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Joseph Oat Holdings, Inc. v. RCM Digesters

March 31, 2009


The opinion of the court was delivered by: Hillman, District Judge


Plaintiffs Joseph Oat Holdings, Inc. ("JOHI"), Biothane Corporation ("Biothane"), Robert Sax, Michael Holtz, Graig Rosenberger, Martin Kaplan, Ronald Kaplan, John Murphy*fn1 , and RCM Biothane*fn2 filed a Verified Complaint consisting of eight claims against Defendants RCM Digesters, Inc. ("RCM Digesters") and Mark Moser. Defendants filed an answer, a verified counterclaim consisting of 29 counts, and a third-party complaint*fn3 consisting of two counts. Plaintiffs have moved to dismiss and/or for summary judgment on ten counts in defendants' counterclaim and both counts of the third-party complaint. Defendants have opposed the motion. For the reasons expressed below, plaintiffs' motion is denied.


Moser was the founding stockholder of RCM Digesters, a business that promoted, designed, built, and sold anaerobic digester systems.*fn4 Contemporaneously, Biothane existed as a multinational corporation specializing in the biological treatment of industrial wastewaters. On August 23, 2004, Biothane and RCM Digesters entered into a confidentiality agreement ("the Confidentiality Agreement") that "govern[ed] the conditions of disclosure by RCM [Digesters] to [Biothane] of any confidential information...relating to the contracts, business or technology of RCM [Digesters]." Subsequently, as a result of a series of agreements between the parties, Biothane's principals and Moser (who was RCM Digesters' principal) created RCM Biothane.

RCM Biothane was formed pursuant to a Certificate of Formation dated February 17, 2005 ("the Certificate of Formation"). On the same date, RCM Biothane entered into a license agreement with Biothane ("the License Agreement"), signed by Biothane and RCM Biothane, to use the federally registered trademark Biothane(R)*fn5 as part of the name under which it traded.

Four additional agreements were executed on April 21, 2005: (1) a purchase agreement ("the Asset Purchase Agreement"), which was signed by RCM Digesters, Moser, and RCM Biothane, and under which RCM Biothane purchased "substantially all of the assets (real, personal or mixed, tangible or intangible) and business" of RCM Digesters; (2) an employment agreement ("the Employment Agreement"), signed by RCM Biothane and Moser, which designated Moser as the "Managing Director" of RCM Biothane; (3) a restrictive covenant agreement (the "Restrictive Covenant Agreement"), signed by Moser, that governed the parties post-employment obligations; and (4) a Limited Liability Company agreement ("the Operating Agreement"), which was signed by RCM Biothane and JOHI, and under which JOHI was to own 80% of RCM Biothane, and Moser was to own 20%.*fn6

Due to what plaintiffs call a "stormy relationship," the parties agreed to terminate the operation of RCM Biothane. On August 7, 2006, the parties entered into a separation agreement (the "Separation Agreement"), which was signed by the six individual plaintiffs and Moser. Plaintiffs contend that the Separation Agreement constitutes a settlement between the parties, and that all other previous agreements were made "null and void" by the Separation Agreement. In their complaint, plaintiffs seek a declaration that the Separation Agreement is a valid and enforceable contract, and allege, inter alia, that defendants have breached the Separation Agreement. Defendants counter, however, that the Separation Agreement was not a "settlement agreement" as it is called by plaintiffs, that it does not represent a final dissolution of the parties' business relationship, and that Moser's signing of the document was induced by fraud. Correspondingly, defendants contend that the Separation Agreement does not vitiate the previous agreements, and defendants have asserted claims based on fraudulent activity regarding those agreements as well.

Even though the parties have asserted numerous other claims against each other, and plaintiffs are also moving for judgment on defendants' claims of breach of fiduciary duty, unjust enrichment, libel, and intention infliction of emotional distress, the Separation Agreement is the main issue in plaintiffs' instant motion for summary judgment. Further, even though the parties have subsequently filed several additional motions for partial summary judgment, the validity of the Separation Agreement is also the main issue in the case--answering the question of whether the Separation Agreement serves as the final resolution of the parties' business relationship and voids all previous agreements also answers many of the parties' other claims. Accordingly, because the validity of the Separation Agreement affects all aspects of the case, the Court will address the issues briefed in the current motion rather than waiting to resolve all partial summary judgment motions at one time.*fn7


A. Jurisdiction

This Court has jurisdiction over the federal claims under 28 U.S.C. § 1331, and supplemental jurisdiction over the state law claims under 28 U.S.C. § 1367.

B. Summary Judgment Standard*fn8

Summary judgment is appropriate where the Court is satisfied that "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 a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986); Fed. R. Civ. P. 56(c).

An issue is "genuine" if it is supported by evidence such that a reasonable jury could return a verdict in the nonmoving party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is "material" if, under the governing substantive law, a dispute about the fact might affect the outcome of the suit. Id. In considering a motion for summary judgment, a district court may not make credibility determinations or engage in any weighing of the evidence; instead, the non-moving party's evidence "is to be believed and all justifiable inferences are to be drawn in his favor." Marino v. Industrial Crating Co., 358 F.3d 241, 247 (3d Cir. 2004)(quoting Anderson, 477 U.S. at 255).

Initially, the moving party has the burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met this burden, the nonmoving party must identify, by affidavits or otherwise, specific facts showing that there is a genuine issue for trial. Id. Thus, to withstand a properly supported motion for summary judgment, the nonmoving party must identify specific facts and affirmative evidence that contradict those offered by the moving party. Anderson, 477 U.S. at 256-57. A party opposing summary judgment must do more than just rest upon mere allegations, general denials, or vague statements. Saldana v. Kmart Corp., 260 F.3d 228, 232 (3d Cir. 2001).

C. Analysis

1. Validity and Effect of the Separation Agreement

In their brief, plaintiffs tell the story of sophisticated and experienced businessmen whose business relationship failed, as many do, and the dissolution of that business relationship. Plaintiffs relate that when the parties met on August 7, 2006 to terminate the operation of RCM Biothane, they, over the course of "five to eight hours," meticulously addressed the dissolution, and they came to an agreement as to the settlement of all outstanding matters. Plaintiffs represent that the Separation Agreement is a written contract memorializing the parties' discussions, and on its face, the contract clearly sets forth the parties' respective duties, as well as its effect on previous agreements.

Specifically, plaintiffs argue that Moser participated in the meeting and willingly, without any duress, signed the Separation Agreement along with the individual plaintiffs. Plaintiffs also argue that the plain language of the contract is clear, in that it makes "null and void" the Asset Purchase Agreement between RCM Digesters and RCM Biothane, and that all other agreements between the parties are superceded by the Separation Agreement. The Separation Agreement then sets forth in bullet points their obligations. Based on the plain language of the document alone, and supported by Moser's testimony and other evidence in the record, plaintiffs argue that there is no dispute of material fact as to the validity of the agreement or of defendants' breach of the obligations under the agreement. Furthermore, plaintiffs argue that there is no dispute that defendants have ratified the contract by accepting its benefits, while at the same time failing to perform its obligations, and, consequently, they cannot now argue that the Separation Agreement is invalid. Therefore, they contend that they are entitled to summary judgment on defendants' counterclaims of fraud, breach of contract, and other related claims arising from the Separation Agreement, as well the other agreements, since they were voided by the Separation Agreement.

Defendants tell a completely different story. They contend that from the inception of their business relationship, Moser was defrauded and taken advantage of by plaintiffs. As defendants relate in their brief, "After more than a year of lying to Mr. Moser, fraudulently inducing him to sell his company's assets, violating the terms of the agreements by which those assets were transferred, withholding money that they clearly owed to Mr. Moser in an attempt to blackmail him to transfer his proprietary technology, and stealing that technology along with the most significant project and client Mr. Moser had ever secured, Plaintiffs then fraudulently induced Mr. Moser to sign a vaguely worded document entitled 'Separation Agreement' that Plaintiffs seek to have interpreted in a manner that would utterly destroy Mr. Moser financially if not personally." (Def. Opp. Br. at 1.)

Defendants argue that the Separation Agreement was not meant to be a final resolution of the dissolution of the business, and concomitantly, many of the terms in the document were incorrect due to plaintiffs' errors and manipulations. Furthermore, defendants argue that even if the Separation Agreement were a valid contract, plaintiffs have not abided by its terms.

At the outset, the Court notes that plaintiffs are seeking summary judgment on defendants' counterclaims by effectively obtaining a judgment as to their declaratory judgment count. Plaintiffs argue that because defendants took over RCM Biothane's "business and assets, lock, stock, and barrel, pursuant to the Separation Agreement, this Court should not allow defendants to allege that agreement's invalidity." (Pl. Br. at 2.) The validity of the Separation Agreement, however, is plaintiffs' burden to prove. Thus, it must be determined whether plaintiffs have met their burden of proof to support their claim.*fn9

The Court finds that material issues of disputed fact remain as to the validity of the Separation Agreement.*fn10 ...

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