Foros Advisors LLC v. Digital Globe, Inc.

• Decision Date: 21 September 2018
• Docket Number: 17-cv-7514 (JGK)
• Citation: 333 F.Supp.3d 354
• Parties: FOROS ADVISORS LLC, Plaintiff, v. DIGITAL GLOBE, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

333 F.Supp.3d 354

FOROS ADVISORS LLC, Plaintiff,

v.DIGITAL GLOBE, INC., Defendant.

17-cv-7514 (JGK)

United States District Court, S.D. New York.

Signed September 21, 2018

Jonathan Michael Sperling, Eric Hellerman, Paul Fitzgerald Downs, Covington & Burling LLP, Andrew H. Schapiro, Quinn Emanuel Urquhart & Sullivan, New York, NY, for Plaintiff.

Josh Gold, Marisa Antos-Fallon, Robert Ritchie, Vinson & Elkins, New York, NY, Michael Conrad Holmes, Vinson & Elkins L.L.P., Dallas, TX, for Defendant.

OPINION & ORDER

John G. Koeltl, United States District Judge

The plaintiff, Foros Advisors LLC ("Foros"), a financial advisory boutique, brings this action against Digital globe, Inc. ("DGI") for breach of contract, quantum meruit, and unjust enrichment. The plaintiff and defendant were parties to an Engagement Letter under which the plaintiff was to provide financial advisory services for a reduced fee with the expectation that the defendant would offer the plaintiff the opportunity to act as a financial advisor to DGI on any resulting acquisition or other strategic transaction. Foros alleges that it provided the financial advisory services and was paid the reduced rate for its services but was never offered the opportunity to become a financial advisor in connection with the strategic transaction that ensued. DGI moves to dismiss the Amended Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted.

I.

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiff's favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir.1985). The Court should not dismiss the complaint if the plaintiff has stated "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). While the Court should construe the factual allegations in the light most favorable to the plaintiff, "the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions." Id.

When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. See Taylor v. Vt. Dep't of Educ., 313 F.3d 768, 776 (2d Cir. 2002) ; Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002).

II.

The following facts are taken from the Amended Complaint and are accepted as true for the purposes of the defendant's motion to dismiss.

Foros is a limited liability, strategic financial advisory boutique. Am. Compl. ¶ 8. DGI is a commercial provider of satellite imagery. Am. Compl. ¶ 13.

In the early part of 2015, DGI was allegedly "struggling to grow its revenues" and investors had expressed concern with the business. Am. Compl. ¶ 14. At that time, DGI had "aspects of a satellite business, a government contractor, and an information services business" and was allegedly "suffering from an identity crisis in the marketplace". Am. Compl. ¶ 15. In order to address these issues, DGI engaged Foros as a financial advisor in mid–2015. Am. Compl. ¶ 16. DGI sought Foros's assistance to develop long term strategies for the company, including "identifying the key drivers for those strategies, understanding their financial implications, and establishing a clear market profile." Am. Compl. ¶ 16.

On August 1, 2015, Foros and DGI signed an Engagement Letter setting forth the services Foros would provide. Am. Compl. ¶ 18. The Engagement Letter explained that Foros would assist DGI "in the review of [DGI's] strategic plan and development of an acquisition strategy and framework for evaluating acquisition opportunities and such other matters as [Foros and DGI] may agree." Am. Compl. ¶ 18. For its work pursuant to the Engagement Letter, Foros would receive a $250,000 retainer fee for the first three months of work and $125,000 per quarter for work completed thereafter, commencing on November 1, 2015. Am. Compl. Ex. A, at 2. The Engagement Letter also contained a clause (the "Offer Clause") which read:

If [DGI] determines to consider any acquisitions or other strategic transactions as a result of this engagement during the term of this Agreement or during the 18-month period following the termination of this Agreement, [DGI] will offer Foros the opportunity to act as a financial advisor to the company in connection therewith, and, if offered, Foros agrees to consider acting in such capacity. If Foros agrees to act in any such capacity for a particular transaction, [DGI] and Foros (or an affiliate of Foros, at its election) will enter into an appropriate form of agreement relating to the type of transaction involved and containing customary terms and conditions, including fee provisions and provisions relating to indemnification of Foros, as negotiated and agreed in good faith by [DGI] and Foros.

Am. Compl. Ex. A, at 1-2.

During the several months that followed, Foros provided "guidance to DGI on how to frame its business and categorize its revenue sources" and "developed a roadmap for DGI on messaging and strategy to establish a clear market identity that would better position DGI as a candidate for investors." Am. Compl. ¶ 19. Specifically, Foros developed a financial model for DGI that allowed DGI to assess the financial impact of alternative business scenarios. Am. Compl. ¶ 21. Described as the "Sandbox," this tool "allowed dynamic financial modeling of a given business strategy based on variations to [key business and financial drivers for DGI]." Am. Compl. ¶ 21.

During its work with Foros, DGI expressed interest in launching a "platform" business, which would bean online imagery platform that would enable others to develop applications to analyze DGI's imagery. Am. Compl. ¶ 22. DGI asked Foros to help "define what DGI's business would need to look like in order to be viewed as a platform company." Am. Compl. ¶ 23. In response to this request, Foros developed a business strategy including financial metrics for DGI to assess the platform business idea. Am. Compl. ¶ 24. The financial model created by Foros concluded that DGI would not be able to transition profitably to the platform model without merging with another company to acquire some of the necessary capabilities. Am. Compl. ¶ 25.

In September 2015, Foros provided the DGI board of directors with final versions of three operating scenarios for DGI, as well as financial projections. DGI management advised the board that the platform model had the most potential for DGI. Am. Compl. ¶ 27. In September and October of 2015, DGI discussed with financial sponsors a potential leveraged buyout ("LBO") of DGI. Am. Compl. ¶ 28. Throughout this process, DGI's chief financial officer and other DGI representatives communicated with Foros. Am. Compl. ¶ 28. On October 8, 2015, Foros spoke with DGI's CFO and Barclays to discuss the LBO outreach. Am. Compl. ¶ 29. DGI's CFO assured Foros that it would be a part of any advisory team if the LBO was successful. Am. Compl. ¶ 29. However, ultimately the discussions about the LBO transaction were terminated. Am. Compl. ¶ 30.

About one year later, in October 2016, DGI began discussions regarding a potential merger with MacDonald, Dettwiler and Associates Ltd. ("MDA")Am. Compl. ¶ 31. From October 2016 to February 2017, DGI and MDA continued discussions about the merger, and DGI engaged Barclays and PJT Partners LP ("PJT") to serve as the financial advisors in connection with the potential merger. Am. Compl. ¶ 33. Foros alleges that Barclays was provided with the financial model created by Foros and relied on the model in rendering its fairness opinion of the merger. Am. Compl. ¶ 37.

In January 2017, DGI and Foros had an in-person meeting. Am. Compl. ¶ 34. In February 2017, DGI requested that Foros continue to develop the strategy initiated in 2015. Am. Compl. ¶ 34. During these meetings, DGI did not disclose to Foros that it was discussing merger opportunities with MDA or any other businesses. Am. Compl. ¶ 34. DGI never approached Foros to offer Foros the opportunity to work as a financial advisor for the MDA merger. Am. Compl. ¶ 34.

On February 24, 2017, MDA agreed to acquire DGI for approximately $3.6 billion dollars. Am. Compl. ¶ 35. Barclays and PJT received financial advisory fees of $36 million and $18 million, respectively, upon consummation of the MDA merger. Am. Compl. ¶ 35.

The plaintiff filed suit against DGI alleging that the defendant breached the Offer Clause of the Engagement Letter when DGI failed to offer the plaintiff the opportunity to act as a financial advisor to DGI on the MDA merger. The plaintiff now brings claims for breach of contract, quantum meruit, and unjust enrichment. The plaintiff seeks contract damages of not less than $18 million together with pre-judgment interest, and in the alternative, damages for its quantum meruit and unjust enrichment claims in an amount to be determined at trial.

III.

The defendant argues that the plaintiff's claim for breach of contract must be dismissed because the Offer Clause is unenforceable under the New York common law of contracts and is barred by the...