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LG Capital Funding, LLC v. Protext Mobility, Inc.

United States District Court, S.D. New York

February 28, 2018


          For the plaintiff: Kevin Kehrli Garson, Segal, Steinmetz, Fladgate LLP.

          For the defendant: Bryan A. McKenna.



         Plaintiff LG Capital Funding, LLC (“LG”) commenced this breach of contract lawsuit on February 22, 2017. There is diversity jurisdiction over this action. This Opinion contains the Court's findings of fact and conclusions of law following a bench trial.

         A bench trial was scheduled for February 26, 2018. The parties consented on February 23 to submit the case to the Court based on their pre-trial submissions, which included declarations of direct testimony from two witnesses: Joseph Lerman, the Managing Director of LG, and David Lewis, currently the Senior Strategic Advisor of defendant Protext Mobility, Inc. (“Protext”).

         In brief, LG lent money to Protext and was partially repaid for those loans by selling in the open market shares of stock that LG obtained from Protext. There were eight successful stock transfers from Protext to LG in 2014. The instant dispute concerns a ninth request to convert debt into stock sent by email by an LG representative to Protext's Chief Executive Officer (“CEO”). Unlike the eight prior requests, which had been sent to David Lewis, who was then Protext's Executive Director, this ninth request was never acted upon. LG contends it is now entitled to damages in the amount of $738, 758.05, [1] plus attorney's fees, due to this failure. Protext contends that the ninth request was invalid because the course of conduct between the parties required LG to send any request to David Lewis and it would be unjust to seek damages premised on a stock price that is far greater now than LG's 2014 stock price.


         The following constitutes this Court's findings of fact. Between April and July of 2014, LG entered into two Securities Purchase Agreements (“SPAs”) with Protext, and one Debt Purchase Agreement (“DPA”) with a third party, Lantern Rock Limited Partnership (“Lantern”). Each agreement was accompanied by a Convertible Redeemable Promissory Note (“Note”) issued by Protext to plaintiff. On behalf of Protext, the SPAs were signed by Protext's then-Chief Executive Officer, Steve Berman. No Protext representative signed the DPA. Through these three transactions, LG paid $100, 000 in consideration.[2]

         The Note issued in conjunction with the SPA entered on April 2, 2014 (“Note 1”) reached maturity on April 2, 2015. David Lewis, as Protext's Executive Director, signed Note 1 on behalf of Protext.[3] The Note issued in conjunction with SPA entered on July 2, 2014 (“Note 2”) reached maturity on July 2, 2015. The DPA was also entered into on July 2, 2014 by LG, but with a third party, Lantern, and so no Protext representative signed the DPA. The DPA provided for the purchase of $21, 500 in principal under a convertible promissory note in the amount of $445, 124.99 issued by Protext to Lantern on December 29, 2010. Protext also issued a replacement $21, 500.00, 8% Convertible Redeemable Promissory Note to LG with a maturity date of July 2, 2015 (“Note 3”). Steve Berman, the CEO of Protext, signed Notes 2 and 3. Note 3 reached maturity on July 2, 2015.

         Notice Provisions

         The text of the SPAs -- to which Notes 1 and 2 are directly related -- gives information regarding whom to contact at the Company. Section 5(f) of the April 2, 2014 SPA notes that “all notices, demands, requests, consent, approvals, and other communication required or permitted” should be sent to the Company at its Florida mailing address “Attn: Steve Berman, CEO.”

         The same section of the July 2, 2014 SPA contains the same language and address, but directs that the communication should be sent “Attn: David Lewis, CFO.” The July 2, 2014 DPA, to which Note 3 is related, does not contain any information regarding a physical address for Protext, because the DPA is an agreement between LG and a third party.

         Each Note issued in connection with the SPAs and the DPA contains language regarding the method by which LG can exercise its right to convert portions of the principal balance and interest of the Notes into shares of Protext stock. Each Note requires LG to give the “Company, ” which is identified in the Notes as “Pro Text Mobility, Inc., ” written notice of any conversion request. The relevant language in each is identical and reads:

Any Holder of this Note electing to exercise the right of conversion . . . is required to give the Company written confirmation that this Note is being converted (“Notice of Conversion”)[.] The date of receipt (including receipt by telecopy) of such Notice of Conversion shall be the Conversion Date.” None of the Notes specifies to whom written notice should be sent. The Notes do not list a specific email or other address.

         The Notes contain precise details of when LG can exercise its right to convert, as well as the method of calculation for the price for each share of common stock received in exchange for principal. Note 1 reads:

The Holder of this Note is entitled, at its option, at any time after 180 days, and after full cash payment for the shares convertible hereunder, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock (the “Common Stock”) without restrictive legend of any nature, at a price (“Conversion Price”) for each share of Common Stock equal to 50% of the average of the two lowest closing bid prices of the Common Stock as reported on the National Quotations Bureau OTCQB exchange which the Company's shares are traded or any exchange upon which the Common Stock may be traded in the future (“Exchange”) for the ten prior trading days including the day upon which a Notice of Conversion is received by the Company(provided such Notice of ...

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