Karsch v. Blink Health LTD

Background

Michael Karsch sued Blink Health LTD, Geoffrey Chaiken, and Matthew Chaiken. His claims included securities fraud, common-law fraud, fraudulent inducement or misrepresentation, breach of contract, breach of the duty of good faith and fair dealing, unjust enrichment, breach of fiduciary duty, fraudulent concealment, negligent misrepresentation, and a request for an accounting.

The defendants proposed moving for summary judgment, which is a ruling without a trial when the undisputed evidence shows that a party is entitled to judgment. They argued that no event requiring conversion of Karsch’s debt into equity had occurred, that Karsch had received repayment of his initial investment and therefore had no recoverable damages for his fraud claims, and that his other claims duplicated the contract claim.

In an earlier order, the court was not inclined to grant summary judgment on the contract claim because factual disputes remained, including whether a conversion-triggering event had occurred. The court instead required Karsch to explain why the fraud claims and other noncontractual claims should not be dismissed.

Reconsideration

The defendants moved for partial reconsideration. Under the applicable local rule, reconsideration is an extraordinary remedy generally requiring overlooked evidence, a change in controlling law, or a need to correct clear error or prevent manifest injustice.

Judge Marrero granted the motion. The court found that the defendants had identified evidence not previously considered that could change the earlier conclusion about whether factual disputes were material to the contract claim.

The parties’ agreements included a Convertible Promissory Note and a Side Letter Agreement. The Note required conversion of Karsch’s debt if the company issued Series A Preferred Shares. The parties did not dispute that no Series A Preferred Shares were issued before Karsch was repaid. Karsch argued, however, that the Side Letter Agreement provided a separate basis for converting his debt into equity because it referred to shares that were “issued or issuable.”

The court did not resolve the parties’ competing interpretations of the Side Letter Agreement. It observed that Karsch conceded Geoffrey Chaiken received only common shares, while the defendants submitted evidence suggesting that common shares did not have superior voting rights to the company’s Series A Preferred Shares. If that evidence were correct, no conversion-triggering event might have occurred under either interpretation of the Side Letter Agreement. The court therefore ordered further briefing on whether summary judgment should be granted on the breach-of-contract claim.

Remaining Noncontractual Claims

The court dismissed with prejudice Karsch’s claims for breach of the covenant of good faith and fair dealing, unjust enrichment, breach of fiduciary duty, and negligent misrepresentation. It held that these claims were duplicative of the breach-of-contract claim because they arose from the same contractual subject matter.

The court rejected Karsch’s argument that the good-faith claim was different because the defendants allegedly deprived him of the benefit of his bargain. It concluded that the defendants were within their contractual rights to prepay the note before Karsch’s debt converted to equity. The court also treated Karsch’s statement that he did not oppose summary judgment on the unjust-enrichment, negligent-misrepresentation, and fiduciary-duty claims as a concession that those claims were duplicative.

Fraud Claims and Order

The court did not dismiss the fraud claims. It explained that fraud claims generally cannot proceed when they merely restate a breach of contract, but they may be distinct if they involve an independent legal duty, a misrepresentation separate from the contract, or special damages. Because the briefing about whether the alleged misrepresentations were separate from the contract was limited, the court allowed additional briefing.

The court ordered the parties to propose a schedule for briefing on the defendants’ proposed summary-judgment motion concerning the breach-of-contract and fraud claims. It granted the motion for reconsideration and dismissed the remaining noncontractual claims—Counts Six through Eight and Ten through Eleven—with prejudice.