India Globalization Capital, Inc. v. Apogee Financial Investments, Inc.

Background

These consolidated cases arose from a failed business deal. India Globalization Capital, Inc. (IGC) sought to acquire Midtown Partners and Co., LLC (Midtown), a registered broker-dealer wholly owned by Apogee Financial Investments, Inc. Under a December 18, 2014 Purchase Agreement, IGC agreed to acquire Midtown in two stages, transferring IGC shares to Apogee. The agreement also required IGC to appoint John R. Clarke, then Midtown’s CEO and principal, as IGC’s interim chief financial and accounting officer and chief funding officer.

Apogee and Clarke alleged that IGC failed to transfer all required shares on time, filed an inaccurate securities filing stating that it had transferred 1.2 million shares, and used Clarke’s electronic signature without authorization. They also alleged that IGC and Ramachandra Mukunda agreed to transfer 200,000 IGC shares to Clarke but never did so. Apogee and Clarke asserted counterclaims including promissory fraud, breach of contract, specific performance, indemnity, Maryland wage-law violations, declaratory relief, and consequential damages.

IGC and Mukunda moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a pleading does not allege enough facts to make a claim legally plausible. For purposes of the motion, the court accepted the counterclaim’s factual allegations as true, but it did not have to accept legal conclusions presented as facts.

Rulings on the Counterclaims

Promissory fraud. Apogee and Clarke alleged that IGC and Mukunda entered the Purchase Agreement without intending to perform. They asked to withdraw this claim without prejudice, but gave no explanation of what additional facts they would add. Because they had already amended the claim once and did not identify a basis for another amendment, the court dismissed the promissory-fraud claim with prejudice.

Contract claim against Mukunda. Apogee and Clarke sought to hold Mukunda personally liable for alleged breaches of the Purchase Agreement and the Shares Agreement, even though Mukunda was not alleged to be a party to those contracts. They relied on an alter-ego theory, which can allow a court in exceptional circumstances to disregard a corporation’s separate legal identity. Applying Maryland law, the court held that the counterclaim did not allege sufficient facts showing that Mukunda completely dominated IGC, used that control to commit a wrongful act, and caused the claimed injury. The court dismissed the breach-of-contract claim against Mukunda without prejudice because Apogee and Clarke could conceivably allege additional facts. The court stated that they could seek leave to file a second amended counterclaim.

Clarke’s Shares Agreement claim. The court denied the motion to dismiss Clarke’s claim that IGC breached the Shares Agreement. The court concluded that the claim was timely under either New York or Maryland law. In particular, Clarke alleged that Mukunda acknowledged in December 2018 that IGC intended to pay the 200,000 shares, which could revive the claim under Maryland’s debt-acknowledgment doctrine. Because the statute of limitations was IGC’s only stated basis for dismissing this claim, the claim could proceed against IGC. The court noted that Mukunda could be liable only if Clarke adequately alleged that Mukunda was IGC’s alter ego.

Specific performance. The court granted the motion to dismiss the counterclaim seeking specific performance of the Purchase Agreement. Specific performance is a court order requiring the promised performance rather than payment of money. The court held that money damages were adequate because IGC was publicly traded and the value of the undelivered shares could be calculated. The court therefore found specific performance inappropriate for the alleged failure to transfer the shares.

Indemnity. The court granted the motion to dismiss Apogee’s indemnity claim and dismissed it with prejudice. Under New York law, an indemnity clause generally covers claims by third parties unless the contract unmistakably states that it also covers disputes between the contracting parties. The court held that the Purchase Agreement’s clause did not clearly cover first-party claims, including Apogee’s demand for attorney’s fees in its dispute with IGC. Notice-of-claim and defense-assumption provisions in the agreement further suggested that the clause addressed third-party claims.

Maryland labor-law claim. The court granted the motion to dismiss Clarke’s claim under the Maryland Wage Payment and Collection Law and dismissed it with prejudice. Clarke alleged that the 200,000 shares were wages for his work for IGC. The court held that the claim was filed outside the applicable three-year-and-two-week limitations period. It rejected Clarke’s argument that the December 2018 acknowledgment revived this statutory wage claim because he cited no authority applying Maryland’s common-law debt-acknowledgment doctrine to that statute.

Declaratory judgment. The court granted the motion to dismiss the declaratory-judgment claim and dismissed it with prejudice. Apogee and Clarke sought declarations that IGC and Mukunda were liable for breaching the agreements. The court held that those declarations would duplicate the breach-of-contract claims and would not add a live controversy after those claims were resolved.

Consequential damages. The court granted the motion to dismiss Apogee and Clarke’s claim for consequential damages. They sought $12 million for Apogee and $5 million for Clarke based on alleged business closures, lost employment, litigation over rent, and other consequences. The court held that the counterclaim offered only conclusory allegations that these losses were foreseeable when the agreements were made and did not explain the lengthy gap between the alleged breaches and the claimed losses. Because this was the first time the defendants had challenged the consequential-damages claim, the court allowed Apogee and Clarke to seek leave to file a second amended counterclaim with additional supporting facts.

Disposition and next steps

The court stated that IGC and Mukunda’s motion to dismiss was granted in part and denied in part. Apogee and Clarke could move by March 18, 2022, for permission to file a second amended counterclaim, but any amendment could address only Mukunda’s alleged personal liability under an alter-ego theory and consequential damages. They could not replead causes of action dismissed with prejudice or add new parties or causes of action. If they did not seek leave to amend, the defendants had to answer the remaining claims by April 1, 2022. The court also lifted the discovery stay and directed the parties to submit a joint discovery and settlement-status letter.