Bеfore this Court are Plaintiffs Hudson Bay Master Fund Limited's ("Hudson Bay") and CVI Investments, Inc.'s ("CVII," together with Hudson Bay, the "Funds") motions to dismiss counterclaims filed by Defendants Patriot National, Inc. ("Patriot National") and Steven M. Mariano. (See Hudson Bay's Mot. to Dismiss Defs.' Countercls. ("Hudson Bay Mot."), 16-cv-2767, ECF No. 148; CVII's Mot. to Dismiss Countercls. ("CVII Mot."), 16-cv-2787, ECF No. 81.)
After the Funds filed amended complaints, Defendants amended their answers and included counterclaims similar to the affirmative defenses this Court struck for inadequate pleading. Specifically, Patriot National alleges that the Funds manipulated the market and made material misrepresentations and omissions in violation of Section 10(b) of the Securities Exchange Act of 1934. (Patriot National's Countercls. against Hudson Bay ("Patriot's Hudson Bay Countercls."), ECF No. 122, ¶¶ 48-68; Patriot National's Countercls. against CVII ("Patriot's CVII Countercls."), ECF No. 65, ¶¶ 44-64.) Patriot National also brings common law fraudulent inducement and breach of contract counterclaims against the Funds. (Patriot's Hudson Bay Countercls. ¶¶ 69-84; Patriot's CVII Countercls. ¶¶ 65-80.) In addition to his market manipulation, fraudulent inducement, and breach of contract counterclaims, Defendant Mariano alsо brings a counterclaim for breach of the duty of
The Funds move to dismiss Defendants' counterclaims arguing that they are procedurally barred pursuant to the law of the case and for failure to seek leave to amend. (Hudson Bay Mot. at 7-9; CVII Mot. at 8-10.) The Funds also move to dismiss the counterclaims for failure to state a claim for which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rule of Civil Procedure. (Hudson Bay Mot. at 11-25; CVII Mot. at 12-25.)
The motions to dismiss Defendants' counterclaims are GRANTED in part and DENIED in part.
I. FACTUAL AND PROCEDURAL BACKGROUND
On December 13, 2015, Hudson Bay, CVII, and another investor, entered into a Securities Purchase Agreement ("SPA") for a Private Investment in Public Equity ("PIPE") transaction with Defendants Patriot National and its Chief Executive Officer, Mariano. The transaction provided for "the sale to the investors of: (a) $30 million in Patriot stock by Mariano for his own benefit, and (b) $20 million in shares newly issued by Patriot for general corporate purposes." (CVII Am. Compl., ECF No. 56, ¶ 13; see also Hudson Bay Am. Compl., ECF No. 102, ¶ 19.) To account for the "risks and attendant uncertainties in the price of Patriot shares," the Funds negotiated for the grant of a Series B Warrant, which entitled them to additional shares based on a price adjustment mechanism that increased the number of shares available if Patriot National's stock declined over a certain period of time. (CVII Am. Compl. ¶ 19; Hudson Bay Am. Compl. ¶ 5.) Defendants also agreed to grant the Funds a Series A Warrant, which gave the Funds the right to purchase additional Patriot National shares at the lesser of a fixed price of $10 per share or a discount to the market price as of a certain exercise date. (CVII Am. Compl. ¶ 18; Hudson Bay Am. Compl. ¶ 39.)
The Funds allege that upon public disclosure of the transaction, on or about
On April 5, 2016, the Funds sought to partially exercise the Series B Warrant and allege that although they had fully performed their obligations under the contract, Patriot National refused to deliver them the shares.
On April 13, 2016, Hudson Bay filed the instant action against Defendants Patriot National and Mariano for specific performance and breach of contract involving the purchase and delivery of Patriot National shares under the Series B Warrant. (Hudson Bay Compl. ¶¶ 73-85). Hudson Bay also claims tortious interference by Mariano, (id. ¶¶ 93-101), and breach of the duty of good faith and fair dealing against both Defendants. (Id. ¶¶ 86-92.) One day later, on April 14, 2016, CVII filed a related action naming Patriot National as the sole defendant and also alleging breach of contract for a similar failure to deliver shares and asking this Court to enforce specific performance of the contract. (CVII Compl. ¶¶ 42-55.)
Patriot National answered Hudson Bay's Cоmplaint on May 5, 2016 asserting a number of affirmative defenses, including: (i) that "Plaintiff breached (and/or repudiated) the Transaction Documents and the [non-disclosure agreement]"; (ii) fraudulent inducement, and (iii) that the Transaction Documents "are void as against public policy, insofar as they purport to allow Plaintiff to engage in conduct that is prohibited under federal law, including but not limited to insider trading and market manipulation in violation of the federal securities laws." (Patriot National's Ans. to Hudson Bay Compl., ECF No. 26, at 20-22.) Mariano separately answered Hudson Bay's Complaint that same day asserting similar affirmative defenses. (Mariano Ans. to Hudson Bay Compl., ECF No. 19, at 14-17.) On May 6, 2016, Patriot National answered CVII's Complaint asserting substantially the same affirmative defenses as it did in its answer to Hudson Bay's Complaint.
The Funds moved for partial judgment on the pleadings as to their respective breach of contract claims pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. (Hudson Bay's Mot. J. on the Pleadings ("Hudson 12(c) Mot."), ECF No. 32, at 5-14; CVII's Mot. J. on the Pleadings ("CVII 12(c) Mot."), ECF No. 16, at 15-21.) The Funds also moved to strike Defendants' affirmative defenses. (Hudson 12(c) Mot. at 15-24; CVII 12(c) Mot. at 5-15.)
At oral argument and in their opposition papers, Defendants argued that the Funds had failed to perform under the Transaction Documents. (See, e.g., Patriot National Opp'n to Hudson 12(c) Mot. ("Patriot 12(c) Opp'n"), ECF No. 38, at 12.) Defendants argued that their obligations to transfer the stock to the Funds were expressly contingent on certain conditions that, upon information and belief, the Funds had failed to meet. (See, e.g., July 21, 2016, Oral Arg. Tr., ECF No. 60, at 42:8-10.) One of those conditions related to the Non-Disclosure Agreement ("NDA") the Funds entered into prior to signing the SPA. Under the NDA, CVII agreed not to "disclose to any third party or use or permit any third party to use any of the information provided except to evaluate the Proposed transaction." (See, e.g., Patriot 12(c) Opp'n at 3-4.) Hudson Bay agreed not to "engage in transactions, or cause anyone else to engage in transactions, related to Patriot National's securities prior to the public announcement." (Id. )
Upon signing the SPA, the Funds also represented that they had not:
engaged in any transactions in the securities of [Patriot National] (including, without limitation, any Short Sales ... involving the [Patriot National's] securities) during the period commencing as of the time that such Buyer was first contacted by the Company ... regarding the specific investment in the Company contemplated by this Agreement and ending immediately prior to the execution of this Agreement by such Buyer.
(See id. , at 5 (citing SPA § 2(j) ).) Defendants argued that the Funds breached the Transaction Documents by borrowing shares before the December 13, 2015 execution of the SPA and by engaging in short sales during the pricing period for the Warrant. (Id. at 5-8.) Defendants were concerned about the "inexplicable timing of the massive borrowing and shorting that coincided with the NDA and the closing of the Transaction", (id. at 7), and argued that the Funds "were one of the only few people who knew about the possibility of this transaction[.]" (Oral Arg. Tr., 42:19-24.) Therefore, the Funds were the ones responsible for the transactions in violation of their express representations.
Relying on another portion of § 2(j) of the SPA, which specifically excludes "the location and/or reservation of borrowable shares" from the definition of "Short Sales," the Funds disputed any breach on their part, arguing that § 2(j) exprеssly carves out as permissible the borrowing of shares before disclosure of the transaction. (See, e.g., Fludson Bay's Reply in Supp. of 12(c) Mot. ("Hudson 12(c) Reply"), ECF No. 55, at 3.) The Funds further argued that under the SPA, they were allowed to short once the transaction became public. (Id. ) They argued that pursuant to § 3(a)(xxxii) of the SPA, Defendants acknowledged that " 'Buyers may engage in hedging and/or trading activities ' during the pricing period for the Warrant and that such shorting and other hedging activities 'do not constitute a breach of this Agreement, the Warrants, or any other Transaction Document or any of the documents executed in connection herewith
In denying the Funds' motions for partial judgment on the pleadings, this Court found that "[b]ecause the Transaction Documents only permitted Hudson Bay to participate in short selling after the execution of the Transaction, Patriot's allegations [of borrowing and shorting] raisе factual issues inappropriate for resolution at the judgment on the pleadings stage." (Order at 10.) This Court also took issue with the timing of the alleged transactions:
While Patriot alleges that borrowing occurred on November 30, 2015, prior to the December 13, 2015 execution of the SPA, it is unclear whether those borrowed shares actually led to any prohibited short sales prior to December 13....Additionally, the Transaction Documents are unclear whether such prohibitions on borrowing or short selling expired on December 13, 2015 or on December 23, 2015, the execution date of the REA. 'Prior to the execution of this Agreement,' as provided in § 2(j) could mean prior to the signing of the SPA on December 13, 2015. But, because the parties reopened negotiations regarding the SPA shortly thereafter, 'prior to the execution of this Agreement' could аlso reasonably refer to any time prior to the signing and execution of the REA on December 23, 2015.
(Id. at 10-11.) The decision struck Defendants' affirmative defenses, including those of fraudulent inducement and market manipulation, as insufficient as a matter of law. (Id. at 17.) Defendants' request for leave to amend was denied "since Defendants ... proffered no set of facts to demonstrate that such amendments would not be futile." (Id. )
On January 31, 2017, Hudson Bay filed an amended complaint adding another claim for specific performance, alleging that in early August 2016, Patriot National refused to honor its exercise of the Series A Warrant. (Hudson Am. Compl. ¶¶ 66-69.) Similarly, CVII filed an amended complaint on February 22, 2017 alleging a breach of contract claim for failure to deliver shares pursuant to the Series A Warrant. (CVII Am. Compl. ¶¶ 76-87.) On March 24, 2017, Patriot National filed its answer to the amended complaints and counterclaims in both Hudson Bay and CVII actions. (Patriot's Hudson Bay Countercls., ECF No. 122; Patriot's CVII Countered., ECF No. 65.) Mariano filed an answer to Hudson Bay's amended complaint on March 31, 2017. (See Mariano's Hudson Bay Countercls., ECF No. 128.) Along with their opposition briefs, Defendants also filed proposed amended counterclaims for this Court's consideration. (See Patriot's Hudson Bay Proposed Am. Countercls., ECF No. 162-01; Patriot's CVII Proposed Am. Countercls., ECF No. 93-1; Mariano's Hudson Bay Proposed Am. Countercls., ECF No 164-06.)
The standard for dismissal of a counterclaim is the same as the standard for dismissal of a complaint. See Aspex Eyewear, Inc. v. Clariti Eyewear, Inc.,
Allegations of fraud, including securities fraud, must satisfy the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) by "stat[ing] with particularity the circumstances constituting fraud." FED. R. CIV. P. 9(b) ; see ATSI Commc'ns, Inc. v. Shaar Fund, Ltd.,
III. DEFENDANTS SUFFICIENTLY ALLEGE BREACH OF CONTRACT CLAIMS
To state a claim for breach of contract in New York, a plaintiff must show "(1) the existence of a contract, (2) performance by the party seeking recovery, (3) non-performance by the other party, and (4) damages attributable to the breach." RCN Telecom Servs., Inc. v. 202 Ctr. St. Realty LLC.,
Defendants have sufficiently alleged a breach of contract claim against the Funds. Defendants allege that in late 2015, Patriot National sought to raise capital through a PIPE transaction.
Defendants point to the specific provisions violated and the amount of shares allegеdly borrowed and shorted by the Funds:
• Hudson Bay breached the express terms, including Sections 2(j) and 6(a)(iii) of the SPA and Section 3(b) of the REA, by borrowing 2,190,000 shares of Patriot National stock through Pay-To-Hold transactions ... during the period of December 1, 2015 through December 13, 2015.11
• Hudson Bay further breached the Transaction [Documents] ... by selling short 191,417 shares of Patriot National stock during the period of December 14, 2015 through December 17, 2015.12
• CVII breached the express terms of the Transaction [Documents], including Sections 2(j) and 6(a)(iii) of the SPA and Section 3(b) of the REA, by borrowing 1,351,400 shares of Patriot National stock during the period of December 1, 2015 through December 14, 2015.13
• CVII further breached the Transaction Agreements ... by selling short 6,975 shares of Patriot National stock during the period of December 14, 2015 through December 17, 2015.14
Accepting all allegations as true, as is required under Rule 12(b)(6), Defendants have alleged enough for their breach of contract claims to survive. Whether borrowing Patriot National stock was a prohibited action under the Transaction Documents and whether such agreements prohibited short selling between the time the parties executed the SPA and later the REA, are ambiguities not appropriate for resolution at the motion to dismiss stage.
The Funds argue that Defendants' breach of contract counterclaims fail to plead damages. (Hudson Bay Mot. at 25; CVII Mot. at 24.) However, as the Second Circuit explained "[e]ven if [Plaintiff's] allegations of substantial damages [are], as Defendants argue, too 'speculative' to support its claims, [Plaintiff] would have plausible claims for nominal damages." Luitpold Pharms., Inc. v. Ed. Geistlich Söhne A.G. Für Chemische Industrie,
As such, the Funds motions to dismiss the breach of contract counterclaims are denied and the claims remain.
IV. DEFENDANT MARIANO'S CLAIM FOR BREACH OF THE DUTY OF GOOD FAITH AND FAIR IS DUPLICATIVE OF HIS BREACH OF CONTRACT CLAIM
"Under New York law, every contract includes an implied covenant of good faith and fair dealing." Cohen v. Elephant Wireless, Inc., No. 03-cv-4058 (CBM),
V. DEFENDANTS' MISREPRESENTATION AND FRAUDULENT INDUCEMENT CLAIMS ARE DUPLICATIVE OF THEIR BREACH OF CONTRACT CLAIMS
Defendants allege material misrepresentation under Section 10(b) of the Securities Exchange Act and a common-law theory of fraudulent inducement.
Defendants base their fraud claims on the following alleged misrepresentations and omissions that they contend induced them to enter the SPA and REA:
(i) the Funds failure to disclose their then-present intention to begin borrowing Patriot National shares immediately upon signing their respective NDAs and receipt of material non-public information; (ii) the Funds' failure to disclose that they had borrowed millions of shares of Patriot stock in violation of the NDAs, between the timе the NDAs were executed and the time the SPA was executed; and (iii) the Funds' continued failure to disclose any information regarding their own conduct in contributing to the stock's decline-instead, using the decline to renegotiate the agreement and enter into the REA.
(See Patriot Opp'n at 17; see also Mariano Opp'n at 24.) Defendants argue that their fraud claims survive because the misrepresentations and omissions were of then "present facts (as opposed to future facts)." (See e.g., Patriot Opp'n at 16.) "However, it is not sufficient that the alleged misrepresentations are about then-present facts; rather, they also must be 'extraneous to the contract and involve a duty separate from or in addition to that imposed by the contract.' " Torchlight,
Here, the alleged misrepresentations and omissions are expressly addressed by the Transaction Documents. For instance, whether the Funds failed to disclose their "then-present intention" to borrow Patriot National shares upon signing the NDA is not "extraneous to the Agreement." It goes to whether the Funds intended to uphold their agreement not to "engage in transactions ... related to Patriot National's securities[,]" or instead "suffer the ordinary contractual consequences for a breach[.]" VTech Holdings Ltd.,
Given that Defendаnts' fraud claims stem directly from their breach of contract claims, those claims are duplicative and are dismissed.
VI. DEFENDANTS' MARKET MANIPULATION CLAIMS FAIL
Defendants also allege that the Funds manipulated the market in violation of the federal securities laws by "borrowing (and causing others to borrow) and shorting Patriot's stock on the basis of nonpublic information." (See Patriot Opp'n at 6-7.)
"Section 10(b) of the Securities Exchange Act imposes private civil liability on those who commit a manipulative or deceptive act in connection with the purchase or sale of securities." Cent. Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A.,
Since a market manipulation claim is a claim of fraud, it must be pled with particularity under Rule 9(b).
Defendants fail to sufficiently allege market manipulation claims.
A. Manipulative Conduct
The term "manipulative" is "virtually a term of art when used in connection with securities markets [that] connotes intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities." Ernst & Ernst v. Hochfelder,
The "gravamen of manipulation", therefore, is "deception of investors into believing that prices at which they purchase and sell securities are determined by the natural interplay of supply and demand, not rigged by manipulators." Wilson v. Merrill Lynch & Co. ,
Defendants allegе that based on material nonpublic information, the Funds borrowed over 42% of Patriot National's shares by the time the PIPE deal was announced and that they did so in preparation for massive short sales once the deal closed.
As an initial matter, Defendants cannot argue that they were unaware that the Funds contemplated engaging in short selling because both the SPA and the REA specifically allowed the Funds to short an unrestricted amount of Patriot National stock after public disclosure of the deal.
Defendants' reliance on CompuDyne Corp. v. Shane is inapposite. There, after agreeing to maintain the existence of the PIPE confidential, defendant shorted CompuDyne stock before even signing the purchase agreement and before the PIPE
Here, Defendants' market manipulation allegations are not comparable to those found to be sufficient in CompuDyne. In CompuDyne, unlike here, defendants used nonpublic information to engage in short-selling before the PIPE was announced.
Furthermore, in CompuDyne, unlike here, defendants allegedly engaged in naked short sales, a practice regulated by the SEC because it " 'can serve as a tool to drive down a company's stock price'-which, of course, injures shareholders[.]" Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Manning , --- U.S. ----,
The other cаses Defendants rely upon allege manipulative acts that are beyond anything Defendants allege here. See Nanopierce Techs., Inc. v. Southridge Capital Mgmt. LLC., No. 02-cv-0767 (LBS),
B. Scienter
Because a claim for market manipulation requires a showing of scienter, the "PSLRA's heightened standards for pleading scienter" apply. ATSI,
Defendants argue that they have adequately plead scienter "by identifying the Funds' motive and opportunity to commit fraud." (Patriot Opp'n at 13; Marino Opp'n at 19.) The Funds' alleged motive was to profit from their manipulative borrowing and short selling and to drive down Patriot National's share price in order to access additional shares under the Series B Warrants at lower prices. (Id. ) "Plaintiff's scienter allegations [however,] fall short of the motive and opportunity standard because they amount to no more than allegations of a general business motive to make a profit." In re Merrill Lynch Auction Rate Sec. Litig. ,
In addition, "to determine whether the plaintiff has alleged facts that give rise to the requisite 'strong inference' of scienter, a court must consider plausible nonculpable explanations for the defendant's conduct." Alki Partners, L.P. v. Vatas Holding GmbH,
There is another "plausible nonculpable explanation" for the Funds' conduct. Given the risky nature of PIPE transactions (i.e. the potential of the market reacting negatively to the deal), it is plausible that the Funds' borrowing and shorting of Patriot National stock "represented legitimate hedging against [their] very large long position." (CVII Mot. at 23; see also Hudson Bay Mot. at 20.) Indeed, not only did Defendants expressly agree to permit the Funds to short once the deal was announced, Defendants acknowledged that any such "hedging and/or trading activities" could affect the value and number of shares owed under the Warrants and dilute shareholder equity, but would not constitute a breach of the agreement as a result. (SPA § 3(a)(xxxii) ); see ATSI,
C. Reliance
Even if Defendants properly alleged manipulative conduct and scienter, their claims nonetheless fail because they do not allege "reliance" based upon "an assumption of an efficient market free of manipulation" as required under Section 10(b).See ATSI,
VII. CONCLUSION
Hudson Bay's and CVII's motions to dismiss Patriot National's market manipulation, material misrepresentation and omissions, and fraudulent inducement counterclaims are GRANTED. Those counterclaims are DISMISSED.
Hudson Bay's motion to dismiss Mariano's market manipulation, fraudulent inducement and breach of the duty of good faith and fair dealing counterclaims is GRANTED. Those counterclaims are DISMISSED.
Further amendment to the dismissed counterclaims would be futile.
Hudson Bay's and CVII's motions to dismiss Defendants' breach of contract
The Clerk of Court is directed to close the motions at ECF No. 147 (16-cv-2767) and ECF No. 79 (16-cv-2787).
SO ORDERED.
Notes
Hereinafter, record references related to the Hudson Bay action refers to Docket No.16-cv-2767, and record references related to the CVII action refers to Docket No. 16-cv-2787.
On January 30, 2018, Patriot National filed for relief under Chapter 11 of the U.S. Bankruptcy Code. (ECF Nos. 286, 164.) The automatic stay рrovision of
The Funds urge this Court to reject Defendants' counterclaims on procedural grounds, including that Defendants are barred pursuant to the law of the case and for failure to seek leave to amend. Given the lengthy history of this litigation, this Court declines to make а procedural ruling, and instead looks to the merits of Defendants' counterclaims.
The "Transaction Documents" include the SPA, the REA, and the Non-Disclosure Agreement ("NDA"), further discussed below.
Hudson Bay submitted a second request on April 8, 2016.
Section 3(a)(xxxii) also allows the Funds to engage in "any transactions in or with respect to (including, without limitation, purchasing or selling, long and/or short) any securities of the Company" after public disclosure of the SPA. The section further provides that:
Buyers may engage in hedging and/or trading activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value and/or number of the Warrant Shares deliverable ... are being determined and such hedging and/or trading activities, if any, can reduce the value of the existing stockholders' equity interest in [Patriot National].... [Patriot National] acknowledges that such hedging and/or trading activities do not constitute a breach of this Agreement, the Warrants, or any other Transaction Document or any of the documents executed in connection herewith or therewith.
(Patriot's Hudson Bay Proposed Am. Countercls., ECF No. 162-01, at ¶ 11; Patriot's CVII Proposed Am. Countercls., ECF No. 93-1, at ¶ 9; Mariano's Hudson Bay Proposed Am. Countercls., ECF No. 164-06, at ¶ 12.)
(See Patriot's Hudson Bay Proposed Am. Countercls. ¶ 12; Patriot's CVII Proposed Am. Countercls. ¶ 10.)
(See Patriot's Hudson Bay Proposed Am. Countercls. ¶¶ 1, 83; Patriot's CVII Proposed Am. Countercls. ¶¶ 1, 81.)
(See Patriot's Hudson Bay Proposed Am. Countercls. ¶ 40; Patriot's CVII Proposed Am. Countercls. ¶ 37.)
(Patriot's Hudson Bay Proposed Am. Countercls. ¶ 83.)
(Id. ¶ 85.)
(Patriot's CVII Proposed Am. Countercls. ¶ 79.)
(Id. ¶ 81.)
Allowing Defendants' breach of contract counterclaims to move forward should not dramatically increase the cost of discovery and trial at this stage of the litigation given that the claims are exactly the same as the ones Defendants have lodged as general denials. As such, the parties should not need additional discovery.
(See, e.g. Mariano's Hudson Bay Proposed Am. Countercls. ¶ 114 ("Hudson Bay breached the duty of good faith and fair dealing implied in the" NDA, the SPA, and the REA "by surreptitiously borrowing millions of Patriot National Shares and thereafter shorting nearly 1.5 million shares to drive down the price of Patriot National shares").)
(Patriot's Hudson Bay Proposed Am. Countercls. ¶¶ 64-79; Patriot's CVII Proposed Am. Countercls. ¶¶ 59-74; Mariano's Hudson Bay Proposed Am. Countercls. ¶¶ 95-101.)
Here, Defendants allege that the Funds borrowed roughly 3.5 million shares of Patriot National stock and shorted less than 200,000 shares, a fraction of the shares borrowed.
(See Patriot's Hudson Bay Proposed Am. Countercls. ¶¶ 30, 37; Patriot's CVII Proposed Am. Countercls. ¶ 51; Mariano's Hudson Bay Proposed Am. Countercls. ¶ 52 (alleging "Hudson Bay alone represent 27% of the outstanding shares available for trading.").)
(See Patriot's Hudson Bay Proposed Am. Cоuntercls. ¶¶ 25-26; Patriot's CVII Proposed Am. Countercls. ¶¶ 23-24; Mariano's Hudson Bay Proposed Am. Countercls. ¶¶ 40, 42.)
(See Patriot's Hudson Bay Proposed Am. Countercls. ¶¶ 46-47; Patriot's CVII Proposed Am. Countercls. ¶¶ 39-40; Mariano's Hudson Bay Proposed Am. Countercls. ¶¶ 65-67.)
Section 4(t) represents the only limitation the Transaction Documents placed on the Funds' ability to short Patriot stock following public disclosure. That Section prohibited the Funds from maintaining a "Net Short Position" during the Warrant pricing period-meaning that, during that period, the Funds could not hold a position whereby they have executed one or more sales of Patriot National stock short without having no "equivalent offsetting long position." (See Section 4(t).) Defendants do not allege that the Funds violated these terms.
Leave is granted for Defendants to file their proposed amended counterclaim asserting a breach of contract only.