Sabby Healthcare Master Fund Ltd. v Microbot Med. Inc

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Sabby Healthcare Master Fund Ltd. v Microbot Med. Inc 2018 NY Slip Op 32429(U) September 28, 2018 Supreme Court, New York County Docket Number: 654581/2017 Judge: Barry Ostrager Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [*FILED: 1] NEW YORK COUNTY CLERK 09/28/2018 03:42 PM NYSCEF DOC. NO. 93 INDEX NO. 654581/2017 RECEIVED NYSCEF: 09/28/2018 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION PART IAS MOTION -----------------------------------------------------------------------------------X SABBY HEALTHCARE MASTER FUND LTD., SABBY VOLATILITY WARRANT MASTER FUND LTD INDEX NO. Plaintiff, -v- 654581/2017 MOTION DATE N/A MOTION SEQ. NO. 001 MICROBOT MEDICAL INC, Defendant. DECISION AND ORDER -----------------------------------------------------------------------------------X HON. BARRY R. OSTRAGER: The following e-filed documents, listed by NYSCEF document number (Motion 001) 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36,37, 38, 39,40,41,42,43, 81, 82, 83, 84, 85, 86 JUDGMENT-SUMMARY were read on th is motion to/for HON. BARRY R. OSTRAGER: Plaintiffs, Sabby Healthcare Master Fund Ltd. and Sabby Volatility Warrant Master Fund Ltd. (together, "Sabby"), seek rescission of a stock purchase agreement ("SPA") entered into with Defendant Microbot Medical Inc. ("Microbot"). Both parties moved for summary judgment following discovery. Sabby's motion for summary judgment was denied, on the record, during oral argument on September 27, 2018. The Court reserved decision on Microbot's motion for summary judgment. For the reasons stated herein, Microbot's motion for summary judgment is granted in part. On June 5, 2017, Sabby entered the SPA with Microbot to acquire 1,250,000 shares of Micro bot stock. Sabby' s complaint alleges that it entered the SPA based upon a purported representation in the SP A's Disclosure Schedule that an existing holder of Micro bot preferred stock, non-party Alpha Capital Anstalt ("Alpha"), was an "affiliate" of Micro bot. Sabby argues 654581/2017 SABBY HEALTHCARE MASTER FUND vs. MICROBOT MEDICAL INC Motion No. 001 1 of 4 Page 1of4 [*FILED: 2] NEW YORK COUNTY CLERK 09/28/2018 03:42 PM NYSCEF DOC. NO. 93 INDEX NO. 654581/2017 RECEIVED NYSCEF: 09/28/2018 that this purported representation was significant because Alpha, as an affiliate, would necessarily be subject to certain trading volume restrictions under SEC Rule 144(e )( 1). Specifically, the first footnote of Disclosure Schedule 3 .1 (g) states: "Each share of Series A Preferred Stock is convertible into 1,000 shares of common stock. It is a 'toothless' preferred stock that converts into 11, 916,000 shares of common stock subject to conversion limitations, and is held by Alpha Capital Anstalt, an affiliate of [Microbot]." (Sefick Aff. Ex. 9 [NYSCEF Doc. 35]). Sabby contends that Alpha was not an affiliate and, shortly after Sabby executed the SP A, began converting its preferred stock into common stock and selling shares in large enough volume to cause Microbot's share price to decline significantly, thereby causing injury to Sabby. On a motion for summary judgment, the movant bears the initial burden to "make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact." Alvarez v. Prospect Hosp., 68 N. Y.2d 320, 324 (1986). "Failure to make such prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers." Id. Microbot seeks to dismiss Sabby' s claim for breach of contract and rescission. Rescission "should be granted only when a party's breach is material and willful, or if not willful, so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract. More specifically, to warrant rescission, a party must allege fraud in the inducement of the contract; failure of consideration; an ability to perform the contract after it is made; or a breach in the contract which substantially defeats the purpose thereof" Premiere Acquisition Corp. v. Blue Jade Etnerprises, Inc., 2015 WL 1307203, at *2 (S.D.N.Y. Mar. 23, 2015) 65458112017 SABBY HEALTHCARE MASTER FUND vs. MICROBOT MEDICAL INC Motion No. 001 2 of 4 Page 2 of 4 [*FILED: 3] NEW YORK COUNTY CLERK 09/28/2018 03:42 PM NYSCEF DOC. NO. 93 INDEX NO. 654581/2017 RECEIVED NYSCEF: 09/28/2018 (emphasis added) (internal quotations and citations omitted). Further, "the equitable remedy is to be invoked only when there is lacking complete and adequate remedy at law." Id. Here, the record shows a material issue of fact as to whether the breach was so fundamental as to defeat the object of the SPA. Sabby submits testimony from its principals suggesting that they would not have entered the SPA, without additional lock-up restrictions on Alpha, but for the representation that Alpha was an affiliate and thus subject to certain other restrictions based on SEC rules. (See Grundstein Dep. at 32:22-33:03 [NYSCEF Doc. 30]). However, the record also contains email exchanges among Sabby principals that tend to suggest an awareness by Sabby that Alpha was not subject to any restrictions-including restrictions that an affiliate would be subject to under SEC rules. (See Sefick Aff. Ex. 11 [NYSCEF Doc. 37]). Further, while it is clear to the Court that the SPA's Disclosure Schedule does represent that Alpha was an affiliate, it is unclear whether such a contractual representation-made in a footnote-was so central to the parties' purpose in executing the SPA that a breach thereof warrants rescission. Therefore, Microbot, as the moving party, has not met its burden of proving as a matter oflaw that the SPA' s representation of Alpha as a Micro bot affiliate was not central to Sabby' s decision to consummate the transaction. Further, Microbot has not established, and has submitted no evidence tending to show, that Sabby has an adequate remedy at law or that the parties cannot be restored to the status quo ante. Accordingly, it is hereby ORDERED that Defendant's motion for summary judgment is granted to the extent of dismissing Plaintiffs' second cause of action for breach of contract and denied to the extent of 654581/2017 SABBY HEALTHCARE MASTER FUND vs. MICROBOT MEDICAL INC Motion No. 001 3 of 4 Page 3 of4 [*FILED: 4] NEW YORK COUNTY CLERK 09/28/2018 03:42 PM NYSCEF DOC. NO. 93 INDEX NO. 654581/2017 RECEIVED NYSCEF: 09/28/2018 dismissing Plaintiffs' first cause of action seeking rescission. The Clerk is directed to dismiss and sever the second cause of action; and it is further ORDERED that the parties are directed to contact the Court on October 23, 2018 to discuss a schedule for trial. 9/28/2018 DATE CHECK ONE: APPLICATION: CHECK IF APPROPRIATE: ~ CASE DISPOSED GRANTED D NO -FINAL DI P SITION DENIED GRANTED IN PART SETTLE ORDER SUBMIT ORDER INCLUDES TRANSFER/REASSIGN FIDUCIARY APPOINTMENT 654581/2017 SABBY HEALTHCARE MASTER FUND vs. MICROBOT MEDICAL INC Motion No. 001 4 of 4 D D OTHER REFERENCE Page 4 of 4

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