A Not So Final Closing of the Purchase of a Broker Dealer

III. Apogee Breached the Purchase Agreement by Failing to Use Best Efforts to Secure FINRA Approval

Apogee asserts that it did not breach the Purchase Agreement by failing to use best efforts to secure FINRA approval for IGC’s acquisition of Midtown by June 30, 2015, because IGC materially breached the Purchase Agreement first, on February 3, 2015. See Defs. Mem. at 8. Although there is a question of fact whether IGC breached the Purchase Agreement, Apogee elected to perform under the Purchase Agreement; Apogee was, therefore, obligated to use best efforts to obtain FINRA approval of Midtown’s acquisition by June 30, 2015. Because it failed to do so, Apogee breached the Purchase Agreement.

Apogee was aware that IGC had issued the Initial Shares in restricted rather than in freely tradable form by February 6, 2015, at the latest. See Consolidated Rule 56.1 Stmt. ¶ 58. Nevertheless, Apogee accepted the 700,000 Initial Shares on April 23, 2015, id. ¶ 151, and continued over the following few weeks to collect information and prepare documents to secure FINRA approval, id. ¶¶ 73–90. Because Apogee “knew of” IGC’s purported breach yet “continued to perform and accept performance” under the Purchase Agreement, it cannot justify its own breach by invoking IGC’s purported breach. Lockheed Martin Transp. Sec. Sols. v. MTA Cap. Constr. Co., No. 09-CV-4077 (PGG), 2014 WL 12560686, at *21 (S.D.N.Y. Sept. 16, 2014); see also Bigda v. Fischbach Corp., 849 F. Supp. 895, 901 (S.D.N.Y. 1994) (concluding that by electing to “continue to enjoy the benefits” of a contract, the plaintiff “relinquished the opportunity to terminate” the agreement because of the defendant’s breaches); cf. Marathon Enters., Inc. v. Schroter GMBH & Co., No. 01-CV-0595 (DC), 2003 WL 355238, at *6 (S.D.N.Y. Feb. 18, 2003) (concluding that there was a triable issue of fact as to whether a defendant had the right to consider a contract void or whether it had elected to continue the contract after the plaintiff materially breached).

Despite the fact that there was a complete CMA ready for signoff, see Consolidated Rule 56.1 Stmt. ¶¶ 86–87, Apogee failed to submit the requisite paperwork to FINRA to start the approval process, id. ¶ 91. Under New York law, the phrase “best efforts” requires “a party [to] use all reasonable means to achieve the contractual object at issue.” Harbinger F&G, LLC v. OM Grp. (UK) Ltd., No. 12-CV-5315 (CRK), 2015 WL 1334039, at *28 (S.D.N.Y. Mar. 18, 2015) (collecting cases); see also Cruz v. FXDirectDealer, LLC, 720 F.3d 115, 124 (2d Cir. 2013) (explaining that “best efforts” clauses impose “at least an obligation to act with good faith in light of one’s own capabilities” (internal quotation marks and citation omitted)). Although determining whether a party used “best efforts” under a contract “almost invariably” is a question of fact that cannot be resolved at summary judgment, Kroboth v. Brent, 215 A.D.2d 813, 814 (3d Dep’t 1995), this is one of the rare cases when failure to use best efforts is ascertainable as a matter of law. Apogee makes no effort to explain why it failed to submit the CMA to FINRA beyond invoking IGC’s breach,²² which, for the reasons discussed supra, does not excuse its nonperformance, cf. Koninklijke Ahold, N.V. v. SMG-II Holdings Corp., 290 A.D.2d 375, 375–76 (1st Dep’t 2002) (affirming the dismissal of a defendant’s counterclaim for breach of contract based on the plaintiff’s alleged failure to use best efforts at summary judgment because the defendant “failed to submit any evidence countering [the] plaintiff’s prima facie showing” that it had used best efforts); Cambridge Assocs. v. Town of N. Salem, 228 A.D.2d 537, 539 (2d Dep’t 1996) (affirming the trial court’s determination, “as a matter of law,” in the context of a motion for a temporary restraining order, that a party failed to use its best efforts to satisfy the terms of a settlement agreement); see also Azeez v. City of New York, No. 16-CV-342 (NGG), 2018 WL 4017580, at *6 (E.D.N.Y. Aug. 22, 2018) (“Ordinarily, any issues not addressed in an opposition brief are deemed abandoned by the party opposing the motion.” (citing Jackson v. Fed. Express, 766 F.3d 189, 195 (2d Cir. 2014)).

For all of those reasons, the Court concludes that Apogee breached the Purchase Agreement by failing to use best efforts to secure FINRA approval by June 30, 2015, of Midtown’s acquisition by IGC; damages will be determined at trial.²³

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Footnote 22: Apogee filed a “BD Amendment” with FINRA, which permitted IGC to acquire a 24.9% ownership interest in Midtown. See Consolidated Rule 56.1 Stmt. ¶ 38. That is irrelevant, however, because it is undisputed that Apogee was required to file the CMA to secure permission for IGC to obtain 100% ownership of Midtown, yet failed to do so. Id. ¶¶ 38, 91

Footnote 23: The Court agrees with IGC that Section S3 of Schedule A, which set forth the parties’ agreed upon penalties if Apogee failed timely to secure FINRA approval, generally applies here because “Apogee and Midtown [were] unable to obtain FINRA approval by June 30, 2015.” See Purchase Agreement Schedule A § S3. It is unclear at this stage, however, whether any of the specific provisions in Section S3 of Schedule A apply because the parties dispute the extent to which the shares issued pursuant to the contract were required to be freely tradable.

If, as IGC contends, it had no obligation to issue freely tradable shares to Apogee, then it did in fact issue “1,200,000 Initial Shares” and subsection 2(a) of Section S3 of Schedule A applies, requiring Apogee to pay IGC the equivalent of 700,000 IGC shares and $125,000 in damages. For reasons that are unclear, IGC concedes that the 700,000 penalty shares would be subtracted from the 1,200,000 shares IGC issued such that Apogee would be entitled to keep the value of 500,000 IGC shares. See Pl. Mem. at 18–19. 

If, as Apogee contends, the term “Initial Shares” presumes that the shares are freely tradable, then none of the provisions in Section 3 of Schedule A applies because IGC only issued 700,000 such shares. The proper measure of damages is, therefore, a question of fact that must be determined at trial.

at Pages 16 - 18 of the SDNY Opinion

Motion Denied / Motion Granted

On July 20, 2023, SDNY ordered as follows:

• Apogee Financial Investments
• India Globalization Capital
• SDNY
• Final Closing
• CMA
• FINRA
• Best Efforts
• Purchase Agreement
• Restricted Shares
• BrokeAndBroker
• Bill Singer