United States District Court, W.D. North Carolina, Charlotte Division
J. Conrad, Jr. United States District Judge.
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).
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).
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).
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. ¶
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.
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.).
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).
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).
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).
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
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
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