Chardan Capital Markets, LLC v. Nw. Biotherapeutics, Inc., 17-cv-4727 (PKC)
| Decision Date | 06 August 2018 |
| Docket Number | 17-cv-4727 (PKC) |
| Parties | CHARDAN CAPITAL MARKETS, LLC, Plaintiff, v. NORTHWEST BIOTHERAPEUTICS, INC., Defendant. |
| Court | U.S. District Court — Southern District of New York |
Plaintiff Chardan Capital Markets, LLC ("Chardan") has brought this diversity suit, asserting claims for quantum meruit, unjust enrichment, and breach of contract against defendant Northwest Biotherapeutics, Inc. ("Northwest"). Northwest has moved to dismiss the Amended Complaint. (Doc. 33). For the following reasons, Northwest's motion will be granted.
Chardan provides specialized investment banking and brokerage services, services which include acting as a placement agent for entities seeking to sell specialized financial instruments to investors through private placements. (Amended Complaint ("AC") ¶ 5). In December 2016, Northwest and Chardan entered into an agreement, known as the "Placement Agency Agreement" and "the Agreement," for Chardan to act as Northwest's exclusive placement agent for a private offering of warrants and common stock. (AC ¶ 6; Doc. 26-1 at 2). For its services, Chardan was entitled to eight percent of the gross proceeds of the offering. (AC ¶ 8).
The Placement Agency Agreement contains a tail provision, which states as follows:
In the event the Offering is completed, during the six months following the termination of the Engagement Letter by and between [Northwest] and [Chardan], dated December 20, 2016, any person or entity listed on Schedule 1 to whom [Chardan] introduced [Northwest], or with whom there have been discussions or negotiations about an investment in [Northwest] during the term of [Chardan's] engagement on behalf of [Northwest], purchases securities from [Northwest], [Northwest] agrees to pay [Chardan] upon the closing of such transaction a cash fee in the amount that would otherwise have been payable to [Chardan] if such transaction occurred during the term of this Agreement.
(Doc. 26-1 at 21). Chardan successfully completed the private placement two days after entering into the Placement Agency Agreement. (AC ¶ 10).
Within a few months, Northwest entered into a contract to repurchase $11 million of convertible senior notes held by an investor. (AC ¶ 11). This repurchase agreement required Northwest to raise capital. (AC ¶ 12). On March 10, 2017, Northwest purportedly told Chardan that it "intended to use Chardan as its exclusive placement agent to again raise capital" through the private placement of common stock and pre-funded warrants amounting to 28.8 million shares of common stock, which was approximately 15.4% of Northwest's equity, in exchange "for the same customary 8% fee as in the Placement Agency Agreement." (AC ¶¶ 12, 13; Doc. 34-2 at 19; Doc. 34-3 at 6). Chardan allegedly "immediately went to work" and "swiftly obtained financing commitments from investors of $6.2 [million]" over the next two days, with no investor to acquire more than a five percent interest in Northwest. (AC ¶¶ 12, 13). During this time, Northwest purportedly "repeatedly assured Chardan that it would be the exclusive placement agent." (AC ¶ 13).
Chardan alleges that on March 12, 2017, Northwest informed Chardan that Northwest had contracted with another entity to serve as its exclusive placement agent for the March private placement. (AC ¶ 14). The new placement agent raised an unspecified amount of funds, with over $3 million of the raised funds allegedly received from investors on Schedule 1 of the Placement Agency Agreement. (AC ¶ 14). The new placement agent purportedly raised these funds by "utiliz[ing] the same pricing and terms that Chardan had developed" for the March private placement. (AC ¶ 14). Chardan believes that "some of the investors who partook in the deal with the other placement agent in March 2017 were also contemplated as investors in the aborted Chardan placement." (AC ¶ 14).
Approximately two weeks later, Chardan, in an email, demanded payment from Northwest for unspecified services. (AC ¶ 17; Doc. 34-5 at 3).1 Northwest replied that Chardan "will get paid every cent [it] [is] owed" but that Northwest could not "write a single check for [the owed] amount." (AC ¶ 17). After a single payment to Chardan of $50,000, Northwest did not make another payment. (AC ¶ 18).
Chardan brought this suit, asserting that Northwest unfairly benefitted from Chardan's services that it provided in good faith reliance on Northwest's assurances that Chardan would serve as Northwest's exclusive placement agent for the March private placement. (AC ¶¶ 19-28). Chardan contends that, as a result, it has viable quantum meruit and unjust enrichment claims. (AC ¶¶ 19-28). Chardan also maintains that Northwest breached the tailprovision of the Placement Agency Agreement by refusing to pay Chardan eight percent of the capital raised in the March private placement from the individuals on Schedule 1 of the Placement Agency Agreement. (AC ¶ 29-36). Northwest has moved under Rule 12(b)(6), Fed. R. Civ. P., to dismiss the Amended Complaint.
To survive a motion to dismiss under Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In assessing such a motion, the Court disregards legal conclusions, examines only the well-pleaded factual allegations, which the Court accepts as true, and draws all reasonable inferences in the plaintiff's favor. See id. at 678-79; Starr Int'l Co. v. Fed. Reserve Bank of N.Y., 742 F.3d 37, 40 (2d Cir. 2014). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Austin v. Town of Farmington, 826 F.3d 622, 630 (2d Cir. 2016) (quoting Iqbal, 556 U.S. at 678). "'[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct,' however, dismissal is appropriate." Starr v. Sony BMG Music Entm't, 592 F.3d 314, 321 (2d Cir. 2010) (quoting Iqbal, 556 U.S. at 679).
Northwest asserts that application of New York's Statute of Frauds warrants dismissal of Chardan's quantum meruit and unjust enrichment claims. Under New York's Statute of Frauds, certain agreements are unenforceable "unless [the agreement] or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or byhis lawful agent." N.Y. Gen Oblig. Law § 5-701(a). One such agreement subject to this requirement is "a contract," either "implied in fact or in law," "to pay compensation for services rendered in . . . negotiating the purchase, sale, [or] exchange . . . of a business opportunity, business, . . . or an interest therein, including a majority of the voting stock interest in a corporation and including the creating of a partnership interest." Id. § 5-701(a)(10). The New York Court of Appeals has made clear that section 5-701(a)(10) applies to claims for quantum meruit and unjust enrichment. Snyder v. Bronfman, 13 N.Y.3d 504, 508 (2009).
Chardan argues that section 5-701(a)(10) is inapplicable for several reasons, none of which is persuasive. First, it claims that section 5-701(a)(10) does not apply to the sale of an interest in a business comprising, as here, "less than a controlling interest, with no right to affect the policies of the business." (Doc. 40 at 13-14). But Chardan's view of section 5-701(a)(10) is inconsistent with the language of that provision, which requires a writing for "services rendered in . . . negotiating the . . . sale . . . [of] an interest"—not a controlling interest—in a "business." § 5-701(a)(10) (emphasis added).
It is also belied by the purpose of section 5-701(a)(10). Section 5-701(10) serves "to prevent intermediaries, whose services can be performed 'in the course of a few and even momentary conversations,' from making false or exaggerated claims regarding their fees or commissions." Seneca Ins. Co. v. Morelli, No. 95 Civ. 10701 (JSM), 1996 WL 312230, at *2 (S.D.N.Y. June 10, 1996) (quoting Freedman v. Chem. Const. Corp., 43 N.Y.2d 260, 267 (1977)). It "protect[s] principals from 'unfounded and multiple claims for commissions,'" Freedman, 43 N.Y.2d 260, 266 (1977) (quoting 1949 Report of N.Y. Law Rev. Comm., p. 615) and ensures that controversies over entitlement to a commission are not "resolved by juries on conflicting testimony, with the consequent danger of erroneous verdicts," IntercontinentalPlanning, Ltd. v. Daystrom, Inc., 24 N.Y.2d 372, 383 (1969) (quoting 1949 Report of N.Y. Law Rev. Comm., p. 615). These concerns, which are the underpinnings of section 5-701(a)(10), are present regardless of whether a controlling interest is at issue.
Other applications of section 5-701(a)(10) also suggest that it is irrelevant whether the sale of a controlling interest is the subject of the negotiation.2 For example, section 5-701(a)(10) applies to "a contract to pay compensation for services rendered in negotiating a loan." § 5-701(a)(10); see also Rosbach v. Indus. Trading Co., 81 F. Supp. 2d 522, 524 (S.D.N.Y. 2000) (); Belotz v. Jefferies & Co., No. 98 Civ. 2587 (LAP), 1999 WL 587916, at *3 (S.D.N.Y. Aug. 4, 1999), aff'd, 213 F.3d 625 (2d Cir. 2000) (). A loan, of course, is a form of financing that does not transfer any equity interest, much less a controlling one. Nevertheless, it is governed by section 5-701(a)(10), indicating that the extent of control transferred has little or no bearing on the purpose and applicability...
To continue reading
Request your trial