Spartan Capital Securities, LLC v. Vicinity Motor Corp

Background

Spartan Capital Securities, LLC sued Vicinity Motor Corp. for alleged violations of a March 15, 2021 letter of intent. The agreement concerned a proposed public offering of Vicinity common stock. It stated that the underwriters expected to form a syndicate and enter an underwriting agreement, but also provided that certain provisions—including Section 6(b)—would remain binding after termination.

Section 6(b) gave the underwriters a right of first refusal to serve in specified roles if Vicinity later used an investment bank or similar financial adviser for certain equity offerings during the relevant period. Spartan alleged that it became the sole book-running manager for Vicinity’s October 2021 offering. It further alleged that Vicinity later completed a March 2022 registered direct offering using A.G.P./Alliance Global Partners as the sole placement agent, without notifying Spartan or offering Spartan the right of first refusal.

Spartan asserted three causes of action: breach of contract, breach of the implied covenant of good faith and fair dealing and a duty to perform with reasonable care, and unjust enrichment. Vicinity moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to state a legally plausible claim.

Breach-of-Contract Claim

Vicinity argued that Spartan did not adequately allege that an “Offering” under the letter of intent had occurred. Vicinity also argued that the agreement granted the right of first refusal to the underwriters collectively, rather than to Spartan alone, and that Spartan had not alleged that all of the underwriters would have exercised the right.

The court rejected those arguments at the motion-to-dismiss stage. It found that the October 2021 transaction appeared to be a registered public offering covered by the letter of intent. The agreement did not clearly require an underwriting syndicate, require Stifel to act as lead underwriter or book-running manager, or require the participation of all underwriters. Spartan also alleged that it had succeeded to the rights of Stifel and B. Riley.

The court concluded that Spartan plausibly alleged the elements of a contract claim: a valid agreement, Spartan’s performance, Vicinity’s breach by failing to give notice and the right of first refusal, and resulting damages. Because Vicinity’s interpretation was not the only reasonable interpretation of the agreement, the court declined to resolve the contract’s meaning on a motion to dismiss. The court therefore denied Vicinity’s motion to dismiss the breach-of-contract claim.

Attorney’s Fees

Spartan sought attorney’s fees and costs under Section 9 of the letter of intent. Vicinity argued that Spartan was not yet a prevailing party and had not adequately alleged a claim for fees. The court considered those arguments premature at this stage and denied Vicinity’s motion to dismiss Spartan’s request for attorney’s fees.

Implied-Covenant Claim

Spartan alleged that Vicinity breached the implied covenant of good faith and fair dealing by failing to notify Spartan about the March 2022 offering, failing to notify it about the agreement with A.G.P., and depriving it of the Section 6(b) right of first refusal.

The court held that these allegations relied on the same conduct and sought the same damages as Spartan’s breach-of-contract claim. Under the court’s analysis, an implied-covenant claim is generally superfluous when it is based on the same alleged breach as an express contract claim. The court granted Vicinity’s motion to dismiss this claim with leave to amend. The court stated that any amended implied-covenant claim would have to concern conduct outside the terms of the letter of intent.

Unjust-Enrichment Claim

Spartan alleged that Vicinity was unjustly enriched because it did not pay Spartan the compensation that Spartan claimed it would have received under Section 6(b. The court explained that, under California law, unjust enrichment describes a restitution theory and generally cannot proceed where an enforceable express contract governs the parties’ relationship. A plaintiff may plead contract and quasi-contract theories in the alternative, but must allege that the asserted contract may be invalid or unenforceable.

Spartan alleged that the letter of intent was valid and binding and sought the same cash and warrants through both its contract and unjust-enrichment claims. The court therefore granted Vicinity’s motion to dismiss the unjust-enrichment claim with leave to amend because it was not clear that amendment would be futile.

Disposition

Judge Thomas S. Hixson granted in part and denied in part Vicinity’s motion to dismiss. The breach-of-contract claim and attorney’s-fee request remained pending. The implied-covenant and unjust-enrichment claims were dismissed with leave to amend, and Spartan could file an amended complaint by July 11, 2023.