Tarpon Bay Partners LLC v. Zerez Holdings Corporation
- Case Type:
- Business
- Case Status:
- Affirmed in part and Reversed in part
- Citation:
- 21-1916 (2nd Circuit, Aug 11,2023) Published
- Tag(s):
-
- Ruling:
- Vacating and affirming in part the rulings of the U.S. District Court for the District of Connecticut (DC), U.S. Court of Appeals for the Second Circuit (Circuit) vacated the DC's ruling that the promissory note (Note) issued by Zerez Holdings Corp. (Zerez) to Tarpon Bay Partners LLC (Tarpon) was procedurally unconscionable, as both “are sophisticated commercial parties," but affirmed its rulings that Tarpon must show the signing fee note was supported by adequate consideration on remand and dismissing Zerez’s counterclaim that Tarpon violated the Connecticut Unfair Trade Practices Act.
- Procedural context:
- On Tarpon's motion for summary judgment, the DC held that although genuine issues of material fact remained as to whether the Note lacked consideration, the note was unconscionable as a matter of law and therefore unenforceable. On Zerez’s later motion for summary judgment on its counterclaims, the same court held in relevant part that Zerez was not entitled to relief under the Connecticut Unfair Trade Practices Act (CUTPA). Tarpon appealed, and Zerez cross-appealed, from the final judgment
- Facts:
- In 2016, Tarpon attempted purchase Zerez’s debt obligations in exchange for stock in Zerez. As part of the agreement, Zerez issued the Note, which allowed Tarpon to convert $25,000—the signing fee for the attempted transaction—into Zerez’s common stock at a 50% discount from the stock price pursuant to section 3(a)(10) of the Securities Act of 1933. [As an aside, the Second Circuit explained, "Section 3(a)(10) transactions arise most frequently in three contexts: litigation settlement involving an exchange of shares, bankruptcy proceedings not subject to Chapter 11 of the Bankruptcy Code, or, as here, the reorganization or capital restructuring of solvent businesses." ] After the deal broke down, Tarpon demanded more than 278 million shares, worth nearly $2.23 million on the date of conversion. Naturally, Tarpon Bay sued Zerez to enforce the note, and Zerez countersued Tarpon Bay, Southridge Advisors II, and Stephen Hicks.
- Judge(s):
- William j. Nardini; Sarah A. L. Merriam; and Gary S. Katzmann
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