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Eas Group, Inc. v. Fiberpop Solutions, Inc.

United States District Court, D. Minnesota

June 11, 2015

EAS GROUP, INC., Petitioner,
v.
FIBERPOP SOLUTIONS, INC., Respondent.

Daniel J. Supalla, BRIGGS AND MORGAN, P.A., for petitioner.

Timothy J. Peters and Matthew A. Helgemoe, PETERS LAW FIRM, PLC, for respondent.

ORDER

PATRICK J. SCHILTZ, District Judge.

Petitioner EAS Group, Inc. ("EAS") filed a petition seeking the provisional attachment of the Minnesota property of respondent FiberPop Solutions, Inc. ("FiberPop") as security for an anticipated award in an arbitration in California. The arbitration concerned a dispute over a share-purchase agreement. EAS alleged that FiberPop agreed to buy shares of EAS for hundreds of millions of dollars but never consummated the deal. FiberPop failed timely to respond to EAS's petition, and this matter is now before the Court on EAS's renewed motion for default judgment. For the reasons explained below, the Court denies the motion and dismisses EAS's petition.

I. BACKGROUND[1]

EAS is a Nevada corporation headquartered in San Diego, California, that offers software and cloud-computing services. ECF No. 1-1 at 3. FiberPop is a Minnesota corporation headquartered in Owatonna, Minnesota. FiberPop is apparently in the business of fiber-optic networks. Id.

EAS embarked on a multi-year plan to target and acquire other technology companies that provide "complementary" services. ECF No. 19 ¶¶ 3-4; ECF No. 19-1 at 17-20. To fund the acquisitions, EAS sought to sell a 20-percent stake in the company for $220 million. ECF No. 19 ¶ 5; ECF No. 19-1 at 20. EAS advertised that in ten years the 20-percent share would be worth an estimated $2 billion-better than a ninefold return on the initial investment. ECF No. 19-1 at 20.

On April 27, 2012, EAS and FiberPop entered into a "share purchase agreement" for FiberPop to buy 20 percent of EAS's equity for $220 million. ECF No. 1 ¶ 18; ECF No. 1-1 at 7. The agreement was signed by EAS's Chairman and CEO, Ian Grant-Smith, and by FiberPop's President, James Louks. ECF No. 1-1 at 10.[2] The agreement provided that any disputes would be decided by arbitration in California and according to Nevada law. Id. at 8. Initially, FiberPop was to complete payment by the end of May 2012, but the deadline was pushed back to the third week of June. Id. at 7, 11.

FiberPop did not pay by the third week of June. ECF No. 1 ¶ 20. For more than a year after that, FiberPop repeatedly assured EAS that it would soon make the overdue $220-million payment. Id. ¶¶ 21-24. FiberPop represented at various times that it would soon complete "financing projects" and gain access to hundreds of millions of dollars, that it had received "loan commitments" for billions of dollars, and that a loan for nearly three-quarters of a billion dollars had been approved "pending transfer of collateral." Id. Yet FiberPop never paid a dime to EAS. (EAS alleges that it "learned after the fact that FiberPop intended to pay EAS Group, in whole or in part, using investment proceeds from a fictitious prime bank instrument trading program.'" Id. ¶ 25.)

EAS demanded arbitration in California, alleging breach of contract on the ground that FiberPop "fail[ed] to honor its payment obligations" and alleging promissory fraud on the ground that FiberPop's representations "concerning its intent and ability to honor the terms of the [agreement]... were false when made and made to induce EAS to enter into the [agreement]." ECF No. 1-1 at 4.

While the arbitration was pending, EAS filed a petition in this Court to provisionally attach FiberPop's property in Minnesota as security for an anticipated arbitration award in EAS's favor. ECF No. 1. The petition relies on Fed.R.Civ.P. 64 and Minn. Stat. § 572B.08. Id. ¶¶ 8, 34. When FiberPop did not respond within 21 days after being served with the petition, see Fed.R.Civ.P. 12(a)(1)(A)(i), EAS applied to the clerk for entry of default, see Fed.R.Civ.P. 55(a). ECF No. 4. The clerk entered default, and EAS moved for a default judgment under Fed.R.Civ.P. 55(b)(2). ECF Nos. 6, 7. After a hearing, the Court denied the motion without prejudice and instructed EAS that, if it renewed its motion, it should provide additional information about its fraud claim against FiberPop and identify the specific property that it sought to attach. ECF No. 13. After EAS filed a renewed motion, FiberPop broke its silence and appeared to oppose the motion and respond to the petition for attachment. ECF Nos. 14, 21, 24, 25.

About three weeks after the hearing on EAS's renewed motion for default judgment, the arbitrator in California issued an award of nearly $1 million to EAS on its claim for breach of contract. ECF No. 34. The arbitrator denied relief on EAS's fraud claim. ECF No. 34-1 at 6.

II. ANALYSIS

A. Mootness


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