Taub v. Arrayit Corp.

REUBEN TAUB, IRWIN L. ZALCBERGand IRWIN ZALCBERG PROFIT SHARING PLAN, Plaintiffs, v. ARRAYIT CORPORATION, RENE SCHENA,MARK SCHENA and TODD MARTINSKY, Defendants.

1:15-cv-01366 (ALC)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

March 25, 2020

ORDER

ANDREW L. CARTER, JR., United States District Judge:

Plaintiffs Reuben Taub, Irwin L. Zalcberg and the Irwin Zalceberg Profit Sharing Plan (collectively, the "Plaintiffs") brought this action against Defendants Arrayit Corporation, Rena Schena, Mark Schena and Todd Martinsky (collectively, the "Defendants"), alleging breach of contract and fraudulent inducement of their investments. Before the Court is Plaintiffs' motion for reconsideration on the Court's order denying in part and granting in part Plaintiffs' summary judgment. See Order dated August 20, 2019, ECF No. 190. For the reasons stated below, Plaintiffs' motion is GRANTED in part and DENIED in part.

BACKGROUND

The facts of the case were fully set forth in the Court's August 2, 2019 Order (the "Order"), ECF No. 190. Accordingly, familiarity with the facts is assumed and the summary to follow will only highlight facts necessary for the motion presently before the Court. This case concerns a contractual dispute over Plaintiffs' investment in Arrayit, a life sciences corporation. Specifically, on August 19, 2014, the Parties entered into a Contribution Agreement ("Agreement"). See Pls.' Ex. F, ECF No. 171. Under the agreement the Defendants were: (1) required to, on closing, contribute to Array Molecular Corp. ("AM") assets and licenses related to the Food Testing Product ("Product"), see Pls.' Ex. F, §§ 1.1, 1.2, 1.3, 5.1.; (2) required to double, modify or issue shares and warrants, see id. § 1.9; (3) required to file a registration statement, see id. § 1.9(a)(iii); and prohibited from issuing any equity securities for six months, see id. § 5.2. In exchange, Plaintiff Taub voluntarily dismissed a prior lawsuit commenced in New York state court and Plaintiffs released all of their previously existing claims. Additionally, Z Investors LLC, a nonparty, organized AM for the purposes of raising funds to commercialize the Product. See Pls.' Ex. §§ C, D, 1.7(b).

On September 4, 2018, Plaintiffs moved for partial summary judgment. The Court denied in part and granted in part Plaintiffs' motion, finding that there were genuine issues in fact concerning whether Plaintiff had substantially performed under the contract. Plaintiffs' then filed the present motion for reconsideration, in which they argue the Court erroneously conflated their identity with that of AM.

LEGAL STANDARD

I. Motion for Reconsideration

Local Rule 6.3 provides the standard for a motion for reconsideration. This District has repeatedly stated that a motion for reconsideration "is an extraordinary remedy to be employed sparingly in the interests of finality and conservation of scarce judicial resources." Sigmon v. Goldman Sachs Mortgage Co., 229 F. Supp. 3d 254, 257 (S.D.N.Y. 2017) (citations omitted); see also Word v. Croce, No. 00 Civ. 6496, 2001 WL 755394, at *3 (S.D.N.Y. July 5, 2001) (citations omitted) ("Local Rule 6.3 should be narrowly construed and strictly applied . . ."). "A motion for reconsideration should be granted only when the [movant] identifies an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice." Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Trust,729 F.3d 99, 104 (2d Cir. 2013). Accordingly, a motion for reconsideration should be denied if the moving party seeks to present "the case under new theories" or otherwise take a "second bite at the apple." Analytical Surveys, Inc. v. Tonga Partners, L.P., 684 F.3d 36, 52 (2d Cir. 2012) (citation omitted); see also Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995) (a motion for reconsideration should be denied when "the moving party seeks solely to relitigate an issue already decided.").

II. Motion for Summary Judgment

Summary judgment must be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317 (1986). There is no issue of material fact where the facts are irrelevant to the disposition of the matter. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (holding that a fact is material if it would "affect the outcome of the suit under governing law"). An issue is genuine "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson, 477 U.S. at 248.

In deciding a summary judgment motion, courts must construe the admissible evidence—including affidavits, deposition transcripts, or other documentation—in the light most favorable to the non-moving party and draw all reasonable inferences in her favor. Niagara Mohawk Power Corp. v. Jones Chemical Inc., 315 F.3d 171, 175 (2d Cir. 2003). Courts may not assess credibility, nor may they decide between conflicting versions of events, because those matters are reserved for the jury. Jeffreys v. City of New York, 426 F.3d 549, 553-54 (2d Cir. 2005). However, "[t]he mere existence of a scintilla of evidence in support of the [the non-moving party's] position will be insufficient; there must be evidenceon which the jury could reasonably find for the [the non-moving party's]." Id. (quoting Anderson, 477 U.S. at 252).

DISCUSSION

I. Breach of Contract

According to § 8.5 of the Contribution Agreement, the agreement is to be interpreted pursuant to the laws of the State of Illinois. Pls.' Ex. F, § 8.5. Under Illinois Law, to state a claim for breach of contract a plaintiff must plead "(1) the existence of a valid and enforceable contract; (2) its performance of the contract; (3) defendant's breach of the contract; and (4) that it was damaged as a result of the breach." Facility Wizard Software, Inc. v. Se. Tech. Servs., LLC, 647 F. Supp. 2d 938, 946 (N.D. Ill. 2009) (citing Priebe v. Autobarn Ltd., 240 F.3d 584, 587 (7th Cir. 2001)).

In this case, the Parties agree that there is a valid and enforceable contract; accordingly, the discussion to follow will focus on the second, third and fourth elements. Regarding the second element, the Parties are in dispute concerning whether the contract obligated Plaintiffs to fund the commercialization of the Products prior to closing. Under § 1.7(b) Z Investors LLC was to "acquir[e] 2,204,000 shares of A-1 Stock simultaneously with the contribution of the Assets and Arrayit Patents License." Contribution Agreements § 1.7(b). Z Investors LLC also "agreed to use its best efforts to raise by selling interests in Z and to contribute to AM up to $2,00,000 as a holder of A-1 Stock as and when necessary to fund the commercialization of the Products." Id § 1.7(b).

Having considered Plaintiffs' arguments on reconsideration, the Court finds thatPlaintiffs' were not obligated to fund AM.¹ Instead, Z Investors LLC, a non-Party, was the entity that was responsible for funding AM. Although Defendants state, and Plaintiffs do not dispute, Plaintiffs control both AM and Z Investors LLC, Defendants do not raise a piercing the veil argument; as such, the Court cannot hold the individual Plaintiffs personally liable for obligations imposed on AM. Because Plaintiffs fulfilled their obligation under the Agreement to release all claims existing prior to the date of the Agreement and to voluntarily dismiss the prior New York state lawsuit with prejudice, the Court finds Plaintiffs have satisfied the second element.

Next, the Court must address whether Defendants breached the Agreement. Plaintiffs argue the Defendants breached its obligations to: contribute the Product; issue, double and modify shares and warrants; file a registration statement; and refrain from issuing equity securities for six months. In response, Defendants argue they did in fact issue the shares and warrants as required by the contract. Defendants further argue their failure to convey the Product and file a registration statement were excused by Plaintiffs' nonperformance. Moreover, Defendants contend that Z Investors, LLC, a party to the Agreement, is a fictious company; hence, Defendants assert, its inclusion in the contract, coupled with the inclusion of Zalcberg Investors (a nonparty to the Agreement) as a signatory, renders the Agreement unenforceable. Lastly, Defendants raise individual defenses concerning each obligation, including expiration of the agreement and substantial performance. The Court will address each of Defendants' argument in turn.

As a preliminary matter, Defendants' argument that their breaches are excusable due to Plaintiffs' alleged breach is unavailing. As stated above, Plaintiffs were under no obligation tofund AM. Next, the Court finds that the substitution of Z Investors LLC with Zalcberg Investors does not render the contract unenforceable. The Northern District of Illinois' decision in Bires v. WalTom, LLC, is instructive. 662 F. Supp. 2d 1019, 1037-38 (N.D. Ill. 2009).

Bires involved a contractual agreement where the entity listed for the Defendant in the preamble to the contract did not exist ("WalTom Racing, LLC"), whereas the entity listed as the signatory of the contract ("WalTom, LLC") existed at the time the contract was executed. Because of this discrepancy, the plaintiff argued the defendant did not have the capacity to enter into a contract and as a result, the contract was void. Id. The court "decline[d] to place form over function and declare the agreement void based on a clear misnomer that did not prejudice" the plaintiff. Id. at 1038. The Court reached this conclusion in large part because "the signature line on the contract indicate[d] that it [wa]s being entered into by . . . the correct entity[, which] . . . was properly organized under Illinois law" and the plaintiff "fail[e...