Dominion Capital LLC v. ShiftPixy, Inc.

Background

Dominion Capital LLC brought a breach-of-contract action against ShiftPixy, Inc. involving three notes and related securities agreements. The June 2018 and March 2019 notes allowed Dominion to convert the notes into ShiftPixy common stock at specified prices. The notes also restricted ShiftPixy from repurchasing more than a minimal number of its shares, or alternatively any of its capital stock.

Dominion submitted several conversion requests that ShiftPixy honored. After ShiftPixy failed to make a scheduled payment under the June 2018 note, Dominion submitted additional conversion requests on June 25 and July 5, 2019. ShiftPixy refused to honor those requests. ShiftPixy later announced that it would stop honoring conversion requests under its senior convertible notes and proposed repurchasing up to 10 million shares over 18 months.

Dominion’s amended complaint sought damages for breach of contract, a declaratory judgment, and injunctive relief. The requested declarations included statements that Dominion had rights under the notes, that ShiftPixy had violated its obligations, that ShiftPixy was in default, and that the proposed buyback violated the notes. ShiftPixy’s counterclaims were later dismissed by stipulation.

Summary-judgment motion and recommended decision

Dominion moved for summary judgment on its breach-of-contract claims and request for a declaratory judgment. Summary judgment is a decision entered when the record shows that there is no genuine dispute requiring a trial and the moving party is entitled to judgment as a matter of law. Dominion did not seek a ruling on its request for injunctive relief in that motion.

The court referred the motion to Magistrate Judge Robert Lehrburger, who recommended granting it. Neither party filed objections. Judge Gardephe therefore reviewed the recommendation for clear error on the face of the record and independently found it thorough, well reasoned, and free of clear error.

Court’s analysis

For breach of contract, the recommended decision found that the notes were contracts, Dominion submitted the required conversion notices, Dominion had not failed to meet its own obligations, ShiftPixy admitted that it had not honored the conversion requests, and Dominion had not received the stock. The recommendation also noted that ShiftPixy admitted Dominion’s material facts concerning the breach and did not argue against the breach in its opposition brief.

The court addressed only the buyback-related portion of Dominion’s declaratory-judgment request. The first three requested declarations repeated issues resolved through the breach-of-contract ruling and were therefore moot. As to the proposed buyback, the court applied the requirement that a declaratory judgment must involve a substantial, immediate, and real controversy between parties with opposing legal interests.

The court agreed that ShiftPixy had not shown that the controversy was moot. ShiftPixy had paused the buyback only after Dominion sought a preliminary injunction, had not sworn that it would never resume the buyback, and had left open the possibility of restarting it. The court also agreed that the notes prohibited the proposed repurchases and that a declaration on that issue was warranted.

Disposition

Judge Gardephe adopted Magistrate Judge Lehrburger’s recommended decision in its entirety. Dominion’s motion for summary judgment on its breach-of-contract claims and its request for a declaratory judgment regarding the buyback was granted. The court directed the Clerk of Court to terminate the motion. The opinion states that Dominion’s motion did not seek a ruling on its separate request for injunctive relief.