Opinion
01 Civ. 8922 (JFK)
July 1, 2003
Eli R. Mattioli, Gabriel M. Nugent, Marcos Vigil, THELEN REID PRIEST LLP, New York, New York, Counsels For Plaintiffs; Jay A. Katz, JACOBS PERSINGER PARKER, New York, New York, Counsel For Defendant
OPINION AND ORDER
Plaintiffs Gruppo, Levey Co. and GLC Securities Corp. (collectively "GLC") commenced this litigation against Defendant ICOM Information Communications, Inc. ("ICOM" or the "Company") seeking damages for what it alleges was a breach of contract by ICOM. GLC also pleads in the alternative that it is entitled to damages under a theory of quantum meriut or unjust enrichment. Following discovery, ICOM brought a motion pursuant to Rule 56 of the Federal Rules of Civil Procedure for summary judgment. GLC responded by filing its own motion for summary judgment. Now before the Court are the opposing motions for summary judgment. In addition, ICOM has made a motion in limine to exclude from consideration on this motion an expert report submitted by GLC and certain statements made in the affidavits of witnesses in support of GLC's summary judgment motion.
Facts
Gruppo, Levey Co. and GLC Securities are Delaware corporations engaged in investment banking and financial advisory services for public and private companies in the direct marketing industry. Def. Rule 56.1 Statement ¶ 1. ICOM is a Canadian corporation engaged in the business of developing and selling consumer data. See Amend. Compl. ¶ 2. ICOM is a closely-held corporation with three shareholders, Alan Levine ("Levine"), Harvey Beck ("Beck") and Doug McCormick ("McCormick") (collectively, the "Shareholders"). See Def. Mem. in Supp. Summ. J., at p. 1.
At some point during the year 2000, the Shareholders of ICOM began to consider either obtaining an investor for the company and taking the company public, or simply selling 100% of the company outright. See Def. Mem. in Supp. Summ. J., at p. 4. During this period TransUnion Corp. ("TransUnion") approached ICOM and expressed an interest in purchasing 100% of ICOM's stock for approximately $200 million Canadian. See Def. Mem. in Supp. Summ. J., at pp. 4-5. Intrigued by the potential deal, Beck called Hugh W. Levey ("Levey") the Chairman and Managing Director of GLC to discuss retaining GLC to represent ICOM as an investment banker in such a transaction. Harry Chevan ("Chevan."), a principal of Gruppo, Levey Co. and the President of GLC Securities Corp., further discussed the possible retention of GLC with Beck. During these discussions, Beck informed Chevan that ICOM was in discussions with a Canadian company named Research Capital to provide strategic advisory services and to explore the possibility of a private placement of ICOM's stock. See Def. Rule 56.1 Statement ¶ 9.
At Beck's request, Chevan presented him with a proposal for GLC's engagement. See Def. Rule 56.1 Statement ¶ 8. Chevan's initial draft of an engagement letter called for a Retainer Fee of U.S. $100,000 and a 2% Transaction Fee. Def. Mem. in Supp. Summ. J., at p. 5. The Transaction Fee was to be paid upon the closing of a "Transaction", defined as "a sale of all or a part of the company." Two important changes were made to the original draft. First, the Retainer Fee was raised to U.S. $200,000. Second, and of particular importance to this litigation, the definition of the term "Transaction" was modified. The definition of the term, on which the payment of the Transaction Fee was predicated, was revised to read:
[The] sale of all or a significant part of the Company, i.e., by sale of greater than 50% of the Company's stock, or by the sale of assets that form a business division of the Company, or through merger, consolidation, reorganization, recapitalization, business combination or other transaction pursuant to which the Company is acquired by or combined with, in whole or in such part, a third party. For greater certainty, the term Transaction shall not include any commercial, corporate or financial transaction other than such sale, e.g. an Initial Public Offering.
Ltr. Agrnt. dated July 25, 2000. The parties agree that the change in the definition of Transaction was made at the request of either ICOM or its representatives, but disagree as to why the change was made. GLC contends the change was made because ICOM wanted to avoid a potential conflict with its employment of Research Capital. According to Beck, however, the change was made out of a desire to incentivize GLC and to make clear ICOM's desire to sell 100% of its stock. Regardless of why the definition was changed, the fact is the final agreement signed by both parties on July 25, 2000 (the "Agreement"), contains the modified definition and the increased retainer figure.
The Agreement further provides that should a Transaction be consummated, GLC would be entitled to a Transaction Fee. Under the terms of the Agreement, the Transaction Fee is to be 2% of the Aggregate Transaction Value up to $180 million Canadian, plus 2.5% of the Aggregate Transaction Value over $180 million Canadian, Aggregate transaction Value is defined by the Agreement: as :
[t]he sum of all consideration received by the Company, its affiliates and its security holders in connection with the sale of all or part of the Company. Without limitation, consideration shall include cash, securities, promissory notes or other debt instruments, real or personal property, future contractual contingent payments, the assumption or repayment of long-term debt or liability of the Company or its security holders (as defined under Generally Accepted Accounting Principles) and all other consideration paid or to be paid to the Company or the Company's security holders by a Partner.
Ltr. Agrnt. dated July 25, 2000.
Once retained, GLC set about the task of soliciting potential purchasers. The early focus of GLC's attention was negotiating a Transaction with TransUnion. Although TransUnion had initially indicated an interest in purchasing all of ICON'S stock for a sum of $200 million Canadian, when it came time to make a more formal offer, TransUnion scaled back its proposed purchase price to between $130 and $140 million Canadian. Disappointed by the lower than expected purchase price, the Shareholders opted in September 2000 to reject the offer. See Def. Rule 56.1 Counter-Statement ¶¶ 18-21.
The prospects of a Transaction with TransUnion having been dashed, GLC began working with ICOM in September 2000 to develop what the parties term "a broad marketing approach." As part of this broad approach, GLC and ICOM developed an offering memorandum to present to potential strategic partners. The memorandum provided, among other information, an executive summary, a detailed description of ICOM's business and client base, historical financial information and financial projections. Included in the memorandum was a section entitled "Description of Proposed Transaction," which stated that the Shareholders "are considering a sale of all of the Company's stock or assets, but would also consider a sale of a majority or minority interest of the Company through which they could obtain liquidity." Def. Rule 56.1 Counter-Statement ¶¶ 23-24. In December and January of 2000, GLC used the memorandum to solicit potential bidders.
In a December 15, 2001 letter addressed to Chevan, Consodata, S.A. ("Consodata")expressed an interest in acquiring 100% of ICOM's stock for $139.1 million Canadian. The proposed purchase price contemplated the assumption of $10.3 million Canadian and the acquisition of equity worth $128.8 million Canadian. Consodata's interest was conditioned on conducting due diligence of ICOM's finances. See Chevan Aff. Ex. F. Consodata reaffirmed its interest in early February 2001 and began extensive due diligence. In April 2001, following two months of due diligence, Consodata presented ICOM with a term sheet. Consodata proposed a purchase of 40% of ICOM's stock for $20 million Canadian and a simultaneous acquisition of three sets of call options to purchase the balance of ICOM's shares over the course of the ensuing three years. The maximum enterprise value of Consodata's proposal was equal to the originally proposed figure of $139.1 million Canadian. See id. at Ex. H.
This reaffirmation was due in part to the fact that by February 2001, Seat Pagine Gialle S.p.A. ("Seat") had acquired an interest in Consodata. Seat wanted ICOM and GLC to know that it was still interested in moving forward with the proposed deal.
Although they were less than pleased by Consodata's offer, the Shareholders instructed GLC to continue to work with Consodata in hopes of reaching an agreement that would meet the desires of both Consodata and ICOM. Despite several months of conversations, the purchase price and percentage of ICOM stock to be acquired never changed. Finally, on September 14, 2001, the Shareholders of ICOM and a representative of NetCreations, Inc. ("NetCreations"), a subsidiary of Consodata that made the actual acquisition, signed a share purchase agreement, largely on the same terms as set forth in the April proposal. See id. at Ex. N.
It is clear that during the period lasting from April until the closing in September, ICOM and GLC each contemplated what fees the Shareholders would owe GLC as a result of the Consodata deal.See Def. Rule 56.1 Counter-Statement ¶¶ 38-51. Exactly what was said, by whom, when and in what settings are facts that are vehemently disputed by ICOM and GLC. See id. Certain facts, however, are not disputed and can be considered in the context of the dueling summary judgment motions now before the Court.
Both parties agree that sometime in early to mid-August Levey and Levine had a conversation, during a meeting in Toronto at which principals and representatives of all the players in the proposed ICOM acquisition were represented, regarding the payment of fees to GLC if and when the proposed deal closed. See id. ¶ 41. The focus of the conversation was on the fact that NetCreations did not want ICOM to be responsible for the fees owed to GLC because the Shareholders, not ICOM, would be receiving consideration for their stock. See id. Ultimately, NetCreations and the Shareholders agreed that while the fees paid prior to the closing were ICOM's responsibility, any payments that might be due to GLC at the closing were to be made by the Shareholders. See id. ¶ 43.
Shortly after the decision was reached to have the Shareholders pay any fees due at closing, Chevan prepared a memorandum — dated August 18, 2001 — providing "the various scenarios in regard to calculating fees." See Chevan Aff. Ex. K. The memorandum, which purportedly compares fee arrangements and fees typically paid in other investment banking deals with the one GLC anticipated receiving for the ICOM deal, was e-mailed by Chevan to Levine the day it was drafted with the message that Levey was available to discuss the memorandum. Levine responded to the e-mail by thanking Chevan for "the perspective," asking him to forward the memorandum to the other two Shareholders and writing "let's close the deal!!!" See id. at Ex. M.
Slightly more than a week before the deal closed Levey and Levine again discussed the subject of fees due at closing. Levey told Levine that it was his belief, based on his interpretation of the Agreement, that GLC was due a fee equal to 2% of $139.1 million Canadian at the closing. Levey suggested that GLC would consider accepting $700,000 to $800,000 at the closing and deferring the balance until the call options were exercised. The parties dispute Levine's reaction to this proposal, but admit that the proposal was made. See Def. Rule 56.1 Counter-Statement ¶¶ 50, 51. Both parties also admit that the amount of any fee due at the closing was a subject of conversation throughout the months leading up to the closing. See id. ¶¶ 45, 57.
No fees were paid to GLC at the closing. Although it is unclear how the subject was broached or even who raised it, it is clear that GLC agreed to delay the payment of fees until the week of September 17, 2001. See id. ¶ 57. On September 18, Levine informed Levey that he would be wiring him $100,000, but would not be sending any additional money until the Shareholders and GLC were able to work out a "fair" and final arrangement. See id. ¶¶ 58-59. On September 24, 2001, the Shareholders and GLC conducted a conference call in which the Shareholders made clear their belief that the terms of the Agreement did not require them to pay GLC a Transaction Fee for GLC's work on the stock sale to NetCreations. The Shareholders premised their belief on the fact that less than 50% of the Company's stock changed hands at the closing. Thus, the Shareholders contended, a Transaction, as defined by the Agreement, did not occur. The Shareholders did, however, indicate a willingness to pay a fee that it believed to be fair and reasonable in light of GLC's work. See id. ¶ 62. Not satisfied by the Shareholders offer, Chevan sent Levine an invoice on September 26, seeking a $1,527,765 Transaction Fee to which he and GLC believed they were entitled. The Shareholders have refused to pay the invoice and continue to allege that a Transaction Fee is not due. See id. ¶ 64. The Shareholders7 refusal to pay occasioned GLC's filing of this action for breach of contract. As stated, the parties have filed dueling motions for summary judgment.
Discussion
I. Standard of Review General Standard of Review
This Court may grant summary judgment only if the moving party is entitled to judgment as a matter of law because there is no genuine dispute as to any material fact. See Silver v. City Univ. of New York, 947 F.2d 1021, 1022 (2d Cir. 1991); Montana v. First Fed. Sav. Loan Ass'n, 869 F.2d 100, 103 (2d Cir. 1989); Knight v. U.S. Fire Insur. Co., 804 F.2d 9, 11 (2d Cir. 1986). The role of the Court on such a motion "is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party." Knight, 804 F.2d at 11; see also First Fed. Sav. Loan Ass'n, 869 F.2d at 103 (stating that to resolve a summary judgment motion properly, a court must conclude that there are no genuine issues of material fact, and that all inferences must be drawn in favor of the non-moving party).
The movant bears the initial burden of informing the court of the basis for its motion and identifying those portions of the "pleadings, depositions, answers to interrogatories, and admissions to file, together with affidavits, if any," that show the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). If the movant meets this initial burden, the party opposing the motion must then demonstrate that there exists a genuine dispute as to the material facts. See id.; Silver, 947 F.2d at 1022.
The opposing party may not solely rely on its pleadings, on conclusory factual allegations, or on conjecture as to the facts that discovery might disclose. See Gray v. Darien, 927 F.2d 69, 74 (2d Cir. 1991). Rather, the opposing party must present specific evidence supporting its contention that there is a genuine material issue of fact. See Celotex Corp., 477 U.S. at 324; Twin Lab. Inc. v. Welder Health Fitness, 900 F.2d 566, 568 (2d Cir. 1990). To show such a "genuine dispute," the opposing party must come forward with enough evidence to allow a reasonable jury to return a verdict in its favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); Cinema North Corp. v. Plaza at Latham Assocs., 867 F.2d 135, 138 (2d Cir. 1989). If "the party opposing summary judgment propounds a reasonable conflicting interpretation of a material disputed fact," then summary judgment must be denied. Sphering Corp. v. Home Insur. Co., 712 F.2d 4, 9-10 (2d Cir. 1983).
Summary Judgment in Contract Cases
When faced with the task of interpreting a contract, a court's primary objective must be to give the contract's words the effect of the intent of the drafting parties. See Savers v. Rochester Tel. Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091, 1.094 (2d Cir. 1993). Thus, " [w] hen the meaning of a contract is litigated, a reviewing court ordinarily looks only at the words used by the drafters, who presumably understood what they intended." Seiden Assocs., Inc. v. ANC Holdings. Inc., 959 F.2d 425, 426 (2d Cir. 1992). If the parties' intent is clearly discernable from the language of the contract, that intent controls. See Quest Equities Corp. v. Benson, 598 N.Y.S.2d 186, 187 (App.Div. 1st Dep't 1993).
In order to insure that the intent of the parties to the contract controls, the standard for granting summary judgment in contract cases focuses on the review of the contract's language and the clarity with which the parties' intent is conveyed. A court may grant summary judgment in those instances in which the contract's words, in and of themselves, convey a definite and precise meaning absent any ambiguity. Seiden, 959 F.2d at 428; see also Mellon Bank. N.A. v. United Bank Corp. of N.Y., 31 F.3d 113, 115 (2d Cir. 1994) ("Summary judgment is only proper in contract disputes if the language of the contract is `wholly unambiguous.'" (quoting Wards Co. v. Stamford Ridpewav Assocs., 761 F.2d 117, 120 (2d Cir. 1985)); Sayers, 7 F.3d at 1094 ("In a contract dispute a motion for summary judgment may be granted only where the agreement's language is unambiguous and conveys definite meaning."). As stated by the Second Circuit in Sharkey v. Ultramar Energy Ltd., 70 F.3d 226, 230 (2d Cir. 1995), "If the meaning of the language is clear, considering all of the surrounding circumstances and undisputed evidence of intent, and there is no genuine issue as to the inferences that might reasonably be drawn from the language," summary judgment is appropriate. See Wechsler v. Hunt Health Sys., Ltd., 198 F. Supp.2d 508, 516 (S.D.N.Y. 2002).
In light of the definite and unambiguous standard, the threshold question is whether the contract is unambiguous on its face. Alternative Thinking Sys., Inc. v. Simon Schuster, Inc., 853 F. Supp. 791, 795 (S.D.N.Y. 1994). Whether the text of a contract is unambiguous is a question of law to be decided by the court. Mellon Bank, 31 F.3d at 115;Wechsler, 198 F. Supp.2d at 516. A contract provision is ambiguous if capable of being ascribed, more than one meaning when viewed by a reasonably intelligent person. See Sayers, 7 F.3d at 1095; Seiden, 959 F.2d at 428. Conversely, if the language has a definite and precise meaning that cannot reasonably be misunderstood, it is not ambiguous. See id. II. Claims Based on the Agreement The Possibility of Liability Based on the Terms of the Agreement
The pertinent language in the Agreement that is at issue in this litigation is the definition of "Transaction". The Agreement, which serves as a contract between ICOM and GLC, defines a Transaction as:
[The] sale of all or a significant part of the Company, i.e., by sale of greater than 50% of the Company's stock, or by the sale of assets that form a business division of the Company, or through merger, consolidation, reorganization, recapitalization, business combination or other transaction pursuant to which the Company is acquired by or combined with, in whole or in such part, a third party. For greater certainty, the term Transaction shall not include any commercial, corporate or financial transaction other than such sale, e.g. an Initial Public Offering.
Ltr. Agmt. dated July 25, 2000. Every clause in a contract is important and a court must be certain to refrain from interpreting a contract so as to render a clause in the contract meaningless. See Alternative Thinking, 853 F. Supp. at 795. This is particularly true in situations such as this one, where the clause that might be rendered meaningless was specifically added to the contract in a later draft so as to clarify the intent of at least one of the parties. The 50% language is a critical part of the definition of Transaction and, therefore, the contract as a whole. There is no way to interpret this language other than to deem anything short of the sale of more than 50% of the stock of ICOM as not qualifying as a Transaction. To consider the sale of 40% of the stock a Transaction would render the clause meaningless and run contrary to the obvious intent of the parties. There is no contention by GLC that the business division merger or consolidation aspects of a Transaction apply. Only the 50% language is at issue.
In interpreting a contract, courts are advised to accord the language its plain meaning. Concurrently, courts must take note of the circumstances surrounding the drafting of the contract and the purpose for which it was drafted. See Cable Science Corp. v. Rochdale Village, Inc., 920 F.2d 147, 151 (2d Cir. 1990) (* [A] court should accord [contractual] language its plain meaning giving due consideration to "the surrounding circumstances [and] apparent purpose which the parties sought to accomplish.'" (quoting William C. Atwater Co. v. Panama R.R. Co., 246 N.Y. 519, 524); Aron v. Gillman, 309 N.Y. 157, 163 (1955) ("It is well settled that in construing the provisions of a contract we should give due consideration to the circumstances surrounding its execution, to the purpose of the parties in making the contract, and, if possible, we should give to the agreement a fair and reasonable interpretation."). With regard to the purpose of the language at issue's inclusion, the parties disagree. As previously mentioned, ICOM insists the language was added "to make it perfectly clear that GLC was being engaged to sell 100% of ICOM," whereas GLC claims the language was added to avoid a conflict with ICOM's employment of Research Capital to handle a private placement. Although the exact purpose for which the specific language was inserted is a matter of dispute, there is no disputing the fact that the circumstances surrounding ICOM's employment of GLC were characterized by ICOM's desire to sell a majority stake in the Company. Recognizing this fact, a reasonable reading of the contract that considers the set of circumstances surrounding its drafting leads to the conclusion that majority control of ICOM must be transferred to satisfy the definition of Transaction.
This is not to say, however, that the definition of Transaction is crystal clear and unambiguous. GLC acknowledges the importance of the requirement that greater than 50% of ICOM's stock be sold. See Pl. Mem. in Opp. Summ. J., at pp. 17-19. GLC argues, however, that the Agreement should not be interpreted to require the transfer of more than 50% of the stock on the actual closing date. Rather, GLC contends, the Agreement considers the possibility of "an installment contract for the purchase of the company's common stock or assets over time, with the transfer of only a minority share at closing." Id. at 19. According to GLC, the September 14, 2001 deal with NetCreations is the very type of installment contract the Agreement contemplates. In support of its argument, GLC points to the fifth recital in the NetCreations-ICOM share purchase agreement, which states that "[The Shareholders] wish to sell and NetCreations wishes to have the right to purchase from the vendors all of the issued and outstanding shares in the capital of ICOM." Chevan Aff. Ex. N (emphasis added). Furthermore, GLC notes that the definition of Aggregate Transaction Value specifically includes in its calculation "future contractual or contingent payments." Ltr. Agmt. dated July 25, 2000. GLC argues that the inclusion of this language in the definition is evidence of the parties' intent to allow for future payments and stock transfers as part of a Transaction. Thus, GLC claims, ICOM's focus exclusively on the percentage of stock transferred on the closing date is inappropriate.
Not surprisingly, ICOM contests the notion that the call options are contingent payments. ICOM argues that because the options are held by NetCreations without an obligation to exercise them, the options do not constitute actual sales of the covered stock. ICOM also takes exception to the idea that the call options represent "consideration received" as that phrase is used in the definition of Aggregate Transaction Value. ICOM argues that it has yet to actually receive any benefit from the issuance of the options, and that the options are, in fact, a burden to the Shareholders who are prevented from selling or otherwise encumbering the shares until NetCreations decides whether to exercise the call options.
Although the recital referred to by GLC indicates that NetCreations is — or was — to a degree interested in purchasing all of the stock of ICOM, it does not go so far as to render the share purchase agreement one for all of the stock of ICOM. In fact, the recital itself states that NetCreations simply wants the right to purchase all of the stock, not that it intends to actually purchase any more than the 40% of stock it committed to purchase on the closing date. Furthermore, although a recital can be instructive as to the parties' intent in drafting the contract, it cannot create an obligation in either party beyond those set forth in the operative clauses of the contract. See Abraham Zion Corp. v. Lebow, 761 F.2d 93, 103 (2d Cir. 1985). In this case the only obligation NetCreations undertook with respect to the purchase of stock was the 40% it contracted to acquire at the initial closing. As ICOM correctly argues, the call options granted to NetCreations confer no obligation on NetCreations to purchase even a single share in the future. Thus, the call options cannot be deemed to be future contractual or contingent payments.
Did ICOM Naive the 50% Requirement?
GLC claims that even if the Court finds that the NetCreations/Consodata deal fails to satisfy the definition of Transaction, the defendant should still be held liable to GLC for a Transaction Fee. GLC basis its claim on a belief that the defendant waived its right to require a sale of more than 50% of ICOM's stock. See Pl. Mem. in Opp. Motion for Summ. J., at pp. 20-22. According to GLC, the defendant waived the majority interest requirement by allowing GLC to solicit offers for the purchase of a minority interest and including that interest in the offering memorandum GLC prepared with ICOM's participation. See id. at pp. 20-21. Specific to the NetCreations deal, GLC contends that Levine's August 18, 2001 e-mail response of "[L]et's close the deal!!!" to Chevan's e-mail calculating and comparing fees is further evidence of a waiver of the majority interest requirement by ICOM. See id. at p. 21.
"Waiver is `an intentional abandonment or relinquishment of a known right or advantage which, but for such waiver, the party would have enjoyed.'" Wolff Munier, Inc. v. Whiting-Turner Contracting Co., 946 F.2d 1003, 1009 (2d Cir. 1991) (quoting Alsens Am. Portland Cement Works v. Degnon Contracting Co., 222 N.Y. 34, 37 (1917)). Contract terms "may be waived by implication or express intention of the party for whose benefit the provision inures." In re Gordon Car Truck Rental, Inc., 59 B.R. 956, 962 (Bankr. N.D.N.Y. 1985). Because the waiving party is giving up a contracted for right, the waiver must be unmistakably manifested and not simply inferred from a doubtful or equivocal act.Orange Steel Erectors. Inc. v. Newburgh Steel Prod., Inc., 640 N.Y.S.2d 283, 285 (App.Div.3d Dep't 1996).
The fact that ICOM permitted GLC to solicit a purchase of a minority interest does not rise to the level of an unmistakably manifested intention to waive the condition precedent to a Transaction Fee that at least 50% of the stock be sold. Nor does the statement, "let's close the deal!!!" A willingness to solicit and close a deal for less than 50% of ICOM's stock does not translate into a willingness to pay a Transaction Fee for anything less than a sale of a majority interest. GLC cannot point to any undisputed evidence that suggests that ICOM or the Shareholders indicated that they would pay a Transaction Fee for a deal that did not result in the transfer of a majority interest in ICOM. Thus, no waiver was given by the Shareholders. As such, ICON'S request for summary judgment is granted with respect to plaintiff's first cause of action and that claim is hereby dismissed.
The Duty of Good Faith and Fair Dealing
GLC contends that the Shareholders have not acted in good faith and have sought ways in which to exploit the terms of the Agreement so as to avoid paying a Transaction Fee. GLC alleges that the Shareholders' conduct in this regard amounts to a breach of their duty of good faith and fair dealing. New York law imposes an implied duty of good faith and fair dealing in every contract. See Harris v. Provident Life Ace. Ins. Co., 310 F.3d 73, 80 (2d Cir. 2002); Durham Indus. Inc. v. North River Ins. Co., 673 F.2d 37, 41 (2d Cir. 1982). The implied duty is a fiduciary one meant to prevent either party from "destroying or injuring the right of the other party to receive the fruits of the contract." The Kirke La Shelle Co. v. The Paul Armstrong Co., 263 N.Y. 79, 87 (1933).
Although New York law recognizes the existence of the implied duty of good faith and fair dealing, it does not recognize a separate cause of action for breach of the duty. See Wolff v. Rare Medium. Inc., 210 F. Supp.2d 490, 497 (S.D.N.Y. 2002). The appropriate cause of action is simply one for breach of the underlying contract. See Fasolino Foods Co., Inc. v. Banco Nazionale del Lavoro, 961 F.2d 1052, 1056 (2d Cir. 1992); Village on Canon v. Bankers Trust Co., 920 F. Supp. 520, 535 (S.D.N.Y. 1996) (dismissing a breach of the implied duty of good faith on the basis that it is not an independent cause of action). A cause of action for breach of contract based on a claim of breach of the duty of good faith and fair dealing is, however, cognizable to the extent it is not duplicative of other claims within the complaint. The claim made by GLC is premised on the notion that ICOM misled GLC with regard to its intention to pay a Transaction Fee. Whether such a claim supports an action for breach of a contract's implied duty of good faith and fair dealing is questionable, but it is not duplicative of GLC's claim for breach of the duty to pay a Transaction Fee.
The extent to which parties owe each other a duty of good faith and fair dealing is established "by the parties intent and reasonable expectations in entering the contract." Cross Cross Props. Ltd., v. Everrett Allied Co., 886 F.2d 497, 502 (2d Cir. 1989). The boundaries of the duty do not, however, extend so far as to prevent a party from acting in its own interests even if the result is to incidently lessen the value the other party expected to receive from the contract. See M/A-Com Sec. Corp. v. Galesi 904 F.2d 134, 136 (2d Cir. 1990). Nor does the implied duty creaze any obligations in the parties that go beyond those intended and stated in the express language of the contract. Wolff, 210 F. Supp.2d at 497.
GLC claims that ICOM violated its duty of good faith and fair dealing by requesting GLC's assistance with the NetCreations deal and assuring GLC it would receive a Transaction Fee while never intending to pay a Transaction Fee. See Pi. Reply Mem. in Supp. Counter-Motion for Summ. J., at p. 6. Assuming the facts alleged by GLC to be true for the sake of summary judgment, GLC has failed to demonstrate that ICOM or the Shareholders did anything more than review the terms of the Agreement and determine that the terms could be used to protect their own interests. GLC does not contend, nor are there any facts that indicate, that ICOM purposely structured the deal in such a manner as to prevent GLC from receiving a Transaction Fee. Furthermore, GLC was fully aware of the condition precedent to its receiving a Transaction Fee, but still agreed to assist in the transaction without ever asking ICOM to change the terms of their Agreement. GLC has failed to establish that ICOM breached its duty of good faith and fair dealing.
III. Request for Quantum Meruit and Unjust Enrichment Relief
GLC pleads in the alternative that if the compensation provisions of the Agreement do not apply, it is entitled to quantum meruit damages. To establish a quantum meruit claim under New York law, a plaintiff must prove that the defendant was enriched at the plaintiff's expense, and that equity and good conscience dictate that the defendant compensate the plaintiff. Fiecrer v. Pitney Bowes Credit Corp., 251 F.3d 386, 403 (2d Cir. 2001). Specifically, "[t]he elements of a claim for quantum meruit are (1) plaintiff rendered services to defendant; (2) defendant: accepted those services; (3) plaintiff expected compensation; and (4) the reasonable value of the services." GSGSB, Inc. v. New York Yankees, 862 F. Supp. 1160, 1170 (S.D.N.Y. 1994); see also R.B. Ventures. Ltd, v. Shane, 112 F.3d 54, 60 (2d Cir. 1997); Kreiss v. McCown de Leeuw Co., 131 F. Supp.2d 428, 437 (S.D.N.Y. 2001). The basic notion underlying the doctrine of quantum meruit is that one party should not be allowed to enrich itself at the expense of another. See Reprosvstem, B.V. v. SCM Corp., 727 F.2d 257, 263 (2d Cir. 1984).
Because the claims for relief under a quantum meruit and an unjust enrichment theory overlap, the Court will address both claims together in its discussion of the quantum meruit claim.
Under the doctrine of quantum meruit, when one party agrees to accept the services of another, an implied contract to pay the reasonable value of such services is formed. GSGSB. Inc., 862 F. Supp. at 1170. But, where there is already an express contract to render such services to a party, an implied contract is not formed. See Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 521 N.Y.S.2ci 653, 656 (1987) ("A `quasi contract' only applies in the absence of an express agreement, and is not really a contract at all, but rather a legal obligation imposed in order to prevent a party's unjust enrichment."). Thus, under New York law, the existence of an express contract will ordinarily preclude quantum meruit relief. The exception to this rule being circumstances in which the express contract does not address the specific issue in dispute. Hotel Aquarius. B.V. v. PRT Corp., 1992 WL 391264, at *5 ("[T]he existence of an express contract does not preclude recovery on the basis of [quantum meruit] for services and benefits conferred outside the contract."); see also Joseph Sternberg, Inc. v. Walber 36th St. Assocs., 594 N.Y.S.2d 144, 145-46 (App.Div. 1st Dep't 1993) (allowing plaintiff to proceed with a quantum meruit claim while also proceeding on an express contract claim because the express contract did not cover the dispute).
Section I of the Agreement states, "GLC will assist the Company as its exclusive financial advisor in connection with identifying and seeking out a person, group of persons, partnership, joint venture, corporation or other entity . . . which would be interested in entering into a Transaction with the Company." Chevan Aff. Ex. B. Section II further defines the "Scope of Services" to be provided by GLC as being dependant upon the "nature of the Transaction." Id. This language, indicates that the Agreement, the express contract at issue, covers only GLC's services with respect to finding a purchaser and completing a sale of a majority interest in ICOM. Underlying much of ICOM's argument against finding it in breach of contract is the implied notion that the Agreement was entered into with the sole purpose of engaging GLC to sell a majority of ICOM's stock to a third party. See Def. Reply Mem. in Supp. Motion for Summ. J., at pp. 11-12. This being the case, any work GLC provided to ICOM or the Shareholders regarding the sale of less than a majority stake in the Company may have been provided outside the scope of Agreement. This raises a material issue of fact as to whether GLC is entitled to quantum meruit damages. See GSGSB, Inc., 862 F. Supp. at 1171; Scott v. Health Care Plan, Inc., 668 N.Y.S.2d 841, 842 (App.Div.2d Dep't 1998). For that reason, granting summary judgment, either to dismiss the claim or to grant it, is inappropriate.
IV. Demand to Arbitrate
ICOM requests that the "Court stay any trial required to determine disputed liability issues, if summary judgment is not granted, pending a determination by an accountant of the value of the Call Options." Def. Reply Mem. in Supp. Motion for Summ. J., at p. 21. The basis for this request is the sentence in Section III(C) of the Agreement that states: "If the parties are unable " to agree on fair market or net present value, then the portion of the Aggregate Transaction Value in question shall be determined by an accounting firm or other party acceptable to both the Company and GLC." Chevan Aff. Ex. B. Although ICOM refers to this as an arbitration clause, it is far from being such. An arbitration clause is one that provides for the settlement of the entire controversy through arbitration. Unlike an appraisal clause, which deals solely with the resolution of specific issues of monetary value. See In re Delmar Box Co., 309 N.Y. 60, 63 (1955). In this case only the value of the deal is to be determined through a process of alternative dispute resolution. In fact Section IV(B) of the Agreement specifically provides that all other disputes between the parties are to be adjudicated under New York law in either a state or federal court in this state. Chevan Aff. Ex. B.
The defendant does not deny that this Court has jurisdiction over and is the proper forum for the adjudication of the liability issues at bar.See Def. Reply Mem. in Supp. Motion for Summ. J., at p. 20. ICOM simply believes that a trial on the liability issues might be avoided by way of settlement if the parties were first compelled to have an accounting firm or other acceptable party determine the value of the call options. With respect to the importance of the value of the call options to liability on the contract, as is set forth in Section I of this Opinion and Order, as a legal matter the Court finds that the call options have no present value. Thus there is no need to compel an appraisal at this time. Should the call options be exercised in the future and their value remain an issue of contention, the parties can revisit this issue. In regards to the value the options hold with respect to quantum meruit relief, any such relief would flow, as discussed in Section III of this Opinion and Order, from the formation of an implied contract and Section III (C) of the express contract would not be controlling. It may well be that the value of compensation GLC would be entitled to receive would require an appraisal by a third party, but there is no need at this point for the Court to hypothesize the existence of a mandatory appraisal clause in an implied contract or to stay the liability proceedings. Thus, the request for a stay and the compulsion of arbitration is denied.
V. ICOM's Motion In Limine
Contemporaneous with its filing of its motion for summary judgment, ICOM filed a motion in limine seeking to exclude (1) the June 10, 2002 report of Robert Guggenheimer, Jr. (the "Report") filed by GLC in support of its cross-motion for summary judgment and (2) certain statements contained in the affidavits of Chevan and Levey. ICOM contends that the Report fails to meet the standards for admission set forth in Rule 702 of the Federal Rules of Evidence and developed in case law flowing fromDaubert v. Merrell Dow Pharm., Inc. 509 U.S. 579 (1993), With respect to the statements ICOM seeks to exclude, ICOM does so on the ground that the statements are inadmissible hearsay under Rule 801 of the Federal Rules of Evidence.
The Court need not decide ICOM's motion on its merits. Any relevance the Report might have would be in assisting in the valuation of the reasonable value of the services rendered by GLC to ICOM. Because the Court deems a material issue of fact to exist as to whether quantum meruit or unjust enrichment relief is warranted, this Opinion and Order does not attempt to consider or address the actual financial value of GLC's service. Thus, the Report has not been considered by this Court in reaching the instant decision. Should there be a trial in this action and should GLC seek to have the Report included in the record of that trial as evidence, the Court will revisit this issue. Thus, this motion in limine is moot at the present time.
Similarly, the Court did not consider any of the five statements challenged by ICOM or whether the statements fit within any of the exceptions to the hearsay rule, as alleged by GLC. That the statements were ever even made is contested by ICOM, therefore, the statements are disputed facts and not to be considered, in the context of a summary judgment motion. See Schering Corp. v. Home Insur. Co., 712 F.2d 4, 9-10 (2d Cir. 1983). Again, should a trial take place, the Court will revisit this issue. For the present the issue is moot.
Conclusion
Defendant ICOM's motion for summary judgment is granted with respect to Plaintiff GLC's first and second causes of action. Thus, GLC's claims for breach of contract and breach of the duty of good faith and fair dealing are hereby dismissed. Summary judgment, in favor of either GLC or ICOM, is denied as to the third and fourth claims of relief for quantum meruit and unjust enrichment, respectively. ICOM's motion to compel arbitration is denied. Finally, ICOM's motion in limine is moot at this time.SO ORDERED.