Adelaar v. Sprout Foods, Inc.
Filing
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MEMORANDUM DECISION & ORDER: denying 39 Motion for Summary Judgment. Accordingly, Sprout's motion, (ECF No. 39), is DENIED. As previously scheduled, trial shall commence tomorrow at 9:30 a.m., in Courtroom 20A of the Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, New York, New York. (Signed by Magistrate Judge Frank Maas on 6/24/2013) Copies Faxed by Chambers (djc) Modified on 6/25/2013 (djc).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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USDCSDNY
DOCUMENT
ELECTRONICALLY FILED
DOC#:
JESSE ADELAAR,
DATE FILED: 6/2412013
Plaintiff,
MEMORANDUM
DECISION & ORDER
- against
SPROUT FOODS, INC.,
12 Civ. 3054 (FM)
Defendant.
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FRANK MAAS, United States Magistrate Judge.
In 2009, Plaintiff Jesse Adelaar ("Adelaar"), entered into an agreement with
Defendant Sprout Foods, Inc. ("Sprout"), pursuant to which Sprout issued Adelaar
600,000 shares of stock at the price of $1.00 per share. In 2012, Adelaar brought this suit
after Sprout refused to honor a term of the agreement that allegedly grants Adelaar "full
ratchet anti-dilution" protection, which is an unusual form of anti-dilution protection that
would (1) retroactively reduce the price of Adelaar' s shares to equal the price of any
stock subsequently issued for a value lower than $1.00, and (2) require Sprout to issue
additional shares to Adelaar so that the value of his initial investment would remain the
same notwithstanding any decrease to the value of SprouCs stock.
Although the parties' written agreement says nothing about full-rachet antidilution, Adelaar alleges that the term was part of an oral agreement he reached with
Sprout's former CEO, Max MacKenzie ("MacKenzie"), and that he and MacKenzie
subsequently executed the written agreement (prepared by Sprout's in-house counsel)
under a mutually mistaken impression that the contract granted Adelaar full rachet
protection across all classes of stock. MacKenzie's deposition testimony appears to
corroborate Adelaar's account.
Sprout has sought summary judgement pursuant to Rule 56 of the Federal
Rules of Civil Procedure. (ECF No. 39). Sprout's principal argument is that the parties'
written agreement is unambiguous and contains a merger clause, which by reason of the
parol evidence rule prohibits Adelaar from introducing any evidence of the oral
agreement he claims to have reached with MacKenzie. While it is true that the parol
evidence rule generally bars a party from offering extrinsic evidence of a prior oral or
written agreement that would modify or contradict unambiguous terms in an integrated
written contract between the parties, Morgan Stanley High Yield Securities, Inc. v. Seven
Circle Gaming Corp., 269 F. Supp. 2d 206,213-14 (S.D.N.Y. 2003) (applying New York
law), the rule has several exceptions. One of those exceptions provides that "parol
evidence is admissible to reform a contract on the basis of mutual mistake." Capparelli v.
Vitiritti, 643 N.Y.S.2d 656,658 (2d Dep't 1996) (citing Brandwein v. Provident Mut.
Life Ins. Co. ofPhilade]phia, 3 N.Y.2d 491, 168 N.Y.S.2d 964, 146 N.E.2d 693 (1957)).
Accordingly, Adelaar's evidence of his oral agreement with MacKenzie, which he seeks
to introduce for the purpose of establishing mutual mistake, is not barred by the parol
evidence rule.
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Although Sprout believes that there are serious credibility issues with
Ade1aar's evidence, it is inappropriate to assess the credibility of witnesses at the
summary judgment stage. Fischl v. Armitage, 128 F.3d 50,55-56 (2d CiT. 1997). Sprout
also contends that there is evidence that MacKenzie implied in conversations with two
other investors that no other investor had been afforded the type of anti-dilution
protections Adelaar claims to have. Even assuming the truth of that evidence, however,
Sprout's assertions simply confirm that the existence and terms of the alleged oral
agreement are questions of fact which cannot be decided on summary judgment. Sprout's
only remaining argument - that the doctrine of unclean hands bars Adelaar from seeking
reformation because he apparently waited over three years before bringing suit - is
equally unconvincing. Indeed, Adelaar's contention is that he was unaware of the
mistake until sometime in 2011, when events occurred that triggered his alleged antidilution protections for the first time. In any event, Sprout offers no evidence that
Adelaar knew of or should have discovered the mistake prior to when he did.
Accordingly, Sprout's motion, (ECF No. 39), is DENIED. As previously
scheduled, trial shall commence tomorrow at 9:30 a.m., in Courtroom 20A of the Daniel
Patrick Moynihan United States Courthouse, 500 Pear] Street, New York, New York.
SO ORDERED.
/
Dated:
New York, New York
June 24, 2013
States Magistrate Judge
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Copies to:
Jonathan Rogin, Esq. (via ECF and Facsimile)
Berger & Webb LLP
Fax: 212-319-2017
Peter Selim Samaan, Esq. (via ECF and Facsimile)
Westermann, Hamilton, Sheehy, Aydelott & Keenan, LLP
Fax: 516-794-1277
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