Adyb Engineered for Life, Inc. v. Edan Admin. Servs. Ltd., 1:19-cv-7800-MKV

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Docket Number1:19-cv-7800-MKV
Decision Date29 March 2021




March 29, 2021


MARY KAY VYSKOCIL, United States District Judge:

Plaintiff ADYB Engineered For Life, Inc. ("ADYB") brings this action against Defendants Edan Administration Services (Ireland) Ltd. ("EDAN") and Pom Advanced Armor Solutions LLC ("PAAS") alleging breach of contract, conversion, and abuse of process. [ECF No. 45.] EDAN and PAAS answered and, together with nonparty Edwin Cohen ("E. Cohen"), EDAN's owner, asserted counterclaims against ADYB and its owner and CEO, Hananya Cohen ("H. Cohen"). [ECF No. 49.]

There are four motions before the Court. First, EDAN and PAAS have moved to join E. Cohen (as counterclaim plaintiff) and H. Cohen (as counterclaim defendant) as necessary or, alternatively, permissive parties pursuant to Federal Rules of Civil Procedure 13(h), 19, and 20. [ECF No. 93.] Second, H. Cohen has moved to dismiss the counterclaims against him, pursuant to Rules 12(b)(4) and 12(b)(5), for insufficient process and service of process. [ECF No. 91.] Third, ADYB has moved to dismiss the tort and declaratory relief counterclaims against it pursuant to Rule 12(b)(6). [ECF No. 65.] Fourth, EDAN and PAAS have moved for leave to file a second amended answer and counterclaim, pursuant to Rule 15(a)(2), to add a counterclaim for fraudulent conveyance against H. Cohen. [ECF No. 130.]

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For the reasons discussed below, (1) the motion to join H. Cohen and E. Cohen is GRANTED; (2) H. Cohen's motion to dismiss is DENIED without prejudice; (3) ADYB's motion to dismiss is GRANTED IN PART and DENIED IN PART; and (4) the motion for leave to amend is DENIED.


A. Factual Background1

Nearly a decade ago, ADYB entered into a contract (the "Investment Agreement") with EDAN (formerly known as NEWCO) and E. Cohen, as owner and a representative of EDAN, relating to the development of body-armor technology developed by H. Cohen, the owner and CEO of ADYB. [ECF No. 49 ¶¶ 15, 20, 26.] Under the Investment Agreement, E. Cohen committed to invest $250,000 in ADYB in exchange for a twenty-percent interest in the company. [Id. ¶ 21.]

The Investment Agreement provides for H. Cohen to transfer the rights to his armor-related patents to ADYB upon receipt of the first of two investment payments from E. Cohen. [Id. ¶ 22.] Upon receipt of the second payment, ADYB would license the patents to EDAN. [Id. ¶ 24.] The Investment Agreement gives EDAN the right to "produce and market the current and future technology of ADYB." [Id. ¶ 24.] The Investment Agreement provides that ADYB and H. Cohen shall "support the marketing and sales efforts" of EDAN. [Id. ¶ 28.] Under the terms of the Investment Agreement, EDAN is subject to benchmarks, or milestones, limiting its rights under

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its license if the technology was certified at certain performance levels by the National Institute for Justice ("NIJ"), an agency of the U.S. Department of Justice. [Id. ¶ 25.] Initial testing of the armor-related technology was promising, but did not satisfy the performance levels necessary to be certified by NIJ. [Id. ¶ 30.]

As a result of the promising test results, EDAN, ADYB, and H. Cohen executed two new agreements, or memoranda of understanding. [Id. ¶ 31.] Pursuant to the first ("MOU-1"), H. Cohen assigned the patents to EDAN for "strategic reasons" to assist EDAN in soliciting additional investments. [Id. ¶ 33.] Pursuant to the second ("MOU-2"), ADYB assigned ownership of its physical and intellectual property to EDAN. [Id. ¶ 37.]

Over the next two years, ADYB and EDAN worked together to develop the technology. [Id. ¶¶ 39, 43.] EDAN paid H. Cohen a monthly salary of $2,000 to $3,000 per month, despite the contracts not calling for such payments. [Id. ¶¶ 40, 50.]

During this time, EDAN began exploring a potential business relationship with PPG Industries, Inc. ("PPG"), which was interested in using the patented technology for armored vehicles. [Id. ¶¶ 46-47.] EDAN alleges that H. Cohen knew that an ownership dispute over the patents would ruin the potential business relationship between EDAN and PPG. [Id. ¶ 49.] He demanded that EDAN increase his monthly payments from $3,000 to $8,000. [Id. ¶¶ 49, 50.] Fearing that H. Cohen would destroy the potential deal with PPG, EDAN gave in to his demands. [Id. ¶50.]

EDAN, through its wholly owned subsidiary PAAS, entered into a two-year license agreement with PPG (the "PAAS-PPG License Agreement"), under which PAAS would earn royalties from PPG's sales of licensed products. [Id. ¶¶ 52-53 & n.5.] PPG was later awarded a contract from the United States Tank Automotive Research, Development and Engineering Center

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("TARDEC") to study and develop the licensed products. [Id. ¶ 55.] EDAN and PAAS projected that the TARDEC relationship could provide over $100 million in revenue by 2030. [Id. ¶ 57.]

As the PAAS-PPG relationship formed, E. Cohen and H. Cohen realized that the initial benchmarks in the Investment Agreement, though never triggered because the armor-related technology was not certified by NIJ, risked chilling prospective investors. [Id. ¶ 59.] H. Cohen represented to E. Cohen that he would agree to remove the benchmarks and cooperate with the PPG deal. [Id. ¶¶ 61-62.] Specifically, H. Cohen orally agreed in principle to enter into a new business relationship with no benchmark provision. [Id. ¶ 62.] But when sent a proposed written agreement to memorialize the arrangement, H. Cohen declined to sign it, responding that "[t]rust and good faith should be enough." [Id. ¶ 66.]

Thereafter, H. Cohen threatened to pull the plug on the parties' business arrangements if EDAN did not increase his monthly payments to $16,000. [Id. ¶ 67.] Afraid that he would act on his threats and given his representations that he would not interfere with the PAAS-PPG License Agreement, EDAN increased H. Cohen's monthly payments. [Id. ¶ 68.] Despite receiving the increased payments, H. Cohen refused to revise the original Investment Agreement. [Id. ¶ 69.]

Amid all of this, in September 2017, H. Cohen filed documents with the United States Patent and Trademark Office ("USPTO") claiming EDAN breached its agreements with him, he had revoked his assignments to EDAN under MOU-1, and ADYB was now the assignee of his patents. [Id. ¶ 71.] EDAN and PAAS did not learn of these filings with the USPTO until several months later. [Id.] In the interim, they transmitted several monthly payments to H. Cohen under the belief that the PPG deal would continue uninterrupted. [Id. ¶ 72.]

Approximately one year after filing the documents with the USPTO, H. Cohen wrote to PPG claiming that PAAS "no longer holds a marketing license for my patents" and requested confirmation that PPG was no longer marketing his patents. [Id. ¶ 77.] H. Cohen also sent

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numerous disparaging e-mails to PPG representatives, calling EDAN and PAAS liars, fraudsters, and like terms. [Id. ¶ 80.] H. Cohen continued to assert to PPG that EDAN breached the Investment Agreement. [Id. ¶ 78.] At one point, H. Cohen approached PPG to inquire whether it would be interested in a deal with ADYB to the exclusion of EDAN and PAAS. [Id. ¶ 82.]

B. Procedural Background

In May 2019, EDAN, PAAS, and E. Cohen sued ADYB and H. Cohen in the Southern District of New York invoking the Court's diversity jurisdiction and seeking a preliminary injunction to stop H. Cohen from further damaging the relationship with PPG. [ECF No. 95-3 ¶ 3.] Compl., Edan Admin. Servs. Ltd. v. Cohen, 1:19-cv-05051 (S.D.N.Y. May 30, 2019) (Caproni, J.), ECF No. 1; Mot. Prelim. Inj., Edan Admin. Servs., 1:19-cv-05051 (S.D.N.Y. May 31, 2019), ECF No. 4. At the preliminary injunction hearing, EDAN, PAAS, and E. Cohen voluntarily dismissed H. Cohen from the case without prejudice upon learning that his citizenship status—a U.S. citizen domiciled abroad and therefore a citizen of no state for diversity purposes—would destroy subject matter jurisdiction. [ECF No. 95-3 ¶ 5.] Order, Edan Admin. Servs., 1:19-cv-05051 (S.D.N.Y. July 10, 2019), ECF No. 32. Shortly after their motion for a preliminary injunction was denied, EDAN, PAAS, and E. Cohen voluntarily dismissed the action without prejudice. [ECF No. 95-3 ¶ 6.] Notice of Voluntary Dismissal, Edan Admin. Servs., 1:19-cv-05051 (S.D.N.Y. July 23, 2019), ECF No. 33.

EDAN, PAAS, and E. Cohen prepared to file a lawsuit against H. Cohen in Israel, but, in the interim, ADYB commenced this action against EDAN and PAAS in August 2019. [ECF No. 95-3 ¶¶ 6, 8-9.] ADYB asserted claims against EDAN and PAAS for breach of contract, conversion, and abuse of process. [ECF No. 1.] In November 2019, EDAN and PAAS answered and asserted several counterclaims against ADYB and H. Cohen, jointly and severally [see generally ECF No. 23], noting that they intended to move to add H. Cohen as a party pursuant to

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Federal Rule of Civil Procedure 13(h) [id. at 8 n.1]. In December 2019, the Court (Schofield, J.) entered a Case Management Plan and the parties began discovery. [ECF No. 36.]

Shortly thereafter, ADYB filed an amended complaint asserting the same three claims against EDAN and PAAS. [ECF No. 45.] EDAN and PAAS filed an amended answered and, together with E. Cohen, asserted counterclaims against ADYB and H. Cohen, jointly and severally, for breach of contract, several torts, and declaratory relief. [ECF No. 49 ¶¶ 86-125, 138-39.] In addition, E. Cohen independently asserted claims against ADYB and H. Cohen, jointly and severally, for breach of contract and unjust enrichment. [Id. ¶¶ 126-37.]

After ADYB answered the counterclaims, Judge Schofield ordered EDAN and PAAS to "file a proof of service of the amended counterclaims on Mr. H. Cohen" and to file a letter setting forth the legal grounds for joining H. Cohen as a counterclaim...

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