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KLP Enterprises, LLC v. Sassani

United States District Court, D. Connecticut

September 19, 2018



          MICHAEL P. SHEA, U.S.D.J.

         Plaintiff 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.

         I. Factual Background

         The Court assumes familiarity with the summary judgment record and sets forth a brief summary of the relevant facts below.

         KLP is 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.)

         The 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 [Sassani].

(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 17.)

         Prior 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.
• 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.)

         Further 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.)

         II. Procedural Posture

         KLP 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 ...

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