In the United States Bankruptcy Court for the Northern District of Texas Fort Worth Division
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Case 20-41504-elm11 Doc 82 Filed 05/14/20 Entered 05/14/20 17:50:55 Page 1 of 15 Davor Rukavina, Esq. Texas Bar No. 24030781 Thomas D. Berghman, Esq. Texas Bar No. 24082683 MUNSCH HARDT KOPF & HARR, P.C. 500 N. Akard Street, Suite 3800 Dallas, Texas 75201-6659 Telephone: (214) 855-7500 Facsimile: (214) 855-7584 ATTORNEYS FOR REPEAT PRECISION, LLC IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS FORT WORTH DIVISION IN RE: § § Chapter 11 DIAMONDBACK INDUSTRIES, INC., § ET. AL., § Case NO. 20-41504-ELM-11 § DEBTORS. § Jointly Administered MOTION OF REPEAT PRECISION, LLC TO TERMINATE EXCLUSIVITY TO THE HONORABLE EDWARD L. MORRIS, U.S. BANKRUPTCY JUDGE: COMES NOW Repeat Precision, LLC (“Repeat Precision”), a creditor in the above styled and numbered bankruptcy case (the “Bankruptcy Case”) of Diamondback Industries, Inc. (the “Debtor”), and files this its Motion to Terminate Exclusivity (the “Motion”), respectfully stating as follows: I. RELIEF REQUESTED 1. The Debtor proposes to lose $5 million in six months on the backs of unsecured creditors, much of it in unnecessary and wasteful management wages, professional fees, and litigation expenses. Equity is hopelessly out of the money. The Debtor has orchestrated tens of millions of dollars in fraudulent transfers for the benefit of its insider, and is now using this Bankruptcy Case as a de facto automatic stay to protect that insider. None of this is in the best interests of any creditor. Repeat Precision therefore seeks termination of the Debtor’s exclusivity MOTION OF REPEAT PRECISION, LLC TO TERMINATE EXCLUSIVITY—Page 1 Case 20-41504-elm11 Doc 82 Filed 05/14/20 Entered 05/14/20 17:50:55 Page 2 of 15 in order that Repeat Precision may propose and fund a plan that will pay all legitimate creditors in full.1 Due to concerns regarding unauthorized solicitation, Repeat Precision will not outline its anticipated plan in this Motion, but will seek appropriate relief to present that plan to the Court and appropriate parties under seal in advance of the hearing on this Motion. II. PROCEDURAL BACKGROUND 2. The Debtor, together with its affiliated joint debtors in the Bankruptcy Case, filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) on April 21, 2020 (the “Petition Date”), thereby initiating the Bankruptcy Case and creating its bankruptcy estate (the “Estate”). 3. The Debtor is managing the Estate as a debtor-in-possession. No trustee or examiner has been appointed in the Bankruptcy Case. 4. The Court has jurisdiction over the Bankruptcy Case and this Motion under 28 U.S.C. § 1334. Venue of the Bankruptcy Case and this Motion is appropriate under 28 U.S.C. §§ 1408 and 1409. The Court’s jurisdiction is core under 28 U.S.C. § 157(b)(2). III. FACTUAL BACKGROUND A. THE DEBTOR AND DRURY 5. The Debtor, which is controlled by Derrek Drury,2 publicly proclaims its mission as follows: “[w]e will always conduct business in a Christ-like manner. Our main goal is to bring glory to His name.” See https://diamondbackindustries.com/. Sadly, that is not the case, as 1 For the avoidance of doubt, although Repeat Precision refers to “Debtor” in this Motion in the singular, Repeat Precision seeks to terminate exclusivity for each of the debtors in this Bankruptcy Case. Repeat Precision may not file a proposed plan for any Debtor other than Diamondback Industries, Inc., depending on what the other debtors’ schedules and statements look like once filed, as at present Repeat Precision has very little information regarding these other entities. But the goal is to pay all legitimate creditors in full. 2 See Findings of Fact and Conclusions of Law (redacted) attached as Exhibit “A” to the Objection of Repeat Precision LLC to Debtor’s Motion for the Usage of Cash Collateral, at docket no. 27-1, incorporated herein by reference (the “Findings”), at ¶ 9. MOTION OF REPEAT PRECISION, LLC TO TERMINATE EXCLUSIVITY—Page 2 Case 20-41504-elm11 Doc 82 Filed 05/14/20 Entered 05/14/20 17:50:55 Page 3 of 15 confirmed by Repeat Precision’s recent $40 million judgment against the Debtor issued by the United States District Court for the Western District of Texas (the “District Court”). In fact, the District Court went out of its way to comment on Mr. Drury’s credibility—ten pages of express findings on Mr. Drury’s lack of credibility—concluding that “Mr. Drury provided false and inaccurate testimony on many subjects at trial,” Findings at ¶ 23. The District Court further found that Mr. Drury “crippled his overall credibility as a witness.” Findings at ¶ 38. Indeed, the District Court found that “Mr. Drury appears not to have missed an opportunity to be untruthful.” See Findings at ¶ 176. B. REPEAT PRECISION’S JUDGMENT 6. The dispute initially arose from the Debtor’s patent respecting disposable setting tools used in the fracking business, on account of which the Debtor was issued a patent. Findings at ¶¶ 49-50. The Debtor maintained a 100% market share for the power charges that worked with these disposable setting tools. Findings at ¶ 53. In March, 2018, the Debtor executed a patent license agreement with Repeat Precision, granting to Repeat Precision the exclusive right, including to the exclusion of the Debtor, to use the patent when combining a disposable setting tool with a frac plug. Findings at ¶¶ 80-82. The parties entered into an amended patent license in May, 2018, in order to permit Repeat Precision also to sell standalone disposable setting tools, while retaining all of the exclusivity provisions contained in the first license. Findings at ¶¶ 90- 98. In reliance on its rights, Repeat Precision expended substantial sums to produce and sell the licensed products, only to have the Debtor engage in illegal and fraudulent anticompetitive actions and patent infringement designed to destroy Repeat Precision and its customers. 7. The Debtor illegally competed with Repeat Precision by trying to sell the same goods to Repeat Precision’s customers that were subject to the patent, and illegally attempted to take those customers, including through the use of “false and misleading accusations.” See MOTION OF REPEAT PRECISION, LLC TO TERMINATE EXCLUSIVITY—Page 3 Case 20-41504-elm11 Doc 82 Filed 05/14/20 Entered 05/14/20 17:50:55 Page 4 of 15 Findings at ¶ 140. Even though the Debtor gave Repeat Precision a license to its patent, indeed an exclusive license, the Debtor “falsely told” various industry players that Repeat Precision had “stole and misappropriated” the Debtor’s proprietary information. See Findings at ¶ 141. To others, the Debtor represented that Repeat Precision “had misappropriated Diamondback’s trade secrets, engaged in fraud, and did not have a valid license to make or sell disposable setting tools.” See Findings at ¶ 144. The Debtor made these statements “without having any basis to do so.” See Findings at ¶ 159. All the while, the Debtor was infringing the very patent that it had exclusively licensed to Repeat Precision, which infringement was “willful.” See Findings at ¶ 157. When Repeat Precision refused to amend the license from an exclusive license to a non-exclusive one, the Debtor sued to cancel the license. See Findings at ¶ 153. To add insult to injury, the Debtor also retaliated by cutting off from Repeat Precision’s customers the supply of power charges needed to use the disposable setting tools. See Findings at ¶ 158. Indeed, the Debtor admitted that it had boycotted Repeat Precision and its customers with the intent to shut down Repeat Precision. See Findings at ¶¶159-60. In the end, the District Court concluded that the Debtor’s acts were “intentional and malicious.” See Findings at ¶ 192. 8. On top of all that, the District Court found that the Debtor committed various wrongs before the court itself. The District Court found that the Debtor’s misappropriation claims against Repeat Precision were “not filed in good faith.” See Findings at ¶ 218. At trial, the Debtor dropped most of its claims—or was forced to by the District Court—“because [these claims] were wholly lacking in merit when originally filed.” See Findings at ¶ 215. The Debtor asserted fraud claims against Repeat Precision and its indirect individual control persons, which it took to trial and only dismissed to avoid a directed verdict, and which claims “were baseless and not made in good faith.” See Findings at ¶ 221. As explained, “The Court finds that Diamondback did not have a good faith factual or legal basis for asserting fraud claims against any of Defendants.” See MOTION OF REPEAT PRECISION, LLC TO TERMINATE EXCLUSIVITY—Page 4 Case 20-41504-elm11 Doc 82 Filed 05/14/20 Entered 05/14/20 17:50:55 Page 5 of 15 Findings at ¶ 228. The District Court found that the Debtor’s pre-litigation and post-litigation statements and tactics were so egregious and baseless that it concluded that the case was “exceptional” enough to award attorney’s fees. See Findings at p. 101, ¶ 86. 9. As a result, on April 16, 2020, the District Court issued its Corrected Amended Final Judgment (the “Judgment”). The District Court awarded actual damages of more than $17 million, enhanced damages for the Debtor’s willful infringement and malicious conduct of more than $11 million, and exemplary damages of more than $11 million. The District Court also declared that the license the Debtor granted to Repeat Precision was indeed an exclusive license, and that Repeat Precision held a right of first refusal. The District Court also awarded Repeat Precision (and other individual defendants) reasonable attorney’s fees and costs, which were to be liquidated post-judgment and remain unliquidated as of now, although they will likely extend into the millions of dollars.