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

• Decision Date: 01 March 2016
• Docket Number: 16–cv–470 (ADS)(AYS)
• Citation: 149 F.Supp.3d 376
• Parties: Vis Vires Group, Inc., Plaintiff, v. Endonovo Therapeutics, Inc. and Alan Collier, Defendants.
• Court: U.S. District Court — Eastern District of New York

149 F.Supp.3d 376

Vis Vires Group, Inc., Plaintiff,

v.Endonovo Therapeutics, Inc. and Alan Collier, Defendants.

16–cv–470 (ADS)(AYS)

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

Signed March 1, 2016

Naidich Wurman LLP, Attorneys for the Plaintiff, 111 Great Neck Road, Suite 214, Great Neck, NY 11021, By: Richard S. Naidich, Esq., Bernard Samuel Feldman, Esq., Robert P. Johnson, Esq., Of Counsel.

Lindenbaum & Young, P.C., Attorneys for the Defendants, 1164 Manhattan Avenue, Suite 100, Brooklyn, NY 11222, By: Robert J. Young, Esq., Of Counsel.

MEMORANDUM OF DECISION & ORDER

ARTHUR D. SPATT

, United States District Judge

This case arises from the refusal by the Defendants Endonovo Therapeutics, Inc. (“Endonovo”) and Alan Collier (“Collier” and collectively, the “Defendants”) to comply with a request by the Plaintiff Vis Vires Group, Inc. (the “Plaintiff”) to convert $15,000 of the $66,000 in principal remaining due under promissory notes issued by Endonovo to the Plaintiff into shares of Endonovo's common stock.

On January 29, 2016, the Plaintiff commenced this action by filing a complaint seeking monetary damages in the amount of $132,000 as well as equitable relief in the form of a preliminary and permanent injunction directing the Defendants and their agents to “immediately take all steps necessary and proper to permit conversion of debt to stock and to deliver the stock at issue.”

Also on January 29, 2016, the Plaintiff filed, by order to show cause, a request for a temporary restraining order (“TRO”) and preliminary injunction directing the Defendants to comply with the Plaintiff's notice of conversion.

On January 29, 2016, the Court denied the Plaintiff's motion for a TRO and requested oral argument and additional briefing regarding the Plaintiff's motion for a preliminary injunction.

On February 16, 2016, the Court heard oral argument on the Plaintiff's motion and granted the parties' requests for further briefing. The Plaintiff's motion for a preliminary injunction is now fully briefed.

For the reasons set forth below, the Court denies the Plaintiff's motion for a preliminary injunction

I. BACKGROUND

The Plaintiff is engaged in the “business of investing in small capitalization companies which are generally traded on the ‘over the counter market.’ ” (Kramer Aff. at ¶ 3.)

The Defendant Endonovo “develop[es] bioelectronics devices and therapies for regenerative medicine.” (Collier Aff. at ¶ 4.)

The Plaintiff made three loans to the Defendants: (i) on June 9, 2015, the Plaintiff made a loan to the Defendants in the principal amount of $38,000; (ii) on July 9, 2015, the Plaintiff made a loan to the Defendants in the principal amount of $33,000; and (iii) on August 10, 2015, the Plaintiff made a loan to the Defendants in the principal amount of $33,000. (See Kramer Aff. at ¶ 10; Collier Aff. at ¶ 8.)

In connection with each loan, the parties executed a securities agreement and Endonovo issued a promissory note to the Defendants. In support of its present motion, the Plaintiff attaches a copy of a July 9, 2015 Securities Purchase Agreement entered into by the parties (the “July 2015 SPA”) and a promissory note issued by the Defendants in favor of the Plaintiff, also dated July 9, 2015, which memorializes the terms of the second loan (the “July 2015 Note”). (See Kramer Aff., Exs. A, B.) The Plaintiff does not offer the loan documents memorializing the first and third loans. However, it states—and the Defendants do not appear to dispute—that the loan documents for the second and third loans are “identical” with the exception of the effective dates of the loans and the “maturity dates”—namely, when the full principal amounts of the loans are due. (See Kramer Aff. at ¶ 9.)

Under the terms of the July 2015 SPA, the Plaintiff agreed to pay Endonovo $33,000 in exchange for the issuance of a “8% convertible promissory note” on the part of Endonovo in the aggregate principal amount of $33,000, which was to be “convertible into shares of common stock, $0.0001 par value per share, of [Endonovo], upon the terms and subject to the limitations and conditions set forth in such Note.” (Kramer Aff., Ex. B, at Art. 1, at pp. 1, 20.)

In compliance with the terms of the SPA, Endonovo issued the July 2015 Note under which it promised to pay the Plaintiff the principal amount of $33,000, plus interest at a rate of 8% per year, by April 13, 2016, the maturity date of the Note. (See Kramer Aff., Ex. A, at p. 1.)

Of importance, Article 1.1 of the July 2015 Note states:

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 (180) days following the date of this Note and ending on the later of: (i) the Maturity date 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 or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock exists on the Issue Date, or any shares of capital stock or other securities of [Endonovo] ... determined as provided herein (a ‘Conversion’); provided, however, that in no event shall the [Plaintiff] be entitled to convert ... the number of shares of Common Stock ... [which] would result in beneficial ownership by the [Plaintiff] and its affiliates of more than 9.99% of the outstanding shares of Common Stock.

(Id. at Art. 1.1, at p. 2.)

Further, Article 1.2 sets forth a formula for calculating the conversion price of the Common Stock which gives the Plaintiff a 42% discount on the present “Market Price” of the stock, defined as “the average of the lowest three (3) Trading Prices for the Common Stock” during the 15 trading days prior to the date of the Conversion. (Id. at Art. 1.2(a), at p. 3.)

Under Article 1.4 of the July 2015 Note, once the Plaintiff provides Endonovo with a proper Notice of Conversion, Endonovo must “issue” or “cause to be issued” the appropriate amount of Common Stock to the Plaintiff within three business days after receiving the Notice of Conversion. (Id. at Art. 1.4(d), at pp. 5–6.) In this respect, “[Endonovo's] obligation to issue and deliver the certificates of Common Stock shall be absolute and unconditional[.]” (Id. at Art. 1.4(e), at p. 6.)

In the event that Endonovo fails to issue the Common Stock to the Plaintiff within the three-day deadline, the Note provides that Endonovo must pay the Plaintiff “$2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock ..., [which] shall be added to the principal amount of this Note, in which even interest shall accrue thereon in accordance with the terms of this Note.” (Id. at Art. 1.4(e), at pp. 6–7.)

Further, Article III sets forth certain “events of default” under the Note, which include, (i) the failure by Endonovo to “issue shares of Common Stock to the [Plaintiff] ... upon exercise by the [Plaintiff] of [its] conversion rights”; (ii) the failure by Endonovo to “transfer or cause its transfer agent to transfer (issue) ... any certificate of shares of Common Stock issued to the [Plaintiff] upon conversion of ... this Note”; and (iii) efforts by Endonovo to “direct[ ] its transfer agent not to transfer. .... any certificate for shares of Common Stock to be issued to the [Plaintiff] upon conversion ... of this Note.” (Id. at Art. 3.2, p. 14–15.) Upon the occurrence of a default of the above-provisions, “the Note shall become immediately due and payable and the borrower shall pay to the holder, in full satisfaction of its obligations hereunder, an amount equal to ... the default sum ... multiplied by 2.” (Id. at Art. 3.16, at p. 17.)

Article III also specifies that Endonovo “defaults” under the Note if “[i]n the event that [Endonovo] proposes to replace its transfer agent, [Endonovo] fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Instructions [sic].” (Id. at Art 3.15, at p. 16.) If Endonovo defaults under this provision, the Note also “becomes immediately due and payable,” and Endonovo must also make additional payments to the Plaintiff, including the “greater of ... 150% times the sum of ... the then outstanding principal amount of this Note plus ... accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment ... or ... the higher number of shares of Common Stock issuable upon conversion of to such Default Sum in accordance with Article I ... multiplied by ... the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default[.]” (Id. at Art. 3.16, at p. 17) (emphasis in original).

Finally, under Article 4.10 of the Note, Endonovo “acknlowedg[ed] that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees ... that the [Plaintiff] will be entitled ... to an injunction or injunctions restraining, preventing or curing any breach of this Note[.]” (Id. at Art. 4.10, at p. 21.)

On an unspecified date, the Defendants paid back the $38,000 in principal and interest due to the Plaintiff under the June 9, 2015 loan. (See Kramer Aff. at ¶ 11.)

On January 21, 2016, Judah Eisner, Esq. (“Eisner”), an attorney representing the Plaintiff, sent an email to Endonovo attaching a Notice of Conversion in connection with the July 2015 Note. (See Kramer Aff., Ex. G.) The Notice stated that the Plaintiff “hereby elects” to convert $15,000 of the $33,000 due under the July 2015 Note into 95,663 shares of common stock at the conversion price of $.1568 per share. (Id.) Following the conversion, $18,000 in principal would be left remaining due under the July 2015 Note. (Id. )

On January 25, 2016, the Defendant Collier sent an email to Seth Kramer, the Vice President of the Plaintiff (“Kramer”), in which he stated:

This conversion create a usurious

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