547 F.Supp.3d 195
D. Conn.2021Background
- In Jan 2016 Tarpon Bay/Southridge (managed by Hicks) negotiated a deal to buy Zerez’s unsecured creditor claims and effect a Section 3(a)(10) exchange converting that acquired debt into Zerez common stock to be sold in the market. A Term Sheet and a $25,000 convertible "Signing Fee Note" memorialized key terms.
- The Term Sheet included a 5‑business‑day deadline to seek court approval after purchase agreements and an explicit clause that no binding obligations would exist until definitive documentation was executed.
- Tarpon Bay purchased ~$512,874 of claims, filed a Florida fairness suit needed for the 3(a)(10) process, and later served a conversion notice in Nov. 2016 demanding ~278.96 million shares (based on a look‑back pricing formula); Zerez refused to issue shares.
- Zerez then rescinded the relationship and the Signing Fee Note; litigation followed with claims and counterclaims consolidated in D. Conn. The court earlier held the Signing Fee Note unconscionable and unenforceable.
- The renewed cross‑motions for summary judgment addressed eleven counterclaims (breach of implied contract; declaratory relief; fiduciary duty; usury; rescission/failure of consideration; fraudulent inducement; mistake; aiding/abetting; civil conspiracy; California UCL; Connecticut CUTPA).
- The district court granted, denied, or dismissed claims largely on the ground that (a) the Term Sheet was not a binding definitive agreement, (b) the Signing Fee Note was unenforceable, and (c) many counterclaims were duplicative, moot, or insufficient as a matter of law.
Issues
| Issue | Plaintiff's Argument (Zerez) | Defendant's Argument (Tarpon Bay/Southridge/Hicks) | Held |
|---|---|---|---|
| Breach of implied contract (Count 1): whether Term Sheet terms (5‑day deadline, definitive‑agreement obligation) formed implied‑in‑fact contract | Term Sheet terms were the parties’ agreement; Tarpon Bay failed to procure definitive agreement and missed 5‑day filing obligations | Term Sheet disclaimed binding obligations until definitive documents; conduct shows no such implied term existed | Summary judgment for Tarpon Bay: no reasonable juror could find those specific terms were in any implied contract (Term Sheet was an agreement‑to‑agree) |
| Breach of fiduciary duty (Count 3) against Southridge | Southridge had superior influence and justifiably induced reliance, so owed fiduciary duty and breached it by self‑dealing | Relationship was arm’s‑length commercial negotiation; no unique trust/confidence or control over Zerez assets | Summary judgment for Southridge: no ad hoc fiduciary duty as a matter of law |
| Usury (Count 4) against Tarpon Bay | Conversion‑based windfall produced an effective interest rate that was usurious | The Note charged 10% per annum; usury law applies only to loans and not to this services/fee note | Summary judgment for Tarpon Bay: usury law inapplicable because the transaction was not a loan (Adar Bays principle) |
| Declaratory relief / Rescission / Mistake / Fraudulent inducement (Counts 2,5,6,7) | Zerez seeks declaration it has no obligations and rescission for failed consideration, mistake, or fraudulent inducement | Defendants say prior unconscionability ruling renders many of these claims moot and favors dismissal | Court: granted declaratory relief that Zerez has no rights/obligations under the Signing Fee Note or Term Sheet; rescission/mistake/fraud claims largely dismissed as moot or duplicative (some parts denied without prejudice) |
| Aiding and abetting / Civil conspiracy (Counts 8–9) | Defendants jointly induced Zerez and aided each other in tortious conduct | No viable underlying tort remains; allegations fail to specify principal torts or particular aiding acts | Summary judgment for Counterclaim Defendants on aiding and abetting; civil conspiracy dismissed as moot (no surviving underlying tort with damages) |
| California UCL (Count 10) | Counterclaim Defendants engaged in deceptive/unfair business acts in acquiring shares and failing to disclose conflicts | UCL is inapt for private, sophisticated‑party commercial disputes affecting only the parties; no public harm shown | Summary judgment for Counterclaim Defendants: UCL claim dismissed (no connection to public/competition) |
| Connecticut CUTPA (Count 11) | Conduct was unfair/deceptive and caused ascertainable loss (including hampered business and attorneys’ fees) | CUTPA cannot be founded on a mere contract breach; Zerez suffered no measurable loss from the Note (it never paid or issued shares) | Summary judgment for Counterclaim Defendants: CUTPA claim fails (primarily because Zerez shows no ascertainable loss and the claim is essentially a contract dispute) |
Key Cases Cited
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (summary judgment standard; need for probative evidence to create genuine issue)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) (court must draw all reasonable inferences against movant on summary judgment)
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (movant may point to absence of evidence on an essential element)
- Adar Bays, LLC v. GeneSYS ID, Inc., 962 F.3d 86 (2d Cir. 2020) (usury applies only to loans; no loan, no usury)
- Brighenti v. New Britain Shirt Corp., 167 Conn. 403 (1974) (implied‑in‑fact contract inferred from conduct)
- Conn. Light & Power Co. v. Proctor, 324 Conn. 245 (2016) (existence of implied‑in‑fact contract is a question of fact)
- Iacurci v. Sax, 313 Conn. 786 (2014) (framework for finding fiduciary or confidential relationships in business contexts)
- Efthimiou v. Smith, 268 Conn. 499 (2004) (elements of aiding and abetting under Connecticut law)
- Halberstam v. Welch, 705 F.2d 472 (D.C. Cir. 1983) (standard for aider‑and‑abettor liability)
- Macomber v. Travelers Prop. & Cas. Corp., 261 Conn. 620 (2002) (civil conspiracy requires an underlying tort causing damage)
- Leisure Resort Tech., Inc. v. Trading Cove Assocs., 277 Conn. 21 (2006) (remedies for fraud in inducement: rescission or affirm contract and seek damages)