Islet Scis., Inc. v. Brighthaven Ventures LLC

2018 NCBC 84

Opinion

Islet Scis., Inc. v. Brighthaven Ventures LLC, 2018 NCBC 84.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF WAKE 15 CVS 16388

ISLET SCIENCES, INC.,

Plaintiff,

v. OPINION AND ORDER ON THIRD- BRIGHTHAVEN VENTURES LLC, JAMES GREEN, and WILLIAM PARTY DEFENDANTS EDWARD T. WILKISON, GIBSTEIN AND COVA CAPITAL PARTNERS, LLC’S MOTION TO Defendants, WITHDRAW OR AMEND and ADMISSIONS AND BRIGHTHAVEN VENTURES LLC’S MOTION FOR BRIGHTHAVEN VENTURES LLC, PARTIAL SUMMARY JUDGMENT Third-Party Plaintiff, AGAINST THIRD-PARTY DEFENDANTS JOHN F. STEEL, IV, v. EDWARD T. GIBSTEIN, AND COVA CAPITAL PARTNERS, LLC JOHN F. STEEL, IV, EDWARD T. GIBSTEIN, and COVA CAPITAL PARTNERS, LLC,

Third-Party Defendants.

THIS MATTER comes before the Court on Third-Party Defendants Edward T.

Gibstein and COVA Capital Partners, LLC’s Motion to Withdraw or Amend

Admissions (“Motion to Withdraw or Amend”; ECF No. 152) and on Brighthaven

Ventures LLC’s Motion for Partial Summary Judgment Against Third-Party

Defendants John F. Steel, IV, Edward T. Gibstein, and COVA Capital Partners, LLC

(“Motion for Partial Summary Judgment”; ECF No. 140) (collectively, “Motions”).

THE COURT, having considered the Motions, the briefs in support of and in

opposition to the Motions, the evidence submitted with the briefs, the arguments of

counsel at the hearing, and other appropriate matters of record, concludes that the Motion to Withdraw or Amend should be DENIED, and the Motion for Partial

Summary Judgment should be GRANTED, for the reasons set forth below.

Jerry Meek PLLC, by Gerald F. Meek for Third-Party Plaintiff Brighthaven Ventures LLC.

Everett Gaskins Hancock, LLP, by James M. Hash, and Simon Taylor (pro hac vice) for Third-Party Defendants Edward T. Gibstein and COVA Capital Partners, LLC.

John F. Steel, IV, pro se.

McGuire, Judge.

FACTS AND PROCEDURAL BACKGROUND

1. While findings of fact are not necessary or proper on a motion for

summary judgment, “it is helpful to the parties and the courts for the trial judge to

articulate a summary of the material facts which he considers are not at issue and

which justify entry of judgment.” Collier v. Collier, 204 N.C. App. 160, 161–62, 693

S.E.2d 250, 252 (2010). Therefore, the Court limits its recitation to the undisputed

facts necessary to decide the Motions and not to resolve issues of material fact.

2. This action arises out of a dispute between Plaintiff Islet Sciences, Inc.

(“Islet”), on the one hand, and Defendants Brighthaven Ventures LLC (“BHV”), and

BHV’s owners James Green (“Green”) and William Wilkison (“Wilkison”), on the

other. Islet is a biotechnology company “engaged in research, development, and

commercialization” of medications to treat metabolic diseases. (First Am. Compl.,

ECF No. 41, Ex. A, at ¶ 12.) BHV is in the business of developing pharmaceutical

products, including a new medication called “Remogliflozin” or “Remo” to treat type

2 diabetes. (Id. at ¶ 13.) BHV executed a license with Kissei Pharmaceuticals in Japan granting BHV the exclusive worldwide rights to Remo, excluding the territory

of Japan. (Id. at ¶ 14.)

3. In September 2013, Islet, through its investment banker COVA Capital

Partners (“COVA”) and its “principal” and CEO Edward T. Gibstein (“Gibstein”),

approached Green and Wilkison to ask them to join Islet’s management team and to

jointly develop Remo. (Id. at ¶¶ 16–17.) Islet’s board approved Green as CEO and

Wilkison as COO of Islet on October 25, 2013, and the parties began to negotiate a

license of Remo from BHV to Islet and subsequently a potential merger of BHV into

Islet. (Id. at ¶¶ 18, 21–22.) The merger fell through, and Islet claims that after

terminating the merger agreement, “Green and Wilkison forced Islet to enter into a

license agreement” for the rights to Remo. (Id. at ¶¶ 55, 57.) Islet also claims that

Green and Wilkison, because of their roles in both Islet and BHV, were using their

“positions of trust as officers and directors of [Islet] for their own improper benefit to

the detriment of Islet and its shareholders.” (Id. at ¶ 1.)

4. Islet filed a Complaint in Wake County asserting claims against BHV,

Green, Wilkison, Ofsink LLC, and Darren Ofsink.1 (ECF No. 1.) The parties jointly

moved to amend Islet’s Complaint on April 19, 2016 and attached a proposed First

Amended Complaint to the motion. (ECF No. 41.) The Court granted the motion to

amend on April 20, 2016. (ECF No. 42.) The First Amended Complaint alleges, in

relevant part: a claim against Green and Wilkison for breach of fiduciary duty; a claim

against BHV for aiding and abetting breach of fiduciary duty; and claims against all

1 Islet later dismissed without prejudice all claims against Ofsink LLC and Darren Ofsink.

(ECF No. 93.) defendants for constructive fraud, unjust enrichment, and constructive trust. (ECF

No. 41, Ex. A at ¶¶ 89–128.)

5. On February 19, 2016, BHV filed its Answer, Counterclaims, and Third-

Party Complaint. (ECF No. 17.) In the Third-Party Complaint, BHV asserts claims

against John F. Steel, IV (“Steel,” who was Islet’s largest shareholder and former

Chairman, CEO, and President) and Gibstein for tortious interference with contract,

alleging that Steel and Gibstein “effectively eliminate[d] Islet’s ability to raise the

capital required by the [license agreement]” in order to protect Steel’s shares from

dilution and to ensure that Gibstein could earn a commission on funds raised for Islet.

(Counterclaims, ECF No. 17, at ¶¶ 3, 7, 13, 28; Third-Party Complaint, ECF No. 17,

at ¶¶ 5–9.) BHV also asserts a claim for breach of contract against COVA because

COVA had allegedly disclosed BHV’s confidential information in violation of a Mutual

Nondisclosure Agreement signed by BHV and COVA. (Third-Party Complaint, ECF

No. 17, at ¶ 16–19.)

6. Steel, Gibstein, and COVA (collectively, the “Third-Party Defendants”)

were initially represented by McGuire Woods LLP (“McGuire Woods”). However, on

May 15, 2017, the Court allowed McGuire Woods to withdraw as counsel for the

Third-Party Defendants. (ECF No. 118.) The Third-Party Defendants did not

immediately retain new counsel.

7. On December 23, 2017, BHV served on each of the Third-Party

Defendants its First Set of Interrogatories, First Request for Production of

Documents, and First Request for Admissions. (ECF No. 141.1.) 8. BHV’s First Request for Admissions served upon Steel and Gibstein

sought the admission of the following matters:

1. Admit that a valid and enforceable exclusive license agreement existed between BHV and Islet Sciences, Inc., pursuant to which BHV would license to Islet Sciences, Inc. certain rights to remogliflozin etabonate (hereinafter the “Exclusive License Ageement”). . . .

3. Admit that you had knowledge of the Exclusive License Agreement.

4. Admit that you attempted to prevent Islet Sciences, Inc. from raising the capital required to meet the Effectiveness Condition.

5. Admit that you filed a petition in Nevada (hereinafter the “Nevada action”) to enjoin Islet Sciences, Inc. from taking any actions outside the ordinary course of business. . . .

11. Admit that you engaged in activities designed to interfere with the Exclusive License Agreement.

12. Admit that your interference with the Exclusive License Agreement was motivated by a desire to advance your own personal interests, rather than those of Islet Sciences, Inc.

13. Admit that you intentionally and maliciously induced Islet Sciences, Inc. not to perform its obligations under the Exclusive License Agreement.

14. Admit that, in inducing Islet Sciences, Inc. not to perform its obligations under the Exclusive License Agreement, you acted without justification.

15. Admit that BHV suffered actual damages as a result of your efforts to induce Islet Sciences, Inc. not to perform its obligations under the Exclusive License Agreement. (ECF Nos. 141.2 and 141.3.) Steel responded to the First Set of Interrogatories and

First Request for Production of Documents, but he did not respond to the First Set of

Request for Admissions. Gibstein did not respond to any of BHV’s discovery requests.

(Br. Supp. Mot. Partial Summ. J. Against Third-Party Defs., ECF No. 141, at p. 4.)

9. BHV’s First Request for Admissions served upon COVA sought the

admission of the following matters:

1. Admit that, on September 10, 2013, BHV and COVA entered into a valid and enforceable Mutual Nondisclosure Agreement (hereinafter, the “Mutual Nondisclosure Agreement”), pursuant to which COVA agreed not to disclose any “Confidential Information” of BHV to any third-party for two years after receiving such information.

2. Admit that BHV has complied with all of the obligations imposed upon it by the Mutual Nondisclosure Agreement.

3. Admit that COVA disclosed Confidential Information (as defined in the Mutual Nondisclosure Agreement) without the consent of BHV.

4. Admit that COVA breached the Mutual Nondisclosure Agreement.

5. Admit that BHV has suffered actual and consequential damages as a result of COVA’s breach of the Mutual Nondisclosure Agreement.

(ECF No. 141.7.) COVA did not respond to the First Request for Admissions.

10. On February 23, 2018, BHV filed the Motion for Partial Summary

Judgment. BHV moved for partial summary judgment in its favor on the issue of

liability as to the following claims: BHV’s claim for tortious interference with contract

against Steel and Gibstein, and BHV’s claim for breach of contract against COVA.

(ECF No. 140, at pp. 1–2.) 11. On March 22, 2018, attorney James M. Hash made an appearance on

behalf of Gibstein and COVA. (ECF No. 148.) On May 21, 2018, attorney Simon

Taylor was admitted pro hac vice to represent Gibstein and COVA. (ECF No. 162.)

Steel has not retained counsel and continues to represent himself pro se.

12. On April 25, 2018, Gibstein and COVA filed their response in opposition

to the Motion. (ECF No. 151.) On the same day, Gibstein and COVA also filed a

Motion to Withdraw or Amend, requesting that Gibstein and COVA’s admissions to

the First Request for Admission be withdrawn or amended and that they be permitted

to serve responses to the First Request for Admission. (ECF No. 152.)2

13. On behalf of Gibstein and COVA, Hash also initiated a telephone

conference under Business Court Rule 10.9 on May 9, 2018 regarding the request to

withdraw or amend Gibstein and COVA’s admissions. The Court held the telephone

conference on May 17, 2018.

14. On May 7, 2018, BHV filed a reply in support of the Motion for Partial

Summary Judgment. (ECF No. 154.) BHV also filed a response to Gibstein and

COVA’s Motion to Withdraw or Amend on May 15, 2018. (ECF No. 156.) Gibstein

and COVA did not file a reply in support of their Motion to Withdraw or Amend.

15. On May 24, 2018, the Court held a hearing on the Motion for Partial

Summary Judgment.3 The Motions are now ripe for review.

2 Steel has not responded to the Motions or filed any other motions with the Court.

3The Court did not take up the Motion to Withdraw or Amend at the hearing, having addressed the relevant issue at the telephone conference of May 17, 2018. ANALYSIS

A. Gibstein and COVA’s Motion to Withdraw or Amend Admissions

16. Gibstein and COVA move to withdraw or amend all admissions

“established against them for their failure to timely respond to Third-Party Plaintiff’s

First Request for Admissions.” (ECF No. 152, at p. 1.) They also attached a set of

proposed responses to the First Request for Admissions to the Motion to Withdraw or

Amend.

17. In support of their Motion to Withdraw or Amend, Gibstein and COVA

state that “[t]he presentation of the merits of this action will be subserved by the

withdrawal or amendment of the admissions resulting from the Third-Party

Defendants’ failure to timely respond to the First [Request for Admissions], and

[BHV] would not be prejudiced in any respect in maintaining its action on the merits

by such a withdrawal or amendment.” (Id. at p. 2.)

18. A trial court has discretion to allow a withdrawal of an admission upon

a party’s motion under N.C. Gen. Stat. § 1A-1, Rule 36(b) (hereinafter, “Rules”). See

Rule 36(b) (“[T]he court may permit withdrawal or amendment when the

presentation of the merits of the action will be subserved thereby and the party who

obtained the admission fails to satisfy the court that withdrawal or amendment will

prejudice him in maintaining his action . . . .”); Taylor v. Abernathy, 149 N.C. App.

263, 269–70, 560 S.E.2d 233, 237 (2002).

19. The Court disagrees that BHV would not be prejudiced by such a

withdrawal or amendment. Although Gibstein acknowledged the receipt of the First Request for Admissions in an e-mail to the Court, Gibstein failed to respond to any of

the discovery requests. (ECF No. 141, at p. 4.) Furthermore, the Motion to Withdraw

or Amend was filed four months after the responses were due under Rule 36 and two

months after the Motion for Partial Summary Judgment was filed. This delay has

already prejudiced BHV.

20. The Court recognizes that Gibstein and COVA were unrepresented by

counsel at the time that the First Request for Admissions was served. However, the

Court has on numerous occasions advised Gibstein and COVA of the complex nature

of business cases and of the fact that hiring an attorney would be in Gibstein’s best

interests and is mandatory as to COVA’s involvement in this action. Gibstein and

COVA waited until nearly four months after the requests were due to heed the Court’s

advice and retain an attorney, and the Court is therefore not sympathetic to the

predicament in which they find themselves as a result of their delay. Therefore, in

its discretion, the Court DENIES Gibstein and COVA’s Motion to Withdraw or

Amend.

B. BHV’s Motion for Partial Summary Judgment

21. BHV moves for partial summary judgment in its favor as to liability only

on its claims for tortious interference with contract (against Gibstein and Steel) and

breach of contract (against COVA), based on the Third-Party Defendants’ failure to

timely respond to BHV’s First Request for Admissions. BHV argues that the Third-

Party Defendants’ failure to respond means that the facts in question are deemed

judicially admitted, and the facts that have been judicially admitted in this case establish each element of BHV’s claims against the Third-Party Defendants except

as to the exact amount of damages BHV may recover. (ECF No. 141, at p. 5.)

22. Under Rule 36(a), “[a] matter is admitted unless, within 30 days after

service of the request [for admission] . . . the party to whom the request is directed

serves upon the party requesting the admission a written answer or objection

addressed to the matter, signed by the party or by his attorney . . . .” Rule 36(a).

23. “In order to avoid having requests for admissions deemed admitted, a

party must respond within the period of the rule if there is any objection whatsoever

to the request.” Town of Chapel Hill v. Burchette, 100 N.C. App. 157, 162, 394 S.E.2d

698, 701 (1990). “Where one party fails to timely respond to another’s request for

admissions, the facts in question are deemed to be judicially admitted under Rule

36 . . . .” J.M. Parker & Sons, Inc. v. William Barber, Inc., 208 N.C. App. 682, 688,

704 S.E.2d 64, 68 (2010). Facts admitted under Rule 36(b) are “sufficient to support

a grant of summary judgment.” Id. at 690, 704 S.E.2d at 69. A judicial admission “is

not evidence, but it, instead, serves to remove the admitted fact from the trial by

formally conceding its existence.” Id.

24. Gibstein and COVA never responded to any of the discovery requests,

including BHV’s First Request for Admissions. Steel responded via e-mail to BHV’s

First Set of Interrogatories and First Request for Production of Documents, but he

did not respond to BHV’s First Request for Admissions. The law in North Carolina

is clear that the Third-Party Defendants’ failure to respond to the First Request for Admissions means that the facts in question in the First Request for Admissions are

deemed judicially admitted.

25. Nonetheless, Gibstein and COVA argue that “the record in this case,

including the pleadings and affidavits on file . . . reflects that there are genuine issues

of material fact that preclude summary judgment.” (ECF No. 151, at p. 2.) They

point to several instances in the record, including Gibstein and COVA’s unverified

answer to the Third-Party Complaint, that Gibstein and COVA argue relate to the

claims against them and present issues of material fact. Unverified information or

evidence in the record, however, cannot supersede judicially admitted facts. See, e.g.,

Rhoads v. Bryant, 56 N.C. App. 635, 637–38, 289 S.E.2d 637, 639 (1982) (“Plaintiff’s

affidavit opposing summary judgment does not overcome the conclusive effect of her

previous admissions, and, therefore, no issue of fact is raised by [the affidavit].”);

Excel Staffing Serv., Inc. v. HP Reidsville, Inc., 172 N.C. App. 281, 285, 616 S.E.2d

349, 352 (2005) (“Defendants’ contention that an unverified answer to a complaint is

the same as a response to a request for admissions that contains matters ‘identical’

to the allegations in the complaint, contravenes the express purpose of Rule 36. Rule

36 means exactly what it says. In order to avoid having requests deemed admitted,

a party must respond within the specified time period.”) (internal citations omitted).

26. Having found that the facts in question are judicially admitted, the

Court must now evaluate whether the admitted facts sufficiently support summary

judgment on all of BHV’s claims against the Third-Party Defendants. Although some

of the elements of BHV’s claims require both legal and factual showings, admitted facts can be sufficient to support these mixed elements of law and fact. See Rule 36(a)

(“A party may serve upon any other party a written request for the admission, for

purposes of the pending action only, of the truth of any matters within the scope of

Rule 26(b) set forth in the request that relate to statements or opinions of fact or of

the application of law to fact . . . .”) (emphasis added); Goins v. Puleo, 350 N.C. 277,

281, 512 S.E.2d 748, 751 (1999) (finding that the judicially admitted facts supported

the legal and factual conclusion that the defendant doctors committed medical

negligence).

27. BHV first moves for summary judgment on the issue of liability on its

claim for tortious interference with contract against Gibstein and Steel. In order to

prove a claim for tortious interference with contract, a plaintiff must show “(1) a valid

contract between the plaintiff and a third person which confers upon the plaintiff a

contractual right against a third person; (2) the defendant knows of the contract; (3)

the defendant intentionally induces the third person not to perform the contract; (4)

and in doing so acts without justification; (5) resulting in actual damage to plaintiff.”

United Labs., Inc. v. Kuykendall, 322 N.C. 643, 661, 370 S.E.2d 375, 387 (1988).

28. BHV’s First Request for Admissions served upon Steel and Gibstein,

which are now judicially admitted, directly support each element of a tortious

interference with contract claim. The admitted facts show that there was a valid

contract (the license agreement) between BHV and Islet; that Steel and Gibstein had

knowledge of the contract; that Steel and Gibstein intentionally induced Islet to not

perform under the contract and did so without justification; and that BHV suffered damages as a result of the interference. (ECF Nos. 141.2 and 141.3.) Because Steel

and Gibstein have admitted every element of BHV’s claim for tortious interference

with contract, BHV’s Motion for Partial Summary Judgment on its claim for tortious

interference with contract against Steel and Gibstein on the issue of liability should

be GRANTED.

29. BHV also moves for summary judgment on the issue of liability on its

claim for breach of contract against COVA. In order to prove a claim for tortious

interference with contract, a plaintiff must show “(1) [the] existence of a valid contract

and (2) breach of the terms of [the] contract.” McLamb v. T.P. Inc., 173 N.C. App.

586, 588, 619 S.E.2d 577, 580 (2005).

30. BHV’s First Request for Admissions served upon COVA, which are now

judicially admitted, also directly support each element of a breach of contract claim.

The admitted facts show that there was a valid contract (the Mutual Nondisclosure

Agreement) between BHV and COVA and that COVA breached the contract by

disclosing confidential information. (ECF No. 141.7.) Because COVA has admitted

both elements of BHV’s claim for breach of contract, BHV’s Motion for Partial

Summary Judgment on its claim for breach of contract against COVA on the issue of

liability should be GRANTED.

THEREFORE, IT IS ORDERED that:

31. Gibstein and COVA’s Motion to Withdraw or Amend Admissions is

DENIED. 32. BHV’s Motion for Partial Summary Judgment Against Third-Party

Defendants John F. Steel, IV, Edward T. Gibstein, and COVA Capital Partners, LLC

is GRANTED.

SO ORDERED, this the 16th day of August, 2018.

/s/ Gregory P. McGuire Gregory P. McGuire Special Superior Court Judge for Complex Business Cases