POSCO Energy Co. v. FuelCell Energy, Inc.
| Decision Date | 16 September 2021 |
| Docket Number | 1:20-cv-7509-MKV |
| Citation | 560 F.Supp.3d 747 |
| Parties | POSCO ENERGY CO., formerly known as, POSCO Power, Plaintiff, v. FUELCELL ENERGY, INC., Defendant. |
| Court | U.S. District Court — Southern District of New York |
James Lee, Arnold & Porter Kaye Scholer LLP, Los Angeles, CA, Jonathan Evan Green, James D. Herschlein, Arnold & Porter Kaye Scholer LLP, New York, NY, for Plaintiff.
Kevin Brian Muhlendorf, Enbar Toledano, Gregory M. Williams, Wiley Rein LLP, Washington, DC, for Defendant.
Plaintiff POSCO Energy Co., Ltd. brings this action against Defendant FuelCell Energy Inc. to recover damages arising from FuelCell's alleged delay in removing restrictive legends on shares owned by POSCO, thereby preventing POSCO from selling its shares. (See generally Compl. [ECF No. 8].) FuelCell has moved to dismiss the Complaint, pursuant to Federal Rule of Civil Procedure 12(b)(6). (Mot. Dismiss [ECF No. 24].) For the reasons discussed below, the Court GRANTS FuelCell's motion and DISMISSES the Complaint with leave to amend.
Pursuant to three securities purchase agreements ("SPAs") executed in February 2007, June 2009, and April 2012, POSCO purchased a total of 30,786,418 restricted shares in FuelCell—which were later converted to 2,565,534 shares through a one-for-twelve reverse stock split. (Compl. ¶¶ 14–17, 28.)2 The SPAs contain New York choice-of-law provisions. (Id. ¶ 18.) Because the underlying securities were sold in reliance on an exemption from registration under the Securities Act of 1933, the stock certificates bear restrictive legends that limit the circumstances under which POSCO could transfer them. (Id. ¶¶ 19–20.) The SPAs contain representations, warranties, and covenants requiring FuelCell to facilitate the removal of the legends if POSCO desires to transfer its shares. (Id. ¶ 19.)
Section 3.8(b) of the SPAs provides that POSCO may request that FuelCell remove, and that FuelCell agrees to remove, "any legend from the Shares (i) following any sale of the Shares pursuant to an effective Registration Statement, or (ii) if such Shares are eligible for sale under Rule 144(k) or under any no-action letter issued by the SEC." .) Section 3.8(b) further provides:
Following the time a legend is no longer required for any Shares hereunder, [FuelCell] will, no later than five (5) Business Days following the delivery by [POSCO] to [FuelCell] or [FuelCell's] transfer agent of a legended certificate representing such Shares, accompanied by such additional information as [FuelCell] or [FuelCell's] transfer agent may reasonably request, deliver or cause to be delivered to [POSCO] a certificate representing such Shares that is free from all restrictive and other legends.
.) Section 4.8 of the SPAs provides that FuelCell "shall use its reasonable best efforts to obtain as promptly as practicable any consent or approval of any Person, including any regulatory authority, required in connection with the transactions contemplated hereby." .)
The SPAs also grant POSCO certain rights relating to its ownership of shares. (Id. ¶ 24.) Section 4.17 of the 2012 SPA entitles POSCO to appoint an individual to the board of directors of FuelCell, provided that POSCO owns a certain number of FuelCell shares and the nominee meets the criteria for nomination as a director set forth in FuelCell's charter.
On June 4, 2018, POSCO requested that FuelCell remove the restrictive legends on its shares. (Id. ¶ 38.) The next day, FuelCell advised POSCO that it forwarded the request to its outside counsel for review. (Id. ¶ 39.) POSCO followed up on June 11, 2018, requesting that FuelCell remove the restrictive legends and provide POSCO with any necessary procedures to complete the removal. (Id. ¶ 40.) POSCO followed up again on June 14, 2018. (Id. ¶ 41.)
FuelCell directed POSCO to provide, as a condition for removing the restrictive legends, written representation that it did not possess material nonpublic information because POSCO's board-appointment rights under the 2012 SPA could render it an affiliate of FuelCell. (Id. ¶¶ 43, 46, 48.) POSCO alleges that it provided FuelCell with all other documentation, including a Rule 144 opinion letter from counsel and the original share certificates. (Id. ¶ 45.) FuelCell, however, insisted that POSCO verify that it did not possess material nonpublic information. (Id. ¶ 46.) Amid this back and forth, FuelCell's stock price fell precipitously. (Id. ¶ 47.) On July 20, 2018, POSCO agreed to waive its board-appointment rights and confirmed that it was not an affiliate of FuelCell. (Id. ¶ 50.)
On August 17, 2018, POSCO sent FuelCell a draft waiver letter and "a representation letter." (Id. ¶ 51.) POSCO removed a representation that it was not in possession of material nonpublic information, to which FuelCell did not object. (Id. ) On August 22, 2018, POSCO executed the waiver letter. (Id. ¶ 52.)
On September 11, 2018, three months after POSCO requested removal of the restrictive legends, FuelCell's transfer agent notified POSCO that the stock could be transferred. (Id. ¶ 53.) Thereafter, POSCO sold 1,800,000 of its shares. (Id. ¶ 55.) In the three months that it took to remove the restrictive legends, FuelCell's stock price decreased by over forty-five percent. (Id. ¶ 56.) POSCO alleges that it realized a loss of $1,000,000 from its inability to sell its shares earlier due to FuelCell's delays in removing the legends. (Id. ¶ 57.)
POSCO commenced this action on September 14, 2020. The Complaint alleges four causes of action: (1) "breach of covenant" under New York law based on Section 4.8 of the SPAs, specifically FuelCell's failure to use its "reasonable best efforts" to remove the restrictive legends (id. ¶¶ 58–64); (2) violation of 6 Del. C. § 8-401 based on FuelCell's delay in removing the legends (id. ¶¶ 65–74); (3) violation of 8 Del. C. § 158 based on FuelCell's delay (id. ¶¶ 75–80); and (4) tortious interference with prospective business advantage (id. ¶¶ 81–88).
FuelCell has moved to dismiss the Complaint in its entirety under Rule 12(b)(6). (Mot. Dismiss [ECF No. 24].) In support of its motion, FuelCell filed a memorandum of law with several exhibits. (Def.’s Br. [ECF No. 25].) POSCO filed a memorandum of law in opposition (Pl.’s Opp. [ECF No. 26]), and FuelCell filed a reply (Def.’s Reply [ECF No. 27]).3
To survive a motion to dismiss under Federal Rule of Civil Procedure 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, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim is plausible on its face "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). While a sufficiently pleaded complaint "does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly , 550 U.S. at 555, 127 S.Ct. 1955 (internal quotation marks, alterations, and citations omitted); see also Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 ().
POSCO alleges a cause of action for "breach of covenant" under New York law. (Compl. ¶¶ 58–64.) Specifically, POSCO alleges that FuelCell "failed to use its ‘reasonable best efforts’ to obtain the consent or approval of removal of the restrictive legends" (id. ¶ 61), as required under Section 4.8 of the SPAs (id. ¶ 59).
Under New York law, "[n]o action for breach of contract lies where the party seeking to enforce the contract has failed to perform a specified condition precedent." Phoenix Signal & Elec. Corp. v. N.Y. State Thruway Auth. , 90 A.D.3d 1394, 1396–97, 935 N.Y.S.2d 201 (3d Dep't 2011) (alteration omitted) (quoting Carr v. Birnbaum , 75 A.D.3d 972, 973, 905 N.Y.S.2d 705 (3d Dep't 2010) ). "[A] condition precedent is ‘an act or event, other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises.’ " Bank of N.Y. Mellon Tr. Co., N.A. v. Morgan Stanley Mortg. Capital, Inc. , 821 F.3d 297, 305 (2d Cir. 2016) (quoting Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co. , 86 N.Y.2d 685, 690, 636 N.Y.S.2d 734, 660 N.E.2d 415 (1995) ). Although conditions precedent "are not readily assumed," "specific, talismanic words are not required." Id. New York courts have construed triggering events as conditions precedents despite a lack of express conditional language "when the trigger is necessary to a party's ability to perform the obligation at issue." Id. at 307 (collecting cases).
Federal Rule of Civil Procedure 9(c) provides, "In pleading conditions precedent, it suffices to allege generally that all conditions precedent have occurred or been performed." Fed. R. Civ. P. 9(c). Although the Supreme Court and the Second Circuit have not considered Rule 9(c) post- Iqbal , most district courts in this Circuit have found that the plausibility standard applies to Rule 9(c). See, e.g. , Comerica Leasing Corp. v. Bombardier Inc. , No. 16 Civ. 614 (PGG), 2019 WL 11027701, at *8 (S.D.N.Y. Sept. 30, 2019) ; O.F.I. Imports Inc. v. Gen. Elec. Capital Corp. , No. 15-CV-7231 (VEC), 2017 WL 3084901, at *5 (S.D.N.Y. July 20, 2017). A...
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