Auctus Fund, LLC v. Sunstock, Inc.

• Decision Date: 23 September 2019
• Docket Number: CIVIL ACTION NO. 18-12568-WGY
• Citation: 405 F.Supp.3d 218
• Parties: AUCTUS FUND, LLC and Ema Financial, LLC, Plaintiffs, v. SUNSTOCK, INC., Defendant.
• Court: U.S. District Court — District of Massachusetts

405 F.Supp.3d 218

AUCTUS FUND, LLC and Ema Financial, LLC, Plaintiffs,

v.SUNSTOCK, INC., Defendant.

CIVIL ACTION NO. 18-12568-WGY

United States District Court, D. Massachusetts.

Filed September 23, 2019

Philip M. Giordano, Reed & Giordano, P.A., Giordano & Company, P.C., Boston, MA, for Plaintiffs.

Sunstock, Inc., Sacramento, CA, pro se.

Aaron H. Hutchins, Hutchins Law, Northborough, MA, for Defendant.

MEMORANDUM AND ORDER

WILLIAM G. YOUNG, DISTRICT JUDGE

I. INTRODUCTION

The plaintiffs, Auctus Fund, LLC ("Auctus") and EMA Financial, LLC ("EMA"), seek damages for the defendant's, Sunstock, Inc. ("Sunstock"), breaches of four contracts. Pls. Auctus Fund, LLC's & EMA Financial LLC's Mot. Entry Final J. Against Def. Sunstock, Inc. ("Mot. Final J."), ECF No. 50. The Court previously entered summary judgment for Auctus and EMA on those breaches, Electronic Clerk's Notes ("Summ. J. Order"), ECF No. 38, so the Court now must determine the damages that Sunstock owes Auctus and EMA.

Although Auctus's contracts indicate that Nevada law governs them, the Court sets aside that choice because Nevada has nothing to do with these contracts. See Pl. Auctus Fund, LLC's Emergency Mot. Compel Conversion Debt Public Shares & Inj. & Equitable Relief Specific Performance Against Def. Sunstock, Inc. ("Auctus Mot."), Ex. B-2, Convertible Promissory Note ("First Auctus Note") § 4.6, ECF No. 10-4; Auctus Mot., Ex B-4, Convertible Promissory Note ("Second Auctus Note," and, collectively with the First Auctus Note, the "Auctus Notes") § 4.6, ECF No. 10-6. Instead, the Court applies California law to Auctus's contracts and determines that California's usury laws limit damages to the principal that Sunstock owes. See Hardwick v. Wilcox, 217 Cal. Rptr. 3d 883, 886 (Ct. App. 2017) (quoting Gibbo v. Berger, 123 Cal.App.4th 396, 19 Cal. Rptr. 3d 829, 834 (2004) ). Further, the Court offsets the remaining principal that Sunstock owes in the amount of the interest that Sunstock paid prior to defaulting. See id. (citing Westman v. Dye, 214 Cal. 28, 4 P.2d 134, 135-39 (1931) ).

In contrast, the Court enforces EMA's contracts' choice of New York law. See Pl. EMA Financial, LLC's Emergency Mot. Compel Conversion Debt Public Shares & Inj. & Equitable Relief Specific Performance Against Def. Sunstock, Inc. ("EMA Mot."), Ex. C-2, 10% Convertible Note ("First EMA Note") § 4.6, ECF No. 5-5; EMA Mot., Ex. C-4, 12% Convertible Note ("Second EMA Note" and, collectively with the First EMA Note, the "EMA Notes") § 4.6, ECF No. 5-5. The Court nonetheless concludes that New York law permits EMA to obtain only the unpaid principal plus interest at the contractual pre-judgment and statutory post-judgment rates. See Truck Rent-A-Ctr., Inc. v. Puritan Farms 2nd, Inc., 41 N.Y.2d 420, 393 N.Y.S.2d 365, 361 N.E.2d 1015, 1018 (1977). The Court rejects Auctus and EMA's request that it order Sunstock to convert the cash value of damages into Sunstock equity stock, see Mot. Final J., Ex. 1, Pls.' Auctus Fund, LLC's & EMA Financial, LLC's Proposed Final J. ("Proposed Final J.") 2-3, ECF No. 50-1, because it deems monetary damages "at least adequately compensatory," see Auctus Fund, LLC v. First Columbia Gold Corp., Civ. A. No. 17-10543-ADB, 2019 WL 1316736, at *3 (D. Mass. Mar. 21, 2019) (Burroughs, J.).

II. BACKGROUND

A. Procedural History

Auctus and EMA filed a complaint in this Court on December 13, 2018. Compl. Demand Jury Trial ("Compl."), ECF No. 1. The complaint alleges that Sunstock breached four contracts, two with Auctus and two with EMA. Id. ¶¶ 39-51, 58-65. Additionally, it asserts that Sunstock violated federal securities laws and other duties that it owed Auctus and EMA under state law. Id. ¶¶ 52-57, 66-91. Auctus and EMA moved for a preliminary injunction and writ of garnishment on December 18, 2018. EMA Mot.; Mem. Law Supp. Pl. EMA's Emergency Mot. Compel Conversion Debt Public Shares & Inj. & Equitable Relief Specific Performance, ECF No. 6; Pl. EMA's Emergency Mot., Alternative, Attach Assets Def. Sunstock, Inc., ECF No. 7; Mem. Law Supp. Pl. EMA's Emergency Mot., Alternative, Attach Assets Def. Sunstock, Inc., ECF No. 8; Auctus Mot.; Mem. Law Supp. Pl. Auctus' Emergency Mot. Compel Conversion Debt Public Shares & Inj. & Equitable Relief Specific Performance, ECF No. 11; Pl. Auctus' Emergency Mot., Alternative, Attach Assets Def. Sunstock, Inc., ECF No. 13; Mem. Law Supp. Pl. Auctus' Emergency Mot., Alternative, Attach Assets Def. Sunstock, Inc., ECF No. 14. These motions also requested the Court to compel Sunstock's transfer agent, a third party not before the Court, to convert damages into shares of Sunstock equity stock. Auctus Mot. 2; EMA Mot. 2.

At a December 20, 2018 hearing, the Court ordered the outstanding motions combined with trial on the merits pursuant to Federal Rule of Civil Procedure 65(a). Electronic Clerk's Notes, ECF No. 15. The Court further notified Auctus and EMA that it had concerns about whether it could enforce two of the contracts' choice of Nevada law because the contracts might be usurious.

On January 17, 2019, Sunstock having not yet answered the complaint, Auctus and EMA requested the Clerk to notice a default, ECF No. 17. Sunstock appeared two weeks later and answered the complaint. Answer, ECF No. 20; Def.'s Mot. Extend Time File Answer, ECF No. 21. After two more weeks passed, Sunstock filed oppositions to Auctus and EMA's motions. Def.'s Mot. Opp'n Both Pls.' Mots. Compel Conversion Debt Public Shares & Inj. & Equitable Relief Specific Performance Against Def. Sunstock, ECF No. 25; Def.'s Mem. Law Supp. Def.'s Opp'ns Both Pls.' Mots. Compel Conversion Debt Public Shares & Inj. & Equitable Relief Specific Performance Against Def. Sunstock & Opp'n Both Pls.' Original & Renewed Mots. Attach Assets Def. ("Opp'n"), ECF No. 27. Sunstock did not deny that it had defaulted on its debts to Auctus and EMA. See generally Opp'n. Sunstock objected, however, to Auctus and Sunstock's damages calculation and request for the Court to convert damages into Sunstock equity stock. Id.

The Court held a hearing on February 28, 2019, where it allowed Sunstock's late answer and notified the parties that it would treat Auctus and EMA's previously filed motions as summary judgment motions on the complaint's contract claims.

Electronic Clerk's Notes, ECF No. 33. Shortly after that hearing, Sunstock's counsel withdrew. Mot. Withdraw Counsel Def., ECF No. 35; Electronic Clerk's Notes, ECF No. 36. To date, replacement counsel has not appeared on Sunstock's behalf in this case. At a hearing on March 7, 2019, the Court entered judgment on the merits of the complaint's contract claims against Sunstock.¹ Summ. J. Order. Because Auctus and EMA had filed a brief on damages only on the morning of the hearing, see Pls.' Mot. File Suppl. Mem. Late & Exceed Page Limitations ("Pls.' Mot. File Late"), ECF No. 37; Pls.' Mot. File Late, Ex. 1, Pl. Auctus Fund, LLC's & EMA Financial, LLC's Suppl. Mem. Supp. Converted Mots. Summ. J. Contract & Implied Covenant Claims (Counts III & IV) Alone ("Damages Br."), ECF Nos. 37-1, the Court postponed a hearing on damages until March 20, 2019. Summ. J. Order.

On that day, Auctus and EMA filed a motion for leave to file a further brief on the law governing damages. Pls. Auctus Fund, LLC & EMA Financial, LLC's Mot. Leave File Further Suppl. Memorandum, ECF No. 39. At the hearing, the Court took the issue of damages under advisement and later issued an order on March 21, 2019, which allowed Auctus and EMA to file their brief. Electronic Clerk's Notes, ECF No. 42; Electronic Order, ECF No. 40; see also Pl. Auctus Fund, LLC's & EMA Financial, LLC's Request Leave File Instant Further Suppl. Mem. Supp. Their Converted Mots. Summ. J. Contract & Implied Covenant Claims (Counts III & IV) Alone, ECF No. 41.

While reviewing Auctus and EMA's submissions, on May 6, 2019, the Court ordered Auctus to clarify the basis for this Court's jurisdiction over Auctus's claims. Order Show Cause, ECF No. 43. Auctus responded on May 28, 2019, ECF No. 45, and the Court affirmed that it had jurisdiction on May 30, 2019, ECF No. 48.² Auctus and EMA filed a motion for entry of final judgment on June 27, 2019, in which they requested unpaid principal amounts on the loans with contractual and statutory interest and attorneys' fees. Mot. Final J. Auctus further asked the Court to award punitive damages under the Massachusetts Consumer Protection Act, Massachusetts General Laws chapter 93A ("Chapter 93A"), even though the Court had not granted judgment on the merits or entered a default on that count. Compare Summ. J. Order., with Mot. Final J. Ex. at 1.

B. Facts

The Court draws the facts from the uncontested exhibits and uncontroverted averments in affidavits submitted in Auctus and EMA's summary judgment motions. Auctus is a Boston-based limited liability company, organized under Delaware law. Auctus Mot., Ex. B-1, Securities Purchase Agreement ("First Auctus SPA") 1, ECF No. 10-3; id., Ex. B-3, Securities Purchase Agreement ("Second Auctus SPA") 1, ECF No. 10-5; Compl. ¶ 4. EMA maintains its headquarters in New York City, although it was formed in Delaware. EMA Mot., Ex. C-1, Securities Purchase Agreement ("First EMA SPA") 1, ECF No. 5-4; id., Ex. C-3, Securities Purchase Agreement ("Second EMA SPA") 1, ECF No. 5-6; Compl. ¶ 5. Sunstock incorporated in Delaware and maintains its principal place of business in Sacramento, California. See First Auctus SPA 1; Second Auctus SPA 1; First EMA SPA 1; Second EMA SPA 1; Compl. ¶ 6.

The complaint alleges that Sunstock led Auctus and EMA to believe that Sunstock had a strategy to invest in California convenience stores and commercial and residential real estate. Compl. ¶¶ 10-15. Auctus and EMA further relate that Sunstock announced that it intended to "plans to divest up to half of its cash proceeds in SILVER BULLION." Id. ¶¶ 10, 16-18.

Auctus and EMA say that they decided to invest in Sunstock based on these representations, which...