Energy Conversion Devices Liquidation Trust v. Ovonyx, Inc. (In re Energy Conversion Devices, Inc.)

• Decision Date: 01 October 2020
• Docket Number: Adv. Pro. No. 18-4320,Case No. 12-43166 (Jointly Administered)
• Citation: 621 B.R. 674
• Parties: IN RE: ENERGY CONVERSION DEVICES, INC., at al, Debtors. Energy Conversion Devices Liquidation Trust, Plaintiff, v. Ovonyx, Inc., et al., Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

621 B.R. 674

IN RE: ENERGY CONVERSION DEVICES, INC., at al, Debtors.Energy Conversion Devices Liquidation Trust, Plaintiff,

v.Ovonyx, Inc., et al., Defendants.

Case No. 12-43166 (Jointly Administered)¹

Adv. Pro. No. 18-4320

United States Bankruptcy Court, E.D. Michigan, Southern Division.

Signed October 1, 2020

Eric D. Winston, Sara C. Clark, Allison Huebert, Quinn Emanuel Urquhart & Sullivan, LLP, Los Angeles, California; Houston, Texas; Chicago, Illinois, Attorneys for Plaintiff.

Joseph R. Sgroi, Edward Todd Sable, Robert M. Riley, Honigman Miller Schwartz and Cohn LLP, Detroit, Michigan, Attorneys for Plaintiff.

Natalie L. Arbaugh, Katherine Preston, Matthew D. Tanner, Melanie Gray, Winston & Strawn LLP, Dallas, Texas; Houston, Texas, Attorneys for Defendants Ovonyx, Inc.; Micron Technology, Inc.; and Ovonyx Memory Technology, Inc.

Fred K. Herrmann, Jason W. Bank, William C. Blasses, Kerr, Russell and Weber, PLC, Detroit, Michigan, Attorneys for Defendants Ovonyx, Inc.; Micron Technology, Inc.; and Ovonyx Memory Technology, Inc.

Doron Yitzchaki, Dickinson Wright PLLC, Ann Arbor, Michigan, Attorney for Defendant Ovonyx Memory Technology, Inc.

Todd A. Rowden, James L. Oakley, Taft Stettinius LLP, Chicago, Illinois, Attorneys for Defendant Tyler Lowrey.

Marc N. Swanson, Ronald A. Spinner, Miller Canfield Paddock and Stone, P.L.C, Detroit, Michigan, Attorneys for Defendant Intel Corporation.

Gregory P. Stone, Seth Goldman, Bethany W. Kristovich, Adam I. Kaplan, Kuruvilla J. Olasa, Munger, Tolles & Olsen LLP, Los Angeles, California, Attorneys for Defendant Intel Corporation.

OPINION REGARDING DEFENDANTS' MOTIONS TO DISMISS

Thomas J. Tucker, United States Bankruptcy Judge

I. Introduction

The Complaint in this case involves lengthy and complex factual allegations against five defendants, all of whom seek dismissal under Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted. The Complaint alleges claims under Michigan law, including claims of breach of contract; claims based on Michigan's alter ego and successor liability doctrines; multiple claims of tortious interference with contract; a claim for aiding and abetting tortious interference with contract, and a claim of "actual" fraudulent transfer (i.e. , a transfer done with actual fraudulent intent, rather than merely a constructive fraudulent transfer). The Defendants' dismissal motions raise numerous issues about the elements of the claims, and many other issues, including but not limited to issues of contract interpretation and contract law; the interplay between related contracts; and the effect of a Chapter 11 debtor's rejection of an executory contract under Bankruptcy Code § 365.

This adversary proceeding was filed against five defendants by the Plaintiff Energy Conversion Devices Liquidation Trust (the "Trust"). The Plaintiff Trust was created as a result of the confirmed liquidation Plan in the Chapter 11 bankruptcy cases of Energy Conversion Devices, Inc. ("ECD") and its wholly-owned operating subsidiary, United Solar Ovonic LLC ("USO"). Those Debtors filed their voluntary Chapter 11 bankruptcy petitions in this Court on February 14, 2012.

On July 30, 2012, the Court confirmed a joint liquidating plan proposed by the Debtors (the "Plan").² The Plan included the substantive consolidation of the ECD and USO estates. The effective date of the Plan was August 28, 2012.³

The Trust's First Amended Complaint alleges seven "causes of action" against the Defendants. The Trust's claims are premised on the Trust allegedly having certain contractual rights that were breached. These alleged contractual rights arose under an agreement made in 1998 by ECD and Defendant Tyler Lowrey ("Lowrey"), and an intellectual property license agreement made in 1999 by ECD, Lowrey, and Defendant Ovonyx, Inc. ("Ovonyx"). The Trust claims to have had the following contractual rights: (1) a right to payment by Ovonyx of a quarterly royalty of 0.5% of Ovonyx's revenues; and (2) a right of first refusal for the sale of any stock of Ovonyx or any sale of assets by Ovonyx.

Each of the five Defendants filed motions to dismiss the Trust's First Amended Complaint.⁴ The motions dispute that the Trust had any of the alleged contractual rights. Because of this, and for other reasons, the motions argue that the First Amended Complaint fails to state any plausible claims upon which relief can be granted. For the reasons stated in this Opinion, the Court will grant the motions in part, and deny them in part.

II. Background

There are several written contracts that are relevant to the pending motions. The Court will describe these in detail. Many of the facts stated in this Opinion are taken from allegations of the First Amended Complaint, and these facts are assumed to be true for purposes of ruling on the Defendants' motions. Many other facts stated are taken from contracts that were made, the terms of which are not in dispute.

A. The 1998 Contract

The first contract at issue was made on December 17, 1998, between ECD and Lowrey, entitled "Ovonic Information Handling Devices Development and Commercialization Contract" (the "1998 Contract").⁵ When it entered into the 1998 Contract, ECD was the holder of patents in the area of information technology and energy, and a developer of "devices concerning, among other things, ‘phase-change’ memory, a form of nonvolatile memory that is far superior to other forms of memory."⁶ Lowrey was a former senior officer of Defendant Micron Technology, Inc. ("Micron") who was "expert in commercialization and manufacturing of memory circuits" and a "memory business and engineering expert."⁷ In highly technical language, the 1998 Contract stated that ECD and Lowrey were "jointly pursuing the evaluating, developing, licensing, or manufacturing of ECD's proprietary electronic Ovonic Information Handling Devices, such as those that are Chalcogenide-based including the electronic Ovonic threshold thyrister-like power switch, Ovonic encryption, Ovonic neural networks, and current-modified crystallinity-based and current-modified resistance-based devices and products (hereinafter the ‘the field’)[.]"⁸

The 1998 Contract became "effective, valid, and enforceable when signed by both Lowrey and ECD (‘effective date’)," but gave Lowrey the right to cancel the contract "thirty days after signing (‘cancellation date’)."⁹ The 1998 Contract stated that

[u]nless Mr. Lowrey cancels in the Evaluation Phase prior to the cancellation date, ECD desires to have Mr. Lowrey direct, and Mr. Lowrey agrees to direct, the development activities in the field until termination. Activities in the field will include all in-the-field development such as intellectual property and its prosecution and defense, press releases and public relations, licensing to or from others, purchase or sale of technology, business development, raising funds for operations, manufacture, operating, purchases, and sales ("activities in the field").¹⁰

Under the 1998 Contract, on the effective date of the contract, Lowrey became "a Vice President, employee, and officer of ECD" and was invited "to attend and become a director on ECD's Board subject to termination by ECD or Mr. Lowrey without cause upon notice."¹¹ Lowrey was given broad discretion in carrying out his duties under the 1998 Contract. The 1998 Contract provided, in relevant part, that Lowrey's

development and licensing effort may be conducted in a manner of Mr. Lowrey's reasonable choosing because of Mr. [Stan] Ovshinsky's and Mr. Stempel's respect for and confidence in Mr. Lowrey's professionalism and competence, and will be the primary focus of Mr. Lowrey's professional efforts because of his appreciation of the summary data concerning Ovonic Information Handling Devices from ECD and Mr. Lowrey's respect for Mr. Ovshinsky, Mr. Stempel, ECD, its personnel and technology, and the potential result of this contract.¹²

The 1998 Contract contemplated the formation of an "Entity" by either ECD or Lowrey, through which they would pursue the objectives described in the 1998 Contract, related to the intellectual property (sometimes referred to herein as "IP") of ECD and Lowrey.¹³ Paragraph 7 of the 1998 Contract stated:

7. Entity formation. Any references to the Entity in this contract apply only if formed. At any time after the cancellation date, either ECD or Mr. Lowrey may decide by notice to the other to form a corporation (the "Entity") that provides for equal distribution of stock, benefits, and voting after quarterly paying ECD a 0.5% royalty on all revenues if requested . Mr. Lowrey, or ECD upon Mr. Lowrey's request, will promptly prepare or have done appropriate formation documents and both shall properly execute promptly. Thereafter, until termination:

a) Mr. Lowrey and ECD shall conduct all activities in the field in this Entity such as manufacturing and licensing, andb) both will cooperate reasonably in disclosing, transferring, assigning, or licensing, as the case may be, to the Entity all pertinent information and assets in the field to the reasonable extent allowed by law including that learned or acquired in the field before and after Entity formation under the control of ECD or Mr. Lowrey, such as but not limited to: revenues, royalties, contracts, and IP.

c) Major decisions such as appointment and removal of officers, use of confidential information, and license or asset purchases or sales shall be subject to approval.

d) Subject to approval, the Entity can select a site other than Troy and can vary the scope and business plan for its actual manufacturing, operations and further licensing activities.

e) The Entity may provide moneys to upgrade applicable ECD equipment and support activities upon approval.¹⁴

Before the formation of the Entity, the 1998 Contract required ECD and Lowrey "to make reasonable attempts to operate consistent with its anticipated formation."¹⁵ In the event the Entity was formed, Lowrey was to be one of its two...