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Commerce Bancorp, Inc. v. BK International Insurance Brokers

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY


June 4, 2007

COMMERCE BANCORP, INC., PLAINTIFF,
v.
BK INTERNATIONAL INSURANCE BROKERS, LTD., DEFENDANT.

The opinion of the court was delivered by: Irenas, Senior District Judge

OPINION

This dispute arises out of a failed corporate acquisition of Defendant, BK International Insurance Brokers, Ltd. ("BK International") by Plaintiff, Commerce Bancorp, Inc. ("Commerce").*fn1 Presently before the Court is BK International's Motion to Dismiss the First Amended Complaint.

For the reasons set forth below, the Motion will be granted in part and denied in part.

I.

Commerce and BK International executed a "Letter of Intent" on June 17, 2005, which laid out the material terms of a transaction whereby Commerce would acquire all of the issued and outstanding capital stock of BK International for $9.35 million worth of Commerce common stock. (Compl.*fn2 Ex. A) The agreement specifically contemplated that the parties would later enter into a "definitive acquisition agreement," or "Definitive Agreement." (Id.) The Letter of Intent further stated:

This letter constitutes an expression of mutual intention and is intended only as a guideline for the drafting of the Definitive Agreement, which will contain the terms set forth herein and additional terms and conditions yet to be discussed and agreed upon. Each of [Commerce] and BK will incur legal, accounting and operating expenses in connection with this letter. Accordingly, Paragraphs 5B (BK's obligations not to negotiate with others), and 8 (governing law) are legally binding upon each party. Other than such paragraphs, this letter is not and does not represent or constitute a legally binding agreement and until the Definitive Agreement is agreed upon, executed and delivered, except for Paragraphs 5B and 8, neither [Commerce] nor [BK] shall have any other rights or obligations arising from the provisions set forth in this letter.

It is the intent of the parties to consummate this transaction by August 31, 2005. If the parties fail to consummate this transaction by that date, either [Commerce] or BK shall have the right to terminate this letter.

(Id.)

By August 31, 2005, the parties had not agreed upon a Definitive Agreement. The First Amended Complaint contains no allegations regarding the status of negotiations with respect to a Definitive Agreement prior to, or on August 31, 2005. Commerce does allege, however, that even after the deadline had passed, BK International's principal owners "continued to affirmatively represent to [Commerce] that BK International intended to close the deal, even requesting that the deal close by either September 15, 2005, or October 1, 2005." (Compl. ¶ 10) Based on these post-August 2005 representations, Commerce made various improvements to BK International's facilities in preparation for the acquisition. Specifically, Commerce asserts that it constructed a new room, installed a three ton air conditioning unit, new wiring, computer systems, and telecommunications circuitry, and entered into contracts with outside vendors who would service the new systems. (Id. ¶ 13)

Then, on September 12, 2005, BK International advised Commerce by telephone that BK International no longer intended to go through with the acquisition. The next day, Commerce received a letter from BK International requesting that all due diligence materials be returned to BK International.

Less than two weeks later, Commerce received correspondence from Shelley Levine, one of BK International's five shareholders, "expressing hope that the deal may be closed in the future," and apologizing for the abrupt halt to the acquisition. (Compl. ¶ 24) David Kimball, another shareholder, also "expressed to [Commerce] a desire to revisit the possibility of consummating the deal in the future," indicating that one particular shareholder, John Betz, was "responsible for the collapse of the deal." (Id. ¶¶ 25-27) Commerce further asserts,

In consideration for [Commerce's] agreement to consider resuming negotiations in the future and exploring the possibility of consummating a deal without John Betz, as well as for a release of potential liability stemming from the circumstances under which the deal was terminated, David Kimball, on behalf of BK International, offered to pay [Commerce] some amount of money. After negotiations between David Kimball and [Commerce], an agreement was reached that BK International would pay $93,500.00*fn3 to [Commerce] in consideration for [Commerce's] promise to consider a future resumption of negotiations, [Commerce's] agreement to explore the possibility of proceeding with the acquisition without John Betz, [Commerce's] release of BK International from any potential liability which may have accrued from the circumstances under which they terminated the deal, and to compensate [Commerce] for the expenses and costs incurred in the construction of the new room and various improvements made to BK International's facilities.

(Id. ¶¶ 28-29)

Based on this alleged agreement (the "1% Agreement"), Commerce asserts that it completed an analysis of the feasibility of pursuing the acquisition without John Betz. BK International never paid Commerce. Commerce alleges that when it asked for payment, BK International requested that Commerce wait until May 1, 2006, to be paid. Commerce agreed, but even after May 1, 2006, BK International never paid the $93,500.00, despite Commerce's repeated demands.

Commerce's First Amended Complaint asserts four claims: (1) breach of the 1% Agreement; (2) promissory estoppel based on BK International's post-August 2005 representations and Commerce's improvements to BK International's facilities; (3) negligent and intentional misrepresentation based on the post-August 2005 representations; and (4) unjust enrichment based on Commerce's improvements to BK International's facilities. BK International moves to dismiss each count of the First Amended Complaint.

II.

Federal Rule of Civil Procedure 12(b)(6) provides that a court may dismiss a complaint "for failure to state a claim upon which relief can be granted." In considering a Rule 12(b)(6) motion, the Court accepts as true all of the factual allegations contained in the complaint and any reasonable inferences that can be drawn therefrom. Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996). Dismissal of claims under Rule 12(b)(6) should be granted only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Although the Court must assume as true all facts alleged, "[i]t is not . . . proper to assume that the [plaintiff] can prove any facts that [are] not alleged." Assoc. Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983).

III.

A.

In support of its motion to dismiss the breach of contract claim, BK International asserts two arguments: that the 1% Agreement is barred by the Statute of Frauds, and that the agreement lacked consideration.

New Jersey's Statute of Frauds provides,

(1) Except in the cases described in subsection (2) a contract for the sale of personal property is not enforceable by way of action or defense beyond five thousand dollars in amount or value of remedy unless there is some writing which indicates that a contract for sale has been made between the parties at a defined or stated price, reasonably identifies the subject matter, and is signed by the party against whom enforcement is sought or by his authorized agent.

(2) Subsection (1) does not apply to contracts for the sale of goods (12A:2-201) nor of securities (12A:8-113) nor to security agreements (12A:9-203).

N.J.S.A. § 12A:1-206. BK International asserts that a sale of personal property includes the sale of a business, and therefore § 12A:1-206 applies to this transaction. However, the allegations of the First Amended Complaint are clear that the 1% Agreement was not for the sale of BK International to Commerce, and not for the sale of any other personal property.*fn4 As alleged, BK International was to pay Commerce $95,300 for: (a) Commerce's promise to consider a future resumption of negotiations; (b) Commerce's agreement to explore the possibility of proceeding with the acquisition without John Betz; (c) Commerce's release of BK International from any potential liability which may have accrued from the circumstances under which they terminated the deal; and (d) to compensate Commerce for the expenses and costs incurred in the construction of the new room and various improvements made to BK International's facilities. Because the alleged agreement was not for the sale of personal property, § 12A:1-206 does not apply.*fn5

BK International's argument regarding consideration also fails. Commerce asserts that there was a bargained-for exchange of BK International's promise to pay $93,500 for Commerce's promise to release any claims arising out of the circumstances under which the deal was terminated, among other things. BK International replies that "the only liability which could conceivably exist necessarily arose under the LOI [Letter of Intent] and necessarily would have been a claim thereunder.

However, the LOI does not provide for such a claim--- indeed, it specifically excludes such a claim." (Def's Reply Br. at 3) Therefore, BK International reasons, there was no liability to release, and thus, no consideration.

"The essential requirement of consideration is a bargained-for exchange of promises or performance that may consist of an act, a forbearance, or the creation, modification, or destruction of a legal relation. If the consideration requirement is met, there is no additional requirement of gain or benefit to the promisor, loss or detriment to the promisee, equivalence in the values exchanged, or mutuality of obligation." Shebar v. Sanyo Bus. Sys. Corp., 111 N.J. 276, 289 (1988) (citations to Restatement (Second) of Contracts omitted). Here, Commerce alleges that there was a bargained-for exchange of promises.

BK International merely asserts that Commerce incurred no detriment by promising to release claims because there were no viable claims to release. However, when, as here, promises are exchanged, whether a detriment was incurred is irrelevant to the consideration analysis. The bargained-for exchange of BK International's promise to pay and Commerce's promise to release claims is valid consideration.

As explained hereafter, Commerce has sufficiently articulated a cause of action for promissory estoppel and unjust enrichment which gives real value to Commerce's promise to release BK International. BK International's Motion to Dismiss Count One, is therefore, denied.

B.

BK International asserts that Commerce has failed to plead sufficient facts to support either the promissory estoppel claim (Count 2) or the unjust enrichment claim (Count 4).

To state a claim for promissory estoppel, Commerce must plead facts establishing: "1) a clear and definite promise; 2) made with the expectation that the promisee will rely upon it; 3) reasonable reliance upon the promise; 4) which results in definite and substantial detriment." Lobiondo v. O'Callaghan, 357 N.J. Super. 488, 499 (App. Div. 2003).*fn6 Similarly, to state a claim for unjust enrichment, Commerce must plead facts establishing that BK International "received a benefit and that retention of that benefit without payment would be unjust." Sasco 1997 Ni v. Zudkewich, 166 N.J. 579, 593 (2001). "The unjust enrichment doctrine requires that plaintiff show that it expected remuneration from the defendant at the time it performed or conferred a benefit on defendant and that the failure of remuneration enriched defendant beyond its contractual rights." VRG Corp. v. GKN Realty Corp., 135 N.J. 539, 554 (1994).*fn7

Commerce asserts that the post-August 2005 assurances "that BK International intended to close on the deal" (Compl. ¶ 10) constituted a clear and definite promise upon which it reasonably relied by making the improvements to BK International's facilities. With respect to reliance specifically, Commerce asserts that it made the facility improvements "with the reasonable expectation that it would be compensated for them by being permitted to acquire the company even though the Letter of Intent had expired, because of defendant's repeated and continued assurance it intended to close the deal despite the expiration of the Letter of Intent." (Pl's Br. at 28)

With respect to the promissory estoppel claim, BK International argues that (1) the alleged assurances that it "intended to close on the deal" were too vague to be a clear and definite promise; and (2) Commerce's reliance was unreasonable as a matter of law because the assurances could not be seen as anything more than a continuation of the parties' agreement under the Letter of Intent, under which no party assumed any obligations with respect to the facility improvements.

The Court cannot hold that under no set of facts could Commerce establish that the assurances were clear and definite or that its reliance on those statements was reasonable. Both factors require highly fact and context specific inquiries. Deposition testimony or other evidence regarding negotiations and communications between these two sophisticated parties, before and after August 31, 2005, might support a finding that the alleged assurances were clear and definite when taken in the context of the parties' interactions and communications throughout the second half of 2005.*fn8

Likewise, the Court cannot accept BK International's assertion that the parties' positions with respect to their obligations under the Letter of Intent, or otherwise, were not altered in any way after the August 31, 2005 deadline passed.*fn9

Here, too, evidence of communications and the course of negotiations may establish that Commerce's reliance on the post-August 2005 assurances was reasonable. Indeed, the very fact that Commerce was able to enter BK International's facilities and conduct major construction on BK International's building, if proven, is some evidence that BK International may have cooperated in, or at least did not object to, the improvements. Moreover, the Court has trouble accepting the implicit premise of BK International's argument that Commerce, a sophisticated business, incurred costs "in excess of $44,738.32" (Compl. ¶ 16), with absolutely no assurances from BK International that Commerce would be compensated.

For these same reasons, the Court also cannot accept BK International's argument that no unjust enrichment claim can lie because Commerce could not have expected remuneration. Just as the Court cannot rule that Commerce's reliance was unreasonable as a matter of law, it cannot rule that under no set of facts could Commerce have expected remuneration.

Accordingly, BK International's Motion to Dismiss Counts Two and Four will be denied.

C.

Lastly, Count Three of the First Amended Complaint asserts a claim for "Negligent and/or Intentional Misrepresentation." However, Commerce's opposition to the present motion completely ignores any claim for intentional misrepresentation, focusing solely on the claim for negligent misrepresentation. To the extent Commerce does assert an intentional misrepresentation claim, it fails. Commerce has alleged no facts that could reasonably support a conclusion that BK International made any statements knowing that they were false. See Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997) ("The five elements of common-law fraud are: (1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages.").*fn10 Accordingly, the intentional misrepresentation claim will be dismissed.

The negligent misrepresentation claim must also be dismissed because it is not a viable claim under New Jersey law, given the facts of this case. In discussing negligent misrepresentation cases, the New Jersey Supreme Court has observed,

Importantly, the cases do not involve a breach of contract claim between parties in privity; rather, they involve tort claims by innocent third parties who suffered purely economic losses at the hands of negligent defendants with whom no direct relationship existed. Courts have justified their finding of liability in these negligence cases based on notions of a special relationship between the negligent tortfeasors and the foreseeable plaintiff who relied on the quality of defendants' work or services, to their detriment. The special relationship, in reality, is an expression of the courts' satisfaction that a duty of care existed because the plaintiffs were particularly foreseeable and the injury was proximately caused by the defendant's negligence.

People Express Airlines v. Consol. Rail Corp., 100 N.J. 246, 256-57 (1985) (emphasis added). As People Express discusses, common negligent misrepresentation cases include suits by third-party, non-clients against independent auditors, attorneys, architects, and notaries public. Id. at 284.

Similarly, with respect to negligent misrepresentations, the Restatement (Second) of Torts § 552 provides:

Information Negligently Supplied for the Guidance of Others

(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

(2) . . . the liability stated in Subsection (1) is limited to loss suffered

(a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and

(b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.

(emphasis added).

This case simply is not a negligent misrepresentation case. This dispute involves two parties to a contract, who negotiated at arms-length to achieve the acquisition of a business. Commerce and BK International had a direct relationship, and no special duty of care existed between them.*fn11 Commerce does not allege that BK International made the alleged assurances for Commerce's "benefit and guidance."*fn12 To the contrary, Commerce alleges BK International made the assurances to further its own interests, to the detriment of Commerce. Thus, the Court concludes that the negligent misrepresentation claim must fail as a matter of law.

BK International's Motion to Dismiss Count Three of the First Amended Complaint will be granted.

IV.

For the reasons stated above, BK International's Motion to Dismiss will be granted in part and denied in part. The Motion will be granted as to Count Three and denied in all other respects. The Court will issue an appropriate order.

JOSEPH E. IRENAS, S.U.S.D.J.


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