OBEX Securities, LLC v. Healthzone Ltd.

Citations: 828 F. Supp. 2d 620; 2011 U.S. Dist. LEXIS 127289; 2011 WL 5252747Docket: No. 10 Civ. 6876 (SAS)

Court: District Court, S.D. New York; November 3, 2011; Federal District Court

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Obex Securities, LLC ("Obex") filed a diversity action against Healthzone Limited ("Healthzone") for breach of contract related to unpaid placement fees under their Consulting Assignment Agreement. After partial dismissal by the court, Obex's remaining claim is solely for breach of contract. Healthzone has moved for summary judgment, asserting that Obex has not demonstrated a breach of the Agreement.

Obex, a Delaware LLC based in New York, provides financial services, while Healthzone is an Australian company dealing in health products. In 2009, Healthzone engaged Robert Dulhunty of Development Capital Corporation to assist with raising capital and subsequently entered into an agreement with Obex, which included provisions for Obex to receive 9% of the gross funds raised from North American investors introduced by Obex. The Agreement contained clauses preventing Healthzone from circumventing placement fees and stipulated that any modifications must be in writing. 

Obex had previously identified Westminster Securities as a potential broker-dealer for Healthzone's capital-raising efforts. Following the Agreement, discussions ensued between Obex and Westminster regarding a collaboration for capital raising and fee sharing. However, Healthzone terminated the Agreement with Obex on October 26, 2009, and engaged Westminster, which subsequently helped Healthzone raise approximately $11 million through the sale of nearly 35 million shares of its securities. The court granted Healthzone's motion for summary judgment.

Healthzone paid Westminster a seven-percent commission on capital raised and a nine-percent commission to DCC on funds raised, along with a weekly fee. Healthzone did not pay any placement fees to Obex, although it is acknowledged that no entities introduced to Healthzone by Obex, including Westminster, invested in Healthzone. There were no written amendments to the Agreement. Obex filed a lawsuit claiming entitlement to placement fees on investments made by parties introduced by Westminster, arguing that the Agreement was ambiguous regarding the definition of "Obex Parties." Obex contends that since Westminster was introduced to Healthzone by Obex, parties introduced by Westminster should also be considered Obex Parties, entitling Obex to nine-percent fees on approximately eleven million dollars invested by Westminster’s clients before the Agreement's termination.

The legal standard for summary judgment requires the movant to demonstrate that no genuine dispute exists regarding material facts and that they are entitled to judgment as a matter of law. A genuine issue of fact arises when evidence could lead a reasonable jury to side with the nonmoving party, while material facts are those that could influence the lawsuit's outcome. The moving party must show a lack of evidence on an essential element of the nonmovant's claim. To counter a motion for summary judgment, the nonmoving party must present a genuine issue of material fact and cannot rely on vague assertions or speculation. Courts must view facts favorably for the nonmoving party and resolve ambiguities against the movant, while credibility and evidence weighing are left to juries. The court's role is to determine if factual issues exist for trial, not to resolve disputes.

To establish a breach of contract claim under New York law, a plaintiff must demonstrate: (1) the existence of a contract with the defendant, (2) fulfillment of the plaintiff's contractual obligations, (3) a breach of the contract by the defendant, and (4) damages incurred by the plaintiff due to the breach. The initial issue in contract disputes is whether the contract is ambiguous, defined as having multiple meanings when interpreted by a reasonable person in the context of the entire agreement. Courts determine ambiguity, and interpretation of unambiguous contracts is also a legal question aimed at ascertaining the parties' intentions at the time of contract formation. If the language is clear and definitive, courts enforce the contract as written.

The Agreement in question was deemed unambiguous, with external evidence unnecessary since its terms were clear. Obex was entitled to a percentage of investments made in Healthzone if three conditions were met: the investor must be based in North America or offshore (excluding Australasia), introduced by Obex, and must directly invest in Healthzone. Since Westminster did not invest in Healthzone and Obex only introduced Westminster, Obex lacks any claim for placement fees from Westminster's clients' subsequent investments. Furthermore, the non-exclusive nature of the Agreement allows Healthzone to engage Westminster without breaching the contract. Although Obex argued for placement fees on investments via Westminster, Westminster itself did not invest, thus disqualifying it as an "Obex Party." The absence of customary language for indirect placement fees in the Agreement further supports Obex's lack of claim. Lastly, the anti-circumvention clause is not applicable because it pertains to investments made by Obex Parties post-termination of the Agreement, not to investments facilitated by another broker-dealer.

Obex has not demonstrated entitlement to placement fees, as it has failed to provide evidence that Westminster, introduced to Healthzone by Obex, invested in Healthzone or that Obex introduced any other investors. Consequently, there are no funds that would justify placement fees. The contract language is clear and unambiguous, negating the need for a trial on factual questions. Healthzone's motion for summary judgment is granted, and the case is closed. Obex did not submit a required reply statement to Healthzone's Rule 56.1 Statement, resulting in Healthzone's facts being accepted as true. All references to evidence, including depositions and exhibits, support the findings against Obex’s claims, which include issues related to an anti-circumvention clause and alleged breaches of contract obligations.

New York law governs the dispute as per the Agreement. The clarity or ambiguity of contract language is a legal question for the court to determine. Various cases such as Roe v. City of Waterbury and Zalaski v. City of Bridgeport Police Department are referenced to support this principle. Additionally, multiple Second Circuit cases illustrate the importance of contract interpretation, emphasizing that the court must assess whether contract terms are clear. References to specific cases, including Diesel Props S.r.l. v. Greystone Business Credit II LLC and Lockheed Martin Corp. v. Retail Holdings, N.V., highlight precedents related to contract clarity. Healthzone's motion for summary judgment includes a contention regarding a clause it terms a "tail clause," demonstrating the ongoing relevance of contract interpretation in this case.