Ush Ventures v. Global Telesystems Group, C.A.No. 97C-08-086WTQ.

• Citation: 796 A.2d 7
• Decision Date: 09 May 2000
• Docket Number: C.A.No. 97C-08-086WTQ.
• Parties: USH VENTURES, a California Corporation, and USH Telecom, L.L.C., a Delaware Limited Liability Company, Plaintiffs, v. GLOBAL TELESYSTEMS GROUP, INC., a Delaware Corporation, GTS Hungaro, Inc., a Delaware Corporation, and GTS Hungary Telecom, Ltd., a Hungarian Company, Defendants.
• Court: Superior Court of Delaware

796 A.2d 7

USH VENTURES, a California Corporation, and USH Telecom, L.L.C., a Delaware Limited Liability Company, Plaintiffs, v. GLOBAL TELESYSTEMS GROUP, INC., a Delaware Corporation, GTS Hungaro, Inc., a Delaware Corporation, and GTS Hungary Telecom, Ltd., a Hungarian Company, Defendants.

C.A.No. 97C-08-086WTQ.

Superior Court of Delaware, New Castle County.

May 9, 2000.

David L. Finger, Esquire, Wilmington, Delaware, Attorney for Plaintiffs.

John A. Parkins, Jr., Esquire, and Jeffrey L. Moyer, Esquire, Richards, Layton & Finger, Wilmington, Attorneys for Defendants.

OPINION AND ORDER ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

MOTION GRANTED

VARIOUS OTHER MOTIONS RENDERED MOOT

QUILLEN, J.

This is the Court's Opinion and Order on Plaintiffs' and Defendants' respective Motions for Summary Judgment. For the reasons stated herein, the Defendants' Motion for Summary Judgment is GRANTED because the Plaintiffs have not provided expert testimony or proved that they could have obtained the investors necessary to fulfill the contract. The Motion is also GRANTED because there is no evidence that GTS pursued the "specific application" listed in Schedule B of the non-disclosure/non-compete agreement. By virtue of this ruling, the Plaintiffs' Motion for Summary Judgment as to the Defendants' affirmative defenses of misrepresentation, fraud, equitable fraud, duty to investigate, mutual mistake, failure of consideration and standing is rendered moot.

FACTS

This case arises out of an attempt to create a telecommunications system in Hungary. The Plaintiffs seek damages from an alleged breach of a non-disclosure/non-compete agreement.

Dr. Leslie Jacob began to explore business opportunities in his native Hungary beginning in 1990. He recognized that there was a need for a wireless communications network, and he learned that the Hungarian Water Management Authority ("OVF")¹ was interested in enlarging its telecommunications network. Dr. Jacob formed a company to pursue the wireless communications systems which he named USH Ventures ("USHV").

Apparently, after Jacob meet with some Hungarian government officials, the Hungarian government through OVF formed a for-profit corporation which was named the Hydrotel Telecommunications Company ("Hydrotel"). Hydrotel then began soliciting funding to develop the telecommunications project. This invitational tender appeared to also encompass the right to build and develop the communications network.

Dr. Jacob was interested in getting into this communications project. USHV, acting through Dr. Jacob, put together a consortium consisting of itself, Vanguard Telecommunications, Incorporated ("Vanguard"), and California Microwave, Incorporated in order to submit a proposal to provide the funding on the Hungarian communications project. After the bids were counted, this three-way consortium had the winning tender for the project with the Hungarian authorities. It appears that the USHV consortium's tender was the only tender of merit submitted to the Hungarian officials. Varga Dep. at 13, Dkt. No. 149. In April 1995, the consortium signed an agreement with Hydrotel to be the main developer of the project. That agreement had certain conditions precedent to formation. That agreement stated in pertinent part:

The conditions of the present Agreement to come to full force and effect are as follows:

a) that it has been approved by the respective Board of Directors of each Investor, and such approval has been verified through the representative of the Company in writing.

b) that the Investors establish the Strategic Investor and verify its existence in the Company,

c) that the Members' Meeting of the Company accepted and approved this agreement and passed a resolution for the first Capital Increase in accordance with the provisions of Par. 6. of this Agreement....

If the actions outlined in points a) to c) do not take place within 90 days from the date of signing this Agreement, the present Agreement shall not take effect and the Parties are freed of all obligations undertaken in this Agreement and have no claims whatsoever against each other. The Parties may extend the deadline for the Agreement gaining full force and effect by mutual consent in writing.

Tender Contract Agreement at 10-11, Dkt. No. 136.

Obtaining the funding for the project seemed to be going well at the beginning. In May 1995, Hydrotel secured a grant from the U.S. Trade and Development Agency in the amount of $381,000US to fund the cost of services required for a feasibility study on the telecommunications project. On September 27, 1995, in furtherance of the project, the members of the consortium established USH Telecom, LLC ("USHT") to acquire, own, hold, and dispose of the Hydrotel project and exercise and execute all rights and obligations attributable to it. USH Ventures v. Global Telesystems Group, Inc., Del.Super., 97C-08-086, Quillen, J. (June 9, 1999), Letter Op. at 2.

The September 27, 1995 Limited Liability Company agreement between the consortium members also contained certain conditions precedent to formation. The LLC agreement states:

This agreement shall not become effective until the occurrence of the following events:

(i) the execution of loan documents by the Company establishing a credit facility with the Senior Lender in an amount and on the same or substantially similar terms as those set forth in that certain letter of interest dated September 14, 1995 from U.S. Export-Import Bank to US/H Ventures;

(ii) the ratification and adoption of this Agreement by the Board of Directors of each of US/H Ventures, Vanguard and California Microwave; and

(iii) the ratification and adoption by the Company, upon the unanimous vote of the Members, of the Hydrotel Agreement, including such revisions, clarifications and modifications as are acceptable to, and in form and substance otherwise acceptable to, each of the Members.

LLC Agreement at 31, Dkt. No.149.

While the project at the beginning seemed to be on track, the financing necessary for the project did not come through like the parties had wished. The consortium did not meet the 90-day deadline to satisfy the conditions precedent in the tender contract agreement with Hydrotel and the Hungarian authorities. A strategic investor was never identified and it does not appear that the Boards of all three of the consortium members ratified the agreement within the 90-day period to satisfy the conditions precedent. The consortium members were granted a written extension by the Hungarian representative to fulfill the conditions precedent in the Hydrotel contract. This extension gave Vanguard the exclusive right until February 28, 1996 to solicit potential investment in the Hydrotel project. That extension was given in exchange for a $100,000 capital contribution by Vanguard to the Hungarian authorities. Vanguard 12/15/95 Letter of Intent, Dkt. No. 136, Ex. 19. Vanguard claims that it pledged the $100,000 "to give us the opportunity to make something out of what we perceived to be very little or nothing" so that "somebody else ... would be able to make an equity investment into this." A. Whiting, Dep. at 31, Dkt. No. 135, Ex. 6. The financing never did materialize and the conditions precedent to the original written Hydrotel/USHT contract were never fulfilled. By March 1996, the parties understood that the extension expired and the original agreement with the Hungarian authorities was no longer in effect. Thereafter, Vanguard decided to reduce the level of its involvement with the project.²

While it is clear that the contract had expired, USHT through Jacob now claims that it was given an oral first right of refusal contract from Hydrotel so that USHT could participate in financing the Hydrotel telecommunication project. Such an oral contract appears to be valid under Hungarian law.

Armed with only this alleged oral first right of refusal contract, USHT started to again search for investors for the project. Dr. Jacob did not want to let the project die. He began negotiations with United International Holdings ("UIH") to obtain funding. UIH raised the idea of bringing in Global Telesystems Group, Incorporated ("GTS"), with whom UIH was in negotiations on other strategic business alliances. After some initial discussions, UIH³, GTS⁴ and USHT⁵ signed a mutual non-disclosure and non-compete agreement so each could deal with each other candidly on the Hungarian project. The agreement stated in pertinent part:

The Parties recognize that both GTS and USH have developed business plans around two different specific applications. These two applications are each described on Schedules A and B respectively. In order to evaluate the mutual benefit of combining these two applications and developing a single communications network to support the applications and other commercial opportunities, the Parties agree (i) that, for a period of 24 months after the date hereof and (ii) without the parties written agreement:

(a) Neither GTS or USH shall pursue the other party's application (for USH this shall mean the specific application being developed by GTS as described on Schedule A; for GTS this shall mean the specific application described by USH on Schedule B) for a period of 24 months from the date of this Agreement...

Jacob alleges that he then turned over certain materials which were reviewed by GTS. Dr. Jacob claims that while he was trying to get financing with and through GTS, he had received oral assurances by Dr. Milos Varga⁶ that, so long as he and USHT were working in good faith toward getting the Hydrotel project done, that OVF would not seek additional investors for the communications project.

Plaintiffs argue that after the non-disclosure/non-compete agreement was signed with GTS, Istvan Pesti of GTS Hungary Telecom, Ltd. approached Dr. Varga and stated that GTS would be willing to implement a development project in Hungary. Varga Dep. at 27, Dkt. No. 135,...