United States District Court, D. Connecticut
MEMORANDUM OF DECISION RE: PLAINTIFF'S MOTION FOR
PARTIAL SUMMARY JUDGMENT (ECF NO. 41)
A. DOOLEY, UNITED STATES DISTRICT JUDGE.
action arises out of the Plaintiff Southridge Partners II
Limited Partnership's (“Southridge”) purchase
of a portion of a certain Promissory Note, held by Defendant
Sign N Drive Auto Mall, Inc. (“SND”), and
reflecting a debt owed by Defendant PotNetwork Holdings, Inc.
(“PotNetwork”). Southridge claims, inter
alia, that PotNetwork breached its obligations under the
terms of the Note and the Stock Transfer Agreement by which
Southridge purchased its share of the Note. By motion for
summary judgment, Southridge seeks judgment on Count One
(Specific Performance) and Count Three (Breach of Contract).
In response, and by way of its own motion for summary
judgement (ECF 51), PotNetwork asserts that this Court lacks
personal jurisdiction over PotNetwork. Alternatively,
PotNetwork opposes the motion on the merits.
well settled that a party is entitled to summary judgment if
“there is no genuine dispute as to any material fact
and that [the party] is entitled to judgment as a matter of
law.” Celotex Corp. v. Catrett, 477 U.S. 317,
322 (1986) (citing Fed.R.Civ.P. 56(c)). A dispute is genuine
if “the evidence is such that a reasonable jury could
return a verdict for the nonmoving party, ” while a
fact is material if it “might affect the outcome of the
suit under governing law.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). At summary
judgment, the movant bears the initial burden of
demonstrating the absence of a genuine issue of material
fact. See Celotex Corp., 477 U.S. at 323;
Feingold v. New York, 366 F.3d 138, 148 (2d Cir.
2004). Once a movant has met this burden, the non-movant
“must come forward with ‘specific facts showing
that there is a genuine issue for trial.'”
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986) (quoting Fed.R.Civ.P.
56(e)). “[M]ere speculation or conjecture as to the
true nature of the facts” will not suffice. Hicks
v. Baines, 593 F.3d 159, 166 (2d Cir. 2010) (citations
and internal quotations omitted). In determining whether
there exists a genuine dispute as to a material fact, the
Court is “required to resolve all ambiguities and draw
all permissible factual inferences in favor of the party
against whom summary judgment is sought.” Johnson
v. Killian, 680 F.3d 234, 236 (2d Cir. 2012) (citing
Terry v. Ashcroft, 336 F.3d 128, 137 (2d Cir.
2003)). The Court's job is not to “weigh the
evidence or resolve issues of fact.” Lucente v.
Int'l Bus. Machines Corp., 310 F.3d 243, 254 (2d
Cir. 2002). “[C]ourts may not make credibility
determinations or weigh the evidence when confronted with a
motion for summary judgment. All evidence presented by the
nonmoving party must be taken as true, and all inferences
must be construed in a light most favorable to the nonmoving
party.” Catanzaro v. Weiden, 140 F.3d 91,
93-94 (2d Cir. 1998), on reh'g, 188 F.3d 56 (2d
Cir. 1999) (citing United States v. Diebold, 369
U.S. 654, 655 (1962)). In sum, “where the facts
specifically averred by [the nonmovant] contradict facts
specifically averred by the movant, the motion must be
denied.” Lujan v. Nat'l Wildlife
Fed'n, 497 U.S. 871, 888 (1990).
facts giving rise to the instant claims are largely agreed
2, 2014, Sunrise Auto Mall Inc. (“Sunrise”), as
maker, entered into a Convertible Promissory Note
(“Note 1”) with David Grey, as holder, in the
principal amount of $1, 850, 000. Sunrise is a wholly owned
subsidiary of PotNetwork. Pursuant to the terms of Note 1,
the holder had the right to convert all or any portion of the
outstanding unpaid principal into fully paid and
non-assessable shares of Sunrise as maker. The stock price
for such a conversion was determined by a formula set forth
in Note 1.
1, 2015, Grey (the holder of Note 1) as seller, and SND, as
buyer, together with Sunrise, entered into a written
Assignment of Note Agreement, pursuant to which Grey
transferred and assigned his entire interest in Note 1 to
SND. As consideration for Grey's interest in Note 1, SND
gave Grey, inter alia, a promissory note payable to
Grey in the amount of $250, 000.
July 1, 2015, PotNetwork assumed the obligations of Sunrise
under Note 1 to SND. As a result, PotNetwork, as maker,
entered into a Convertible Promissory Note (“Note
2”) with SND, as the holder, in the original principal
amount of $1, 850, 000. The date of Note 2 expressly tacked
back to June 2, 2014, the date of Note 1. Note 2 contained
the same terms and conditions as Note 1.
18, 2016, SND sold and transferred to Southridge its interest
in $25, 000 of principal of Note 2, pursuant to a written
Securities Transfer Agreement (“the STA”). The
transfer included the creditor's right to convert debt to
common stock. The STA contained a different formula by which
debt would be converted to stock than was contained in Note
2. PotNetwork, as maker of Note 2, was a signatory to the
STA. Under the STA, PotNetwork was obligated to issue a new
note to replace Note 2 (the “replacement note”)
which would mirror the terms of Note 2 but which would
include the debt for stock conversion formula reflected in
the STA. The STA also obligated SND, at the closing, to issue
a new note (the “Purchased Note”) in favor of
Southridge reflecting its $25, 000 interest in Note 2.
Pursuant to the STA, PotNetwork agreed to treat Southridge as
a party to Note 2 with all the rights of, in place and stead,
of SND. Accordingly, PotNetwork instructed its transfer agent
to reserve at least 3, 000, 000 shares of PotNetwork's
Common Stock for issuance to Southridge upon Southridge's
exercise of its debt conversion rights.
also obligated SND to deliver to Southridge Note 2, duly
endorsed to Southridge. Notwithstanding the provisions of the
STA, SND did not deliver to Southridge Note 2, duly endorsed
to Southridge. SND did not issue the Purchase Note at closing
as required under the STA. Nor did PotNetwork issue the
replacement note as contemplated under the STA.
included a forum selection clause identifying Connecticut as
the forum in which to bring claims arising under the STA.
PotNetwork was a limited signatory to the STA.
25, 2016, Southridge issued a Notice of Conversion to
PotNetwork by which it exercised its right to convert $3, 300
of debt under Note 2 (principal only) into 3, 882, 353 shares
of Pot Network common stock (the “First Conversion
Notice”). Southridge calculated the number of shares
owed by using the conversion formula contained in the STA.
Upon receiving the First Conversion Notice, PotNetwork issued
3, 882, 353 shares of PotNetwork Common Stock to Southridge.
the conversion, the remaining principal of Southridge's
interest in Note 2 was $22, 500. On January 30, 2017,
Southridge issued a second notice of conversion to
PotNetwork, pursuant to which Southridge sought to convert
both principal ($1, 000) and interest ($3, 161.64) due under
Note 2 into ...