Bristol Inv. Fund, Inc. v. Carnegie Intern. Corp.
| Decision Date | 30 October 2003 |
| Docket Number | No. 02 Civ. 8891(SAS).,02 Civ. 8891(SAS). |
| Citation | 310 F.Supp.2d 556 |
| Parties | BRISTOL INVESTMENT FUND, INC., Plaintiff, v. CARNEGIE INTERNATIONAL CORP., Defendant. |
| Court | U.S. District Court — Southern District of New York |
Thomas J. Fleming, Olshan Grundman Frome Rosenzweig & Wolosky, LLP, New York City, for Plaintiff.
Robert Frey, William Murphy Jr. & Associates, P.A., Baltimore, MD, for Defendant.
Plaintiff Bristol Investment Fund Limited ("Bristol") filed this breach of contract action against Carnegie International Corporation ("Carnegie") on November 8, 2002. Bristol now moves for summary judgment.1 In support of its motion, Bristol submits that there are no disputed issues of material fact, that Carnegie failed to perform as required under the terms of the contract, and that accordingly, Bristol is entitled to judgment as a matter of law. In response, Carnegie argues that its performance under the contract was excused because the contract is impermissibly usurious and therefore void. In the alternative, Carnegie argues that there are material questions of fact with respect to whether (1) the contract is usurious; (2) Carnegie is in default; and (3) Carnegie used its "best efforts" to fulfill its obligations under the contract.
For the reasons set forth below, Bristol's motion is granted and judgment is entered against Carnegie.
Bristol is a company organized under the laws of the Cayman Islands, with its principal place of business in George Town, Grand Cayman, Cayman Islands. See Kessler Dec. ¶ 2. Carnegie is a corporation organized under the laws of the State of Colorado, with its principal place of business in Laurel, Maryland. Carnegie is registered with the Securities and Exchange Commission and is publicly traded under the symbol "CGYC.KP." See id. ¶ 3.
On December 28, 2001, Bristol and Carnegie entered into a Securities Purchase Agreement ("SPA"), Ex. A to Kessler Dec., pursuant to which Bristol received a Secured Convertible Debenture ("the Debenture"), in the principal amount of $250,000, that matured on December 28, 2002, see Ex. B to Kessler Dec. The Debenture required Carnegie to pay interest at a rate of 12% on the unpaid balance. See id. ¶ 1.
At the time the SPA was executed, Carnegie had 110,000,000 shares of common stock, 96,291,428 of which were issued and outstanding or reserved for issuance pursuant to Carnegie's stock option plans. See SPA § 3.C; Declaration of E. David Gable, Carnegie's Chairman, in Opposition to Plaintiff's Motion for Summary Judgment ("Gable Dec.") ¶ 19. Under the SPA, Carnegie was required, "subject to Shareholder Approval [as defined in the SPA]," to reserve 98,307,692 shares for issuance upon conversion of the Debenture. "Shareholder Approval" is defined in the "Covenants" of the SPA:
[Carnegie] shall file a preliminary proxy statement with the SEC no later that [sic] January 15, 2002 and shall hold an annual or special meeting of its stockholders no later than March 1, 2002 (or, if [Carnegie] receives comments from the SEC with respect to the preliminary proxy statement, no later than forty-five (45) days following the resolution of clearance of all SEC comments) and use its best efforts to obtain at such meeting such approvals of [Carnegie's] stockholders as may be required to issue all of the shares of Common Stock issuable upon conversion or exercise of, or otherwise with respect to, the Debentures, the Warrants and the Investment Options ... If [Carnegie] fails to file the preliminary proxy statement, hold an annual or special meeting of its stockholders or respond to comments received from the SEC within the time periods specified in this Section [ ], Carnegie shall pay to [Bristol] [liquidated damages as defined in section 2(f) of the SPA].
SPA § 4(m) (emphases added).
In connection with the Debenture and SPA, Bristol and Carnegie also entered into a Registration Rights Agreement.2 Under the RRA, Carnegie was obligated to file a registration statement with the Securities and Exchange Commission ("SEC") for the common stock underlying the Debenture within 30 days of the "Closing." See RRA § 2(a). The RRA defines the "Closing" as the "closing of the transactions contemplated by this Agreement." See id. ¶ 2(a) (citing SPA ¶ 1(c)). The "Closing" occurred on December 28, 2001. See Gable Dec. ¶ 8. The RRA further provides that Carnegie "shall use its best efforts to obtain effectiveness of the Registration Statement as soon as practicable." RRA ¶ 2(c). In the event that Carnegie fails to file the registration statement as required by the RRA, or the statement is not declared effective by the SEC within 90 days of the "Closing," the RRA requires Carnegie to pay damages to Bristol. See id.
Article III of the Debenture identifies ten separate "events of default," and states that,
If any of the following events of default shall occur ... then, upon the occurrence and during the continuation of any Event of Default ... at the option of the Holders of a majority of the aggregate principal amount of the outstanding Debentures issued pursuant to the Purchase Agreement exercisable through the delivery of written notice to the Borrower by such Holders (the "Default Notice") ... the Debentures shall become immediately due and payable and the Borrower shall pay to the Holder, in satisfaction of its obligations hereunder, [various damages].
Debenture Art. III (emphasis added). Included among the ten "events of default" is "Failure to Timely File Registration or Effect Registration." That provision states that a default occurs if,
The Borrower fails to file the Registration Statement within Forty-five (45) days following the Filing Date (as defined in the Registration Rights Agreement) or obtain effectiveness with the Securities and Exchange Commission of the Registration Statement within one hundred five (105) days following the Filing Date or such Registration Statement lapses in effect ... for more than thirty (30) consecutive days or forty-five days in any twelve month period after the Registration Statement becomes effective.
Debenture, ¶ 3.3. Pursuant to Article III of the Debenture, failure to pay principal or interest due on the Debenture also constitutes an event of default. See Debenture, ¶ 3.1.
Finally, the SPA contains an integration clause stating that the SPA, the RRA and the Debenture,
contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither [Carnegie] nor [Bristol] makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement.
Following execution of the SPA and the RRA and issuance of the Debenture, Carnegie did not file a preliminary proxy statement with the SEC and did not "hold an annual or special meeting of its stockholders," as required by section 4(m) of the SPA. Because the shareholder meeting was not held, Carnegie necessarily did not use its "best efforts" to obtain the shareholder approval needed to issue the 98,307,692 shares of stock underlying the Debenture, as required by section 4(m) of the SPA. Consequently, the shares were never issued. Moreover, because the shares were not issued, Carnegie could not file a registration statement for the shares with the SEC, see Gable Dec. ¶ 25, as required by section 2(a) of the RRA. Finally, because no registration statement was ever filed, Carnegie could not obtain an effective registration statement as required by section 2(c) of the RRA.
Summary judgment is permissible "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). "An issue of fact is genuine `if the evidence is such that a jury could return a verdict for the nonmoving party.' "Gayle v. Gonyea, 313 F.3d 677, 682 (2d Cir.2002) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). A fact is material if "it `might affect the outcome of the suit under the governing law.'" Id. (quoting Anderson, 477 U.S. at 248, 106 S.Ct. 2505).
The party seeking summary judgment has the burden of demonstrating that no genuine issue of material fact exists. See Marvel Characters, Inc. v. Simon, 310 F.3d 280, 286 (2d Cir.2002) (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970)). Once the moving party has met its burden, the nonmoving party must present "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). That is, the non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); see also Elec. Inspectors, Inc. v. Village of East Hills, 320 F.3d 110, 117 (2d Cir.2003). "The `mere existence of a scintilla of evidence' supporting the non-movant's case is also insufficient to defeat summary judgment." Niagara Mohawk Power Corp. v. Jones Chem., Inc., 315 F.3d 171, 175 (2d Cir.2003) (quoting Anderson, 477 U.S. at 252, 106 S.Ct. 2505). Moreover, "[s]tatements that are devoid of any specifics, but replete with conclusions, are insufficient to defeat a properly supported motion for summary judgment." Bickerstaff v. Vassar Coll., 196 F.3d 435, 452 (2d Cir.1999); see also Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir.1998) (...
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