregoing[.]

(Id.) The NDA obligated the parties to keep in confidence "all Confidential Information disclosed to either of them by the other" and to "use such Confidential Information only for the purposes of evaluating and engaging in discussion concerning a potential business relationship between the Parties." (Id. at 2.) Finally, the NDA also required the parties to agree "that any violation or threatened violation of [the NDA] may cause irreparable injury to the other Party, entitling the other Party to seek . . . injunctive relief . . . and . . . [to] pursue any other available remedy, at law or in equity, including the recovery of damages." (Id. at 3.)

The parties have not amended or cancelled the NDA, and it remains in effect. (Testimony of Fitzhugh, Doc. # 141 at 15-16.)

C. THE TERM SHEET

Between November 2014 and February 2015, the parties exchanged drafts of a Term Sheet, in which they sought to outline the key terms from which a definitive agreement to combine ConcealFab and Sabre could be developed. (Doc. # 126 at 8.) Fitzhugh represented ConcealFab and Huff represented Sabre in these discussions. (Trial Exs. 10-14, 33; Testimony of Fitzhugh, Doc. # 141 at 26-37.)

The parties executed the Term Sheet on February 3, 2015; Fitzhugh signed the agreement on ConcealFab's behalf, and Sandore signed it on Sabre's behalf. (Trial Ex. 2 at 6.) The Term Sheet began with an overview of each entity's "product lines, customer relationships, and intellectual property," which included:

[Sabre] brings the following: manufacturing capability, engineering expertise as it relates to power, battery back-up, and radio enclosures . . . , backed by a large and credible parent organization, Sabre, andcustomer credibility with key accounts such as CCI [Crown Castle], AT&T, VzW [Verizon], Sprint, and others.
[ConcealFab] brings the following: RF expertise as it relates to antenna concealment, PIM mitigation, and RF interference mitigation, engineering expertise as it relates to sound suppression, electrical integration, and total system integration. In addition, [ConcealFab] has significant customer penetration at key accounts including CCI, Verizon, and AT&T plus an established marketing/sales footprint with several leading Manufacturing Reps, National Distributors, and OEM partners. [ConcealFab] is working in both the commercial and government markets and an important aspect of the government market in maintaining small business status . . . as [it] works to be an approved secure facility with appropriate clearances.

(Id. at 1); see (Testimony of Fitzhugh, Doc. # 141 at 173-75.)

The Term Sheet explicitly stated that it was "non-binding on ether party and establishes only the intent of the organizations to work diligently to develop a formal agreement around the basics of the key points as outlined in [the Term Sheet]." (Id. at 5.) It called for the parties to "establish an interim plan/agreement that [would] allow for combined efforts in the marketing, business development, customer relationships, and manufacturing areas" within ten days of the execution of the Term Sheet. (Id.) The Term Sheet also provided for a 60-day "exclusivity period" "to allow for [the parties] to formulate an agreement acceptable to both parties" and during which ConcealFab could not "solicit, receive, share documents, or take any other action that would be in conflict with the goal of developing a formal agreement." (Id. at 6.)

Two provisions of the Term Sheet are notable, as they informed the parties' subsequent discussions about acquisition. First, the Term Sheet contemplated Sabre paying $1.2 million for the "[p]urchase of all the non-cash assets of ConcealFab . . . (including but not exclusive to all IP, processes, designs, etc.)." (Id. at 2.) Thepurchased assets were to be "setup in a new Sabre entity within [Sabre's] products group" that would "manage all commercial and governmental products and complementary services that are awarded," and what remained of ConcealFab post-acquisition was to "change its name to 'CFG Systems.'" (Id.) ConcealFab was to use the $1.2 million to, among other things, "[f]und employee obligations...

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