RBZ Capital Corp. v. Derivative Fuels Ltd., 2013 ABQB 671

Court of Queen ’ s Bench of Alberta Citation: RBZ Capital Corp. v Petrol Alchemy, LLC., 2013 ABQB 671 Date: 20131114 Docket: 1301 09123 Registry: Calgary Between: RBZ Capital Corp. and Derivative Fuels Ltd. Plaintiffs - and - Petrol Alchemy, LLC., Michael Webb, OTG Research, LLC, Philip Allen Boe, Richard Hansen (a.k.a. Ric Hansen), and Jerry Cardwell Defendants _ ________________________________________ ______________ Reasons for Judgment of the Honourable Madam Justice K.M.

Eidsvik _________________________________________ ______________ [ 1 ] RBZ Capital Corp. (“RBZ”) and Derivative Fuels Ltd. (“DFL”) seek an interim injunction prohibiting the Defendants OTG Research, LLC (“OTG”) and Philip Allen Boe from granting the licensing, marketing and distribution rights to a new U.S. patented technology that converts used oil into diesel or jet fuel. [ 2 ] RBZ and DFL are Alberta companies. The Defendants are American.

OTG is registered in Colorado. [ 3 ] RBZ and OTG negotiated terms for DFL to acquire the exclusive licensing rights to the OTG proprietary process which were reduced to a Letter of Intent (“LOI”) dated November 9, 2012. The LOI was subject to satisfactory completion of due diligence and a

mutually Exclusive Licensing Agreement being prepared and executed. [4] Negotiations continued over the next few months and due diligence was attempted.

Ultimately by June 2013, negotiationsbroke down and OTG terminated further discussions. [5] The Plaintiffs started an action here in Alberta seeking an injunction, specific performance or damages of $20 million onJuly 30, 2013. [6] The Defendants started an action in Colorado on August 7, 2013 seeking a declaration that the LOI is not a binding contract. [7] On August 15, 2013, Justice Sullivan granted an ex parte service ex juris order and the Defendants were subsequently servedon August 18, 2013. [8] The matter came before Justice Tilleman on October 24, 2013 and he set out procedural steps for this action in Alberta.

Inparticular, that an application would be heard on November 7, 2013 for an interim injunction and on December 5, 2013 for ajurisdictional and forum non conveniens application and a stay of the Colorado action. The order was made on a without prejudice basisand without waiver or attornment to the jurisdiction of Alberta.

First Issue – Nature of this application [9] It was agreed by the parties that they wanted to have this interim application heard first before the jurisdiction issues eventhough the Defendants do not want to attorn to this jurisdiction and therefore are limited in terms of speaking to the merits of this matter. [10] As a result, the parties suggested that this application would be sort of a hybrid ex parte application in that the Defendantshave notice, but don’t want to attorn. Therefore the Plaintiffs have an obligation to disclose both favourable and non-favourable evidence.

Second Issue -- Jurisdiction [11] The Plaintiffs submit that the Court has presumptive jurisdiction in that Justice Sullivan has in effect ruled on this by issuingthe ex juris service order. [12] The Plaintiffs also state that in any event this Court would have jurisdiction to issue an interim order where there is ajusticiable right regardless of the forum in which the final relief will ultimately be granted. [13] Further, this Order would be temporary only and subject to further in-depth review December 5, 2013.

Decision on Issue 2 [14] I note that the LOI states: “This LOI will be governed by the laws of the State of Colorado ... and RBZ/DFL hereby subjectsitself to the jurisdiction and venue of the State of Colorado, County of Larimer.” [15] I understand that the Defendants will be arguing that this is an exclusive jurisdiction clause.

I will leave that argument foranother day. [16] With respect to this interim application, however, I find that this Court, in Alberta, has jurisdiction to hear it because: 1. the contract involves parties that are Albertan and the negotiations occurred both here and in Colorado, as far as I am aware, 2. Justice Sullivan has already recognized jurisdiction here, and 3. This is an interim order application only at this stage and there is a justiciable right to be determined.

Third Issue [17] The test for an interim injunction is set out in the Supreme Court of Canada decision of RJR-MacDonald Inc. v Canada(Attorney General), (SCC), [1994] 1 S.C.R. 311. This was agreed between the parties. [18] The test is threefold in that a court must find: 1. a serious issue to be tried, 2. irreparable harm to the applicant, and 3. that the balance of convenience favours the applicant. 1.

Serious Issue to be Tried [19] The threshold for this test is low: Edmonton Northlands v Edmonton Oilers Hockey Corp. (1993) (ABKB), 147 AR 113, para 58. [20] The Plaintiffs claim that the Defendants have acted in bad faith in their negotiations to finalize the Exclusive LicenseAgreement and that the parties are bound by the LOI in the interim. [21] The Plaintiffs submitted the 1159465 Alberta Ltd. v Adwood Manufacturing Ltd., 2010 ABQB 133 case in support of theirposition that parties can be bound temporarily by a preliminary agreement.

[ 22 ] Here, the Plaintiffs say, the essential terms respecting the price and the exclusivity to the Canadian market were agreed subject only to due diligence requirements. [ 23 ] The Defendants, on the other hand, submit in their Colorado action that their LOI is only an agreement to agree – and is now of no force or effect.

Decision on “Serious Issue” Test [ 24 ] This test is a low one in these interim interlocutory injunction cases because there is rarely a full picture of the case in front of the court at this stage. [ 25 ] This is particularly so in this case, where the Defendants have attended, but do not want to attorn to this court, so have not filed any sworn material. [ 26 ] Here, I agree that there is a serious issue to be tried – indeed in effect the Defendants agreed that this is so by issuing pleadings in Colorado to determine the effect of this LOI. [ 27 ] The issue of whether the Defendants are bound by this LOI or not – and whether the Canadian rights to this new technology are the Plaintiffs’ – are certainly serious ones to be determined. 2.

Irreparable Harm [ 28 ] The Plaintiffs and Defendants both submit that the test to determine whether there is irreparable harm is to determine the nature rather than the magnitude of the harm. [ 29 ] The Plaintiffs argue that the first person to market this unique technology will have an advantage that could not be able to be properly quantified, and as such, if they are shut out of this opportunity, it will be difficult to assess damages. [ 30 ] In addition, it may be very hard to collect damages if sustained in the circumstances since OTG has no other assets and could assign the Canadian rights to a party outside this jurisdiction. [ 31 ] The Defendants, on the other hand, state that this is a commercial matter and that commercial damages are generally always capable of quantification.

The dispute here at base is “money”, i.e. the alleged profits RBZ believes it may make with this technology. Further, there is no evidence that OTG would not be able to pay. [ 32 ] The Defendants also point out that it has been three months since this application was first brought, and there is no evidence that OTG has attempted to assign or licence the technology to anyone else. Indeed, it has sought a legal ruling in Colorado with respect to its obligations. Accordingly, there is no urgency to this interim application as there is no imminent damage.

Decision on Irreparable Harm Test [ 33 ] The evidence with respect to potential irreparable harm here is sketchy. Firstly, there is no evidence that the Defendants are intending or have made any efforts to licence this technology with anyone else in the Canadian market and I agree that the fact that they are seeking a legal ruling on this issue shows an element of good faith.

In any event, OTG may have great difficulty marketing to another with this lawsuit hanging over them – injunction or no injunction. [ 34 ] Further, there is no evidence of the potential profit losses that could not be recuperated here in damages. The courts often have to speculate about potential losses and damages and do so with the aid of experts in the field who can help with appropriate assessments.

I agree with the Defendants that commercial damages can usually be assessed in monetary terms and that the burden has not been met by the Plaintiffs here that such damages could not be so assessed. [ 35 ] Indeed, with respect to the undertaking for damages the Plaintiffs are prepared to give, they submitted that “any harm resulting from a temporary delay in taking the technology to market in Canada will be calculable based on a comparison of the development of the technology in other markets, for example.” (para 28 of the Plaintiffs’ brief) It seems to me that if one can calculate potential profit losses to the rights holder, one should equally be able to calculate the potential profit losses to the assignee of such rights. [ 36 ] Accordingly, the Plaintiffs have not met the test that irreparable harm would or may result to them if this interim injuction is not granted now. 3.

Balance of Convenience [ 37 ] The Plaintiffs argue that an interim injunction will preserve the status quo and prevent the Defendants from circumventing their contractual commitments. The harm that the Plaintiffs may suffer greatly outweighs a few months delay in being able to market in Canada. [ 38 ] The Defendants argue that an injunction is “bad press” basically. Decision on Balance of Convenience [ 39 ] Technically, I need not deal with this heading since the Plaintiffs have not met the second test of irreparable harm in my view.

Nonetheless, I also note that on p 3 of the LOI, that OTG agreed to a 180-day exclusivity period beginning on October 5, 2012 during which it agreed not to enter any discussions with anyone else. Setting aside the bad faith arguments that the Plaintiffs are making now, it is noted that there is no evidence that the Defendants have breached this provision. Further, it would have been open to the parties to

contract for a longer period in this regard but they did not. [ 40 ] As such, in my view, at this stage of the proceedings, the balance of convenience favours the Defendants. The status quo is presently being maintained between the parties even as per the terms of the agreement so far. [ 41 ] Accordingly, this application is dismissed with costs to the Defendants in the amount of $1,500. This Order is without prejudice to the ability of the Plaintiffs to re-apply for an interim injunction application should further and better evidence come to light. Heard on the 7 th day of November, 2013.

Dated at the City of Calgary, Alberta this 14 th day of November, 2013. K.M. Eidsvik J.C.Q.B.A. Appearances: Trevor McDonald for the Plaintiffs Kenneth P. Reh for the Defendants