June 9, 2010
ALLISON-WILLIAMS COMPANY, THOMAS HUGHES ALLEN AND CRAIG LAWRENCE SEITEL, PLAINTIFFS-APPELLANTS/ CROSS-RESPONDENTS,
VIASOURCE FUNDING GROUP, LLC, DEFENDANT-RESPONDENT/CROSS-APPELLANT.
On appeal from Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-149-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
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 to defendant's interests because Allison-Williams could have provided financing to defendant.
As of August 2001, defendant had become disenchanted with the efforts of Allen and Seitel and informed them that it was considering terminating their contract. According to defendant, it notified plaintiffs that it intended to pursue other sources of financing, in particular, debt-based financing that was not covered by their contract. At that time, plaintiffs said nothing about a breakup fee.
Also in August or September 2001, defendant received an e-mail from a securities firm, Core Pacific Yamaichi, indicating an interest "in doing a securitization for their clients in the Far East." Representatives of defendant met with Core Pacific several days later but did not tell Allen and Seitel about the meeting. Over the next several months, defendant negotiated with Core Pacific for foreign-based financing, which it believed was not covered by its contract with Allen and Seitel.
On January 3, 2002, defendant met with Allen and Seitel to discuss a potential deal with Core Pacific, by which defendant would sell bonds through Core Pacific to foreign investors and would use the proceeds to buy life insurance policies.
Defendant gave Allen and Seitel a right of first refusal to participate in the Core Pacific deal, but Allen and Seitel declined. Again, they did not raise the issue of a breakup fee.
Later in January, defendant entered into a "financial exclusivity agreement" for foreign investments with Core Pacific. In February 2002, Core Pacific produced $32 million in notes bought by foreign investors. GE Capital approved the Core Pacific deal. Defendant paid Core Pacific eight percent of the amount raised as its fee; it did not pay any fees to Allen and Seitel.
Plaintiffs claim they contributed to the Core Pacific agreement by introducing defendant to Lloyd's of London and developing a reinsurance policy. Defendant acknowledged that any firm willing to provide financing, such as Core Pacific, would require "backstop coverage," and Lloyd's was the only insurer in the world that could provide such coverage. Defendant contends, however, that plaintiffs never completed the process of obtaining a Lloyd's policy on defendant's behalf.
In May 2002, defendant terminated the contract with Allen and Seitel. Plaintiffs then demanded the breakup fee of $5 million, which defendant refused to pay. Defendant alleged Allen and Seitel did not produce a single viable offering for defendant to obtain financing, and, as a result, it owed no breakup fee to them.
In January 2005, plaintiffs filed a four-count complaint against defendant raising claims for breach of contract, estoppel, unjust enrichment or quantum meruit, and liability for attorney's fees and litigation expenses under a separate indemnification agreement of the parties. Defendant filed an answer and a seven-count counterclaim alleging breach of contract, misrepresentation, breach of the confidentiality provision of the contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, misappropriation of trade secrets, and tortious interference with economic advantage.
Plaintiffs moved for summary judgment on their breach of contract claims seeking enforcement of the $5 million breakup fee and dismissal of defendant's counterclaim. Defendant opposed plaintiffs' motion and cross-moved for summary judgment dismissing plaintiffs' claim for the $5 million fee and for payment of plaintiffs' attorney fees and expenses.
After hearing argument, the trial court orally placed its rulings on the record on October 11, 2006, including: (1) partial summary judgment in favor of defendant on the ground that the $5 million breakup fee was unenforceable under New York law; (2) partial summary judgment in favor of defendant dismissing plaintiffs' claim for attorney's fees and litigation expenses under the indemnification agreement; (3) denying summary judgment to plaintiffs on the meaning of "first securitization" and other contract terms because the contract was ambiguous; (4) permitting expert testimony on issues to be tried under plaintiffs' remaining claims, including the parties' intent with respect to ambiguous terms of the contract; and (5) partial summary judgment in favor of plaintiffs dismissing parts of defendant's counterclaim.
After the court's decision, plaintiffs could still pursue at trial their actual damages for defendant's alleged breach of contract and other common law causes of action. Defendant could pursue its counterclaims for breach of contract and misrepresentation, and presumably for breach of the implied covenant of good faith and fair dealing, which was not mentioned in the trial court's decision.
To memorialize the trial court's rulings, the parties submitted a form of order styled as a Final Judgment. By that order, they stipulated that all remaining claims subject to trial were "dismissed in their entirety without prejudice." The trial court executed the order on November 6, 2006.
Plaintiffs filed an appeal, which we dismissed by an unpublished opinion because the appeal was interlocutory, the remaining claims having been dismissed without prejudice and subject to reinstatement. Allison-Williams Co. v. ViaSource Funding Group, LLC, No. A-2252-06T1 (App. Div. February 15, 2008). The parties then executed a stipulation of dismissal in October 2008, by which they dismissed with prejudice all claims not decided by the court's November 6, 2006 order. Plaintiffs then filed the current appeal and defendant cross-appealed.
Because no claims remain except those disposed of by the trial court's order of November 6, 2006, the appeal is now cognizable under Rule 2:2-3(a) as one from a final judgment. The primary issues before us are whether plaintiffs are entitled as a matter of law to the $5 million breakup fee and to attorneys' fees and litigation expenses under the separate indemnification agreement, and whether the trial court erred in dismissing defendant's counterclaims. Because of our decision on those issues, we need not decide other issues raised by plaintiffs, including whether the contract was ambiguous and whether expert testimony is admissible to establish the intent of the parties.*fn1
Initially, plaintiffs argue that the trial court erred in treating the breakup fee as a liquidated damages clause. They contend that their entitlement to the fee is not for defendant's breach of contract, but rather, the fee was an alternative manner of defendant performing its obligations under the contract. Plaintiffs argue that contract provisions permitting alternative forms of performance are enforceable under New York law, and such provisions are not subject to the enforceability analysis applicable to liquidated damages clauses.
To support this argument, plaintiffs cite Hasbrouck v. Van Winkle, 27 N.Y.S.2d 72, 73-74 (App. Div. 1941), aff'd, 43 N.E.2d 723 (N.Y. 1942). In that case, the parties had agreed to the sale of farmland for $1,600 but provided alternative terms if the buyers built a dwelling on the property within ten years.
The seller believed that development of the parcel with a home would enhance the value of his remaining farmland. The seller accepted $600 at the time of conveyance and took a mortgage for the remaining $1,000. If the dwelling was built as agreed, the seller would cancel the mortgage without receiving further payment. If the dwelling was not built within ten years, the buyer would owe $1,000 immediately. Id. at 74.
Describing the contract as "in the alternative, to do one of two things," the court in Hasbrouck rejected the buyer's argument that the $1,000 payment was unenforceable as a penalty. Id. at 75. The court said:
Under the provisions of the mortgage respondents could have discharged their obligation either by building a residence on the property or by the payment of $1,000 as additional consideration for the land. The contract gave them a genuine choice to build or to pay. The express covenant imported the further agreement that if they omitted to build they would pay the price. The stipulation is in the alternative; that is, the performance of one covenant was in fact a substitute for the other. [Ibid.]
Here, in contrast, defendant did not have one of two genuine choices for performance of its obligations under the contract. In lieu of paying the $5 million breakup fee as the price of terminating the contract, defendant would have been required to maintain an exclusive agency relationship with Allen and Seitel although they were producing no acceptable form of financing for defendant's business.
Read as plaintiffs contend, the contract would mean that Allen and Seitel were entitled to compensation of $5 million for one completed deal without any further obligation on their part to produce financing. Defendant would be precluded from engaging the services of another to procure financing without paying Allen and Seitel the breakup fee. Defendant's only other choice would be to retain Allen and Seitel indefinitely. Those terms do not provide a genuine choice of alternative performances to defendant.
In Rubinstein v. Rubinstein, 244 N.E.2d 49 (N.Y. 1968), the New York Court of Appeals concluded that a promise to render a particular performance, together with a promise to pay a liquidated sum of money if the contract is breached, is not a contract for alternative forms of performance. Id. at 52 (citing 5A Corbin, Contracts § 1213). Thus, an agreement as to a division of property by which a failure to perform would result in payment of $5,000 did not constitute an alternative performance clause. Id. at 50-53. In reaching its conclusion, the court found it relevant that the contract did not mention the word "option" in providing for the $5,000 payment. Id. at 52. The termination clauses in this case also do not contain the word "option."
Similarly, in Marvel v. Lilli Ann Corp., 215 N.Y.S.2d 432, 433 (Sup. Ct.), aff'd, 223 N.Y.S.2d 122 (App. Div. 1961), aff'd, 183 N.E.2d 227 (N.Y. 1962), the court held that a contract requiring a $16,000 payment if the plaintiff was wrongly discharged was not for an alternative manner of performance but a liquidated damages clause. The court noted that the contract was not "a provision for alternative performance such as may be found in land sales contracts where an alternative sum is truly intended to be paid in the event of breach of an additional obligation." Ibid.; see also Bradford v. N.Y. Times Co., 501 F.2d 51, 56 (2d Cir. 1974) (penalty provision under a non-compete clause did not give former employee an alternative option to complying with the terms of his agreement).
In this case, the breakup fee is analogous to both the payment required in Rubinstein for failure to perform as promised and the discharge payment required in Marvel. It was not a term establishing alternative manners of performance by defendant but in the nature of a liquidated damages clause for early termination of the contract.
Plaintiffs cite additional cases, such as Smith v. Putnam, 535 N.Y.S.2d 725 (App. Div. 1988), appeal dismissed, 543 N.E.2d 741 (N.Y. 1989), and Gallup v. Sterling, 49 N.Y.S. 942, 944-45 (Sup. Ct. 1898), but those cases involved different factual circumstances or clauses from those in this case. Also, plaintiffs' reliance on decisions from other jurisdictions is not helpful because New York law applies to the parties' contract.
In sum, we reject plaintiffs' argument that the $5 million fee should be enforced as an alternative performance clause of the parties' contract.
Arguing generally that New York courts caution against interfering with an agreement reached between the parties, JMD Holding Corp. v. Congress Fin. Corp., 828 N.E.2d 604, 609 (N.Y. 2005); Fifty States Mgmt. Corp. v. Pioneer Auto Parks, Inc., 389 N.E.2d 113, 116 (N.Y. 1979), plaintiffs assert alternatively that the breakup fee was a binding liquidated damages clause, not an unenforceable penalty.
Under New York law, "[l]iquidated damages constitute a sum which the parties to a contract contemplate should be paid to satisfy any loss or injury flowing from a breach of the contract." Consol. Rail Corp. v. MASP Equip. Corp., 490 N.E.2d 514, 517 (N.Y. 1986). If a clause is enforceable, the measure of damages is the amount set by that clause. If the clause is deemed a penalty, any recovery is limited to the damages actually proven at trial. JMD Holding, supra, 828 N.E.2d at 609; Zeer v. Azulay, 860 N.Y.S.2d 527, 531 (App. Div. 2008).
Whether a contractual provision constitutes liquidated damages or an unenforceable penalty is a matter of law for the court to decide. JMD Holding, supra, 828 N.E.2d at 609; LeRoy v. Sayers, 635 N.Y.S.2d 217, 222 (App. Div. 1995). If there is any doubt, the provision should be construed as a penalty. Pyramid Ctrs. & Co., Ltd. v. Kinney Shoe Corp., 663 N.Y.S.2d 711, 713 (App. Div. 1997); Vernitron Corp. v. CF 48 Assocs., 478 N.Y.S.2d, 933, 934 (App. Div. 1984).
The burden, however, is on the party seeking to avoid a liquidated damages clause to demonstrate it is a penalty. JMD Holding, supra, 828 N.E. 2d at 609; Zeer, supra, 860 N.Y.S.2d at 531. To be viewed as a penalty, the damages caused by a breach must either have been "readily ascertainable" at the time the parties entered into the contract, or the amount fixed must be "conspicuously disproportionate to [the] foreseeable losses." JMD Holding, supra, 828 N.E. 2d at 609; see also Truck Rent-ACtr., Inc. v. Puritan Farms 2nd, Inc., 361 N.E.2d 1015, 1018 (N.Y. 1977) ("A contractual provision fixing damages in the event of breach will be sustained if the amount liquidated bears a reasonable proportion to the probable loss and the amount of actual loss is incapable or difficult of precise estimation."); Gordon v. Eshaghoff, 876 N.Y.S.2d 433, 434 (App. Div. 2009) (same).
In determining enforceability, the court must evaluate the contract as of the time it was executed and not as of the time of breach. Vernitron Corp., supra, 478 N.Y.S.2d at 934. Thus, a court must look "to the anticipated loss discernable at the time of contracting and not the actual loss incurred by the breach to determine whether liquidated damages are reasonable or whether [they] are capable of calculation." Ibid.; accord JMD Holding, supra, 828 N.E. 2d at 609 (party claiming that a clause is a penalty must show that damages were readily ascertainable at the time the parties entered into the agreement).
In Pyramid Centres, supra, 663 N.Y.S.2d at 713, a lease provision fixing damages at twice the fixed rent was held to be an invalid penalty because it was intended to coerce performance rather than compensate the plaintiffs for any losses. In Fifty States Management, supra, 389 N.E.2d at 116-17, a clause authorizing acceleration of all rent due was deemed an unenforceable penalty because the amount was disproportionate to any loss the landlord could have suffered for the breach alleged. If the acceleration clause was triggered by a default of the lessee's failure to pay rent, however, and the lessee was allowed to remain in possession through the lease term, then such a clause would be a permitted liquidated damages clause. Ibid.
Courts have also held that a liquidated damages clause will apply only to a material breach of the contract. United Air Lines V. Austin Travel Corp., 867 F.2d 737, 741 (2d Cir. 1989); Brecher v. Laikin, 430 F. Supp. 103, 106 (S.D.N.Y. 1977). Where a party seeks to apply a liquidated damages clause to a breach that is not serious and was not likely to cause damages proportionate to the amount fixed, the court will view the clause as a penalty and refuse to enforce it. Ibid.
Here, the trial court concluded that "the amount of $5 million in relation to the efforts that occurred in this matter, and the ultimate outcome are so disproportionate that [plaintiffs'] claim is going to be limited to whatever provable actual damages" they can establish at trial. The court thus determined that the provision was "not a liquidated damages provision" but "a penalty."
Plaintiffs argue that the court erred because it placed the burden of proof upon plaintiffs to prove that losses were not ascertainable and it did not evaluate the proportionality of the breakup fee in relation to foreseeable losses at the time the contract was executed in September 2000. The contract contemplated that Allen and Seitel would procure up to $500 million in securitized financing, which would have netted them a fee of more $13.75 million. Plaintiffs contend that the $5 million breakup fee represents minimum upfront fees they would have earned for securitization in the amount of $125 million. When viewed at the time the contract was executed, they argue, the breakup fee was not disproportionate to their foreseeable losses, which were otherwise not ascertainable.
We disagree that the trial court failed to focus its analysis on the time of execution of the contract. But, even if the language the trial court used strayed from the cases cited here, appeals are taken from orders and judgments and not from the court's reasoning. See State v. Maples, 346 N.J. Super. 408, 417 (App. Div. 2002); State v. DeLuca, 325 N.J. Super. 376, 389 (App. Div. 1999), aff'd as modified, 168 N.J. 626 (2001). "It is a commonplace of appellate review that if the order of the lower tribunal is valid, the fact that it was predicated upon an incorrect basis will not stand in the way of its affirmance." Isko v. Planning Bd. of Livingston, 51 N.J. 162, 175 (1968); see Khalil v. Motwani, 376 N.J. Super. 496, 499 (App. Div. 2005); Ellison v. Evergreen Cemetery, 266 N.J. Super. 74, 78 (App. Div. 1993).
We accept plaintiffs' argument that defendant had the burden of proving either that damages were ascertainable at the time the contract was executed or that the breakup fee was disproportionate to any foreseeable losses at that time. That proof, however, must be viewed in the context of the potential circumstances under which the contract could be terminated. The relevant question is not simply how much income plaintiffs hoped to earn. The relevant question is whether $5 million was disproportionate as a measure of foreseeable losses in circumstances that included the possibility that plaintiffs would fail to procure financing as promised.
Plaintiffs' argument reciting their anticipated fees would be more persuasive if they had procured some financing for defendant as promised. We agree with defendant that, since plaintiffs were unsuccessful in procuring the securitization they promised, proportionality of the breakup fee should not be viewed detached from their lack of success. The reasonableness of the fee should also be considered in relation to a fair assessment of plaintiffs' potential losses in the event that they were unable to obtain financing for defendant as anticipated. See Fifty States Mgmt., supra, 389 N.E.2d at 116-17 (enforceability of a liquidated damages clause can depend on the nature of the breach and proportionality of the fixed amount to the nature of damages caused by the defendant).
Plaintiffs argue they lost the opportunity to earn at least $13.75 million in fees under the contract, which would have been almost three times the amount of the breakup fee. Plaintiffs' argument fails to account for the lack of evidence produced for the summary judgment motions that a realistic prospect existed of their procuring $500 million, or at least $125 million, in securitization. Nothing in the record supports a finding that plaintiffs could actually earn the amounts they envisioned. By terminating the contract, defendant did not deprive plaintiffs of the opportunity to earn those amounts of fees.
The inability of plaintiffs to procure any securitization over a period of twenty months is unrefuted on the summary judgment record. It is evidence that plaintiffs were not realistically capable of earning the amounts they recite as providing evidence of proportionality.
In fact, the contract provided for payment of $15,000 per month for six months and a credit to defendant of those payments toward fees owed to plaintiffs for securitization actually procured. It also provided that defendant could terminate the contract without paying the breakup fee if defendant determined in good faith after nine months that completion of the first securitization was unlikely. By these provisions, the parties evidenced their anticipation and intent that some securitization would either be procured, or be likely to be procured, within six to nine months. Furthermore, they anticipated that additional securitization would then be forthcoming up to $500 million. If those circumstances were the only eventualities, a $5 million breakup fee might have been proportionate to plaintiffs' anticipated losses.
But if plaintiffs could not succeed in procuring the expected financing, the fee was highly disproportionate to any anticipated losses. Viewing circumstances foreseeable at the time of the contract, including that plaintiffs might be unsuccessful, their losses would not approach the liquidated breakup fee.
We agree with the trial court's conclusion that, under New York law, the $5 million breakup fee was not enforceable because it was disproportionate to foreseeable losses at the time of execution of the contract.
Plaintiffs claim that the trial court erred in holding each party responsible for its own attorney's fees and expenses of litigation. We see no error in the trial court's ruling.
Under New York law, attorney's fees generally are not awarded to the prevailing party unless authorized by agreement between the parties, by statute, or by court rule. Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 199 (2d Cir. 2003). While parties may "agree that attorneys' fees should be included as another form of damages, such contracts must be strictly construed to avoid inferring duties that the parties did not intend to create." Ibid. A promise to pay attorney's fees should not be found unless it can be clearly implied from the language and purpose of the entire agreement and the surrounding facts and circumstances. Ibid.
In accordance with their contract, the parties in this case executed a separate indemnification agreement by which defendant agreed to:
[I]ndemnify and hold harmless [Allen and Seitel] from and against any losses, claims, damages or liabilities relating to, arising out of or in connection with the [contract] and will reimburse [Allen & Seitel] for all expenses (including fees and expenses of counsel) as they are incurred in connection with investigating, preparing, pursuing or defending any action, claim, suit, investigation or proceeding related to, arising out of or in connection with the [contract] . . . .
Plaintiffs contend this indemnification agreement required that defendant pay their attorney's fees and expenses for this litigation between the parties. We agree with the trial court that it did not.
In Hooper Assocs., Ltd. v. AGS Computers, Inc., 548 N.E.2d 903, 905 (1989), the indemnification clause was similar to that in dispute here. The defendant agreed to indemnify and hold harmless the plaintiff from "all claims, damages, liabilities, costs and expenses, including reasonable counsel fees arising out of" performance of the contract between the parties. Id. at 904 n.1. New York's Court of Appeals concluded that the clause was "typical of those which contemplate reimbursement when the indemnitee is required to pay damages on a third-party claim[,]" and thus was applicable to third party claims rather than "exclusively or unequivocally referable to claims between the parties themselves." Id. at 905. The indemnification clause did not "support an inference that defendant promised to indemnify the plaintiff for counsel fees in an action on the contract." Ibid.
Similarly, in Oscar Gruss & Son, supra, 337 F.3d at 200, the indemnification clause related only to third party claims against the plaintiff. See also JMD Holding, supra, 828 N.E.2d at 613 (promise to pay another's fees in indemnification agreement "must be exclusively or unequivocally referable to claims between parties on the contract rather than claims of third parties").
Plaintiffs point to a sentence of the indemnification agreement stating that neither Allen nor Seitel could be liable to defendant under the agreement "except for such liability for losses, claims, damages or liabilities incurred by [defendant] that are finally judicially determined to have resulted from the bad faith or gross negligence of" Allen or Seitel. Plaintiffs argue the sentence "unequivocally references claims . . . between the parties," and indicates that defendant intended to reimburse plaintiffs for their attorney's fees since no language limited the rights of the parties to claims by third parties. The sentence quoted, however, refers to a demand for indemnification or contribution made by defendant against Allen and Seitel based on claims brought by third parties. It does not establish plaintiffs' right to claim fees from defendant for litigation that they have initiated against defendant on the contract itself.
The trial court correctly concluded that the parties' indemnification agreement was not the equivalent of a contractual fee-shifting agreement and did not require defendant to pay plaintiffs' expenses in this litigation.
On the cross-appeal, defendant claims that the court erred in dismissing several of its counterclaims. We conclude there was no error.
Specifically, defendant claims that the court erred in dismissing count three of its counterclaim, breach of the confidentiality agreement; count five, unjust enrichment; count six, misappropriation of assets; and count seven, tortious interference with an economic advantage. Defendant does not cite any law setting forth the elements it had to prove to establish those claims, and much of its factual assertions are simply conclusory statements without reference to the record. A review of the relevant law and record leads us to the conclusion that the trial court correctly granted partial summary judgment to plaintiffs and dismissed defendant's counterclaims for lack of evidence in the summary judgment record.
Defendant claimed that the parties entered into a confidentiality agreement by which they agreed not to utilize the other's trade secrets. Defendant alleges that by working for Allison-Williams in competition with defendant in the viatical settlement field, plaintiffs used "confidential information" to compete against ViaSource. The trial court granted plaintiffs' motion for summary judgment on this claim because defendant failed to identify "any confidential information ViaSource made available during discovery that the plaintiffs did not already have access to or explain how it was damaged."
The only confidential information defendant alleges plaintiffs disclosed was a "financial advisory agreement" that defendant and Core Pacific executed, which granted to Core Pacific "the right of exclusivity to provide the exclusive financing . . . for any funding needs" of defendant. As the trial court properly found, defendant failed to allege to whom the document was released or how defendant was damaged by the release. Defendant did not present evidence to show how release of the exclusivity agreement with Core Pacific affected or prejudiced its business.
Defendant also claimed that plaintiffs unjustly enriched themselves by obtaining trade secrets and that they took money under the contract without providing the services they promised. The trial court dismissed these claims because defendant failed "to account for the parties' written agreements which specifically provided for the payment to [Allen and Seitel]." Defendant agreed to pay $15,000 per month as a non-refundable retainer for plaintiffs' efforts in seeking financing.
The trial court also dismissed defendant's claims of misappropriation because, like the unjust enrichment claim, any claim for damages by defendant was properly reviewed as a cause of action for breach of contract.
Defendant claimed that plaintiffs tortiously interfered with its economic advantage by misleading it as to the securitization they were going to obtain, thereby "stifling the growth of defendant by ensuring that its funding would be insufficient." To establish a cause of action for tortious interference with prospective economic advantage, a plaintiff must demonstrate that: (1) it was in pursuit of business, (2) the interference was intentionally and maliciously accomplished, (3) the interference "caused the loss of a prospective gain[,]" and (4) the injury caused damages. Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 751-52 (1989). The trial court concluded that defendant failed both "to allege a single relationship in which the plaintiffs have interfered," or to present evidence generally that "plaintiffs went out and interfered with the business relations of" defendant. We agree with that conclusion.
In sum, the trial court correctly granted summary judgment to defendant dismissing plaintiffs' claim for the $5 million breakup fee because it was an unenforceable penalty provision under New York contract law. Also, the court correctly dismissed plaintiffs' claims for attorney's fees and litigation expenses under the parties' indemnification agreement. Finally, the court correctly granted summary judgment against defendant and in favor of plaintiffs dismissing portions of defendant's counterclaim on the ground that defendant had not presented evidence to support those claims.