ADYB Engineered For Life, Inc. v. Edan Administration Services LTD.

Background

Hananya Cohen, an inventor, and Edwin Cohen, an investor, entered into an investment agreement in 2011 concerning armor-plate technology. Hananya’s company, ADYB Engineered For Life, Inc. (ADYB), and Edwin’s company, EDAN Administration Services (Ireland) LTD. (EDAN), later signed memoranda that changed the investment terms and transferred ADYB’s assets and Hananya’s patents to EDAN. POM Advanced Armor Solutions (PAAS), described in the opinion as essentially EDAN’s American affiliate, later worked with PPG Industries on licensing and development.

ADYB and Hananya claimed that EDAN breached obligations involving testing, investments, sales benchmarks, patent maintenance, manufacturing facilities, market-development costs, National Institute of Justice certification, and Hananya’s continued involvement in research and development. They also claimed that EDAN converted the patents. EDAN, PAAS, and Edwin asserted counterclaims against Hananya for breach of contract and unjust enrichment.

The court held a bench trial from November 13 through November 17, 2023. It applied New York law, which the parties had agreed would govern.

Plaintiffs’ Contract Claims

The investment agreement required an initial ballistic test using specified ammunition and required the armor to defeat threats associated with National Institute of Justice (NIJ) Levels 3 and 4, including a 5.56mm NATO round, before certain later obligations arose. The December 2011 test used different ammunition and different testing conditions. ADYB conceded that the test did not meet the agreement’s original requirements but argued that the parties had modified those requirements. The court found that ADYB had not proved a modification.

The court also held that the dispute over “Satisfactory Performance” did not change the result. The later memoranda replaced the $250,000 subsequent-investment obligation with a series of payments, and ADYB conceded that those payments were made. Any claim concerning the required manufacturing-facility visit was waived by the parties’ continued performance, and ADYB did not show damages resulting from that provision.

The court found that the sales benchmarks were never triggered. The armor had not received formal NIJ certification, and the evidence did not show that it had received an equivalent formal rating. Although EDAN’s payments and a three-year benchmark extension could have been viewed as a representation that the benchmarks were approaching, ADYB did not prove reasonable and harmful reliance. In any event, the court found that the later extension option was validly exercised before Hananya’s breach, so EDAN was not in breach of the benchmark provisions. The court rejected Hananya’s argument that the extension payments created a perpetual monthly salary.

The court rejected ADYB’s other contract theories. It found that Hananya was entitled to the 7% equity interest in EDAN promised by the investment agreement, and that EDAN had not carried its burden on its timeliness defense to that claim. The court did not cancel the agreements or return the patents because the contract did not make the 7% equity obligation a basis for revoking EDAN’s rights. The court also rejected claims concerning foreign patent extensions, EDAN’s Irish status, manufacturing facilities, market-development costs, NIJ-certification funding, and Hananya’s continued research-and-development involvement.

The court separately held that ADYB had not proved lost-profit damages with reasonable certainty or shown that the parties contemplated such damages. The agreements instead identified return of patent rights as the remedy if EDAN failed to meet the benchmarks.

Conversion Claim

The court rejected ADYB’s conversion claim concerning EDAN’s possession of the patents. The claim depended on proving that EDAN’s contractual rights had ended and that the patents should have returned to ADYB. Because the contract claims did not establish that result, the conversion claim also failed.

Defendants’ Counterclaims

The court found that Hananya breached the parties’ contractual arrangements by publicly trying to reassign the patents and repeatedly telling PPG that he was the patents’ legitimate owner. The conduct interfered with EDAN’s exclusive rights and contributed to the collapse of the PPG relationship.

Even so, the court denied EDAN’s request for reliance damages. EDAN had received the benefit of the extension payments and continued to own the patents. The evidence also left open the possibility that the PPG relationship could resume after the litigation, so EDAN had not proved with reasonable certainty that its expenditures were wasted.

The court also rejected EDAN’s unjust-enrichment counterclaim. Payments made under valid contracts could not support unjust enrichment. As to the $32,000 payment made during renegotiations, the evidence showed either that EDAN sent the money without a promise from Hananya or that the parties formed a contract, either of which defeated the unjust-enrichment theory.

Disposition

The court awarded Hananya 7% equity in EDAN and otherwise denied the parties’ requests for relief. It directed entry of judgment for the defendants on the plaintiffs’ claims other than Hananya’s 7% equity claim, and for the plaintiffs on the defendants’ counterclaims. It canceled the conditional assignment of Patent No. 8402876, directed the Clerk to close the case, and entered the order on May 10, 2024.