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Charles S. Brofman v. Cybersettle Holdings

September 18, 2012


The opinion of the court was delivered by: Ramos, D.J.


Plaintiff Charles Brofman brought this diversity action to seek, inter alia, payments he alleges that Defendant Cybersettle Holdings, Inc. ("CHI") owes him under a settlement agreement. The Parties agree that there are no genuine disputes of material fact on this issue and have cross-moved for partial summary judgment. The Court DENIES summary judgment to CHI and GRANTS summary judgment to Mr. Brofman.


A. Facts

Charles Brofman and James Burchetta co-invented and patented an Internet-based application for the settlement of lawsuits. See Def.'s Counterstatement to Pl.'s Rule 56.1 Statement ¶ 2. They then formed a New York corporation, Cybersettle, Inc., which helped clients settle insurance claims using the patented application. Id. ¶ 3.

On February 27, 2006, Mr. Brofman, Mr. Burchetta, and other investors, including a firm called XL Investments ("XL"), entered into an agreement ("the Contribution Agreement") in which CHI acquired Cybersettle, Inc. Id. ¶ 4. Under the Contribution Agreement, CHI received all of Mr. Brofman's and Mr. Burchetta's shares in Cybersettle, Inc., and the patents for their application. See id. Mr. Brofman and Mr. Burchetta received shares in CHI and an initial payment of $1.5 million each. See id. ¶ 5.

Section 5.3 of the Contribution Agreement also provided that, in addition to the initial payment, Mr. Brofman and Mr. Burchetta would become eligible for certain payments ("the Deferred Payments"):

Inventors' Deferred Payments. The deferred payments described . . . above shall be payable . . . (c) simultaneously with . . . (iii) any stock issuance, stock sale, merger, consolidation or other transaction or series of transactions as a result of which a majority of the outstanding capital stock of [CHI] (determined on a fully diluted basis) is held by persons who were not (or whose affiliates were not) stockholders of [CHI] immediately prior to such transaction(s) . . . Anything elsewhere contained in this Agreement to the contrary notwithstanding, the aggregate payments to be made by [CHI] pursuant to this Section 5.3 shall in no event exceed the sum of Seven Million ($7,000,000)*fn1 Dollars.

Id. ¶ 9.

Between 2006 and 2008, other investors bought shares of CHI. Id. ¶ 11. In 2008, one investor in particular, Spencer Trask Corporate Partnering Group, LLC ("ST"), sought to acquire a substantial share of the company from XL ("the ST/XL Transaction"). See id. ¶ 12. Mr. Brofman contends that this transaction would have resulted in a change of the majority ownership of CHI and triggered the Deferred Payments to which he and Mr. Burchetta were entitled under the Contribution Agreement. Pl.'s Rule 56.1 Statement ¶ 13. CHI does not deny this. Def.'s Counterstatement ¶ 13.

Although the Parties offer different versions of the ensuing negotiations, they agree that they resolved their disputes through a second agreement on July 31, 2008 ("the Settlement Agreement). Id. ¶ 15; see also id. ¶ 16 (stating that "The [ST/XL T]ransaction was predicated on Plaintiff

The first, third, and fifth sections in the Settlement Agreement are relevant to this litigation. The first section explains the effect of the ST/XL Transaction on the Contribution Agreement; it provides, in part, that:

Sale of Shares from XL to ST. Each of Brofman and Burchetta hereby renounce and release any claim for accelerated payments in accordance with the Contribution Agreement that either of them may now or hereafter have or assert that either are due and owing any amounts from the Company or any other source pursuant to Section 5.3 of the Contribution Agreement as a result of the negotiation, execution and delivery of the Stock Purchase Agreement . . . by ST and XL and the consummation of the transactions contemplated thereby. . . . This renunciation and release shall specifically be for the Stock Purchase Agreement between ST and XL and shall not be deemed a permanent renunciation or release from any subsequent transaction except as specifically set forth below.

Settlement Agreement (Declaration of Charles S. Brofman, Ex. B) § 1.

The third section of the Settlement Agreement, entitled "Survival of Contribution Agreement," provides, in part, that "[u]nless specifically stated to the contrary herein, the Contribution Agreement shall remain in full force and effect from and after the date of this Settlement Agreement." Id. § 3.

Finally, the fifth section of the Settlement Agreement contains releases. Subsection (a) provides, in part, that:

Releases by Brofman and Burchetta: Effective as of the date of this Agreement . . . each of Brofman and Burchetta . . . hereby jointly and severally, voluntarily release and forever discharge [CHI] of the foregoing . . . from all [claims] in law or equity, which against [CHI], [Brofman or Burchetta] ever had, now have or hereafter can, shall or may have, for, upon, or by reason of any matter, cause or thing whatsoever from the beginning of the world to the date hereof arising out of or relating to the Contribution Agreement, . . . the Stock Purchase Agreement [of the ST/XL Transaction] or the termination or the consummation of the transactions contemplated by each thereof.

Id. § 5(a). A mirror provision in which CHI releases its claims against Mr. Brofman and Mr. Burchetta appears in Section 5(b). Id. § 5(b).

In January 2009, Mr. Burchetta sold his stock and his interest in the Deferred Payments to CHI. Id. ¶ 7. Between December 2009 and December 2011, Mr. Brofman received $250,000 in payments from CHI. Id. ¶ 8. These two developments reduced the total ...

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