333 F.Supp.3d 307
S.D.N.Y.2018Background
- Fuller Landau (Fuller) was retained by Gerber Finance (Gerber) to advise on a potential sale and to receive a Success Fee tied to the Transaction Amount per a Fee Agreement.
- The Fee Agreement defined Transaction Amount to include equity value plus “any indebtedness ... assumed by the buyer.”
- Fuller introduced Trade Finance Solutions (TFS) as buyer; TFS (via an affiliate) purchased Gerber stock in January 2017. Gerber had preexisting debt to a syndicate of lenders led by Bank of America.
- TFS’s affiliate executed a guaranty to the Lenders guaranteeing punctual payment of Gerber’s indebtedness and granted the Lenders a security interest in the acquired Gerber shares; the stock purchase agreement did not expressly state an assumption of Gerber’s debt.
- Fuller was paid a Success Fee based on equity but sued claiming it was also owed a fee based on the lender debt, asserting the buyer ‘‘assumed’’ the indebtedness. Gerber moved to dismiss, which the court converted into a summary judgment motion and allowed limited Rule 56(d) discovery.
- Court determined as a matter of law that a guaranty is not an assumption of debt, granted summary judgment to Gerber on that theory, dismissed claims for breach of implied covenant and for equitable accounting, but allowed targeted discovery on whether the buyer otherwise assumed any indebtedness.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Buyer "assumed" Gerber's indebtedness so as to include debt in Transaction Amount | Buyer guaranteed payment and thus assumed the debt; Success Fee should include lender debt | A guaranty does not equal assumption; obligation to repay remained with Gerber | A guaranty does not constitute an assumption of debt as a matter of law; summary judgment for Defendant on this theory, but limited discovery permitted on any other factual showing of assumption |
| Whether the contract term "indebtedness ... assumed by the buyer" is ambiguous | Ambiguity argued implicitly by seeking extrinsic evidence | Term is clear and has ordinary meaning (indebtedness = owing money; assume = become directly liable) | Term is unambiguous; court interprets it using plain meaning without extrinsic evidence |
| Breach of implied covenant of good faith and fair dealing | Failure/refusal to pay Success Fee and to provide transaction information breached covenant | Conduct arises from same facts as breach of contract claim; duplicative | Claim dismissed as duplicative of breach of contract claim |
| Equitable accounting claim | Fuller seeks accounting for any indebtedness transferred to the Buyer | No fiduciary relationship pleaded; other remedies available (discovery) | Accounting claim dismissed for failure to plead a fiduciary relationship |
Key Cases Cited
- Anderson v. Liberty Lobby, 477 U.S. 242 (summary judgment standard)
- Ricci v. DeStefano, 557 U.S. 557 (genuine dispute standard on summary judgment)
- Celotex Corp. v. Catrett, 477 U.S. 317 (party with burden must show evidence on each element)
- JA Apparel Corp. v. Abboud, 568 F.3d 390 (contract ambiguity is question of law; interpret within four corners)
- Eternity Glob. Master Fund Ltd. v. Morgan Guar. Tr. Co. of N.Y., 375 F.3d 168 (elements of breach of contract under New York law)
- W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157 (use four corners rule; extrinsic evidence generally inadmissible)
- Cargo Partner AG v. Albatrans, Inc., 352 F.3d 41 (New York common-law exceptions to successor nonliability)
- Xue Ming Wang v. Abumi Sushi Inc., 262 F. Supp. 3d 81 (successor liability and exceptions under New York law)