Bass, Berry & Sims attorney Chris Lazarini analyzed a case questioning whether a breach of contract occurred. The court, in interpreting a contract, must determine the intent of the parties from the language used in the contract, giving consideration to not only the literal language, but also whatever may be reasonably implied.

Chris provided the analysis for Securities Online Litigation Alert (SOLA). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SOLA, please visit the SOLA website to sign up for the newsletter.

Alpha Capital Anstalt vs. Real Goods Solar, Inc., No. 1:17-cv-01186 (S.D. N.Y., 4/25/18) 

*Under New York law, when interpreting a contract, a court must determine the intent of the parties from the language used in the contract. 

**An unambiguous contract must be enforced using the plain meaning of its terms; this requires considering not only the literal language, but also whatever may be reasonably implied. 

In early 2017, Plaintiff and fourteen other institutional investors entered into a Securities Purchase Agreement (“SPA”) with Defendant Real Good Solar, Inc. (“Defendant”), agreeing to purchase certain “Shares” and “Warrants” in Defendant’s first public offering. The SPA prohibited Defendant from issuing additional shares for 90 days after the close of the offering, but the restriction could be waived by agreement of the holders of 50.1% “in interest of the Shares based on the initial Subscription Amounts,” provided, however, that if the waiver disproportionally affected the rights of any initial purchaser, a waiver had to be obtained from that purchaser. The SPA also prohibited Defendant from offering “consideration” to anyone to obtain consent to a waiver.

During the 90-day restricted period, Defendant obtained waivers from seven investors holding over 50.1% of the originally offered “Shares” and “Warrants,” each of which participated in a second offering. Defendant did not seek a waiver from Plaintiff, and Plaintiff was not offered the opportunity to participate in the second offering. Plaintiff sued on claims of breach of contract and rescission. Both parties moved for summary judgment.

The Court holds Defendant did not breach the waiver provision of the SPA, and grants Defendant summary judgment on that issue. In reaching its conclusion, the Court considers whether the “Warrants” sold in the first public offering should be included in the 50.1% waiver calculation. If not, the 50.1% waiver requirement would have been breached. Construing the SPA’s plain language and harmonizing its terms, the Court concludes the “Warrants” should be included in the 50.1% calculation because “Subscription Amount” (the term used in the waiver clause) is a defined term meaning “the aggregate amount to be paid for the Shares and Warrants purchased” and because the term “Warrant Shares” is a subset of the term “Shares.” The Court finds, however, a genuine issue of material fact as to whether Defendant provided consideration for the waivers. Because only seven of the fifteen initial investors invested in the second offering, and because each provided a waiver, the Court finds it reasonable to infer the right to participate in the second offering was provided in exchange for the waiver.

The Court also finds a genuine issue of material fact as to whether the second offering disproportionately affected Plaintiff requiring a waiver from Plaintiff even absent its participation in the second offering. The Court decides both issues must be left to the jury. The Court rejects Defendant’s last argument regarding Plaintiff’s inability to prove damages even if there was a breach. The Court finds it inappropriate to decide damages issues at the summary judgment stage and notes, at the very least, Plaintiff may be entitled to nominal damages. 

The Court grants summary judgment to the placement agent, investment bank Roth Capital Partners, LLC, on Plaintiff’s claims of tortious interference with the contract and conspiracy to breach, finding no evidence to support the claims.