Auctus Fund, LLC v. Verus International, Inc.
440 F.Supp.3d 84
D. Mass.2020Background
- Auctus invested in Verus via two transactions (May 2017 and July 2018); Verus spun off its real-estate division into Nestbuilder, triggering a dispute.
- On February 8, 2019 the parties executed an Inducement Agreement: Verus agreed to pay $200,000 and to "facilitate" delivery of ~201,153 Nestbuilder shares by March 8, 2019, with a $10,000 monthly penalty for non-delivery; Auctus signed a broad Release excepting only rights under Section 1.6 of the Notes regarding Nestbuilder shares.
- Auctus alleges Verus procured the Inducement Agreement and Release by fraud, then failed to honor the settlement; Auctus brought nine counts (federal and state securities claims, contract and tort claims, and Chapter 93A).
- Verus moved to dismiss as moot (arguing Auctus received the shares) and argued the Release bars many claims.
- The court held the case was not moot because Auctus sought consequential and punitive relief; but the court enforced the Release (denying rescission) because Auctus had already kept the $200,000 and shares obtained in a subsequent settlement and would not return them.
- Result: claims pre-dating Feb. 8, 2019 largely barred; the court dismissed counts I, II, V, and VI and allowed counts III, IV, VII, VIII, and IX to proceed to the extent they relate to post-Release or preserved rights.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Mootness of case after delivery of shares | Auctus says not moot because it seeks consequential, punitive damages and unpaid monthly penalties. | Verus says delivery of shares (and settlement) renders the case moot. | Not moot: factual allegations of further damages mean court can still grant relief. |
| Enforceability of the Release (fraud in inducement / rescission) | Auctus alleges Release was procured by fraud because Verus never intended to perform. | Verus contends Release is valid and bars prior claims. | Court finds Auctus alleged fraud but denies rescission because Auctus retained settlement benefits and refused to return them; Release enforced. |
| Scope of Release (which claims survive) | Auctus contends many claims remain despite Release (or that Release is void). | Verus argues Release bars all pre-Feb. 8, 2019 claims except expressly preserved rights. | Release bars unpreserved claims arising before Feb. 8, 2019 (including securities counts). Preserved rights under Release survive. |
| Breach of contract / implied covenant re Inducement Agreement | Auctus says Verus breached by not procuring/delivering shares and owes penalties and costs. | Verus contends it only had to "facilitate" transfer and ultimately performance occurred so no breach or loss. | Court denies dismissal of breach and covenant claims as to post-Release/Inducement Agreement allegations; Auctus plausibly alleged nonperformance and losses (costs and penalties). |
| Unjust enrichment / contract-exclusivity | Auctus says if contract is voided for fraud, unjust enrichment claim survives. | Verus says written contract governs and bars unjust enrichment. | Court dismisses unjust enrichment because Release/Inducement Agreement was not rescinded and an express contract exists. |
| Breach of fiduciary duty | Auctus points to director misconduct. | Verus says Nevada law does not recognize a corporation owing fiduciary duty to shareholders; director is not a defendant. | Court dismisses fiduciary duty claim (no named fiduciary defendant; claim not viable). |
| Fraud, negligent misrepresentation, Chapter 93A pleading sufficiency | Auctus alleges specific misrepresentations around Nestbuilder transfer and inducement. | Verus argues failure to plead with Rule 9(b) particularity, lack of materiality, lack of reasonable reliance, and no damages. | Court denies dismissal of these tort and Chapter 93A claims to the extent they are not barred by the Release; factual questions remain. |
Key Cases Cited
- Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (Sup. Ct.) (mootness requires impossibility of granting any effectual relief)
- Knox v. Service Employees Int'l Union, 567 U.S. 298 (Sup. Ct.) (mootness principles and complete relief standard)
- Bais Yaakov of Spring Valley v. ACT, Inc., 798 F.3d 46 (1st Cir.) (plaintiff must have received complete relief for mootness)
- Cruz v. Farquharson, 252 F.3d 530 (1st Cir.) (mootness and relief principles)
- Pacific Maxon, Inc. v. Wilson, 619 P.2d 816 (Nev.) (fraud in the inducement grounds rescission)
- Bergstrom v. Estate of DeVoe, 854 P.2d 860 (Nev.) (no partial rescission; must return benefits to rescind)
- Leasepartners Corp. v. Robert L. Brooks Trust, 942 P.2d 182 (Nev.) (unjust enrichment unavailable where express written contract governs)