Jamil v. Solar Power, Inc.

Filing 46

OPINION AND ORDER re: 37 MOTION in Limine to Preclude Evidence. filed by Solar Power, Inc., 31 MOTION in Limine . filed by Taimur Jamil, 45 MOTION to Substitute Party. Old Party: Solar Power Inc., New Party: SP I Energy Co., Ltd. . filed by Taimur Jamil. For the foregoing reasons, the Clerk of the Court is directed to close docket entries 31, 37, and 45, to substitute SPI Energy Co., Ltd. for the previously named defendant (Solar Power Inc.) in the caption of this case, and to enter final judgment holding SPI Energy Co. liable to Taimur Jamil in the sum of $861,533.42 effective January 30, 2017. (Signed by Judge Jed S. Rakoff on 1/30/2017) (kgo)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------------x
TAIMUR JAMIL,
16 Civ. 1972 (JSR)
Plaintiff,
OPINION
AND ORDER

-v-

SOLAR POWER INC.,

JED S. RAKOFF, U.S.D.J.
In this decision, the Court undertakes the task of valuing
475,000 shares of restricted common stock that defendant Solar Power
Inc.

failed to transfer to plaintiff Taimur Jamil in breach of their

employment agreement. After the Court scheduled a bench trial for
this purpose, the parties jointly asked the Court to determine the
value of the securities on the record as it stands, and, while this
has meant that more inferential reasoning has been utilized in
setting the value than might have been the case if the valuation had
been the subject of a trial, the Court, acceding to the parties'
request, hereby renders a final determination of the amount due.
The background of this case is set forth in the Court's
decision on summary judgment, familiarity with which is here
presumed. See Memorandum dated Nov. 7, 2016, ECF No. 25. Briefly,
Solar Power and Jamil entered an employment agreement on April 16,
2015 under which Jamil was awarded, or had the potential to be
awarded, various blocks of restricted common stock. On November 3,
1

2015, Solar Power fired Jamil without having transferred any of the
stock. On Solar Power's motion for summary judgment, the Court found

total of 475,000 restricted shares and by failing to make a
severance payment due under the agreement.
The trial on damages was initially scheduled for December 9,
2016. However, before that date arrived,

the parties informed the

Court that Jamil had taken no discovery on either the nature of the
shares'

restrictions or their impact on the value of the securities.

See Defendant's Memorandum of Law in Opposition to Plaintiff's
Motion in Limine, ECF No. 27, at 4. The Court therefore adjourned
the trial for one month, so as to allow the plaintiff to take
additional discovery on these questions. Yet no such discovery was
taken, and, on the morning the trial was to commence, the parties
stipulated to the answer to what they said was the sole remaining
disputed issue of fact: whether the securities, in addition to being
subject to contractual restrictions in the form of vesting periods
of varying lengths, were also subject to holding periods under the
Securities Act of 1933 and its implementing regulations. The answer
was in the affirmative and the parties therefore stipulated that the
securities were restricted within the meaning of the Securities Act.
Having done so, the parties requested that the Court make the
requisite valuation on the basis of the record before it, and the
Court agreed to their request. See Transcript dated Jan. 27, at 2527.
2

On the basis of that record, the pertinent facts are as
follows.

Solar Power breached the parties' employment agreement by

failing to transfer 415,000 shares or -restricLed

con~on

3tock" to

Jamil. See Memorandum dated Nov. 7, 2016, at 12-14. The contract did
not define that term, but did set forth restrictions in the form of
vesting periods - essentially, simple holding periods - of varying
lengths. These holding periods were the only contractual
restrictions on the securities, but some of the stock was also
subject to the aforementioned legal restrictions.
More specifically, the record is clear that on April 16, 2015,
Solar Power breached the employment agreement by failing to transfer
260,000 restricted shares

(the "Miscellaneous Stock"), which were to

vest in 25% increments on the anniversary of Jamil's employment
date, with the first set of 65,000 shares to vest on April 16, 2016,
the second set to vest on April 16, 2017, and so forth.
Transcript dated Jan.

6,

See

2017, at 26-27; Pre-Trial Consent Order,

ECF No. 36, at 3. Also on April 16, 2015, Solar Power breached the
employment agreement by failing to transfer 35,000 restricted shares
(the "Sign-On Restricted Stock"), which were to vest 60 days later.
See Transcript dated Jan.

6, 2017, at 26; Pre-Trial Consent Order at

3. Finally, on November 3, 2015, Solar Power breached the employment
agreement by failing to transfer 180,000 restricted shares

(the

"Time-Based Restricted Stock"), which were to vest immediately and
thus were not subject to any contractual restrictions. See

3

Transcript dated Jan. 6, 2017, at 25-26; Pre-Trial Consent Order at
3.

All 475,000 shares were also "restricted securities" withir1 the
meaning of SEC Rule 144, which provides an exemption from the
registration obligations of the Securities Act if, among other
requirements, the recipient of the shares satisfies a holding
period. See 17 C.F.R.

§

230.144(d). More specifically, the parties

agree that the 475,000 shares at issue were subject to the six-month
holding period applicable to the unregistered securities of an
issuer that is "subject to the reporting requirements of section 13
or 15(d) of the Exchange Act," as was Solar Power. See id.
§

230.144 (d) (1) (i); Barbara v. MarineMax,

(ARR), 2012 WL 6025604, at *l
rule'

Inc., No. 12-cv-0368

(E.O.N.Y. Dec. 4, 2012)

("The

'general

under the Securities Act is that the holding period shall be

six months if the issuer of the securities is subject to certain
reporting requirements and one year if the issuer is not subject to
such reporting requirements."); Transcript dated Jan.

6, 2017, at

25-27.
Finally, the parties agree that the mean over-the-counter share
prices for unrestricted Solar Power common stock were $2.01/share on
April 16, 2015 and $1.87/share on November 3, 2015. See Transcript
dated Jan.

6, 2017, at 25-27.

Under New York law (which governs the contract here
applicable), the damages for failing to transfer securities in
breach of contract is the fair market value on the date of the
4

breach. See Simon v. Electrospace Corp.,

269 N.E.2d 21, 26

(N.Y.

1971). "The general rule is that the market price of a security
should be discounted to reflect the decrease in value,

if any,

due

to a restriction on its transferability." See Waxman v. Envipco
Pickup & Processing Servs., Inc., No. 02-cv-10132
1788964, at *3 (S.D.N.Y. June 28,

(GEL), 2006 WL

2006).

The size of the discount is a question of fact that depends on
the nature of both the issuer and the restrictions, and is typically
informed by expert testimony. See id. at *4. But not here. Rather
than introduce evidence, expert or otherwise, as to how the
restrictions affect the value of the securities, Jamil and Solar
Power have gambled on who bears the burden of proving the discount
rate, with each contending it was the other's responsibility. Thus,
in effect, Jamil argues that there should be no discount at all, and
Solar Power argues that there should be a discount of 100%, each
position being a product of each party's argument as to who bears
the burden of proof.

(However, Solar Power concedes that it at least

owes nominal damages for breaching the employment agreement. See
Transcript dated Jan.

6, 2017, at 29-30.)

The Court concludes that there should be some discount, but
that Solar Power bears the burden of proving the discount rate. More
precisely, the burden of uncertainty arising from both parties'
failure to prove the discount with mathematical precision falls on
Solar Power. Under New York law, where "the non-breaching party has
proven the fact of damages by a preponderance of the evidence,

s

'the

burden of uncertainty as to the amount of damage is upon the
wrongdoer.'" See Process Am.,
F.3d 125, 141

(2d Cir. 2016)

Famous Music Corp.,

Inc. v. Cynergy Holdings, LLC,
(quoting Contemporary Mission,

557 F.2d 918,

926

(2d Cir. 1977))

original). Thus, after a breach has been shown,

839
Inc. v.

(emphasis in

as it has been here,

a plaintiff need only provide "a stable foundation for a reasonable
estimate" of the resulting damages.

Id. The rule is no different

where calculating the damages involves valuing restricted
securities. Indeed, the leading case simply notes that where
securities are restricted,

"then the market value would have to be

discounted in some way." See Simon,

269 N.E.2d at 27.

Solar Power nonetheless argues that it owes only nominal
damages for breaching the contract because Jamil failed to prove the
discount rate applicable to the restricted securities.
particular,

In

Solar Power places great weight on a Third Circuit

decision, Rochez Bros.,

Inc. v. Rhoades, which treated the burden of

proving the discount as part of the plaintiff's burden of proving
damages, and held that,

in a Rule lOb-5 securities fraud suit,

evidence of "the actual restrictions on the stock and the over-thecounter bid and asked prices" of the unrestricted stock is legally
insufficient to calculate the value of restricted shares. See 527
F.2d 891,

894-95

(3d Cir. 1975). But Rochez Bros. is inapposite. To

begin with, the record in this case contains evidence superior to
the inherently uncertain bid and asked prices available in Rochez
Bros.,

for here the parties have stipulated to the mean over-the6

counter share price on the dates of breach, as derived from actual
market transactions. More fundamentally, whatever the rule may be in
the Third Circuit for proving securities fraud damages,

Lhe rule

under New York law for proving contract damages after a breach has
been established is materially different, as described above, and it
is the New York rule that is binding on this Court. See Cynergy
Holdings,

839 F.3d at 141-43.

In the latter regard, Solar Power points to two cases from this
district that,

it contends, applied the reasoning of Rochez Bros. to

questions of damages under New York law, namely, Waxman v. Envipco
Pickup & Processing Servs., Inc., No. 02-cv-10132
1788964

(S.D.N.Y. June 28, 2006)

No. 03-cv-5088

(GEL),

2006 WL

and BrandAid Mtkg. Corp. v. Biss,

(WHP), 2008 WL 190494

(S.D.N.Y. Jan. 22, 2008). But,

quite aside from the fact that neither of these decisions is binding
on this Court, Solar Power misreads both these cases. Waxman does no
more than reference the approach taken in Rochez Bros. and expressly
reserves decision on the possible consequences of a plaintiff's
failure to prove the discount rate. See Waxman, 2006 WL 1788964, at
*4 n.8. As for BrandAid, the court there discounted certain
restricted securities by 100% not only because the plaintiff failed
to prove their value, but also because there was abundant evidence
that the securities were worthless. See BrandAid,

2008 WL 190494, at

*5-6 (awarding $1 in nominal damages where the company had
"liabilities far exceeding its assets" around the time it issued the
restricted securities and soon met an "abrupt demise"). Here, of
7

course, there is no comparable evidence that Solar Power was on the
cusp of failure or that its restricted securities were worthless. To
the contrary, the parties agree that Solar Power's unrestricLed
common stock was worth between $1.87 and $2.01 per share at the
relevant times.
Even more fundamentally,

this entire debate is academic,

because the issue of the burden of proof on damages is ultimately
irrelevant in this case. This is because both Jamil and Solar Power
- who,

it will be remembered, do not dispute any underlying facts -

have jointly provided the Court with the requisite "stable
foundation" to calculate the damages in this case.

In particular,

the parties agree that the mean over-the-counter share price of
unrestricted Solar Power common stock had fallen to $1.87 on
November 3, 2015
Stock)

(the date of breach for the Time-Based Restricted

from $2.01 on April 16, 2015

(the date of breach for the

other blocks of stock) . Based on this undisputed information - and
in the absence of any other information, as a result of the parties'
joint decision to forgo a bench trial - a reasonable estimate of the
rate at which the restrictions

(which were solely short-term time

restrictions) affected the value of the securities on the dates of
breach would be to assume that the value of Solar Power's
unrestricted common stock was falling steadily at that rate - which
works out to seven-hundredths of a cent per day - and to multiply
that rate by the relevant holding period. This method reasonably
approximates the sole effect of the restrictions in forcing
8

plaintiff (if he had received the stock) to hold the securities over
a period of time when their value was declining in accordance with
the stipulated market prices. While still jusL an estimate, thio
approach easily satisfies the requirements set forth in Cynergy
Holdings. See 839 F.3d at 141.
The results are as follows. With respect to the Time-Based
Restricted Stock, the mean over-the-counter share price for
unrestricted Solar Power common stock was $1.87 on the date of
breach, and these shares were subject to a six-month holding period.
So, multiplying seven-hundredths of a cent per day by 180 days
results in an estimated decrease in share price of $0.126, and an
approximate share price of $1.744 on the date when the restrictions
on these shares would be scheduled to lift. Multiplying that share
price by 180,000 shares results in a value of $313,920.00 for the
Time-Based Restricted Stock.
The mean over-the-counter share price for unrestricted Solar
Power stock was $2.01 on the date of breach for the other blocks of

1

The statutory and contractual holding periods run concurrently,
because both run from the date Jamil was to receive the shares.
Under the contract, Jamil was to "receive" the Miscellaneous Stock
on the April 16, 2015, with 25% of these shares "to vest on the
first anniversary of the Effective Date and each anniversary date
thereafter." See Employment Agreement, Ex. A to Compl., ECF No. 1,
at 2; see also id. at 1 (similar structure for the Sign-On
Restricted Stock). Similarly, as relevant here, the six-month
holding period under Rule 144 runs from "the date of the acquisition
of the securities from the issuer." See 17 C.F.R.
§ 230.144 (d) (1) (i). Thus, the Rule 144 holding period only applies
where the contractual holding period is less than six months, ~'
to the Time-Based Restricted Stock (no contractual holding period)
and the Sign-On Restricted Stock (60-day period).
9

1

stock. Performing similar calculations for these shares results in
the following values:
•

Sign-On l:\estricted

~tocK

\YJ,

uuu

5llctre5,

_ltJU-udy

11uH.u11y

period): $65,940.00;
•

Miscellaneous Stock, block 1 (65,000 shares,

365-day

holding period): $114,042.50;
•

Miscellaneous Stock, block 2

(65,000 shares, 730-day

holding period): $97,435.00;
•

Miscellaneous Stock, block 3 (65,000 shares, 1095-day
holding period): $80,827.50; and

•

Miscellaneous Stock, block 4 (65,000 shares, 1460-day
holding period): $64,220.00.

The damages for failing to transfer the 475,000 restricted
shares is therefore $736,385.00. The parties agree that the damages
for failure to pay Jamil's severance is $19,583.33,

see Pre-Trial

Consent Order at 3, so the total damages owed to Jamil for breaching
the employment agreement is $755,968.33.
Jamil also seeks an award of prejudgment interest on these
damages. "In a diversity case, state law governs the award of
prejudgment interest." Schipani v. McLeod,
Cir. 2008). Under New York law,

541 F.3d 158, 164

(2d

in a breach of contract action,

"prejudgment interest must be calculated on a simple interest basis
at the statutory rate of nine percent" per year, with certain
exceptions that are not relevant here. See Marfia v. T.C.

10

Ziraat

Bankasi,

147 F.3d 83,

90

(2d Cir.

1998); N.Y.

C.P.L.R. §§ SOOl(a),

5004.

prejudgment interest should be calculated. New York law provides
that interest "shall be computed from the earliest ascertainable
date the cause of action existed,

except that interest upon damages

incurred thereafter shall be computed from the date incurred. Where
such damages were incurred at various times,

interest shall be

computed upon each item from the date it was incurred or upon all of
the damages from a single reasonable intermediate date." N.Y.
C.P.L.R. § 500l(b). Jamil prefers to measure the prejudgment
interest from the dates of breach, whereas Solar Power argues that
the Court should use January 13,

2017 as a "reasonable intermediate

date."
The Court will use the dates of breach,

as the "earliest

ascertainable date[s]" that Jamil's contract claims accrued,
measure the prejudgment interest.
& Gas Corp.,

884 F.

Supp.

2d 57,

to

See Bison Capital Corp. v. ATP Oil
59-60

(S.D.N.Y.

2012). While it may

be within the Court's discretion to calculate prejudgment interest
from a single intermediate date,
Ltd.,

330 F.

Supp.

2d 383,

435

see Wechsler v.

(S.D.N.Y.

offered no meaningful basis for doing so.

2004),

Hunt Health Sys.,
Solar Power has

Solar Power's argument

that the Court should measure the prejudgment interest from January
13,

2017 relies on the flawed analogy of restricted securities to

lost profits,

a class of damages for which at least one court used
11

an intermediate date because no such profits would have materialized
on the date of breach. See Washington v. Kellwood Co., No. 05-cvlULJj4

(::JN),

t;Ct

NO.

167,

dL

'G

(0.U.N.X.

MuL.

3

1

:'.':010).

Dc0a.u0c

Jamil would not have been able to sell the securities on the dates
of breach, Solar Power reasons that Jamil,
Washington,

like the plaintiff in

sustained no damages on those dates. Here, however,

since the Court has no trouble calculating the value of these
securities on the dates of breach, the Court finds defendant's
argument distinctly unpersuasive. Jamil suffered damages on the
dates of breach and the prejudgment interest will be measured from
those dates.
As previously explained, Solar Power breached its obligations
to transfer the Sign-On Restricted Stock and Miscellaneous Stock on
April 16, 2015, causing Jamil $422,465.00 in damages, and breached
its obligations to transfer the Time-Based Restricted Stock and
severance payment on November 3, 2015,

causing Jamil $333,503.33 in

damages. Using the statutory 9% simple annual interest rate,
prejudgment interest in the amount of $105,565.09 as of the date of
this Opinion and Order (1/30/17) will be awarded on these damages.
Finally, Jamil has filed a motion pursuant to Rule 25(c)

of the

Federal Rules of Civil Procedure to substitute Solar Power Inc.'s
putative successor-in-interest, SPI Energy Co., Ltd.,

for the named

defendant. See Plaintiff's Memorandum of Law in Support of
Plaintiff's Motion to Substitute Successor in Interest as Named
Defendant, ECF No.

41. Solar Power does not oppose Jamil's motion.
12

Nonetheless, "[b]efore granting a motion for substitution, a court
must determine that a party is, in fact,
:::iee

::JOI~Ware

09-cv-10155

t

reeaom

(SAS),

CU!l~eL Vd.JH..:y,

.Ille.

v.

a successor-in-interest."
Deco L

Duy

Cu.

r

Inc.,

Nv.

2010 WL 4860780, at *3 (S.D.N.Y. Nov. 29, 2010)

(internal quotation marks omitted).
The Court is satisfied that SPI Energy Co., Ltd. is the
successor-in-interest to the named defendant. In particular, the
Court was furnished with a 2015 merger agreement providing that "the
obligations of [Solar Power Inc.] under or with respect to contracts
or agreements .

. shall become the lawful obligations of SPI

Energy [Co., Ltd.]," which "hereby expressly adopts and assumes all
obligations" of Solar Power under the assumed contracts. See Second
Amended and Restated Agreement and Plan of Merger and Reorganization
§

4.3, Ex. 3 to Deel. of Jay B. Zimner, ECF No.

42. And in January

2016, SPI Energy Co., Ltd. became the "successor issuer" to the
named defendant. See SPI Energy Co., Ltd. Form 6-K (Jan. 2016), Ex.
6 to Deel. of Jay B. Zimner. Accordingly, the motion to substitute
is hereby granted.
For the foregoing reasons, the Clerk of the Court is directed
to close docket entries 31, 37, and 45, to substitute SPI Energy
Co., Ltd. for the previously named defendant

(Solar Power Inc.)

in

the caption of this case, and to enter final judgment holding SPI
Energy Co. liable to Taimur Jamil in the sum of $861,533.42
effective January 30, 2017.

13

SO ORDERED.
Dated:

New York, NY
January

_jJ,

2017

14