Weinstein v. Katapult Group, Inc.

Background

This was a contract dispute between Andrew Weinstein and Katapult Group, Inc. Weinstein alleged that he entered an Advisor Agreement with Katapult in 2015. The agreement provided for quarterly payments of $15,000, subject to conditions, and options to purchase 76,435 shares of Katapult common stock. The agreement stated that the options would vest over 36 months, with acceleration of unvested shares upon a change in control, and referred to Katapult’s Stock Option Plan and a Stock Option Agreement.

Weinstein alleged that the Stock Option Plan was never presented to him and that he never signed the Stock Option Agreement. He also alleged that Katapult’s executives and board members represented that the options had standard terms, including an exercise opportunity upon vesting or a liquidity event and an exercise price of about $0.15 per share. After Katapult stopped making the quarterly payments in 2017, Weinstein alleged that he agreed to the change only after receiving confirmation that he remained entitled to the stock options and equity. Following a later acquisition of Katapult, he tried to exercise the options, but Katapult refused.

The first amended complaint asserted breach of contract, declaratory relief, and quantum meruit. Katapult moved under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim, to dismiss the breach-of-contract and declaratory-relief claims. It did not seek dismissal of the quantum-meruit claim.

Stock-Option Breach-of-Contract Claim

The court applied New York law, under which a breach-of-contract claim requires an alleged contract, the plaintiff’s performance, the defendant’s breach, and damages. The parties appeared to dispute whether the Advisor Agreement was sufficiently definite to enforce concerning the stock options.

The court first rejected Katapult’s judicial-estoppel argument. Judicial estoppel is a rule that can prevent a party from taking inconsistent positions in different parts of a case. The court found that Weinstein’s allegation that a Stock Option Plan existed was not clearly inconsistent with his earlier statement that he had never seen documents submitted in support of Katapult’s arbitration motion. The court also found that Weinstein had not persuaded the court to accept his earlier position and that Katapult had not shown prejudice. The court therefore allowed Weinstein to plead that the Stock Option Plan existed.

The court also concluded that the parol evidence rule did not require dismissal at this stage. That rule generally limits the use of earlier or contemporaneous oral statements to contradict or change a written agreement, but allows such statements to explain or clarify ambiguous terms. The court found that Weinstein’s alleged conversations with Katapult executives and board members could help explain missing terms rather than contradict the written agreement. Katapult’s integration clause was relevant but did not resolve the issue on a motion to dismiss because whether the agreement was fully integrated depended on facts better developed in the record.

The court then considered whether the stock-option terms were sufficiently definite. Weinstein’s amended allegations supplied terms concerning the number and class of shares, vesting, the option term, expiration, and exercise price through the alleged Stock Option Plan, Stock Option Agreement, conversations, and industry practice. The court found that these allegations, accepted as true for purposes of the motion, were sufficient at first to plead a definite stock-option agreement.

The court ultimately reached a different conclusion under the rule against an “agreement to agree.” Under New York law, an agreement is unenforceable when it leaves a material term for future negotiations. The court found that the Advisor Agreement left important stock-option terms, such as the option term and exercise price, to a separate Stock Option Plan or Stock Option Agreement. Although the referenced documents appeared to be separately executed rather than negotiated, Weinstein consistently alleged that he had never been presented with or executed them. Relying on controlling New York authority, the court concluded that the Advisor Agreement was an unenforceable agreement to agree as to the stock options.

The court therefore granted Katapult’s motion to dismiss the stock-option portion of the breach-of-contract claim and dismissed that portion with prejudice.

Quarterly-Payment Claim

Weinstein also alleged that Katapult breached the Advisor Agreement by failing to make quarterly payments of $15,000 after July 1, 2017. Katapult argued that the agreement had been terminated on that date. The court rejected that argument for purposes of the motion because the amended complaint alleged that Weinstein continued performing his responsibilities, that the agreement remained in effect, and that Katapult had not provided the required written termination notice. The court therefore denied the motion to dismiss the quarterly-payment portion of the breach-of-contract claim.

Declaratory Relief and Quantum Meruit

The court stated that declaratory relief is a remedy rather than a standalone cause of action. Because the quarterly-payment breach-of-contract claim remained, the court held that the related declaratory-relief claim also remained. The court denied Katapult’s motion to dismiss that claim.

The quantum-meruit claim remained in full because Katapult did not challenge it.

Disposition

Judge Phyllis J. Hamilton granted Katapult’s motion to dismiss regarding the stock-option portion of the breach-of-contract claim and dismissed that portion with prejudice. She denied the motion regarding the quarterly-payment portion of the breach-of-contract claim and denied the motion regarding declaratory relief. The court stated that Katapult had 21 days from the order’s date to answer the first amended complaint.