LanzaTech Global, Inc. v. Vellar Opportunity Fund SPV LLC - Series 10

Background

LanzaTech brought claims against Vellar for breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. The dispute arose from a Forward Purchase Agreement involving LanzaTech shares. The agreement stated that Vellar could sell or otherwise dispose of shares at any time, subject to stated restrictions. It also included provisions concerning optional early termination, a share-price-based trigger event, indemnification, and reimbursement of certain legal expenses.

LanzaTech alleged that Vellar sold a significant portion of its recycled shares without giving an optional-termination notice. LanzaTech further alleged that Vellar strategically sold shares to depress LanzaTech’s stock price, trigger the contractual price-based event, and gain leverage in negotiations. Vellar separately sued LanzaTech for breach of the same agreement, seeking payment of maturity consideration. The two actions were consolidated.

Motion to Dismiss

The court applied the standard for a motion to dismiss for failure to state a claim, under which the complaint must contain enough factual allegations to make liability plausible. The court considered the agreement because it was central to LanzaTech’s claims.

The court held that the agreement unambiguously permitted Vellar to sell the recycled shares. The agreement defined recycled shares as a subset of shares and separately authorized Vellar to sell shares at any time, subject to applicable restrictions. The court rejected LanzaTech’s argument that language requiring Vellar to hold the recycled shares for LanzaTech’s benefit prohibited their sale. Because no specific restriction applied to the sales at issue, the court held that Vellar did not breach the agreement by selling the shares. The breach-of-contract claim was dismissed.

The court allowed LanzaTech’s implied-covenant claim to proceed. Although the agreement permitted the sales and the price-based trigger event, LanzaTech alleged that Vellar intentionally used price depreciation and the threat of the trigger event to pressure LanzaTech during negotiations. The court concluded that these allegations could support a claim that Vellar sought to injure LanzaTech’s right to receive the benefits of the agreement. The claim was not necessarily duplicative of the contract claim because it involved an alleged negotiation strategy not included in the contract claim. The court stated that the claim should be resolved after discovery.

The court dismissed the unjust-enrichment claim. Although alternative pleading was permitted, the alleged sales and price-based trigger event fell within the agreement’s subject matter, and the parties did not dispute the existence of an enforceable contract covering those events.

Motion for Advancement of Legal Fees

Vellar requested an advance of attorney’s fees and expenses in the related action. The court found that the agreement clearly contemplated reimbursement of reasonable expenses as they were incurred in litigation between Vellar and LanzaTech. But the agreement also excluded losses related to the manner in which Vellar sold shares or arising from Vellar’s share sales.

The court found it premature to decide whether that exception applied. Whether Vellar’s share sales caused the price-based trigger event was a central factual dispute that should not be resolved before discovery. The court therefore denied Vellar’s motion for advancement of attorney’s fees without prejudice to renewal later in the proceedings.

Disposition

Judge J. Paul Oetken granted in part and denied in part Vellar’s motion to dismiss: it was granted as to LanzaTech’s breach-of-contract and unjust-enrichment claims and denied as to the implied-covenant claim. Vellar’s motion for advancement of attorney’s fees in the related action was denied without prejudice. Vellar was ordered to answer the surviving claim within 14 days after publication of the opinion and order.