Defendant Separation Technologies, Inc., engaged
Background.
On May 25, 2001, STI and Downer entered into a written contract that described the tasks Downer was to perform and explained how it was to be paid. Under the compensation provisions, Downer was to receive a monthly fee and reimbursement
On STI’s behalf, Downer prepared an “offering memorandum” to solicit bids from potential investors interested in providing the capital STI was seeking. In response to its marketing efforts, Downer received two equity financing proposals and one debt financing proposal.
During this period, a representative of Titan America LLC (Titan), sat on STI’s board of directors. Titan owned twenty percent of STI Holding’s shares.
Before STI consummated its contemplated financing deal with Eureka, Downer sought to convince Titan to participate in the Eureka proposal (which had been structured so that other investors, including existing shareholders, could provide up to five million dollars in addition to the seven million that Eureka was to provide). Titan considered putting up three million dollars toward this end, but ultimately rejected the option. Instead, Titan decided to attempt a takeover of the company. To accomplish this, Titan, on June 28, 2002, made a “tender offer” to the other existing STI Holding shareholders, offering to buy out all of their shares at a set price. The tender offer took both STI and Downer by surprise. As Downer conceded during its closing argument at trial, no one had thought that such an option was possible in the relevant time frame.
Downer provided to STI’s principals an evaluation of the tender offer, and it helped them prepare a counteroffer as the negotiations rapidly developed. As Titan’s takeover of STI became increasingly likely, Downer became concerned over how it would be compensated. On July 3, 2002, Downer informed STI that it still expected contingent transaction fees in addition to its monthly compensation and expenses if Titan’s tender offer was successful.
Following some additional negotiations, Titan’s tender offer was accepted, and Titan obtained full ownership and control of both STI and STI Holding on or about August 15, 2002. Downer expanded its demands to include transaction fees on all of the money that Titan paid to acquire STI,
STI refused to pay the contingent transaction fees, and Downer brought a breach of contract claim against both STI and STI Holding.
Discussion. STI’s appeal. The defendants argue that, as a matter of law, they owe no contingent transaction fee for Titan’s purchase of existing stock from the other STI Holding shareholders. According to them, the unambiguous terms of the contract did not encompass these transactions, and the judge should never have asked the jury to determine whether the defendants’ refusal to pay the corresponding contingent transaction fee was a breach of contract.
To support its interpretation of the compensation provision, Downer focuses principally on the phrase “each completed equity or debt investment in STI.” Downer argues that this term is broad enough to encompass Titan’s purchase of existing STI Holding stock. Such an interpretation is indeed possible if the language is taken out of context and read in isolation.
The parties do not dispute that STI engaged Downer to assist it in raising the new capital needed to allow the company to expand. This purpose is reflected in language used throughout the contract. For example, the contract refers to transactions made in “this financing round,” and Downer conceded at trial that “financing” necessarily refers to raising capital.
Titan’s takeover, by itself, raised no new capital for STI (or STI Holding).
Downer’s cross appeal. Downer argues that the judge erred by reducing the jury verdict, and that it is entitled to a contingent fee for the postacquisition transactions even if one is not due for the tender offer itself.
When it purchased the two notes on which STI owed debts to third parties, Titan did not cancel STI’s debt. Thus, Titan’s purchase of the notes had no impact on STI other than changing the identity of the parties to whom it owed the money. Therefore,
However, the same cannot be said with regard to the cash advances that Titan provided to STI. On this record, the jury could have concluded that such payments provided the very expansion capital that STI had been seeking and that it had hired Downer to help obtain.
The defendants are left to argue that, where there was no loan instrument, no apparent interest, and no plain consequences if STI did not repay the loan, the cash infusions should not be considered debt investments. The defendants rely on contractual language providing that “[djebt investments include committed lines of credit and all other interest bearing instruments.” They interpret “include” as definitional, such that the term “debt investments” means, and only means, loans set forth in interest bearing instruments. Although this is a possible reading of the contractual language, it is not the only reading. See Connerty v. Metropolitan Dist. Commn., 398 Mass. 140, 149 n.8 (1986) (“The use of the word ‘including’ in [G. L. c. 258,] § 10(c), indicates that the enumeration of intentional torts in that section is not an all-inclusive list”).
A question remains as to how the cash advances should be measured. As noted above, Downer claims a contingent transaction fee on cash advances totaling over ten million dollars, a figure it derives by adding up all of the transactions in one direction, while ignoring all of those in the other. We agree with STI that reliance on that figure was unreasonable. While the exact financial relationship between STI and Titan is difficult to characterize, Titan effectively provided STI a line of credit against which it could draw. As STI suggests, a more appropriate measure of the value of such “financing” is the maximum balance it allowed STI to draw over the course of the year (the largest amount of debt held by Titan that could at any point have been used by STI for its operations).
Finally, we note that our result is consistent with the reasonable expectation of the parties when they entered into the contract. See 1 Corbin on Contracts § 1.1, at 2 (1993) (“That portion of the field of law that is classified and described as the law of contracts attempts the realization of reasonable expectations that have been induced by the making of a promise”). Downer was hired to help STI raise capital, and it had a reasonable expectation of obtaining a five percent fee on the capital raised during the life of the contract and the one-year tail period. Downer had no reasonable expectation that it would be entitled to five percent of the value of the eighty percent of the company not owned by Titan.
Conclusion. The judgment is reversed and the case is remanded for a new judgment to be entered providing that Downer take no contingent transaction fee on Titan’s purchase of existing STI stock; Downer take a contingent fee on cash advances from Titan to STI computed on the maximum balance Titan allowed
So ordered.
Because the plaintiff prevailed at trial, we take the facts in the light most favorable to it. See, e.g., Mullins v. Pine Manor College, 389 Mass. 47, 56 (1983). However, even though the trial lasted over two weeks, the parties do not dispute the key facts.
STI Holding owned 100% of STI (its sole asset) and it had no employees. There was uncontradicted testimony at trial that STI and STI Holding were converted into limited liability companies in 2003, and that they were subsequently merged into a single entity, Separation Technologies, LLC. Neither side has addressed that change of status in its briefs, and we therefore assume that no material consequences flow from it.
Where contingent transaction fees were due, the baseline professional fees were to be credited against the transaction fees as follows: “Professional services fees paid Downer & Company will be credited against the cash component of the Transaction Fee provided professional services fees are paid through the close of the transaction and provided the cash Transaction Fee after credit backs (the Net Cash Transaction Fee) is at least $300,000.”
The agreement provided that a fee was due Downer on any investment “made by any equity and/or debt source identified and actively solicited by Downer ... on behalf of STI or any equity and/or debt source who contacted STI before the termination of the professional services arrangement” (emphasis supplied).
Equity financing raises money through the sale of an ownership interest in a company, while debt financing raises money through a loan. Black’s Law Dictionary 707 (2009).
After it installed its equipment at coal-fired power plants, SH retained an interest in the processed fly ash and sold it to ready-mix concrete manufacturers. Titan owned a ready-mix concrete manufacturer that was one of STI’s main customers.
The parties stipulated that STI paid all of Downer’s base monthly compensation (which totaled $214,773) and all of Downer’s expenses (which totaled $11,758).
At trial, STI suggested that Downer was actively seeking to undercut the tender offer so that the Eureka deal could go through. Its evidence to support this was excluded and, in any event, Downer prevailed before the jury. It remains undeniable, however, that the unexpected tender offer complicated what had been a fairly straightforward alignment of interests.
As part of the sale, Titan also purchased outstanding stock options and paid accumulated dividends on preferred stock. According to Downer’s lead witness, Titan paid a total of $29,113,448 to acquire STI.
In addition to its breach of contract claim, Downer brought four other counts. The judge dismissed Downer’s declaratory judgment claim after trial. The jury ruled in the defendants’ favor with regard to Downer’s claim for breach of the covenant of good faith and fair dealing and its claim for unjust enrichment. The jury also issued an advisory ruling in the defendants’ favor as to Downer’s claim brought pursuant to G. L. c. 93A, which the judge adopted. None of these other claims remains live.
The jury awarded a lump sum, and they did not specify how they arrived at this figure. In its closing argument, Downer requested “a little over $2.2
Prior to the filing of the judgment n.o.v., the defendants made largely the same arguments through motions for directed verdicts and various pretrial motions. We are unpersuaded by Downer’s arguments that, at the time the judge ruled on the judgment n.o.v., the defendants had not adequately preserved the issues on which the judge relied in upholding the jury verdict on the tender offer.
The judge allowed $1,455,672 of the jury award to stand. He derived this number by taking five percent of the total amount that Titan paid to acquire full ownership of STI Holding (see note 10, supra).
Strictly speaking, the tender offer involved the shares of STI Holding, not STI itself. By way of special verdict, the jury specifically concluded that STI Holding was a party to the contract between STI (its wholly-owned subsidiary) and Downer even though STI Holding was not expressly named. The defendants argue that this was erroneous as a matter of law, although they are
Thus, for example, one who buys stock in a company can be said to have made an equity investment in that company.
Through citations to business literature, STI argues that the use of the term “private placement” itself necessarily indicates that Downer’s assigned
As noted above, neither side thought a sale of the company was feasible in the relevant time frame. Therefore, in interpreting the parties’ intent as to what transactions were covered by their agreement, the STI principals’ long-term aspirations were beside the point.
Downer conceded this point at trial. It did make a passing suggestion that Titan’s funding of the accumulated unpaid dividends on preferred stock and its purchase of outstanding stock options nevertheless improved STI’s balance sheet by paying off standing liabilities. Downer did not develop the argument further. Nor did Downer frame the issue to the jury in closing argument, electing instead to “roll the dice” by arguing that a fee was due on all sums Titan paid to acquire STI. Further, Downer has not raised the argument on appeal, and we decline to reach it.
That the outgoing shareholders may have fared better than they may have initially expected is not material given that these individuals or entities were not themselves parties to the contract or this litigation.
Such an interpretation would also render STI liable to pay a fee for sales of existing stock even though STI itself generally had little control over
As noted above, the judge reduced the jury verdict by over $800,000 through duplicative routes: partially granting the motion for a judgment n.o.v. and conditionally granting a motion for a new trial unless Downer accepted a remittitur. The defendants conceded that Downer has a right to appeal the judgment n.o.v. ruling even though it accepted the remittitur, so we need not consider whether Downer would have waived its cross appeal had the judge relied on the remittitur alone. Compare Baudanza v. Comcast of Massachusetts I, Inc., 454 Mass. 622, 626 n.4 (2009) (noting that some jurisdictions allow parties who have accepted a remittitur or additur to cross appeal, thus revoking acceptance). Given that the trial judge relied on the same ground for his partial grant of the judgment n.o.v. and his conditional grant of the motion for a new trial, the defendants’ counterintuitive argument that a ruling in Downer’s favor on the cross appeal means that the defendants are somehow automatically entitled to a new trial has no merit.
The defendants contest whether Downer can reasonably claim any credit for Titan’s tender offer, as well as the benefits that flowed to STI from it. That dispute is beside the point; the contract did not require Downer to prove that its own actions led to STI obtaining financing in order to be entitled to a contingent transaction fee. See page 788 and note 5, supra.
See also 2A Singer & Singer, Sutherland Statutory Construction § 47.23, at 417 (7th ed. 2007) (“When ‘include’ is utilized, it is generally improper to conclude that entities not specifically enumerated are excluded”); Webster’s
The following excerpt from Adams v. Dole, 927 F.2d 771, 776-777 (4th Cir. 1991), well illustrates the two different common meanings of the word “including”:
“[T]he term ‘including’ is perhaps more often than not the introductory term for an incomplete list of examples. Thus, when we say that several colors, ‘including red, blue and yellow’ are in the rainbow, we are giving only examples, and we do not mean that the rainbow does not include other colors. In that sense, an ‘including’ clause is illustrative. However, the term ‘including’ can also introduce restrictive or definitional terms. If we say that ‘all licensed drivers, including applicants for driver’s licenses, shall take an eye exam,’ the word ‘including’ means ‘and’ or ‘in addition to.’ That meaning is derived from the fact that a ‘licensed driver,’ by definition, excludes an ‘applicant,’ and therefore if we intend to include applicants we must say so. The inconsistency between the general word and the specific leads to an interpretation, under principles of ejusdem generis, that the general may be defined by the specific.”
We note that the three million dollar figure is consistent with the amount that Titan was contemplating loaning STI when it was considering participating in the Eureka proposal. Three million, of course, does fall below the ten
The judge ordered that interest accrue from August 19, 2002. Neither side has challenged that accrual date.
During the relevant time period, Downer used a different form of contract when it was hired to sell companies (the vast majority of Downer’s business). That form included a sliding scale of compensation — known as a “Lehman scale” — that would have produced a net percentage rate that was substantially lower than five percent. Thus, even if STI had engaged Downer to sell the company, the compensation that Downer would have been due under its usual contract would be far less than what it was seeking in this case.