McRae v. Tautachrome, Inc.

          MEMORANDUM AND ORDER

          ERIC F. MELGREN, UNITED STATES DISTRICT JUDGE

         This action arises out of a failed business relationship between Plaintiff Eric L. McRae and Defendant Tautachrome, Inc. McRae asserts seven claims against Tautachrome. Count 1 asserts a claim for breach of contract for 35 million shares of company stock McCrae believes he is entitled to under the Engagement Agreement executed by the parties. McRae now moves for partial summary judgment on this claim. For the reasons discussed below, the Court denies McRae's Motion for Partial Summary Judgment (Doc. 55).

         I. Factual and Procedural Background^[1]

         Tautachrome is a Delaware corporation with its principal place of business in the state of Arizona. It is a publicly traded company in the business of digital image verification software. Tautachrome holds patents to its software, and it markets that software to companies who can benefit from having verifiable, original digital images that have not been modified or tampered.

         McRae is an investor and a resident of Kansas. He became a shareholder in Tautachrome in December 2015. Initially, McRae provided informal consulting to Tautachrome's executives, but in November 2016, Tautachrome appointed him “Business Operations Manager.” Tautachrome issued a press release on November 28, 2016, announcing this appointment and describing McRae's position as follows: “In addition to managing the day to day business activities of the Company, Mr. McRae will be responsible for the financial controls of the Company and will participate in Company strategic planning.”

         On January 13, 2017, Tautachrome's Board of Directors executed a Resolution by Unanimous Consent (the “Resolution”). That Resolution states in part:

         Now therefore it is resolved:

That the agreements with Eric L McRae, Luke Stewart Willie Tucker, and Billy D. Beam are hereby ratified and affirmed in all particulars, that the Company's CEO, Jon N. Leonard, is hereby empowered and directed to undertake all actions required under these agreements, and all such actions undertaken are hereby affirmed and ratified in advance, and that any other resolutions required by the Board in order to implement these actions are hereby deemed so resolved.

         That same day or sometime after, Tautachrome provided McRae an unsigned version of the agreement referenced in the Resolution. Titled “Eric McRae Engagement Agreement” and dated November 28, 2016, the Engagement Agreement provides that McRae “shall participate in Company strategic planning, and shall oversee day-to-day operations.” It also contains a “Compensation” provision, stating that McRae will be granted 35 million shares of Tautachrome common stock “upon execution of this Engagement Agreement.”

         McRae alleges, and Tautachrome disputes, that he delivered a signed copy of the Engagement Agreement to Tautachrome on February 2, 2017. As of that date, there were 4 billion authorized shares and 1, 677, 590, 057 shares of Tautachrome common stock. McRae continued providing services under the Engagement Agreement after February 2, primarily from Wichita, Kansas.

         From the end of February until June 10, McRae exchanged several emails with Tautachrome's Chief Executive Officer, Jon Leonard, concerning his “employment contract” and compensation. During that time period, Leonard never asked McRae about the status of the Engagement Agreement or indicated that he did not have a signed copy of the Engagement Agreement. On the morning of February 27, 2017, McRae sent an email to Leonard stating: “By Wednesday, I will get you my latest travel expenses, employment contract, and make sure my shares are up to date. I have been too busy to do it but I will get it done this week. My affairs should be in order as our future is uncertain.” Less than an hour later, McRae sent another email to Leonard stating, in part: “Beginning Wednesday, March 1, 2017, I will be taking an indefinite leave of absence. I will take this time to evaluate my future with the company. In the interim, If [sic] you wish to terminate my employment, then act. My employment contract has not yet been signed, so fire me today if you wish.”

         On May 26, McRae sent Leonard a lengthy email discussing his and his brother Charles' compensation. At the beginning of that email, McRae states: “In December of 2016 when we came out on business, I had asked you about giving us shares. You did that. I never did execute the paperwork.” Later in the email, McRae proposes that Tautachrome issue him, Charles, and a third employee, “Spartan Dawg, ” a total of 1.4 billion shares to compensate them for “strategy” and other services. Leonard did not accept McRae's 1.4 billion share offer.

         On June 1, McRae emailed Leonard asking for an update “on compensating Charles, myself, and Spartan Dawg with shares.” He later states, “I understand that a contract must be executed and one that is favorable to both parties.”

         On June 16, Tautachrome terminated McRae “effective immediately” and without prior notice. McRae subsequently provided Tautachrome a signed copy of the Engagement Agreement. Tautachrome did not execute the Engagement Agreement or return it to McRae. In addition, McRae never received any of the shares contemplated by the agreement.

         McRae filed this lawsuit on October 10, 2017. He filed a Third Amended Complaint on August 14, 2018, asserting seven claims: (1) breach of the Engagement Agreement, (2) breach of implied covenant of good faith and fair dealing, (3) promissory estoppel, (4) fraud, (5) fraud— promise of future events, (6) fraud through silence, and (7) breach of convertible ...