Ema Financial, LLC v. Vystar Corp.
- Gabriel Gorenstein
- 1:19-cv-01545
- U.S. District Court · Southern District of New York
- 3
In EMA Financial v. Vystar, Judge Gorenstein denied EMA’s motion to compel discovery about Vystar’s other convertible notes.
EMA Financial, LLC’s request for documents from Vystar Corp. about Vystar’s other convertible notes, alleged defaults, and settlements was denied; Vystar was not compelled to produce those documents by this order.
What happened
EMA Financial, LLC sued Vystar Corp. over alleged defaults under a convertible note and related agreement, including failures involving conversion notices, share reserves, and Vystar’s transfer agent. EMA sought documents about Vystar’s performance under similar agreements with other companies.
EMA argued that the documents could show how Vystar handled similar notes and could counter statements Vystar representatives made about those transactions and Vystar’s financial condition. Vystar objected to requests for documents about defaults, alleged defaults, and settlements involving other noteholders.
Judge Gorenstein denied EMA’s application. He found that the requested documents were not plausibly relevant as evidence of Vystar’s routine practices, had only a limited connection to a declaration filed by Vystar, and were not proportional to the needs of the case.
The detailed version
- Ema Financial, LLC v. Vystar Corp. · No. 1:19-cv-01545
- Gabriel Gorenstein
- Jan. 11, 2022
Background
EMA Financial, LLC brought this action against Vystar Corp. concerning alleged defaults under a convertible note and a Securities Purchase Agreement. EMA alleged that Vystar failed to honor certain conversion notices, failed to maintain a required reserve of shares, and changed transfer agents in violation of the agreements. Vystar defended in part by asserting that EMA had converted more than the amounts due or had otherwise miscalculated the amounts due.
EMA served supplemental discovery requests seeking documents about events of default, alleged defaults, and settlements involving Vystar’s other convertible notes, securities purchase agreements, or related contracts. EMA identified similar agreements involving several other companies and argued that documents about those transactions could show Vystar’s course of conduct or routine practices. EMA also argued that the documents were relevant because Vystar had made statements about its other transactions and financial condition, and because Vystar’s witness, Greg Rotman, testified that he could not recall details about whether Vystar had defaulted under other agreements.
Vystar objected to the requests. The opinion does not reproduce Vystar’s full objections or present a separate written argument from Vystar beyond the objections described in EMA’s submission.
Court’s Analysis
The court rejected EMA’s argument that the requested documents could be admissible as evidence of habit or routine practice. It stated that, given the claims and disputed issues in the case, it saw no possibility that the documents could be admitted for that purpose. The court noted that evidence need not itself be admissible to be discoverable, but it still must be relevant.
The court also found that the documents had only a tangential connection to a declaration filed by Steven Roman in April 2019, and that the relevant paragraphs of that declaration did not concern an issue that would be addressed at trial. To the extent EMA sought the documents to impeach Roman’s statements about his memory, or because they might relate to another issue, the court found that producing them would not be proportional to the needs of the case under Federal Rule of Civil Procedure 26(b)(1).
Disposition
Judge Gorenstein denied EMA’s application to compel Vystar to produce the requested discovery. The opinion does not decide the underlying claims concerning Vystar’s alleged defaults.
Read the full 3-page opinion on CourtListener, the free public archive maintained by the Free Law Project.