On appeal from the Superior Court of New Jersey, Law Division, Gloucester County, L-0494-03.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Weissbard, S.L. Reisner and Baxter.
Plaintiff John W. Fink appeals from a trial court order dated September 9, 2005, granting summary judgment dismissing his complaint against defendant AFFLINK, Inc. We affirm.
The dispute in this case revolves around computer software owned by Progressive Development Systems (PDS). PDS produced and owned two software packages called Level 5 and Level 5 Pro. The software programs allowed PDS customers to electronically track product orders, inventory, shipping, back orders, and other commercial transactions. In 2000, PDS was "running cash negative" at the time and was thus "looking for additional people to put money in [PDS] until they . . . would be self-sufficient."
Advanced Logic Systems, Inc. (ALSI) had acquired PDS as a wholly owned subsidiary. ALSI also had numerous outstanding debts, and sought transactions "to reduce some of these obligations." Accordingly, ALSI retained Fink as an "outside accountant/financial consultant" to investigate PDS's financial information and prepare the subsidiary for presentation to potential investors.*fn1
Fink never had an employment or consulting contract with ALSI, but he continued working there without a written contract until February 2001. He submitted invoices for his work and was paid on a per diem basis, though he was asked by his ALSI contact, Robert Brown, to "hold off on receiving payment in anticipation that a full-time job would materialize." Fink was told this delayed payment was caused by a shortage of cash, but that the company expected money to come in, with which they would pay him.
In March 2001, Fink invested in ALSI, loaning the company $20,000. On April 12, 2001, he loaned ALSI an additional $250,000, and a loan agreement, line of credit note and security agreement were signed. "Sometime in or around August 2001," Fink reached an agreement with Kaydon Stanzione, the CEO and Chairman of ALSI, PDS and AFSG, "to increase the April 12, 2001 loan amount to $500,000." According to Fink, he ultimately invested a net amount of $509,000 in ALSI as well $330,000 in unpaid time and expenses. UCC financing statements for Fink's loan were filed on or about December 26, 2001.
Five lienholders had secured interests in PDS. Although Fink's loan and security agreements called for his lien to have first priority, he conceded that this was not the case. In fact, PDS's lienholders were, in priority order, Commerce Bank ($70,000), Stevens & Lee ($600,000), Fink, Howard Rubin, and KSR Associates. Thus, while Fink had a UCC lien on PDS's assets, he did not have priority as a creditor.
Against this backdrop, we turn to the AFFLINK transaction. AFFLINK, a customer of PDS, based in Tuscaloosa, Alabama, expressed interest in having access to PDS's Level Five Pro software. At the time of PDS's negotiations with AFFLINK regarding the sale or license of the software, Level Five Pro was licensed to thirty to fifty clients in the paper industry. Fink, who had "over fifteen years [sic] experience dealing with acquisitions, mergers and buys and these kinds of assets," offered Stanzione his services to assist in the AFFLINK negotiations. "[F]rom about March of 2002 to about the beginning of July of 2002," Fink was the lead negotiator on behalf of ALSI and PDS and had been instructed by Stanzione "to try to push [a] licensing arrangement" over an outright sale to AFFLINK. Fink's impression was that Stanzione preferred a licensing arrangement because he "wanted to hold onto the software so he had the bragging rights."
Fink's loan to ALSI was due on April 12, 2002. At the end of April 2002, Fink gave ALSI notice of its default on his loan. Fink testified at his deposition that Stanzione had "already agreed to pay" him "$150,000 in cash, plus a percentage of any accounts receivable that were also [sold], plus some other assets" and Fink "felt if I did not get what [he and Stanzione] had agreed to, that I had a right to say I'm not giving my release" on his lien and the transaction with AFFLINK would be blocked.
On May 8, 2002, AFFLINK emailed its purchase offer to Fink. Three days later, on May 11, 2002, Fink forwarded the email to Stanzione and other ALSI executives, stating that "[t]he offer is woefully inadequate in my opinion. . . . It is my recommendation that we turn down this offer and suspend further talks."
On June 28, 2002, Fink wrote to Stanzione and other ALSI executives with an update on AFFLINK's due diligence review. He stated that Chip Shields, AFFLINK's vice president of finance, told him that AFFLINK wanted the software and not the perpetual license. [Shields] argued that Afflink needs to protect its investment in the business that they plan to build, which will rest squarely on the software. In particular he expressed concern that a third party could some how [sic] obtain the software from [ALSI/PDS] and, in some way, cause Afflink a problem over the issue of rights . . . I responded that this requirement could make the deal problematic and we discussed alternatives. . . . I believe, if they are serious about doing the deal, this issue can easily be addressed by . . . the contract specifying the rights guaranteed under the perpetual license arrangement as well as Afflink's right to modify, augment and delete code without infringing/abrogating their rights under the contract to the code and use of the software.
A non-binding letter of intent was signed by the parties on July 9, 2002. That letter provided that the software would be sold to AFFLINK for a fee of $500,000, that an additional fee would be paid to purchase the accounts receivable, and that an earn-out would exist based upon the revenue from the software. After the letter of intent was completed, Fink claimed he no longer acted as lead negotiator for ALSI in its dealings with AFFLINK, yet documents in the record suggest he continued in this role.
In preparation for the sale to be closed, AFFLINK performed due diligence and raised several concerns. First, AFFLINK was concerned about inheriting PDS's maintenance contracts with third parties, and the licensing fee agreements. Second, there was concern about the collectability of PDS's accounts receivable. Finally, AFFLINK learned that some PDS customers were in the pornography business, and AFFLINK did not want to service those customers.
On July 16, 2002, Shields emailed a summary of the due diligence review to others at AFFLINK. In this email he stated that PDS's "Accounts Receivable was not in good order when we arrived, is still being worked [sic]. The aging has not been kept current, requiring PDS'[s] manual work in getting it clean. We have ...