cdoc response to the lawsuit 3.7.2014

Earl B. Austin Seth T. Taube BAKER BOTTS L.L.P. 30 Rockefeller Plaza New York, New York 10112-4498 Tele: (212) 408-2500 Fax: (212) 408-2501 Attorneys for Defendants Coda Octopus Group, Inc. and Geoff Turner

IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

IROQUOIS MASTER FUND LIMITED, ROCKMORE INVESTMENT MASTER FUND LTD., CRANSHIRE CAPITAL, LP, SCOT COHEN, RICHARD ABBE, PHILIP MIRABELLI and JOSHUA SILVERMAN

Plaintiffs, -v.- CODA OCTOPUS GROUP, INC. and GEOFF TURNER,

Defendants.

Civil Index No.: 1:14-cv-00760 (DLC) (HBP)

DEFENDANTS CODA OCTOPUS GROUP, INC. AND GEOFF TURNER’S MEMORANDUM IN SUPPORT OF THEIR MOTION TO DISMISS PU RSUANT TO

FED. R. CIV. P. 12(b)(2) AND 12(b)(6)

Case 1:14-cv-00760-DLC Document 6 Filed 03/07/14 of 31

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Table of Contents

Page

PRELIMINARY STATEMENT ................................................................................................... 1

BACKGROUND ........................................................................................................................... 2

I. Factual Background ............................................................................................................ 2 II. Procedural Background ....................................................................................................... 6

LEGAL ARGUMENT ................................................................................................................... 7

I. Motion Pursuant to Rule 12(b)(2): Plaintiffs’ Complaint Should be Dismissed as to Geoff Turner for Lack of Personal Jurisdiction. ........................................................ 7

A. Plaintiffs Have Not Alleged that Geoff Turner “Does Business” in New York. ....... 8

B. Plaintiffs Have Not Alleged that Geoff Turner Committed a Tort Causing Injury in New York. .............................................................................................................. 8 C. The Forum Selection Clause in the Securities Purchase Agreement Does Not Apply to Geoff Turner. .............................................................................................. 9

II. Motion Pursuant to Rule 12(b)(6): Plaintiffs Have Failed to State Claims for Negligent Misrepresentation or Breach of Contract. ........................................................ 10

A. Negligent Misrepresentation: Plaintiffs Have Failed to State a Claim for Negligent Misrepresentation. ................................................................................... 11

1. Plaintiffs Have Not Stated a Negligent Misrepresentation Claim Separate and Distinct From Their Breach of Contract Claim. ................................................ 11

2. Plaintiffs Have Failed to Plead the Elements Necessary to Establish a Claim for Negligent Misrepresentation. ....................................................................... 12

B. Breach of Contract: Plaintiffs Have Failed to State a Claim for Breach of Contract With Respect to the Warrants and the December 2010 and Hansen Issuances. ........... 15

1. The Warrants: Plaintiffs Cannot Compel Specific Performance of the Warrants Because the Warrants Have Expired. ................................................. 16

2. The December 2010 Issuance Was an “Exempt Issuance” Under the Securities Purchase Agreement. ......................................................................... 17


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3. The Hansen Issuance Was an “Exempt Issuance” Under the Securities Purchase Agreement. ......................................................................................... 18

C. Laches: Plaintiffs Are Barred by the Doctrine of Laches From Contesting the Validity of the 2010 Amendments to the Securities Purchase Agreement, the Expiration of the Warrants and the Subsequent Stock Issuances. .......................... 19

1. Plaintiffs Did Not Contest the Sufficiency of the 2010 Vote At the Time and Are Barred By Their Silence From Doing So Now. ................................... 19

2. Plaintiffs Also Are Barred From Compelling Specific Performance of the Expired Warrants. .............................................................................................. 22 3. Plaintiffs Also Are Barred From Contesting the December 2010, Fort Advisors, and Brilleman Issuances. ................................................................... 23

CONCLUSION ............................................................................................................................ 25


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TABLE OF AUTHORITIES

Page(s) CASES

AHW Inv. P’ship v. Citigroup Inc., No. 09 MD 2070 ......................................................................................................................13

Anschutz Corp. v. Merrill Lynch & Co., Inc., 690 F.3d 98 (2d Cir. 2012).......................................................................................................12

Ashcroft v. Iqbal, 556 U.S. 662 (2009) ...........................................................................................................10, 14

Bailey v. Chernoff, 45 A.D.3d 1113, 846 N.Y.S.2d 462 (N.Y. App. Div. 2007) .............................................20, 21

Beatie and Osborn LLP v. Patriot Scientific Corp., 431 F. Supp. 2d 367 (S.D.N.Y. 2006)........................................................................................7

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ...........................................................................................................10, 14

Bogdan And Faist P.C. v. CAI Wireless Sys. Inc., 295 A.D.2d 849, 745 N.Y.S.2d 92 (N.Y. App. Div. 2002) ...............................................16, 17

Carmania Corp., N.V. v. Hambrecht Terrell Int’l, 705 F. Supp. 936 (S.D.N.Y. 1989) ..........................................................................................12

Chambers v. Time Warner, Inc., 282 F.3d 147 (2d Cir. 2002).......................................................................................................3

Clark-Fitzpatrick, Inc. v. Long Island R. Co., 70 N.Y.2d 382, 516 N.E.2d 190 (1987) ...................................................................................11

Compagnia Importazioni Esportazioni Rapresentanze v. L-3 Commc’ns Corp., No. 06 CIV 3157 NRB, 2007 WL 2244062 (S.D.N.Y. July 31, 2007) ...................................11

Drake v. Lab. Corp. of Am. Holdings, No. 02CV1924 (FB)(RML), 2007 WL 776818 (E.D.N.Y. Mar. 13, 2007) aff’d, 417 F. App’x 84 (2d Cir. 2011)...........................................................................................................14

E. Shopping Centers, Inc. v. Trenholm Motels, Inc., 33 A.D.2d 930, 306 N.Y.S.2d 354 (1970) .............................................................16, 22, 23, 24

Ferring B.V. v. Allergan, Inc., 932 F. Supp. 2d 493 (S.D.N.Y. 2013)......................................................................................19


iv

Frummer v. Hilton Hotels Int’l, Inc., 227 N.E.2d 851 (N.Y. 1967) ......................................................................................................8

Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408 (1984) ...................................................................................................................7

Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55 (2d Cir. 1985).........................................................................................................8

Home Mut. Ins. Co. v. Broadway Bank and Trust Co., 53 N.Y.2d 568 (N.Y. 1981) .....................................................................................................14

In re Magnetic Audiotape Antitrust Litig., 334 F.3d 204 (2d Cir. 2003) (per curiam) .................................................................................7

In re Merrill Lynch & Co., Inc., 273 F. Supp. 2d 351 (S.D.N.Y. 2003) aff’d sub nom. Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161 (2d Cir. 2005) ..............................................................................................6

J.A.O. Acquisition Corp. v. Stavistksy, 8 N.Y.3d 144 (N.Y. 2007) .................................................................................................12, 13

Kimmell v. Schaefer, 89 N.Y.2d 257, 675 N.E.2d 450 (N.Y. 1996) ..........................................................................13

Kuhn v. Town of Johnstown, 248 A.D.2d 828, 669 N.Y.S.2d 757 (N.Y. App. Div. 1998) ...................................................20

Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 732 F.3d 161 (2d Cir. 2013).......................................................................................................7

Matter of Schulz v. State of New York, 81 N.Y.2d 336 (N.Y. 1993) .....................................................................................................21

MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 87 A.D.3d 287, 928 N.Y.S.2d 229 (N.Y. App. Div. 2011) .....................................................13

Meadow Run Dev.Corp. v. Atlantic Ref. & Mktg. Corp., 155 A.D.2d 752 (N.Y. App. Div. 1989) ..................................................................................21

OP Solutions, Inc. v. Crowell & Moring, LLP, 72 A.D.3d 622, 900 N.Y.S.2d 48 (N.Y. App. Div. 2010) .......................................................11

PPI Enterprises (U.S.), Inc. v. Del Monte Foods Co., 99 CIV. 3794 (BSJ), 2003 WL 22118977 (S.D.N.Y. Sept. 11, 2003) .....................................12

Reuben H. Donnelley Corp. v. Mark I Marketing Corp., 893 F.Supp. 285 (S.D.N.Y.1995) ........................................................................................9, 11


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Roland v. Benson, 30 A.D.3d 398, 816 N.Y.S.2d 190 (Ct. App. 2006) ................................................................16

Rotanelli v. Madden, 172 A.D.2d 815, 569 N.Y.S.2d 187 (N.Y. App. Div. 1991) ...................................................14

Savage v. Beiersdorf Inc., No. 13-CV-0696 DLI LB, 2013 WL 5532756 (E.D.N.Y. Sept. 30, 2013)..............................14

Schwartz v. HSBC Bank USA, N.A., No. 13 CIV. 769 PAE, 2013 WL 5677059 (S.D.N.Y. Oct. 18, 2013) .......................................3

Simons v. United States, 452 F.2d 1110 (2d Cir. 1971)...................................................................................................19

Skrodzki v. Marcello, 810 F. Supp. 2d 501 (E.D.N.Y. 2011) .......................................................................................9

SMS Mktg. & Telecommunications, Inc. v. H.G. Telecom, Inc., 949 F. Supp. 134 (E.D.N.Y. 1996) ............................................................................................8

Stein v. Doukas, 98 A.D.3d 1026, 950 N.Y.S.2d 773 (N.Y. App. Div. 2012) ...................................................24

Walden v. Lorcom Technologies, Inc., No. 05CV3600KAMRER, 2009 WL 799955 (E.D.N.Y. Mar. 24, 2009) .................................8

Zaccaro v. Congregation Tifereth Israel of Forest Hills, 20 N.Y.2d 77, 228 N.E.2d 772 (N.Y. 1967) ............................................................................23

STATUTES

C.P.L.R. 302(a)(3) ...........................................................................................................................9

C.P.L.R. 302(a)(3)(ii).......................................................................................................................9

C.P.L.R. § 301..................................................................................................................................8

OTHER AUTHORITIES

Fed. R. Civ. P. 12(b)(2)....................................................................................................1, 7, 10, 25

Fed. R. Civ. P. 12(b)(2) and (B) ......................................................................................................7

Fed. R. Civ. P. 12(b)(6)......................................................................................1, 2, 3, 7, 10, 19, 25


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Coda Octopus Group, Inc. and Geoff Turner, Defendants, file this memorandum in

support of their Motion to Dismiss Plaintiffs’ Complaint pursuant to Fed. R. Civ. P. 12(b)(2) and

12(b)(6).

PRELIMINARY STATEMENT

Plaintiffs are sophisticated institutional investors who, having failed to take advantage of

an opportunity to acquire more shares when Coda Octopus’s prospects were uncertain, now seek

to seize control circuitously because the company has become profitable. Plaintiffs seek to set

aside a successful restructuring of the business, which was adopted by the company and

approved by the vast majority of the relevant shareholders in 2010. Plaintiffs claim that they are

entitled to circumvent the restructuring plan and receive additional shares of company stock

pursuant to certain price protection and anti-dilution provisions in the agreements between the

parties. Although they constitute only a tiny minority of the shareholders in the company, they

argue they are entitled to receive shares sufficient to give them control of the company because

they claim to own Warrants that other shareholders surrendered as part of the restructuring in

2010.

Plaintiffs’ claims must fail, as a matter of law, for reasons apparent from the face of their

Complaint, as well as the agreements and public records referenced therein. Specifically:

• First, pursuant to Fed. R. Civ. P. 12(b)(2), Plaintiffs cannot establish personal jurisdiction

over the individual defendant, Geoff Turner.

• Second, pursuant to Fed. R. Civ. P. 12(b)(6), Plaintiffs’ Complaint fails to state a claim

for negligent misrepresentation.

o Plaintiffs cannot state a claim of negligent misrepresentation separate and distinct

from their claim for breach of contract.


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o Plaintiffs also have failed to state essential elements of their claim for negligent

misrepresentation.

• Third, pursuant to Fed. R. Civ. P. 12(b)(6), Plaintiffs cannot state a claim for breach of

contract, even under the original agreements between the parties, with respect to:

o The Warrants, because the Warrants have expired.

o The December 2010 Issuances and the Hansen Issuance, because those issuances

were “exempt” under the original terms of the Securities Purchase Agreement.

• Fourth, pursuant to Fed. R. Civ. P. 12(b)(6), Plaintiffs are barred by the doctrine of laches

from contesting the validity of the restructuring plan and the amendments to the parties’

agreements, approved by the majority of the relevant shareholders and adopted by the

company in 2010.

o Plaintiffs made no objection to the plan or amendments at the time and are thus

barred by their silence from doing so at this late date.

o Plaintiffs also are barred by their silence from compelling specific performance of

the expired Warrants.

o Because Plaintiffs failed to object to the amendment in 2010, they also are barred

from suing on allegedly dilutive issuances made by Defendants pursuant to that

amendment.

BACKGROUND

I. Factual Background

Coda Octopus Group, Inc. (“Coda Octopus”) is a company engaged in underwater

technology and solutions. Id. ¶ 23. It currently holds the patent for the real-time 3D sonar

technology known as the Echoscope®. Id. In 2007, Coda Octopus raised approximately $15

million through the issuance of a number of shares and warrants to a number of accredited


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persons and institutional shareholders (“Purchasers”).1 Id. ¶¶ 26–27. Plaintiffs are a small

minority of the Purchasers who participated in the 2007 transaction. Id. ¶ 53.

The securities in the 2007 transaction were issued pursuant to a Securities Purchase

Agreement (the “SPA”) and two series of Warrants—Series A and Series B. Id. ¶¶ 26–27. The

2007 issuance consisted of “Units” priced at $1.00 apiece. Id. ¶ 27. Each Unit included one

share of common stock, a Series A Warrant exercisable into half a share of common stock at

$1.30 per share, and a Series B Warrant exercisable into half a share of common stock at $1.70

per share. Id.

Both the SPA and the Warrants contained price-protection and anti-dilution provisions

for the Purchasers. Id. ¶¶ 29–32. The price protection provision in the SPA provided that if

Coda Octopus were to issue any common stock or common stock equivalent for less than the

original price of $1.00, the Purchasers were entitled to additional shares of common stock equal

to the difference between the shares they already owned and the number of shares they would

have obtained for their purchase price had the shares been issued at the under-$1.00 price in

question. Id. ¶ 30; Compl. Ex. A (SPA) at Section 4.17.2 The anti-dilution provisions in the

Warrants provided that if Coda Octopus issued any common stock or common stock equivalents

for less than each Series’ respective exercise price, the Purchasers were entitled to an adjustment

in the exercise price and number of shares issuable under Warrants, such that the Warrants would

be exercisable at the lower price and for an increased number of shares. Compl. ¶ 31; Compl.

1 The term “Purchasers” as used in this Motion refers to those parties who purchased shares and Warrants in the 2007 offering. Plaintiffs are a small minority of the Purchasers. When Defendants refer in this motion to the majority Purchasers, they are referring to those 2007 Purchasers other than Plaintiffs. 2 The SPA and Warrants are attached as exhibits to the Complaint, so the Court may consider them on this Motion to Dismiss. Chambers v. Time Warner, Inc., 282 F.3d 147, 152–53 (2d Cir. 2002); Schwartz v. HSBC Bank USA, N.A., No. 13 CIV. 769 PAE, 2013 WL 5677059, *1 n.3 (S.D.N.Y. Oct. 18, 2013).


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Ex. B (Warrants) at Section 3(b). According to the Complaint, the Warrants were effective for

five years, expiring in April 2012. Compl. ¶¶ 3, 27.

The SPA and Warrants further provided that certain types of stock issuances would be

exempt from and thus not trigger the price protection and anti-dilution provisions. Specifically,

the Section 1.1 of SPA, as originally adopted, defined “Exempt Issuance” to include:

(a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of such securities, . . . (d) up to 250,000 shares (adjusted for reverse and forward stock splits, recapitalizations and the like after the date hereof) of Common Stock in any 12 month period for such purposes as are approved by a majority of the non-employee members of the Board of Directors of the Company. . . .

Compl. Ex. A at Section 1.1. Section 3(b) of each Warrant similarly provided that

“[n]otwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section

3(b) with respect of an Exempt Issuance.” Compl. Ex. B at Section 3(b).

The SPA also contemplated the possibility of amendment, providing that its provisions

could be amended by a written instrument signed by Coda Octopus and “the Purchasers of at

least 85% of the Shares still held by the Purchasers.” Compl. Ex. A at Section 5.5.

Coda Octopus installed a new management team in 2009. Compl. ¶ 6. Coda Octopus

was struggling financially at that time. The new management sought an amendment to the

restrictive price-protection and anti-dilution provisions in the SPA and Warrants as a way of

being able to raise capital for the company in order to secure its future as a going concern. Id. ¶


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39. Thus, in September 2010, Coda Octopus approached the Purchasers to negotiate changes to

the SPA and Warrants. Id. Its first offer to obtain the consent of 100% of the Purchasers to

terminate the SPA and Warrants was unsuccessful. Id. ¶ 42. Its second offer, to issue shares of

common stock in exchange for an amendment to the SPA and the surrender of the Warrants,

succeeded on the affirmative vote of the Purchasers of at least 85% of the Shares still held by the

Purchasers in accordance with Section 5.5 of the SPA. Id. ¶ 46.

Plaintiffs are a small minority of Purchasers who did not consent to amend the SPA. Id.

¶¶ 52–53. Plaintiffs claim to own 15.2% of the shares issued as part of the 2007 transaction and

thus contend that Coda Octopus could not have obtained the requisite 85% vote without

Plaintiffs’ consent.3 Id. ¶ 53.

According to the Complaint, on or about September 29, 2010, Coda Octopus sent all

Purchasers, including Plaintiffs, a letter stating that it had obtained the requisite consents to

amend the SPA. Id. ¶ 46. The amended definition permitted the company to issue several

additional types of “exempt” shares, as follows:

(g) Common Stock and/or Common Stock Equivalents issued in respect of the conversion in whole or in part, of the $12M secured debenture existing at the date of this Amendment; (h) up to a maximum of thirty (30) million shares of Common Stock and/or Common Stock Equivalents which may be approved by the Board of Directors at any time after this Amendment in respect of or in connection with any financing and/or refinancing (including but not limited to equity or debt financing) by the Company; (i) Common Stock and/or Common Stock Equivalents issued in respect of the termination and/or variation of the Warrants (as defined in the SPA).

Compl. ¶ 43. The company thereafter moved forward with its offer and issued shares of

common stock to those Purchasers who accepted the offer. Id. ¶ 73. In exchange, those

Purchasers surrendered their Warrants and the SPA was amended. Id. ¶ 46. Plaintiffs did not

3 Though Defendants dispute this allegation, Defendants focus on other grounds for dismissal in this Motion.


6

contest the sufficiency of the vote or that the company had obtained the requisite consent to

amend the SPA.

The purpose of the amendment was to revise certain provisions in the SPA that hampered

Coda Octopus’s ability to raise additional financing necessary to continue its business

operations. Ex. 1 (Coda Octopus’s December 2010 8-K) at 1.4 The company issued shares to

the consenting Purchasers, pursuant to the amendment, between September and December 2010

(the “December 2010 Issuance”). Compl. ¶ 72. The new management was ultimately able to

pull Coda Octopus out of its financial difficulties.

Plaintiffs never tendered their Warrants to the company for surrender and exchange for

shares pursuant to the 2010 amendments to the SPA, though offered the opportunity to do so.

Compl. ¶ 46. In fact, Plaintiffs never exercised the Warrants at all, and the Warrants expired by

their own terms in April 2012. Id. ¶¶ 3, 27.

II. Procedural Background

On January 6, 2014, Plaintiffs filed their Complaint in the Supreme Court of the State of

New York, County of New York. In their Complaint, Plaintiffs assert a breach of contract claim

against Coda Octopus and a negligent misrepresentation claim against both Coda Octopus and

Turner. In summary, Plaintiffs base their breach of contract claim on allegations that: (1) Coda

Octopus failed to obtain the requisite 85% of consenting shares to amend the SPA and Warrants,

(2) Coda Octopus refused to adjust the stock or Warrants pursuant to the 2010 Issuance and

subsequent allegedly dilutive issuances, and (3) Coda Octopus failed to provide written notice of

the 2010 issuance and subsequent allegedly dilutive issuances. Compl. ¶¶ 88–96. Their

4 The Court may consider public disclosure documents filed with the Securities and Exchange Commission on a 12(b)(6) motion to dismiss. In re Merrill Lynch & Co., Inc., 273 F. Supp. 2d 351, 356–57 (S.D.N.Y. 2003) aff’d sub nom. Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161 (2d Cir. 2005).


7

negligent misrepresentation claim is based on Defendants’ allegedly false statements

“concerning obtaining the required consent to amend the Purchase Agreement.” Id. ¶ 97–104.

On February 6, 2014, Defendants removed the case to the Southern District of New York.

Defendants now move to dismiss the Complaint for: (A) lack of personal jurisdiction over

Defendant Geoff Turner pursuant to Fed. R. Civ. P. 12(b)(2) and (B) failure to state a claim upon

which relief can be granted pursuant to Fed. R. Civ. P. 12(b)(6).

LEGAL ARGUMENT

I. Motion Pursuant to Rule 12(b)(2): Plaintiffs’ Complaint Should be Dismissed as to Geoff Turner for Lack of Personal Jurisdiction.

When considering a motion to dismiss for lack of personal jurisdiction, “the plaintiff

bears the burden of showing that the court has jurisdiction over the defendant.” In re Magnetic

Audiotape Antitrust Litig., 334 F.3d 204, 206 (2d Cir. 2003) (per curiam).5 Whether this Court

has jurisdiction over out-of-state defendants is determined by first looking to the law of the

forum state. Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 732 F.3d 161, 168 (2d Cir.

2013). Plaintiffs must establish either: (1) general personal jurisdiction, by showing a

continuous and systematic course of doing business in New York, or (2) specific personal

jurisdiction, by showing that its claim “arise[s] out of” contacts with New York. See

Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408, 414 (1984); Beatie and Osborn

LLP v. Patriot Scientific Corp., 431 F. Supp. 2d 367, 386 (S.D.N.Y. 2006).

The Complaint asserts a negligent misrepresentation claim against Geoff Turner, but fails

to allege any facts that would support this Court’s exercise of personal jurisdiction over him.

Indeed, no such facts exist—Turner is a resident of the U.K. and has no contacts with the state of

New York. Ex. 2 (Turner Aff.) ¶¶ 2, 7–9. Turner has never conducted personal or individual

5 Internal quotations and citations omitted throughout unless otherwise noted.


8

business in New York and has not traveled to the state since 2012. Id. ¶¶ 8–9. Though Coda

Octopus once had an office in New York, that office closed in May 2010, and none of the events

underlying this litigation were conducted out of it. Id. ¶¶ 10–11.

A. Plaintiffs Have Not Alleged that Geoff Turner “Does Business” in New York.

Under New York law, “a foreign [defendant] is amenable to suit in [New York] if it is

engaged in such a continuous and systematic course of doing business here as to warrant a

finding of its presence in this jurisdiction.” Frummer v. Hilton Hotels Int’l, Inc., 227 N.E.2d

851, 853 (N.Y. 1967); see also N.Y. C.P.L.R. § 301. The Complaint does not allege that Turner

engaged in any business in New York at all. Though Turner transacted business on behalf of

Coda Octopus in New York when Coda Octopus’s New York office was open, this does not

subject him to general jurisdiction in New York. SMS Mktg. & Telecommunications, Inc. v. H.G.

Telecom, Inc., 949 F. Supp. 134, 144 (E.D.N.Y. 1996) (“[W]here a corporation is doing business

in New York, an officer of the corporation does not subject himself, individually, to 301

jurisdiction unless he is doing business in New York individually.”); Walden v. Lorcom

Technologies, Inc., No. 05CV3600KAMRER, 2009 WL 799955, *3 (E.D.N.Y. Mar. 24, 2009)

(same). The Complaint nowhere alleges that Turner ever conducted business in New York in his

individual capacity; thus, there is no basis for exercising general jurisdiction over him.

B. Plaintiffs Have Not Alleged that Geoff Turner Committed a Tort Causing Injury in New York.

The Complaint also fails to allege that Turner transacted any business in New York that

gave rise to the current litigation; the Complaint thus contains no basis for this Court’s exercise

of specific jurisdiction over Turner. See Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55,

59 (2d Cir. 1985) (holding that specific jurisdiction is available if a defendant transacted business

in New York and the cause of action arises out of that transaction). In fact, the Complaint does


9

not even allege that any activities in New York gave rise to the current litigation; indeed, all the

events underlying this litigation took place in New Jersey and the United Kingdom. Ex. 2 ¶ 11.

Plaintiffs purport to rely on N.Y. C.P.L.R. 302(a)(3)(ii), which provides for personal

jurisdiction if a foreign defendant commits a tortious act causing injury to a person or property in

New York. Compl. ¶ 14. As discussed in greater detail in Section II.A.1, infra, however,

Plaintiffs have not alleged a tort claim separate from their contract claim, and accordingly their

tort claim must be dismissed. See Reuben H. Donnelley Corp. v. Mark I Marketing Corp., 893

F.Supp. 285, 290 (S.D.N.Y.1995) (“[W]hen the alleged fraud is not separate and distinct from a

failure to perform under a contract, the claim is treated as one sounding in contract rather than

tort.”). Plaintiffs’ negligent misrepresentation claim alleges only that Defendants concealed their

breach of contract, which is not sufficiently separate from their contract claim to state an

independent tort claim. See Compl. ¶ 99. Thus, their entire action sounds only in contract. A

breach of contract is not a tort and cannot support jurisdiction under C.P.L.R. 302(a)(3)(ii).

Skrodzki v. Marcello, 810 F. Supp. 2d 501, 519–20 (E.D.N.Y. 2011) (holding that allegations of

misrepresentations regarding a breach of contract are not true tort claims and thus “cannot serve

as the basis for personal jurisdiction under C.P.L.R. 302(a)(3)”).

C. The Forum Selection Clause in the Securities Purchase Agreement Does Not Apply to Geoff Turner.

Plaintiffs also rely on Section 5.9 of the SPA and Section 5(e) of the Warrants for

jurisdiction in New York. Compl. ¶ 14. Section 5.9 of the SPA provides that

Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith . . . and hereby irrevocably waives,


10

and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court . . . .6

That clause expressly limits its scope to the parties to the Agreement, however; they are Coda

Octopus Group and the Purchasers, and do not include Geoff Turner. Compl. Ex. A at 1. Turner

did not sign and was not a party to either the SPA or the Warrants. Ex. 2 ¶¶ 3–4. Though

Section 5.9 also mentions suits against “affiliates, directors, officers, shareholders, employees or

agents” of the parties, it does so only in the context of venue—it does not purport to waive the

personal jurisdiction objections of those affiliates, directors, and officers. Compl. Ex. A at

Section 5.9. Accordingly, the SPA cannot serve as the basis for this Court’s exercise of personal

jurisdiction over Turner.

Because Plaintiffs have not alleged, and cannot establish, either general or specific

personal jurisdiction over Defendant Geoff Turner, their claims against him must be dismissed

pursuant to Fed. R. Civ. P. 12(b)(2).

II. Motion Pursuant to Rule 12(b)(6): Plaintiffs Have Failed to State Claims for Negligent Misrepresentation or Breach of Contract.

On a motion to dismiss under Rule 12(b)(6), a court must assess whether the complaint

“contain[s] sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible

on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly,

550 U.S. 544, 570 (2007)). The court need not credit “a legal conclusion couched as a factual

allegation.” Id. Thus, a “pleading that offers labels and conclusions or a formulaic recitation of

the elements of a cause of action will not do.” Id. The plausibility standard is met only when

“the plaintiff pleads factual content that allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.” Id.

6 Section 5(e) of the Warrant simply states that “[a]ll questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.”


11

A. Negligent Misrepresentation: Plaintiffs Have Failed to State a Claim for Negligent Misrepresentation.

Plaintiffs allege that Defendants are liable for a negligent misrepresentation for making

various statements that they had obtained the requisite 85% of shares to consent to an

amendment of the SPA. Compl. ¶¶ 97–104. Their allegations do not state a claim, however,

because their negligent misrepresentation claim is not independent from their contract claim and

because they fail to allege essential elements of negligent misrepresentation.

1. Plaintiffs Have Not Stated a Negligent Misrepresentation Claim Separate and Distinct From Their Breach of Contract Claim.

Under New York law, “[i]t is a well-established principle that a simple breach of contract

is not to be considered a tort unless a legal duty independent of the contract itself has been

violated.” Clark-Fitzpatrick, Inc. v. Long Island R. Co., 70 N.Y.2d 382, 389, 516 N.E.2d 190,

193–94 (1987). Thus, Plaintiffs’ negligent misrepresentation claim—Count Two of the

Complaint— must be dismissed unless it is “separate and apart from [their] claim for breach of

contract.” OP Solutions, Inc. v. Crowell & Moring, LLP, 72 A.D.3d 622, 900 N.Y.S.2d 48, 49

(N.Y. App. Div. 2010).

A claim that the defendant intentionally concealed its breach of contract is not

independent from the breach itself. Reuben H. Donnelley Corp, 893 F. Supp. at 290 (“Under

New York law . . . alleged concealment of a breach is insufficient to transform what would

normally be a breach of contract action into one for fraud.”); Compagnia Importazioni

Esportazioni Rapresentanze v. L-3 Commc’ns Corp., No. 06 CIV 3157 NRB, 2007 WL 2244062,

at *6 (S.D.N.Y. July 31, 2007) (same). Here, Plaintiffs’ negligent misrepresentation claim is

based solely on Defendants’ alleged misrepresentations “concerning obtaining the required

consent to amend the Purchase Agreement.” Compl. ¶ 99. In other words, Plaintiffs assert only

that Defendants made misrepresentations to cover up their alleged breach of amending the SPA


12

without a sufficient percentage of consents. Thus, their negligent misrepresentation claim fails

to stand independently of their breach of contract claim.

Further, a plaintiff pursuing tort claims must allege injury to person or property.

Carmania Corp., N.V. v. Hambrecht Terrell Int’l, 705 F. Supp. 936, 938 (S.D.N.Y. 1989)

(discussing policy behind rules to prevent “contract law from drowning in a sea of tort”).

Plaintiffs who have only suffered “economic loss” are restricted to an action for the benefits of

their bargains. Id. Here, the only damages Plaintiffs seek are the issuance of shares and

adjustment of their Warrants pursuant to the alleged breaches of contract. Compl. ¶ 104. This

further illuminates that Plaintiffs’ negligent misrepresentation claim is actually a contract claim.

PPI Enterprises (U.S.), Inc. v. Del Monte Foods Co., 99 CIV. 3794 (BSJ), 2003 WL 22118977,

at *27 (S.D.N.Y. Sept. 11, 2003) (holding that the plaintiff’s failure to plead other than economic

loss “points to the fact that, although [the plaintiff’s] claim sounds in tort, it is actually a claim

for a breach of contract”). The Complaint alleges no additional personal injury or damage to

property, as is required to recover in tort. Their negligent misrepresentation claim should be

dismissed for failing to allege injuries cognizable in tort.

2. Plaintiffs Have Failed to Plead the Elements Necessary to Establish a Claim for Negligent Misrepresentation.

In order for their negligent misrepresentation claim to survive a motion to dismiss,

Plaintiffs must plead that (1) Defendants had a duty, as a result of a special relationship, to give

correct information to Plaintiffs; (2) Defendants gave false information to Plaintiffs; and (3)

Plaintiffs reasonably relied on that information. J.A.O. Acquisition Corp. v. Stavistksy, 8 N.Y.3d

144, 148 (N.Y. 2007); Anschutz Corp. v. Merrill Lynch & Co., Inc., 690 F.3d 98, 114 (2d Cir.

2012). Plaintiff have pled neither the existence of a special relationship between the parties or

their reliance on any misrepresentation by the company.


13

(a) Plaintiffs Have Failed to Plead the Existence of a Special Relationship Between Defendants and Plaintiffs.

“A claim for negligent misrepresentation requires the plaintiff to demonstrate . . . the

existence of a special or privity-like relationship imposing a duty on the defendant to impart

correct information to the plaintiff.” J.A.O. Acquisition Corp., 8 N.Y.3d at 148. “Generally, a

special relationship does not arise out of an ordinary arm’s length business transaction between

two parties.” MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 87 A.D.3d 287, 296, 928

N.Y.S.2d 229, 235 (N.Y. App. Div. 2011). Instead, “liability for negligent misrepresentation has

been imposed only on those persons who possess unique or specialized expertise, or who are in a

special position of confidence and trust with the injured party such that reliance on the negligent

misrepresentation is justified.” Kimmell v. Schaefer, 89 N.Y.2d 257, 263, 675 N.E.2d 450 (N.Y.

1996). No special privity-like relationship exists between an issuer of shares and investors or

purchasers of those shares. AHW Inv. P’ship v. Citigroup Inc., No. 09 MD 2070 SHS, 2013 WL

5827643, at *11 (S.D.N.Y. Oct. 30, 2013).

Even if Plaintiffs have successfully stated a tort claim separate from their contract claim,

their negligent misrepresentation claim would fail for lack of this essential element. The

Complaint does not allege any facts that suggest any special relationship between Coda Octopus

or Geoff Turner and any of the Plaintiffs. It does not, for example, allege that either Defendant

possesses unique or specialized expertise, or that either Defendant occupied a special position of

confidence and trust with any of the Plaintiffs. See Kimmel, 89 N.Y.2d at 563. The only

relationship alleged between Coda Octopus and Plaintiffs is that Plaintiffs purchased shares and

warrants from Coda Octopus, which is plainly insufficient to establish the requisite duty under

New York law. See AHW Inv., 2013 WL 5827643 at *11. Moreover, the SPA expressly states

that each of the Purchasers “is acting solely in the capacity of an arm’s length purchaser.”


14

Compl. Ex. A Section 3.1(ff). Plaintiffs’ negligent misrepresentation claim should thus be

dismissed for failure to plead the special relationship element.

(b) Plaintiffs Have Failed to Sufficiently Plead the Reliance Element of Their Negligent Misrepresentation Claim.

Another essential element of negligent misrepresentation is the plaintiff’s reliance on the

misrepresentation to its detriment. Drake v. Lab. Corp. of Am. Holdings, No. 02CV1924

(FB)(RML), 2007 WL 776818, at *5 (E.D.N.Y. Mar. 13, 2007) aff’d, 417 F. App’x 84 (2d Cir.

2011); Rotanelli v. Madden, 172 A.D.2d 815, 816, 569 N.Y.S.2d 187, 188 (N.Y. App. Div.

1991). The element of reliance “must be words upon which others were expected to rely and

upon which they did act or failed to act to their damage.” Home Mut. Ins. Co. v. Broadway Bank

and Trust Co., 53 N.Y.2d 568, 578 (N.Y. 1981) (emphasis added); Savage v. Beiersdorf Inc., No.

13-CV-0696 DLI LB, 2013 WL 5532756, at *4 (E.D.N.Y. Sept. 30, 2013).

Plaintiffs pepper their Complaint with instances of Coda Octopus’s alleged

misrepresentations that it had obtained the requisite consent of 85% of the shares still held by the

Purchasers. See Compl. ¶¶ 45–46, 48, 50–52. Even if these statements constituted a

misrepresentation, however, Plaintiffs’ claim would fail because the Complaint does not allege

any instance of Plaintiffs relying on these statements to their detriment.

Plaintiffs merely make the barebones statement that they “took action or refrained from

taking action on the basis of Defendants’ negligent statements.” Compl. ¶ 103. This is a

formulaic recitation of the element of reliance that cannot survive a motion to dismiss. Iqbal,

556 U.S. at 678. Plaintiffs do not specify what action or inaction was caused by their reliance on

the alleged misrepresentations, falling far short of the plausibility standard set out in Twombly

and Iqbal. Id. at 679 (holding that to survive a motion to dismiss, a complaint must set forth

“well-pleaded factual allegations . . . [that] plausibly give rise to an entitlement to relief”). Nor


15

do Plaintiffs set forth any specific allegations as to what detriment was caused by their reliance

on Defendants’ statements. Indeed, as discussed above, all of their damages sound in contract

rather than tort. Thus, their negligent misrepresentation claim should fail for lack of reliance.

B. Breach of Contract: Plaintiffs Have Failed to State a Claim for Breach of Contract With Respect to the Warrants and the December 2010 and Hansen Issuances.

Plaintiffs’ breach of contract claim—Count One of the Complaint—is premised on the

following assertions: (1) that the 2010 amendment to the SPA is invalid because the company

failed to obtain the requisite 85% vote of the Purchasers necessary to approve the amendment;

(2) that the shares issued by the company thereafter (“the December 2010 Issuance”) were not

“exempt” and thus triggered the price protection provision of the SPA and the anti-dilution

provision of the Warrants; and (3) that Plaintiffs are entitled to a disproportionately large number

of compensatory shares because they still hold their Warrants while the majority Purchasers

surrendered theirs pursuant to the amendment.

Apart from the fact that Plaintiffs are estopped by their silence from contesting the

validity of the 2010 vote at this late date, see Section C, infra, their breach of contract claim fails

for the simple reason that, as shown on the face of their Complaint and exhibits, there was no

breach of contract. First, Plaintiffs’ Warrants expired by their own terms in April 2012; they

cannot force specific performance of a contract that no longer exists. Second, even setting aside

the question of the validity of the 2010 amendment, the December 2010 Issuance—as well as

another, minor issuance made by the company in February 2012 (“the Hansen Issuance”)—

qualified as an “Exempt Issuance” even under the original terms of the SPA.


16

1. The Warrants: Plaintiffs Cannot Compel Specific Performance of the Warrants Because the Warrants Have Expired.

Plaintiffs were offered the opportunity to tender their Warrants in return for an issuance

of compensatory shares at the time of the December 2010 Issuance. They declined. Compl. ¶

46. Thereafter, as Plaintiffs concede in their Complaint, the Warrants expired “unexercised,

worthless and out-of-the-money” in April 2012. Id. ¶ 3.

Plaintiffs now seek to resurrect the Warrants by way of specific performance. See

Compl. ¶¶ 10, 90, 92. Under New York law, however, a decree of specific performance is

available only if there is a valid contract between the parties. Roland v. Benson, 30 A.D.3d 398,

399, 816 N.Y.S.2d 190, 191 (Ct. App. 2006). Moreover, a court should not order specific

performance unless the defendant is capable of performing. Bogdan And Faist P.C. v. CAI

Wireless Sys. Inc., 295 A.D.2d 849, 853, 745 N.Y.S.2d 92, 95–96 (N.Y. App. Div. 2002).

Because there is no longer a valid Warrant contract between the parties as required for

specific performance, the Defendants cannot specifically perform by making adjustments to an

agreement that no longer exists. See id at 853 (declining to enforce specific performance of

warrants where the stock that plaintiffs would have been entitled to purchase no longer existed).7

The New York Court of Appeals’ opinion in Kotcher v. Edelblute is instructive on this

point. 250 N.Y. 178 (N.Y. 1928). There, plaintiff had a five-year lease on property owned by

defendant’s decedent with an option to purchase at any time during the first two years. Id. at

180–81. The defendant refused to allow plaintiff possession of the premises. Plaintiff filed suit,

but did not attempt to exercise his option to purchase until trial, after the option period had

expired. Id. at 181. The appellate division found in favor of plaintiff and granted specific

7 Moreover, “[s]ince an action for specific performance is an equitable action, defendants may seek equitable relief where plaintiff in the assertion of its claim unreasonably and inexcusably delayed in acting to enforce its rights to the prejudice of the defendant and to its injury.” E. Shopping Centers, Inc. v. Trenholm Motels, Inc., 33 A.D.2d 930, 932, 306 N.Y.S.2d 354, 358 (1970); see also Section C, infra.


17

performance, ordering defendant to convey the property in accordance with the terms of the

option. Id. at 182. The Court of Appeals reversed, holding that while the “court may by its

decree enforce [the rights in the option] . . . [t]he court may not increase or change those rights.”

Id. Instead, the Court of Appeals held that the defendant had “[n]o obligation to convey” until

the option was exercised, and because plaintiff failed to timely exercise that option, the lower

court had no power to award specific performance. Id. at 183, 185.

The Warrants, and all rights thereunder, have expired. Because Plaintiffs failed to

exercise the Warrants before expiration, their claims for specific performance on those Warrants

should be dismissed.

2. The December 2010 Issuance Was an “Exempt Issuance” Under the Securities Purchase Agreement.

Plaintiffs’ principal complaint centers around the December 2010 Issuance—shares of

common stock issued by the company between October and December 2010 to those Purchasers

who purchased securities pursuant to the SPA and agreed to surrender their Warrants. Compl. ¶

71. Plaintiffs declined the opportunity to tender their Warrants for compensatory shares at that

time. Id. ¶ 46. They nonetheless allege here that the December 2010 Issuance breached the SPA

and Warrants because Coda Octopus failed to (1) provide Plaintiffs notice of the dilutive

issuance and (2) issue new shares under the SPA or adjust the exercise price and number of

shares issuable under the Warrants. Compl. ¶ 88–96.

Even apart from the fact that Plaintiffs’ Warrants have expired, Plaintiffs acknowledge

that an issuance is not dilutive, and does not trigger either the price protection provision of the

SPA or the anti-dilution provision of the Warrants, if it qualifies as an “Exempt Issuance” under


18

the SPA. Compl. ¶ 9. And as both Plaintiffs’ Complaint and the parties’ agreements make clear,

the December 2010 Issuance qualifies as “exempt” even under the original terms of the SPA.8

Section 1.1 of the SPA as originally adopted—even prior to its amendment in 2010 to add

additional exemptions—defined “Exempt Issuance,” in subpart (b), to include “securities upon

the exercise or exchange of or conversion of any Securities issued hereunder.” Compl. Ex. A at

Section 1.1. That same section of the SPA, in turn, defined “Securities” as “the Shares, the

Warrants, and the Warrant Shares.” Id.

Plaintiffs concede in the Complaint that the shares issued in the December 2010 Issuance

were issued “in exchange for the surrender of the Warrants.” Compl. ¶ 73. Thus, by the plain

language of the original contract and Plaintiffs’ own admission, the December 2010 Issuance

falls within the definition of an “Exempt Issuance,” and Coda Octopus was not obligated to issue

either notice or additional shares or adjust the Warrants. Plaintiffs’ breach of contract claim

should therefore be dismissed as to the December 2010 Issuance.

3. The Hansen Issuance Was an “Exempt Issuance” Under the Securities Purchase Agreement.

Plaintiffs also refer in passing another, minor issuance made by the company in February

2012, wherein the company issued 100,000 shares to Dr. Rolf Kahrs Hansen as compensation for

his service on the Board of Directors (“the Hansen Issuance”). Compl. ¶ 84. But that issuance

also qualifies as “exempt” under the original terms of the SPA.

Section 1.1 of the original definition of “Exempt Issuance,” in subpart (d), authorized the

company to issue up to 250,000 shares of Common Stock in any 12-month period as approved

8 As discussed in Section C below, the December 2010 issuance also qualifies as an “Exempt Issuance” under the terms of the amended SPA. Indeed, Plaintiffs acknowledge that “some of [Coda Octopus’s] issuances arguably fell under the amended definition of Exempt Issuance” but assert that the definition of Exempt Issuance was not validly amended. Compl. ¶ 9. The definition of “Exempt Issuance” relied on in this section of the Motion is the original definition, prior to any amendment.


19

by the Board of Directors. Compl. Ex. A at Section 1.1. Plaintiffs concede in their Complaint

that the Hansen Issuance consisted of only 100,000 shares. Compl. ¶ 84. The Hansen Issuance

thus was “exempt” under the 250,000-share safe harbor and did not trigger the price protection or

anti-dilution provisions.

In addition, under Section 1.1 of the original definition of “Exempt Issuance,” in subpart

(a), the company was allowed to issue exempt shares to employees, officers and directors of the

company. Compl. Ex. A at Section 1.1. Plaintiffs admit in their Complaint that the shares issued

to Dr. Hansen were issued as “[c]ompensation in his capacity as Director of [Coda] during the

period to which the grant relates.” Compl. ¶ 84. The issuance thus was “exempt” for that reason

as well.

Plaintiffs cannot state a claim as to the Hansen Issuance and their breach of contract

claim should be dismissed to the extent it relies on this Issuance.

C. Laches: Plaintiffs Are Barred by the Doctrine of Laches From Contesting the Validity of the 2010 Amendments to the Securities Purchase Agreement, the Expiration of the Warrants and the Subsequent Stock Issuances.

1. Plaintiffs Did Not Contest the Sufficiency of the 2010 Vote At the Time and Are Barred By Their Silence From Doing So Now.

“When the defense of laches is clear on the face of the complaint, and where it is clear

that the plaintiff can prove no set of facts to avoid the insuperable bar, a court may consider the

defense on a motion to dismiss.” Ferring B.V. v. Allergan, Inc., 932 F. Supp. 2d 493, 502

(S.D.N.Y. 2013); see also Simons v. United States, 452 F.2d 1110, 1116 (2d Cir. 1971)

(affirming Rule 12(b)(6) dismissal based, in part, on laches where papers “reveal no reason for

the inordinate and prejudicial delay”). Laches raises an equitable bar to recovery where (1) the

plaintiff has delayed in asserting his or her claim for relief despite the opportunity to do so; (2)

the defendant lacks knowledge or notice that the plaintiff would assert a claim for relief; and (3)


20

the defendant would suffer injury or prejudice in the event that relief is accorded the plaintiff.

Bailey v. Chernoff, 45 A.D.3d 1113, 846 N.Y.S.2d 462, 465 (N.Y. App. Div. 2007) (quoting

Kuhn v. Town of Johnstown, 248 A.D.2d 828, 669 N.Y.S.2d 757, 759 (N.Y. App. Div. 1998)).

Plaintiffs allege in their Complaint that, at the time of the vote on the 2010 amendment to

the SPA, they owned 15.2% of the shares eligible to vote. Compl. ¶ 53. They assert that it was

thus mathematically impossible for Coda Octopus to obtain the requisite 85% vote necessary to

approve the proposed amendment without the consent of Plaintiffs. Id. ¶¶ 12, 13, 44, 53, 54.

Plaintiffs further acknowledge that on or about September 29, 2010, Coda Octopus sent a letter

to all Purchasers, including Plaintiffs, stating that it had obtained the requisite consents to amend

the SPA; that the company thereafter moved forward with its offer and issued shares of common

stock to those Purchasers who tendered their Warrants; and that in exchange, those Purchasers

surrendered their Warrants and the SPA was amended. Id. ¶¶ 46, 73.

Setting aside the factual question of whether Plaintiffs actually owned sufficient shares to

block the 2010 vote, which Defendants deny, and accepting Plaintiffs’ allegations as true as is

required in a motion to dismiss, Plaintiffs expressly concede in their Complaint that they had

reason to believe in 2010 that the vote to amend the SPA was invalid. They concede further that

they knew that the company and the majority Purchasers were acting on the assumption that the

vote was valid. Yet Plaintiffs never contested the vote or notified the company or the other

Purchasers of their belief that the vote was invalid. They give no reason for their failure to act.

Indeed, as they themselves concede, Plaintiffs never even attempted to exercise their

Warrants, but instead let them expire by their own terms in April 2012. Compl. ¶ 3. Only now,

years later, and after the company and majority Purchasers—as well as many others who have


21

since purchased shares on the market—have all acted in reliance on the validity of the vote and

resulting amendment, do Plaintiffs raise a belated objection.

The New York Appellate Division applied the doctrine of laches under similar

circumstances in Bailey. 846 N.Y.S.2d at 465. Defendants there owned property in a residential

community governed by various restrictive covenants and deed restrictions. Id. at 463. They

applied to the homeowners’ association for permission to build a boathouse on their property and

obtained from the developer amendments to the covenants and restrictions to permit the

construction. Id. at 463–64. Plaintiffs, owners of an adjoining parcel, filed suit only after the

building was complete, claiming that the boathouse was erected in violation of the covenants and

restrictions because the developer allegedly lacked the authority issue the amendment. Id.

The Supreme Court dismissed plaintiffs’ action on the ground that their claims were

barred by the doctrine of laches, and the Appellate Division affirmed. Id. “Even assuming that

plaintiffs are correct in contending that the amendment to the development’s covenants and

restrictions to permit boathouses was improper, restrictive covenants ‘will not be enforced in

inequitable circumstances, such as . . . where the party seeking enforcement is guilty of laches’”

Id. (quoting Meadow Run Dev.Corp. v. Atlantic Ref. & Mktg. Corp., 155 A.D.2d 752, 754 (N.Y.

App. Div. 1989)). The court noted that “plaintiffs were admittedly on notice after construction

of the boathouse began, yet did not seek a preliminary injunction and, instead, waited until after

construction was completed to commence this action.” Id. at 465. Finally, the court rejected

plaintiffs’ assertion that their delay was minimal, stating that “[b]ecause the effect of delay on

the adverse party may be crucial, delays of even under a year [may be] sufficient to establish

laches” Id. (quoting Matter of Schulz v. State of New York, 81 N.Y.2d 336, 348 (N.Y. 1993)


22

(denying relief where, though suit was brought less than a year after the disputed act, granting

relief would cause “traumatic disturbance to settled matters”)).

Plaintiffs effectively ask this Court to reset the clock to 2010 based upon arguments they

admit they knew, but failed to assert, at that time. But the company and the majority

Purchasers—and, indeed, the market as a whole—have since acted in reliance upon Plaintiffs’

silence. Plaintiffs are estopped to speak up at this late date.

2. Plaintiffs Also Are Barred From Compelling Specific Performance of the Expired Warrants.

As discussed above, the Warrants Plaintiffs seek to enforce have expired, and Plaintiffs

cannot resurrect them by a claim for specific performance. Moreover, “[s]ince an action for

specific performance is an equitable action, defendants may seek equitable relief where plaintiff

in the assertion of its claim unreasonably and inexcusably delayed in acting to enforce its rights

to the prejudice of the defendant and to its injury.” E. Shopping Centers, 306 N.Y.S.2d at 354,

Indeed, as the court held in Eastern Shopping Centers, another case closely analogous to the case

at hand, the application of the equitable doctrine of laches is especially appropriate where a

plaintiff seeks equitable relief in the form of specific performance. In that case, the plaintiff sold

land to the defendant with the agreement that the defendant would construct a motel and

restaurant on the premises. Id. The contract provided that if the defendant did not commence

construction on or before a certain date, the plaintiff had the option to repurchase the property.

Id. The defendant did not commence construction by the option date, or for three years

thereafter, but paid mortgage payments, interest, taxes, paving costs and other expenses

associated with the property in the interim. Id. More than three years after the option date, the

plaintiff sought to exercise the option. Id. The court dismissed the plaintiff’s action based upon

the doctrine of laches.


23

“[W]here a party’s delay in asserting his rights has become unconscionable and where the party against whom the alleged right is sought to be asserted has been induced by such delay to incur expense or take other measures which will now result in prejudice to it if the long-delayed request for equitable relief is granted, a court of equity ought to refuse to aid the party so belatedly seeking to assert his claimed rights.” . . . To hold that plaintiff's exercise of the option [three years after the option date] was valid would result in permitting plaintiff to profit from its own delay to the irreversible detriment to the defendant . . . . Since the option was not exercised within a reasonable period, it had expired when plaintiff finally attempted to exercise it. Therefore, plaintiff has no remedy either at law or in equity, either for specific performance or for damages.

Id. (quoting Zaccaro v. Congregation Tifereth Israel of Forest Hills, 20 N.Y.2d 77, 80, 228

N.E.2d 772 (N.Y. 1967)).

Similarly, Plaintiffs here sat by in silence, not only while their Warrants expired, but also

while Coda Octopus and the other shareholders in the company acted to their detriment.

Plaintiffs’ Warrant contract expired and cannot be resurrected by specific performance,

especially where it would be inequitable to do so.

3. Plaintiffs Also Are Barred From Contesting the December 2010, Fort Advisors, and Brilleman Issuances.

Pursuant to the 2010 vote of the Purchasers, the SPA was amended to expand the

definition of “Exempt Issuances” to include additional categories:

(g) Common Stock and/or Common Stock Equivalents issued in respect of the conversion in whole or in part, of the $12M secured debenture existing at the date of this Amendment; (h) up to a maximum of thirty (30) million shares of Common Stock and/or Common Stock Equivalents which may be approved by the Board of Directors at any time after this Amendment in respect of or in connection with any financing and/or refinancing (including but not limited to equity or debt financing) by the Company; (i) Common Stock and/or Common Stock Equivalents issued in respect of the termination and/or variation of the Warrants (as defined in the SPA).

Compl. ¶ 43. Pursuant to that amendment, and in addition to the December 2010 Issuance, the

company made two smaller issuances: (1) in November 2010, the company issued 750,000

shares of common stock to Fort Advisors for services rendered in connection with refinancing


24

(“the Fort Advisors Issuance”); and (2) in May 2011, the company issued 300,000 shares to

Louis Brilleman for services rendered in connection with refinancing (“the Brilleman Issuance”).

Compl. ¶¶ 82–83. Each of the above-referenced issues qualified as “exempt” under the plain

terms of the amended SPA. Specifically, the December 2010 issuance was exempt under subpart

(i) and the Fort Advisors and Brilleman Issuances were exempt under subpart (h).9

Coda Octopus made each of these Issuances pursuant to the 2010 amendment, and no

one—neither Plaintiffs nor, indeed, even the majority Purchasers—contended that the

amendment did not cover and authorize the issuances. Plaintiffs themselves never asserted, until

now, that the company had not obtained the requisite votes to amend the SPA or that the

company was issuing shares not authorized by the amendment.

When a party stands by without objection while an opposing party takes action and incurs

expense in reliance on the other party’s silence, that party is estopped by the doctrine of laches

from later raising its claim. Stein v. Doukas, 98 A.D.3d 1026, 950 N.Y.S.2d 773, 776 (N.Y.

App. Div. 2012); E. Shopping Centers, 306 N.Y.S.2d at 354. Plaintiffs here are a group of

highly sophisticated institutional investors, and having been silent on the sufficiency of the 2010

vote to amend the SPA at the time it was made, and having remained silent when the company

thereafter made issuances pursuant to the amendment, they are estopped to complain now. Both

the company and the consenting Purchasers acted in reliance on the sufficiency of the 2010 vote

to amend the SPA, and to issue additional shares now, in the fashion Plaintiffs demand, would

create a significant imbalance in the holdings of current shareholders, unjustly enriching

Plaintiffs at the expense of the other shareholders. In addition, Defendants would incur

significant costs in making the additional issuances Plaintiffs demand, costs that Defendants

9 As set forth above, the December 2010 Issuance also was exempt under the original definition of “Exempt Issuance” set forth in the SPA, as was the Hansen Issuance.


25

could have avoided if Plaintiffs had expressed their objections to the validity of the amendment

in 2010.

Plaintiffs are estopped to complain at this late date and insist that Defendants issue new

shares, undercutting transactions that Defendants would not have entered into had Plaintiffs

made a timely objection to the 2010 amendment.

CONCLUSION

For the foregoing reasons, Defendants respectfully request the Court to dismiss

Defendant Geoff Turner for lack of personal jurisdiction pursuant to Fed. R. Civ. P. 12(b)(2).

Defendants further request that the Court dismiss Counts One and Two in their entirety and any

other claims in Plaintiffs’ Complaint with prejudice as to both Defendants pursuant to Fed. R.

Civ. P. 12(b)(6).

Dated: March 7, 2014 New York, NY Respectfully submitted, /s/ Earl B. Austin Earl B. Austin Seth T. Taube BAKER BOTTS L.L.P. 30 Rockefeller Plaza New York, New York 10112-4498 Tele: (212) 408-2500 Fax: (212) 408-2501 [email protected] [email protected] Attorneys for Defendants Coda Octopus Group, Inc. and Geoff Turner


Exhibit 1

Case 1:14-cv-00760-DLC Document 6-1 Filed 03/07/14 Page 1 of 4

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 5, 2010

CODA OCTOPUS GROUP, INC. (Name of Small Business Issuer in its Charter)

Newport Office Center I

111 Town Square Place, Jersey City, Suite 1201 New Jersey 07310

(Address, Including Zip Code of Principal Executive Offices)

(212) 924-3442 (Issuer's telephone number)

164 West, 25th Street, 6th Floor, New York

New York 10001 (Former name or former address, if changed since last report)

Copies to:

Louis A. Brilleman, Esq. 110 Wall Street, 11th Floor New York, New York 10005

Phone: (212) 709-8210 Fax: (212) 943-2300

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): ¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) ¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) ¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) ¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Delaware 000-52815 34-200-8348 (State or other jurisdiction of (Commission File Number) (I.R.S. Employer incorporation or organization Identification Number)


Item 3.02 Unregistered Sales of Equity Securities. On December 5, 2011, Coda Octopus Group Inc. (the “Company”) completed the issuance of 21,857,143 shares of common stock of the Company to certain of its shareholders in exchange for (i) the surrender by these shareholders of warrants to purchase an aggregate of 21,857,143 shares and (ii) amendments (the “Amendments”) to a series of identical securities purchase agreements (the “Agreements”) between the Company and such shareholders. The Agreements were entered into between the Company and a group of accredited individual and institutional investors between April and May 2007 and contained certain price protection and ratchet provisions that hampered the Company’s ability to raise additional financing. As a result of the Amendments, such provisions were deleted from the Agreements. Under the terms of the Agreements, the Amendments required the consent of no less than 85% of the parties thereto. In addition, the Agreements were terminated with respect to all consenting shareholders. No cash was paid to any person in the exchange. As a result of the transaction described above, as of the date hereof, there are 74,103,102 shares of common stock issued and outstanding. The sale of the shares of common stock was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Act”) pursuant to Section 4(2) of the Act due to the fact that the offering of the shares of common stock was made on a private basis to a limited number of purchasers. Item 9.01 Financial Statements and Exhibits.

None.

None

(a) Financial Statements.

(b) Exhibits.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: February 3, 2011

Coda Octopus Group, Inc. /s/ Geoffrey Turner By: Chief Executive Officer


Exhibit 2


Active 15030970.2

IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

IROQUOIS MASTER FUND LIMITED, ROCKMORE INVESTMENT MASTER FUND LTD., CRANSHIRE CAPITAL, LP, SCOT COHEN, RICHARD ABBE, PHILIP MIRABELLI and JOSHUA SILVERMAN

Plaintiffs, -v.- CODA OCTOPUS GROUP, INC. and GEOFF TURNER,

Defendants.

Civil Index No.: 1:14-cv-00760 (DLC) AFFIDAVIT OF GEOFF TURNER

The undersigned, Geoff Turner, first being duly sworn, deposes and says:

1. My name is Geoff Turner. I am over the age of twenty-one, sound of mind, and

capable of making this affidavit. I have personal knowledge of the facts set forth in this

affidavit, and they are true and correct.

2. I am a citizen of the United Kingdom.

3. At the time of events alleged in 2007 of which Plaintiffs complain, I was working

for Coda Octopus as Senior Vice President (“SVP”) of European Operations.

4. I did not sign any of the Transaction Documents pertaining to the Plaintiffs’

Complaint including the Securities Purchase Agreement and the Warrants. Furthermore, in my

role as SVP of European Operations, I was not consulted on the proposed transaction, nor did I

participate in any decisions on entering into these agreements. I am not a party to either the

Securities Purchase Agreement or the Warrants.


cdoc response to the lawsuit 3.7.2014

Documents

plaintiffs complaint

negligent misrepresentation

breach of contract claim

joshua silverman plaintiffs

rockefeller plaza new

geoff turners memorandum

motion pursuant

rule 12b2