EVIP Can., Inc. v. Schnader Harrison Segal & Lewis LLP, 18-cv-11456 (LJL)
| Decision Date | 15 March 2021 |
| Docket Number | 18-cv-11456 (LJL) |
| Parties | EVIP CANADA, INC. and TERRACAP VENTURES, INC., Plaintiffs, v. SCHNADER HARRISON SEGAL & LEWIS LLP and JOEL HANDEL, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Defendants Schnader Harrison Segal & Lewis LLP ("Schnader Harrison") and Joel Handel ("Handel," and together, "Defendants") move for summary judgment, pursuant to Fed. R. Civ. P. 56, on claims brought against them by Plaintiffs EVIP Canada, Inc. ("EVIP") and Terracap Ventures, Inc. ("Terracap" or "Terracap Ventures," and together, "Plaintiffs"). Dkt. No. 40.
For the following reasons, the motion for summary judgment is granted.
This case arises out of Defendants' legal representation of Plaintiffs in connection with the execution of a joint venture agreement. Plaintiffs claim that Defendants should have negotiated for minority rights in connection with the anti-dilution protection of their Series D Preferred Stock or informed them of their failure to obtain such rights, but failed to do so. Plaintiffs bring legal malpractice claims against Schnader Harrison and Handel and a breach of contract claim against Schnader Harrison based allegations that Defendants breached their obligations in connection with their representation of Plaintiffs in the negotiation of the joint venture agreement.
The following facts are undisputed unless otherwise noted.
Plaintiff Terracap is a Canadian corporation in the business of technology-based venture capital investment. Dkt. No. 41 ¶ 1. Larry Krauss ("Krauss") is the president and controlling shareholder of Terracap. Id. ¶ 4. In or around July 2013, Krauss learned of the opportunity to purchase out of an Israeli bankruptcy proceeding the intellectual property and related assets of Better Place, Ltd. (the "Better Place Assets"), a company that produced technology for networking electric vehicles and their battery charging and/or switching stations. Id. ¶ 5. Because Terracap lacked expertise regarding electric vehicles, Terracap sought a joint venture partner to monetize the Better Place Assets. Id. ¶ 6.
In or around July 2013, Terracap began discussions with Brammo, Inc. ("Brammo"), a producer of electric vehicles and related technology, about the possibility of entering into a joint venture to monetize the Better Place Assets (the "Joint Venture"). Id. ¶ 7. Around the same time, EVIP was formed as an affiliate of Terracap and special purpose vehicle whose sole purpose was to make an investment in Brammo as part of the Joint Venture and to hold the ownership interests in the Joint Venture. Id. ¶ 3; Dkt. No. 66 at 2. EVIP is a Canadian corporation almost entirely owned by Krauss and/or his family (approximately 95%) with the remaining percentage owned by investors. Dkt. No. 41 ¶ 4; Dkt. No. 66 at 2. Krauss is EVIP's president. Dkt. No. 41 ¶ 4.
On or about October 29, 2013, Terracap and Brammo executed a non-binding memorandum of understanding ("October 2013 MOU"). Id. ¶ 9; see Dkt. No. 43-6. It stated that it was "non-binding and intended to be replaced by a Definitive Agreement" at which time "it is expected and agreed that this MOU will be of no further force or effect upon execution of the Definitive Agreement." Dkt. No. 43-6.
The October 2013 MOU provided that Terracap would acquire the Better Place Assets through a newly formed entity (that would eventually be EVIP), and that EVIP and Brammo then would create the Joint Venture with the purpose of developing and integrating the Better Place Assets with Brammo's expertise. Brammo and EVIP would each own 50% of the Joint Venture. Id. ¶ E. As a condition for Brammo consummating the Joint Venture, Terracap would agree to invest at least $5 million in Series C Preferred Stock of Brammo (or find investors for those shares) at a pre-money valuation of $250 million "(or, in the event that a subsequent closing of series C preferred shares occurs after this date of this MOU at a lower value and/or on more favourable terms, the purchase price and/or terms as the case may be will be [sic] revised accordingly.)." Id. ¶ F(a). The October 2013 MOU also contemplated that EVIP would receive from Brammo 3,906,250 common shares of Brammo in partial consideration for its contribution of the Better Place Assets to the Joint Venture. Id. ¶ G.
On November 6, 2013, Terracap closed its acquisition of $1 million of Series C Preferred Stock of Brammo, leaving $4 million remaining on the commitment under the October 2013 MOU. Dkt. No. 41 ¶ 11.
Six days later, on November 12, 2013, Terracap acquired the Better Place Assets for a net purchase price of $1,864,282. Id. ¶ 12; Dkt. No. 65 ¶ 22.
On December 2, 2013, Terracap and Brammo executed a second non-binding memorandum of understanding ("December 2013 MOU"). Dkt. No. 41 ¶ 13; Dkt. No. 43-9. It also stated that it was non-binding and intended to be replaced by a final agreement. Dkt. No. 43-9.
Similar to the October 2013 MOU, the December 2013 MOU provided that EVIP and Brammo would create the Joint Venture with the proposed ownership split of 50% and 50%, but added that the ownership split would be "subject to ESOP and dilution." Id. ¶ E. It still required Terracap to invest at least $5 million in the current round of financing in Series C Preferred Stock, but now at a reduced pre-money valuation of $215 million, reflecting the lower valuation of the business. It further added, "Terms will include full ratchet anti-dilution protection for the remainder of the C round, and weighted average protection thereafter." Id. ¶ F. It also noted that "$1 million of this investment has already occurred by way of an equity investment and will be adjusted to the revised share price." Id. Finally, it noted that in consideration for its 50% of the Joint Venture, Brammo would pay 4,545,455 common shares of Brammo to EVIP, but "in the event that a subsequent closing of series C preferred shares occurs after this date of this MOU at a lower value, the number of shares paid [to EVIP] will be adjusted accordingly" and "[a]fter closing of the C round the shares will received weighted average anti-dilution." Id. ¶ G(b).
On February 14, 2014, EVIP and a Brammo affiliate, Brammo EV Network Inc. ("Brammo EV"), formed the joint venture entity B-Con Technologies Ltd. (the joint venture entity, "B-Con") and executed a shareholders' agreement with it (the "Joint Venture Agreement"), which set forth the terms concerning the management and operation of the Joint Venture and the investment by EVIP in Brammo. Dkt. No. 41 ¶ 14; see Dkt. No. 43-2. DonMcDougall ("McDougall"), the former vice president of investments and asset management at Terracap, signed the agreement "on behalf of" Krauss as president of EVIP.
The Joint Venture Agreement contemplated that Brammo would issue no fewer than 26 million shares of a new Series D Preferred Stock and that EVIP would have only a minority position in that class of security. The Joint Venture Agreement required EVIP to purchase 6 million shares of a new Series D Preferred Stock of Brammo (instead of the Series C Preferred Stock provided for in the December 2013 MOU) for an aggregate value of $4.5 million, to be paid with $3.5 million in cash and the remainder in the form of the $1 million in redeemed Series C Preferred Stock. EVIP was relieved from any further obligation to purchase Series C Preferred Stock. However, the Joint Venture Agreement also provided that other purchasers would purchase no fewer than 6,666,667 shares of the Series D Preferred Stock for $5 million. The Joint Venture Agreement reflected that, by the next month, Brammo would make available for sale no less than an additional 13,333,3332 shares of Series D Preferred Stock to purchasers acceptable to Brammo in its sole discretion. Section 2.1 provided:
Issuance of Brammo Series D Preferred Stock. . . . Concurrently with the execution and delivery of this Agreement; (x) Brammo is redeeming the Brammo Series C Preferred Stock previously purchased by Terracap Ventures Inc. for a price of $1,000,000, which shall be paid as a credit against the purchase price of the Brammo Series D Preferred Stock purchased pursuant to clause (y) below and which Terracap Ventures Inc. hereby agrees is in full payment therefor, (y) the Terracap Shareholder1 (or its Affiliate) is purchasing from Brammo 6,000,000 shares of Brammo Series D Preferred Stock for a total purchase price of $4,500,000, and is entering into the Brammo Shareholder Agreements, and (z) other purchasers are purchasing from Brammo not less than 6,666,667 shares of Brammo Series D Preferred Stock for a total purchase price of not less than $5,000,000. In addition, on or prior to March 14, 2014, Brammo shall make available for sale no less than 13,333,333 shares of Brammo Series D Preferred Stock, at a price no greater than $0.75 per share, to purchasers acceptable to Brammo in its sole discretion, including without limitation purchasers that are Affiliates of the Terracap Shareholder,subject to such purchasers entering into the Brammo Shareholder Agreements if not previously a party thereto. The transactions contemplated by Section 2.1 shall survive and continue in effect as separate transactions after any termination of this Agreement under Section 8.1 or otherwise.
The Joint Venture Agreement also provided that, concurrent with its execution and subject to an escrow agreement with Brammo, Brammo EV, and an escrow agent, EVIP would receive 10 million shares of Brammo common stock to be held in escrow. Id. at 1. Half of those shares would be delivered in escrow at the closing of the Joint Venture Agreement and half would be delivered in escrow upon and in consideration for the transfer of the Better Place Assets, no later than 120 days after execution of the Joint Venture...
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