## Facts

- Spencer Trask Software and Information Services, LLC and Spencer Trask Ventures, Inc. (collectively, Spencer) were experienced venture-capital investors.
- RPost International Ltd. (RPost) was a startup Internet company developing a registered electronic-mail service.
- In July 2001, RPost circulated an offering memorandum seeking to raise up to $2 million through convertible debt; it stated RPost was not offering or accepting any sales terms unless and until a definitive, written agreement was executed.
- In August 2001, Spencer met twice with RPost’s founders and the parties orally expressed agreement in principle on a staged financing arrangement: Spencer would invest $500,000 in a Series B round (subject to due diligence), with later milestones and follow-on Series C and Series D rounds, and with periodic opportunities for Spencer to acquire RPost stock up to a significant ownership percentage (the “August deal”).
- The August deal was set out in four draft letter agreements that contained blank date lines and contemplated execution; Spencer also emailed that it was eager to consummate the financing “following the execution” of the letter agreements.
- The draft letters were never signed or executed.
- In November 2001, Spencer invested $500,000 and received a promissory note; the parties executed a written debt agreement relating to that $500,000.
- Spencer continued seeking to complete due diligence, but alleged that RPost later refused to comply with the August deal and pursued other financing.
- Spencer sued asserting, among other claims, breach of contract, promissory estoppel, unjust enrichment, and breach of warranty; Spencer later amended to add federal securities-fraud and common-law fraud claims.
- RPost moved to dismiss the amended complaint under Rule 12(b)(6), and the court stayed discovery pending resolution of the motion.

## Issues

1. Whether the alleged “August deal,” reflected only in unsigned draft letters and negotiations, stated a plausible claim for an enforceable contract despite express language conditioning obligation on execution of a definitive written agreement.
2. Whether Spencer could proceed on promissory estoppel based on alleged promises made during the August negotiations, notwithstanding the absence of a signed financing agreement.
3. Whether unjust enrichment was barred as duplicative of claims governed by express written instruments (including the November promissory note/debt agreement), or could be pleaded for benefits allegedly conferred outside those contracts.
4. Whether the amended complaint pleaded federal securities fraud and common-law fraud with sufficient particularity (and, for the federal claim, under heightened statutory pleading standards), and whether alleged misstatements/omissions were actionable rather than mere future plans or nonactionable sales talk.
5. Whether the allegations adequately tied each individual defendant to the alleged wrongdoing so as to state claims against them.

## Decision

- The court granted the motion to dismiss in part and denied it in part.
- The court dismissed the breach-of-contract theory to the extent it sought to enforce the unexecuted August deal as a binding multi-round financing agreement.
- The court permitted certain non-contract theories to proceed at the pleading stage, including promissory estoppel (at least in part) based on the alleged promises and reliance surrounding Spencer’s investment and the parties’ dealings.
- The court dismissed unjust-enrichment theories to the extent they were duplicative of obligations governed by express written agreements, but allowed quasi-contract allegations to continue to the extent they were pleaded in the alternative and concerned matters not clearly controlled by an enforceable contract.
- The court allowed some securities-fraud and common-law fraud allegations to proceed while dismissing others that were inadequately pleaded or not actionable (including theories resting only on alleged failure to follow through on future financing terms).
- The court dismissed certain claims against some individual defendants where the pleading did not sufficiently allege their personal involvement in the particular misconduct alleged, while allowing other individual-capacity claims to continue where the complaint attributed specific conduct to them.

## Legal Principles

- Under New York law, when sophisticated parties expressly indicate they will not be bound until execution of a definitive written agreement, unsigned drafts and preliminary negotiations generally do not create an enforceable contract.
- In assessing whether preliminary writings or discussions are binding, courts consider indicia of intent such as an express reservation of the right not to be bound, whether there has been partial performance, whether material terms were agreed, and whether the type of transaction is usually committed to a signed writing.
- Promissory estoppel requires a clear and unambiguous promise, reasonable and foreseeable reliance, and injury; it may be pleaded in the alternative when a plaintiff cannot establish an enforceable contract at the pleading stage.
- Unjust enrichment generally is unavailable where an express contract governs the same subject matter, but may be pleaded (and may survive) where it is not clearly duplicative or where the alleged benefit falls outside the scope of a controlling contract.
- Securities fraud and common-law fraud must be pleaded with particularity; fraud claims cannot rest solely on a later failure to perform, and instead require well-pleaded misstatements or omissions of present fact (or a plausible allegation of then-existing fraudulent intent), along with the other required elements.

## Conclusion

Spencer Trask held that the parties’ unexecuted “August deal” documents and negotiations did not plausibly amount to a binding venture-financing contract in light of express “no obligation until a definitive writing” language and the lack of executed letter agreements, so the contract claim based on that deal was dismissed; however, the court allowed the case to proceed on a narrower set of alternative theories—including parts of the estoppel, unjust-enrichment, and fraud claims—where the amended complaint plausibly alleged reliance, non-duplicative benefit, or actionable misstatements/omissions with adequate specificity.


Spencer Trask Software v. RPost International, 383 F. Supp. 2d 428 (2003)