Ema Financial, LLC v. Vystar Corp.

Background

Ema Financial, LLC sued Vystar Corp. based on a Securities Purchase Agreement and a convertible note. The note had a value of $80,000. Under the agreements, Ema could submit notices converting some of the note into Vystar common stock, and Vystar was required to issue the shares within three business days. The agreements also required Vystar to maintain a reserve of shares for conversion and included provisions concerning transfer-agent instructions.

Ema alleged that Vystar failed to maintain an adequate share reserve, changed its transfer agent without notifying Ema, failed to reestablish the reserve with the new agent, and did not issue shares requested in two conversion notices. Ema asserted a breach-of-contract claim and sought specific performance, a permanent injunction, and attorneys’ fees.

Vystar moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. The opinion also states that Ema moved for summary judgment.

Specific Performance

Under Delaware law, a plaintiff seeking specific performance—an order requiring a party to carry out a contract—must show, among other things, that it substantially performed its own contractual obligations and has no adequate remedy at law.

The court held that Ema had not sufficiently alleged substantial performance. Ema alleged only that it had performed all obligations except those it could not perform because of Vystar’s breaches. The court found that statement conclusory because it did not provide facts explaining how and when Ema performed its obligations. The court therefore granted Vystar’s motion to dismiss the specific-performance claim.

Permanent Injunction

A permanent injunction is a court order requiring or prohibiting conduct. To obtain one, a plaintiff must show irreparable injury, meaning harm that money cannot adequately remedy, as well as the other required equitable factors.

The court explained that Ema’s alleged stock-related injury generally could be addressed through money damages because the shares were publicly traded and their value could be determined. The court also found that Ema had not plausibly alleged that Vystar was insolvent or faced an imminent risk of insolvency. Ema’s allegation that a Securities and Exchange Commission filing showed insolvency was conclusory and lacked specific supporting facts.

The court further stated that the filing, even if considered in more detail, did not by itself establish insolvency or an imminent risk of insolvency. Although Vystar’s liabilities exceeded its assets as of September 30, 2018, the filing also described a possible capital raise and consulting agreements that could address the reported deficit. The court therefore granted Vystar’s motion to dismiss the permanent-injunction claim.

Disposition

Judge Andrew L. Carter, Jr. ordered that Vystar’s motion to dismiss the first and third causes of action was granted. The court denied Ema’s motion for summary judgment as moot. The opinion does not decide the merits of Ema’s breach-of-contract claim.