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COHANZICK PARTNERS, L.P. v. FTM MEDIA

October 31, 2000

COHANZICK PARTNERS, L.P., A LIMITED PARTNERSHIP, PLAINTIFF,
V.
FTM MEDIA, INC., DEFENDANT.



The opinion of the court was delivered by: McMAHON, District Judge.

DECISION AND ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT, DISMISSING COUNTERCLAIM, AND ORDERING INQUEST ON ATTORNEYS' FEES

Plaintiff Cohanzick Partners, L.P., has moved for summary judgment awarding it $400,000, which is the amount of bridge financing advanced by plaintiff to Defendant FTM Media, Inc., plus interest and attorneys' fees. The debt is evidenced by a Note. FTM insists that plaintiff elected to convert that bridge financing to equity pursuant to paragraph 3.1 of the Note, thus vitiating defendant's obligation to repay the bridge loan. FTM, which seeks a declaration that it no longer owes Cohanzick the $400,000, urges that there are genuine issues of material fact that preclude the entry of summary judgment in Cohanzick's favor. Cohanzick seeks dismissal of FTC's counterclaims, none of which can stand if Cohanzick prevails on its complaint.

Unfortunately for FTM, I can find no disputed issue of fact in the record before me, and the contract construction issues presented by the various documents in the record are as straightforward under Arizona law (which governs) as they would be under New York law. Accordingly, Cohanzick's motion for summary judgment is granted and the counterclaims are dismissed.*fn1

BACKGROUND FACTS

The following facts are for the most part undisputed. On this motion for summary judgment, I view them, as I must, in the light most favorable to the non-moving party, FTM.

Cohanzick is a private equity investor. It was first introduced to FTM some time in late 1999, when FTM (or "Feed the Monster") Media, Inc., an electronic media and content developer for major-market radio stations, was seeking investors in its private placement. Cohanzick's management received materials relating to FTM's private placement, and, on or about January 17, 2000, met with Ron Conquest of FTM to discuss the private placement. (Sherman Aff. ¶ 8; Conquest Aff. ¶ 4)

Subsequently, Cohanzick was asked to provide FTM with bridge financing until FTM could complete the private placement. Cohanzick expressed an interest in providing such financing to FTM. FTM then provided Cohanzick with draft documents regarding the bridge financing. The documents as originally drafted included the Note, a Warrant, and two separate documents legended "agreement:" a Loan Agreement and a Subscription Agreement.

After negotiations, the documents were revised to reflect the parties' agreement that Cohanzick and another entity, Cohanzick High Yield Partners, L.P., would each make a separate bridge loan to FTM. The loan from Cohanzick was to be in the amount of $400,000 and the loan from Cohanzick High Yield Partners, L.P., was to be in the amount of $100,000. The parties also agreed that, for each loan, there would be separate transaction documents, consisting of a Subscription Agreement, a Senior Promissory Note and a Warrant. (Sherman Aff. ¶¶ 9-10; Conquest Aff. ¶¶ 5-7)

On or about February 29, 2000, FTM executed and delivered to Cohanzick the Senior Promissory Note in the principal amount of $400,000. (Ex. F)*fn2 At the same time FTM also delivered to Cohanzick an executed Subscription Agreement (Ex. G), and an executed Warrant. (Ex. H) David K. Sherman, the President of Cohanzick, (i) executed the Subscription Agreement, (ii) returned the signed Subscription Agreement to FTM, and (iii) caused $400,000 to be wired to FTM. Cohanzick retained the executed Warrant. (Sherman Aff. ¶ 11; Conquest Aff. ¶¶ 7-8)*fn3 It is undisputed that the parties did not execute the Loan Agreement that had been included in the original set of draft documents prepared by FTM and sent to Cohanzick. Indeed, FTM candidly admits that Sherman rejected the idea of a second "Agreement" as "repetitive." (FTM's Rule 56.1 Statement of Facts ("FSOF") at ¶ 3)

Under the terms of the Note, FTM promised to pay to Cohanzick the principal sum of $400,000, together with interest thereon at the rate of 10% per annum, upon the earlier of (i) FTM's receipt of the proceeds generated from the closing of FTM's Private Placement "Minimum" offering, or (ii) 180 days from February 29, 2000. (Ex. F at ¶ 2)

The Note also contains a provision that allows Cohanzick to elect, at its sole option, to convert the unpaid portion of the Note, including any accrued interest, into equity in FTM. (See Ex. F at ¶ 3) The Note requires that the "Holder shall give the Company one (1) day notice of such conversion." (See Ex. F at ¶ 3) As for the manner of proper notice, the Note provides that

any notice required or permitted to be given hereunder shall be given by the Company to Holder or Holder to the Company in accordance with Agreemenlt.

(Ex. F at ¶ 6.3) (emphasis added)

The word "Agreement" is not a defined term in the Note (Ex. F), and, as noted above, FTM had originally proposed that the parties sign two different agreements: the Loan Agreement and the Subscription Agreement. Predictably, each of those proposed agreements contains a differently-worded notice provision. The Subscription Agreement provides that any notice that may be given must be in writing. Specifically, paragraph 8.2 of the Subscription Agreement, states:

All notices, requests, demands and other communications which are required to be or may be given under this Agreement to any party to any of the other parties shall be in writing and shall be deemed to have been duly given and received when (a) delivered in person, the day following dispatch by an overnight courier service (such as Federal Express or UPS, etc.) or (b) five (5) days after dispatch by certified or registered first class mail, postage page, return receipt requested, to the party to whom the same is so given or made:
If to the Company addressed to: FTM Media, Inc. 6991 East Camelback Road Suite D-103 Scottsdale, Arizona 85251 Attn: Scott Manson
If to Purchaser: COHANZICK PARTNERS, L.P. c/o Cohanzick Management, Inc. 427 Bedford Road Suite 230 Pleasantville, New York 10570

(Ex. G at ¶ 8.2) (emphasis added). The draft Loan Agreement, by contrast, provided as follows:

Although any notice required to be given hereunder might be accomplished by other means, notice will always be deemed given when placed in the United States mail, with proper postage prepaid, or sent by overnight delivery ...

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