1:21-cv-05300
S.D.N.Y.Mar 21, 2022Background
- 3C (Plaintiff) previously invested in RevCascade and on February 25, 2021 the parties signed a non-binding term sheet for a potential $2 million investment; the term sheet included a 56-day exclusivity clause preventing RevCascade from negotiating sales of its equity.
- 3C alleges RevCascade began negotiating with a third party, Fabric, during the 56-day exclusivity period (including “regular discussions” and an offer communicated to RevCascade).
- During the 56-day period, a lawsuit by Souler against RevCascade surfaced; 3C alleges the parties orally agreed by words and conduct to extend exclusivity while 3C reviewed the litigation and gathered materials for due diligence.
- 3C further alleges RevCascade slow‑rolled delivery of due diligence materials to conceal dealings with Fabric, then posted documents to a data room for Fabric the day after the 56 days expired, and later announced a deal with Fabric.
- 3C sued asserting: breach of the term sheet exclusivity, breach of an alleged extended exclusivity, promissory estoppel, and breach of the covenant of good faith and fair dealing; RevCascade moved to dismiss under Rule 12(b)(6).
- The Court granted the motion in part and denied in part: it held the complaint plausibly alleged breach of the 56-day exclusivity clause (claim survives), but dismissed claims about an extended exclusivity, promissory estoppel, and breach of good faith (dismissed without prejudice; leave to amend given).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of term sheet exclusivity (initial 56 days) | 3C: RevCascade negotiated with Fabric during the 56‑day exclusivity and concealed it by slow‑walking info | RevCascade: Complaint fails to clearly allege a breach within the 56‑day period | Court: Complaint sufficiently alleges negotiations and facts supporting a plausible breach during the 56 days — claim survives |
| Breach of alleged extended exclusivity | 3C: Parties agreed by words/conduct to extend exclusivity while 3C evaluated the Souler suit | RevCascade: No express or implied agreement pleaded; no formation or consideration alleged | Court: Dismissed — plaintiff failed to plead formation/consideration for an extension |
| Promissory estoppel | 3C: RevCascade promised exclusivity extension; 3C reasonably relied and incurred audit costs | RevCascade: No clear, unambiguous promise pleaded; facts are conclusory | Court: Dismissed — no clear and unambiguous promise alleged |
| Breach of covenant of good faith and fair dealing | 3C: RevCascade slow‑rolled due diligence and negotiated with Fabric in bad faith | RevCascade: Claim duplicates contract claim and alleges no separate legal duty | Court: Dismissed as duplicative and lacking an independent duty |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must permit reasonable inference of defendant liability)
- Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002) (complaint must give fair notice of claim)
- Cyberchron Corp. v. Calldata Sys. Dev., Inc., 47 F.3d 39 (2d Cir. 1995) (elements of promissory estoppel)
- Ebomwonyi v. Sea Shipping Line, 473 F. Supp. 3d 338 (S.D.N.Y. 2020) (plaintiff must plead existence and terms of a contract to state breach claim)
- Sackin v. Transperfect Glob. Inc., 278 F. Supp. 3d 739 (S.D.N.Y. 2017) (implied‑in‑fact contract requires consideration and mutual assent)
- Abu Dhabi Commercial Bank v. Morgan Stanley & Co. Inc., 651 F. Supp. 2d 155 (S.D.N.Y. 2009) (extension of exclusivity requires allegations of consideration)
- Giller v. Oracle USA, Inc., [citation="512 F. App'x 71"] (2d Cir. 2013) (duplicative good‑faith claim may be dismissed where based on same facts as breach of contract claim)
- Leibowitz v. Cornell Univ., 584 F.3d 487 (2d Cir. 2009) (timing of alleged promise may determine interplay with written agreement)