Opinion
655975/2016
08-20-2018
HGT CAPITAL LLC, Plaintiff, v. HDS INTERNATIONAL CORP. a/k/a Good Gaming, Inc., Defendant.
Attorney for Plaintiff, Chipman Brown Cicero & Cole, LLP, 501 Fifth Avenue, New York, NY 10017, By: ADAM DAVID COLE, Esq. Attorney for Defendant, Sichenzia Ross Ference Kesner LLP, 1185 Avenue of the Americas, 37th Floor, New York, NY 10036, By: MENDY MENACHEM PIEKARSKI, Esq.
Attorney for Plaintiff, Chipman Brown Cicero & Cole, LLP, 501 Fifth Avenue, New York, NY 10017, By: ADAM DAVID COLE, Esq.
Attorney for Defendant, Sichenzia Ross Ference Kesner LLP, 1185 Avenue of the Americas, 37th Floor, New York, NY 10036, By: MENDY MENACHEM PIEKARSKI, Esq.
Robert R. Reed, J.
Plaintiff HGT Capital LLC (HGT) brings this breach of contract action against defendant HDS International Corp. (HDS or Borrower), also known as Good Gaming, Inc., seeking to enforce the terms of an "Original Issue Convertible Promissory Note" (Note). Complaint, exhibit A. HGT commenced the instant action on November 15, 2016. Issue was joined on May 5, 2017, when HDS filed its answer. HGT now moves for summary judgment on its claim.
I. Background
HGT agreed to provide HDS with a $100,000 loan. On April 15, 2015, they executed the Note, which matured on October 15, 2015 (Maturity Date). The note provides for interest of 10% per annum, interest of 22% per annum upon default and, in the event of a prepayment, a payment of 118% to 148% of the outstanding principal, depending on the timing of the prepayment. The Note also contains an acceleration clause, which states that "[i]f an Event of Default occurs ... the full principal amount of this Note shall become, at the [HGT's] election, immediately due and payable in cash," without "any presentment, demand, protest or other notice of any kind." Halpert aff, exhibit A, § 4 (b). "Event of Default" is defined to include HDS's "[f]ailure to complete the preparation and filing of the financial statement with the SEC." Id. , § 4 (a) (vi).
The Note, in addition, provides HGT with the right to convert outstanding principal into shares of HDS common stock (Conversion Right). In pertinent part, the Note states as follows:
"5. Conversion .
"(a) (i) Holder's Conversion Right. At any time after Maturity Date until this Note is no longer outstanding, this Note, including interest and principal, The Holder of this Note is entitled, at its option, at any time, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock (the ‘Common Stock’), at a price (‘Conversion Price’) for each share of Common Stock equal to 50% of the average of the three lowest closing bid prices of the Common Stock ....
"However, if the Borrower's share price, at any time before October 14, 2015, loses the bid ..., then the fixed conversion price resets to .00001 with immediate conversion....
"The Holder shall effect conversion by delivering to the Borrower the form of Notice of Conversion attached hereto as Annex A (a ‘Notice of Conversion’) .... The Borrower shall deliver any objection to any Notice of Conversion within TWO (2) Business Days of receipt of such notice." Id.
The Conversion Right, however, is not limitless. The Note contains two provisions, sections 5 (d) and 19, which limit HGT's ability to convert the Note to no more than 4.99% percent of all issued and outstanding shares of HDS common stock (Equity Blockers). In pertinent part, these sections state as follows:
"5. Conversion .
* * *
"(d) Notwithstanding anything to the contrary herein contained, the Holder may not convert this Note to the extent such conversion would result in the Holder, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13 (d) of the Securities Exchange Act of 1934, as amended (the ‘Exchange Act’) and the rules promulgated thereunder) in excess of 4.99% of the then issued and outstanding shares of Common Stock, including shares issuable upon such conversion and held by the Holder after application of this section. The provisions of this section may be waived by the Holder (but only as to itself and not to any other Holder) upon not less than 61 days prior notice to the Borrower. Other Holders shall be unaffected by any such waiver.
* * *
"19. Equity Blocker . The Holder shall not convert this debenture into shares of common stock in an amount greater that 4.99% (9.99% if the Borrower is not a fully reporting Borrower under the Securities Exchange Act of 1934 (Non-Reporting) ) of the total issued and outstanding shares of common stock of the Borrower, at any time during the term of this Debenture. Any attempt to do so by the Holder of Payee shall not be effectuated. The calculation of the Holder's 4.99% (9.99% if the Borrower is Non-Reporting) holding shall include any and all shares of common stock beneficially held by the Holder at such time or within the next 60 days." Id.
Lastly, the Note contains a no-oral-modification clause, stating that "[n]o term or provision contained herein may be modified, amended or waived except by written agreement or consent signed by the party to be bound thereby." Id. , § 9. The Note bears the signatures of Paul Rauner, HDS's then-Chief Executive Officer, and Sylvester Gbewonyo Jr. (Gbewonyo), HGT's managing partner.
HGT immediately funded $50,000 of the loan, with an additional $50,000 to be paid at its discretion. According to HDS, HGT never funded the balance of the loan and, as result, HDS was unable to pay its auditor and attorney, causing it to "bec[o]me delinquent in its SEC filing in or around August 2015." Grover aff, ¶ 15, exhibit 4. This, allegedly, caused HDS to repeatedly lose the bid, meaning there were no public bidders for its stock, prior to October 14, 2015.
HDS and HGT both aver that the Note was amended to extend the Maturity Date to October 15, 2016 (Amended Maturity Date). They differ, however, as to when and how this occurred. On the one hand, HDS contends that, on April 20, 2015, HGT agreed to amend the Maturity Date to October 15, 2016 and executed a one-page document to that end. The document consists of the first page of the Note, still dated April 15, 2015, but states that the Note "shall be due on October 15, 2016" and bears a handwritten "VH" next to the Amended Maturity Date and a handwritten "signed by Victor Halpert" at the bottom of the page. See Grover aff, exhibit 3. Victor Halpert is HGT's managing member. See Halpert aff, ¶ 1.
HGT, on the other hand, claims that the parties agreed to amend the Note on January 16, 2016 (Amended Note) and that, in addition to extending the maturity date to October 15, 2016, they amended section 5 (a) (i) to permit HGT to exercise its Conversion Right "[a]t any time after six months until this Note is no longer outstanding" (Six Months Provision). Halpert aff, exhibit B. HGT submits two, noncontiguous pages from the original Note. The first page is identical to HDS's submission. Id. The second page contains a handwritten revision to section 5 (a) (i), with "the Maturity Date" excised and "six months" written in. Id. The initials "SG" appear next to the revision and what appears to be Gbewonyo's signature is at the bottom of the page. Id. According to HDS, the parties discussed the Six Months Provision in January 2016 to facilitate a third-party's purchase of the Note. However, HDS states that, because no purchase took place, it never executed the proposed amendment.
Allegedly, in the fall of 2015, HDS decided to acquire the assets of Good Gaming, Inc. from CMG Holdings Group, Inc. (CMG). According to HDS, prior to the acquisition, HGT "made numerous representations to [HDS] and to CMG that it was waiving its Conversion Right and that it would only seek cash repayment on the ... Note." Grover aff, ¶ 19. In particular, HDS points to an email, dated October 29, 2015, in which an HGT representative states, "[b]ottom line is we just want our money back ...." Grover aff, exhibit 6. In addition, HDS asserts that during a November 5, 2015 conference call among HDS, HGT and CMG, HGT stated "that it sought to be repaid in cash and that it would not exercise its Conversion Right to obtain equity in [HDS], as [HGT] disapproved of [HDS's] business strategies." Grover aff, ¶ 21. CMG's Chief Executive Officer, Glenn Laken, corroborates this statement. See Laken aff. Lastly, HDS points to an email, dated February 25, 2016, in which an HGT representative states that "the partners want to recoup their principal and keep their warrants." Grover aff, exhibit 7.
On February 18, 2016, HDS purchased the assets of Good Gaming, Inc. from CMG. HDS subsequently changed its name to Good Gaming, Inc. and replaced Paul Rauner, its CEO and director, with Vikram Grover. On June 15, 2016, relying on the Six Months Provision of the Amended Note, HGT submitted a notice of conversion to convert $40 of the $50,000 outstanding under the Note, into 4,000,000 shares at $.00001 per share. By email, dated June 15, 2016, HDS informed HGT as follows: "as per our agreement you will sell us the debt at face amount and keep the 100MM warrants, a stop action letter has been issued." Grover aff, exhibit 9. On June 23, 2016, again relying on the Six Months Provision, HGT submitted a second notice of conversion to convert $955.65 into 95,564,971 shares at $.00001 per share. On the same day, HGT allegedly "notified HDS under Paragraph 5 (c) of the ... Note that HRT [sic] was waiving the 4.99% conversion restriction." Complaint, ¶ 25. HDS did not comply with the notice of conversion. On October 10, 2016, relying on the Six Months Provision, HGT submitted a third notice of conversion to convert the remaining $49,004.35 into 4,900,435,000 shares at $.00001 per share. HDS again refused to comply.
According to HDS, at the time of the third notice of conversion, its by-laws authorized it to issue 2,000,000,000 shares of common stock and it had 1,999,990,000 shares of common stock that were issued and outstanding.
HGT now seeks specific performance or, in the alternative, damages.
II. Analysis
The parties dispute whether: (1) HGT's notices of conversion were premature; (2) the Note's Equity Blockers render the notices of conversion ineffective; (3) HGT waived its Conversion Right; (4) the Note is usurious; (5) the Note is unconscionable; (6) HGT's breach of contract claim is barred by the doctrine of unclean hands; and (7) whether HDS's performance is excused as impossible.
Pursuant to CPLR 3212 (b), "[t]o obtain summary judgment, the movant ‘must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact.’ " Madeline D'Anthony Enters., Inc. v Sokolowsky , 101 AD3d 606, 607 (1st Dept 2012), quoting Alvarez v Prospect Hosp. , 68 NY2d 320, 324 (1986). "Failure to make such prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers." Alvarez, 68 NY2d at 324. Once the movant satisfies its burden, the opposing party must " ‘produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action.’ " Madeline D'Anthony Enters., Inc. , 101 AD3d at 607, quoting Alvarez , 68 NY2d at 324. "In determining a motion for summary judgment, the court must view the evidence in the light most favorable to the nonmoving party." Stukas v Streiter , 83 AD3d 18, 22 (2d Dept 2011) ; see also Henderson v City of New York , 178 AD2d 129, 130 (1st Dept 1991).
The elements of a breach of contract claim are: (1) the existence of a contract; (2) the plaintiff's performance under the contract; (3) the defendant's breach of the contract; and (4) damages. Harris v Seward Park Hous. Corp., 79 AD3d 425, 426 (1st Dept 2010). The interpretation of an unambiguous contract is a question of law for the court ( Ruttenberg v Davidge Data Sys. Corp. , 215 AD2d 191, 192 [ (1st Dept 1995) ] ), as is the determination of whether a contract is ambiguous. W.W.W. Assoc. v Giancontieri , 77 NY2d 157, 162 (1990). In interpreting a contract, the court must consider the parties' intentions, "[t]he best evidence of [which] ... is what they say in their writing." Banco Espírito Santo, S.A. v Concessionária Do Rodoanel Oeste S.A. , 100 AD3d 100, 106 (1st Dept 2012) (internal quotation marks and citation omitted). In addition, the writing must be read as a whole in order to effectuate its intended purpose, as "[t]he meaning of a writing may be distorted where undue force is given to single words or phrases." Matter of Westmoreland Coal Co. v Entech, Inc. , 100 NY2d 352, 358 (2003) ; see also HSBC Bank USA v National Equity Corp. , 279 AD2d 251, 253 (1st Dept 2001). Another "cardinal rule of construction [is] that a court adopt an interpretation that renders no portion of the contract meaningless." Kolmar Ams., Inc. v Bioversel Inc. , 89 AD3d 493, 494 (1st Dept 2011) (internal quotation marks and citation omitted); see also Two Guys from Harrison-NY, Inc. v S.F.R. Realty Assoc. , 63 NY2d 396, 403 (1984). "[A] written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms." Greenfield v Philles Records , 98 NY2d 562, 569 (2002). "However, when the meaning of the contract is ambiguous and the intent of the parties becomes a matter of inquiry, a question of fact is presented which cannot be resolved on a motion for summary judgment." Ruttenberg , 215 AD2d at 193 (internal quotation marks and citation omitted); see also Hartford Acc. & Indem. Co. v Wesolowski , 33 NY2d 169, 172 (1973).
Here, HGT fails to demonstrate, prima facie, its entitlement to summary judgment on its claim for breach of the Amended Note. HGT argues that the notices of conversion were not premature, even though they were issued before the Amended Maturity Date, because the Amended Note entitles HGT to convert any portion of the outstanding principal "[a]t any time after six months [from the amendment date in January 2016]." Halpert aff, exhibit B, § 5 (a) (i). However, HGT fails to provide any evidence that HDS entered into the Amended Note. HGT's submission in support of its motion, purporting to be the relevant portions of the Amended Note, is not executed by HDS. See id. Under the express terms of the Note, "[n]o term or provision ... may be modified, amended or waived except by written agreement or consent signed by the party to be bound thereby." Id. , exhibit A, § 9. Therefore, HGT fails to establish, prima facie, that HDS entered the Amendment Note. See Lane v Tyson , 133 AD3d 530, 531 (1st Dept 2015) (rejecting argument "that the parties' agreement was modified" where the agreement contained a no-oral-modification clause and defendants failed to "indicat[e] ... that such a writing, signed by plaintiff, was ever made").
In its reply, HGT changes course and argues, for the first time, that it is entitled to summary judgment under the terms of the original Note, because: (1) the notices of conversion were issued after the Maturity Date, October 15, 2015, and (2) even under the Amended Maturity Date, the notices were timely because the Note automatically accelerated upon HDS's "[f]ailure to complete the preparation and filing of the financial statement with the SEC" in August 2015, which constituted a default under the Note. Halpert aff, exhibit A, § 4 (a) (vi). As HGT's reply brief is the first time it raises these arguments, they "are entitled to no consideration by a court entertaining a summary judgment motion." Rhodes v City of New York , 88 AD3d 614, 615 (1st Dept 2011) (internal quotation marks and citation omitted).
In any event, HGT is not entitled to summary judgment based on these newly raised arguments. First, it has not established, prima facie, that the original Maturity Date, rather than the Amended Maturity Date, controls. Second, nothing in the Note provides for automatic acceleration upon default. Rather, it states that, in the event of default, "the full principal amount of this Note shall become, at the Payee's election , immediately due and payable in cash." Halpert aff, exhibit A, § 4 (b) (emphasis added). While the Note provides that "[HGT] need not provide ... notice of any kind" (id. ), HGT, nonetheless, must manifest its election to accelerate the Note by "some unequivocal overt act ...." 446 W. 44th St., Inc. v Riverland Holding Corp. , 267 App Div 135, 137 (1st Dept 1943) ; see also Wells Fargo Bank, N.A. v Burke, 94 AD3d 980, 982-983 (2d Dept 2012) ("[w]here the acceleration of the maturity of a mortgage debt on default is made optional with the holder of the note and mortgage, some affirmative action must be taken evidencing the holder's election to take advantage of the accelerating provision, and until such action has been taken the provision has no operation"). Therefore, HGT's contention that the Note automatically accelerated upon HDS's default is without merit. Moreover, the record on the instant motion does not contain any evidence that HGT elected to accelerate. While HGT attempts to paint its October 29, 2015 email, in which its representative states "we just want our money back" (Grover aff, exhibit 6), as evidence of its election, this hardly constitutes an "unequivocal overt act manifesting [HGT's] election" to accelerate. 446 W. 44th St , 267 App Div at 137. What is more, its notices of conversion, which seek to convert portions of the outstanding principal into HDS common stock , belie HGT's claim that it elected to seek the "full principal amount of this Note ... immediately due and payable in cash " under the acceleration provision. Halpert aff, exhibit A, § 4 (b) (emphasis added).
In addition, HGT fails to establish, prima facie, that it validly exercised the waiver provision of subsection 5 (d), when it sought to convert the outstanding principal into shares that would result in HGT owning more than 4.99% of the then issued and outstanding HDS common stock. The Equity Blocker of subsection 5 (d) states that "the Holder may not convert this Note to the extent such conversion would result in the Holder ... beneficially owning ... in excess of 4.99% of the then issued and outstanding shares of Common Stock." Halpert aff, exhibit A, § 5 (d). However, subsection 5 (d) goes on to provide that "[t]he provisions of this section may be waived by the Holder ... upon not less than 61 days prior notice to the Borrower." Id. HGT claims, for the first time in its reply, that "[t]here is no dispute that HGT provided [HDS] with notice of its waiver of the 4.99% outstanding limitation, and that HGT then waited 61 days to convert." HGT's reply brief at 7. However, the only other time HGT states that it validly exercised this waiver is in the complaint (see complaint, ¶ 25), and HDS denies the allegation in its answer. See answer, ¶ 25. HGT offers no evidence of its compliance with the 61-day notice requirement. Therefore, HGT fails to demonstrate, prima facie, that it performed under the contract.
Furthermore, whether the Note's Equity Blockers are waivable raises an issue of fact. Section 19 of the Note, provides that "[t]he Holder shall not convert this debenture into shares of common stock in an amount greater that 4.99% of the total issued and outstanding shares of common stock of the Borrower, at any time during the term of this Debenture." Halpert aff, exhibit A, § 19. In this respect, section 19 is nearly identical to subsection 5 (d). Unlike subsection 5 (d), however, section 19 does not allow for a waiver of that limitation and instead provides that "[a]ny attempt to [convert the debt that would result in the Holder owning in excess of 4.99% of the then issued and outstanding shares] shall not be effectuated." Id. , § 19. As such, sections 5 (d) and 19 are irreconcilable. The court cannot give effect to one without rendering the other meaningless.
To the extent that HGT argues section 19's "term of this Debenture" means that the provision becomes inoperative upon the Note's maturity, such a reading renders section 19 meaningless. The Note provides that the Conversion Right is available "after Maturity Date." Id. , 5 (a) (i) (emphasis added). Therefore, to treat section 19's Equity Blocker as ineffective after maturity, the only time when a conversion could be attempted, impermissibly renders that section meaningless. See Kolmar Ams., Inc. , 89 AD3d at 494.
HGT's contention that subsection 5 (d) trumps section 19 is equally meritless. The argument is based on a strained, out-of-context reading of the "[n]otwithstanding anything to the contrary herein contained" and the "provisions of this section may be waived by the Holder" language of subsection 5 (d). Halpert aff, exhibit A. "It is an elementary rule of contract construction that clauses of a contract should be read together contextually in order to give them meaning." HSBC Bank USA , 279 AD2d at 253. When so read, the plain reading of section 5 makes clear that "[n]otwithstanding anything to the contrary herein contained" refers to the section's extensive discussion of the Conversion Right, before it imposes the 4.99% limit on that right. Halpert aff, exhibit A, § 5 (d). Moreover, the waiver clause of subsection 5 (d) expressly states that it is limited to the "provisions of this section ..." Id. (emphasis added). It, therefore, does not apply to section 19.
Therefore, the parties' intentions with respect to the waivability of the Equity Blockers are not ascertainable from the four corners of the Note, which requires denial of HGT's motion for summary judgment. See Ruttenberg , 215 AD2d at 193 ; see also Hartford Acc. & Indem. Co. , 33 NY2d at 172.
For the foregoing reasons, HGT's motion for summary judgment is denied.
The court notes HDS's remaining arguments—that HGT's claim is barred because of usury, waiver, unconscionability, unclean hands and impossibility—and finds them unavailing.
"Corporations—generally the antithesis of the ‘desperately poor people’...—are ordinarily barred from asserting a usury defense." Seidel v 18 E. 17th St. Owners , 79 NY2d 735, 740 (1992) ; see also General Obligations Law (GOL) § 5-521 (1) ("[n]o corporation shall hereafter interpose the defense of usury in any action"). However, a corporation may interpose a defense of criminal usury, defined as an annual interest rate exceeding 25%. See GOL § 5—521 (3) ; Penal Law § 190.40. A payment contingent on an event "beyond the borrower's control ... constitutes interest within the meaning of the usury statutes." Feld v Apple Bank for Sav. , 116 AD3d 549, 553 (1st Dept 2014) (internal citation and quotation marks omitted). Here, HDS argues that the Note is usurious on its face, because it provides for an interest rate of 10%, a default rate of 22%, a prepayment rate of up to 48% and the right to convert at a 50% discount to the market price. However, each of the complained of interest rates—the default rate, the prepayment rate, and the conversion discount—is based upon a contingency within HDS's control. Because HDS "could have avoided the imposition of such charges simply by paying promptly," the Note is not usurious. Bryan L. Salamone, P.C. v Russo , 129 AD3d 879, 881 (2d Dept 2015) (finding that the "annual interest rate ... was not usurious because it involved interest to be paid based upon a contingency within the control of the debtor —in this case, default in the payment of an agreed-upon obligation ...."); see also Bhatara v Futterman , 122 AD3d 509, 510 (1st Dept 2014) (internal citations omitted) ("reject[ing] defendant's contention that the loan was usurious, since the stated rate of interest for the loan was 10% per year ... and since the transfer of any membership interests did not occur until after his default"); Kraus v Mendelsohn , 97 AD3d 641, 641 (2d Dept 2012) (internal quotation marks and citations omitted) ("[t]he defense of usury does not apply where ... the terms of the mortgage and note impose a rate of interest in excess of the statutory maximum only after default or maturity").
The defense of waiver is also inapplicable, as the Note contains a no-oral-modification clause. Under GOL § 15-301 (1), a contract with such a clause "cannot be changed by an executory agreement unless such executory agreement is in writing and signed by the party against whom enforcement of the change is sought ...." "There are two exceptions to [ GOL § 15-301 (1) ]: partial performance and promissory estoppel. Neither exception is available, however, unless the part performance or the acts taken in detrimental reliance are ‘unequivocally referable’ to the new, oral agreement." Richardson & Lucas, Inc. v New York Athletic Club of City of NY , 304 AD2d 462, 463 (1st Dept 2003) (internal citation omitted). To be unequivocally referable, "conduct relied upon to establish [waiver] must not otherwise be compatible with the agreement as written." Eujoy Realty Corp. v Van Wagner Communications, LLC , 22 NY3d 413, 426 (2013) (internal quotation marks and citation omitted). Here, HDS argues that it acquired Good Gaming Inc.'s assets in reliance on HGT's oral assurances that it would not exercise its Conversion Right. However, HDS does not demonstrate that the acquisition was a detrimental change of its position. Nor can it be said that the acquisition is unequivocally referable to GHT's alleged waiver of its Conversion Right, as the acquisition can just as easily be attributed to HGT's desire to transition into a new business. Therefore, the defense of oral waiver is not available here. See Nassau Beekman LLC v Ann/Nassau Realty LLC , 105 AD3d 33, 41 (1st Dept 2013) (internal citation omitted) (finding no issue of fact raised regarding whether contract requiring a signed writing was orally modified, where "[n]othing in [the plaintiff's] submissions demonstrate[d] that defendant induced it to significantly and substantially rely to its detriment on the alleged oral modification"); see also F. Garofalo Elec. Co. v New York Univ. , 270 AD2d 76, 81 (1st Dept 2000) (finding, as a matter of law, that "the bar of [GOL] § 15-301 [1 ] on oral modifications was applicable" where "[n]othing in the record [could] be viewed as unequivocally referable to an intent to modify ...").
Nor is the Note unconscionable. First, "the doctrine of unconscionability has little applicability in the commercial setting because it is presumed that businessmen deal at arm's length with relative equality of bargaining power." Gillman v Chase Manhattan Bank , 135 AD2d 488, 491 (2 Dept 1987), affd 73 NY2d 1 (1988) (internal citations omitted). Second, "a determination of unconscionability generally requires a showing that the contract was both procedurally and substantively unconscionable when made—i.e., some showing of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party," neither of which is present here. Gillman , 73 NY2d at 10 (internal quotation marks and citations omitted). HDS merely argues that HGT presented the Note on a take-it-or-leave-it basis and that HGT stood to gain a windfall by exercising its Conversion Right. However, "[i]t does not avail [HDS] to argue that the [Note] is unconscionable without offering evidence that [it] could not have chosen another service provider" ( Ranieri v Bell Atl. Mobile , 304 AD2d 353, 354 [1st Dept 2003] ) and, "absent any aggravating factors which indicate an inequity in bargaining power, price alone will not support a finding of substantive unconscionability." Wachovia Sec., LLC v Joseph , 56 AD3d 269, 270 (1st Dept 2008) (internal citation omitted).
The doctrine of unclean hands is "only available where plaintiff is guilty of immoral or unconscionable conduct directly related to the subject matter, and the party seeking to invoke the doctrine is injured by such conduct." Frymer v Bell , 99 AD2d 91, 96 (1st Dept 1984), citing Weiss v Mayflower Doughnut Corp. , 1 NY2d 310, 316 (1956). Here, HDS contends that "to the extent that [HDS's] common stock ‘lost the bid’, [sic] which triggered the unconscionably discounted conversion rate [of $.00001] included in the Conversion Notices, it was caused, at least in part, by [HGT's] failure to fund the remaining $50,000 of the Loan," because without the money, HDS could not pay the auditor and legal fees in connection with its SEC filings. HDS's brief at 20. However, HGT's refusal to lend another $50,000, a decision that was within HGT's discretion, was neither immoral nor unconscionable. Therefore, the doctrine of unclean hands is not applicable here. Cf. Frymer , 99 AD2d at 97 (finding that "[t]here was nothing illegal, immoral or unconscionable about trying to capitalize upon an advantageous offer").
Lastly, impossibility is available as a defense "only when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible and that the impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract." Matter of Reed Found., Inc. v Franklin D. Roosevelt Four Freedoms Park, LLC , 108 AD3d 1, 7 (1st Dept 2013) (internal quotation marks and citations omitted). Here, HDS contends that the notices of conversion sought three billion more shares than HDS was, at the time, authorized to issue under its by-laws. However, HDS may amend its by-laws and issue additional shares. Moreover, HDS's inability to satisfy a notice of conversion could have been anticipated and guarded against in the Note, by imposing a limit on the Conversion Right through a non-waivable Equity Blocker. Therefore, the defense of impossibility is not available. See Kel Kim Corp. v Central Mkts. , 70 NY2d 900, 902 (1987) (finding impossibility did not excuse plaintiff's performance where its inability to meet its obligations could have been "been foreseen and guarded against" in the contract); see also Pettinelli Elec. Co. v Board of Educ. of City of NY , 56 AD2d 520, 521 (1st Dept 1977), affd 43 NY2d 760 (1977) (internal quotation marks and citation omitted) ("[f]inancial difficulty or economic hardship ... is not such impossibility as to excuse a defendant from liability in damages for failure to perform the contract").
Accordingly, it is hereby
ORDERED that the motion for summary judgment is denied in its entirety; and it is further
ORDERED that counsel are directed to appear for a status conference in Room 581 on October 11, 2018, at 2:30 PM.