Exch. Listing, LLC v. Inspira Tech.

661 F.Supp.3d 134

EXCHANGE LISTING, LLC, Plaintiff, v. INSPIRA TECHNOLOGIES, LTD. a/k/a Inspira Technologies Oxy B.H.N. Ltd. and Joe Hayon, Defendants.

22 Civ. 1889 (KPF)

United States District Court, S.D. New York

Signed March 8, 2023

Christopher Philip Milazzo, Carmel, Milazzo & DiChiara LLP, New York, NY, for Plaintiff.

Gerald D. Silver, Sullivan & Worcester LLP, New York, NY, for Defendants.

OPINION AND ORDER

KATHERINE POLK FAILLA, District Judge:

Achieving an initial public offering of securities for a private company is often a cause for celebration. Not getting paid for the work undertaken to accomplish the offering, by contrast, is often a cause for litigation. Exchange Listing, LLC ("Plaintiff") alleges that it entered into a written contract with Inspira Technologies, Ltd. ("Inspira"), whereby Plaintiff was to provide a variety of advisory services to Inspira to help accomplish Inspira's initial public offering. Plaintiff alleges that Inspira breached this agreement and deprived Plaintiff of the benefit of its bargain, and then breached a subsequent oral agreement pertaining to the same offering. Inspira and one of its officers, Joe Hayon ("Hayon," and together with Inspira, "Defendants"), now move to dismiss Plaintiff's Complaint. For the reasons that follow, the Court grants in part and denies in part Defendants' motion.

BACKGROUND ¹

A. Factual Background

1. The Capital Market Advisory Agreement

Plaintiff is a limited liability company with two members — one, a citizen of Florida, and the other, a citizen of New Jersey. (Compl. ¶ 9). Plaintiff provides a variety of advisory services to "pre-IPO emerging growth companies"² seeking to be listed on prominent stock exchanges, like the New York Stock Exchange. (Id. ¶ 14). Inspira is an Israeli corporation presently listed on the Nasdaq Capital Markets exchange (the "NASDAQ"). (Id. ¶ 10). Hayon is Inspira's Chief Financial Officer, President, Director, and Co-founder. (Id. ¶ 11).

Defendants sought Plaintiff's services in connection with their desire to complete an IPO for Inspira and to have the company listed on a national exchange. (Compl. ¶¶ 15-16). The parties' discussions on this point culminated in the written Capital Market Advisory Agreement (the "CMAA"), which the parties entered into on September 30, 2020, and through which Plaintiff was to provide advisory services to Inspira with an eye toward Inspira's IPO. (Id. ¶ 17).

The CMAA includes a detailed "scope of work." (Compl. ¶ 19; CMAA § 1.C.). As relevant here, Plaintiff was to introduce Inspira to investment bankers who could underwrite the IPO (the "Introduced Bankers"); introduce Inspira to other service providers, including legal counsel, to assist with the IPO; and assist Inspira with other pre-IPO tasks, including preparing Inspira's registration statement and managing the NASDAQ listing application process. (Compl. ¶ 19; CMAA § 1.C.). The term of the CMAA began with its execution, and was to run for a period of no less than six months or until Inspira was trading on the NASDAQ, unless the CMAA was terminated in accordance with its terms. (Compl. ¶ 18; CMAA § 2).

The CMAA provided two methods for termination. First, Inspira could terminate by providing written notice within thirty days of its deadline to complete "Safe Financing." (CMAA § 9). "Safe Financing" refers to the event of Inspira closing at least $1,500,000 in financing, which was to be completed within forty-five days of the CMAA's execution. (Id. § 4 & Schedule A). Thus, together with the thirty-day period for providing written notice, Inspira could terminate the CMAA within seventy-five days of its execution. Second, Inspira could terminate the CMAA for cause based on Plaintiff's material breach, Plaintiff's gross negligence or willful misconduct, or any "material acts" that could inhibit Plaintiff from performing under the CMAA. (Id. § 9).

The CMAA also defines what compensation would be due to Plaintiff under various scenarios. For instance, upon execution of the CMAA, Inspira was to issue 150,000 warrants to Plaintiff exercisable at a price per share either set forth in the Safe Financing, or, in the event that Inspira did not complete Safe Financing, at a price of $4 per share. (CMAA § 4). Inspira was to include the "share underlying the [w]arrants" in its registration statement with the SEC. (Id.). The CMAA also spells out additional compensation Plaintiff could earn contingent on the occurrence of certain events. If Inspira were to complete the Safe Financing or if Inspira were to retain any of the Introduced Bankers and complete the IPO within twelve months, Inspira would owe Plaintiff: (i) $5,000 per month beginning with retention of an Introduced Banker, with payments commencing upon completion of the Safe Financing; (ii) a $25,000 bonus upon completion of the Safe Financing; (iii) $50,000 upon completion of the IPO; (iv) shares of Inspira's common stock in line with a fee schedule included in the CMAA upon completion of the IPO; and (v) reimbursement for certain costs and expenses. (Id.).

Finally, the CMAA includes certain additional terms that may be relevant to the instant motion. A merger clause within the CMAA notes that it supersedes any prior agreements between the parties, whether oral or written, and that the CMAA "may be changed or amended only by an amendment in writing signed by all of the [p]arties[.]" (CMAA § 11.C.). The CMAA also clarifies that it "embodies the entire understanding among the parties" and that the parties would not be bound by any representations or conditions unless they were expressly stated in the CMAA or set forth in a writing signed by all the parties. (Id. § 11.J.). It also notes that it "may only be changed, modified, or amended in writing by the mutual consent of the parties[.]" (Id. § 11.K.).

Plaintiff claims that it "fully performed its obligations" as specified by the CMAA's scope of work. (Compl. ¶ 20; id. ¶ 26 ("By April 1, 2021, [Plaintiff] had performed substantially all of its obligations under the [CMAA.]")). In particular, Plaintiff avers that it "provided extensive advisory services" to Inspira and that it also introduced several bankers to Inspira who were capable of underwriting the IPO. (Id. ¶¶ 21-22). One such banker was The Benchmark Company, LLC ("Benchmark"), which Inspira retained at one point to be the lead underwriter for the IPO. (Id. ¶¶ 24-25).

2. The Alleged Breach of the CMAA

Despite Plaintiff's performance, the parties ran into issues on April 1, 2021. In particular, Hayon notified Plaintiff and its members via email that Inspira had terminated Benchmark as lead underwriter due to Benchmark's "unacceptable conduct." (Compl. ¶¶ 27-28). Hayon stated that this conduct "resulted in the cancellation of Inspira's pricing and listing . . . on the NASDAQ," and that Inspira would now be forced to find an alternate underwriter. (Id., Ex. 2). Hayon laid the blame for this development at Plaintiff's feet and suggested that Plaintiff should have known of Benchmark's track record. (Id.). Hayon concluded the email by noting that the IPO was now at risk, and that unless Plaintiff agreed to an amendment of the CMAA, "[Inspira] will have no choice but to terminate the [CMAA] as of today, 1st April 2021." (Id.; see also id. ¶¶ 29-30). Plaintiff claims that Inspira's "improper termination was a pretext to avoid paying Plaintiff the agreed upon compensation under the [CMAA,]" as there "was no basis" under the CMAA for such termination. (Id. ¶¶ 31-32). Jonathan Blum, one of Plaintiff's members, responded to this email just over an hour later, and stated that Plaintiff was "prepared to engage in constructive dialogue regarding an appropriate path forward[,]" but that Plaintiff was not "in a position to amend [the CMAA] as you have requested." (Id., Ex. 3; see also id. ¶ 34).

Defendants did not respond to Plaintiff's email noting that Plaintiff could not agree to an amendment. (Compl. ¶ 34). Accordingly, Plaintiff claims that "despite having no basis to terminate the [CMAA,]" Defendants treated the CMAA as terminated as of April 2, 2021, effecting an anticipatory repudiation. (Id. ¶ 35). Indeed, Plaintiff alleges that Defendants "unequivocally threatened termination of the [CMAA] . . . unless [Plaintiff] agreed to amend [its] terms[.]" (Id. ¶ 39). Still, Plaintiff clarifies that it was willing to continue performance under the CMAA, but that Defendants did not give it the opportunity to address any issues or to secure another banker to underwrite the IPO. (Id. ¶¶ 40-41). Ultimately, Plaintiff states that it, too, treated the CMAA as terminated on April 2, 2021, following Defendants' ultimatum. (Id. ¶ 36).

3. The Parties' Subsequent Oral Contract

The alleged breach of the CMAA was not the end of the parties' dealings, however. Instead, Plaintiff claims that Defendants recognized that, despite having allegedly terminated the CMAA, they still required Plaintiff's assistance to close the IPO. (Compl. ¶¶ 46-47). As such, Hayon set up a meeting between Plaintiff's members and certain Inspira employees to take place on April 15, 2021. (Id. ¶ 48). Plaintiff avers that at this meeting, Hayon "implored [Plaintiff] to assist in the final stages" of the closing, upon realizing that Plaintiff's "expertise and relationships [were] necessary" to closing the IPO in the near term. (Id. ¶¶ 52-53). Among other topics, Hayon explained that Inspira wished to continue retaining Lucosky Brookman, LLP ("Lucosky"), the underwriting counsel recommended to Inspira by Plaintiff. (Id. ¶ 54).

Yet, per Plaintiff's understanding, the CMAA was no longer in force, and thus Plaintiff owed Defendants no further performance. (Compl. ¶ 55). Thus, "[a]s consideration for bringing [Plaintiff] back into the fold after improperly terminating the [CMAA] two weeks earlier, Defendant Hayon, to induce Plaintiff to provide necessary assistance to Inspira, offered that Defendant Inspira would compensate [Plaintiff] for its...