TARPON BAY PARTNERS LLC v. ZEREZ HOLDINGS CORPORATION
Nos. 21-1916-cv, 21-2010-cv
United States Court of Appeals For the Second Circuit
August 11, 2023
August Term, 2022
ARGUED: MARCH 3, 2023
STEPHEN M. HICKS, SOUTHRIDGE ADVISORS II, LLC, a Delaware limited liability company, Consolidated Defendants-Counterclaim Defendants-Appellants-Cross-Appellees,
v.
ZEREZ HOLDINGS CORPORATION, an Oklahoma corporation, FKA DEFINITIVE REST MATTRESS COMPANY, Defendant-Consolidated Plaintiff-Counterclaim Plaintiff-Appellee-Cross-Appellant,
DOES, 1-25, Consolidated Defendants-Counterclaim Defendants-Appellees.*
Appeal from the United States District Court for the District of Connecticut
ARGUED: MARCH 3, 2023
DECIDED: AUGUST 11, 2023
* The Clerk of Court is respectfully directed to amend the caption accordingly.
Plaintiff-Appellant Tarpon Bay Partners LLC (“Tarpon Bay“) and Defendant-Appellee Zerez Holdings Corporation (“Zerez“) attempted to reach an investment deal in which Tarpon Bay would purchase Zerez‘s debt obligations and, in return, receive stock in Zerez pursuant to
Tarpon Bay sued Zerez to enforce the note, and Zerez countersued Tarpon Bay, Southridge Advisors II, and Stephen Hicks (together, “Counterclaim Defendants“). On Tarpon Bay‘s motion for summary judgment, the United States District Court for the District of Connecticut (Underhill, J.) held that although genuine issues of material fact remained as to whether the note lacked consideration, the note was unconscionable as a matter of law and therefore unenforceable. On Zerez‘s later motion for summary judgment on its counterclaims, the district court held in relevant part that Zerez was not entitled to relief under the Connecticut Unfair Trade Practices Act (“CUTPA“). Tarpon Bay appeals and Zerez cross-appeals from the final judgment.
We first vacate the district court‘s holding that the note was unconscionable as a matter of law on the record before it at summary judgment. We next conclude the district court correctly determined that genuine issues of material fact remained as to whether
GEORGE O. RICHARDSON, III, Sullivan & Worcester LLP, New York, NY, for Plaintiff-Appellant and Counterclaim Defendants-Appellants.
JONATHAN M. SHAPIRO, (Evan K. Buchberger, on the brief), Aeton Law Partners, Middletown, CT, for Defendant-Cross-Appellant.
GARY S. KATZMANN, Judge:
Before us are the appeal of Plaintiff-Appellant Tarpon Bay Partners LLC (“Tarpon Bay“) and cross-appeal of Defendant-Appellee Zerez Holdings Corporation (“Zerez“) from the Judgment of the United States District Court for the District of Connecticut. Tarpon Bay and Zerez are commercial parties who regularly transact in the capital markets and attempted to reach an arm‘s-length investment deal. After the deal broke down, Tarpon Bay sued to
In September 2019, the district court denied summary judgment for Tarpon Bay on its enforcement claims because genuine issues of material fact remained as to whether the Signing Fee Note was supported by consideration. It then held in the same opinion that the Signing Fee Note was unconscionable and therefore unenforceable. Tarpon Bay challenges these two holdings on appeal. In July 2021, the district court granted summary judgment for Tarpon Bay on Zerez‘s CUTPA counterclaim, which Zerez challenges on
We first hold that the record at the summary judgment stage did not establish that the Signing Fee Note was unconscionable under Connecticut law. We next hold that the district court correctly denied summary judgment for Tarpon Bay on its enforcement claims. Finally, we hold that the district court‘s grant of summary judgment on Zerez‘s CUTPA claim was warranted on the alternative grounds that CUTPA does not apply to the case at bar. Accordingly, we VACATE in part, AFFIRM in part, and REMAND for further proceedings consistent with this opinion.
I. Background
A. Factual Background
Unless otherwise stated, the parties do not dispute the following facts. Zerez and Tarpon Bay are sophisticated commercial parties who are routine players in the capital markets. Zerez is a publicly traded holding company, formed in Oklahoma and operated out of California, that invests in and manages emerging technology
In January 2016, Zerez sought new capital to fund its continued
Aswani sent Murga a proposed term sheet outlining the key aspects of the deal (the “Term Sheet“). Id. at 916, 1296. Under the Term Sheet, Tarpon Bay would individually engage and execute agreements with Zerez‘s creditors to buy the debt; Tarpon Bay would seek court approval of the section 3(a)(10) transaction within five days
On January 27, 2016, Zerez executed a convertible promissory
Between February and April 2016, Tarpon Bay proceeded to reach out to Zerez‘s creditors and ultimately executed agreements, termed “Claim Purchase Agreements,” with eight creditors to purchase a total of $512,874.06 of Zerez‘s debt. Id. at 428, 919. Zerez has not disputed that it was aware of this process; two of Zerez‘s largest creditors, whom Tarpon Bay had engaged with Claim
But the section 3(a)(10) transaction was never approved. Zerez did not appear at the hearing, and the parties dispute why.7 Id. at 921,
On November 29, 2016, Tarpon Bay sent Zerez a “Notice of Conversion” that demanded 278,958,900 shares of Zerez stock worth nearly $2.23 million on the date of conversion. Id. at 1074-76. Tarpon Bay relied on the Signing Fee Note provision that allowed payment in stock, rather than in cash; the cash value at the time, with accrued interest and fees, was $27,895.89. Id. at 1005-06, 1075. Tarpon Bay took advantage of very low stock pricing in the thirty days before November 29, 2016—specifically, the stock price of $0.0002 on October 17, 2016—and demanded conversion at the 50 percent discounted price per share of $0.0001 pursuant to the Signing Fee Note‘s conversion formula. Id. at 1075. Hicks candidly stated in later
B. Procedural History
In January 2017, Zerez sued Counterclaim Defendants in the U.S. District Court for the Eastern District of California for a “judgment enforcing its rescission of the Term Sheet and Note for failure of consideration” and damages for unjust enrichment and fraud. See Compl. at 7, Zerez Holdings Corp. v. Tarpon Bay Partners LLC, No. 2:17CV00029(TLN)(DB) (E.D. Cal. filed Jan. 6, 2017); Joint App‘x at 157-65. Tarpon Bay separately sued Zerez in Connecticut Superior
In June 2018, Tarpon Bay filed the Amended Complaint seeking (1) immediate delivery of the 278,958,900 shares, (2) declaratory judgment in its favor, and (3) damages in the amount of $25.9 million (together, the “Affirmative Claims“). Id. at 842-43. Zerez filed the
Tarpon Bay moved for summary judgment in January 2019 on the Affirmative Claims and Zerez‘s twelve affirmative defenses, and Counterclaim Defendants moved for summary judgment on all eleven of Zerez‘s counterclaims. Id. at 911. Zerez did not cross-move
In the first summary judgment decision, dated September 24,
Shortly after the decision, Tarpon Bay moved to certify the
In the second summary judgment decision, dated July 7, 2021, the district court granted in part and denied in part Counterclaim Defendants’ and Zerez‘s motions for summary judgment. Tarpon Bay II, 547 F. Supp. 3d at 227. Notably, the court granted summary judgment for Zerez on Counterclaim Two and concluded that “[b]ecause the Signing Fee Note is unconscionable and unenforceable, Zerez has no rights or obligations under the Signing Fee Note.” Id. at 217. The court also granted summary judgment for Counterclaim Defendants on the CUTPA claim for two reasons: the deceptive conduct alleged was duplicative of the unconscionability claim, and Zerez had not established that it suffered an ascertainable loss under the statute. Id. at 223–24. As to Zerez‘s other counterclaims, judgment
The relevant dispositions from the district court‘s September 2019 and July 2021 opinions are summarized in the following table:
| AFFIRMATIVE CLAIMS Decided in September 2019 | ||||
|---|---|---|---|---|
| No. | Claim Asserted by Tarpon Bay | Defendant | Disposition of Tarpon Bay‘s Mot. for Summ. J. | |
| 1. | Delivery of 278,958,900 shares | Zerez | Denied | |
| 2. | Declaratory relief | Zerez | Denied | |
| 3. | Award of damages | Zerez | Denied | |
| COUNTERCLAIMS ON APPEAL Decided in July 2021 | ||||
| No. | Counterclaim Asserted by Zerez | Defendant | Disposition of Countercl. Defs.’ Mot. for Summ. J. | Disposition of Zerez‘s Partial Mot. for Summ. J. |
| 2. | Declaratory relief | Tarpon Bay | Denied | Granted |
| 11. | Violation of CUTPA | Countercl. Defs. | Granted | Denied |
Tarpon Bay timely appealed from the Judgment, and Zerez timely cross-appealed. Joint App‘x at 1970, 2006. The parties participated in the Second Circuit‘s mediation program, but the case was ultimately reinstated on March 24, 2022.
II. Jurisdiction and Standard Of Review
Before turning to the merits of the dispute, we first address an issue that affects our jurisdiction. We have jurisdiction over “appeals from all final decisions of the district courts of the United States.”
The district court denied summary judgment for Tarpon Bay in its September 2019 order “with respect to [Tarpon Bay‘s] three claims against Zerez because the purported agreement is unconscionable as a matter of law,” Tarpon Bay I, 2019 WL 4646061, at *12, but did not enter judgment on those three claims—the Affirmative Claims—in favor of any party. See Judgment at 1-2. Denials of summary judgment are “by their terms interlocutory” and ordinarily not reviewable absent a final judgment disposing of the claims. Ortiz v. Jordan, 562 U.S. 180, 188 (2011) (internal quotation marks and citation omitted). A denial of summary judgment for one party on the claims it has raised, without an accompanying grant of summary judgment for the opposing party on the same claims, would ordinarily mean
We therefore interpret the district court‘s September 2019 order denying summary judgment for Tarpon Bay to also include a grant of summary judgment for Zerez on the Affirmative Claims. Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment
Tarpon Bay also asks us to review the district court‘s denial of its motion for summary judgment on the Affirmative Claims. The denial of a motion for summary judgment is usually not immediately appealable. See id. at 144 n.4; Spavone v. N.Y. State Dep‘t of Corr. Servs., 719 F.3d 127, 133 (2d Cir. 2013) (applying the collateral order doctrine, which renders some summary judgment denials immediately appealable, in a qualified immunity case). But the more precise jurisdictional question here is not whether the denial is immediately appealable, but whether the denial becomes reviewable upon appeal from final judgment. In cases where appeal is taken from final judgment, we have the discretion to review a denial of summary judgment that accompanies a grant of summary judgment on cross-motion. See Barhold v. Rodriguez, 863 F.2d 233, 237 (2d Cir. 1988) (“[A]s we have jurisdiction to decide [the appellants‘] appeal from the granting of [the appellees‘] motion for summary judgment, we
Because we interpret the September 2019 order denying
We review the district court‘s summary dispositions de novo. See id. For summary judgment to be warranted, the evidence, construed in the light most favorable to the party against whom it was entered, must show that there is no genuine issue of material fact, and the moving party must be entitled to judgment as a matter of law. See Aetna Life Ins., 52 F.4th at 72;
III. Discussion
The parties present three questions on appeal. First, Tarpon Bay challenges the district court‘s ruling that the Signing Fee Note was unconscionable. Second, Tarpon Bay argues that the district court erred in determining that there remained a genuine issue of material fact as to whether consideration supported the Signing Fee Note. And third, Zerez challenges on cross-appeal the district court‘s
For the reasons discussed below, we first vacate the district court‘s ruling that the Signing Fee Note was unconscionable as a matter of law, on the record before it at summary judgment. We then conclude that the district court correctly determined that genuine issues of material fact remained as to whether consideration supported the Signing Fee Note. The district court‘s dismissal of the Affirmative Claims is therefore also vacated, and the denial of summary judgment for Tarpon Bay is affirmed.16 Finally, we affirm the district court‘s grant of summary judgment on Zerez‘s CUTPA counterclaim on the alternative ground that CUTPA does not apply
A. Unconscionability
The Signing Fee Note makes clear that Connecticut law governs the dispute. Joint App‘x at 1008. Under Connecticut law, the doctrine of unconscionability is a defense to contract enforcement that is intended “to prevent oppression and unfair surprise.”17 Cheshire Mortg. Serv., Inc. v. Montes, 223 Conn. 80, 87–88 (1992) (internal quotation marks and citation omitted). “The classic definition of an unconscionable contract is one which no man in his senses, not under delusion, would make, on the one hand, and which no fair and honest man would accept, on the other.” Bender v. Bender, 292 Conn. 696, 731–32 (2009) (internal quotation marks and citation omitted). The question of whether a contract is unconscionable “is a matter of law to be decided by the court based on all the facts and circumstances of
Like those of many other jurisdictions, Connecticut courts have parsed the unconscionability inquiry into procedural and substantive prongs. See Restatement (Second) of Conts. § 208 (Am. L. Inst. 1981) (collecting cases by jurisdiction). A successful unconscionability defense “‘generally requires a showing that the contract was both procedurally and substantively unconscionable when made—i.e., some showing of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.‘” Bender, 292 Conn. at 732 (quoting Hottle v. BDO Seidman, LLP, 268 Conn. 694, 719 (2004)).18 Procedural
Noting that the quotation in Bender derived from Hottle v. BDO Seidman, a Connecticut Supreme Court case interpreting New York law, see 268 Conn. at 719–20 (citing Gillman v. Chase Manhattan Bank, N.A., 73 N.Y.2d 1, 10 (1988)), the district court relied instead on an earlier case applying Connecticut law. See Smith v. Mitsubishi Motors Credit of Am., Inc., 247 Conn. 342, 353 (1998) (“Even in the absence of procedural unconscionability, [the defendant] might avoid liability . . . if he could establish that the clause was substantively unconscionable.“); Tarpon Bay I, 2019 WL 4646061, at *9. But notwithstanding its New York origins, the Bender rule is controlling here. Bender interpreted Connecticut contract law, see 292 Conn. at 730–31 (collecting Connecticut cases on unilateral mistake), and applied the Hottle quotation as part of Connecticut contract law, see id. at 732–34 & n.26 (following its recitation of the Hottle quotation with an evaluation of both procedural and substantive unconscionability). What was once a statement of New York law is now adopted into Connecticut law. The Bender Court‘s general requirement that both unconscionability prongs be established is, therefore, “state law as announced by the highest court of the State,” and we are compelled to apply it. Comm‘r v. Bosch‘s Est., 387 U.S. 456, 465 (1967).
Smith may still supply an exception to the general rule in Bender. The Bender court only “generally require[d]” both unconscionability prongs and, in its statement of the rule on unconscionability, approvingly quoted another portion of Smith; the court did not appear to view the two cases in tension. See 292 Conn. at 731–32 (emphasis added). The Connecticut Supreme Court has never overruled or otherwise cast doubt on its unconscionability analysis in Smith. Moreover, the Hottle case—from which Bender derived its standard—held that under New York law, a contract may be rendered “unenforceable solely on the ground of substantive unconscionability.” Hottle, 268 Conn. at 720–21 (citing Gillman, 73 N.Y.2d at 12).
But acknowledging that Smith may provide an exception to Bender‘s general rule is not to say that only substantive unconscionability is required. Equating the two elides a question of degree. Proving oppressive terms under two-pronged unconscionability is already a difficult task, but prevailing on substantive unconscionability alone would require an even more onerous showing of oppression. Cf. Hottle, 268 Conn. at 721 (“[P]rocedural and substantive unconscionability operate on a ‘sliding scale‘; the more questionable the
Prevailing on unconscionability is generally difficult, and for good reason. It asks the court to step in and undo the allocation of risk in a contract. While courts have the power “to police explicitly against the contracts or clauses which they find to be unconscionable,” the principle underpinning unconscionability “is one of the prevention of oppression and unfair surprise . . . and not of disturbance of allocation of risks because of superior bargaining power.” U.C.C. § 2-302 cmt. 1 (Am. L. Inst. & Unif. L. Comm‘n 1977) (citation omitted).19
Unconscionability has its origins in Roman law doctrines of
Moreover, an unconscionability claim is typically reserved for vulnerable consumers seeking to prevent enforcement of exploitative terms by relatively more sophisticated businesses. See Emlee Equip. Leasing Corp. v. Waterbury Transmission, Inc., 31 Conn. App. 455, 465 (1993) (“Although [certain] provisions might be unconscionable in an ordinary consumer lease, a different conclusion may follow where, as here, the contract is a commercial finance lease executed by two
corporate entities.“); Iamartino v. Avallone, 2 Conn. App. 119, 126 (1984) (“The loan was a commercial, not a consumer, transaction.“); cf. Cheshire, 223 Conn. at 124–25 (Berdon, J., dissenting in part and concurring in part) (stating that the majority reviewed the case “through the lens of commercially savvy parties” instead of “between a professional mortgage lender and unsophisticated credit consumers who had a total monthly income below the poverty level“). Indeed, “[c]ourts do not generally find contracts unconscionable where the parties are businesspersons.” Stamford Hosp. v. Schwartz, 190 Conn. App. 63, 76 (2019) (quoting Emlee, 31 Conn. App. at 464); see also 1 James J. White, Robert S. Summers & Robert A. Hillman,First, the Signing Fee Note is not procedurally unconscionable. Both Zerez and Tarpon Bay are sophisticated commercial parties: Zerez is publicly traded, and both parties routinely invest in other companies. Murga, Zerez‘s then-CEO, was personally involved in the discussions with Aswani and had the opportunity to review the terms before signing. While Zerez alleges that Murga played no role in drafting the Signing Fee Note, there is no indication that Murga ever asked to edit any of the Signing Fee Note‘s provisions. See Joint App‘x at 917, 1297, 1303; see also Smith, 247 Conn. at 351–52 (“We have never held that principles of unconscionability supersede, in toto, the duty of a contracting party to read the terms of an agreement or else be deemed to have notice of the terms.“). Moreover, Zerez had counsel on retainer at the time of the Signing Fee Note‘s execution. In an
Zerez also argues that the Signing Fee Note was procedurally unconscionable because its business desperately needed to retire its debt, and the company was “susceptible to coercion” because “it was presented with only one choice to address its debt.” Cross-Appellant‘s Br. at 29. Zerez maintains that because Aswani told Murga that “signing of the Note was a prerequisite to entering in[to] a definitive agreement,” Murga understood that he “had no meaningful choice in negotiating its terms given Zerez‘s financial condition.” Id. at 30 (citations to record omitted). But Zerez could have walked away or engaged other parties if it did not like Aswani‘s terms. Zerez received cold calls from multiple entities yet nonetheless chose to proceed with Tarpon Bay. Joint App‘x at 871. Murga himself suggested that Zerez had options. He stated in a sworn declaration
Nor are the terms of the Signing Fee Note substantively unconscionable. Zerez argues that the Signing Fee Note is oppressive, even if redemption were limited to $25,000 in cash, because it was redeemed “for nothing” in return. Cross-Appellant‘s Br. at 24. That argument fails as a matter of law. “The general rule is that, in the absence of fraud or other unconscionable circumstances, a contract will not be rendered unenforceable at the behest of one of the contracting parties merely because of an inadequacy of consideration.” Rockstone Cap., LLC v. Caldwell, 206 Conn. App. 801, 815 (2021) (quoting, ultimately, Osborne, 153 Conn. at 533) (reversing trial court‘s holding that agreement was substantively
Zerez further contends that the Signing Fee Note is “even more” unconscionable “under the Note‘s conversion provision” that resulted in the claim of 278,958,900 shares, worth $2.23 million. Cross-Appellant‘s Br. at 24. In other words, Zerez challenges the method of payment of the Signing Fee—the conversion provision—rather than the fact that Zerez had to render payment at all ($25,000 or 278,958,900 shares). This argument, too, fails.
The Signing Fee Note allowed for two payment methods: (1) payment of a fixed $25,000 fee, in addition to accrued interest and other fees, or (2) payment of the same value in stock using a predetermined cash-to-stock conversion ratio, which was a “50%
Zerez‘s reliance on the conversion amount of $2.23 million to establish substantive unconscionability as a matter of law is also misplaced. The district court calculated the $2.23 million sum by multiplying the 278,958,900 shares that Tarpon Bay requested by $0.008, Zerez‘s stock price on November 28, 2016, one day before the Notice of Conversion. See Tarpon Bay II, 547 F. Supp. 3d at 208; supra note 11. But unconscionability is evaluated at the time of the contract‘s formation, not at any time thereafter when the oppression allegedly took place. See Cheshire, 223 Conn. at 89. At the time of the contract‘s formation, the Signing Fee Note obligated Zerez “to reserve at least Five hundred million (500,000,000) shares of its Common Stock for issuance to [Tarpon Bay] in connection with conversion of
This case does not involve vulnerable consumers seeking relief from unfairly surprising and oppressive terms. Instead, we are asked to undo an investment deal that unevenly distributed risk among sophisticated parties. For a commercial party like Zerez, unconscionability demands much more. Yes, the Signing Fee Note may have been executed under confusing circumstances, and yes, it may have featured terms benefitting one side more than the other. But that does not compel us to conclude on the record as currently developed that the Signing Fee Note—if it was a valid contract—was either unfairly surprising or oppressive. We vacate the district court‘s September 2019 order dismissing Tarpon Bay‘s claims on the basis that the Signing Fee Note is unenforceable. For the same reasons, we also vacate the district court‘s grant of summary judgment on
B. Consideration
In the same September 2019 order, the district court denied Tarpon Bay‘s motion for summary judgment on the Affirmative Claims because “there is a question of material fact with respect to whether the [Signing Fee Note] was supported by adequate consideration.” Tarpon Bay I, 2019 WL 4646061, at *7. We affirm that ruling. The factual issues regarding consideration may reasonably be resolved in favor of either party, and consideration is material to whether Tarpon Bay may prevail on its Affirmative Claims. The Affirmative Claims are accordingly remanded for trial.
“Under the law of contract, a promise is generally not
The Signing Fee Note reads in relevant part:
FOR VALUE RECEIVED, the Company promises to pay Tarpon Bay Partners, LLC... the principal sum of Twenty Five Thousand Dollars and No Cents ($25,000.00) . . . or such lesser principal amount following the conversion or conversions of this Note in accordance with Paragraph 2... payable on demand....
Joint App‘x at 1005. Because this language “raises a presumption of ... legal consideration,” Alcantara, 2017 WL 4621386, at *2 (quoting Raymond, 10 Conn. at 484), the burden shifts to Zerez to establish a genuine issue of material fact which, if taken as true, would rebut the presumption. See Taft Realty Corp. v. Yorkhaven Enters., Inc., 146 Conn. 338, 342-43 (1959); cf. Fieldpoint Priv. Sec. v. Fed. Ins. Co., No. FST-CV21-6049713-S, 2021 WL 5919792, at *5 (Conn. Super. Ct. Nov. 29, 2021) (“In connection with a hypothetical summary judgment motion, the court presumably would have before it a factual record, such that if the defendant were to present evidence affirmatively establishing (on a prima facie basis) that no consideration had been paid to the plaintiff by the Bermuda claimants, the burden would shift to the plaintiff to establish a material issue of fact as to payment of fees (or establish the non-materiality of the issue of payment).“). Tarpon Bay contends on appeal that Zerez failed to rebut the “for value received” presumption, and accordingly argues that summary judgment on the Affirmative Claims should enter in its favor. See Appellants’ Br. at 39-40, 45; Appellants’ Reply at 14–17.
We disagree. Zerez raises genuine issues of material fact that may, if resolved in its favor at trial, rebut the presumption of consideration. We discern from the parties’ summary judgment
- The Term Sheet is an unenforceable agreement to agree. But the Signing Fee Note was executed by Zerez in exchange for a return promise by Tarpon Bay—made at some point after the Term Sheet was signed but before the Signing Fee Note was executed—to begin the section 3(a)(10) transaction pursuant to the Term Sheet‘s contemplated deal structure.
- The Term Sheet is an unenforceable agreement to agree. But the Signing Fee Note was an offer by Zerez to induce Tarpon Bay to proceed with the section 3(a)(10) transaction. Tarpon Bay accepted that offer by commencing performance when it contacted creditors, executed Claim Purchase Agreements, and filed suit in Florida state court.
- The Term Sheet itself is a binding agreement. It includes a return promise by Tarpon Bay to begin the debt-for-equity transaction pursuant to the Term Sheet‘s contemplated deal structure. The Signing Fee Note is effectively an addendum that specifies the Signing Fee provision of the Term Sheet in greater detail.
We analyze the three possibilities in turn and conclude that Zerez meets its burden of production on rebutting each.
The first option is precluded because Zerez submitted
Q. Did Tarpon Bay have any obligation to purchase the liabilities of Zerez at the time the note was executed?
A. That certainly was the plan, and that‘s what happened.
Q. Do you have an understanding of whether that obligation existed at the time the promissory note was executed?
A. I believe—I‘m not a lawyer, but I believe that it was a valid note regardless of whether or not Tarpon Bay ultimately performed work.
Joint App‘x at 1203. If Tarpon Bay was entitled to the Signing Fee Note “regardless of whether or not Tarpon Bay ultimately performed work,” then there was no return promise to perform made by Tarpon Bay. Id. The Signing Fee Note would then be an unenforceable executory promise. To be clear, there is record evidence suggesting that Tarpon Bay made a return promise. Aswani stated to Murga during the Signing Fee Note negotiations that Murga would need to
The second option is precluded because the record does not clearly establish that the Signing Fee Note (separate and apart from the Term Sheet) was an offer that Tarpon Bay accepted by beginning performance. In its July 2021 decision, the district court evaluated Zerez‘s counterclaim for “breach of implied contract” and reasoned:
Some implied contract likely existed between the parties. Without executing the definitive documentation that the
Term Sheet called for, Tarpon Bay entered into Claim Purchase Agreements to acquire over $500,000 of Zerez‘s outstanding debt and filed the Florida Case. It is difficult to believe that Tarpon Bay would have undertaken those actions if it thought that Zerez had made no return promises.
Tarpon Bay II, 547 F. Supp. 3d at 212. Under this theory of implied contract, the Term Sheet was a nonbinding agreement to agree, and the Signing Fee Note was an offer by Zerez. Tarpon Bay then accepted Zerez‘s offer by return promise: not by verbally communicating a return promise, but by performance—namely contacting creditors, executing Claim Purchase Agreements, and filing the Florida lawsuit. See Restatement (Second) of Conts. § 50 cmt. b (“[T]he beginning of performance or a tender of part performance operates as a promise to render complete performance.“). Zerez was aware of Tarpon Bay‘s actions—two of its corporate officers were creditors whom Tarpon Bay had engaged—yet never objected or attempted to revoke the Signing Fee Note. Under this implied contract theory, Zerez‘s promise to pay the
But genuine issues of material fact remain as to whether there was valid offer and acceptance under this theory. An offer is a “manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.” U.S. Bank Nat‘l Ass‘n v. Eichten, 184 Conn. App. 727, 773 (2018) (quoting Restatement (Second) of Conts. § 24); see also Restatement (Second) of Conts. § 2 cmt. b (“A promisor manifests an intention if he believes or has reason to believe that the promisee will infer that intention from his words or conduct.” (emphasis added)). A factfinder may well conclude that, independent of Zerez‘s subjective intent, Tarpon Bay was justified in understanding the Signing Fee Note to be an invitation to initiate the transaction. Its execution, after all, shortly followed Aswani‘s statement to Murga that the Signing Fee Note was meant to
compensate Tarpon Bay for transaction services and was a prerequisite to entering into a definitive agreement, and Murga did not say anything to the contrary. See Joint App‘x at 1152. But as mentioned above, Hicks stated in deposition testimony that he believed Tarpon Bay was entitled to the Signing Fee Note “regardless of whether or not Tarpon Bay ultimately performed work.” Id. at 1203. That evidence supports the contrary conclusion that Tarpon Bay did not understand the Signing Fee Note as an offer that, once accepted, would compel performance. There is ultimately little evidence of “[t]he parties’ intentions manifested by their acts and words,” which “are essential to the court‘s determination of whether a contract was entered into and what its terms were.” Auto Glass Exp., Inc. v. Hanover Ins. Co., 293 Conn. 218, 225 (2009) (internal quotation marks and citation omitted). Because the questions of offer and acceptance are at the heart of this case and will benefit from a full
Finally, the third option is precluded because the record does not clearly establish that the Term Sheet was a binding agreement. Indeed, the Term Sheet contains a caveat:
The terms set forth above do not constitute a contractual commitment of the Company or the Purchaser, but merely represent proposed terms for possible liabilities satisfaction. Until definitive documentation is executed by all parties, there shall not exist any binding obligation....
Id. at 984 (emphasis added). The parties dispute the meaning and importance of “definitive documentation.” Zerez argues that because there was no “definitive documentation,” the Term Sheet does not represent a “binding obligation.” See Cross-Appellant‘s Br. at 34. Hicks testified that this paragraph was “leftover from a different... strategy” and unintentionally integrated into this transaction. Joint App‘x at 1206. Yet he also testified that the “definitive agreement is the complaint” filed in state court, and that “the claims purchase agreements are really the first thing as far as
The record in this case presents several genuine issues of material fact as to whether there was consideration supporting the Signing Fee Note. Because these factual issues “may reasonably be resolved in favor of either party,” Anderson, 477 U.S. at 250, the district court correctly held that Zerez established a genuine dispute of material fact as to whether the Signing Fee Note was supported by consideration. We affirm the district court‘s denial of summary judgment and remand the issue of contract formation for further
C. CUTPA
Zerez also argues that the district court erred in granting summary judgment on Counterclaim Eleven, which alleged that Counterclaim Defendants violated CUTPA. See
We affirm the district court‘s grant of summary judgment on the alternative grounds that CUTPA does not apply to the case at bar.25 “CUTPA does not apply to deceptive practices in the purchase
CUTPA does not apply to the alleged deception in this case. Zerez alleges that “Counterclaim Defendants‘... acts violate the Connecticut Unfair Trade Practices Act . . ., in that their conduct was unfair, immoral, oppressive, unethical, unscrupulous and/or deceptive and has caused substantial injury to Zerez.” Joint App‘x at 890. But any deceptive conduct would have been in furtherance of the parties’ transaction, which intended a sale of debt for equity pursuant to
Upon supervision and approval by a judicial or administrative body,
[A]ny security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court, or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval . . ..
Despite their exemption from registration, see
Any attempt to separate the Signing Fee Note from the underlying scheme to effectuate a
CUTPA may not exceed its broad yet well-defined limits where the transactions “for the purchase and sale of securities” are such that the federal securities laws would apply. Russell, 200 Conn. at 180.
IV. Conclusion
For the foregoing reasons, we VACATE the district court‘s holding that the Signing Fee Note was unconscionable and therefore unenforceable as a matter of law, AFFIRM the district court‘s denial of summary judgment because genuine issues of material fact remain as to whether consideration supported the Signing Fee Note, and AFFIRM the Judgment as to the CUTPA counterclaim. Without intimating a view on Zerez‘s counterclaims not raised on appeal, we accordingly REMAND to the district court for further proceedings consistent with this opinion.
Notes
[A]ny security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court, or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval . . . .
If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.