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Itron, Inc. v. Johnston

United States District Court, S.D. Mississippi, Northern Division

January 26, 2017




         This cause is before the court on the motion of defendants Stephen D. Johnston, Ajit Habbu and Gary Kessler for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. Plaintiff Itron, Inc. has responded in opposition to the motion. The court, having considered the memoranda of authorities, together with attachments, submitted by the parties, concludes the motion should be denied.[1]


         Plaintiff Itron is engaged in the development and manufacture of electric, natural gas and water meters, including standard meters and next-generation advanced and smart metering products, metering systems and related software and services. Around 2010, Itron began doing business with SmartSync, a Jackson-based company that was in the business of providing “smart grids” for wireless connections between devices, and in particular, “smart” electricity meters. Toward the end of 2011, Itron began negotiating for a potential acquisition of SmartSync and on March 30, 2012 entered an agreement to acquire SmartSync pursuant to an Amended and Restated Plan of Merger (Merger Agreement). The merger closed on May 1, 2012, at which time Itron acquired SmartSync for approximately $100 million. At the time of the negotiations and merger, defendant Johnston was CEO of SmartSync; defendant Habbu was CFO; and defendant Gary Kessler was SmartSync's Vice President of Product Marketing.

         Itron alleges that on April 25, 2012, just six days before closing of the merger, SmartSync executed a contract with one Consert, Inc. which, at least facially, obligated SmartSync to purchase $60 million in intellectual property licenses from Consert over a five-year period (the Consert Agreement). As a result of the merger, Itron inherited SmartSync's obligations to Consert under the Consert Agreement, notwithstanding that when the merger closed, Itron was not aware of the Consert Agreement. In fact, Itron did not become aware of the Consert Agreement until some two months after the merger, when it received an invoice from Consert for $3 million, at which time Itron began an investigation and discovered the Consert Agreement. Itron promptly filed a declaratory judgment action against Consert in the Chancery Court of Delaware, seeking to void, or in the alternative reform the Consert Agreement. See Itron, Inc., as successor-in-interest to SmartSync, Inc. v. Consert Inc., Case No. 7720-VCL (Del. Chan Ct.). On February 2, 2015, the day before the case was scheduled to be tried, Itron and Consert reached a settlement of the litigation by which Itron paid a substantial sum, though substantially less than $60 million, in settlement of the claim.

         Itron then brought the present action seeking to recover from defendants Habbu, Johnston and Kessler the amount it paid in settlement of the Consert litigation, together with attorney's fees and expenses it incurred in connection with that litigaiton. In this action, Itron alleges that prior to the merger, each of these defendants knew that SmartSync had Dated this undeniably “material contract” (as defined in the Merger Agreement) and also knew that SmartSync had not disclosed this contract to Itron and in fact had represented to Itron that no “material contracts” had been entered; yet defendants failed to disclose the contract to Itron. Itron alleges that had it known of the Consert Agreement before the merger closed, it would not have consummated the merger under the terms stated in the Merger Agreement. However, because the Consert Agreement was not disclosed, Itron lost the opportunity to seek an adjustment of the merger consideration or to seek cancellation of (or otherwise address) the Consert Agreement prior to closing and instead, became subject to the liabilities created by the Consert Agreement, causing Itron losses and damages in connection with the Consert Agreement and associated litigation.

         Defendants' Motion for Summary Judgment

         Defendants requested and were granted leave to file an early summary judgment motion to present three specific grounds for summary judgment, namely, that Itron's claims against them are (1) time-barred, (2) barred by judicial estoppel, and/or (3) barred by the voluntary payment doctrine. The court, having considered the parties' arguments and evidence relating to these specific issues, concludes that defendants have not demonstrated that summary judgment is proper on any of these bases.[2]

         Argument 1: Itron's Claims are Time-Barred

         Defendants' contention that Itron's claims are time-barred is based on Section 10.1 of the Merger Agreement, which states that the representations and warranties of SmartSync set forth in the agreement, including representations in an officer's certificate executed by Johnston on behalf of SmartSync in connection with the merger, survive only for twenty-four months following the closing of the merger, and which further provides that “the Company (SmartSync] shall [not] have any liability whatsoever with respect to any such representations and warranties unless a claim is made hereunder prior to the expiration of the survival period for such representations and warranties....” Defendants assert that in accordance with this provision, this action is time-barred since it was not commenced until April 15, 2015, well more than two years after the merger closed on May 1, 2012. However, as Itron aptly argues in its response, the Merger Agreement does not shorten the limitations period for its claims in this cause both because defendants are not parties to that agreement and the terms of the Merger Agreement do not shorten the statute of limitations for tort claims. Itron's claims in this case are for negligent misrepresentation, not breach of contract, and these claims were filed within the three-year limitations period applicable to such claims.[3]

         Argument 2: Judicial Estoppel Bars Itron's Claims

         Defendants next argue that Itron's claims in this cause are predicated entirely on the enforceability of the Consert Agreement and yet Itron, having consistently taken the position in the Delaware Consert litigation that the Consert Agreement should be declared void and unenforceable and/or should be rescinded, that the invoices issued pursuant to the Consert Agreement were null and void, and having advanced affirmative defenses to Consert's breach of contract claims, should be found judicially estopped from claiming in this case that the Consert Agreement was enforceable.

         “Judicial estoppel prevents a party from asserting a position in a legal proceeding that is contrary to a position previously taken in the same or some earlier proceeding.” Hall v. GE Plastic Pac. PTE, Ltd., 327 F.3d 391, 396 (5th Cir. 2003) (internal quotation marks and citation omitted). “The purpose of the doctrine is to prevent litigants from ‘playing fast and loose' with the courts....” Id. (internal quotation marks and citation Ch. July 11, 2011). Itron denies that Delaware law applies, both because its claims arise in tort, not from the contract, and because defendants are not parties to the agreement. It submits, though, that there is no conflict between the laws of Delaware and Mississippi in any way that is relevant to the issues raised by the present motion since both Mississippi and Delaware law have a three-year statute of limitation on claims for negligent misrepresentation. See 10 Del. C. § 8106; Miss. Code Ann. § 15-1-49. omitted). “Judicial estoppel is an equitable doctrine invoked by a court at its discretion.” Claimant ID 100197593 v. BP Expl. & Prod., Inc., No. 16-30283, 2016 WL 7029142, at *3 (5th Cir. Nov. 16, 2016) (quoting New Hampshire v. Maine, 532 U.S. 742, 750 (2001)); see also In re Coastal Plains, Inc., 179 F.3d 197, 205 (5th Cir. 1999) (stating judicial estoppel is an equitable doctrine, and the decision whether to invoke it is within the court's discretion). The Fifth Circuit has held that “[f]or a party to be judicially estopped from arguing a position, the position must be clearly inconsistent with the party's previous one, and the party must have clearly convinced the court to accept that previous position.” Id.[4]

         Itron submits that summary judgment is not in order as defendants have not shown that Itron has taken any inconsistent position in this lawsuit. It agrees that in the Consert litigation, it did contest its liability under the Consert Agreement and asserted various defenses to enforcement of the Agreement. It argues, though, that it has not taken a position in this case that the Consert Agreement was necessarily enforceable or that any of the defenses it asserted in the Consert litigation were untrue. Rather, it asserts that its claims in this case are grounded on its position that in the Consert litigation, it faced a reasonable risk ...

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