Gas Sensing Tech. Corp. v. New Horizon Ventures Pty LTD

Decision Date27 August 2020
Docket NumberS-19-0277
Parties GAS SENSING TECHNOLOGY CORPORATION, a Wyoming Corporation d/b/a WellDog, Appellant (Defendant), v. NEW HORIZON VENTURES PTY LTD, AS TRUSTEE OF the LINKLATER FAMILY TRUST and Ewan Meldrum, as Trustee of the Meldrum Family Trust, Appellees (Plaintiffs).
CourtWyoming Supreme Court

Representing Appellant: Phillip A. Nicholas, Meggan J. Nicholas, Nicholas & Tangeman, LLC, Laramie, Wyoming. Argument by Mr. Nicholas.

Representing Appellee New Horizon Ventures PTY LTD, as Trustee of the Linklater Family Trust: Pro se.

Representing Appellee Ewan Meldrum, as Trustee of the Meldrum Family Trust: Timothy M. Stubson, Crowley Fleck PLLP, Casper, Wyoming.

Before DAVIS, C.J., and FOX, KAUTZ, GRAY, JJ, and OVERFIELD, D.J..

KAUTZ, Justice.

[¶1] New Horizon Ventures Pty Ltd, as Trustee of the Linklater Family Trust (Linklater Trust), and Ewan Meldrum, as Trustee of the Meldrum Family Trust (Meldrum Trust) (collectively "the Trusts"), sued Gas Sensing Technology Corporation d/b/a WellDog (GSTC) for payment of loans they made to GSTC to finance its oil and gas service operations in Australia. GSTC asserted numerous affirmative defenses and counterclaims. The district court dismissed GSTC's counterclaims because it believed they unduly complicated the action. After a trial, the jury ruled Linklater Trust had breached the implied covenant of good faith and fair dealing; therefore, GSTC was not required to pay its debt. The jury also found Meldrum Trust had breached the implied covenant but, instead of excusing GSTC's debt, it reduced the damages GSTC owed to Meldrum Trust.

[¶2] We reverse and remand because the district court erred by dismissing GSTC's counterclaims. We also provide guidance regarding the jury instructions.

ISSUES

[¶3] The issues on appeal are:

1. Did the district court err by dismissing GSTC's counterclaims?1
2. Did the district court correctly instruct the jury?
FACTS

[¶4] This case presents a complex factual scenario involving many individuals and entities. To decide the issues in this appeal, we need only generally describe the facts and GSTC's allegations.

[¶5] John Pope founded GSTC in 2007 through an entity known as Blue Sky Group, Inc. GSTC is an oil and gas technical service company based in Laramie, Wyoming. It developed patented chemical sensing systems to provide commercial reservoir analysis services for coal, gas, alternative and conventional resources. GSTC provided equipment and services related to this technology to customers who used it to measure methane and carbon dioxide underground to locate coal bed methane wells. Initially, GSTC operated in the United States and Canada, particularly the Powder River Basin in Wyoming. Around 2010, GSTC decided to enter the Australian market and formed an Australian subsidiary called WellDog Proprietary Limited (WellDog).

[¶6] GSTC and WellDog secured venture equity and debt financing from investors in the United States and Australia. One United States investor was Shell Technology Ventures, a venture capital arm of Shell Oil and Gas Company. There were two primary groups of investors from Australia. The first group was associated with Simon Ashton and included companies known as ProX Proprietary Limited and Kinabalu Australia Proprietary Limited. Kinabalu purchased shares in GSTC, and ProX loaned WellDog $4 million. The other group of Australian investors was associated with John Mactaggart and included companies known as Jontra Holdings Proprietary Limited, Associated Construction Equipment Proprietary Limited, and Brisbane Angels Group Limited. Mr. Mactaggart's companies bought stock in, and loaned money to, GSTC and/or WellDog.

[¶7] Mr. Mactaggart introduced Graeme Linklater to Mr. Pope, and in 2012, Mr. Linklater was hired as the chief financial officer for WellDog and GSTC. Mr. Linklater was also the corporate secretary for both entities and a director of WellDog. In 2012 and 2013, Mr. Linklater did not take his full compensation. As a result, GSTC gave Linklater Trust a $137,678.35 finance note. Linklater Trust is a "personal investment vehicle" Mr. Linklater uses to pass assets to his family, and he is the director of the trustee, New Horizon Ventures Proprietary Limited. The note included a twelve percent (12%) interest rate, which increased to seventeen percent (17%) when the note was in default. Under the terms of the Linklater Trust note, GSTC was supposed to make installment payments of all accrued but unpaid interest and $5,000 in principal on the first day of each month. The final maturity date was August 22, 2017.

[¶8] Mr. Ashton introduced Mr. Meldrum to Mr. Pope in 2011. In 2015, WellDog hired Mr. Meldrum as its Asia Pacific regional manager. Before Mr. Meldrum went to work for WellDog, Meldrum Trust purchased 30,000 shares in GSTC for $45,000.

[¶9] In 2013, Mr. Meldrum recognized he had a conflict of interest because his then-employer, Baker Hughes, was negotiating an agreement with WellDog. Mr. Meldrum and GSTC agreed to enter into a conversion agreement wherein Meldrum Trust's equity in the company would be converted into debt. Specifically, Meldrum Trust would exchange its shares in GSTC for a promissory note. Mr. Meldrum testified Meldrum Trust is an "income tax benefit trust" for his family and he is the trustee.

[¶10] The conversion agreement between GSTC and Meldrum Trust was not finalized until 2016, but it was dated effective July 31, 2013. It provided for a twelve percent (12%) interest rate and at the time the conversion agreement was signed in 2016, there was $20,678.73 in accrued interest for a total balance of $65,678.73. A loan amortization schedule attached to the conversion agreement showed GSTC was supposed to start making payments to Meldrum Trust in October 2016, with the final payment due July 1, 2017.

[¶11] According to Mr. Pope, WellDog generated approximately $22 million in revenue in 2016 making the company, by some accounts, worth $80 to $100 million. However, GSTC and WellDog were experiencing cash flow problems and needed to raise funds to pay their debts.

[¶12] GSTC claimed email communications between Mr. Mactaggart, Mr. Ashton, Mr. Linklater, Mr. Meldrum and others showed a civil conspiracy to force GSTC and WellDog into financial crisis, leading to a "restructure" of the companies with the Australian investors gaining ownership of WellDog. GSTC claimed the co-conspirators interfered with its attempts to raise funds to solve its cash flow problems.

[¶13] One of the alleged steps in the Australian investors’ plan involved derailing Shell Technology Ventures’ investment in the company. By 2015, Shell had already invested $2 million in GSTC and was negotiating to purchase an additional $5 million in stock from the company. In the fall of 2015, Mr. Ashton, through Kinabalu, sold the same number of shares to Shell for $1.8 million, causing GSTC to lose the large investment from Shell. GSTC claimed Mr. Ashton improperly used information he gained as a director of GSTC to divert Shell's investment in the company, worsening the company's cash position.

[¶14] The next step in the alleged conspiracy to take over WellDog was to force GSTC and WellDog to default on its debts. One of WellDog's notes to ProX came due in July 2016. In order to secure an extension of the loan to October 31, 2016, WellDog gave ProX a general security interest over its assets. Mr. Linklater signed the general security agreement as a director of WellDog.

[¶15] GSTC and WellDog defaulted on debts owed to ProX, Linklater Trust, Meldrum Trust and the Mactaggart companies. Because it held the general security interest, ProX was able, under Australian law, to appoint a receiver for WellDog. Mr. Linklater and Mr. Meldrum worked for the receiver.

[¶16] WellDog's assets were eventually sold to eQnomics which operates as Qteq, another company controlled by Mr. Ashton. Mr. Meldrum became the chief executive officer of Qteq, and Mr. Linklater was gifted shares in the company.

[¶17] GSTC filed actions in Australia and the United States, alleging Mr. Ashton, Mr. Mactaggart, Mr. Meldrum, Mr. Linklater and others conspired to improperly take over WellDog and misappropriate GSTC's intellectual property and trade secrets. See, e.g. , Gas Sensing Technology Corp. v. Ashton, 795 Fed.Appx. 1010 (10th Cir. 2020) ; Gas Sensing Technology Corp. v. Ashton , No. 16-CV-272-F, 2017 WL 2955353 (D. Wyo., June 12, 2017). For various reasons, those suits were dismissed. Id.

Suit on the Notes

[¶18] On March 16, 2018, the Trusts filed suit in the district court against GSTC to recover on their loans.2 GSTC responded with an answer, affirmative defenses, and counterclaims. GSTC's affirmative defenses included "[The Trusts] intentionally interfered and/or conspired with others to impair [GSTC's] performance under the loan agreements causing damages which should be offset against any amounts unpaid and owing by [GSTC] to [the Trusts]." GSTC's counterclaims generally related to the Australian investors’ alleged conspiracy to take over WellDog. The counterclaims included: 1) aiding and abetting the wrongful actions of others; 2) insider transaction and conversion of corporate opportunity; 3) tortious interference with contract expectancy; 4) tortious interference with contract; 5) self-dealing and unjust enrichment; 6) civil conspiracies; 7) lender liability and breach of the covenant of good faith and fair dealing based in contract; 8) lender liability and breach of the covenant of good faith and fair dealing based in tort; 9) misappropriation of trade secrets, unfair business practices, and unfair competition; and 10) set off of damages against equity and debt.

[¶19] The Trusts moved to dismiss GSTC's counterclaims. They asserted GSTC's counterclaims were permissive and the district court had discretion to refuse to hear them. They argued their complaint stated simple breach of contract claims and GSTC's counterclaims would unnecessarily complicate the case. GSTC...

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6 cases
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    ...creditors alleged that GSTC defaulted on loans they made to it. See Gas Sensing Tech. Corp. v. New Horizon VenturesPty Ltd, as Trustee of the Linklater Family Trust, 2020 WY 114, 471 P.3d 294 (Wyo. 2020) (GSTC I). In that case, we described GSTC's business as follows:John Pope founded GSTC ......
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