Iliad Research and Trading v. Advaxis
Filing
69
MEMORANDUM DECISION AND ORDER - granting 22 Iliad's Motion for Partial Summary Judgment and denying 43 Advaxis' Motion to Deny Motion for Partial Summary Judgment and for Discovery. Signed by Judge Bruce S. Jenkins on 5/4/15. (ss)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
ILIAD RESEARCH AND TRADING, L.P.,
a Delaware limited partnership,
FILED
2015 MAY 4 AM 10:12
CLERK
U.S. DISTRICT
COURT
MEMORANDUM OPINION AND
ORDER
Plaintiff,
v.
ADVAXIS, INC., a Delaware Corporation,
Defendant.
Case No. 2:14-CV-00478-BSJ
District Judge Bruce S. Jenkins
Plaintiffs Motion for Partial Summary Judgment, 1 Defendant's Motion to Deny Motion
for Partial Summary Judgment and for Discovery, 2 and PlaintifFs Motion to Strike3 came before
the court for hearing on March 11,2015. Jeremy C. Reutzel and Brig Harman appeared on behalf
of Plaintiff. Frederick R. Kessler and Jack Nelson appeared on behalf ofDefendant. 4
After hearing arguments from counsel, the courtgranted Plaintiffs Motion to Strike and
reserved ruling on the remaining two motions. 5
Having considered the parties' briefs, the arguments of counsel, and the relevant law, the
court GRANTS Plaintiffs Motion for Partial Summary Judgment and DENIES Defendant's
competing motion for denial and discovery.
1
Mot. for Partial Sunun. J., filed Sept. 22, 2014, (CM/ECF No. 22).
2
Def.'s Mot. to Den. Pl.'s Mot. for Partial Sunun. J. and for Allowance ofDisc. Pursuant to Rule 56(D) and
Mem. in Supp., filed Dec. 5, 2014 (CM/ECF No. 43).
3
Mot. to Strike Jury Demand and Supporting Mem. ofP. & A., filed Mar. 2, 2015, (CM/ECF No. 62).
4
Mar. 11, 2015 Minute Entry, (CM/ECF No. 65).
5
Id.; Order Granting Mot. to Strike Jury Demand, filed Mar. 23,2015, (CM/ECF No. 68).
I. DISCUSSION
The following facts are not genuinely disputed:
•
Advaxis and Tonaquint entered into the Purchase Agreement
on December 13, 2012. 6
•
On November 19, 2012, prior to entering into the Purchase
Agreement, Thomas Moore, Advaxis' Chief Executive Officer
and Chainnan, emailed Tonaquint indicating that Advaxis
desired to enter into a 3(a)(10) transaction. 7
•
John Fife-Tonaquint's CEO-responded via email that
Tonaquint would like a right of first refusal with respect to any
3(a)(10) transaction. 8
•
As negotiations continued, Advaxis negotiated the right of first
refusal into a right to participate as set forth in the Purchase
Agreement. 9
•
The Purchase Agreement, at §5.2(k) states as follows:
Section 3(a)(9) and 3(a)(10) Right ofParticipation.
Pursuant to the tenns of this subsection, [Advaxis]
hereby grants [Tonaquint] a right of participation
with respect to any transaction or arrangement
stmctured, in whole or in part, in accordance with
Section 3(a)(9) or Section 3(a)(10) of the 1933 Act
. . . that [Advaxis] proposes to enter into any time
during the period beginning on the date hereof and
ending on the later of (i) two (2) years after the date
hereof and (ii) the date that all of [Advaxis']
obligations hereunder and the Note are paid and
performed in full and the Warrant is exercised in full
(or otherwise expired) . . . provided, however, that
[Tonaquint] may only elect to participate in
acquiring up to 50% of the principal balance of such
Section 3(a)(9) or 3(a)(10) Transaction. [Advaxis]
6
--
---
Mem. in Opp'n to Mot. for Partial Summ. J., filed Dec. 5, 2014, (CM/ECF No. 39) [hereinafter
Opposition], at xxiv.
-----7
I d., at xxxiii.
8
!d., at xxxiv.
2
shall give written notice of any such proposed
section 3(a)(9) or 3(a)(10) Transaction to
[Tonaquint] ... which Section 3(a)(9) or 3(a)(10)
Notice shall identify the proposed parties and the
terms of the proposed Section 3(a)(9) or 3(a)(10)
Transaction. 10
•
Still in §5.2, the Purchase Agreement further states "[f]or the
avoidance of any doubt, the requirements of this Section 5.2
are material to this Agreement and any violation or breach
thereof by the Company shall constitute a default lmder this
Agreement." 11
•
The Purchase Agreement 12 also contains the following
provisions:
o
o
15.7 Entire Agreement. This Agreement,
together with the other Transaction Documents,
constitutes and contains the entire agreement
and understanding between the parties hereto,
and supersedes all prior oral or written
agreements and understandings between
[Tonaquint], [Advaxis], their Affiliates and
Persons acting on their behalf with respect to the
matters discussed herein and therein, and,
except as specifically set forth herein or therein,
neither [Advaxis] nor [Tonaquint] makes any
representation,
warranty,
covenant
or
undertaking with respect to such matters.
o
C~-------~
12. SPECIFIC PERFORMANCE. [Advaxis]
and [Tonaquint] acknowledge and agree that
irreparable damage would occur in the event
that any provision of this Agreement or any of
the other Transaction Documents were not
performed in accordance with its specific tenns
or were otherwise breached ...
15.8 Amendment. Any amendment, supplement
or modification of or to any provision of this
Agreement, shall be effective only if it is made
-------ld., at xxviii-xxix; Purchase Agreement, (CM/ECF No. 22-2), at§ 5.2(k).
-~====~--==-
~-~---~--~-
10
11
(CM/ECF No. 22-2), at §5.2.
12
(CM/ECF No. 22-2).
3
or given by an instrument in writing (excluding
any email message) and signed by [Advaxis]
and [Tonaquint].
o
15.9 No Waiver. No forbearance, failure or
delay on the part of a party hereto in exercising
any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single
or partial exercise of any such right, power or
remedy preclude any other or further exercise
thereof or the exercise of any other right, power
or remedy. Any waiver of any provision of this
Agreement shall be effective (a) only if it is
made or given in writing (including an email
message) and (b) only in the specific instance
and for the specific purpose for which made or
given.
o
15.13 No Strict Construction. The language
used in this Agreement is the language chosen
mutually by the parties hereto and no doctrine of
· construction shall be applied for or against any
party.
•
On December 14, 2012, one day after Advaxis and Tonaquint
entered into the Purchase Agreement, Ironridge Global IV, Ltd.
("Ironridge") purchased a $611,196.29 debt claim against
Advaxis. 13
•
On December 19, 2012, Advaxis and Ironridge entered into a
Stipulation for Settlement of Claims that sought to settle
Ironridge's claim against Advaxis through a Section 3(a)(10)
transaction. 14
•
On December 20, 2012, the Superior Court of the State of
California for the County of Los Angeles - Central District
entered an order for approval of the Stipulation for Settlement
of Claims. 15
·----~l-
13
See Advaxis Form 8-K dated 12-28-2012, (CM/ECF No. 22-7).
1
~
,I
i!
"
4
•
Tonaquint did not participate in the Advaxis-Ironridge Section
3(a)(l0) transaction. 16
•
Tonaquint later assigned to Iliad all of Tonaquint's right, title,
and interest in, to and arising under the Purchase Agreement. 17
Advaxis consented to such assignment. 18
Whether Advaxis breached the Purchase Agreement when it entered into the Section
3(a)(10) transaction with Ironridge requires analysis of three questions: (i) was Tonaquint
entitled to participate in the Section 3(a)(l0) transaction with Ironridge; (ii) if so, did Advaxis
provide sufficient notice of the Section 3(a)(l0) transaction with Ironridge; and (iii) did
Tonaquint (and Iliad) waive any material breach to the Purchase Agreement?
The court will analyze these three questions in tum.
I. Was Tonaquint Entitled to Participate in the Section 3(a){l 0) Transaction with Ironridge?
The Purchase Agreement says what it says. And with regards to the Section 3(a)(10)
Participation Right, as outlined above, the Purchase Agreement says the following:
Section 3(a)(9) and 3(a)(l 0) Right of Participation. Pursuant to the
terms of this subsection, [Advaxis] hereby grants [Tonaquint] a
right of participation with respect to any transaction or
arrangement stmctured, in whole or in part, in accordance with
Section 3(a)(9) or Section 3(a)(10) of the 1933 Act ... that
[Advaxis] proposes to enter into any time during the period
beginning on the date hereof and ending on the later of (i) two (2)
years after the date hereof and (ii) the date that all of [Advaxis']
obligations hereunder and the Note are paid and perfoniled in full
and the Warrant is exercised in full (or otherwise expired) . . .
provided, however, that [Tonaquint] may only elect to participate
in acquiring up to 50% of the principal balance of such Section
3(a)(9) or 3(a)(l 0) Transaction.
(CM/ECF No. 22-2), at §5.2(k).
--~-~------ -~~ -~=---------
16
Hr'g 3/11/15 Tr., (CM/ECF No. 66) at 31:11-22.
17
Assignment and Assumption Agreement, (CM/ECF No. 22-3 ).
18
0pposition, supra note 6, at xxviii; I-Ir'g 3/11/15 Tr., (CM/ECF No. 66), at 38:5-7.
5
Advaxis seeks to stand in two places at once regarding this contract provision and
whether it is ambiguous or unambiguous. In its opposition to the summary judgment motion,
Advaxis argues the meaning of the Participation Right provision is unambiguous:
Iliad's interpretation is contrary to the plain language of the
purchase agreement's Participation Right. The Participation Right
only permitted Tonaquint to participate in Section 3(a)(9) or
Section 3(a)(10) transactions "that [Advaxis] proposes to enter into
any time during the period beginning on the date hereof ... "Thus,
the Purchase Agreement gives a Participation Right only in
transactions that Advaxis "proposed" to enter into after the
Purchase Agreement was executed. This interpretation comports
with the plain meaning of the word "proposes."
(CM/ECF No. 39), at 5 (internal citations omitted). But at the March 11, 2015 hearing, Advaxis'
position was more opaque:
THE COURT:
Well, let's return to my earlier question. Is
the contract ambiguous?
MR. KESSLER:
So our position is it's not ambiguous
because it reads clearly in our way. But on
this motion we don't have the burden of
proof.
THE COURT:
Why do we need testimony at all?
MR. KESSLER:
Because it's been disputed. Our witnesses
have sworn, two witnesses have sworn --
THE COURT:
There's a distinction between what occurred,
what occurred, and what a contract says.
MR. KESSLER:
Yeah. And they've sworn this is what I
understand, not what occurred.
THE COURT:
No. Their understanding doesn't make a bit
of difference, does it? Aren't we looking at
the document?
·~~~~---
--- ------
MR. KESSLER:
-----~-----------
-~---
- - · - - - - - - - - - - - - - - ---·--
If-- if-- if-- if you think that the question is
ambiguous, then their understanding does
matter.
6
THE COURT:
Well, no, no. What I think as to what it is or
is not ambiguous I don't know is helpful.
My question to you was is this ambiguous,
and you said no, Judge, this is not
ambiguous.
MR. KESSLER:
I said our position is it's not ambiguous
because it reads our way. That was my
response, Judge. It wasn't that it was
unambiguous and reads their way, no.
THE COURT:
I'll ask you is it ambiguous or isn't it?
MR. KESSLER:
All right. If you want me to pick, I'm going
to say it's ambiguous and we'll have a trial.
THE COURT:
I just want your position.
MR. KESSLER:
It's ambiguous.
THE COURT:
And if ambiguous, what's the process for
clearing up the ambiguity?
MR. KESSLER:
The process is discovery and trial.
THE COURT:
Oh, but what are you discovering?
MR. KESSLER:
We're going to get to talk to the drafters of
the document to understand their intent, both
the intent and understanding of the language
and the intent of the meaning. As you know,
Judge, better than I do, in this court there's
an analysis of facial ambiguity and there's
an analysis whether there's ambiguity of the
intent of the parties overall, and I think in
this context both apply.
And as I understand your position, you
suggest that construing the contract is a ~ _ _ ___ -~ _ _ _
-~----factuar adventllfe ratlier-than- a-1e~
adventure?
THE COURT:
7
MR. KESSLER:
I think in the first instance the Court
construes it as a matter of law and - - but in
my mind it presents a factual question and
so then it's open for parol evidence.
Hr'g 3/11/15 Tr., at 27:4-28:19; 47:16-22.
Iliad, both in its partial summary judgment motion and at the March 11, 2015 hearing,
argued that the Purchase Agreement, including the Participation Right, is unambiguous. Iliad
argues the Purchase Agreement obligates Advaxis to give Tonaquint written notice and a right to
participate in 3(a)(10) transactions, like the Ironridge transaction, that Advaxis proposes to enter
into after execution of the Purchase Agreement. 19
Contract interpretation is a question oflaw. 20 The court looks to the language of the
contract to detennine its meaning and the intent of the contracting parties. 21 A contract is
ambiguous if it is capable of more than one reasonable interpretation due to uncertain terms,
missing tenns, or other facial problems. 22 If the language of the contract at issue-the Purchase
Agreement, specifically the Participation Right-is ambiguous, then a genuine dispute of
material fact exists and summary judgment is inappropriate. 23
The key question is the meaning of the phrase "that [Advaxis] proposes to enter into any
time during the period beginning on the date hereof ... "
24
The court finds Advaxis' position-
that the phrase excludes transactions Advaxis proposed prior to signing the Purchase
Agreement-is not reasonably supported by the language of the contract.
19
See Mot. for Partial Summ. J., filed Sept. 22,2014, (CM/ECFNo. 22); Hr'g 3/11/15 Tr., at6:9-7:2.
20
See Meadow Valley Contractors, Inc. v. State Dep't ofTransp., 2011 UT 35, ~ 13, 266 P.3d 671, 676.
1
-~ _ _ _ ~ _~ See Ca~R~, ~nc._v._~~~~n-Gifjor_d-Ove~~n,_ Lf,__c;~ _2_009 ~T ~7 J?_~_~_2_97_!.3dJ23 5, 1240_.___
_
22
I d. (quoting Web Bank v. Am. Gen. Annuity Serv. Corp., 2002 UT 88, ,-r 20, 54 P.3d 1139).
23
See Ultra Clean Holdings, Inc. v. TFG-California, L.P., 534 F. App'x 776,784 (lOth Cir. 2013).
24
PurchaseAgreement, (CM/ECF No. 22-2), at§ 5.2(k).
8
Advaxis' interpretation could be reasonable ifthe Participation Right referred to 3(a)(10)
transactions "that Advaxis proposes during the period beginning on the date hereof." But that is
not what the Purchase Agreement says. Instead (and importantly), the word "proposes" is
followed by the phrase "to enter into." The Advaxis interpretation would render meaningless the
words "to enter into." And as Advaxis notes, "an interpretation which gives a reasonable, lawful,
and effective meaning to all the terms is preferred to an interpretation which leaves a part
unreasonable, unlawful, or of no effect."25
After giving full meaning to "proposes to enter into" in its entirety, the interpretation is
plain: the Participation Right covers 3(a)(10) transactions that Advaxis seeks to consummate
after the Purchase Agreement is executed. This interpretation-the same one Iliad suggestsrenders no word superfluous, including the word "proposes." As argued by Iliad, "proposes"
describes the transaction's status: unconsummated, planned, intended. 26 Indeed, if the 3(a)(10)
transaction were not still unconsummated (i.e., merely in the proposed stage) when it fell under
the terms of the Purchase Agreement, the Participation Right would be unavailing-there would
be nothing left to participate in. Clearly, not every contemplated or negotiated Section 3(a)(10)
transaction comes to fmition. But, under the Purchase Agreement, if Advaxis were to try-were
to propose-to enter into a 3(a)(10) transaction after execution ofthe Purchase Agreement,
Advaxis needed to let Tonaquint know and give Tonaquint an opportunity to participate.
This determination is supported by consideration of the relevant evidence. And according
to the Utah Supreme Court, consideration of such evidence is appropriate:
"When determining whether a contract is ambiguous, any relevant
evidence must be considered" and "the better-reasoned approach is
f---
25
0pposition, supra note 6, at 6, citing McNeil Eng'g and Land Surveying, LLC v. Bennett, 268 P.3d 854,
859 (Utah Ct. App. 2011), which in turn quotes Restatement (2d) of Contracts§ 203(a) (1981).
26
Mot. for Partial Summ. J., filed Sept. 22, 2014, (CM/ECF No. 22), at 1.
9
to consider the writing in light of the surrotmding circumstances."
Ward v. Intermountain Farmers Ass'n, 907 P.2d 264, 268 (Utah
1995). We allow the introduction of relevant evidence regarding
the existence of a potential ambiguity to prevent an "inherently
one-sided [analysis] ... based solely on the extrinsic evidence of the
judge's own linguistic education and experience." Id. (internal
quotation marks omitted). In this way, we can interpret a contract
and any potential ambiguity in light of the parties' intentions. See
WebBank v. Am. Gen. Annuity Serv. Corp., 2002 UT 88, ,-r 17, 54
P.3d 1139 ("The underlying purpose in constming or interpreting a
contract is to ascertain the intentions of the parties to the
contract.").
Watkins v. Ford, 2013 UT 31, ,-r26, 304 P.3d 841,847, as amended (Aug. 6, 2013).
The relevant evidence includes the following facts. On November 5, 2012 Advaxis and
Tonaquint entered into a term sheet for a convertible note transaction? 7 On November 15, 2012,
Advaxis and Ironridge entered into a term sheet proposing a transaction to satisfy creditor
liabilities of Advaxis. 28 On November 19, 2012, prior to entering into the Purchase Agreement,
Thomas Moore, Advaxis' Chief Executive Officer and Chairman, emailed Tonaquint indicating
that Advaxis desired to enter into a 3(a)(10) transaction. The email states as follows:
Co by,
Thanks so much for the docs! Mark and I appreciate that we are rushing
you. So its not surprising that some things need to be made consistent with
the term sheet. Here is what we noticed:
The reduction in the conversion price begins 6 months after closing, not
right away.
The default is in event of a judgment of $1,000,000 or more, not $100,000.
The note is for $880,000, not $890,000.
No registration rights were in the term sheet. We always looked at this as a
144 agreement.
----
--~~--~--~
Other points we would like to discuss are:
We would like to do a 3(a)1 0. Is this permitted under the agreement?
We have done a quarterly restatement, not an annual. Can we exempt this?
Can we either eliminate the cross default or get 30 days to cure.
----------------------carrweextend any dEHault notice to 4-aay1finstead-ofoveYnight? --
27
Term Sheet $880,000 Convertible Note, (CM/ECF No. 40-1).
28
Tenn Sheet for Satisfaction of Up to $1.55 Million in Creditor Liabilities, (CM/ECF No. 40-2).
10
Thanks!
Tom and Mark
Advaxis, Inc.
(CM/ECF No. 22-4).
In response, John Fife, Tonaquint's CEO, sent the following email:
The reduction in the conversion price begins 6 months after closing, not right
away.
JF -- I agree with Tom's statement.
The default is in event of a judgment of $1 ,000,000 or more, not $100,000.
JF --I agree with Tom's statement.
The note is for $880,000, not $890,000.
JF -- The term sheet had $15K for legal. $5K was paid in cash already.
$1 OK is being added to the note.
No registration rights were in the term sheet. We always looked at this as a
144 agreement.
JF- I agree with Tom's statement
Other points we would like to discuss are:
We would like to do a 3(a)1 0. Is this permitted under the agreement?
Yes -- However we would like a FROR with respect to these opportunities.
We are familiar with and experienced in these type of transactions.
We have done a quarterly restatement, not an annual. Can we exempt this?
JF -- I am OK with this provided there is not impact on our right to 6 month
144 sales.
Can we either eliminate the cross default or get 30 days to cure.
JF -- Let's talk about this point.
Can we extend any default notice to 4 days instead of overnight?
JF -- Probably, Let me talk to counsel.
(CM/ECF No. 22-5).
Thereafter, on November 28, 2012, Tonaquint emailed Advaxis a redline of a new draft
Purchase Agreement, adding a new Section 5.2(k) with a right of first refusal regarding Section
~3_(
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