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LG Capital Funding, LLC v. Vapor Group, Inc.

United States District Court, E.D. New York

June 27, 2018

LG CAPITAL FUNDING, LLC, Plaintiff,
v.
VAPOR GROUP, INC., Defendant.

          OPINION AND ORDER

          NINA GERSHON UNITED STATES DISTRICT JUDGE.

         Plaintiff LG Capital Funding, LLC ("LG Capital"), a New York corporation with its principal place of business in Brooklyn, New York, brings this action against Defendant Vapor Group, Inc. ("Vapor Group"), a publically traded Florida corporation with its principal place of business in Miami, Florida. Plaintiff alleges claims for breach of contract and unjust enrichment, and it seeks costs, expenses, and attorneys' fees. Pursuant to Rule 56 of the Federal Rules of Civil Procedure, plaintiff now moves for partial summary judgment on its claim for breach of contract. For the reasons set forth below, plaintiffs motion is granted in part and denied in part.

         I. Facts

         Except as otherwise noted, the facts are undisputed for purposes of this motion. On October 8, 2014, LG Capital and Vapor Group entered into a Securities Purchase Agreement ("SPA 1"), whereby Vapor Group issued to LG Capital a convertible redeemable promissory note with a face value of $115, 500 ("Note 1"), annual interest rate of 8%, and maturation date of October 8, 2015. Note 1 carried with it a 10% original issue discount such that its purchase price was $105, 000. On October 8, 2014, Dror Svorai, then Chief Executive Officer of Vapor Group, executed a Disbursement Authorization instructing LG Capital to wire $100, 000 to Vapor Group and $5, 000 to New Venture Attorneys P.C. for legal services provided in connection with SPA 1 and Note 1. On October 14, 2014, LG Capital wired the funds to Vapor Group pursuant to the Disbursement Authorization, and Vapor Group accepted the $100, 000 as satisfaction of Note 1.

         On May 11, 2015, LG Capital and Vapor Group entered into a second Securities Purchase Agreement ("SPA 2"), which provided for the issuance of an 8% convertible redeemable promissory note ("Note 2") with face value of $35, 000 and maturation date of May 11, 2016. That same day, Svorai executed another Disbursement Authorization instructing LG Capital to wire $33, 250 to Vapor Group and $1, 750 to New Venture Attorneys P.C. for legal services provided in connection with SPA 2 and Note 2. On May 14, 2015, LG Capital wired the funds pursuant to the Disbursement Authorization, and Vapor Group accepted the $33, 250 as satisfaction of Note 2.

         The interest rate on the face of each note is 8%. (Ex. D. to Lerman Decl. at 1; Ex. H to Lerman Decl. at 1). Notes 1 and 2 also both provide for various Events of Default, and both state that "[u]pon an Event of Default, interest shall accrue at a default interest rate of 24% per annum, or if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law." (Ex. D. to Lerman Decl. at 5; Ex. H. to Lerman Decl. at 5). Thus, upon the occurrence of an Event of Default, the 8% interest rate jumps to 24%.

         Notes 1 and 2 also provide LG Capital with an option to convert portions of each Note's principal face amount and accrued interest into shares of Vapor Group common stock. Pursuant to this option, on April 21, 2015, LG Capital converted $8, 000 of principal and $331 of accrued interest on Note 1 into Vapor Group common stock, leaving a principal balance of $107, 500 on Note 1. On May 4, 2015, it again exercised its conversion rights under Note 1, converting $17, 500 of principal and $774.79 of accrued interest into Vapor Group common stock. LG Capital claims that this leaves a balance of $90, 000 on Note 1, but Vapor Group disputes this figure to the extent it does not account for the undisbursed 10% issue discount. That is, Vapor Group argues that the balance on Note 1 following the conversions to common stock is actually less than $90, 000 because the original loan paid out under Note 1 was subject to the 10% original issue discount so that it was 10% (or $10, 500) less than Note 1 's original face value, which was $115, 500.

         On May 21, 2015, Vapor Group became delinquent in its filing with the Securities and Exchange Commission ("SEC") for its failure to file a Quarterly Report; this constituted an Event of Default under Note 1. Default interest of 24% thus began to accrue on May 21, 2015 on Note I, and default interest began to accrue on Note 2 by virtue of a cross-default provision in Note 1. On October 8, 2015, Note 1 reached maturity and became due and payable. On May 11, 2016, Note 2 reached maturity and became due and payable. Apart from the conversion of the principal value and accrued interest of Note 1 to common stock as discussed above, Vapor Group has not made any payment to LG Capital under either Notes 1 or 2 as of the date of the filing of the papers for this motion.

         II. Summary Judgment Standard

         A party is entitled to summary judgment if "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, All U.S. 317, 322 (1986). Only disputes relating to material facts-i.e., "facts that might affect the outcome of the suit under the governing law"-will properly preclude the entry of summary judgment. Anderson v. Liberty Lobby, Inc., All U.S. 242, 248 (1986). An issue of fact is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.

         The moving party bears the burden of demonstrating "the absence of a genuine issue of material fact." Celotex, All U.S. at 323. Once the moving party has asserted facts showing that the non-movant's claims cannot be sustained, the nonmoving party must "come forward with specific facts showing that there is a genuine issue for trial." Matsushita Electric Ind. Co., LTD. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (internal quotation marks omitted).

         In determining whether to grant summary judgment, the court must "construe all evidence in the light most favorable to the nonmoving party, drawing all inferences and resolving all ambiguities in its favor." Dickerson v. Napolitano, 604 F.3d 732, 740 (2d Cir. 2010). However, the mere existence of a scintilla of evidence in support of the non-moving party's position will be insufficient; there must be evidence on which the jury could reasonably find for the non-moving party. Anderson, All U.S. at 252.

         III. Discussion

         A. ...


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