Petron Scientech Inc v. Ronald Zapletal
701 F. App'x 138
3rd Cir.2017Background
- Petron Scientech, Inc. (Petron) and its founder Yogendra Sarin developed a green plastic-making technology and entered business dealings with Ronald Zapletal and Aluchem that began with a 2007 Letter of Intent and a $100,000 down payment/promissory note. The acquisition never closed.
- In May 2009 the parties formed Green Biochemicals, LLC (50/50) to pursue projects (notably with Dow and later Coca‑Cola); Zapletal agreed to arrange $2.5 million in funding and Green Biochemicals would pay Petron $1 million from initial funds and retire the $100,000 note.
- Funding from government loans/grants never materialized; the Dow and Coca‑Cola projects failed and Green Biochemicals never arranged the promised financing.
- In 2011 Zapletal demanded repayment of the promissory note; Sarin and Petron responded asserting entitlement to the $1 million payment and Sarin’s unpaid salary. Petron and Sarin sued Zapletal and Aluchem for contract and tort claims; defendants counterclaimed for the $100,000 note and sought attorney fees for frivolous claims.
- After a five‑day bench trial, the District Court found no party entitled to damages or fees. Plaintiffs and defendants both appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Zapletal’s optimistic statements constituted breach of the implied covenant of good faith and fair dealing | Sarin: Zapletal’s promises about securing funding (puffery) breached the covenant and merit damages | Zapletal: Statements were mere puffery, not actionable; no bad faith | Court: Puffery does not show bad motive or deprive party of contract benefits; no breach of covenant |
| Available remedies for Green Biochemicals’ failure to secure funding (termination vs. expectation damages) | Sarin/Petron: Should receive expectation damages (salary, $1M) despite termination clause | Zapletal/Aluchem: Contract’s termination clause limits remedy; parties agreed to cancellation and freedom to proceed with third parties | Court: Contract specified remedy—if funding not secured Petron free to cancel; no further damages; Sarin’s salary contingent on funding, so none owed |
| Whether the 2007 promissory note remained enforceable after the Green Biochemicals contract | Defendants: Note still owed $100,000; not extinguished | Plaintiffs: Note was subsumed by/terminated along with Green Biochemicals agreement | Court: No clear error in finding the note subsumed into the contract; termination extinguished repayment obligation |
| Whether plaintiffs’ claims were frivolous so as to warrant attorney fees | Defendants: Plaintiffs’ claims were frivolous/insubstantial and fee award required | Plaintiffs: Claims had arguable basis; no sanction warranted | Court: Denial of fees was not an abuse of discretion; arguments not sufficiently frivolous |
Key Cases Cited
- Wilson v. Amerada Hess Corp., 773 A.2d 1121 (N.J. 2001) (implied covenant of good faith and fair dealing in New Jersey contracts)
- Sons of Thunder, 690 A.2d 575 (N.J. 1997) (definition of breach of implied covenant as injuring other party’s right to contract’s fruits)
- Furst v. Einstein Moomjy, Inc., 860 A.2d 435 (N.J. 2004) (expectation damages and measure of loss under New Jersey law)
- Donovan v. Bachstadt, 453 A.2d 160 (N.J. 1982) (expectations and damages analysis)
- McNeil Nutritionals, LLC v. Heartland Sweeteners, LLC, 511 F.3d 350 (3d Cir. 2007) (clear‑error standard for reviewing bench‑trial factual findings)
- Conway v. 287 Corp. Ctr. Assocs., 901 A.2d 341 (N.J. 2006) (contracts interpreted by parties’ intent reflected in language)
- Mylan Inc. v. SmithKline Beecham Corp., 723 F.3d 413 (3d Cir. 2013) (use of extrinsic evidence in contract interpretation under New Jersey law)