The opinion of the court was delivered by: GERARD LYNCH, District Judge
Plaintiff Continental Energy Corporation ("Continental"), an
oil and gas exploration firm, brings this action against
defendants Cornell Capital Partners, L.P. and Yorkville Advisors
Management, LLC (collectively, "Cornell"), a private equity fund,
seeking a declaratory judgment that a an investment contract
between Continental and Cornell is void for lack of
consideration, and related relief. Cornell counterclaims for a
declaration that the contracts are valid and enforceable, and
have been breached by Continental. The parties have cross-moved
for summary judgment on all claims. Defendants' motion will be
granted and plaintiff's denied.
The facts are straightforward and essentially uncontested.
Seeking to raise capital to drill for oil in Indonesia,
Continental approached a number of investors. Eventually, Cornell
(a group composed of former members of another investment firm that had
negotiated an abortive transaction with Continental) entered an
equity finance agreement with Continental. The terms of the
transaction were embodied in a series of written agreements
centered on an Equity Line of Credit Agreement (the "Agreement"),
which were signed on September 18, 2001.
Under the terms of the Agreement, Cornell committed to purchase
up to $20 million worth of Continental common stock, at
Continental's discretion, over the following three years. The
Agreement authorized Continental to issue shares of its stock to
Cornell, which Cornell was obliged to purchase at a share price
equal to 91% of the lowest closing bid price of Continental stock
during a specified trading period. (Agreement § 2.1(a).) As a
condition precedent to Continental's right to issue stock to
Cornell, Continental was obligated to file a registration
statement with the Securities and Exchange Commission ("SEC")
that would permit Cornell to resell any stock issued pursuant to
the Agreement. (Id. § 7.2(a).) In this regard, Continental
agreed to "use its best efforts to comply with all applicable
rules and regulations of the SEC in connection with any
registration" of the securities. (Registration Rights Agreement §
3n.) In exchange for Cornell's commitment to provide such capital
on demand, Continental agreed to pay certain commitment fees,
including issuing one million shares of its common stock upon
execution of the Agreement, and $250,000 worth of additional
shares either six months after the filing of an effective
registration statement or nine months after the execution of the
Agreement, whichever was earlier. (Agreement § 12.4(b).)
The Agreement includes a merger clause, providing that the
Agreement supersedes all prior oral or written agreements among
the parties, and further providing that "[n]o provision of this
Agreement may be waived or amended other than by an instrument in
writing signed by the party to be charged with enforcement." (Id. § 12.2.) The
Agreement also contains a choice of law clause providing that the
Agreement shall be governed by and interpreted according to New
York law. (Id. § 9.1.)
On or about the date of the execution of the Agreement,
Continental did deliver the one million shares of stock as
promised. However, Continental never filed a registration
statement as required by the Agreement. Accordingly, it never
became empowered to demand capital from or issue stock to Cornell
as contemplated by the Agreement. In July 2002, Cornell demanded
that Continental provide the $250,000 worth of stock constituting
the second portion of the commitment fee, which (given that a
registration statement had not been filed) had come due nine
months after the execution of the Agreement. Continental never
complied with this demand, and this action followed.
I. Summary Judgment Standard
Summary judgment shall be granted if the Court determines that
"there is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(c). A "genuine issue of material fact" exists if the
evidence is such that a reasonable jury could find in favor of
the non-moving party. Holtz v. Rockefeller & Co., 258 F.3d 62,
69 (2d Cir. 2001). The moving party bears the burden of
establishing the absence of any genuine issue of material fact.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). In
deciding a summary judgment motion, the Court must "resolve all
ambiguities and draw all reasonable inferences in the light most
favorable to the party opposing the motion." Cifarelli v.
Babylon, 93 F.3d 47, 51 (2d Cir. 1996). In addition, the Court
is not to make any credibility assessments or weigh the evidence at this stage. Weyant v.
Okst, 101 F.3d 845, 854 (2d Cir. 1996).
That both parties have moved for summary judgment does not
necessarily mean that summary judgment is appropriate for either
side. Home Ins. Co. v. Aetna Casualty & Surety Co.,
528 F.2d 1388, 1390 (2d Cir. 1976). In this case, however, the mutual
agreement that the case can be resolved on summary judgment is
correct. The dispute between the parties turns entirely on the
interpretation of the Agreement, and the legal effect of a
handful of additional undisputed facts.
II. Validity of the Agreement
Continental's claim that the Agreement is void for lack of
consideration is totally lacking in merit. Under New York law,
"[i]t is well established that the `slightest consideration is
sufficient to support the most onerous obligation' and that the
courts are not to inquire into the adequacy of consideration."
Caisse Nationale de Credit Agricole v. Valcorp, Inc.,
28 F.3d 259, 265 (2d Cir. 1994), quoting Mencher v. Weiss,
306 N.Y. 1, 8 (1953). "Generally, parties are free to make their own
bargains, and, absent a claim of fraud or unconscionability, it
is enough that something of real value in the eye of the law was
exchanged." Ferguson v. Lion Holdings, Inc.,
312 F. Supp. 2d 484, 494 (S.D.N.Y. 2004) (internal citations and quotations
Here, there is no question that the Agreement provided to
Continental extremely valuable legal rights, far beyond the
"slightest consideration" requisite to create a binding contract.
Under the Agreement, Continental acquired the right to demand and
receive from Cornell infusions of capital of up to $20 million,
at its sole discretion. Like an agreement to create a line of
credit in exchange for the payment of a fee, the Agreement
provided Continental with an ability to draw down financing as needed. This is more than ample
consideration to ...