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Prassas Capital, LLC v. Blue Sphere Corp.

United States District Court, W.D. North Carolina, Charlotte Division

March 30, 2018



          Robert J. Conrad, Jr. United States District Judge.

         THIS MATTER is before the Court on Prassas Capital, LLC's (“Plaintiff”) Motion to Dismiss Blue Sphere Corporation's (“Defendant”) Counterclaims, (Doc. No. 13); its Memorandum in Support, (Doc. No. 14); Defendant's Memorandum in Opposition, (Doc. No. 20); and Plaintiff's Reply in Support of it Motion to Dismiss, (Doc. No. 26).

         I. BACKGROUND

         A. Procedural Background

         On March 15, 2017, Plaintiff filed its complaint alleging that Defendant breached its contract with Plaintiff requiring the payment of a financing fee in return for Plaintiff's help arranging a financing agreement. (Doc. No. 1 at 2). Defendant then filed an answer accompanied by counter claims. (Doc. No. 7). In response, Plaintiff filed its Motion to Dismiss Counter Claims. (Doc. No. 13).

         B. Factual Background

         The facts alleged in Plaintiff's Complaint are as follows. Plaintiff is an Arizona limited liability company with its principle place of business in Arizona. (Doc. No. 1 ¶ 1). Defendant is a corporation organized under the laws of Nevada but maintains its principle place of business in in Mecklenburg County, North Carolina. (Id. ¶ 2); (Doc. No. 7 at 2). Plaintiff alleges that it entered into an agreement (“the Agreement”) with Defendant around December 30, 2013. (Doc. No. 1-1). The Agreement provided that Plaintiff would aid Defendant with financial advisory services in relation to two “waste-to-energy” projects Defendant aimed to complete. (Doc. No. 1 ¶ 6). These projects would take place in Mecklenburg County, North Carolina (“NC Project”) as well as Johnston, Rhode Island (“RI Project”). (Id.). Plaintiff asserts that the terms of the Agreement provided that, upon the closing of any financing agreement, Plaintiff would be owed a financing fee. (Id. ¶ 6).

         After the Agreement was finalized, Plaintiff argues that both the NC and RI Projects received financing and that, pursuant to the Agreement, Plaintiff is now owed its financing fee. (Id. ¶¶ 8-9, 11-12). The NC Project financing fee amounted to $1, 640, 651 under the Agreement while the RI Project fee amounted to $800, 000. (Id. ¶¶ 9, 12). Of these fees, Plaintiff states that Defendant paid part, but not all, of the required fees. Of the $1, 640, 651 owed for the NC Project, Plaintiff claims that Defendant paid $300, 000, leaving an outstanding balance of $1, 340, 651. (Id. ¶ 10). Of the $800, 000 owed for the RI Project, Plaintiff claims that Defendant was unable to pay that fee and, as a result, a second agreement was made between the parties to parse out the terms of the project's payment of financing fees. (Id. ¶ 13); see also (Doc. No. 1-2). This second agreement (“Letter Agreement”) provided that Defendant agreed to: (1) pay Plaintiff the $800, 000 in installments; and (2) grant 7, 000, 000 warrants to purchase 7, 000, 000 shares of common stock in Defendant's corporation. (Id. ¶ 14). To date, Plaintiff states that Defendant paid a total of $533, 333.33 toward the RI Project balance, leaving $266, 666.67 unpaid. (Id. ¶ 16).

         Not only does Plaintiff allege that Defendant failed to pay the requisite fees for the NC Project under the Agreement, but they also allege that Defendant then breached the Letter Agreement by failing to make its payment installments. (Id. ¶ 17). As a result, Plaintiff claims that they began demanding payment from Defendant to pay the balance of both projects. (Id.). In response, Plaintiff claims that Defendant, through its CEO, Shlomo Palas, reaffirmed its obligations to pay Plaintiff and asked for further accommodations due to expected future sources of revenue. (Id.). According to Plaintiff, the last affirmation from Palas took place as recently as January 25, 2017. (Id.). Today, Plaintiff states that Defendant has yet to pay the remaining balances on the NC and RI Projects. (Id. ¶ 18). Plaintiff believes that Palas' promise to repay Plaintiff were false and made with the intent to delay Plaintiff's action to collect. (Id.). Plaintiff brings this action to recover the balance remaining under both agreements.

         Defendant disagrees with Plaintiff's explanation of Defendant's obligations. In fact, Defendant claims that Plaintiff wrongfully demanded payment under the terms of the two agreements. First, Defendant claims that neither agreement is valid. To begin with, Defendant points out that Plaintiff's attached exhibit of the first financial agreement was not signed. (Doc. No. 7 ¶ 6). Plaintiff has since produced a signed copy. (Doc. No. 15-1). Second, Defendant contends that the agreements were void under the Securities Exchange Act (“SEA”). Defendant claims that, under the SEA, Plaintiff acted as a “broker” in “encouraging, soliciting, and facilitating financing transactions that constituted securities” under the act. (Doc. No. 7 ¶¶19-22). Defendant concludes that, because Section 15(a) of the SEA requires brokers to be registered, and because Plaintiff is not a registered broker, Section 29(b) of the SEA voids the agreements at issue. (Id.).

         Even if the agreements were valid, Defendant states that the terms of the agreements were never fulfilled. Specifically, Defendant claims that a “closing” never occurred as defined by the agreement, thus preventing the triggering of paying a financial fee to Plaintiff. (Id. ¶ 7). Rather, “closing” was defined as the “receipt of funds in cash by the Company.” (Id. ¶ 10). Because Defendant never received “cash, ” a closing never occurred and Plaintiff was never owed a financing fee. (Id. ¶ 14). The only parties to receive cash, Defendant claims, were two limited liability companies that were neither subsidiaries nor affiliates to Defendant. Defendant also claims that it never received funds for “full financing” of either the NC or RI Projects. (Id. ¶ 11).

         Defendant also makes the argument that Plaintiff misled Defendant. While Defendant admits to paying portions of Plaintiff's alleged financing fees, it claims that any payment was mistaken and resulted from Plaintiff's “wrongful, negligent, and/or fraudulent demand for payment under the terms of the Agreement.” (Id. ¶¶ 10, 15). In making this argument, Defendant characterizes Plaintiff as fiduciary of sorts, stating that Plaintiff, “a sophisticated financial services company, and fiduciary to [Defendant], ” was “well familiar with its own engagement agreements [and] wrongfully, negligently, and/or fraudulently demanded payment from [Defendant] under the Agreement.” (Id. ¶ 15). Because Defendant lacked “similar sophistication and familiarity with the Agreement, ” Defendant claimed it mistakenly paid up to $833, 333.00 to Plaintiff when that amount was never actually due. (Id. ¶ 16).


         On a motion to dismiss for failure to state a claim, the Court must accept the factual allegations of the claim as true and construe them in the light most favorable to the nonmoving party. Coleman v. Maryland Ct. of Appeals, 626 F.3d 187, 189 (4th Cir. 2010). To survive the motion, the “complaint must contain sufficient factual matter, accepted as true, ‘to state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). To be “plausible on its face, ” a plaintiff must demonstrate more than “a sheer possibility that a defendant has acted unlawfully.” Id. A plaintiff therefore must “articulate facts, when accepted as true, that ‘show' that the plaintiff has stated a claim entitling [it] to relief, i.e., the ‘plausibility of entitlement to relief.'” Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (quoting Iqbal, 556 U.S. at 678).


         Prior to addressing the Plaintiff's motion to dismiss Defendant's counter claims for failure to state a claim, the Court first acknowledges the choice of law clause found within the Agreement between Plaintiff and Defendant. It states:

This Agreement and any claim or dispute of any kind or nature whatsoever arising out of or in any way relating to this Agreement, directly or indirectly, shall be governed by and construed in accordance with the laws of Arizona state applicable to contracts executed and to be wholly performed therein without giving effect to its conflicts of laws, principles or rules.

(Doc. No. 1-1). Neither Plaintiff nor Defendant have cited Arizona law in their memoranda or mentioned this clauses' applicability. Nonetheless, this Court finds it necessary to clarify the choice of law applicable to Defendant's counter claims.

         When faced with contractual claims, “North Carolina courts generally apply the law of the place where the contract was made.” Synovus Bank v. Coleman, 887 F.Supp.2d 659, 668 (W.D. N.C. 2012). Additionally, “where the contracting parties have agreed ‘that a given jurisdiction's substantive law shall govern the interpretation of the contract, such a contractual provision will be given effect.'” Id. (quoting Tanglewood Land Co. v. Byrd, 261 S.E.2d 655, 656 ( N.C. 1980)). When it comes to tort claims, however, North Carolina courts traditionally apply the rule of lex loci delicti. Id. This rule mandates that, “[f]or actions sounding in tort, the state where the injury occurred is considered the situs of the claim.” Id. (quoting Boudreau v. Baughman, 368 S.E.2d 849, 853-54 ( N.C. 1988)). When it comes to financial loss, there is no bright-line rule determining where that injury took place. Id. Here, because Defendant's principle place of business is in North Carolina, and because ...

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