Spencer Trask Software v. RPost International

Spencer Trask Software and Information Services, LLC, along with a related entity (collectively, Spencer) (plaintiffs) were experienced venture-capital investors. In July 2001, RPost International Ltd. (RPost) (defendant) circulated an offering memorandum seeking to raise up to $2 million in exchange for the issuance of convertible debt. RPost was a startup Internet company that sought to provide a registered electronic-mail service. The July memorandum stated that RPost was neither offering nor accepting any sales terms until a definitive, written agreement was executed. In August 2001, Spencer met twice with founders of RPost, and the parties orally manifested their assent to a financing deal in which Spencer would contribute $500,000 in Series B financing, subject to due diligence; multiple milestones would occur in Series C and Series D rounds of financing; and Spencer could periodically acquire RPost’s stock, up to more than 20 percent (August deal). The August deal was documented in four draft letters, each of which provided blank lines for the agreement date. Spencer also emailed RPost that Spencer was eager to consummate the financing “following the execution” of the letter agreements. The letters were never signed or executed. In November 2001, Spencer invested $500,000 in RPost and received a promissory note in return; the parties signed a debt agreement relating to the $500,000 amount. Spencer continued trying to complete due diligence on RPost, which eventually refused to comply with the parties’ August deal. Spencer sued RPost for breach of contract, among other claims, based on RPost’s failure to perform under the August deal. RPost filed a motion to dismiss.