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Ellipso, Inc. v. Mann

April 1, 2008

ELLIPSO, INC., PLAINTIFF AND COUNTER-DEFENDANT,
v.
JOHN B. MANN, ET AL., DEFENDANTS AND COUNTER-PLAINTIFFS



The opinion of the court was delivered by: Royce C. Lamberth, United States District Judge

MEMORANDUM OPINION

Now before the Court comes defendants and counter-plaintiffs John B. Mann and Mann Technologies, LLC's (collectively "Mann") motion [153] for summary judgment on all counts directed against Mann, defendant Robert Patterson's motion [134] to quash the preliminary injunction entered November 2, 2005, as to Mr. Patterson, and plaintiff and counter-defendant Ellipso's motion [156] for order to show cause why defendants should not be held in contempt of court. Upon consideration of the motions, opposition briefs, replies, the entire record herein, and applicable law, the Court finds that the motion for summary judgment will be GRANTED in part and DENIED in part, the motion to quash this Court's preliminary injunction will be GRANTED, and plaintiff's motion for order to show cause will be DENIED.

I. BACKGROUND

In October 2002, plaintiff Ellipso*fn1 was a financially struggling telecommunications company. At that time, David Castiel, in his capacity of Ellipso president and chief executive officer, hired defendant Robert Patterson to secure financing from investors. (See Consulting Agreement, Ex. 1 to Compl.) Mr. Patterson structured a deal wherein defendant Mann Technologies, L.L.C. ("Mann Tech") loaned Ellipso $90,000, secured by 492,611 shares of ICO Global Communications Holding Ltd. Stock ("ICOHA Shares") that Ellipso held. (See Loan Agreement, Ex. 2 to Compl.) The loan agreement was executed on January 30, 2004, at which time the ICOHA shares were valued at $180,000. While Mr. Patterson was acting as Ellipso's agent to secure financing from Mann Tech, he-unbeknownst to Ellipso-stood to benefit from the loan. Accordingly, on February 25, 2004, Mr. Patterson, together with defendant John B. Mann, incorporated Mann Tech in Nevada. (See Ex. 12 to Mot. for Summ. J.)

At the time of the loan, the ICOHA Shares were Ellipso's sole asset of any significant value and upon execution of the loan, all of Ellipso's ICOHA Shares were pledged as collateral. (Castiel Aff. (Aug. 12, 2005) ¶ 7.) The loan agreement provides that a default by Ellipso allows Mann Tech to take possession of the collateral. (See Loan Agreement § 7.2.) Although the loan agreement only required Ellipso to pledge its ICOHA Shares as collateral, plaintiff argues that Mr. Patterson later advised Ellipso that the loan required that title and possession to the ICOHA Shares be transferred to and in the sole name of Mann Tech. Thus, on or about August 12, 2004, UBS Financial Services in Washington, D.C. deposited the ICOHA Shares into Mann Tech's account. As a result, Mann Tech obtained full title and control of the ICOHA Shares. (Castiel Aff. (Aug. 12, 2005) ¶ 9.) In September 2004, Mr. Patterson, on behalf of Mann Tech, executed a joint sales order permitting sale of 25,000 ICOHA Shares. Sometime thereafter, Mann Tech sold an additional 453,000 ICOHA shares and transferred some of the proceeds to other accounts. Mann Tech asserts that such actions were permitted under the loan agreement because Ellipso had failed to make a single payment on the loan and because the value of the shares had fallen to below $10,000, both grounds for default under the agreement.

Ellipso contends that, as a result of Mr. Patterson's concealed dual role, the loan documents contained terms and conditions extremely favorable to Mann Tech, and onerous and unconscionable to Ellipso. According to plaintiff, Mr. Patterson presented the loan as Ellipso's only feasible financing option and Ellipso relied on Mr. Patterson's advice and counsel when deciding to execute the loan. (Id. ¶ 8.) Because of this alleged fraud, Ellipso asserts that the loan agreement is unenforceable.

Ellipso filed suit on June 14, 2005, and this Court granted Ellipso's motion for preliminary injunction on November 2, 2005, determining in part that Ellipso had shown a likelihood of success on the merits of its fraud claim because Mr. Patterson had not disclosed his dual role to Ellipso. See Ellipso, Inc. v. Mann, No. 05-cv-1186, at *3, 2005 WL 5298646 (D.D.C. Nov. 2, 2005). According to this Court's November 14, 2005 order, defendants were prohibited from disposing of any ICOHA stock it still held or any proceeds from the sale thereof; the order also required that defendants file a report identifying all "financial, banking . . . [or] like institutions" which held proceeds from the sale of ICOHA stock. See Ellipso, Inc. v. Mann, No. 05-cv-1186, at *3, 2005 WL 5612442 (D.D.C. Nov. 14, 2005). The Court of Appeals affirmed this Court's preliminary injunction on March 23, 2007. See Ellipso, Inc. v. Mann, 480 F.3d 1153 (D.C. Cir. 2007).

II. ANALYSIS

A. Summary Judgment Standard

Under Federal Rule of Civil Procedure 56(c), a court must grant summary judgment when the evidence in the record demonstrates that there are no disputed issues of material fact and that the moving party is entitled to judgment on the undisputed facts as a matter of law. FED. R. CIV. P. 56(c). A genuine issue of material fact exists if the evidence, when viewed in light most favorable to the non-moving party, "is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). However, a party must provide more than "a scintilla of evidence" in support of its position; the quantum of evidence must be such that a jury could reasonably find for the moving party. Id. at 252. The burden is on the movant to make the initial showing of the absence of a genuine issue of material fact in dispute. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The moving party is then entitled to a judgment as a matter of law if the non-moving party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322.

B. Motion for Summary Judgment as to Mann Defendants

1. Count I: Rescission

As explained below, the Court finds that Ellipso fails to offer a basis for rescission that would survive Mann's motion for summary judgment.

i. Rescission Based on Material Misrepresentation

The Court of Appeals considered the issue of Ellipso's right to rescission. There the Court stated, "[w]here a party to an executed contract discovers a material misrepresentation made in the execution of a contract, that party may elect one of two mutually exclusive remedies. He may either affirm the contract and sue for damages, or repudiate the contract and recover that with which he or she has parted." Ellipso, Inc. v. Mann, 480 F.3d 1153, 1158 (D.C. Cir. 2007) (citing Dean, 779 A.2d at 915)). "It is the [defendants'] burden to show that Ellipso knew of Patterson's dual roles before the actions Mann Tech argues affirmed the loan agreement." Id. at 1159. Furthermore, "if Ellipso continued to perform under the contract after learning of Patterson's conflict, Ellipso cannot then seek rescission of the contract." Id. at 1158.

When the Court of Appeals considered Mann's challenge to this Court's November 2, 2005 preliminary injunction, Mann relied on an October 20, 2004 email from Mr. Castiel to Mr. Patterson, which purportedly showed Ellipso's knowledge of Mr. Patterson's dual role as early as June 2004. See id. However, the Court of Appeals found that the email in question could reasonably have been interpreted to mean that Ellipso found out at some later date-as late as October 20, 2004-that Mr. Patterson had been a principal in Mann Tech since June 2004. Id. at 1159.

Now, Mann points to a different email dated November 16, 2004 from Mr. Castiel to Mr. Patterson and argues that it proves Ellipso's knowledge of Mr. Patterson's dual roles prior to the actions that allegedly affirmed the loan agreement. (See Email from Castiel to Patterson (Nov. 16, 2004), Ex. 21 to Mot. for Summ. J.) In this email, Mr. Castiel states: "In particular I never knew until May/June 2004 that you were the 50% owner of Mann Tech and you had a stake in the upside of the [ICOHA] stock." (Id.) The Court finds that the only reasonable interpretation of this statement, unlike the content of the October 20, 2004 email, is that Ellipso had ...


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