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Kyle v. Apollomax, LLC

United States District Court, Third Circuit

November 1, 2013

RONALD KYLE, Plaintiff,
v.
APOLLOMAX, LLC, O'NEILL, LLC d/b/a O'NEILL INNOVATIONS, and MICHAEL O'NEILL, Defendants. APOLLOMAX, LLC and O'NEILL, LLC d/b/a O'NEILL INNOVATIONS, Defendants/Counterclaim-Plaintiffs,
v.
RONALD KYLE, Plaintiff/Counterclaim-Defendant, and DOUGLAS PORCELLI, Counterclaim-Defendant/ Counterclaim-Plaintiff.

Christopher Viceconte, Esq., GIBBONS PC, Wilmington, DE; John Q. Lewis, Esq., TUCKER ELLIS LLP, Cleveland, OH; Seth J. Linnick, Esq., TUCKER ELLIS LLP, Cleveland, OH.

Attorneys for Defendants/Counterclaim-Plaintiffs Apollomax, LLC, O'Neill, LLC d/b/a O'Neill Innovations, and Michael O'Neill.

Seth J. Reidenberg, Esq., TYBOUT, REDFEARN & PELL, Wilmington, DE; Alan L. Frank, Esq., ALAN L. FRANK LAW ASSOCIATES, P.C., Jenkintown, PA; Susan B. Pliner, Esq., ALAN L. FRANK LAW ASSOCIATES, P.C., Jenkintown, PA.

Attorneys for Plaintiff/Counterclaim-Defendant Ronald Kyle and Counterclaim-Defendant/Counterclaim-Plaintiff Douglas Porcelli.

MEMORANDUM OPINION

ANDREWS, U.S. DISTRICT JUDGE

Ronald Kyle ("Plaintiff' or "Kyle") initiated this action against Michael O'Neill ("Mr. O'Neill), Apollomax, LLC, and O'Neill, LLC d/b/a O'Neill Innovations (collectively, the "Defendants") on February 8, 2012. (D.I. 1). On November 14, 2012, Kyle filed an Amended Complaint asserting four causes of action: breach of fiduciary duty, conversion, breach of the Operating Agreement, and breach of the implied covenant of good faith and fair dealing.[1] (D.I. 104). The Defendants filed the instant motion for summary judgment on May 17, 2013. (D.I. 171). The motion is fully briefed. (D.I. 172, 190 & 202). For the reasons that follow, the Court will grant the Defendants' motion for summary judgment as to Counts II and IV and will deny the Defendants' motion for summary judgment as to Counts I and III.

I. BACKGROUND

The basis for this dispute began in January 2010 when Mr. O'Neill arranged a meeting between himself and Kyle to discuss the formation of a new business relationship. (D.I. 104, ¶13). At that point, Mr. O'Neill was a member and CEO of Defendant O'Neill LLC, which was a company engaged in the sale of Maxfit® gloves, among other products. (Id. ¶¶ 8, 16-19). Mr. O'Neill was interested in acquiring Kyle's marketing services. Kyle was the president and founder of Hi-Impact Marketing, a radio promotion firm. (Id. ¶¶ 10-13). Mr. O'Neill and Kyle consequently joined forces to create a new Delaware company named Apollomax LLC ("Apollomax") on June 29, 2010. (Id. ¶ 23).

Mr. O'Neill and Kyle entered into a written Operating Agreement as part of Apollomax's formation. (D.I. 190-5). Pursuant to the Operating Agreement, Mr. O'Neill owned 85% of Apollomax's "LLC units"-defined as measures of ownership in Apollomax-and Kyle owned the remaining 15%. (Id. § 3.1). The Operating Agreement specifies that Mr. O'Neill would "as a member and manager of the company, guarantee a substantial portion of his time to the activities of the company to be consistent with his role in Research, Product Development, Operations and General Business & Venture Management-the day to day execution of business plans and growth of the company." (Id. at attachment 1, tb1.2). Similarly, the Operating Agreement provides that Kyle would "as a member and manager of the company, guarantee a substantial portion of his time to the activities of the company to be consistent with his role in Marketing, Sales and Financing-raising capital for the execution of business plans and growth of the company." (Id.).

Section 7.4 of the Operating Agreement sets forth two circumstances under which a member may be involuntarily removed from Apollomax. (Id. § 7.4). The situation relevant to the current cases arises if "the Member is required to provide services to the LLC (as reflected in attachment 1 of this agreement), said Member is not substantially performing the promised services, and a Supermajority in interest of LLC Members vote for removal."[2] (Id. § 7.4a(1)). Sixty days prior to a vote regarding any member's removal under this provision, however, "the other LLC Members shall cause a notice to be issued to the Member in question ... detailing] specific instances or tasks that were allegedly not satisfactorily performed." (Id. § 7.4b). If, after the sixty day good faith opportunity to cure has elapsed, an affirmative "Supermajority vote in interest of LLC Members is made to remove the Member in question, " then that person "shall no longer be entitled to exercise any rights, powers or privileges of a Member" and his LLC units are considered redeemed by Apollomax. (Id. § 7.4d). Because Mr. O'Neill owned 85% of Apollomax's LLC Units, he possessed the Supermajority vote required to remove Kyle under this procedure.

Apollomax got off to a promising start. In December 2010, Kyle assisted Apollomax in signing Big Time Products ("BTP") to a three year sales agreement that required BTP to purchase a minimum of 400, 000 Maxfit® gloves per year from Apollomax. (D.I. 190-6 at 2). Throughout the duration of Kyle's membership with Apollomax, however, BTP was the only substantial client. At some later point, the principals of Apollomax and BTP-Mr. O'Neill, Kyle, Rick Chambers, and Harry Pierce-started discussing a plan to create a new joint venture. (D.I. 190-10). Although the time frame for the negotiations leading up to the subsequent formation of the new venture named Apollo Marketing LLC ("Apollo Marketing") is murky, two relevant aspects are clear. Kyle was not invited to be a member of Apollo Marketing, and BTP eventually began purchasing gloves from Apollo Marketing instead of Apollomax.

Kyle's relationship with Mr. O'Neill showed real signs of deterioration beginning on October 26, 2011 when Mr. O'Neill conducted a telephone meeting with Kyle to discuss Mr. O'Neill's belief that Kyle's performance to date had "been subject to a lack of deliverables." (D.I. 190-17 at 4). The alleged deficiencies in work product included a lack of marketing policies and procedures, corporate marketing or financial plans, and sales objectives. (Id.). On November 15, 2011, Mr. O'Neill sent Kyle a Notice of Failure to Perform Required Services (the "Notice"), stating that Kyle had not substantially performed the services required by Apollomax's Operating Agreement. (D.I. 192). The Notice set forth "specific instances and tasks" that Kyle did not satisfactorily perform, including a failure: to sign or vet any sales representatives, and to create or execute a marketing or sales plan of action, marketing policies or procedures, a pricing plan, a marketing communications schedule, and an exhibition/show schedule. (Id.). The Notice established a cure period from November 15, 2011 until January 18, 2012-the scheduled date of the Vote for Removal. (Id.). The actions Kyle took and the extent to which he attempted to cure the deficiency during this period are heavily disputed by the parties. Mr. O'Neill held the Vote for Removal on January 18, 2012, and Kyle was voted out as a member of Apollomax. (D.I. 104, ¶ 43). This lawsuit followed.

II. LEGAL STANDARD

"The court shall grant summary judgment if the movant shows that 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). A "material fact" is one that "could affect the outcome" of the proceeding. See Lamontv. New Jersey, 637 F.3d 177, 181 (3d Cir. 2011). The moving party bears the burden of demonstrating the absence of a genuine issue of material fact. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 n.10 (1986). The court will "draw all reasonable inferences in favor of the nonmoving party, and it may not make ...


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