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Allison-Williams Co. v. Viasource Funding Group

June 9, 2010


On appeal from Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-149-05.

Per curiam.


Argued January 5, 2010

Before Judges Parrillo, Lihotz and Ashrafi.

Plaintiffs Allison-Williams Company, Thomas Allen, and Craig Seitel appeal from an order for summary judgment dismissing their claim for fixed damages of $5 million under a termination clause of a contract with defendant ViaSource Funding Group, LLC. The trial court concluded that the clause was an unenforceable penalty rather than a valid liquidated damages or alternative performance clause.

Plaintiffs also appeal from that part of the summary judgment order denying them payment of attorney's fees and expenses arising out of this litigation pursuant to a separate indemnification agreement of the parties.

Defendant ViaSource cross-appeals, contending that the court erred in granting partial summary judgment to plaintiffs dismissing parts of defendant's counterclaim.

We affirm the trial court's rulings.


In reviewing a grant of summary judgment, an appellate court applies the same standard under Rule 4:46-2(c) that governs the trial court. See Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), cert. denied, 154 N.J. 608 (1998). The court must "consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). The court's function is not to weigh the evidence, but rather to determine whether there is a genuine issue requiring trial. Ibid.


Applying that standard of review to the summary judgment record, we find the following relevant facts.

Defendant ViaSource was organized in 1999 as a privately-held company to engage in a business involving "viatical settlements," that is, purchasing the right to receive life insurance benefits from terminally ill persons in exchange for cash paid to the insured during his or her remaining life. In April 2000, defendant obtained from GE Capital a revolving credit line of $15 million secured by the life insurance policies defendant purchased. GE Capital retained the right to approve or deny any other security interest in those policies. To expand its business, however, defendant needed more financing.

Plaintiffs Allen and Seitel had worked in the financial industry, assisting companies to gain access to capital markets.

They claimed expertise in the field of "securitization" of viatical settlements. "Securitization" describes the creation of a saleable, secured debt instrument. In the context of this case, it involved the pooling of life insurance policies and issuance of securities to back the pool.

On September 27, 2000, defendant ViaSource executed a contract for the services of Allen and Seitel in procuring securitization financing. The contract expressly stated it was governed by New York law. Defendant agreed that Allen and Seitel would be its exclusive placement agent with a right of first refusal "for any debt, equity or securitization financing." For their part, Allen and Seitel agreed to:

Consult and assist ViaSource with the preparation of an information package to be sent to potential investors;

Introduce ViaSource to potential institutional and/or retail investors;

Assist ViaSource with structuring and with negotiating terms and conditions; and Assist ViaSource with closing the Offering.

Defendant agreed to pay Allen and Seitel a percentage of any securitizations they procured. The contract contemplated the potential placement of up to $500 million in securities, for which Allen and Seitel could receive $13.75 million in upfront fees and additional fees based on percentages of cash flow generated from the securities. In addition, defendant agreed to pay Allen and Seitel a non-refundable monthly retainer fee of $15,000 for no more than six months. The retainer fees were to be credited against transaction fees earned by Allen and Seitel.

The contract contained a detailed termination provision permitting either party to terminate the agreement without cause by giving thirty days' notice. The termination provision also stated that if defendant terminated the contract, it would pay Allen and Seitel a "breakup fee" calculated as "1% [of] $500,000,000 minus . . . the aggregate purchase price paid by investors for securities issued to investors for which Allen & Seitel have acted as Placement Agent up to the date of termination." Since Allen and Seitel did not act as placement agent for any securities before defendant terminated the contract, the parties agree in this litigation that the formula for the "breakup fee" would yield $5 million to Allen and Seitel if applicable and enforceable.

The contract also provided, however, that defendant would not be required to pay any breakup fee if it terminated the contract before Allen and Seitel had procured any securitization. In that respect, the contract stated:

If ViaSource terminates this Agreement because, more than nine months after the full execution of this Agreement, ViaSource determines that ViaSource considers the completion of the first securitization sufficiently unlikely, then ViaSource will owe no breakup fee.

By that clause, the contract gave defendant the right to terminate without paying a breakup fee after the end of June 2001 provided that the termination occurred before the likely "completion of the first securitization."

In performing their duties under the contract, Allen and Seitel initially prepared a series of briefing memoranda in which they described defendant's business, its need for additional capital, and the financing they envisioned through the securitization of defendant's pool of life insurance policies. However, they were unable to obtain any securitized financing for defendant in the ensuing months.

Plaintiffs' efforts failed for several reasons, according to defendant. In early 2001, defendant met with Moody's bond rating service and learned that some of the concepts for financing proposed by Allen and Seitel were not acceptable for rating purposes. Also, proposals that plaintiffs brought to defendant were not acceptable because they were different from the securitization the parties had discussed or they had other detriments to defendant's business operations.

One effort to procure financing was the "Old Hill" deal, by which Old Hill Partners would lend defendant money to cover its insurance policies that were not secured by GE Capital. Defendant rejected the Old Hill proposal because the interest rate was not acceptable, the deal would provide defendant only $2.25 million, which was much less than it needed, and, most important, Old Hill required a lien on the pool of insurance policies, which would have triggered an immediate default under the terms of defendant's financing agreement with GE Capital.

Allen and Seitel subsequently suggested another form of financing, referred to as the "Bank Deal." Under the Bank Deal, plaintiff Allison-Williams Company, a Minnesota corporation which was a commercial lender and also served as a "financing entity" in the viatical settlement business, would purchase and own the life insurance policies. Allison-Williams would then earn profits created by the securitization, while defendant would receive a commission on each insured it referred to Allison-Williams. In essence, defendant would become a finder of insureds and policies for Allison-Williams to purchase. Defendant declined the Bank Deal, indicating that it was not securitization as contemplated in the parties' contract.

On March 23, 2001, unbeknownst to defendant, Allen and Seitel were hired by Allison-Williams. They agreed to share with Allison-Williams any fees they earned under their contract with defendant. By its counterclaim, defendant claimed that Allen and Seitel withheld information about their new employment, and that their agreement with Allison-Williams was contrary ...

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