FED CETERA, LLC, а New Jersey limited liability company v. NATIONAL CREDIT SERVICES, INC., a Washington Corporation
No. 18-1243
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
September 17, 2019
Before: KRAUSE, COWEN, and FUENTES, Circuit Judges
PRECEDENTIAL; Argued: October 22, 2018
On Appeal from the United States District Court for the District of New Jersey D.C. Civil No. 1-17-cv-02809 District Judge: Honorable Robert B. Kugler
Michael J. McCaney, Jr. [ARGUED]
Keller & Goggin
1528 Walnut Street
Suite 900
Philadelphia PA 19102
Counsel for Appellant Fed Cetera, LLC
Leigh Ann Benson
Arthur P. Fritzinger [ARGUED]
David J. Walton
Cozen O‘Connor
1650 Market Street
One Liberty Place, Suite 2800
Philadelphia, PA 19103
Counsel for Appellee National Credit Services, Inc.
FUENTES, Circuit Judge.
National Credit Services (National Credit), a debt collection agency, sought opportunities to contract with the federal government to provide debt collection services. In the hopes of winning such a contract, it reached an Agreement with a company called Net Gain, which was in the business of offering networking relationships to its clients. In return for introductions, National Credit agreed to pay Net Gain a finder‘s fee for any related contract that National Credit “consummated” during the term set in the Agreement. A few years later, Net Gain assigned its rights in the Agreement to Appellant Fed Cetera.
During the effective period of the Agreement, National Crеdit signed a contract with the federal government. It did not begin performance on that contract until late 2016, after the Agreement‘s applicable period ended. Because National Credit had not begun performance during the contract period, it refused to pay Fed Cetera the finder‘s fee, arguing that it had not “consummated” the federal contract. Fed Cetera sued, and National Credit moved for judgment on the pleadings.
After reviewing the Agreement, the District Court concluded that the Agreement required some amount of performance on the federal contract to trigger a finder‘s fee, which had not occurred during the Agreement‘s relevant period. Thus, it granted judgment in National Credit‘s favor. Fed Cetera appeals that ruling now.
The question before us, then, is whether the terms of the Agreement required some degree of performance while the Agreement was in force in order for a contract to be “consummated.” We conclude that it did not, and, for the reasons stated here, we reverse.
To win a student debt collection contract from the federal government, a debt collector typically must follow a convoluted but—within the industry—well-known path. The company must begin by working as a subcontractor to a current federal contractor. If that subcontract goes well, then the company may have an opportunity to receive a direct federal contract the next time around.
National Credit sought such an arrangement. In an effort to find a federal contractor with which it could subcontract, National Credit sought out Net Gain for networking opportunities. National Credit and Net Gain entered into their Agreement on February 1, 2010. Under that agreement, National Credit owed Net Gain—and later Net Gain‘s assignee Fed Cetera1—the finder‘s fee for any related contract Net Gain consummated between the signing date and February 1, 2016.
Specifically, the Agreement states that National Credit owes a fee any time a “Fee Transaction . . . is consummated.”2 A “Fee Transaction,” further, can mean either one of two things: (1) “the consummation, with any Federal Contractor, of any transaction related to ‘teaming’ or ‘subcontracting.‘“; and (2) the “subsequent consummation of any contract with any Federal government agency for which the Principal has been invited to compete, and is later awarded a contract to perform” where that contract “shall have arisen due to any ‘teaming’ or ‘subcontracting’ engagement [Net Gain] may have facilitated in advance of аny such award.”3 Once a Fee Transaction is consummated, the fee was “due and payable until fees are no longer generated from any and all Fee Transactions, within thirty (30) days after each receipt during such period by Principal . . . of revenue resulting from or in any way related to the Fee Transaction, including any fees paid after the expiration or termination of any contract.”4
In other words, Net Gain agreed to introduce National Credit to a federal contractor. If the introduction worked out, National Credit would get a subcontract with that contractor. That subcontract could ultimately lead National Credit to win a direct federal contract of its own. National Credit would owe Net Gain a 2.5% finder‘s fee for both contracts—assuming they were “consummated” within the period set by the Agreement. National Credit needеd to pay Net Gain that fee within thirty days after it received any revenue related to the Fee Transactions.
The structure of this arrangement is not at issue. Nor is whether a given contract falls within the terms of the
The second, which is in dispute, was a direct contract with the federal government, signed in 2014. However, National Credit did not begin performance on that contract until September 2016, several months after the Agreement‘s term concluded. Because it had not yet begun performance, National Credit refused to pay Fed Cetera the finder‘s fee, asserting that the language of the Agreement did not require it to because no Fee Transaction had been consummated.
Fed Cetera sued. National Credit moved for judgment on the pleadings, arguing that the terms of the contract were plainly in its favor. The District Court agreed with National Credit. The District Court concluded that in order for a Fee Transaction to be consummated, the Agreement required some degree of performance on thе contract. Since National Credit had not yet begun that performance by the end of the Agreement‘s applicable period, the federal contract fell outside the terms of the Agreement, and National Credit owed no finder‘s fee. The District Court entered judgment in National Credit‘s favor, and Fed Cetera timely appealed.6
II.
The parties agree that New Jersey law applies.7 “To establish a breach of contract claim, a plaintiff has the burden to show thаt the parties entered into a valid contract, that the defendant failed to perform his obligations under the contract and that the plaintiff sustained damages as a result.”8 Under New Jersey law, courts enforce contracts looking at the intent of the parties, “the contractual terms, the surrounding circumstances, and the purpose of the contract.”9 “Whether a contract is clear or ambiguous is a questiоn of law.”10 “If the language of a contract is plain and capable of legal construction, the language alone must determine the agreement‘s force and effect.”11 “Even in the interpretation of an unambiguous contract, we may consider all of the relevant evidence that will assist in determining its
The only question here is when, under the terms of the Agreement, National Credit‘s second contract was “consummated.” The Agreement‘s applicable period lasted until February 2016. If the federal contract was consummated before that date, then National Credit owes a finder‘s fee. If it was consummated after, then National Credit does not.
The Agreement does not define any form of “to consummate.” Both parties argue that the term “consummate” is clear on its face, although they differ on what is clear about it. Fed Cetera argues that, in the context of the Agreement, “consummated” means “signed,” “formed,” or “executed,” and asserts that National Credit consummated the second contract when National Credit executed it with the government in 2014. National Credit argues the opposite, asserting that the District Court correctly found that “consummated” requires some degree of performance of a contract.
New Jersey courts have not provided dispositive guidance on the meaning of the term “consummate.” The cases offer competing, context-specific definitions. The case most cited by National Credit and the District Cоurt is Todiss v. Garruto, a New Jersey Superior Court Appellate Division decision.14 Todiss concerned whether a broker was still owed a commission from a seller even after a third-party buyer backed out.15 The court in Todiss relied on the explicit provision in the parties’ agreement that stated “the commission was to be ‘contingent upon the transaction being consummated and in the event that said transaction is not consummated then and in that event no commission shall be payable to said brokers.‘”16 The court held that “[i]n common acceptation the meaning of the transitive verb ‘consummate’ is ‘to bring to completion that which was intended or undertaken to be done.‘”17 Todiss concluded that, because the sale never took place, the broker wasn‘t owed a fee.18
This case, however, does not involve a sale of something, and so Todiss is not entirely on point. A classical contract is formed, and the legal duties attach, with offer, acceptance and consideration, not upon the completion of some sort of performance—except, of course, where acceptance is communicated by performance.19 Fed Cetera‘s position here, then, is consistent with Todiss; what was arguably “brought to completion” here was the negotiation and formation of the federal contract.
Shortly after Todiss, the New Jersey Supreme Court decided Klos v. Mobil Oil Co.20 Klos involved a question of when a
The next step is to look at the totality of the parties’ Agreement, to see whether the language and context make the issue clearer. When the District Court undertook that analysis, it read “consummate” in the Agreement to mean to “carr[y] out.”24 In doing so, the District Court relied on Todiss, and also understood Black‘s Law Dictionary to be defining “consummate” as “completed“; “fully accomplished.”25
The District Court then redefined the term “Fee Transaction” in the Agreement. It used Black‘s definition of the word “transaction” to redefine the term, and held that “a transaction is a noun that means ‘an action.‘”26 The District Court concluded that, because “consummate” means “to carry out,” and a transaction “is a noun that means ‘an action,” then to “consummate a fee transaction” under the Agreement “implies two separate actions at distinct times.”27 Using that phrasing, the District Court concluded that the Agreement “expressly contemplates a contract being awarded and then later performed.”28
However, we believe that there are two difficulties with the District Court‘s analysis. The first is that the District Court relied, in part, on the adjective definition of “consummate,” not the verb definition. The difference is relevant; the adjective form of consummate, pronounced “con-sum-it,”29 carries a different meaning and different common usage. A person who is “the consummate statesman,” or has “consummate elegance,” is the fulfillment of an ideal; complete and satisfied in all respects. Upon hearing something is a “сonsummate contract,” a typical listener is more likely to understand it as an archetypal
Looking at the correct Black‘s definition—the verb definition—makes it clearer that “consummate,” pronounced “con-sum-ayt,”30 carries less emphasis on something being fulfilled or fully completed. While the verb can still mean “to bring to completion,” it can also mean “to achieve” or “to perfect.” To “achieve” a contract suggests that a contract has formed, not that a party started performance on a contract.
A second error poses a greater problem. After defining “to consummate,” the District Court then used Black‘s to further define the “transaction” in “Fee Transaction” to mean “a noun that means ‘an action.‘”31 The District Court used its definitions of “to consummаte” and “transaction” to conclude that a “consummated Fee Transaction” in the Agreement implied two separate actions occurring at different times.
But unlike “consummate,” “Fee Transaction” is a defined term in the Agreement. The Black‘s definition, or any common use of the word “transaction,” is irrelevant. The parties bargained for an explicit definition that supersedes any others. The District Court erred by substituting its definition for thе parties’ own.
As the parties define it, a “Fee Transaction” means “the consummation” or “subsequent consummation” of one of the two listed types of debt collection contracts. In other words, under the Agreement, National Credit owes a fee when “a consummation [of a relevant contract] is consummated.” While an awkward construction, the phrase‘s meaning is no less apparent than “an achievement is achieved” or “an agreement is agreed upon.” None of those constructions imply a two-step process, as the District Court read the Agreement to require.
So evaluating the Agreement using the terminology and word definitions outlined above, a Fee Transaction is consummated when it is formed, not when performance has begun. While it is conceivable that another contract might use “consummate” in a way that refers to performance, both the text of the Agreement and the actions of the parties indicate that is not the case here. The Agreement states that any fee “shall be due and payable until fees are no longer generated from any and all Fee Transactions, within thirty (30) days after each receipt during such period by Principal . . . of revenue.”32 Accordingly, the Agreement contemplates the ongoing payment of the finder‘s fee throughout the life of a relevant contract every time National Credit received revenue from its work on the contract. Because fees are owed only after a contract is “consummated,” the Agreement cannot be using “consummation” to mean “fully complete performance on the contract.” This is consistent with National Credit‘s own behavior, which concedes Fed Cetera‘s allegation that it regularly paid the finder‘s fee throughout the life of the first contract—not at the completion of work on that contract.
This interpretation also comports with the parties’ business relationship under the Agreement as a practical matter. The Agreement envisions that Fed Cetera‘s—formerly Net Gain‘s—role is strictly that of a “[f]inder[]“: Its job is to procure contracts for National Credit by making “introduc[tions]” and “assisting . . . with negotiations,” but it does not play any role in National Credit‘s performance of work under those contracts.33 Its only function is
The only way to understand “consummation” under the Agreement in a manner consistent with New Jersey law, the word definitions, context within the Agreement, the parties’ own behavior, and their relationship as envisioned by the Agreement, is to understand it to mean forming a qualifying contract.36 Alternative readings would render other terms superfluous or internally inconsistent and would not accord with the parties’ own behavior.
III.
For the foregoing reasons, the decision of the District Court will be reversed and the judgment on the рleadings in favor of National Credit vacated. This matter will be remanded for further proceedings consistent with this Opinion.