United States District Court, D. Connecticut
ORDER ON MOTION FOR DEFAULT JUDGMENT AND SUMMARY
MICHAEL P. SHEA, U.S.D.J.
KLP Enterprises, LLC (“KLP”) moves for default
judgment and summary judgment against defendant Thomas J.
Sassani (“Sassani”) on KLP's claim for breach
of a promissory note and on Sassani's six counterclaims
against KLP. For the reasons discussed below, KLP's
motion for default judgment and/or summary judgment (ECF No.
39) is GRANTED in part and DENIED in part.
Court assumes familiarity with the summary judgment record
and sets forth a brief summary of the relevant facts below.
an investor in Zozi, a start-up online reservation, payment
and customer management software and system used to book
travel tours and activities. (ECF No. 39-11
(“Plaintiff's Local Rule 56(a)(1) Statement of
Undisputed Material Facts” or “Pl.'s L.R.
56(a)1 Stmt.”) at ¶ 10; ECF No. 49
(“Defendant's Local Rule 56(a)(2) Statement of
Facts in Opposition to Plaintiff's Motion for Summary
Judgment” or “Def.'s L.R. 56(a)2
Stmt.”) at 4.). Sassani was a shareholder in Zozi and,
until his termination on January 24, 2017, its CEO.
(Def.'s L.R. 56(a)2 Stmt. at 13.) On or about April 11,
2016, KLP and Sassani entered into a Note, Pledge Agreement,
and Security Agreement. (Pl.'s L.R. 56(a)1 Stmt. at
¶ 1; Def.'s L.R. 56(a)2 Stmt. at 1.) Pursuant to the
terms of the Note, KLP made a loan to Sassani in the amount
of $5.7 million. (Pl.'s L.R. 56(a)1 Stmt. at ¶ 2;
Def.'s L.R. 56(a)2 Stmt. at 1.)
Note requires immediate prepayment of the entire amount due
if an “Event of Default” occurs. (ECF No. 39-3,
Declaration of Andrew Wingate (“Wingate Decl.”)
Ex. 1, §§ 3.2, 10.) Section 9 of the Note defines,
inter alia, the following as an “Event of
Default” triggering mandatory prepayment:
9.4 Breach of Representation or Warranty. Any
financial statement, representation, warranty of certificate
made or furnished by or on behalf of [Sassani] to [KLP] in
connection with this Note or any Security Document or as
inducement to [KLP] to make the Loan or enter into any
Security Document, shall be false, incorrect, or incomplete
in any material respect when made;
9.8 Material Adverse Effect. There shall occur a
change in the condition or affairs (financial or otherwise)
of [Sassani] which change, in the reasonable good faith
opinion of [KLP], would have a Material Adverse Effect on
(Id. at §§ 9.4, 9.8.) Section 20.10
defines a “Material Adverse Effect” as follows:
20.10 “Material Adverse Effect” means
(a) with respect to any Person, a material adverse effect
upon the business, operations, properties, assets or
financial condition (financial or otherwise) of the Person,
or (b) with respect to [Sassani], a material adverse effect
on value of the Collateral (taken as a whole) or the ability
of [Sassani] to perform [Sassani's] obligations under
this Note or any of the Security Documents.
(Id. at § 20.10.) “Collateral” is
defined by reference to the Security Agreement (id.
at § 20.2), and included Sassani's preferred and
common stock in Zozi and another company, Lux Research
(“Lux”). (ECF No. 39-5, Wingate Decl. Ex. 3, at
to entering into the Note and related agreements, Sassani had
requested the loan from KLP in a March 31, 2016 email.
(Pl.'s L.R. 56(a)1 Stmt. at ¶ 14; Def.'s L.R.
56(a)2 at 6-7.) In the first paragraph of that email, Sassani
wrote in relevant part:
• Performance UpDated:
o February outperformed even our revised estimate last week.
We ended with $198K in collected revenue, representing 3.3X
YoY growth v. Feb 2015.
â¢ ARR incorporates our natural seasonality trends. It's
simply collected revenue divided by the seasonal growth
factor of a month. This means $198K/5.4% (Feb seasonal
factor) represents an ARR of live and revenue $3.7M at end of
Feb, and we have an additional $1.2M in the backlog, bringing
total ARR is $4.9M ending Feb. Further, March outperformed as
well and I'd expect that with new live revenue and
additional backlog, our total ARR today is
closer to $5.3M ($1.1M higher than I stated
in our slides last week). The over performance is the
result of higher Feb revenue the [sic] expected (increasing
ARR) and more contracts closed in March.
(ECF No. 39-7, Wingate Decl. Ex. 5 (the “March 31, 2016
email”) at 2 (emphasis added).) ARR stands for
“Annualized Recurring Revenue” and is a key
metric for a business with a subscription model, like Zozi.
(Pl.'s L.R. 56(a)1 Stmt. at ¶¶ 12, 13;
Def.'s L.R. 56(a)2 Stmt. at 5-6.) Subscription fees were
included as part of ARR. (Pl.'s 56(a)1 Stmt. at ¶
12; Def.'s 56(a)2 Stmt. at 5.) At that time, however,
Zozi temporarily waived subscription fees for some of its
clients, though the parties dispute to what degree, for how
long, and who was responsible for waiving them. (Pl.'s
L.R. 56(a)1 Stmt. at ¶¶ 11, 19; Def.'s L.R.
56(a)2 Stmt. at 5, 9.) Sassani still calculated these
“Waived Fees” as part of Zozi's revenue and
ARR. (Pl.'s 56(a)1 Stmt. at ¶ 20; Def.'s 56(a)2
Stmt. at 9.)
down in the March 31, 2016 email, Sassani requested the $5.7
million loan from KLP and summarized his proposed collateral,
which totaled approximately $11.4M and included “$3M
Lux Research” stock as well as various kinds of Zozi
stock. (See Pl.'s L.R. 56(a)1 Stmt. at
¶¶ 16-17; Def.'s L.R. 56(a)2 at 7-8.) Sassani
represented in the March 31, 2016 email that his shares in
Lux were worth $3 million. (Pl.'s L.R. 56(a)1 Stmt. at
¶ 24; Def.'s L.R. 56(a)2 at 11; see also ECF No.
39-7, Wingate Decl. Ex. 5 at 3.) Shortly thereafter, Lux was
sold, and the amount paid for Sassani's shares was only
$441, 582.41. (Pl.'s L.R 56(a)1 Stmt. at ¶ 25;
Def.'s L.R. 56(a)2 at 11; see also ECF No. 39-8, Wingate
Decl. Ex. 6.)
brought this action on April 21, 2017, alleging one count for
breach of the Note based on numerous alleged “Events of
Default” by Sassani. (ECF No. 1.) The parties conducted
a Rule 26(f) planning conference and filed their report on
August 7, 2017. (ECF No. 23.) After holding a Rule 16(b)
conference, the Court set the discovery deadline as May 4,
2018, and the dispositive motions deadline as June 4, 2018.
(ECF No. 28.). On September 12, 2017, Sassani filed various
counterclaims against KLP, including counts for: (1) a
declaration that Sassani did not breach the Note; (2) breach
of the implied covenant of good faith and fair dealing by
terminating Sassani as CEO in order to trigger an
“Event of Default” under the Note and secure
Sassani's voting rights associated with his pledged
collateral; (3) tortious interference of contract by
instructing its representative to terminate Sassani and other
allegedly tortious conduct; (4) breach of fiduciary duty by
advancing its own ...