Redhawk Holdings Corp. v. Schreiber
| Decision Date | 09 October 2018 |
| Docket Number | CIVIL ACTION NO. 17-819 SECTION: "B"(3) |
| Parties | REDHAWK HOLDINGS CORP., ET AL v. DANIEL J. SCHREIBER, ET AL |
| Court | U.S. District Court — Eastern District of Louisiana |
Before the Court is Defendants' Motion for Summary Judgment and Alternatively Judgment on the Pleadings (Rec. Doc. 74), Plaintiffs' Response and Memorandum in Opposition (Rec. Doc. 76), and Defendants' Reply Memorandum (Rec. Doc. 80). For the reasons discussed below,
IT IS ORDERED that the motion is GRANTED.
This case is about an unsuccessful business venture between two experienced businessmen. Plaintiff RedHawk Holdings Corporation ("RedHawk") is a Nevada corporation with its principal place of business in Lafayette Parish, Louisiana. See Rec. Doc. 1 at 1. Plaintiff Beechwood Properties, LLC ("Beechwood") is a Louisiana limited liability company with its principal place of business in Lafayette Parish, Louisiana. See id. G. Darcy Klug is the CFO and majority shareholder of both Plaintiffs. See Rec. Doc. 74-1 at 9. Defendant Daniel J. Schreiber is the former CEO and a former Director of RedHawk. See id. Defendant Schreiber is also the trustee and beneficial owner of at least some of the securities1 held by Defendant Schreiber Living Trust - DTD 2/08/95. See Rec. Doc. 76-1 at 1-2.
In March 2014, American Medical Distributors, Inc. ("AMD") entered into an Asset Purchase Agreement ("APA") with RedHawk. See Rec. Doc. 1 at 2. RedHawk agreed to issue AMD or its designees approximately half of RedHawk's shares. See id. at 2-3. In exchange, AMD agreed to pay RedHawk $60,000 and to assign RedHawk all of AMD's assets and property. See id. at 3. The principal asset was exclusive distribution rights of non-contact thermometers in North, Central, and South America. See Rec. Doc. 74-1 at 12.
The transaction, known as the AMD-RedHawk Transaction, was executed as provided in the APA. See Rec. Doc. 1 at 4. Plaintiff Beechwood and Defendants provided AMD $60,000; thereafter, AMD paid $60,000 to RedHawk and assigned RedHawk all of its assets including the distribution rights of the non-contact thermometers. See id. In exchange, RedHawk assigned the agreed-upon shares to four designees of AMD. See id. The four designees were Beechwood, Schreiber Trust, Howard Taylor, and Paul Rachmuth. See id.
All stemming from the executed transaction, Plaintiffs allege numerous fraudulent misrepresentations and omissions and contractbreaches by Defendant Schreiber. See Rec. Doc. 74-1 at 9. There are three main allegations that give rise to their cause of action. First, Plaintiffs allege that Defendant, along with Paul Rachmuth who served as a counsel for AMD and Beechwood in the transaction, failed to disclose possible patent infringement litigation that significantly impaired the value of the distribution rights assigned to RedHawk. See Rec. Doc. 1 at 4. Second, Defendant Schreiber failed to uphold his agreement with Beechwood to split RedHawk's expenses on a 50/50 basis and contribute to other assets. See id. at 11-14. Third, Defendant Schreiber failed to disclose his past SEC issues to RedHawk and its investors. See Rec. Doc. 76 at 7-8.2
On January 31, 2017, Plaintiffs filed a six-claim Complaint. See Rec. Doc. 1. Specifically, Plaintiffs allege (1) Securities Fraud under Sections 10B and 20 of the Exchange Act and SEC Rule 10b-5; (2) Securities Fraud under Sections 18 and 20 of the Exchange Act; (3) Fraud under State Law; (4) By Beechwood for Breach of Contract; (5) By Beechwood for Unjust Enrichment; and (6) By RedHawk for Defendant Schreiber's Breach of Fiduciary Duties. See id. at 19-29.
On June 15, 2018, Defendants filed a Motion for Summary Judgment and Alternatively Judgment on the Pleadings (Rec. Doc. 74-1). On July 19, 2018, Plaintiffs filed a Response and Memorandum in Opposition (Rec. Doc. 78). On August 2, 2018, Defendants filed a Reply Memorandum (Rec. Doc. 80).
Under Federal Rule of Civil Procedure 56, summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quoting Fed. R. Civ. P. 56(c)); see also TIG Ins. Co. v. Sedgwick James of Wash., 276 F.3d 754, 759 (5th Cir. 2002). A genuine issue of material fact exists if the evidence would allow a reasonable jury to return a verdict for the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The court should view all facts and evidence in the light most favorable to the non-moving party. See United Fire & Cas. Co. v. Hixson Bros. Inc., 453 F.3d 283, 285 (5th Cir. 2006). Mere conclusory allegations are insufficient to defeat summary judgment. See Eason v. Thaler, 73 F.3d 1322, 1325 (5th Cir. 1996).
The movant must point to "portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323. If and when the movant carries this burden, the non-movant must then go beyond the pleadings and present other evidence to establish a genuine issue. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). However, "where the non-movant bears the burden of proof at trial, the movant may merely point to an absence of evidence, thus shifting to the non-movant the burden of demonstrating by competent summary judgment proof that there is an issue of material fact warranting trial." Lindsey v. Sears Roebuck & Co., 16 F.3d 616, 618 (5th Cir. 1994). "This court will not assume in the absence of any proof that the nonmoving party could or would prove the necessary facts, and will grant summary judgment in any case where critical evidence is so weak or tenuous on an essential fact that it could not support a judgment in favor of the [non-movant]." McCarty v. Hillstone Rest. Grp., 864 F.3d 354, 357 (5th Cir. 2017).
a. Defendants are entitled to summary judgment on Claim 1, Claim 2, and Claim 3 because Plaintiffs' claims are prescribed as a matter of law as Plaintiffs knew of Defendant Schreiber's SEC issues in August 2014.
Plaintiffs offer several theories in their attempt to satisfy Claim 1, Claim 2, and Claim 3. See Rec. Doc. 76 at 13-17. This section analyzes the theory that is based on Defendant Schreiber's alleged failure to disclose his FINRA fraud and SEC issues. The other theories are addressed, and disposed of, in the latter sections.
Claims under Sections 10 and 20 "may be brought no later than the earlier of (1) 2 years after discovery of the facts constituting the violation; or (2) 5 years after such violation." 28 U.S.C. § 1658(b). Claims under Section 18 shall not be maintained to enforce liability "unless brought within one year after the discovery of the facts constituting the cause of action and within three years after such cause of action accrued." 15 U.S.C. § 78r(c). Fraud under Louisiana state law is subject to "liberative prescription of one year." La. C.C. Art. 3492.
Generally, under federal law, the running of a prescriptive period starts when the aggrieved party has knowledge of the facts forming the basis of their cause of action. See Jensen v. Snellings, 841 F.2d 600, 606 (5th Cir. 1988) (). Specifically, with securities fraud, the controlling date for the commencement of the running of statute of limitations is when a purchaser of securities knew or, in the exercise of reasonable diligence, shouldhave known of the alleged wrongdoing. See Rowten v. Wall St. Brokerage L.L.C., 2016 U.S. App. LEXIS 7363 *1, *8 (5th Cir. Tex. 2016) citing to Topalian v. Ehrman, 954 F.2d 1125, 1133 (5th Cir. 1992).
It is undisputed that Plaintiffs were aware of Defendant Schreiber's SEC issues in August 2014.3 Plaintiffs argue that the commencement of the running is "well into 2016" because that is when Plaintiff realized Defendant Schreiber's state of mind as to his SEC's issues. See Rec. Doc. 76 at 19. This argument is unconvincing. See Topalian, 954 F.2d at 1133-1134 (). Plaintiffs also argue that it was not until March 2016 that they knew RedHawk would be restricted because of its affiliation with Defendant Schreiber. See Rec. Doc. 76 at 19. Plaintiffs may have not known the extent of Defendant Schreiber's issues or that his issues would limit their operation. But, that does not negate the fact that Plaintiffs knew of the facts forming the basis of their claims. Plaintiffs should have inquired further into Defendant Schreiber's issues and their consequences. See Rowten, 2016 U.S. App. LEXIS 7363 at *8 (5thCir. Tex. 2016)("If a reasonable person would inquire further, a plaintiff must proceed with a reasonable and diligent investigation of the facts the plaintiff has learned and is charged with the knowledge of all facts such an investigation would have disclosed.").4 Throughout their pleadings, Plaintiffs state that Defendant Schreiber continuously mislead them from the start of the transaction. Klug stated in an email that he had been "building a file" since 2014. Rec. Doc. 74-1 at 29. Plaintiffs were not free to ignore these facts. See Conwill v. Greenberg Traurig, L.L.P., 2010 U.S. Dist. LEXIS 76824 *1, *7 (E.D. La. 2002) citing to Jensen v. Snellings, 841 F.2d 600, 607 (5th Cir. 1988) ().
The prescriptive period began to run in August 2014, allowing Plaintiffs to bring Claim 1 no later than August...
To continue reading
Request your trial