United States District Court, S.D. New York
COVENTRY ENTERPRISES LLC, a Delaware Limited Liability Company, Plaintiff,
SANOMEDICS INTERNATIONAL HOLDINGS, INC., a Nevada corporation; CLSS HOLDINGS, LLC, a limited liability company of unknown origin, Defendants.
Stanley C. Morris, Esq., Corrigan & Morris LLP, Los Angeles, CA, Attorney for Plaintiff.
D. Giacomo Vilella, Esq., New York, NY, Attorney for Defendants.
MEMORANDUM AND ORDER
NAOMI REICE BUCHWALD, District Judge.
The Complaint in this action alleges that defendants breached a contract to sell certain securities to plaintiff. Defendants move to dismiss the Complaint, arguing that there was no breach of contract because plaintiff made a late payment and because the relevant provision of the contract was illusory. For the following reasons, the motion is denied.
The following facts are drawn from the Complaint and are assumed to be true for the purposes of the motion to dismiss. See Global Network Commc'ns, Inc. v. City of N.Y., 458 F.3d 150, 154 (2d Cir. 2006). We also consider the exhibits attached to the Complaint, upon which plaintiff relies. See ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007).
This case centers on an agreement for the purchase of convertible debt securities having a principal value of $145, 000. The parties to the transaction, and to the case, are the issuer of the securities, defendant Sanomedics International Holdings, Inc. ("Sanomedics"); the seller, defendant CLSS Holdings, LLC ("CLSS"); and the buyer, plaintiff Coventry Enterprises LLC ("Coventry"). Compl. ¶¶ 9-11.
On September 10, 2014,  defendants agreed to a "Memorandum of Terms" proposed by Coventry. Compl. ¶¶ 9-10 & Ex. 1. Then, on September 11,  the three parties signed a "Debt Purchase Agreement" (the "DPA" or "Agreement"). Compl. ¶ 11 & Ex. 2. By its terms, the DPA is an integrated agreement to be governed by New York law. Compl. Ex. 2, ¶¶ 6.3, 6.7.
A main feature of the transaction as described in both the Memorandum of Terms and the subsequent DPA is that it was to take place in three "closings, " with the second to take place within thirty days of the first and the third to take place within thirty days of the second. Compl. ¶ 12; Compl. Ex. 1, at 1; Compl. Ex. 2, ¶ 3. Paragraph 3 of the DPA describes the closing process as follows:
The closing of the transactions contemplated by this Agreement (the "Closing") shall take place in three separate closings. At the first closing, which shall occur upon the mutual execution of this Agreement, the Buyer [i.e., Coventry] shall purchase from the Seller [i.e., CLSS] $50, 000 of the Assigned Portion [of a Sanomedics promissory note] and shall pay to the Seller the sum of  $50, 000 less $1, 000 in legal fees. At the second closing, which shall occur within 30 days of the first closing, and subject to market conditions, the Buyer shall purchase from the Seller another $50, 000 of the Assigned Portion less $1K in legal fees. At the third closing, which shall occur within 30 days of the second closing, and subject to market conditions, the Buyer shall purchase from the Seller another $45, 000 of the Assigned Portion less $1K in legal fees.
Compl. Ex. 2, ¶ 3.
The first closing occurred on the next day, September 12. Compl. ¶ 12. That closing "went off without a hitch." Id . ¶ 14. Coventry paid CLSS on time, and received a $50, 000 note from Sanomedics. Id . Sanomedics then honored Coventry's right to convert the note into stock. Id.
At some point, it became apparent to all parties that Coventry would earn a massive profit by exercising its right to convert the next Sanomedics note and selling the conversion shares to the public. See Compl. ¶¶ 1, 17, 24. So when Coventry wired $49, 000 to CLSS on October 14 for the second closing, CLSS returned the money instead of causing Sanomedics to issue a second note to Coventry. Id . ¶ 17.
Defendants claimed that they were not bound to consummate the second closing for two reasons. First, defendants argued that Coventry's October 14 payment was too late because it was more than thirty days after the first closing. Compl. ¶ 17. Coventry disagreed, in part because the thirtieth day after the first closing, October 12, was a Sunday, and the thirty-first day, October 13, was the Columbus Day holiday. Id . Second, defendants argued that the phrase "subject to market ...