Houlihan Lokey Howard & Zukin v. Protective Group

• Decision Date: 16 March 2007
• Docket Number: No. 05-23294-CIV.,05-23294-CIV.
• Parties: HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL, INC., Plaintiff, v. The PROTECTIVE GROUP, INC., Defendant.
• Court: U.S. District Court — Southern District of Florida

Page 1230

506 F.Supp.2d 1230

HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL, INC., Plaintiff, v. The PROTECTIVE GROUP, INC., Defendant.

No. 05-23294-CIV.

United States District Court, S.D. Florida.

March 16, 2007.

COPYRIGHT MATERIAL OMITTED

Caryn Mazin Schechtman, DLA Piper Rudnick Gray Cary U.S. LLP, James B. Swire, Arnold & Porter, New York City, Christian Charles Burden, DLA Piper U.S. LLP, Tampa, FL, for Plaintiff.

Bruce Grant Hermelee, Hermelee & Geffin, LLC, Fort Lauderdale, FL, for Defendant.

ORDER GRANTING IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

UNGARO, District Judge.

THIS CAUSE is before the Court upon Defendant's Motion for Final Summary Judgment. DE 52. Also before the Court is Plaintiff's Motion for Summary Judgment. DE 71. The Court has considered the Motions and is otherwise fully advised in the premises.

Facts

On July 2, 2004, the parties entered into a written agreement ("Agreement") for Plaintiff to provide financial advisory and investment banking services in connection with a sale or acquisition transaction involving the Defendant. See DE 94 (Pretrial Stip.) at 5.A; DE 52 (Def.'s Motion), Ex. "B" (Agreement) at 1. The Agreement is governed by New York law and provides in pertinent part:

This Agreement shall have an initial term of six (6) months, and thereafter shall be extended on a month-to-month basis upon the mutual written agreement of the parties; provided, however, that no expiration or termination of this Agreement shall affect ... [Plaintiffs] right to receive, and [Defendant's] obligation to pay, any and all fees and expenses due, and whether or not any Transaction shall be consummated prior to or subsequent to the effective date of termination, all as more fully set forth in this Agreement. During the initial six-month term of this Agreement, the Agreement' may be terminated at any time by either party upon thirty days' prior written notice to the other party.[¹]

* * *

If this Agreement is terminated by [Defendant] for any reason, and [Defendant] consummates, or enters into'` an agreement in principle to engage in (and which subsequently closes), a Transaction within 12 months after such termination date with any party which (i) Houlihan Lokey identified, contacted or with whom [Plaintiff] or [Defendant] had discussions regarding a potential Transaction during the term of this agreement, or (ii) reviewed the information memorandum or any other written materials prepared by [Plaintiff] concerning [Defendant] and/or the proposed Transaction, [Plaintiff] shall be entitled to receive its Transaction Fee upon the consummation of such Transaction as if no such termination had occurred.[²]

DE 52 (Def.'s Motion), Ex. "B" (Agreement) at 2 (para.2), 3 (para.2), 6 (para.3) (providing that the Agreement shall be governed by the laws of New York).

The Agreement was not extended beyond its initial six-month term, which ended on January 2, 2005. See DE 94 (Pretrial Stip.) at 5.G; DE 52 (Def.'s Motion) at para. 19; DE 83 (Pl.'s Resp.) at para. 19. On or about March 25, 2005, Defendant's sole shareholder (Melvin Miller) sold his ownership interest in Defendant to The Exxel Group, S.A. ("Exxel"). See DE 52 (Def.'s Motion) at para. 27; DE 83 (Pl.'s Resp.) at para. 27; DE 94 (Pretrial Stip.) at 5.D-E. Defendant did not pay Plaintiff a transaction fee ("Transaction Fee") in connection with this sale. See DE 94 (Pretrial Stip.) at 5.J. Plaintiff claims entitlement to a Transaction Fee, which it calculates as exceeding $5,000,000. See DE 52 (Def.'s Motion), Ex. "J" (Compl.); DE 94 (Pretrial Stip.) at 1.³

Plaintiff filed this action on May 16, 2005, in the Southern District of New York. See DE 1 (Order Transferring Case) at 16 (Docket Sheet).⁴ Thereafter, the action was transferred to this Court pursuant to 28 U.S.C. § 1404(a). Id. at 1, 14. The Complaint contains counts for breach of contract (Count I), declaratory relief (Count II), and unjust enrichment (Count III). See DE 52 (Def.'s Motion), Ex. "J". (Compl.). Plaintiff requests: (1) a judgment finding that Defendant breached the Agreement; (2) a declaratory judgment that Plaintiff is entitled to the Transaction Fee pursuant to the Agreement; (3) a judgment finding that Defendant unjustly enriched itself at Plaintiff's expense; (4) actual damages, pre judgment interest, costs, expenses and attorney's fees; and, (5) any other and further relief deemed just and appropriate. Id.

a. Defendant's Motion

Defendant argues that Plaintiff has no right to a fee pursuant to the expired Agreement, and that the Agreement's "tail" provision does not entitle Plaintiff to a fee. See DE 52 (Def.'s Motion) at para. 31. Defendant's position is that the Agreement expired on January 2, 2005, when it was not extended beyond its initial six-month term. Id. at paras. 20-21, 32. Thus, Defendant submits that "[t]he only issue for this Court's analysis is whether the Agreement entitles [Plaintiff] to a fee if the Agreement expires." Id. at para. 32. In this regard, anticipating an argument from Plaintiff that the Agreement did not expire, but that it was terminated by Defendant's alleged breach prior to the Agreement's expiration, Defendant submits that the "election of remedies" doctrine would bar Plaintiff from making such an argument. Id. at para. 33.⁵ Specifically, Defendant submits that subsequent to any alleged breach,⁶ Plaintiff "made a binding decision to continue the contract and treat Was subsisting", never notifying Defendant that it was in breach of the Agreement. Id. at paras. 33-34. Thus, even assuming that Defendant breached the Agreement as Plaintiff contends, Defendant maintains that the Agreement expired according to its terms because Plaintiff continued to perform and did not provide notice to Defendant about the alleged breach. See DE 52 (Def.'s Motion) at para. 40.

Further, in addressing Plaintiffs right to the Transaction Fee, Defendant points to the Agreement's "preservation of rights" and "tail" provisions. See ns. 1-2, supra; DE 52 (Def.'s Motion) at paras. 41-53. With respect to the "preservation of rights" provision, Defendant maintains that "[it] only entitles [Plaintiff] to fees and expenses that are `due' at the time of the Agreement's `expiration or termination.'" DE 52 (Def.'s Motion) at para 44. Defendant's position is that "in the event of an expiration, [Defendant] is only obligated to pay any fee `due' at the time the Agreement expires/terminates and reimburse [Plaintiff] for out-of-pocket expenses [Plaintiff] incurred during the Agreement's term." Id. at para. 45. With respect to the "tail" provision, Defendant's position is that it created a right for Plaintiff to recover a commission (i.e., the Transaction Fee) if a transaction was consummated within twelve months of Defendant's termination of the Agreement. Id. at para. 52. According to Defendant, the "tail" provision is inapplicable herein because the Agreement expired by its own terms (i.e., it was not terminated by Defendant). Id. Defendant adds that under New York law, "tail" provisions in brokerage contracts are strictly construed, that the Agreement must be enforced pursuant to its clear and unambiguous terms, and that any ambiguities must be construed against Plaintiff as the drafting party. Id. at paras. 54-60.

With respect to Plaintiffs claim for unjust enrichment (Count III), Defendant submits that it is barred by the New York statute of frauds. Id. at paras. 61-64. Further, Defendant submits that the existence of the Agreement bars Plaintiff from seeking relief under an unjust enrichment theory of relief. Id. at paras. 65-68.

b. Plaintiff's Response

In response to Defendant's argument that the Agreement expired by its own terms, rather than it being terminated by Defendant, Plaintiff submits that "[t]his hyper-technical excuse finds no support in the letter or spirit of the Exclusive Agreement, in any dictionary, or in the law of New York." DE 83 (Pl.'s Resp.) at 6. First, Plaintiff points to the "preservation of rights" provision, which states in pertinent part that "no expiration or termination of this Agreement shall affect ... [Plaintiff's] right to receive, and [Defendant's] obligation to pay, any and all fees and expenses due, and whether or not any Transaction shall be consummated prior to or subsequent to the effective date of termination, all as more fully set forth in this Agreement." Id. (citing Agreement at 2 (para.2)) (emphasis added). Plaintiff submits that the word "expiration" encompasses "termination" and vice-versa. Id. (citing Black's Law Dictionary). According to Plaintiff, both words mean "end", and "[t]he undisputed facts show that the initial term of the Exclusive Agreement came to an `end' when it was not renewed." Id. Plaintiff adds that "[t]his `end' [i.e., the non-renewal] was both an `expiration' and a `termination' of the initial term." Id.

Plaintiff also cites two cases construing the words "expiration" and "termination", or variations thereof, within the context of a covenant not to compete contained in the licensing agreement for Carvel ice cream stores. Id. at 6-8 (citing Carvel Corp. v. Eisenberg, 692 F.Supp. 182 (S.D.N.Y. 1988); Carvel Corp. v. Rait, 117 A.D.2d 485, 503 N.Y.S.2d 406 (N.Y.App.Div.2d Dept.1986)).⁷ In each case, Carvel sought to enjoin the defendant from continuing to operate an ice cream store in violation of the restrictive covenant. See Eisenberg, 692 F.Supp. at 184; Rait, 503 N.Y.S.2d at 408. The defendants argued in their respective cases that the covenants were inapplicable to them because their licenses "expired" rather than "terminated". Id. The Eisenberg court granted Carvel's motion for summary judgment, concluding that "the parties intended the agreement to apply in the event of termination by expiration as well as by any other form of termination:" Eisenberg, 692 F.Supp. at 184. In reaching this conclusion, the Eisenberg court quoted the following...