Rockmore Inv. Master Fund Ltd. v Power 3 Med. Prods., Inc.
Annotate this CaseDecided on December 23, 2010
Supreme Court, New York County
Rockmore Investment Master Fund Ltd., Plaintiff,
against
Power 3 Medical Products, Inc., Defendant.
600698/2010
Olshan Grundman Frome Rosenzweig & Wolosky LLP for plaintiff
Fox Rothschild LLP for defendant
O. Peter Sherwood, J.
Plaintiff, Rockmore Investment Master Fund, Ltd. ("Rockmore"), seeks an order granting summary judgment as to its First (Breach of Contract) and Second (Specific Performance) Claims for Relief alleging breach of a convertible debenture agreement ("Agreement" or "Debenture") issued by defendant, Power 3 Medical Products, Inc. ("Power 3") or in the alternative for an order directing Power 3 to deliver 4,497,093shares of its common stock to Rockmore pursuant to the Notice of Conversion, dated February 25, 2010. Rockmore also seeks an award of attorney fees.
At oral argument held on October 27, 2009, counsel for Power 3 argued that summary judgment should be denied because there are genuine issues of fact as to whether the principal amount on the note are "due and payable". Power 3 maintains that in order for the principal to become due and payable, Rushmore was required to physically surrender the Debenture to Power 3 in accordance with the provisions of Section 4(a) of the Agreement which Power 3 alleges, Rockmore failed to do. Rockmore maintains that the Debenture was sent to Power 3's agent, Thomas Waite, and was delivered to Power 3 at Power 3's corporate address in December 2009, well in advance of February 25, 2010, the date on which the Notice of Conversion("Notice") was sent to Power 3. Upon agreement of the parties, the court held an evidentiary hearing on the issue of whether the principal amount is due and payable.
Rockmore is an investor in a convertible debenture note, dated October 28, 2004, issued to Rockmore in the principal amount of $31,677.00. The note matured on October 8, 2007.
In the fourth quarter of 2009, Rockmore attempted unsuccessfully to exercise some of the warrants associated with the note. Michael Clateman, general counsel of Rockmore, testified that, after multiple attempts to speak with responsible Power 3 officials regarding the matter, he was advised by Sara Park to speak with Thomas Waite, who she referred to as "our attorney". Sara Park is an assistant to Helen Park, interim chief executive officer of Power 3. [*2]
Clateman spoke with Waite in December 2009 regarding Rockmore's efforts to exercise common stock warrants ("Warrants"). According to Clateman, Waite said he would take care of it but needed to have the original Debenture and certain other documents. The Debenture and other documents as requested were forwarded along with a cover letter to Waite by FedEx at Power 3's address on December 16, 2009. The package was delivered to "reception," and signed for by "Jackson" on December 17, 2009, according to the FedEx proof of delivery tracking system (see Ex. P-7). Clateman testified that no one ever advised Rockmore that the original Debenture were not received.
On December 23, 2009, Clateman sent a letter to Helen Park by email and facsimile describing Rockmore's efforts to exercise the Warrants and complaining of the failure of Power 3 to respond to Rockmore's efforts. The letter recites that Clateman was referred to Waite, that Waite represented that he needed the original documents that the documents were sent via FedEx and that the package was signed for. It also recites that in a telephone conversation held on December 22, 2009 Waite again promised to "take care of it" after he returned from holiday (see P-2). The letter arrived while Park was out of the office and was forwarded to Ira Goldnopf by Ms. Park's email system (see id).[FN1] Park testified that she received the letter but did not read it.
Helen Park also testified that Waite was a consultant to Power 3 and was authorized to communicate with Rockmore "on a consultant basis." He is not an officer of the company and was not authorized to accept debentures on behalf of Power 3. Park identified Ira Goldknopf as the company official responsible for handling conversions. She testified that the company did not receive the original Debenture and that no one by the name "Jackson" works at Power 3. Neither Waite nor Goldnopf were called to testify. She did not explain the company's failure to respond to Rockmore's efforts to communicate with company officials, her failure to read Clateman's demand letter, the lack of any action by Goldnopf in connection with the demand letter or the absence of evidence of efforts to locate the original Debenture once Power 3 learned that it had been sent to Waiter's attention by Rockmore.
In a facsimile transmission dated February 25, 2010, Rushmore delivered to Power 3 a
Notice of Conversion of the entire principal amount of the promissory note issued along with the
Debenture plus accrued interest at the rate of 18% into 4,497,093 shares of common stock for a
conversion price of $0.01 per share. On the Notice of Conversion Rushmore wrote: "Note: Our
original Convertible Debenture was delivered to the Company on December 16, 2009". Ex P-5.
The Notice was addressed to Helen Park, Steven Rash (former CEO of Power 3) and Waite. The
loan matured on October 27, 2007. Rockmore argues that because Power 3 failed to pay the
principal amount of $31, 677 within five (5) days of that date, an "Event of Default" occurred.
The default interest rate of 18% per annum commenced on November 2, 2007. It states that it is
entitled to either monetary damages or delivery of shares it sought to convert pursuant to the
Notice Of Conversion. The Notice, dated February 25, 2010 states that the principal amount
owed on the Debenture was $44,970.93 and that the number of shares to be issued was 4,497,093
at a conversion price of $0.01 per share.[FN2]
[*3]DISCUSSION
Summary judgment is a drastic remedy which will be granted only when the party seeking summary judgment has established that there are no triable issues of fact (see CPLR 3212[b]; Alvarez v. Prospect Hosp., 68 NY2d 329 [1986]; Sillman v. Twentieth Century-Fox Film Corporation, 3 NY2d 395 [1957]). To prevail, the party seeking summary judgment must make a prima facie showing of entitlement to judgment as a matter of law tendering evidentiary proof in admissible form (see Alvarez v. Prospect Hosp., supra; Zuckerman v. City of New York, 49 NY2d 557 [1980]). Once this showing has been made, the burden shifts to the party opposing the motion summary judgment to rebut the prima facie showing by producing evidentiary proof in admissible form sufficient to require a trial of material issues of fact (see Kaufman v. Silver, 90 NY2d 204, 208 [1997]). On a motion for summary judgment, it is not the function of the court to assess credibility (see Ferrante v. American Lung Assn., 90 NY2d 623, 631 [1997]). In deciding the motion, the court must view the evidence in a light most favorable to the party opposing the motion and must give that party the benefit of every favorable inference (see Negri v. Stop & Shop, Inc., 65 NY2d 625 [1985]).Pursuant to the Agreement, Rockmore was entitled to convert some or all of the Warrants it held. Rockmore delivered a Notice of Conversion of all of its Warrants pursuant to Section 9(a) of the Agreement on February 25, 2010. Section 8(a) of the Agreement, provides that a failure to pay "the principal amount ... when same shall become due and payable" constitutes an "event of default."
Power 3 concedes that the principal amount (and interest) under the terms of the Debenture has not been paid. It argues that there has been no event of default because Rockmore failed to physically surrender the Debenture to the company pursuant to Section 4(a) of the Agreement which Power 3 claims is a precondition of any obligation to pay. Power 3 adds that such surrender must be made in the manner provided for in Section 9(a) of the Agreement.
Section 4(a) of the Agreements, entitled "Voluntary Conversion", provides in relevant part
that:
This Debenture shall be convertible into shares of Common Stock at the option of
the Holder ... The Holder shall effect conversions by delivering to the Company the form of
Notice of Conversion attached hereto as Annex A (a "Notice of Conversion"), specifying therein
the principal amount of Debentures to be converted and the date on which such conversion is to
be effected (a "Conversion Date"). To effect conversions hereunder, the Holder shall not be
required to physically surrender Debentures to the Company unless the entire principal amount of
this Debenture has been so converted. The Company shall deliver any objection to any Notice of
Conversion within Business Day receipt of such notice.
Where as in this case, Rockmore seeks to convert all of the warrants it holds, Section (4)(a) of the Agreement requires that the original debentures be surrendered no later than at the time the conversion is effectuated. Rockmore has submitted documentary proof that it caused the original Debentures to be delivered by FedEx addressed to Waite at the company address and that the package was delivered to "reception" and accepted by a person who gave the name "Jackson". Additional documentary proof reveals that on December 23, 2009, Helen Park and Goldnopf received notice that the original Debentures were delivered and signed for by "Jackson" on December 16, 2009. [*4]
By a facsimile dated February 25, 2010, Rockmore sent a
Notice of Conversion to Power 3 and addressed it to the attention of Helen Park, Steven Rash
and Tom Waite. Thus, the conversion was effectuated on February 25, 2010 and the principal
amount became due and payable unless delivery of the warrants is deemed ineffective for failure
to satisfy requirements governing such delivery. Section 9(a) of the Agreement states in relevant
part that:
Notices. Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any Notice of Conversion,
shall be in writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service, addressed to the Company, at the address set forth above, facsimile
number (281) 466-1480, Attn: Steven B. Rash, or such other address or facsimile number as the
Company may specify for such purposes by notice to the Holders delivered in accordance with
this Section. Any notice or other communication or deliveries hereunder shall be deemed given
and effective on the earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile (and the sender receives a confirmation of successful transmission) at the
facsimile telephone number specified in this Section prior to 5:30 p.m. (New York City time).
The undisputed testimony shows that the original warrants were sent by means substantially
in compliance with the requirements of the notice clause of the Agreement. It was "sent by a
nationally recognized overnight courier, addressed to the Company, at the address set forth" on
the first page of the Agreement (see P-1). Thus, as of December 17, 2009, the original
warrants were in the possession of Power 3. Moreover, Goldnopf, the Power 3official responsible
for conversions, was on notice delivery of the warrants no later than December 23, 2009.
Because the warrants had been delivered to power 3, it cannot now rely on Section 9(a) to thwart
Rockmores efforts to exercise them in February 2010 (see Kooleraire Service & Installation
Corp. v. Bd. of Educ. Of City of New York, 28 NY2d 101, 106 [1971]). The court concludes
that there has been an "Event of Default" arising from the failure of Power 3 to make payment
when due and payable (see Agreement, Section 8[a][i]).
DAMAGES
The parties agree that damages, if any, must be computed on the basis of the following which appears at Section 1 of the Debenture:
"Mandatory Prepayment Amount" for an Debentures shall equal the sum of (I) the greater of: (A) 130% of the principal amount of Debentures to be prepaid, or (B) the principal amount of Debentures to be prepaid, divided by the Conversion Price on (x) the date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is paid in full, whichever is less, multiplied by the Closing Price on (x) the date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is paid in full, whichever is greater, and (ii) all other amounts, costs, expenses and liquidated damages due in respect of such Debentures.
At the trial, counsel for plaintiff presented evidence regarding the closing price of Power 3 stock on or around February 25, 2010 and examined Helen Park regarding the same. By letter dated, December 13, 2010, defendant's counsel sought to respond to plaintiff's claim and to recompute the amount of damages. [*5]
The parties agree that the Closing Price is $0.13 which is the price of the stock on the Maturity Date (October 28, 2007). Plaintiff maintains that the Conversion Price should be the lowest price at which the stock was sold at anytime between the effective date of the Debenture (October 28, 2004) and the date the Notice of Conversion was delivered (February 25, 2010). That price is $0.01 per share. Defendant argues that the Conversion Price is the lowest price at which the stock was sold at anytime between October 28, 2004 and October 28, 2007. According to defendant, that price is $0.06 per share.
The record on the issue is not developed because the evidentiary hearing held on December 3, 2010 was to address whether or not the Debenture was due and payable. For this reason, the court will not address the issue of damages at this time except to note that the defense of usury must be rejected because it is barred under the terms of the Debenture (see Debenture §9[f]) and New York law (see General Obligations Law §5-521[1]; Hicki v. Choice Capital Corp., 264 AD2d 710, 711 [2d Dept 1999]).
It is
ORDERED that Rockmore's motion for summary judgement is granted; and it is further
ORDERED that absent agreement by the parties as to the amount of damages, the
parties shall appear at a trial on the issue on February 14, 2011 commencing at 9:30 AM in Part
61, Courtroom 341, 60 Centre Street, New York, New York.
DATED: December 23, 2010ENTER,
______________________________
O. Peter Sherwood
J.S.C.
Footnotes
Footnote 1: Goldnopf is the President of
Power 3.
Footnote 2: The "Conversion Price" is the
lowest price at which the stock has traded (see Debenture, §5[b]). Prior to February
25, 2010 the stock sold for as little as $0.01 per share.
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