Plaintiff UBS Securities LLC ("UBS") seeks dismissal of Angioblast Systems, Inc. ("Angioblast") counterclaims and affirmative defenses pursuant to CPLR 3016(b), 3211(a)(1), 3211(a)(7), and 3211(b).

Defendant Angioblast is a Delaware corporation. Angioblast is a privately held biotechnology company specializing in the development and commercialization of novel therapeutic products for the treatment of cardiovascular diseases and vascular disorders. Complaint, ¶ 6.

From 2001-2007, Angioblast conducted pre-clinical and Phase 1 clinical studies of adult stem cell treatments for diseases such as Congestive Heart Failure ("CHF") and Acute Myocardial Infarction ("AMI"). Defendant's Counterclaims, ("Counterclaims"), ¶ 57. In May 2007, the United States Food and Drug Administration ("FDA") gave Angioblast permission to commence Phase 2 clinical trials of its AMI treatment. Id. at ¶ 60. Angioblast had insufficient capital to fund the Phase 2 clinical testing through completion. Id. at ¶ 62. Thus, in the Spring of 2007, Angioblast began contacting leading investment banks with significant experience in the healthcare industry to assist Angioblast by raising capital for its Phase 2 trials. Id. at ¶ 63. [*2]

Angioblast states that at least twelve investment banks, including UBS, were interested in competing for Angioblast's business. Angioblast allegedly informed the banks that its financial objectives were: (1) an immediate Series C equity private placement to raise at least $30 million to finance Angioblast's Phase 2 trials; and (2) an eventual Initial Public Offering ("IPO") following the successful completion of its Phase 2 trials. Counterclaims,at ¶ 65.

UBS first expressed interest in working with Angioblast in June 2007. Counterclaims,¶ 66. UBS allegedly held itself out to Angioblast as the world's leader in healthcare investment banking. Id. In June 2007, Dr. Silviu Itescu, M.D. ("Itescu") (Angioblast's founder and CEO), Michael Schuster ("Schuster") (Angioblast's VP of Operations) and Michael Warman ("Warman") (Angioblast's VP of Corporate Finance and Investor Relations) met several times with Graig Suvvanavejh ("Suvvanavejh") and Steve Yoo ("Yoo"), members of the UBS healthcare investment banking research department that Angioblast believed to be key members. Id. During these meetings, Angioblast shared with Suvvanavejh and Yoo its proprietary information about Angioblast's adult stem cell research, platform technology, stable of intellectual property, results of completed Phase 1 trials, plans for future clinical trials and its strategic business plan. Id.

Angioblast's senior management also met with a UBS healthcare investment banking team led by UBS Managing Director Sage Kelly ("Kelly"). Kelly allegedly represented that if Angioblast hired UBS, he would personally serve as the UBS banking team leader throughout the engagement. Counterclaims, ¶ 67. However, UBS shortly thereafter removed Kelly from the team, stating that Kelly had a conflict of interest. Id. at ¶ 68.

UBS then introduced Angioblast to Steven Meehan ("Meehan"). Meehan was a UBS Managing Director with twenty years of healthcare investment banking experience and was the head of UBS's Life Sciences group. Id. at ¶ 69. Angioblast executives met several times in October 2007 with Meehan and UBS Associate Director Nabeel Kaukab ("Kaukab"). Id. at ¶ 70. Angioblast states that during these meetings it explained to Meehan and Kaukab: (1) the amount of capital that Angioblast would require to conduct its Phase 2 clinical trials; (2) the urgent necessity of raising these funds in order to allow Angioblast to commence and complete its Phase 2 clinical trials as soon as possible; and (3) the basis upon which the value of Angioblast would increase by hundreds of millions of dollars once Angioblast successfully completed Phase 2 clinical trials for its AMI product and CHF product. Id.

Meehan allegedly assured senior members of Angioblast management during one of these meetings that, if UBS were engaged to serve as Angioblast's exclusive investment bank, he would personally lead the UBS banking team and use his knowledge, experience, acumen and connections to achieve Angioblast's goals of a Series C private placement and an eventual IPO. Id. at ¶ 71.

By November 2007, Angioblast had narrowed its investment bank candidates to UBS and a smaller investment bank with significant experience in private placement of securities for developing healthcare companies ("Bank B"). Id. at ¶ 72. Bank B represented to Angioblast that it had identified investors interested in investing in Angioblast and that it was [*3]confident that Bank B's investors could provide at least $30 million for a Series C private placement. Id. at ¶ 73.

On November 7, 2007, UBS representatives Meehan and Kaukab personally appeared before Angioblast's Board of Directors and made a formal presentation to convince Angioblast to hire UBS as its exclusive financial advisor. Counterclaims, ¶ 75. Angioblast gave decisive weight to Meehan's claims to have: (1) developed a specialized personal understanding of Angioblast's adult stem cell technology; (2) years of experience in raising funds for clinical development biotechnology companies; and (3) strong relationships with pre-existing UBS clients that would be likely to invest in Angioblast, if such an investment was solicited by Meehan. Id. at ¶ 76. Angioblast was also impressed with Kaukab's vigor and intelligence. Id.

Carter Eckert ("Eckert"), Chairman of the Angioblast Board of Directors, stated to Meehan that Angioblast feared that the UBS "varsity team" would remain on Angioblast's team only until UBS had secured Angioblast's business, at which point UBS would then substitute inexperienced "rookies." Id. at ¶ 77. Eckert clearly stated that Angioblast would retain UBS only if UBS were willing to make an unconditional promise that Meehan and Kaukab would be, and remain, personally engaged as the leaders of the UBS team throughout the engagement and would personally supervise other junior members of the UBS team. Id. Eckert specifically admonished Meehan that unless UBS made this commitment, Angioblast would hire one of UBS's competitors. Id. Angioblast alleges that Meehan falsely promised that if Angioblast chose UBS he would personally run the engagement and that, under his personal supervision, the full team would continue on with Angioblast for the entire term of the engagement. Id. at ¶ 78.

On December 20, 2007, Angioblast and UBS executed the Engagement Letter. The Engagement Letter appointed UBS as Angioblast's exclusive financial advisor in connection with any potential Sale Transaction. Counterclaims, ¶ 80. The Engagement Letter defined "Sale Transaction" as:

whether effected directly or indirectly or in one transaction or a series of transactions, any: (a) merger, consolidation, reorganization or other business combination pursuant to which the Company and any third party and/or 20% or more of their respective businesses, divisions or product lines are combined or (b) sale, transfer or other disposition of 20% or more of the capital stock or assets of the Company by way of negotiated purchase, option, leveraged buyout, minority investment or partnership, recapitalization, joint or collaborative venture or otherwise.

Engagement Letter § 1. Angioblast agreed to pay UBS a fee (the "Agreement Fee") upon entering into an agreement in principle for a Sale Transaction, and a second, larger fee (the "Transaction Fee") at the transaction's closing. Id. at § 2. The Engagement Letter also provided that Angioblast would reimburse UBS for any expenses it incurred in connection with the engagement, "[w]hether or not any Sale Transaction occurs." Id. at § 4. [*4]

The Engagement Letter had a two-year term (the "Term") and a nine-month tail period (the "Tail Period"). The Tail Period extended the time during which UBS could earn a Transaction Fee. Id. at § 1. The Tail Period provision stated that: "UBS shall be entitled to payment in full of the applicable Transaction Fee referred to in this Section 2 if at any time prior to the expiration of nine months after the Term the Company enters into an agreement that subsequently results in the consummation of a Sale Transaction." Id. at § 2. The Engagement Letter's termination provision permitted termination only "upon 30 days prior written notice." Id. at § 7. The Engagement Letter also provided that even if the agreement was terminated, "UBS shall be entitled to the fees payable pursuant to Section 2" if, at any time prior to the end of the Tail Period on September 20, 2010, Angioblast entered into an agreement that ultimately resulted in a Sales Transaction. Id.

On March 11, 2008, UBS announced that Meehan had been appointed CEO of UBS Russia. Counterclaims, ¶ 84. UBS did not replace Meehan on the Angioblast team with a senior healthcare banker experienced in private placements. Id. at ¶ 85. UBS then terminated Kaukab on or about April 28, 2008. Id. at ¶ 86. UBS did not replace Kaukab with another mid-level healthcare banker having experience in private placements. Id. at ¶| 87. Then, on May 14, 2008, UBS terminated Suvvanavejh. Id. at ¶ 88. Thereafter, Angioblast alleges that the only UBS employee who attempted to maintain contact with Angioblast was Peter Francis, a recent college graduate with no significant healthcare investment banking experience. Id. at ¶ 89.

On June 25, 2008, Angioblast received clearance from the FDA to commence Phase 2 clinical trials of its stem cell treatment of CHF. Angioblast contends that because UBS had failed to raise any new capital for Angioblast, it lacked sufficient capital to commence the Phase 2 clinical trials of its CHF product. Angioblast was forced to put the project on hold until it raised the required capital. Id. at ¶¶ 91-92.

In June 2008, UBS assigned Real Leclerc and Anthony Martino to the Angioblast matter. Leclerc's experience was confined to healthcare mergers and acquisitions, and Martino was not a healthcare specialist. Id. at ¶ 96. In June 2009, Leclerc, Martino and Francis, along with UBS Managing Director Kelly and more than thirty other UBS Healthcare Group investment bankers, departed UBS for Jefferies & Company, Inc. Id. at ¶ 98. After their departure, UBS introduced a new team of UBS Life Sciences investment bankers, led by Managing Director Aradhana Sarin ("Sarin") and Executive Director Christina Bresani ("Bresani"). Id. at ¶ 99.

On July 14, 2009, Itescu wrote to UBS (the "Itescu Letter"), stating:

As you may know, it was our initial confidence in and personal relationship with Steven Meehan and Nabeel Kaukab that first brought our business to UBS and prompted us to consummate the prior engagement letter in December 2007 with Steve, Nabeel and UBS. Regrettably, Steve and Nabeel ceased to provide any services to Angioblast from mid-2008. Therefore, the prior UBS engagement by Angioblast terminated effective from the date of Nabeel's formal departure from UBS. [*5]

Itescu further invited UBS to propose terms for a "new formal relationship" between UBS and Angioblast in a "new engagement letter" and to contact Itescu if UBS had any questions. Id. at ¶ 101.

On July 31, 2009, Bresani, responded to the Itescu Letter on behalf of UBS. In the response, UBS adopted Itescu's suggestion to propose terms for a new formal relationship by proposing terms for a "new engagement" between UBS and Angioblast. Id. at ¶ 103. Over the next six months, Angioblast and UBS pursued the possibility of entering into a new relationship, but the parties never consummated a new agreement. Id. at ¶ 104.

In August 2009, Angioblast succeeded in raising a portion of the money it needed to fund its clinical trials, without assistance from UBS. Id. at ¶ 105. On August 25, 2009, Angioblast publicly announced that it had raised $10 million in equity-based financing, $3 million of which came from its own shareholders. Id. at ¶ 106. Immediately upon receipt of the $10 million, Angioblast initiated the Phase 2 clinical trials on CHF. Id. at ¶ 109.

The Phase 2 clinical trials on CHF consumed virtually all of Angioblast's remaining capital, including the $10 million raised in August 2009. Id. at ¶ 112.

Angioblast had an Australian sister company, Mesoblast Limited ("Mesoblast"), which was also founded by Itescu. Mesoblast owned 32.8% of Angioblast's stock. Id. at ¶ 113. In May 2010, Angioblast negotiated a merger with Mesoblast, without any assistance from UBS. Id. at ¶ 114. On May 12, 2010, Angioblast and Mesoblast publicly announced their merger agreement, under which Mesoblast would become the 100% owner of Angioblast, and Angioblast's shareholders would receive shares in Mesoblast. Id. at ¶ 115.

On January 10, 2011, approximately two weeks after the Angioblast-Mesoblast transaction closed, the interim results from the ongoing Phase 2 clinical trials of Revascor for patients with CHF were publicly announced. Id. at ¶ 118. The price of Mesoblast stock on the Australian Stock Exchange increased more than 25% within one week. Id. at ¶ 119. During the week following the public announcement of the Revascor interim results, the aggregate market capitalization of Mesoblast increased by more than $300 million U.S. dollars. Id.

UBS commenced this action on January 10, 2011. UBS asserts two causes of action against Angioblast: breach of contract and indemnification. Angioblast asserts two counterclaims against UBS: fraudulent inducement and breach of contract. Angioblast also alleges nine affirmative defenses: (1) failure to state a cause of action; (2) fraudulent inducement; (3) abrogation and abandonment; (4) termination; (5) estoppel, waiver and consent; (6) unjust enrichment; (7) unclean hands; (8) plaintiff's breach; and (9) "additional defenses."

UBS moves to dismiss Angioblast's counterclaims and affirmative defenses in their entirety.

to Dismiss Angioblast's Counterclaims

UBS moves to dismiss Angioblast's counterclaims in their entirety pursuant to CPLR 3211(a)(1) and 3211(a)(7).

to Dismiss Angioblast's Affirmative Defenses

UBS next moves to dismiss Angioblast's affirmative defenses in their entirety pursuant to CPLR 3211(b).

A.Standard of Law

CPLR 3211(b) provides that a party may move to dismiss one or more defenses on the ground that a defense is not stated or has no merit. Siegel, NY Practice § 269, at p. 449 (4th ed. 2005). Upon a motion to dismiss a defense, a defendant is entitled to the benefit of every reasonable [*10]intendment of the pleading, which is to be liberally construed. If there is any doubt as to the availability of a defense, it should not be dismissed. Abney v. Lunsford, 254 AD2d 318, 318 (2nd Dep't 1998). When moving to dismiss an affirmative defense, the movant bears the burden of demonstrating that the affirmative defense is without merit as a matter of law because it either does not apply under the factual circumstances of the case or it fails to state a defense. Bank of America., N.A. v. 414 Midland Ave. Assoc., LLC, 78 AD3d 746, 748 (2nd Dep't 2010). When pleading a defense, brevity is not only permissible, but encouraged. Siegel, NY Practice § 223, at p. 370 (4th ed. 2005). For example, the New York Court of Appeals has held that pleading the phrase "statute of limitations" is sufficient to preserve that defense. Immediate v. St. John's Queens Hospital, 48 NY2d 671, 673 (1979).

B.Failure to State a Cause of Action

Angioblast's first affirmative defense alleges that the Complaint, and each purported claim and cause of action therein, fails to state a claim upon which relief can be granted. Counterclaims, ¶ 41. The defense of failure to state a cause of action may be inserted in an answer as an affirmative defense. The pleading of that defense is, however, surplusage, as it may be asserted at any time even if not pleaded. Riland v. Frederick S. Todman & Co., 56 AD2d 350, 352 (1st Dep't 1977). The assertion of that defense in an answer should not be subject to a motion to strike. Id. at p. 353.

UBS's motion to dismiss Angioblast's affirmative defense for failure to state a cause of action is denied.

C.Fraudulent Inducement

Angioblast alleges that the Complaint, and each purported claim and cause of action therein, is barred in whole or in part by the doctrine of fraudulent inducement. Counterclaims, ¶ 42. CPLR 3016(b) requires that where a cause of action is based upon fraud, the circumstances constituting the wrong shall be stated in detail.

As discussed above, Angioblast has not pled a legally cognizable injury sufficient to support a claim for fraudulent inducement. For the same reasons this court must dismiss Angioblast's counterclaim for fraudulent inducement, it must also dismiss this affirmative defense. UBS's motion to dismiss Angioblast's affirmative defense of fraudulent inducement is therefore granted.

D.Abrogation and Abandonment

Angioblast alleges that the Complaint, and each purported claim and cause of action therein, is barred in whole or in part by the doctrines of abrogation and/or abandonment. Counterclaims, ¶ 43. UBS has not met its burden of demonstrating that the affirmative defense is without merit as a matter of law. UBS has not shown that this defense either does not apply under the factual circumstances of the case or fails to state a defense. UBS's motion to dismiss Angioblast's affirmative defense of abrogation and abandonment is thus denied.

E.Termination

Angioblast alleges that the Complaint, and each purported claim and cause of action contained therein, is barred in whole or in part because the contract was terminated. Counterclaims, ¶ 44.

It is a well-established principle of law that when a contract affords a party the unqualified right to limit the contract's life by notice of termination, that right to terminate is absolute and will be upheld in accordance with its clear and unambiguous terms. Red Apple Child Development Center v. Community School Districts Two, 303 AD2d 156, 157 (1st Dep't 2003).

On July 14, 2009, Angioblast wrote a letter to UBS stating that the engagement was terminated effective from the date of Nabeel's formal departure from UBS.Counterclaims, ¶ 100. [*11]UBS alleges that Angioblast's termination defense fails because the termination was not proper under the Engagement Letter. Plaintiff's Memo, p. 22. UBS also alleges that even if the termination had been proper under the Engagement Letter, the clear and unambiguous Tail Period provision entitles UBS to collect the fees at issue for a post-termination Sale Transaction agreed to during the Tail Period. Id.

The Engagement Letter's termination provision permitted termination only "upon 30 days prior written notice." Engagement Letter, § 7. The Engagement Letter also provided that even if the agreement was terminated, "UBS shall be entitled to the fees payable pursuant to Section 2" if, at any time prior to the end of the Tail Period on September 20, 2010, Angioblast entered into an agreement that ultimately resulted in a Sales Transaction. Id. A "Sale Transaction" includes a merger in which Angioblast and any third party and/or 20% or more of their respective businesses, divisions or product lines are combined. Id. at § 1.

UBS alleges that in May 2010, Angioblast negotiated a merger with Mesoblast. Complaint, ¶ 3. UBS alleges that the merger constituted a Sale Transaction that was entered into prior to the end of the Tail Period on September 20, 2010. Id. at ¶ 3. UBS alleges that Angioblast owes it and Agreement Fee and a Transaction Fee. Id. at ¶¶ 3-4.

UBS has demonstrated that the termination defense is without merit. UBS's motion to dismiss Angioblast's affirmative defense of termination is granted.

F.Estoppel, Waiver and Consent

Angioblast alleges that the Complaint, and each purported claim and cause of action contained therein, is barred in whole or in part by the doctrines of waiver, estoppel and/or consent. Counterclaims, ¶ 45. These defenses are equitable in nature. BP3 Capital LLC v. Yosupov, 29 Misc 3d 1239(A), 2 (NY Sup. Ct., Queens County December 21, 2010). In an action at law seeking monetary damages, defendants' equitable defenses are not applicable. Obstfeld v. Thermo Niton Analyzers LLC, 32 Misc 3d 1221(A), 5 (NY Sup. Ct., Kings County July 25, 2011) (holding that "in an action at law seeking monetary damages, defendants' equitable defenses are not applicable"). Defendants are not entitled to interpose equitable defenses, which are brought in defense of plaintiffs' claims for monetary damages. Id.

UBS has commenced this action against Angioblast for breach of contract and indemnification. UBS solely seeks damages. Angioblast's equitable defenses are thus unavailable in this action. UBS's motion to dismiss Angioblast's affirmative defense of estoppel, waiver and consent is granted.

G.Unjust Enrichment

Angioblast alleges that the Complaint, and each purported claim and cause of action contained therein, is barred by the doctrine of unjust enrichment. Counterclaims, ¶ 46. As stated supra, equitable defenses are unavailable in an action exclusively for damages. UBS's motion to dismiss Angioblast's affirmative defense of unjust enrichment is granted.

H.Unclean Hands

Angioblast alleges that the Complaint, and each purported claim and cause of action contained therein, is barred by the doctrine of unclean hands. Counterclaims, ¶ 47. The doctrine of unclean hands is an equitable defense that is unavailable in an action exclusively for damages. Manshion Joho Ctr., Ltd. v. Manshion Joho Ctr., Inc., 24 AD3d 189, 190 (1st Dep't 2005). UBS's motion to dismiss Angioblast's affirmative defense of unclean hands is granted.

I.Plaintiff's Breach of Contract

[*12]Angioblast alleges that the Complaint, and each purported claim and cause of action contained therein, is barred to the extent UBS materially breached and repudiated the terms and conditions of the contract, both express and implied. Angioblast contends that it was therefore excused from its purported obligation to perform thereunder. Counterclaims, ¶ 48.

As discussed above, Angioblast has not pleaded that UBS breached its implied obligation to exercise good faith. See § I(C), supra. UBS's motion to dismiss Angioblast's affirmative defense of plaintiff's breach is granted.

ORDER

Accordingly, it is:

ORDERED that Plaintiff's motion to dismiss is granted as to Defendant's first counterclaim for fraudulent inducement, and that counterclaim is dismissed; and it is further

ORDERED that Plaintiff's motion to dismiss is granted as to Defendant's second counterclaim for breach of contract, and that counterclaim is dismissed; and it is further

ORDERED that Plaintiff's motion to dismiss is granted as to Defendant's second affirmative defense of fraudulent inducement, and that affirmative defense is dismissed; and it is further

ORDERED that Plaintiff's motion to dismiss is granted as to Defendant's fourth affirmative defense of termination, and that affirmative defense is dismissed; and it is further

ORDERED that Plaintiff's motion to dismiss is granted as to Defendant's fifth affirmative defense of estoppel, waiver and consent, and that affirmative defense is dismissed; and it is further

ORDERED that Plaintiff's motion to dismiss is granted as to Defendant's sixth affirmative defense of unjust enrichment, and that affirmative defense is dismissed; and it is further

ORDERED that Plaintiff's motion to dismiss is granted as to Defendant's seventh affirmative defense of unclean hands, and that affirmative defense is dismissed; and it is further

ORDERED that Plaintiff's motion to dismiss is granted as to Defendant's eighth affirmative defense of plaintiff's breach, and that affirmative defense is dismissed; and it is further

ORDERED that Plaintiff's motion to dismiss is otherwise denied. It is further

ORDERED that the parties are to appear in Room 442, 60 Centre Street, on February 21, 2012 for a preliminary conference.

Dated: New York, New York

January ___, 2012

ENTER:

______________________________________

Hon. Eileen Bransten, J.S.C.