Brio Capital, L.P. v Sanswire Corp.
Annotate this CaseDecided on December 21, 2011
Supreme Court, New York County
Brio Capital, L.P., Plaintiff,
against
Sanswire Corp. f/k/a GLOBETEL COMMUNICATIONS, INC., GLENN D. ESTRELLA, and DOES 1 through 50, inclusive, Defendants.
650830/2011
APPEARANCES:
For Plaintiff:
Corrigan & Morris
201 Santa Monica Blvd.
Suite 475
Santa Monica, CA 90401
(Stanley C. Morris,
Brian T. Corrigan)
For Defendants:
LoPresti & Associates, PLLC
30 Broad St., 37th floor
New York, NY 10004
(Anthony A. LoPresti)
Bernard J. Fried, J.
Plaintiff Brio Capital, L.P. (Brio), moves for summary judgment on its first cause of action, and for dismissal of the defenses asserted in the answer of defendant Sanswire Corp. (Sanswire). The motion is granted to the extent of awarding Brio declaratory relief on its first cause of action, and is otherwise denied.
In October 2006, Brio, an investment company, loaned Sanswire $125,000 subject to the terms of a 7% convertible note, two related warrants, and a subscription agreement (exhibits B [*2]through E, respectively, to Hirsch Aff. in support). Sanswire is a publicly-traded aerospace company that manufactures lighter- than-air unmanned aerial vehicles used primarily for reconnaissance.
By notice of exercise dated November 17, 2010, Brio sought to exercise two warrants (the warrants), a class A and a class B warrant, each of which entitled Brio to purchase up to 169,198 shares of Sanswire common stock at an exercise price of $0.75, within five years of October 6, 2006.
Section 3.4 of the warrants provides, as pertinent, that, if, while the warrants are outstanding, Sanswire shall:
offer, issue or agree to issue any common stock ... to any person or entity at a price ... which shall be less than the Warrant Exercise Price ... without the consent of each Holder holding warrants and/or other Securities then [Sanswire] shall issue, for each such occasion, additional shares of Common Stock to each such Holder so that the average per share purchase price of the shares of Common Stock issued to the Holder (of only the Conversion Shares or Warrant Shares owned by the Holder) is equal to such other lower price per share and the Warrant Exercise Price shall automatically be reduced to such other lower price per share
(ex. A to Atkinson aff.).
The subscription agreement also provides that the holder may make a "cashless exercise" of its conversion rights, by tendering common stock in the event that a registration statement has not been filed and duly declared effective. It is undisputed that no registration statement has been filed.
On September 11, 2008, Sanswire issued 13,073,116 shares of its stock to two other holders of substantively identical warrants, at an exercise price of $0.03115 per share. That issuance resulted from an action in Supreme Court, New York County captioned, Hudson Bay Fund LP and Hudson Bay Overseas Fund, LTD, v Sanswire Corp. f/k/a Globetel Communications Corp., 650366/2009, decided on March 4, 2011 (the Hudson Bay action, ex. B to Request for Judicial Notice).
By this issuance of common stock below the warrant exercise price, Sanswire triggered the share issuance rights, pursuant to the terms of the warrants, of all Sanswire warrant holders, including Brio. Brio contends correctly that the terms of the share issuance provision require Sanswire to reduce the exercise price of the warrants to $0.03115, the same price at which the two Hudson entities executed their cashless exercise.
On November 27, 2010, Brio exercised the warrants, claiming a net entitlement after calculation of the cashless exercise formula of 6,215,543 shares on the class A warrant, and 3,551,739 shares on the class B warrant, using the $0.03115 exercise price.
Brio moves for summary judgment on the first cause of action in its complaint, which seeks to compel Sanswire, either by specific performance or declaratory relief, to issue it additional shares of common stock pursuant to its exercise of its rights under the terms of the warrants. Alternatively, Brio seeks an award of damages for breach of contract, and also [*3]pursuant to a liquidated damages provision in section 15 (i) of the subscription agreement. Brio also seeks attorneys' fees. In opposition to Brio's motion, Sanswire argues for an alternative construction of the language in section 3.4 of the warrants, quoted above, that requires Sanswire to issue additional shares "so that the average per share purchase price of the shares of Common Stock issued to the Holder (of only the Conversion Shares or Warrant Shares owned by the Holder) is equal to such other lower price per share ... ."
Sanswire contends that the word, "issued," being in the past tense, refers to shares that have already been issued and are still in the warrant holder's possession. Under Sanswire's construction, Brio would not be entitled to the lower price because it owned no other shares at the time of exercise of the warrants.
Sanswire cites section 1.7 of the warrants, which provides that the common stock issued upon exercise of the warrants shall be deemed issued at the close of business on the day the warrant is surrendered, for its proposition that because there were no shares issued to Brio at the time of exercise, it is not entitled to the reduced price. This does not have any bearing on the correctness of Sanswire's construction of section 3.4. It would only apply if Sanswire's construction were applied.
Sanswire also relies upon the exercise by Castle Creek Technology Partners, LLC, another Sanswire warrant holder, that followed Sanswire's methodology in exercising its warrants.
Sanswire's proposed construction, which is contrary to construction given to the same provision in the Hudson Bay case, is also contrary to the plain meaning of section 3.4. "[I]ssued to the holder," in this context, plainly refers to the stock being issued pursuant to section 3.4. Using Sanswire's construction, a holder of Sanswire common stock that had purchased the shares from a third party or on an exchange, rather than having them issued to it by Sanswire, would be treated differently under section 3.4 from a holder to whom the shares had been issued directly by Sanswire. Such a strained construction is untenable.
Despite Sanswire's insistence that the caption of section 3.4 of the warrant, "share issuance," does not denote anti-dilution, the inescapable purpose of that provision is to protect a warrant holder from dilution.
Sanswire's "attempt to insert ambiguity into the ... clause contained in the ... agreement between the parties ... is unpersuasive. A written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms [internal quotation marks and citation omitted]" (Kolmar Americas, Inc. v Bioversal Inc., ___AD3d____, 2011 NY Slip Op 07916 *1 [1st Dept 2011]).
"Whether a contract is ambiguous is a question of law for the court and is to be determined by looking within the four corners of the document [internal quotation marks and citations omitted]" (Triax Capital Advisors, LLC v Rutter, 83 AD3d 490, 492 [1st Dept 2011]).
Under principles of contract interpretation, "language in a contract will be deemed unambiguous only if it has a definite and precise meaning, unattended by danger of misconception in the purport of the [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion [internal quotation marks and citations omitted]" (Johnson v Lebanese American University, 84 AD3d 427, 429 [1st Dept 2011]).
Under the foregoing principles of contract interpretation, Sanswire's construction of the [*4]meaning of "issued" in section 3.4 of the warrants is rejected.
Brio's motion for attorney's fees is granted pursuant to section 15 (e) of the subscription agreement (Ex. E to Hirsch Aff.).
Accordingly, it is
ORDERED that the motion for summary judgment (CPLR 3212) of plaintiff, Brio Capital, L.P., is granted, to the extent of awarding it judgment, on its first cause of action, seeking declaratory relief, and is otherwise denied; and it is further
ADJUDGED AND DECLARED that plaintiff Brio Capital, L.P., shall have judgment declaring that Sanswire is contractually obligated to honor the Notice of Exercise, dated November 17, 2010, and issue the shares requested therein, in accordance with the terms of the warrants; and it is further
ORDERED that the motion of plaintiff Brio Capital, L.P., for an award of reasonable attorney's fees is granted pursuant to paragraph 15 of the subscription agreement; and it is further
ORDERED that the issue of the amount of plaintiff's reasonable attorney's fees is severed, and is referred to a Special Referee to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation of the parties, as permitted by CPLR 4317, the Special Referee, or another person designated by the parties to serve as referee, shall determine the aforesaid issue; and it is further
ORDERED that this motion for attorney's fees is held in abeyance pending receipt of the report and recommendations of the Special Referee and a motion pursuant to CPLR 4403 or receipt of the determination of the Special Referee or the designated referee; and it is further
ORDERED that Sanswire shall serve and file an answer to the complaint within five business days after service of a copy of this order with notice of entry.
DATED:____________________
E N T E R:
_________________________________
J. S. C.
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