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GEOMC Co., Ltd. v. Calmare Therapeutics, Incorporated

United States District Court, D. Connecticut

August 18, 2017

GEOMC CO., LTD., Plaintiff,
v.
CALMARE THERAPEUTICS, INCORPORATED, Defendant.

          RULING RE: PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT.

          VICTOR A. BOLDEN UNITED STATES DISTRICT JUDGE.

         GEOMC Co., Ltd. (“Plaintiff, ” or “GEOMC”) filed this lawsuit on August 22, 2014 and claims that Calmare Therapeutics, Incorporated (“Defendant, ” or “CTI”) failed to pay for or return certain medical devices that GEOMC manufactured and supplied to CTI. Complaint, ECF No. 1; Sec. Am. Compl., ECF No. 137. CTI raises several affirmative defenses and counterclaims, including claims that GEOMC has already been paid all amounts owed and that the contractual agreement for repossession of the devices is invalid.

         GEOMC now moves for summary judgment on all claims. As explained in further detail below, GEOMC's motion is GRANTED IN PART AND DENIED IN PART.

         As to GEOMC's breach of contract claim, the motion is GRANTED with respect to CTI's liability for failing to pay GEOMC for the medical devices sold after 2011, and the motion is DENIED with respect to CTI's liability for any medical devices that have not been sold. The motion is GRANTED as to GEOMC's claims of replevin, wrongful detention, conversion, and unjust enrichment, and the motion is DENIED as to GEOMC's claim under the Connecticut Unfair Trade Practices Act (“CUTPA”). Disputes related to the amount of damages owed under the applicable contracts will be determined at trial.

         I. STATEMENT OF FACTS[1]

         GEOMC Co., Ltd. (“GEOMC”), formerly known as Daeyang E&C Co., Ltd., is a South Korean corporation with its principal place of business in South Korea. L.R. 56(a)(1) ¶¶ 1-2. GEOMC manufactures, distributes and sells medical devices. Id. Calmare Therapeutics Incorporated (“CTI”), formerly known as Competitive Technologies, Inc., is a Delaware corporation with its principal place of business in Connecticut. Id. at ¶¶ 3-4.

         A. Agreements Regarding Medical Devices

         In October 2007, GEOMC and CTI entered into a “Territory Exclusive License Agreement for Intellectual Property” (“2007 Agreement”). Id. at ¶¶ 5-7. The 2007 Agreement granted GEOMC an exclusive, worldwide license to manufacture and supply certain medical devices (“the Devices”) that incorporated a patented pain management technology. Id.; 2007 Agreement, Oh Dec. Ex. A, ECF No. 171-1.

         The language of the 2007 Agreement provides for profit-sharing between GEOMC and CTI in connection with the sales of the Devices: “DAEYANG [(GEOMC)] and CTT [(CTI)] will share profits of 50% each from sales of Licensed Products produced by DAEYANG.” Id. at ¶ 3.2. The agreement also provides that “[p]ayments of royalties shall be made in United States Dollars within thirty (30) days following the end of each monthly royalty period, and such payments shall include all royalties that have accrued during said monthly period.” Id. at ¶ 4.2. Therefore, under the 2007 Agreement, if CTI sold a number of Devices in a given month, CTI would owe GEOMC fifty per cent (50%) of the sale price for those Devices at the end of the month.

         The 2007 Agreement also required GEOMC to perform a regular accounting detailing the quantity and prices of all Devices sold: “All royalty payments hereunder shall be accompanied by a report certified by an officer of DAYEANG setting forth the quantity and prices of Licensed Product sold by DAEYANG. Such report shall also be made if no royalties are due in any such monthly period.” Id. at ¶ 4.3. The agreement does not specify any corresponding requirement for CTI to provide GEOMC with any such reports regarding Devices sold by CTI. CTI alleges that GEOMC never provided CTI with any of the reports required under this agreement. L.R. 56(a)(2) at p. 20.

         The following year, in August 2008, GEOMC and CTI entered into another agreement entitled “Distributor Appointment in Korea” (“2008 Distributor Appointment”). L.R. 56(a)(1) ¶ 8; 2008 Distributor Appointment, Oh Dec. Ex. B, ECF No. 171-2. Relying on the language of the more detailed 2007 Agreement, the 2008 Distributor Appointment succinctly provides as follows: “Pursuant to the Territory Exclusive License Agreement of the Pain Management Device made October 17, 2007 between Competitive Technologies, Inc. (CTT) and GEOMC, both parties agree that CTT delegates GEOMC to designate the exclusive distributor for the Korea under the same conditions set forth in the Agreement.” Id.

         The 2008 Distributor Appointment does not specify any particular entity or entities that GEOMC must appoint as the “exclusive distributor” in Korea, nor does it separately address the division of royalty payments or reports. Id. Following this agreement, GEOMC appointed itself as the exclusive distributor for the devices in Korea. L.R. 56(a)(1) ¶ 8. Since that time, CTI claims that GEOMC has not specified the exact number of devices sold in Korea, nor has GEOMC made any payments to CTI in connection with sales of devices in Korea. L.R. 56(a)(2) p. 19.

         In January 2010, the parties agreed to amend the payment mechanism that was outlined in the 2007 Agreement. L.R. 56(a)(1) ¶¶ 9-10. GEOMC and CTI executed a Memorandum of Understanding (“2010 MOU”) providing that “GEOMC will receive $9, 000 for the sale of each unit” instead of dividing the proceeds by fifty per cent.[2] 2010 MOU, Oh Dec. Ex. C, ECF No. 171-3. The 2010 MOU was signed by John B. Nano, CTI's President and Chief Executive Officer (“CEO”) at the time, and Young H. Lim, GEOMC's President and CEO at the time. Id.

         In April 2011, the parties again adjusted the agreed-upon price that CTI would pay GEOMC for each device sold, increasing the per-unit payment amount from $9, 000 to $10, 000. L.R. 56(a)(1) ¶ 11. This increase was not memorialized in a written agreement, but both parties acknowledge that GEOMC and CTI agreed to increase the payment price to $10, 000 per unit in April 2011.[3] L.R. 56(a)(2) ¶ 11.

         Under the 2007 Agreement and subsequent amendments, GEOMC shipped a total of 691 Devices to CTI between 2008 and 2013.[4] L.R. 56(a)(1) ¶ 13. The parties agree as to the number of units shipped during this period; however, they disagree as to how much money has been paid between the parties for these devices, and whether the amount paid satisfies the parties' obligations under the governing agreements.

         B. Financial Troubles and Block Payments

         According to GEOMC, CTI began experiencing “cash flow” problems at some point during the course of the parties' relationship. Id. at ¶¶ 19-20; Oh Dec. ¶ 12, ECF No. 171. In order to help accommodate CTI's situation, GEOMC claims that it allowed CTI to make certain block payments. Id. GEOMC does not specify the timing or amount of such payments.

         CTI, on the other hand, disputes GEOMC's characterization of CTI's financial trouble. L.R. 56(a)(2) ¶¶ 19-20. According to CTI, GEOMC was experiencing financial trouble, not CTI, and in order to accommodate GEOMC's needs, CTI made block payments to GEOMC between 2008 and 2012 that overrepresented the amounts owed under the contract. Id. at p. 20. According to a document sent from Mr. Johnson to Mr. O'Connell in 2013 regarding the status of the accounting for GEOMC devices, CTI paid GEOMC an advance of $147, 000 for design work in August 2008, $100, 000 in September 2009, and another $100, 000 in 2010. Id.; Johnson E-mail, Weil Dec. Ex. W, ECF No. 172-13.[5] GEOMC disputes the specific amounts alleged by CTI in connection with those block payments, and GEOMC also disputes their characterization as “overpayments.” Pl. Repl. Br. at 4-6, ECF No. 178.

         The parties do not dispute that, since January 1, 2012, CTI has sold 61 devices under the 2007 Agreement as amended.[6] L.R. 56(a)(1) ¶ 55. The parties also do not dispute that CTI has not made any payments to GEOMC in connection with any sales of devices since December 31, 2011. Id. at ¶ 56.

         C. Security Agreement

         In May 2012, approximately five months after CTI ceased making payments under the 2007 Agreement, the parties entered into a “Security Agreement” agreement regarding the devices (“2012 Security Agreement”). 2012 Sec. Agreement, Oh Dec. Ex. E, ECF No. 171-5. The terms of this agreement granted GEOMC a security interest in the following identified “collateral”: “273 Calmare devices located in the Company's warehouse located at… Stratford, CT” as well as “120 devices located in the Company's warehouse located at… Charlotte, NC[.]” Id. at ¶ 2.

         The agreement specifies several “events of default” that would trigger this security interest, including the “failure of the Company to pay any of the amounts due under the Obligations as and when due and payable.” Id. at ¶ 8(a). If an event of default occurs under the agreement, GEOMC may “declare the unpaid balance of any Obligations to be immediately due and payable” or it may require CTI to “assemble the Collateral and make it available to Supplier[.]” Id. at ¶ 9.

         The 2012 Security Agreement also specifies that CTI is required to maintain insurance on the specified collateral. Id. at ¶ 6 (“The Company will insure the Collateral against all insurable casualties and risks. The Company will pay all premiums due or to become due for such insurance.”). GEOMC insists that CTI never maintained such insurance, see L.R. 56(a)(1) ¶ 32, while CTI contests that it did provide the requisite insurance. See L.R. 56(a)(2) at p. 22; Insurance Policy Renewal and Invoice, Mir Dec. Exs. A-B, ECF Nos. 176-1, 176-2.

         Johnie D. Johnson, CTI's acting CEO at the time, signed the 2012 Security Agreement and Ms. Lim, who was still serving as GEOMC's President and CEO, signed on behalf of GEOMC. 2012 Sec. Agreement, Oh Dec. Ex. E, ECF No. 171-5. The text of the agreement includes explicit assurances that the agreement is binding on both corporate entities and that the signatories have the requisite authority to sign on behalf of each company: “This Agreement… ha[s] been properly executed on behalf of the Company and, upon execution by the Supplier, this Agreement and the related documents and the transactions contemplated by it, will be the valid and binding obligation of the Company, fully enforceable against the Company in accordance with their respective terms….” Id. at ¶ 4(d). Following the execution of the agreement, GEOMC's security interest in the specified devices was documented in a UCC-1 Financing Statement that CTI, acting through its CEO Johnie Johnson, filed with the State of Connecticut. UCC-1 Statement, Oh Dec. Ex. G, ECF No. 171-7.

         According to GEOMC, an event of default has occurred under the 2012 Security Agreement because, since December 31, 2011, CTI has failed to pay the required $10, 000 price per device, as required under the adjusted 2007 Agreement. L.R. 56(a)(1) ¶¶ 30, 57-58. Based on CTI's alleged failure to make the required payments, GEOMC demanded the return of all devices identified as collateral under the 2012 Security Agreement. Id. CTI has refused to return the devices to GEOMC. Id.

         CTI does not contest any of the written terms of the 2012 Security Agreement. Rather, CTI argues that it is not required to return the devices because the 2012 Security Agreement is wholly invalid and is not binding on CTI. L.R. 56(a)(2) pp. 20-21. CTI specifically claims that Johnie Johnson, the acting CEO of CTI at the time of the 2012 Security Agreement, breached his fiduciary duties by entering into the 2012 Security Agreement without full Board approval; thus, CTI is not required to comply with the terms of the agreement. Id.

         D. Revocation of Security Agreement

         CTI explains that Johnie Johnson became “interim-CEO of CTI” in September 2010. L.R. 56(a)(2) ¶ 14, p. 20. CTI states that he assumed this role “without full board approval, ” although they do not assert that full board approval was required in order for Mr. Johnson to validly hold this title. Id. Mr. Johnson's term as CEO lasted for about two years, until November 1, 2012 when he was formally replaced by Carl O'Connell.[7] L.R. 56(a)(1) ¶ 14. Mr. O'Connell resigned from the CEO position in September 2013, and Conrad Murray replaced him as CEO at the end of that month. Id. at ¶ 15.

         In Mr. Johnson's capacity as CEO and CFO for CTI from 2010-2012, he took the lead in negotiating the 2012 Security Agreement and other business dealings with GEOMC on behalf of CTI. L.R. 56(a)(1) ¶ 18. CTI's Bylaws grant such authority to Mr. Johnson in his capacity as CEO, stating in relevant part that “[e]ach of the CEO, the CFO and the COO shall have the power on behalf of the Corporation to execute and deliver all contracts, instruments, conveyances or documents and to affix the corporate seal thereto.” Am Bylaws, Weil Dec. Ex. T, ECF No. 172-10.[8] During his term as CEO, Mr. Johnson also made several filings with the Securities and Exchange Commission (“SEC”) which he signed on behalf of CTI. L.R. 56(a)(1) ¶ 17; Mir Dep. at 220:8-13, Weil Dec. Ex. AI, ECF No. 172-25.

         Mr. O'Connell, Mr. Johnson's immediate successor as CEO of CTI, knew about the 2012 Security Agreement when he took on the role of CEO, and he wrote to Mr. Johnson about the details of the various agreements between CTI and GEOMC. L.R. 56(a)(1) ¶ 42; July 2013 Emails, Weil Dec. Ex. U, ECF No. 172-11. Mr. O'Connell discussed the agreement with CTI's Board of Directors as well. Mir. Dep. at 204:11-22, Weil Dec. Ex. AI, ECF No. 172-25.

         On February 10, 2014, after Mr. Mir had replaced Mr. O'Connell as CEO of CTI, the Board of Directors determined by unanimous written consent that Mr. Johnson “may have acted contrary to the best interest of the Company and its stockholders in connection with certain contracts, agreements, initiatives or other actions Johnson entered into.” L.R. 56(a)(1) ¶ 48, Written Board Consent in Lieu of Meeting, Weil Dec. Ex. X, ECF No. 172-14. CTI's Board of Directors declared that several contracts entered into by Mr. Johnson, including the 2012 Security Agreement, were retroactively “rendered unauthorized, rejected, and void. Id. CTI then issued a Form 8-K in March 2014 stating that “Johnson did not have the authority to act on behalf of the Company in connection to the Actions” and “authoriz[ing] certain officers to take all measures appropriate and necessary to nullify the Actions.” L.R. 56(a)(1) ¶ 49; March 2014 8-K, Weil Dec. Ex. Y, ECF No. 172-15. Relying on this written consent and subsequent filing, CTI now insists that it is not bound by the terms of the 2012 Security Agreement.

         E. Devices Delivered and Amounts Paid

         GEOMC claims that CTI has maintained in its possession all of the collateral identified in the 2012 Security Agreement: 273 devices in Stratford, Connecticut and 120 devices in Charlotte, North Carolina. L.R. 56(a)(1) ¶ 58. CTI acknowledges that, as of January 3, 2017, it possesses a total of 399 devices at its warehouse in Stratford, Connecticut. Id. at ¶ 53. Between 2008 and 2016, CTI admits that it has “sold, leased, or otherwise disposed of” a total of 267 devices. Id. at ¶ 54. CTI sold 61 of those devices after December 31, 2011, but CTI has not made any payments to GEOMC in connection with those post-2011 sales. Id. at ¶¶ 56-57.

         The parties disagree as to specific amounts paid and amounts owed under the 2007 Agreement and subsequent amendments. GEOMC claims that CTI currently owes GEOMC $4, 673, 406 for the devices. Id. at ¶ 60. To support this claim, GEOMC relies on a spreadsheet it prepared listing all devices provided to CTI between September 2008 and June 2013, as well as related costs. GEOMC Accounting, Oh Dec. Ex. J, ECF No. 171-10.[9] GEOMC also refers to CTI's publicly filed Form 10-Q, Amendment No. 1 for the quarterly period through September 2016, which lists the figure $4, 182, 380 next to the phrase “Accounts Payable, GEOMC.” Id. at ¶ 62. That same figure is listed under “Accounts Payable, GEOMC” in CTI's 10-Q dated March 2013. Id. at ¶ 63.

         CTI insists that this figure does not reflect the amount owed to GEOMC for the devices. L.R. 56(a)(2) ¶62-63. Instead, CTI claims that it does not owe GEOMC anything under either the 2007 Agreement, that agreement's subsequent amendments, or the 2012 Security Agreement.

         II. STANDARD OF REVIEW

         Summary judgment is appropriate if there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The movant bears the initial burden of demonstrating the absence of a genuine dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant has carried that initial burden, “the opposing party must come forward with specific evidence demonstrating the existence of a genuine dispute of material fact.” Brown v. Eli Lilly & Co., 654 F.3d 347, 358 (2d Cir. 2011). If no reasonable jury could find in favor of the opposing party because “the evidence to support its case is so slight, there is no genuine issue of material fact and a grant of summary judgment is proper.” Gallo v. Prudential Residential Servs., Ltd. P'ship, 22 F.3d 1219, 1224 (2d Cir. 1994).

         A dispute is genuine “if the evidence 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). An issue of fact is material if it “might affect the outcome of the suit under the governing law . . . .” Id. Disputes concerning immaterial facts do not prevent summary judgment. See id.; Howard v. Gleason Corp., 901 F.2d 1154, 1159 (2d Cir. 1990) (“[S]ummary judgment cannot be avoided by immaterial factual disputes.”).

         When ruling on a motion for summary judgment, the Court must construe the evidence in the light most favorable to the nonmoving party and draw all inferences in its favor. Dalberth v. Xerox Corp., 766 F.3d 172, 182 (2d Cir. 2014).

         III. ...


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