EMA Financial, LLC v. AIM Exploration, Inc.

Background

EMA Financial, LLC sued AIM Exploration, Inc. and AIM Exploration, SA for breach of agreements relating to a $40,000 convertible promissory note. AIM Exploration, SA guaranteed AIM Exploration, Inc.’s obligations under the note. The agreements allowed EMA to convert portions of the note into shares of AIM Exploration, Inc. stock at a formula-based price and required AIM Exploration, Inc. to maintain a share reserve and issue shares after receiving a conversion notice.

EMA submitted a first conversion notice on April 5, 2016, seeking 2,334,744 shares in exchange for $642.05 of principal. It submitted a second notice on January 10, 2017, seeking 29,715,761 shares in exchange for $23,772.61 of principal. AIM Exploration, Inc. did not honor either notice. The court had previously granted EMA summary judgment on its breach-of-contract and breach-of-guarantee claims but had not decided the amount of damages.

EMA then moved for partial summary judgment on damages and fees. The motion was unopposed. The court nevertheless considered whether EMA was entitled to judgment as a matter of law.

Conversion damages

Under New York law, a party that proves a breach of contract may recover damages that naturally and probably resulted from the breach, supported by a reasonable estimate. The court used a formula based on the conversion date, the conversion price, the number of shares EMA was entitled to receive, and the market price of those shares when AIM Exploration, Inc. should have delivered them.

The court held that EMA was entitled to two contractual discounts when calculating the conversion prices. First, because the stock price fell below $0.10, the note reduced the applicable 55% figure to 40%. Second, because AIM Exploration, Inc. changed transfer agents and failed to establish the required share reserve, the note’s additional 15% discount for the inability to convert into free-trading shares after 181 days applied.

The court awarded $587,713.44 for the first conversion notice and $603,229.95 for the second conversion notice. The total damages for breach of contract and breach of guarantee were therefore $1,190,943.39.

Default interest

The court had previously determined that the note provided for 24% default interest. It awarded 24% interest on $587,713.44 from April 8, 2016, the date associated with the first conversion breach, and 24% interest on $603,229.95 from January 13, 2017, the date associated with the second conversion breach. Through March 1, 2019, the combined interest totaled $717,444.64.

Remaining note balance and fees

EMA also requested the remaining balance of the note, plus default interest, and $12,982.95 in attorney’s fees and costs. The court found problems with EMA’s calculation of the note balance, including inadequate support for the proposed default-notice date and an apparent failure to account for the two conversion notices. It directed EMA to submit a corrected calculation within two weeks.

The court found that EMA’s counsel’s $375 hourly rate was reasonable, but directed EMA to provide an updated invoice along with the corrected note-balance calculation so the court could determine the appropriate fees and costs. The opinion does not state that the court awarded a specific fee amount.

Disposition

Judge Ramos’s conclusion states that EMA’s motion for partial summary judgment was granted in part and denied in part. The court directed EMA to submit the corrected note-balance calculation and updated fee invoice within two weeks, and directed the clerk to terminate the motion.