Alpha Capital Anstalt v. Shiftpixy, Inc.

Background

Alpha Capital Anstalt purchased a $1,266,667 senior convertible note from Shiftpixy, Inc. under a securities purchase agreement. The note gave Alpha Capital the right to convert portions of the note into Shiftpixy common stock.

Alpha Capital submitted four conversion requests that Shiftpixy honored. On June 20, 2019, Alpha Capital submitted a fifth request to convert $310,000 of the note into one million shares. Shiftpixy did not honor that request. In a June 27, 2019 filing, Shiftpixy announced that it would stop honoring conversion requests under its senior convertible notes.

Alpha Capital sued for breach of contract and anticipatory repudiation, which is a clear announcement that a party will not perform a future contractual obligation. Alpha Capital sought delivery of the shares, enforcement of future conversion requests, or alternatively $500,000 plus interest. Shiftpixy asserted counterclaims for breach of contract and unjust enrichment related to Alpha Capital’s alleged receipt and later sale of Shiftpixy shares.

Report and Recommendation

The court had referred Alpha Capital’s summary-judgment motion to Magistrate Judge Robert Lehrburger. Neither party objected to his report and recommendation. The district court therefore reviewed the report for clear error and found it thorough, well reasoned, and free of clear error.

Judge Lehrburger found that Alpha Capital established the elements of its breach-of-contract claim: the note was a contract, Alpha Capital submitted the required conversion notice, Shiftpixy admitted that it did not honor the request, and Alpha Capital did not receive the shares. He also found Shiftpixy liable for anticipatory breach because it announced that it would stop honoring conversion requests.

Shiftpixy did not contest liability for these breaches or Alpha Capital’s calculation of $500,000 in damages. The parties agreed that the note provided for an 18% default-interest rate. Judge Lehrburger also found that Shiftpixy had abandoned its breach-of-contract counterclaim by failing to defend it substantively.

Permanent Injunction

The court declined to order permanent injunctive relief. Although the note stated that legal remedies “may be” inadequate, the court held that this language did not establish that damages were necessarily inadequate. The court found that damages could be readily determined, Alpha Capital had not shown that Shiftpixy was insolvent or close to insolvency, and Alpha Capital had not shown that it could not buy Shiftpixy shares on the open market or that it had lost another unique benefit. The court also found that possible future disputes over conversion requests were too speculative to justify an injunction.

Disposition

Judge Paul G. Gardephe adopted the report and recommendation in its entirety. The court granted Alpha Capital’s motion for summary judgment on its breach-of-contract and anticipatory-repudiation claims. It also granted Alpha Capital’s motion for summary judgment on Shiftpixy’s counterclaim, awarded Alpha Capital $500,000 plus 18% contractual interest, and denied Alpha Capital’s motion for a permanent injunction. The Clerk was directed to enter judgment, terminate the motions, and close the case.