Vis Vires Grp., Inc. v. Endonovo Therapeutics, Inc.

• Decision Date: 24 October 2016
• Docket Number: 16-cv-470 (ADS)(AYS)
• Parties: VIS VIRES GROUP, INC., Plaintiff, v. ENDONOVO THERAPEUTICS, INC. and ALAN COLLIER, Defendant.
• Court: U.S. District Court — Eastern District of New York

VIS VIRES GROUP, INC., Plaintiff, v. ENDONOVO THERAPEUTICS, INC. and ALAN COLLIER, Defendant.

16-cv-470 (ADS)(AYS)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

October 24, 2016

Memorandum of Decision & Order

APPEARANCES:

Naidich Wurman LLP

Attorneys for the Plaintiff

111 Great Neck Road, Suite 214

Great Neck, NY 11021

By: Richard S. Naidich, Esq.

Bernard S. Feldman, Esq.

Robert P. Johnson, Esq., Of Counsel

Ellsworth & Young LLP

Attorneys for the Defendants

1164 Manhattan Avenue, Suite 100

Brooklyn, NY 11222

By: Robert J. Young, Esq., Of Counsel

SPATT, District Judge:

Presently before the Court in this diversity breach of contract and tortious interference action is a motion by the Defendants Endonovo Therapeutics, Inc. ("Endonovo") and Alan Collier ("Collier," together with Endonovo, the "Defendants"), seeking an order pursuant to Federal Rule of Civil Procedure ("FED. R. CIV. P.") 12(b)(6) dismissing the amended complaint filed by the Plaintiff Vis Vires Group, Inc. (the "Plaintiff") on the ground that it fails to state a claim upon which relief may be granted.

For the reasons that follow, the motion to dismiss is granted in part and denied in part.

I. BACKGROUND

Unless otherwise noted, the following facts are drawn from the amended complaint and construed in favor of the Plaintiff.

A. The July 2015 Agreement

On July 9, 2015, Endonovo, a Delaware corporation with a principal place of business in California, entered into a contract, styled a Securities Purchase Agreement (the "July Loan Agreement") with the Plaintiff, a domestic corporation with a principal place of business in Great Neck.

Although the July Loan Agreement is not annexed to the amended complaint; and although, in general, extrinsic evidence may not be consulted in connection with a motion to dismiss under Rule 12(b)(6), in resolving this motion, the Court, in its discretion, will consider the July Agreement, which was previously submitted in connection with an earlier motion. See Jan. 28, 2016 Affidavit of Seth Kramer in Support of Motion for Provisional Remedies ("Kramer Aff."), DE [5-1], at Ex. "B".

In the Court's view, this document and the other documents forming the basis of the Plaintiff's claims, are plainly integral to, and incorporated by reference in the amended complaint. See Global Network Communs, Inc. v. City of New York, 458 F.3d 150, 157 (2d Cir. 2006) (observing that a common example of the material properly considered on a 12(b)(6) motion is "a contract or other legal document containing obligations upon which the plaintiff's complaint stands or falls").

Pursuant to the July Loan Agreement, the Plaintiff made a loan to Endonovo in the amount of $33,000. To ensure repayment of the loan, Endonovo executed a convertible promissory note (the "July Note"), with a maturity date of April 13, 2016, in an equal amount in favor of the Plaintiff. Again, although the July Note is not attached to the amended complaint, it is also contained in the Court record from a prior motion, and, for substantially the same reason as outlined above, will be considered here. See Kramer Aff., Ex. "A."

The Plaintiff alleges that the July Note "provided for certain issuance of, and conversion rights in and to common stock of [Endonovo]." Am. Compl. ¶ 17. In particular, by the terms of the July Note, the Plaintiff alleges that it was entitled to elect to convert the outstanding balance due on the loan into shares of Endonovo common stock (the "Debt-to-Equity Option").

In relevant part, the July Note provides, in part, the following:

[§] 1.1 Conversion Right. The [Plaintiff] shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note [January 5, 2016] and ending on the later of: (1) the Maturity Date [April 13, 2016] and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all of any part of the outstanding and unpaid principal amount of this Note into full paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of [Endonovo] . . .

* * *

[§] 1.4 Method of Conversion.

(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the [Plaintiff] in whole or in part at any time from time to time after the Issue Date, by (A) submitting to [Endonovo] a Notice of Conversion . . .

(d) Delivery of Common Stock Upon Conversion. Upon receipt by [Endonovo] from the [Plaintiff] of . . . a Notice of Conversion meeting the requirements for conversion . . . [Endonovo] shall issue and deliver or cause to be issued and delivered to or upon the order of the [Plaintiff] certificates of the Common Stock issuable upon such conversion within three (3) business days after such receipt . . .

(e) Obligation of Borrower to Deliver Common Stock. . . . If the [Plaintiff] shall have given a Notice of Conversion as provided herein, [Endonovo]'s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the [Plaintiff] to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of [Endonovo] to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach of alleged breach by the [Plaintiff] of any obligation to [Endonovo] in connection with such conversion.

Kramer Aff., Ex. "A," at pp. 5-6, 20.

Further, the terms of the July Note set forth various events constituting a default, including the following "Events of Default" referenced in the amended complaint:

ARTICLE III. EVENTS OF DEFAULT.

* * *

[§] 3.1 Failure to Pay Principal or Interest. [Endonovo] fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.

[§] 3.2 Conversion and the Shares. [Endonovo] fails to issue shares of Common Stock to the [Plaintiff] (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the [Plaintiff] of the conversion rights of the [Plaintiff] in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer . . . any certificate for shares of Common Stock issued to the [Plaintiff] upon conversion of or otherwise pursuant to this Note as and when required by this Note, [Endonovo] directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring . . . any certificate for shares of Common Stock to be issued to the [Plaintiff] upon conversion of or otherwise pursuant to this Note as and when required by this Note . . . and any such failure shall continue uncured . . . for three (3) business days after the [Plaintiff] shall have delivered the Notice of Conversion . . .

* * *

[§] 3.15 Replacement of Transfer Agent. In the event that [Endonovo] proposed to replace its transfer agent, [Endonovo] fails to provide, prior to the effect date of such replacement, a fully executed Irrevocable Transfer Agent [Letter] in a form as initially delivered pursuant to the [July Loan] Agreement . . . signed by the successor transfer agent to [Endonovo] . . .

Id. at pp. 14-16.

Article III goes on to state, in pertinent part, that the occurrence of any Event of Default set forth in §§ 3.1, 3.2 and/or 3.15 would result in, among other penalties, the Promissory Notes becoming immediately due and payable. See id. at p. 17.

B. The August 2015 Agreement

On August 10, 2015, Endonovo entered into a second contract with the Plaintiff, again styled a Securities Purchase Agreement (the "August Loan Agreement," together with the July Loan Agreement, the "Loan Agreements").

Pursuant to the August Loan Agreement, the Plaintiff made a second $33,000 loan to Endonovo, in exchange for which Endonovo executed a second convertible promissory note (the"August Note," together with the July Note, the "Promissory Notes") in an equal amount in favor of the Plaintiff.

Other than the maturity date of the August Note, which was not provided to the Court, it allegedly contained the same relevant language as the July Note regarding: (1) the Debt-to-Equity Option; and (2) the Plaintiff's entitlement to an Irrevocable Transfer Agent Letter.

C. The Allegations of Default

On January 21, 2016, the Plaintiff sought to partially exercise its Debt-to-Equity Option under the July Note by converting $15,000 of the remaining balance due under the July Loan Agreement to 95,663 shares of Endonovo common stock. In this regard, the Plaintiff allegedly executed and delivered to Endonovo a Notice of Conversion, in accordance with the terms of the July Note.

However, allegedly at the direction of its chief executive officer, namely, the individual Defendant Collier, Endonovo refused to effectuate the conversion. According to the Plaintiff, this failure constitutes an Event of Default under Article III of the July Note.

In this regard, the Plaintiff alleges that, in directing Endonovo to breach its obligations under the July Note, Collier was acting outside the scope of his role as a corporate officer and for his own personal benefit. Therefore, according to the Plaintiff, Collier's conduct constitutes tortious interference with the July Loan Agreement.

The Plaintiff further alleges that, on an unspecified date after the execution of the Promissory Notes, without providing the required notice to the Plaintiff, Endonovo replaced its stock transfer agent with a corporation called Clear Trust LLC, and then instructed Clear Trust LLC not to honor the Plaintiff's otherwise valid Notice of Conversion. According to the Plaintiff, each of...