1:16-cv-03860
S.D.N.Y.Feb 23, 2017Background
- Microbanc (an investment banking introducer) and its assignee Todd Spenla sued InspireMD for contract and fraud claims arising from introductions that led to >$24 million in financing arranged by Palladium.
- Microbanc had a six-month written Consulting Agreement with InspireMD (effective May 7, 2008) that required any modification to be in a signed writing.
- Plaintiffs allege an oral extension of the Consulting Agreement past its November 2008 expiration and contend Microbanc is owed commissions on Palladium transactions arising from introductions it made.
- After the Consulting Agreement’s term, Spenla separately executed a Finders Agreement (May 13, 2010) promising 9% to the Finder but conditioned payment on InspireMD’s prior written consent to the Finder’s approach of investors.
- Plaintiffs also asserted quantum meruit/unjust enrichment and fraud claims based on alleged misrepresentations that the Consulting Agreement was not in effect and concealment about the Palladium reverse merger.
- District court treated the contracts as integral, dismissed all five counts for failure to state a claim, and granted leave to move for repleading of Counts One (Consulting Agreement breach) and Two (Finders Agreement breach) by a set deadline.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of Consulting Agreement: whether Consulting Agreement was extended so it covered the Palladium financings | Consulting Agreement was orally extended through May 2010, so Microbanc is owed commissions | Agreement had a six-month term and required written modification; no signed writing alleged | Dismissed — plaintiffs failed to allege the required written modification or a valid term extension |
| Breach of Finders Agreement: whether condition precedent (prior written consent) was satisfied | Finder (Spenla/Microbanc) entitled to 9% despite lack of alleged written consent | Finders Agreement conditions fee on InspireMD’s prior written consent to approach investors; consent not alleged | Dismissed — plaintiffs did not allege satisfaction of the explicit condition precedent |
| Quantum meruit / Unjust enrichment: whether equitable recovery is available for negotiating financing | Plaintiffs seek recovery for introductions and negotiation services | Statute of Frauds bars recovery for services negotiating loans/introductions absent a writing | Dismissed — New York Statute of Frauds precludes implied-in-law or fact claims for these services |
| Fraud: whether alleged misrepresentations/supporting facts suffice for fraud damages | InspireMD misrepresented that Consulting Agreement was not in effect and concealed Palladium reverse-merger plans, causing damages | Even if misrepresentations occurred, no contract in effect and alleged damages duplicate contract remedies; claims are duplicative | Dismissed — plaintiffs cannot show damages tied to an in-effect contract and fraud claim duplicates contract remedies |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard: plausible claim required)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (pleading requirement and plausibility test)
- Harsco Corp. v. Segui, 91 F.3d 337 (elements of New York breach of contract claim)
- Crigger v. Fahnestock & Co., 443 F.3d 230 (elements of fraud under New York law)
- Snyder v. Bronfman, 13 N.Y.3d 504 (Statute of Frauds bars recovery for finding/negotiating transactional introductions)
- IDT Corp. v. Tyco Grp., S.A.R.L., 13 N.Y.3d 209 (condition precedent and contractual obligations discussion)
- DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104 (documents integral to complaint may be considered on a motion to dismiss)
- O’Grady v. BlueCrest Capital Mgmt. LLP, 646 F. App’x 2 (failure to plausibly allege satisfaction of a condition precedent warrants dismissal)