Maxim Group LLC v. Life Partners Holdings, Inc.

• Decision Date: 11 February 2010
• Docket Number: No. 07 Civ. 8099(LAP).,07 Civ. 8099(LAP).
• Citation: 690 F. Supp.2d 293
• Parties: MAXIM GROUP LLC, Plaintiff, v. LIFE PARTNERS HOLDINGS, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

690 F.Supp.2d 293

MAXIM GROUP LLC, Plaintiff, v. LIFE PARTNERS HOLDINGS, INC., Defendant.

No. 07 Civ. 8099(LAP).

United States District Court, S.D. New York.

February 11, 2010.

Richard Johnnie Babnick, Jr., Sichenzia Ross Friedman Ference, LLP, New York, NY, for Plaintiff.

Andrew James Frisch, LeClairryan, Norfolk, VA, Michael Terrance Conway, LeClairryan, New York, NY, for Defendant.

MEMORANDUM AND ORDER

LORETTA A. PRESKA, Chief Judge.

Plaintiff Maxim Group LLC ("Maxim"), an investment banking firm, brings this action alleging that Defendant Life Partners Holdings, Inc. ("LPHI") breached the parties' contract by failing to deliver 100,-000 shares of LPHI's common stock to Maxim pursuant to a stock warrant. LPHI filed counterclaims alleging that Maxim breached the agreement by failing to provide any of the services set forth in the agreement and that Maxim fraudulently induced LPHI to enter into the agreement. LPHI now moves for partial summary judgment confirming that if LPHI is found to have breached the agreement, then the breach occurred when the agreement was executed and any resulting damages should be calculated from that date. LPHI further moves to dismiss Maxim's claim for specific performance of the agreement. Maxim cross-moves for summary judgment on its claim for breach of contract and for dismissal of LPHI's counterclaims and affirmative defenses.

For the reasons set forth below, LPHI's motion for partial summary judgment dkt. no. 35 is granted in part and denied in part, and Maxim's cross-motion for summary judgment dkt. no. 40 is granted in part and denied in part.

I. BACKGROUND¹

A. The Agreement

On October 28, 2004, Maxim, an investment banking, securities, and investment firm, and LPHI, a publicly traded company that specializes in the purchase and resale of life insurance policies, entered into a letter agreement (the "Agreement") whereby Maxim was to provide various advisory and investment banking services in exchange for fees and stock warrants. (LPHI 56.1 ¶ 1; Maxim 56.1 ¶ 1; Peden Decl., Ex. A (the "Agreement").) Pursuant to the terms of the Agreement, Maxim was to provide:

General financial advisory and investment banking services ... and shall (i) familiarize itself, to the extent appropriate and feasible, with the business, operations, properties, financial condition, management and prospects of the Company; (ii) advise the Company on matters relating to its capitalization; (iii) evaluate alternative financing structures and arrangements; (iv) assist the Company in developing appropriate acquisition criteria and identifying target industries; (v) assist the Company in evaluating and make recommendations concerning the relationships among the Company's various lines of business and potential areas for business growth; (vi) provide such other financial advisory and investment banking services upon which the parties may mutually agree.

(Agreement § 1.) In consideration for Maxim's services, LPHI agreed to pay Maxim the following:

(i) a non-refundable cash fee of $25,000 payable upon execution of this Agreement ("Initial Advisory Fee") and (ii) The Company shall grant to Maxim a warrant ("Warrant") to purchase 100,-000 shares of the Company's common stock. The Warrant shall be exercisable at any time during the five-year period commencing on the date hereof at an exercise price of $7.00 per share. The Warrant shall provide for immediate registration at the optionee's expense as well as other provisions, including, without limitation, those pertaining to cashless exercise, antidilution protection and piggyback registration rights, contained in the Warrant certificates delivered to the Company together with this Agreement.

(Id. § 3(a).) The term of the Agreement was six months "after which time the Agreement would continue on a month to month basis during which either Maxim or LPHI may terminate the Agreement at any time upon 30 days' prior written notice to the other party." (Id. § 8.) Although no written notice was delivered by either Maxim or LPHI, the relationship appeared to end around April or May 2005. (Maxim 56.1 ¶ 38.)

LPHI alleges that prior to the execution of the Agreement, Andrew Scott ("Scott"), an investment banker with Maxim, induced LPHI to enter into the Agreement by representing that Maxim would arrange a debt facility of between $20 and $50 million which LPHI could use to purchase life insurance policies for ultimate resale on the national market. (LPHI 56.1 ¶ 3.) Maxim, on the other hand, contends that no such representations were made and that all of Maxim's services were listed in the Agreement. (Maxim 56.1 ¶ 3.) After the Agreement was executed, LPHI paid Maxim the $25,000 fee, but both parties agree that the Warrant was never delivered; Maxim believed it had the Warrant in-house, but when it tried to exercise its right to purchase stocks, it realized that the Warrant was not in its possession. (LPHI 56.1 ¶ 6; Maxim 56.1 ¶ 6.)

B. Maxim's Performance

According to LPHI, Maxim failed to perform any of the services set forth in the Agreement. (Peden Opp. Decl. ¶¶ 16-22.) To support these claims, LPHI points to the depositions of Scott, Armand Pastine ("Pastine"), and Christopher Fiore ("Fiore"). In his deposition, Scott testified that he familiarized himself with LPHI and spent time learning the life settlement industry. (Conway Opp. Decl., Ex. H at 128:3-16.) In January 2005, LPHI released its fourth quarter earnings which were below Maxim's analysts' expectations. (Id. at 128:17-24.) Due to the lower earnings, Scott "deemed it necessary that Maxim needed a quote/unquote cooling off period until we could revisit the institutions again." (Id. at 129:9-12.) By institutions, Scott was referring to the various financial groups that were potential investors in LPHI. After January 2005, Scott claimed that efforts were made to generate interest on the investment fund side, but nothing came to fruition. When asked whether he personally made calls to potential investors, Scott testified that he called Wasatch, and that Pastine and Fiore made other calls. (Id. at 131:4-22.) Finally, Scott testified that Pastine tried to contact other funds and that Fiore was responsible for setting up road show meetings and getting involved if a fund had been launched. (Id. at 231:5-25.)

In his deposition, Pastine testified that he participated in a meeting and provided input relating to the "viability of the securitization as an alternative strategy to acquire the assets and to sell them to investors...." (Conway Opp. Decl., Ex. I at 12: 18-13:9.) When asked whether he had any other input in the advisory agreement between Maxim and LPHI, Pastine answered that he did not. (Id. at 15:5-8.) Finally, Fiore testified that he had no knowledge of the transaction described in the Agreement between Maxim and LPHI. (Conway Opp. Decl., Ex. J at 20:22-25.)

C. LPHI's Refusal to Tender the Shares

On September 6, 2007, Maxim's General Counsel, Ed Rose ("Rose"), contacted Scott Peden ("Peden"), LPHI's Corporate Secretary and President and General Counsel of Life Partners, Inc., and informed Peden that Maxim wished to exercise the Warrant through a cashless exercise. (Maxim 56.1 ¶ 43.) At the time, both Rose and Scott believed Maxim possessed the Warrant, but when they discovered that the Warrant was not delivered by LPHI, Rose requested that LPHI deliver a new Warrant certificate. (Id.; Babnick Decl., Ex. 13.) Brian Pardo ("Pardo"), LPHI's President and Chairman of the Board, responded to Rose's request by informing Rose that if the Warrant was not delivered, the strike price was $7 per share. (Maxim 56.1 ¶ 44; Babnick Decl., Ex. 13.) On September 11, 2007, LPHI, through Pardo, refused to deliver the Warrant citing "inconsistencies in the Agreement and prior relationship." (Babnick Decl., Ex. 14.) In his deposition, Pardo identified the inconsistencies to be that Maxim "didn't earn the warrants." (Babnick Decl., Ex. 3 at 101:20-25.)

II. LPHI'S MOTION FOR PARTIAL SUMMARY JUDGMENT

A. Summary Judgment Standard

A moving party is entitled to summary judgment only "if the pleadings, depositions, answers to interrogatories, and the admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed.R.Civ.P 56(c)). A fact is material if it "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.; see also Overton v. N.Y. State Div. of Military and Naval Affairs, 373 F.3d 83, 89 (2d Cir.2004).

In assessing whether summary judgment is proper, the Court construes the evidence in the light most favorable to the non-moving party. Lucente v. IBM Corp., 310 F.3d 243, 253 (2d Cir.2002). Here, because each party is moving for summary judgment, the moving party bears the initial burden of providing the basis for the motion and of identifying the evidentiary materials, if any, supporting the moving party's position. See Grady v. Affiliated Cent., Inc., 130 F.3d 553, 559 (2d Cir.1997). The non-moving party must then "come forward with specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (quoting Fed. R.Civ.P. 56(e)). Mere speculation and conjecture will not suffice. See Niagara Mohawk Power Corp. v. Jones Chem. Inc., 315 F.3d 171, 175 (2d Cir.2003).

B. Date of Breach of the Agreement

LPHI's motion for partial summary judgment seeks an order fixing the date of LPHI's alleged breach of the Agreement as October 28, 2004the execution date of the Agreement...