Wettersten v. Fox

• Decision Date: 30 September 2019
• Docket Number: No. 15-cv-08516,15-cv-08516
• Parties: Caroline WETTERSTEN, Plaintiff, v. Joseph FOX, Defendant.
• Court: U.S. District Court — Northern District of Illinois

412 F.Supp.3d 921

Caroline WETTERSTEN, Plaintiff,

v.Joseph FOX, Defendant.

No. 15-cv-08516

United States District Court, N.D. Illinois, Eastern Division.

Signed September 30, 2019

Craig M. White, Baker & Hostetler LLP, Suzanne Marie Alton de Eraso, Benesch Friedlander Coplan & Aronoff, Chicago, IL, for Plaintiff.

Joseph Fox, Long Beach, CA, pro se.

MEMORANDUM OPINION AND ORDER

Andrea R. Wood, United States District Judge

Plaintiff Caroline Wettersten was an investor in the startup company Ditto Holdings, Inc. ("Ditto"). In November 2012, Wettersten made an investment with the company that contained a put option whereby Ditto, upon timely notice by Wettersten, was obligated to buy back up to 150,000 shares from Wettersten at $1.00 per share. In the event that Ditto failed to buy back the shares, its Chief Executive Officer ("CEO"), Defendant Joseph Fox, promised to buy back the shares himself. Despite twice attempting to exercise the put option, Wettersten has never received payment from either Ditto or Fox. As a result, Wettersten brought the present breach of contract action against Fox. The parties tried Wettersten's claim in a bench trial. Now, for the reasons that follow, the Court enters judgment for Wettersten.

TRIAL EVIDENCE

This Court held a three-day bench trial on Wettersten's breach of contract claim. Fox represented himself pro se during the proceedings. During the trial, the Court heard testimony from Wettersten, her son Charles "Charlie" Wettersten ("Charlie"), and Fox. The testimony and evidence presented at trial is summarized as follows.

I. Factual Overview

Fox served as Ditto's CEO from its incorporation in January 2009 until it went out of business in December 2015. Ditto ran a website known as Ditto Trade. Ditto Trade allowed its users to "attach" themselves to another user and mirror stock purchases made by that user at the same price. Near the end of 2011, Wettersten's son, Charlie, began working for Ditto. Part of Charlie's job was to solicit investments in the company.

Sometime in 2012, Wettersten was solicited by Charlie to invest in Ditto. Initially, she purchased 208,333 shares of Series A Preferred Stock. Along with Wettersten, Charlie also solicited investments from his father, his grandfather, and his brother. Furthermore, Wettersten loaned Ditto $125,000. In November 2012, Wettersten made an additional investment in Ditto whereby she purchased 120,000 shares for $60,000. The terms of the investment were set out in a letter signed by Fox in his capacity as Ditto's CEO ("November Investment"). (Pl.'s Ex. 1.) That letter read as follows:

Dear Caroline,

This is to confirm your agreement with Ditto Holdings, Inc. (the Company) in connection with your purchase of 120,000 shares of Ditto Holdings common stock at a purchase price of $.50 per share.

You will convert to shares of Ditto Holdings common stock the principal amount ($125,500) and accrued interest ($12,550) under the 10% convertible promissory note of the Company currently outstanding to you, resulting in an issuance to you of 330,001 shares of common stock.

In addition, your 208,333 shares of Series A Preferred Stock will be converted to 250,000 shares of common stock.

As a result of these transactions, your aggregate holdings in Ditto Holdings, Inc. will be 700,001 common shares—consisting of the 120,000 shares purchased currently, the 330,001 shares resulting from the note conversion, and 250,000 shares resulting from the conversion of the Preferred A stock.

Finally, in consideration of your investment, the Company promises, upon receipt of written notice of your election to such effect, given within ninety (90) days of the first anniversary of this letter, to buy back from you up to 150,000 common shares (as your notice of election indicates) at a purchase price of $1.00 per share. If for any reason the Company fails to repurchase your shares for $1.00 per share after having received a timely request to do so, then I will personally repurchase your shares for the $1.00 per share price (up to 150,000 shares).

(Id. ) In short, as part of her investment, Wettersten also agreed to convert the promissory note underlying her loan to the company into 330,001 shares of common stock, and her existing investment of 208,333 shares of Series A Preferred Stock was converted into 250,000 shares of common stock. Furthermore, the November Investment included a put option under which Ditto was obligated to repurchase up to 150,000 shares of common stock for $1.00 per share upon Wettersten's request if given within 90 days of the first anniversary of the agreement, November 6, 2013. Fox further bound himself to repurchase the shares at the same price per share if Ditto failed to honor that obligation. Wettersten executed the agreement by signing the letter.

On January 22, 2014, Wettersten gave Ditto notice of her intent to exercise the put option and requested that Ditto buy back 150,000 shares of her common stock for $150,000. Instead of buying back the stock as requested, Ditto negotiated an extension of the put option. In a letter dated February 4, 2014 sent to Wettersten, Ditto confirmed that Wettersten and the company had entered into an extension agreement whereby the put option would be exercisable on June 1, 2014, provided that Wettersten gave the company notice of her intent to do so between May 15 and May 31, 2014 ("February Letter"). (Pl.'s Ex. 2.) The February Letter also stated that "[a]ll other terms of your investment with the Company remain intact and in full force and effect." (Id. ) Fox signed the letter, and upon receipt Wettersten did too.

Wettersten again attempted to exercise the put option by sending Fox a letter dated May 15, 2014. (Pl.'s Ex. 3.) In the letter, Wettersten requested that Ditto purchase 150,000 shares for $150,000. She requested that the matter be "handled in an expediant [sic ] manner" and indicated that she hoped to receive payment by June 6, 2014. (Id. ) Yet, Wettersten did not receive her requested payment by that date, or at any time thereafter.

II. Wettersten's Case

A. Wettersten's Testimony

Wettersten began her case by testifying on her own behalf. With respect to the November Investment, Wettersten testified that she wrote no part of the agreement. In addition, she stated that the put option was essential to her decision to make the investment, as it gave her the assurance that she could recover at least a portion of her money if the investment did not pan out. After her first attempt at exercising the put option, Wettersten stated that she might have had one conversation with Ditto, but there was no real negotiation because she was agreeable to the extension. She stated that neither Fox nor Ditto suggested that her notice was too late or that the put option was no longer valid. Instead, Fox simply stated that Ditto needed a little more time and stated that Wettersten would receive an extension letter. Again, Wettersten stated that she had no role in drafting the February Letter. Wettersten reported that Fox never claimed that the February Letter absolved him of his obligation to repurchase the 150,000 shares if Ditto failed to do so. When Wettersten sought to exercise the put option a second time by sending the May 15 letter, she testified that she did not receive a check by her requested deadline of June 6, 2014. Nor did she receive any communication in response to her letter. At no point did she receive $150,000 for the 150,000 shares from either Ditto or Fox.

In late June 2014, Wettersten attempted several times to call Fox and left him voicemails inquiring as to the status of her payment for the 150,000 shares. While Wettersten had previously spoken directly with Fox on multiple occasions, she testified that after exercising the put option she had no direct interaction with Fox until almost a year later in July 2015. During that conversation, Wettersten asked Fox why she had not been paid pursuant to the put option. Fox replied that she had given up her put option in exchange for more shares in Ditto. Wettersten claimed that she was unaware of such an agreement. Instead, she testified that she sought to exercise the put option and sell back shares to Ditto because she had invested far too much and wanted to take money out of the company.

On cross-examination, Fox began by asking Wettersten if she had received emails from Fox in his capacity as CEO of Ditto, to which she responded in the affirmative. Further, Wettersten stated that she responded to some of those emails and agreed that she had Fox's correct e-mail address. Fox then asked Wettersten about an email Charlie sent to Fox in which Charlie lists Wettersten's various investments in the company. (Def.'s Ex. 34.) He asked if it was fair to say that Charlie was negotiating on Wettersten's behalf regarding her investments with Ditto, and Wettersten agreed that he was. Furthermore, Wettersten stated that she believed Charlie would communicate with Fox regarding her stock certificates. Fox then showed Wettersten an email Charlie sent to her in which he asked Wettersten to sign the November Investment, which he would then give to Ditto. (Dkt. No. 36.) Wettersten stated that she believed that Charlie did in fact bring the signed document to Fox.

Fox introduced into evidence a letter dated January 4, 2013 containing the terms of an investment that Wettersten's ex-husband and Charlie's father, Reid Wettersten ("Reid"), made with Ditto. (Def.'s Ex. 21.) Like Wettersten's November Investment, Reid's investment contained a put option under which Ditto promised "upon receipt of written notice of your election to such effect, given within thirty (30) days of the first anniversary of this letter, to buy back from you up to 150,000 common shares (as your notice of election indicates) at a purchase price of $1.00 per share." (Id. ) Unlike Wettersten's put option, Reid's option provided a shorter notice period and it did not come with Fox's agreement to purchase the...