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RedHawk Holdings Corp. v. Schreiber

United States District Court, E.D. Louisiana

October 9, 2018

REDHAWK HOLDINGS CORP., ET AL
v.
DANIEL J. SCHREIBER, ET AL

         SECTION: “B” (3)

          ORDER AND REASONS

         Before the Court is Defendants' Motion for Summary Judgment and Alternatively Judgment on the Pleadings (Rec. Doc. 74), Plaintiffs' Response and Memorandum in Opposition (Rec. Doc. 76), and Defendants' Reply Memorandum (Rec. Doc. 80). For the reasons discussed below, IT IS ORDERED that the motion is GRANTED.

         FACTS AND PROCEDURAL HISTORY

         This case is about an unsuccessful business venture between two experienced businessmen. Plaintiff RedHawk Holdings Corporation (“RedHawk”) is a Nevada corporation with its principal place of business in Lafayette Parish, Louisiana. See Rec. Doc. 1 at 1. Plaintiff Beechwood Properties, LLC (“Beechwood”) is a Louisiana limited liability company with its principal place of business in Lafayette Parish, Louisiana. See id. G. Darcy Klug is the CFO and majority shareholder of both Plaintiffs. See Rec. Doc. 74-1 at 9. Defendant Daniel J. Schreiber is the former CEO and a former Director of RedHawk. See id. Defendant Schreiber is also the trustee and beneficial owner of at least some of the securities[1] held by Defendant Schreiber Living Trust - DTD 2/08/95. See Rec. Doc. 76-1 at 1-2.

         In March 2014, American Medical Distributors, Inc. (“AMD”) entered into an Asset Purchase Agreement (“APA”) with RedHawk. See Rec. Doc. 1 at 2. RedHawk agreed to issue AMD or its designees approximately half of RedHawk's shares. See id. at 2-3. In exchange, AMD agreed to pay RedHawk $60, 000 and to assign RedHawk all of AMD's assets and property. See id. at 3. The principal asset was exclusive distribution rights of non-contact thermometers in North, Central, and South America. See Rec. Doc. 74-1 at 12.

         The transaction, known as the AMD-RedHawk Transaction, was executed as provided in the APA. See Rec. Doc. 1 at 4. Plaintiff Beechwood and Defendants provided AMD $60, 000; thereafter, AMD paid $60, 000 to RedHawk and assigned RedHawk all of its assets including the distribution rights of the non-contact thermometers. See id. In exchange, RedHawk assigned the agreed-upon shares to four designees of AMD. See id. The four designees were Beechwood, Schreiber Trust, Howard Taylor, and Paul Rachmuth. See id.

         All stemming from the executed transaction, Plaintiffs allege numerous fraudulent misrepresentations and omissions and contract breaches by Defendant Schreiber. See Rec. Doc. 74-1 at 9. There are three main allegations that give rise to their cause of action. First, Plaintiffs allege that Defendant, along with Paul Rachmuth who served as a counsel for AMD and Beechwood in the transaction, failed to disclose possible patent infringement litigation that significantly impaired the value of the distribution rights assigned to RedHawk. See Rec. Doc. 1 at 4. Second, Defendant Schreiber failed to uphold his agreement with Beechwood to split RedHawk's expenses on a 50/50 basis and contribute to other assets. See id. at 11-14. Third, Defendant Schreiber failed to disclose his past SEC issues to RedHawk and its investors. See Rec. Doc. 76 at 7-8.[2]

         On January 31, 2017, Plaintiffs filed a six-claim Complaint. See Rec. Doc. 1. Specifically, Plaintiffs allege (1) Securities Fraud under Sections 10B and 20 of the Exchange Act and SEC Rule 10b-5; (2) Securities Fraud under Sections 18 and 20 of the Exchange Act; (3) Fraud under State Law; (4) By Beechwood for Breach of Contract; (5) By Beechwood for Unjust Enrichment; and (6) By RedHawk for Defendant Schreiber's Breach of Fiduciary Duties. See id. at 19-29.

         On June 15, 2018, Defendants filed a Motion for Summary Judgment and Alternatively Judgment on the Pleadings (Rec. Doc. 74-1). On July 19, 2018, Plaintiffs filed a Response and Memorandum in Opposition (Rec. Doc. 78). On August 2, 2018, Defendants filed a Reply Memorandum (Rec. Doc. 80).

         LAW AND ANALYSIS

         A. Summary Judgment Standard

         Under Federal Rule of Civil Procedure 56, summary judgment is appropriate when “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 judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quoting Fed.R.Civ.P. 56(c)); see also TIG Ins. Co. v. Sedgwick James of Wash., 276 F.3d 754, 759 (5th Cir. 2002). A genuine issue of material fact exists if the evidence would allow a reasonable jury to return a verdict for the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The court should view all facts and evidence in the light most favorable to the non-moving party. See United Fire & Cas. Co. v. Hixson Bros. Inc., 453 F.3d 283, 285 (5th Cir. 2006). Mere conclusory allegations are insufficient to defeat summary judgment. See Eason v. Thaler, 73 F.3d 1322, 1325 (5th Cir. 1996).

         The movant must point to “portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact.” Celotex, 477 U.S. at 323. If and when the movant carries this burden, the non-movant must then go beyond the pleadings and present other evidence to establish a genuine issue. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). However, “where the non-movant bears the burden of proof at trial, the movant may merely point to an absence of evidence, thus shifting to the non-movant the burden of demonstrating by competent summary judgment proof that there is an issue of material fact warranting trial.” Lindsey v. Sears Roebuck & Co., 16 F.3d 616, 618 (5th Cir. 1994). “This court will not assume in the absence of any proof that the nonmoving party could or would prove the necessary facts, and will grant summary judgment in any case where critical evidence is so weak or tenuous on an essential fact that it could not support a judgment in favor of the [non-movant].” McCarty v. Hillstone Rest. Grp., 864 F.3d 354, 357 (5th Cir. 2017).

         B. Defendants are entitled to summary ...


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