Blue Citi, LLC v. 5barz Int'l Inc.

338 F.Supp.3d 326

BLUE CITI, LLC, Plaintiff,

v.5BARZ INTERNATIONAL INC., Defendant.

16-CV-9027 (VEC)

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

Signed September 19, 2018

Jeffrey Fleischmann, Law Offices of Jeffrey Fleischmann, PC, New York, NY, for Plaintiff.

Mark R. Basile, The Basile Law Firm, Jericho, NY, Martin Alan Shell, The Shell Law Firm, PLLC, New York, NY, for Defendant.

OPINION & ORDER

VALERIE CAPRONI, United States District Judge:

Plaintiff Blue Citi LLC has sued Defendant 5Barz International, Inc. for specific performance, breach of contract, conversion, and attorneys' fees. See Compl., Dkt. 1. In an order dated August 28, 2017 (the "Prior Order"), the Court granted Plaintiff summary judgment on its claim for specific performance and awarded Plaintiff attorneys' fees. See Prior Order, Dkt. 54. The Prior Order also directed Plaintiff to move for summary judgment on its remaining claims or those claims would be dismissed. See id. at 14. Plaintiff now moves for summary judgment on its breach of contract claim, seeking monetary damages. See Pl.'s Notice of Mot., Dkt. 55; Pl.'s Mem. of Law, Dkt. 59 at 2. Plaintiff also seeks attorneys' fees and expenses incurred in connection with this motion. See Pl.'s Mem. of Law, Dkt. 59 at 2. Defendant cross-moves, pursuant to Federal Rules of Civil Procedure 60(b)(4) and 12(c), to vacate the Prior Order and for judgment on the pleadings. See Def.'s Notice of Mot., Dkt. 68.

For the following reasons, Defendant's cross-motions are DENIED, and Plaintiff's motion for summary judgment is GRANTED. The Court awards Plaintiff $180,204.36 in damages, $116,950.00 in prejudgment interest, and $5,837.12 in attorneys' fees and expenses. All claims for which Plaintiff did not move for summary judgment are DISMISSED.

BACKGROUND¹

I. The Note

The Court assumes familiarity with the facts of this case. See generally Prior Order.

In brief, in August 2015, Defendant sold Plaintiff a Convertible Redeemable Note (the "Note") with a principal face value of $110,000, a maturity date of August 2016, and an interest rate of 10 percent per annum. See id. at 1–2; Malin Decl., Ex. A ("Note"). Plaintiff purchased the note for $100,000 (a 10 percent discount). See Prior Order at 2; Malin Decl., Ex. B.

The Note contained a conversion option, pursuant to which Plaintiff could convert the Note's outstanding principal and interest into shares of Defendant's common stock. See Prior Order at 2; Note § 4(a). The Note set the conversion price at a 60 percent discount of the stock's lowest trading price during a 20-day "look back" period. See Note § 4(a). The Note required Defendant to deliver the converted shares to Plaintiff within three business days of Defendant's receipt of a Notice of Conversion and provided that Defendant's failure to do so would be an "Event of Default." See id. Upon the occurrence of an Event of Default, the Note would become immediately due and payable, and default interest would begin accruing at a rate of 24 percent per annum. See id. § 8.

Additionally, the Note required Defendant to place into a reserve four times the number of shares that would be required if the Note were fully converted. See id. § 12. Finally, the Note required Defendant to pay "all costs and expenses, including reasonable attorneys' fees and expenses, which [were] incurred by [Plaintiff] in collecting any amount due under the Note," id. § 7, in addition to attorneys' fees incurred in any "action or proceeding to enforce any provision of [the] Note," id. § 8.

II. Defendant's Breach of the Note

On December 30, 2015, Plaintiff sent a Notice of Conversion to Defendant, seeking to convert $83,600 of the Note's outstanding value into 1,857,777 shares of Defendant's common stock. See Prior Order at 2; Malin Decl. ¶ 4; Malin Decl. Ex. C; Def.'s 56.1 Stmt. ¶ 3. The Notice of Conversion set the conversion price at $0.045 per share, based on a 60 percent discount of the stock's lowest trading price during the "look back" period (specifically, its price of $0.0751 per share on December 4, 2015). See Malin Decl. Ex. C. Defendant failed to timely deliver the shares to Plaintiff.

See Prior Order at 2; Pl.'s 56.1 Stmt. ¶ 4.²

In March 2016, the parties entered into a Settlement Agreement. See Prior Order at 3. The Settlement Agreement required Defendant to pay Plaintiff $168,065 in eight monthly installments of $21,008. See id. at 3, 10. While it is not entirely clear how the parties arrived at the $168,065 figure, the amount appears to represent principal, interest, and default interest due under the Note, along with an additional 40 percent "spicer." See id. at 3 n.5. After entering into two addenda to the Settlement Agreement, Defendant paid Plaintiff one installment in cash and three installments in shares, for a total value of $84,033 (i.e. , approximately half of the amount due under the Settlement Agreement). See id. at 3–4, 10; Def.'s 56.1 Stmt. ¶ 6; Pl.'s Reply Mem. of Law at 15. Defendant has not paid the remaining amount due under the Settlement Agreement. See Prior Order at 10.

III. Procedural History

Plaintiff filed this action on November 21, 2016, and subsequently moved for summary judgment, seeking an order directing Defendant to deliver the shares requested in the Notice of Conversion. See Pl.'s Prior Notice of Mot., Dkt. 28; Prior Order at 1, 11. The Court granted Plaintiff's motion, holding that the Note was a valid contract and that Defendant had breached it by failing to deliver the requested shares. See Prior Order at 12 ("There is a valid contract in place, and Blue Citi performed its obligations thereunder."); id. at 2 ("There is no dispute between the parties that 5Barz breached the Note."); id. at 10 (same); id. at 11 (same). The Court also awarded Plaintiff $18,988.33 in attorneys' fees. See id. at 12–14. Defendant subsequently delivered the shares as ordered. See id. at 12–13; See Pl.'s 56.1 Stmt. ¶ 6; Def.'s 56.1 Stmt. ¶ 6.

The Prior Order also held that the Settlement Agreement was an executory accord to the Note, meaning that Defendant's obligations under the Note remain in force unless and until Defendant materially fulfills its obligations under the Settlement Agreement (and its addenda). See Prior Order at 5–9.

Plaintiff now moves for summary judgment on its breach of contract claim, seeking damages for the reduction in the value of Defendant's shares between the date on which Defendant was first required to deliver the shares (which Plaintiff alleges was December 30, 2015) and the date that Defendant finally delivered the shares as required by the Prior Order (September 1, 2017). See Pl.'s Mem. of Law at 2. Plaintiff also seeks reimbursement for attorneys' fees and expenses incurred in connection with this motion. See id.

Defendant cross-moves to vacate the Prior Order and for judgment on the pleadings, seeking to dismiss the Complaint in its entirety. See Def.'s Cross-Mot. Mem. of Law at 1, 24.

DISCUSSION

I. Defendant's Cross-Motion to Vacate and Cross-Motion for Judgment on the Pleadings Are Denied

A. Defendant's Cross-Motion to Vacate Is Denied

Rule 60(b)(4) allows a court to relieve a party from a final judgment if "the judgment is void." Fed. R. Civ. P. 60(b)(4). "[A] void judgment is one so affected by a fundamental infirmity that the infirmity may be raised even after the judgment becomes final." United Student Aid Funds, Inc. v. Espinosa , 559 U.S. 260, 270, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010). Relief under this rule is "extraordinary," Sanchez v. MTV Networks , 525 F. App'x 4, 6 (2d Cir. 2013), and is allowed "only in the rare instance where a judgment is premised either on a certain type of jurisdictional error or on a violation of due process that deprives a party of notice or the opportunity to be heard." Espinosa , 559 U.S. at 271, 130 S.Ct. 1367. If a judgment does not fall into one of these two categories, relief under Rule 60(b)(4) is not allowed. See id. ; Sanchez , 525 F. App'x at 6.

Defendant's primary argument is that the Note violates New York's laws against criminal usury. See Def.'s Cross-Mot. Mem. of Law at 1. In Defendant's view, criminally usurious financial instruments are "void ab initio " and unenforceable as a matter of law. See id. Defendant appears to argue that because the Prior Order directed Defendant to perform obligations under the Note, and because the Note is unenforceable as a matter of law, the Court's Prior Order must be vacated. See id.

Defendant's motion is procedurally improper. Defendant fails to articulate how the allegedly usurious nature of the Note deprived this Court of subject-matter jurisdiction or deprived Defendant of due process. Rather, Defendant's arguments go to the merits of the Prior Order. See, e.g. , Defs.' Reply Mem. of Law at 1 ("[V]acatur is proper because the Court acted inconsistent with the law ...."). But Rule 60(b)(4) is not a vehicle to reargue the merits of a prior judgment or otherwise to show that the judgment relied on erroneous principles of law. See Espinosa , 559 U.S. at 270, 130 S.Ct. 1367 ("A judgment is not void, for example, simply because it is or may have been erroneous."). Accordingly, Defendant's cross-motion to vacate is denied.

B. Defendant's Cross-Motion for Judgment on the Pleadings Is Denied

"Judgment on the pleadings is appropriate where material facts are undisputed and where a judgment on the merits is possible merely by considering the contents of the pleadings." Sellers v. M.C. Floor Crafters, Inc. , 842 F.2d 639, 642 (2d Cir. 1988). "When reviewing a Rule 12(c) motion for judgment on the pleadings, the Court applies the same standards as on a 12(b)(6) motion to dismiss. The Court must view the pleadings in the light most favorable to, and draw all reasonable inferences in favor of, the nonmoving party." Smith v. Wilson , No. 96-CV-5598, 1997 WL 786928, at *1 (S.D.N.Y. Dec. 23, 1997) (citation and internal quotation marks omitted).

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