Defendant, MicroCloud Hologram, Inc. (MicroCloud), moves under CPLR 3211 (a) (1) and (a) (7) to dismiss all four causes of action brought by plaintiff, Greenland Asset Management Corporation, in its second amended complaint. (NYSCEF No. 63.) The motion is granted in part and denied in part.

This action arises out of a SPAC transaction, a merger between a special-purpose acquisition company (SPAC) and a private company. (See NYSCEF No. 41 at ¶¶ 13—16.) A private company's acquisition by a SPAC allows it to be publicly traded and to access the funds raised by the SPAC's initial public offering. (See id. at ¶¶ 13—16.) A SPAC's sponsor is usually compensated through discounted SPAC shares received before the SPAC's IPO. (Id. at ¶ 16.) Those shares generally have value only if the SPAC transaction is finalized, meaning that the private company is acquired. (Id. at ¶ 16.) Additionally, those shares cannot be sold unless and until the SPAC, or its successor in interest following the transaction, either registers the shares with the SEC by successfully filing a registration statement (Registration Route) or removes the restrictive legend on the shares pursuant to 17 CFR 230.44, otherwise known as SEC Rule 144 (Rule 144 Route). (NYSCEF No. 65 at 5.)

Plaintiff sponsored the SPAC Golden Path Acquisition Corporation (Golden Path) to raise funds through an IPO for the purpose of merging with or acquiring the targeted private company. (Id. at 2.) On September 10, 2021, Golden Path entered into a merger agreement with "MC Hologram Inc." (NYSCEF No. 41 at ¶ 27.) The parties closed on the agreement to merge on September 16, 2022, and Golden Path simultaneously changed its name to its current form, MicroCloud Hologram, Inc. (Id. at ¶ 27.)

On June 21, 2021, before Golden Path's IPO occurred, plaintiff and Golden Path entered into two agreements. One was a private-placement purchase agreement through which plaintiff acquired 248,000 private-placement units. (NYSCEF No. 64 at 4.) The second was a registration-rights agreement (RRA). (NYSCEF No. 2 [Exhibit A].) Plaintiff now owns 1,735,050 MicroCloud shares in total, consisting of 1,437,500 founder shares ^[FN1] and 297,500 shares obtained through the private-placement transaction and redeemed private warrants upon consummation of the merger. (NYSCEF No. 65. at 2, 5.) MicroCloud, however, has not made any of plaintiff's shares saleable through either the Registration Route or the Rule 144 Route. (Id. at 5.) All of plaintiff's shares remain restricted securities. (See id. at 2.)

In response to MicroCloud's inaction in registering the shares, plaintiff sued MicroCloud asserting four claims: breach of contract, breach of implied contract, breach of the implied covenant of good faith and fair dealing, and conversion. (NYSCEF No. 41 [Second Amended Complaint].) MicroCloud now moves to dismiss all four claims against it under CPLR 3211 (a) (1) and (a) (7).^[FN2] (NYSCEF No. 63.)

I. The Branch of MicroCloud's Motion Seeking Dismissal of Plaintiff's Breach-of-Contract Claim

The parties agree that the RRA governs their relationship and the registration of [*2]plaintiff's shares. (See NYSCEF No. 41 at 12; NYSCEF No. 64 at 8.) The contractual language in question is found in RRA § 2.1.1, which permits owners of registrable securities to make a written demand to register all or part of their shares, and § 3.1.1, which provides that MicroCloud "'shall use its best efforts, as expeditiously as possible' to register the shares upon receipt of the demand." (NYSCEF No. 64, quoting NYSCEF No. 2 at §§ 2.1.1, 3.1.1.)

The parties agree that plaintiff made six written demands for MicroCloud to register its shares: on October 10, 2022, October 11, 2022, January 14, 2023, January 27, 2023, February 6, 2023, and September 25, 2023. (NYSCEF No. 41 at 8.) Plaintiff argues that MicroCloud's failure to register the shares constitutes a breach of RRA §§ 2.1.1 and 3.1.1. (NYSCEF No. 64 at 4.) MicroCloud, in response, argues that RRA § 3.1.1 is an unenforceable provision, because the requirement that MicroCloud use its "best efforts [to register the securities] as expeditiously as possible" is vague. (Id. at 3, 6-8.) MicroCloud moves under CPLR 3211 (a) (1) and (a) (7) to dismiss the breach-of-contract claim for the alleged failure of plaintiff to plead an enforceable contract. (NYSCEF No. 63 at 5.) MicroCloud argues in its memorandum in support of the motion to dismiss that best efforts clauses require objective criteria against which a defendant's efforts can be measured. (NYSCEF No. 64 at 5.) Applying that standard, MicroCloud argues that RRA § 3.1.1 is not enforceable, because the provision lacks objective criteria. (Id. at 6.) This court disagrees.

In Non-Linear Trading Co. v Braddis Assoc., the Appellate Division, First Department, reversed a trial-court decision invalidating a contract as vague for containing a best-efforts clause. (See 243 AD2d 107, 114 [1st Dept 1998].) A decision of Supreme Court addressing this issue explained that the "law . . . does not require that 'best efforts' criteria be defined by the contract," and that if "external standards or circumstances impart a reasonable degree of certainty to the meaning of the phrase 'best efforts,' the clause can be enforced." (Maestro W. Chelsea SPE LLC v Pradera Realty Inc., 38 Misc 3d 522, 530 [Sup Ct, NY County 2012].) These cases underline long-standing New York law that a "defendant . . . is bound [to the contract], unless its promise is to be ignored as meaningless. Rejection on that ground [of indefiniteness] is at best a last resort." (Heyman Cohen & Sons v M. Lurie Woolen Co., 232 NY 112, 114 [1921] [rejecting defendants' argument to void the contract for vagueness when the contract included a term that plaintiff had the privilege to "confirm more of the above if [the defendant] can get more"].)

Here, RRA § 3.1.4, "Notification," when read alongside RRA § 3.1.1, "Filing Registration Statement," provides sufficient guidance to define "best efforts." (NYSCEF No. 2 at 5.) RRA § 3.1.1 permits MicroCloud to "defer any Demand Registration for up to thirty (30) days," and RRA § 3.1.4 requires that upon filing of the registration statement, MicroCloud must notify the holders of the securities within two business days. (Id. at 6.) By requiring MicroCloud use its "best efforts" to register plaintiff's securities "as expeditiously as possible," the contract contemplates MicroCloud registering the securities within a certain timeframe. On MicroCloud's motion to dismiss the breach-of-contract claim, the question is whether there are sufficient guidelines or objective criteria against which to compare MicroCloud's behavior. The context of this provision, reading the contract as a whole, provides that guidance. Therefore, the clause of the RRA requiring MicroCloud to exercise their best efforts is not so vague as to be unenforceable. MicroCloud's motion to dismiss the breach-of-contract claim is denied.

II. The Branches of MicroCloud's Motion Seeking Dismissal of Plaintiff's Breach-[*3]of-Implied-Covenant and Breach-of-Implied-Contract Claims

Plaintiff appears to discuss causes of action two and three together in its memorandum in opposition to MicroCloud's motion to dismiss. (NYSCEF No. 65 at § II.) Plaintiff asserts in the second cause of action that MicroCloud breached an implied contract, created by the SPAC transaction, by refusing to remove the restrictive legend from the securities through the Rule 144 Route. (NYSCEF No. 41 at ¶ 62—64.) The explicit contract between the parties contemplated that MicroCloud must register the securities with the SEC by filing a registration statement, which, according to plaintiff, would be more costly and time intensive than the Route 144 Route. (NYSCEF No. 2 §§ 2.1, 3.1; NYSCEF No. 41 at ¶ 62.) Plaintiff proposed the Rule 144 Route to MicroCloud, but MicroCloud refused to remove the restrictive legend. (NYSCEF No. 41 at ¶ 46—48.) The related third cause of action is based on an alleged breach of the implied covenant of good faith and fair dealing. (Id. at 14.)

With respect to the claim for breach of the implied covenant of good faith and fair dealing (third cause of action), a duty on MicroCloud arises in connection to the performance of its duties under the RRA. The implied covenant of good faith and fair dealing governs the RRA. (See 511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144 [2002] ["In New York, all contracts imply a covenant of good faith and fair dealing in the course of performance."].) Plaintiff alleges that MicroCloud violated this duty by refusing to remove the restrictive legend. (NYSCEF No. 41 at ¶ 66-68.) As the parties agree, the RRA governs legend removal. (NYSCEF No. 2 at § 5.1.) The Route 144 Route, although not expressly required by the contract, is a means available to achieve the legend-removal objective that plaintiff alleges MicroCloud has not taken. That is sufficient to state a cause of action for breach of the implied covenant of good faith and fair dealing.

To the extent that plaintiff is also arguing in opposition that an additional implied contract arose from the contractual language beyond the implied covenant of good faith and fair dealing, this court disagrees. Nor does plaintiff provide authority that might support this argument.

III. The Branch of MicroCloud's Motion Seeking Dismissal of Plaintiff's Conversion Claim

MicroCloud also moves to dismiss plaintiff's conversion claim. (See NYSCEF No. 64 at § D.) The conversion claim is based on MicroCloud's allegedly unreasonable withholding of plaintiff's securities. Plaintiff alleges that this withholding interfered with plaintiff's possessory rights. (NYSCEF No. 41 at ¶ 71—73.) But this allegation is based on the same facts underlying plaintiff's breach-of-contract claim. (NYSCEF No. 64 at § D.) To state causes of action for both conversion and breach of contract, a plaintiff must allege facts supporting the conversion claim that are independent from the facts the breach-of-contract claim. (See e.g. Jeffers v American Univ. of Antigua, 125 AD3d 440, 443 [1st Dept 2015].) The RRA governs both formal registration and legend removal. (NYSCEF No. 2 at §§ 2.1—3.1, 5.1.) Therefore, the contract claim under the RRA covers any failure by MicroCloud to register the securities through either method. And a mere breach of contract cannot give rise to a conversion clause under New York law. (See e.g. Jeffers, 125 AD3d at 443.)

Accordingly, it is

ORDERED that the branches of MicroCloud's motion seeking dismissal of plaintiff's breach-of-contract and breach-of-implied-covenant claims are denied; and it is further

ORDERED that the branches of MicroCloud's motion seeking dismissal of plaintiff's breach-of-implied-contract and conversion claims are granted, and those claims are dismissed; and it is further

ORDERED that the balance of the claims in this action are severed and shall continue; and it is further

ORDERED that the parties shall appear before this court for a telephonic status conference on August 2, 2024.