Opinion
No. 19067–13.
02-03-2015
Vito AGOSTA and Fuel Systems Design, LLC, Plaintiffs, v. FAST SYSTEMS CORPORATION, Defendant.
Cahn & Cahn, LLP, Huntington, for Plaintiffs. Kenneth H. Ryesky, Esq., East Northport, for Defendant.
Cahn & Cahn, LLP, Huntington, for Plaintiffs.
Kenneth H. Ryesky, Esq., East Northport, for Defendant.
Opinion
ELIZABETH H. EMERSON, J.
Upon the following papers numbered 1–57 read on this motion and cross-motion for summary judgment; Notice of Motion and supporting papers 1–10; Notice of Cross Motion and supporting papers; Answering Affidavits and supporting papers 11–46; Replying Affidavits and supporting papers 47–56; it is,
ORDERED that the branch of the motion by the plaintiffs which is for partial summary judgment on the second, third, sixth, and seventh causes of action is denied; and it is further
ORDERED that the branch of the motion by the plaintiffs which is for summary judgment dismissing the defendant's counterclaims is granted as to the first, third, fourth, and fifth counterclaims and is otherwise denied; and it is further
ORDERED that the cross motion by the defendant for summary judgment on its counterclaims is denied.
The plaintiff Vito Agosta is an engineer, professor, and inventor who developed a method of burning liquid ammonia in diesel engines. On May 18, 2009, he applied for a patent for his invention, which he assigned to his wholly owned limited liability company, the plaintiff Fuel Systems Design, LLC (the “plaintiff LLC”). On December 15, 2011, he executed a second assignment of the patent application to the defendant FAST Systems Corporation (“FAST” or “the company”), which had been incorporated only a few days earlier on December 9, 2011. Also on December 9, 2011, Agosta received 400 shares of FAST stock, which represented a 40% interest in FAST. The other FAST shareholders were Mark Schlam, the President (200 shares); George Likourezos, FAST's patent attorney (200 shares); Stan Meyers (200 shares); and Dennis Landsberg (5 shares). The patent was issued on July 30, 2013 (the “ammonia patent”).
It is unclear from the face of the second assignment whether Agosta executed it in his individual capacity or as the president of the plaintiff LLC.
On January 22, 2012, Agosta and Schlam exchanged emails. Agosta sent the following email to Schlam:
I just wanted to remind you that I have not received confirmation, i.e., letters confirming my income:
1 The four items on our agreement
$one million for my patents,
5% royalty on net income
$100/hr for labor
40% stock not diluted at present
2 Sunset clause
3 Additional stock to make up the 5% or 10% sold to Dennis [Landsberg].
I think that it is proper to have such paper.
Schlam responded as follows:
Based on our conversation this evening, I would like to embellish on the items you presented below.
I will be working with George [Likourezos] to develop a formal Letter of Intent. The final compensation agreement with you will be part of the Stockholders' Operating Agreement that is in process.
1. The $1 million for your patents was the price the corporation agreed to pay for all the inventions. Payment will be based upon actual receipt of funds from clients or authorization of funding to you from major investors.
2. 5% royalty on the nets sales of systems hardware and installation less returns or allowances.
3. $100 per hour for your labor when you start to work on the products or on actual contracts (e.g., Department of Energy SBIR grant, if we win it), after the proposals are completed. No compensation is due for your work on the proposals.
Time would be accumulated until investor funding is obtained. You will not start work until authorized by the President.
4. You will be restored to 40% of shares of stock by the issuance of additional shares of treasury stock following [Dennis Landsberg's] additional investment of $5,000 for his additional 5 shares. Dennis will own a total of 10 shares at that point.
5. You would prefer that if we compensate Dennis to increase his shares to 200 shares based upon work he performs on proposals and other activities at the agreed upon compensation rate of $100/hour with a $1,000 per share basis, you would like to maintain your 40% stock percentage of ownership.
6. At the point that a major investor ($1 Million or more) invests in the company, you and all of the stockholders will agree to the issuance of treasury stock to the investor which would result in a dilution of everyone's stock.
* *
7. The status of additional investors, who may or may not have a seat on the Board of Directors is to be negotiated and included in the Shareholders' Operating Agreement.
8. A sunset clause will provide for the patents to revert to you after 5 years if we are not successful in obtaining major investor funding or selling developed products.
Please clarify that this is our understanding of your compensation plan at this point. I will be working with you and George [Likourezos] to develop a final Letter of Intent.
FAST held its first shareholders meeting three days later on January 25, 2012. The meeting was attended by all five FAST shareholders, who were also FAST's officers and members of its Board of Directors. Schlam's email to Agosta dated January 22, 2012, was entered into the record as having been reviewed and/or discussed at the meeting. Agosta inquired about his patent application and was informed by Schlam that the patent application or patent, if issued, would revert back to him after five years from January 1, 2012, if the company did not monetize the intellectual property. There was a discussion about the dilution of shares if a major investor invested in the company, and all of the shareholders agreed that everyone's shares would be diluted proportionally to their equity share if a major investor invested in the company. There was a discussion about Landsberg being given additional shares for work performed for the company with the goal of having him reach parity with the other minority shareholders (i.e., Schlam, Likourezos, and Meyers). Landsberg stated that he would provide the company with another $5,000 for an additional five shares in due course. The shareholders discussed preparing a shareholders' agreement, and Meyers stated that he would see if his son had any sample stockholder agreements to use as a guide.
On February 14, 2012, a special meeting of FAST's shareholders was held to discuss a proposal submitted to the U.S. Department of Energy to exploit the ammonia patent. The meeting was attended by Schlam, Agosta, Likourezos, Landsberg (via telephone), and FAST's counsel Edward Sawchuk. Meyers, whose resignation as Chairman of the Board and as a director of FAST was accepted at the meeting, did not attend. Agosta stated at the meeting, which was memorialized by a court reporter, that he wanted his participation in the company to be limited to technical matters since he was not well versed in administration.
Agosta was also the inventor of a method of burning urea as an alternative fuel for powering diesel engines. On October 25, 2012, Likourezos filed a provisional patent application for the preparation and combustion of urea-based fuel. Agosta was listed as the inventor on the application. FAST paid the filing fees and attorney's fees for the application and claims that it was understood among the directors and officers of FAST that the invention was FAST's property. The provisional urea patent application expired on October 25, 2013, and needed to be converted to a utility patent application by that date in order to obtain a patent. Likourezos sought Agosta's assistance with the utility patent application. However, by that time, this litigation had been commenced and Agosta's assistance was not forthcoming. Thus, the provisional urea patent application expired without being converted into a utility patent application.
Likourezos also sought an assignment of Acosta's rights in the urea patent application to FAST, which was not obtained. Agosta disputes FAST's claim to ownership of this invention.
By a letter dated January 28, 2013, Agosta responded through his attorney to Schlam's email to him a year earlier. The text of the letter is as follows:
Vito Agosta has asked me to write to you to address the matters you mentioned in your email to him dated January 22, 2012, almost exactly one year ago. You undoubtedly know that Vito is unhappy—and understandably so—that no progress has been evident with respect to reducing to writing the understandings and agreement FAST's shareholders and directors have with one another. Nonetheless, he is still willing to continue his discussions with you and the others with a view to accomplish that end.
Preliminarily, it should be highlighted that in good faith and only in contemplation of a formal agreement, Vito signed over to FAST all of his rights in his pending patent relating to the use of Ammonia as a fuel in energy devices, in return for (1) the payment of $1 million; (2) a 40% interest in FAST, (dilutive only under certain specified circumstances), and (3) certain other prerequisites. However, no letter of intent, operating agreement, additional stock certificate adjusted to maintain Vito's 40% interest, or any other documents or instruments memorializing and evidencing this agreement have ever been proffered to him, much less signed by the parties, although more than one year has elapsed since his assignment of the stated patent rights. Considering what is at stake here, it seems clear that the requisite instruments and agreements must speedily be prepared, embodying the agreements of the parties, and thereafter promptly executed by them. Otherwise, Vito would regretfully have to take appropriate action to reclaim his invention and so advise the Patent Office.
To facilitate the preparation of these documents, we would like to relay to you Vito's reactions to the various paragraphs of your January 22, 2012 email, some of which appear to alter terms previously agreed to:
Paragraph 1 Vito has spent several tens of hours and more than $7,000 to pursue the pending patent application which in good faith he assigned to FAST on a handshake in contemplation of a legally binding agreement embodying the terms agreed to. However, at such time as FAST obtains a contract or investment, he would expect to receive some immediate on-account payment toward the said services and disbursements, no less than $25,000. In connection with the transfer of the patent rights, please be aware that the specified sum of $1,000,000 was intended to pertain only to the use of Ammonia as a fuel in energy devices as described in the patent application; it does not cover other or alternate fuels or inventions.
Paragraph 2 This item is acceptable as written.
Paragraph 3 Dennis Landsberg is to be awarded shares for assisting in the preparation of proposals, but there was no agreement that he could charge FAST $229 per hour for work on his subcontract. Vito specified that no one would charge more than he for their work, and that was agreed to by you. As long as either Dennis or George Likourezos is a director or officer of FAST, neither can properly charge more than Vito's agreed rate. (Vito would like to work about twenty hours per week at the rate agreed to by all, but if Mr. Cohen wishes to complete proposals in as little as three months, then Vito would of necessity be required to work more than that amount of time each week, and the agreements should so provide. Vito will, of course, participate equally with the other FAST senior corporate directors and officers on perks, particularly medical benefits.
Paragraphs 4, 5 These items are acceptable, provided it is understood that Vito's 40% interest will not under any circumstances be diluted until after he has received his full compensation in an amount equal to at least $1,000,000 for the transfer of his patent rights.
Paragraphs 6, 7 With respect [to] any future stock dilution, the question of if and to what extent stock dilution may occur with respect to the shares of each specific shareholder, must be further discussed.
The letter does not respond to paragraph 8 of Schlam's email, which addresses the sunset clause.
New Item: Vito does not know for certain what, if any, additional applications or proposals FAST has previously submitted for grants or to proposed investors, nor is he familiar with the contents of any such applications or proposals. Because his scientific and scholarly work forms the basis of all proposals that have been discussed by the principals of the company, please provide copies of all such prior applications or proposals, and please do so with respect to all future applications and proposals, prior to their release by the company.
Having said all of the above, please be assured that Vito and I will be pleased to meet with you and the other members of the group at your earliest convenience, to discuss these matters.
On April 5, 2013, the U.S. Patent and Trademark Office (the “Patent Office”) notified Likourezos' law firm that the ammonia patent would be issued and that issue and publication fees in the amount of $1,190 were due on or before July 5, 2013. The failure to pay the fees would result in the ammonia patent being deemed abandoned. By an email dated April 10, 2013, Likourezos notified Schlam and Agosta. Agosta paid the fees at the end of June 2013 and, at the same time, changed the address to which correspondence for the ammonia patent would be sent to his own address. On July 9, 2013, Likourezos notified that Patent Office that FAST was the assignee of the ammonia patent and that it should disregard the change-of-correspondence form filed by Agosta. On July 11, 2013, Likourezos requested that a certificate of correction be issued indicating that FAST was the assignee of the ammonia patent. By a letter dated July 30, 2013, to which the complaint in this action was attached, Agosta notified the Patent Office that he was the sole inventor of the ammonia patent and that Likourezos' filings should be disregarded. The ammonia patent was issued on July 30, 2013, naming Agosta as the inventor and the plaintiff LLC as the assignee. On September 12, 2013 Likourezos filed a second petition for a certificate of correction, which was granted on September 27, 2013. A certificate of correction naming FAST as the assignee of the ammonia patent was issued on October 22, 2013.
The parties never executed a letter of intent or shareholder agreement. On July 19, 2013, Agosta and his wholly owned LLC commenced this action for a judgment declaring that Agosta's assignment of the ammonia patent to FAST is void and that FAST has no ownership interest therein, for a judgment setting aside any purported agreement between the parties, and for an injunction enjoining FAST from interfering with the plaintiffs' exclusive ownership interest in the ammonia patent. FAST answered the complaint and counterclaimed for time and money expended, for breach of fiduciary duty, for tortious interference with a business relationship, for conversion, for fraud and misrepresentation, for breach of contract, and for injunctive relief. The plaintiffs move for partial summary judgment on their second, third, sixth and seventh causes of action and for dismissal of FAST's counterclaims. FAST opposes the motion and cross moves for summary judgment on its counterclaims.
The court declines to consider FAST's request for summary judgment on the plaintiffs' causes of action, which was not included in the notice of cross motion. It, therefore, is not properly before the court (see, Lee v. Colley Group McMontebello, 90 AD3d 1000, 1000–1001 ; DiLacio v. New York City Dist. Council of United Bhd. of Carpenters & Joiners of Am., 80 AD3d 553, 554 ; Myung Chun v. N. Am. Mtge. Co., 285 A.D.2d 42, 45 ).
In support of summary judgment, the plaintiffs argue that, since no writing embodying the terms and conditions of the business arrangement between Agosta and FAST was ever prepared or executed by the parties to be charged with its performance, there was no meeting of the minds and that any purported agreement is barred by the statute of frauds because, by its terms, it was not to be performed within one year.
It is well established that a contract is unenforceable when there is no meeting of the minds between the parties regarding a material element thereof (Brands v. Urban, 182 A.D.2d 287, 289 ). In determining whether the parties entered into a contractual agreement and what its terms were, it is necessary to look to the objective manifestation of the intent of the parties as gathered by their express words and deeds. While it is the responsibility of the court to interpret written instruments, when a finding of intent to contract is dependent as well on other evidence from which differing inferences may be drawn, a question of fact arises (Flores v. Lower E. Side Serv. Ctr., Inc., 4 NY3d 363, 368, citing Brown Bros. Elec. Contrs. v. Beam Constr. Corp., 41 N.Y.2d 397, 399–400 ). In determining whether there was a meeting of the minds sufficient to give rise to an enforceable contract, the court may consider the course of conduct between the parties, including their writings (Id. at 368–370 ).
To obtain summary judgment it is necessary that the movant establish his cause of action or defense sufficiently to warrant the court, as a matter of law, in directing judgment in his favor (see, CPLR 3212[b] ). The failure of the proponent of a summary judgment motion to make a prima facie showing of entitlement to judgment as a matter of law requires denial of the motion regardless of the sufficiency of the opposing papers (see, Winegrad v. New York Univ. Med. Center, 64 N.Y.2d 851, 853 ).
Construing the evidence in the light most favorable to FAST (see, Matter of Benincasa v. Garrubbo, 141 A.D.2d 636, 637 ), the court finds that the plaintiffs have failed to meet their burden of demonstrating as a matter of law that there was no meeting of the minds sufficient to give rise to an enforceable contract. Although it is undisputed that no integrated, written agreement was executed by the parties, the course of conduct between Agosta and FAST gives rise to an inference that there was an intent to contract, at least with respect to the ammonia patent. The record reveals that, contrary to the plaintiffs' contentions, the parties agreed that Agosta would receive $1,000,000, 5% of the royalties, $100 an hour for his labor, and a 40% interest in FAST in exchange for the assignment of his “patents” to FAST. The parties also agreed that Agosta's 40% interest would not be diluted until major-investor funding was obtained and that the patent or patents would revert back to Agosta if not monetized within 5 years. While the parties dispute whether their agreement included the urea patent application, the plaintiffs have failed to establish as a matter of law that it did not. Agosta stated in his email to Schlam on January 22, 2012, that their agreement included “$one million for my patents ” (emphasis added), to which Schlam replied, “The $1 million for your patents was the price the corporation agreed to pay for all the inventions ” (emphasis added).
The plaintiffs' alternate argument in support of summary judgment is that the agreement is barred by the statute of frauds. General Obligations Law § 5–701(a)(1) bars oral agreements which, by their terms, are not to be performed within one year from their making unless there is some note or memorandum in writing, subscribed by the party to be charged therewith. Since the parties' agreement was for a term of at least five years, General Obligations Law § 5–701(a)(1) applies.
As previously noted, no integrated, written agreement was executed by the parties. However, it is well established that the statutorily required writing need not be contained in a single document, but may be furnished by piecing together other, related writings (William J. Jenack Estate Appraisers & Auctioneers, Inc. v. Rabizadeh, 22 NY3d 470, 477 [and cases cited therein] ). Signed and unsigned writings can be read together to satisfy the statute, provided they clearly refer to the same subject matter or transaction and contain all of the essential terms of a binding contract. At least one writing establishing a contractual relationship between the parties must be signed by the party to be charged. Moreover, parol evidence may be used to connect the separate documents and to show that there was asset by the party to be charged to the contents of the unsigned writings (Crabtree v. Elizabeth Arden Sales Corp., 305 N.Y. 48, 55–56 ; see also, William J. Jenack Estate Appraisers & Auctioneers, Inc. v. Rabizadeh, 99 AD3d 270, 274, revd on other grounds 22 NY3d 470 ; Post Hill, LLC v. E. Tetz & Sons, Inc., 122 AD3d 1126 ).
Construing the evidence in the light most favorable to FAST (see, Matter of Benincasa v. Garrubbo, supra ), the court finds that the plaintiffs have failed to meet their burden of demonstrating as a matter of law that there is no writing which satisfies General Obligations Law § 5–701(a)(1). The signed and unsigned writings, when read together, are sufficient to establish the parties' agreement. They reveal that Agosta was to receive $1,000,000, 5% of the royalties, $100 an hour for his labor, and a 40% interest in FAST in exchange for the assignment of his “patents” to FAST; that Agosta's 40% interest would not be diluted until major-investor funding was obtained; and that the patent or patents would revert back to Agosta if not monetized within 5 years. Agosta's signature appears on the assignment of the ammonia patent to FAST and on FAST's subchapter-S election forms. The signature of Agosta's attorney appears on the letter dated January 28, 2013, to Schlam, and Agosta's first name is typed under his email to Schlam dated January 22, 2012 (see, Newmark & Co. Real Estate Inc. v. 2615 E. 17 St. Realty LLC, 80 AD3d 476, 477 [an email sent by a party, under which the sending party's name is typed, can constitute a writing for purposes of the statute of frauds]; see also, Forcelli v. Gelco Corp., 109 AD3d 244, 250–251 ; Naldi v. Grunberg, 80 AD3d 1, 6–13 ). The court finds that this evidence is sufficient to establish a contractual relationship between the parties. Moreover, there is evidence of partial performance, which may remove the agreement from the statute of frauds (see, EDP Hosp. Computer Sys., Inc. v. Bronx–Lebanon Hosp. Ctr., 13 AD3d 476, 478 ).
The First, Third, and Fourth Departments, relying on a footnote in a Court of Appeals' opinion, have declined to apply the part-performance exception to the statute of frauds to General Obligations Law § 5–701, finding that it applies to real-estate transactions only (see, MSL Productions, Inc. v. IMR Group LLC, 41 Misc.3d 649, 651–652 [and cases cited therein] ). The Second Department, however, continues to apply the part-performance doctrine to agreements that cannot be performed within one year (Id., citing EDP Hosp. Computer Sys., Inc. v. Bronx–Lebanon Hosp. Ctr., supra ).
Finally, insofar as the plaintiffs argue that Agosta did not receive any consideration for his assignment of the ammonia patent to FAST, the court notes that he received 400 shares of FAST stock, which represented a 40% interest in FAST.
The court declines to consider FAST's argument that, because Agosta received legally sufficient consideration for the assignment of his invention, the plaintiffs' fourth cause of action, which seeks to void the parties' agreement for lack of consideration, should be dismissed. FAST did not include a request for such relief in its notice of cross motion. Accordingly, it is not properly before the court (see, Lee v. Colley Group McMontebello, 90 AD3d 1000, 1000–1001 ; DiLacio v. New York City Dist. Council of United Bhd. of Carpenters & Joiners of Am., 80 AD3d 553, 554 ; Myung Chun v. N. Am. Mtge. Co., 285 A.D.2d 42, 45 ).
In view of the foregoing, the branch of the plaintiffs' motion which is for partial summary judgment on the second, third, sixth, and seventh causes of action is denied.
Turning to the counterclaims, the first counterclaim seeks reimbursement for the time and money expended by FAST to exploit Agosta's inventions. The court finds that this counterclaim, which seeks damages that are not based on any underlying theory of recovery (e.g., breach of contract), fails to state a cause of action. Accordingly, it is dismissed.
The third counterclaim for tortious interference with a business relationship also fails to state a cause of action. Tortious interference with business relations requires allegations that a third party would have entered into a contract or economic relationship with the plaintiff but for the defendant's wrongful conduct (Vigoda v. DCA Prods. Plus, 293 A.D.2d 265, 266 ; Murtha v. Kalhorn, 237 A.D.2d 496, 497 ). Conduct constituting tortious interference with business relations is, by definition, conduct directed, not at the plaintiff, but at the party with which the plaintiff has or seeks to have a relationship (Carvel Corp. v. Noonan, 3 NY3d 182, 192 ). Under New York law, in order for a party to make out a claim for tortious interference with business relations, the defendant must direct some activities toward a third party (Id. at 192 ). FAST's third counterclaim does not allege that the plaintiffs interfered with FAST's relations with a third party, but that Agosta interfered with the assignment of his own inventions to FAST. In support of summary judgment, FAST contends that Agosta admitted he had discussions with third parties in order to enter into agreements with them that were contrary to FAST's interests. However, FAST cannot point to any specific contract that it would have obtained but for Agosta's conduct (Vigoda, supra at 267). Accordingly, the third counterclaim is dismissed.
The fourth counterclaim for conversion alleges that Agosta's communications and filings with the Patent Office deprived FAST of its rightful listing as the assignee of the ammonia patent. It is well-established that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated (Clark–Fitzpatrick, Inc. v. Long Island R .R. Co., 70 N.Y.2d 382, 389 ). The court finds that the fourth counterclaim is duplicative of FAST's counterclaim for breach of contract, as well as its counterclaim for breach of fiduciary duty. Moreover, the record does not reflect that any injury resulted from the alleged conversion. A certificate of correction was issued less than three months after the ammonia patent was issued. FAST's conclusory assertions that Agosta's actions discouraged potential investors and significantly reduced the value of FAST's intellectual property are insufficient to establish damages. Accordingly, no cause of action for conversion has been stated (Waldman v. New Phone Dimensions, Inc., 109 A.D.2d 702, 704 ).
The fifth counterclaim is for fraud and misrepresentation. The elements of a cause of action for fraud are a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff, and damages (Eurycleia Partners, L.P. v. Seward & Kissel, LLP, 12 NY3d 553, 559 ), all of which must be pleaded with the particularity required by CPLR 3016(b)(Id. ). The fifth counterclaim contains no factual allegations. It merely alleges that Agosta induced FAST to issue him stock through false, misleading, and fraudulent misrepresentations and actions. In support of summary judgment, FAST contends that Agosta held himself out as a licensed professional engineer when, in fact, his license had expired. A party cannot claim reliance on a misrepresentation when he or she could have discovered the truth with due diligence (KNK Enterprises, Inc. v. Harriman Enterprises, Inc. 33 AD3d 872 ). Whether Agosta's license had expired was a matter of public record that could have been discovered by FAST through the exercise of due diligence (see, Cohen v. Cerier, 243 A.D.2d 670, 672 ). In fact, Agosta was presented at his deposition with a printout from the website of the New York State Education Department indicating that his license had expired. FAST proffers no reason why it could not have obtained that information earlier. Accordingly, the fifth counterclaim is dismissed.
Material issues of fact preclude the granting of summary judgment to either party on the remaining counterclaims for breach of fiduciary duty, breach of contract, and injunctive relief.