BGC Partners, Inc. v Refco Sec., LLC
Decided on April 3, 2012
Supreme Court, New York County
SAUL EWING LLP
BY: Ruth A. Rauls, Esq.
750 College Rd. East, Suite 100
Princeton, New Jersey 08540
SNR DENTON US LLP
BY: Arthur H. Ruegger, Esq.
1221 Avenue of the Americas
New York, New York 10020
Bernard J. Fried, J.
Plaintiff BGC Partners, Inc. (BGC), f/k/a eSpeed, Inc. (eSpeed), moves for an order, pursuant to CPLR 3212, granting summary judgment on its breach of contract claim. Defendant Refco Securities, LLC (Refco), a securities futures brokerage firm, opposes the motion. The question presented is whether Refco has raised factual issues requiring resolution by a jury.
This case involves a dispute between BGC, a leader in developing and deploying electronic marketplaces and related trading technology for the global capital markets, and Refco, over a breach of a software licensing contract executed on June 14, 2001 between Refco and eSpeed. The six-year Master Software License Maintenance and Service Agreement (License Agreement) gave Refco the right to use eSpeed's software and equipment, which permitted access to market information and electronic trading of securities to Refco and its customers. Under the terms of the License Agreement, Refco was to pay a fixed annual licensing fee of $375,000 per year. This fee was due [*2]on the first business day following each anniversary date of the License Agreement. The License Agreement also provides for a fixed monthly maintenance fee.[FN1] As well, the License Agreement contains a default provision, which states:
"In the event of a Default, eSpeed may upon notice to [Refco] declare amount owing to it hereunder through the remainder of the Term [as if the default had not occurred] immediately due and payable and/or declare this Agreement to be terminated."
On October 17, 2005, Refco closed its doors. Days later, a large number of Refco affiliates filed for bankruptcy protection (see In re Refco, Case No. 05-60005 [RDI][Bankr SD NY]). Refco, however, was ineligible for bankruptcy protection. Subsequently, Refco was shut down. No payments under the License Agreement occurred after November 1, 2005.
On March 6, 2007, eSpeed brought this action, seeking contract damages for Refco's alleged failure to pay royalties based on its annual and monthly maintenance fees. The complaint sought damages in the amount of $1,495,000, plus interest, attorneys' fees and costs.
On April 1, 2008, BGC Partners, LLC allegedly merged with and into eSpeed, to form BGC Partners, Inc. The merger combined eSpeed's electronic marketplaces and related electronic trading technology expertise in the government bond and other markets with BGC's inter-dealer brokerage businesses. On August 27, 2009, BGC filed an amended complaint, and substituted itself as plaintiff for eSpeed. In its answer, Refco denied the breach of the License Agreement and that additional royalties were due, and counterclaimed for overpayments. A discovery dispute was referred to a Special Referee on September 30, 2010.
Two decisions have been issued by the court that are relevant to this motion. On June 28, 2011, I granted BGC's motion to confirm the Special Referee's Report, which denied Refco's request for an order compelling BGC to produce information regarding commissions and contracts with third parties, and to extend discovery deadlines (the Discovery Decision). Because the License Agreement contained fixed obligations, I concluded that third party agreements and commissions were not relevant to Refco's obligations. I also agreed with the Special Referee's finding that Section 11 (a) of the License Agreement was not a liquidated damages provision. As well, I rejected Refco's argument that BGC had a duty to mitigate its damages, finding that Refco had not cited to any case law to support its argument. Almost a month later, on July 20, 2011, I denied Refco's motion for leave to amend its answer to plead an affirmative defense of patent invalidity. Both decisions have been appealed to the Appellate Division, First Department.
Summary judgment is appropriate if, viewing all facts in the light most favorable to the non-moving party, no genuine issue exists as to any material fact, and the moving party is entitled to judgment as a matter of law (Alvarez v Prospect Hosp., 68 NY2d 320, 324 ; Zuckerman v City of New York, 49 NY2d 557, 562 ). Genuine issues of material fact that preclude summary judgment are "'[o]nly disputes over facts that might affect the outcome of the suit under the governing law'" (People ex rel Spitzer v Grasso, 50 AD3d 535, 545 [1st Dept 2008], quoting [*3]Anderson v Liberty Lobby, Inc., 477 US 242, 248 ). The party opposing summary judgment may not rest upon mere allegations or denials, but must set forth specific facts showing that there is a genuine issue of material fact for trial (Zuckerman v City of New York, 49 NY2d at 562). If there is any doubt as to the existence of a triable issue, summary judgment should be denied (see e.g. Rotuba Extruders, Inc. v Ceppos, 46 NY2d 223, 231 ).
As a matter of substantive contract law, this is an unusually simple case. There was a binding License Agreement; Refco admits it breached the License Agreement by failing to make royalty payments; unpaid fees and costs are owed under the terms of the License Agreement; and Refco has not paid the amounts due (see Morris v 702 E. Fifth St. HDFC, 46 AD3d 478, 479 [1st Dept 2007][to establish cause of action for breach of contract, plaintiff must show: (1) the existence of a contract between the parties; (2) performance by plaintiff; (3) defendant's failure to perform; and (4) resulting damages]; Furia v Furia, 116 AD2d 694, 695 [2d Dept 1986]). However, just beyond this apparent simplicity, Refco, in its opposition to BGC's motion for summary judgment, raises a number of improbable and repetitive factual issues. First, Refco questions whether BGC has legal standing to bring this action enforcing eSpeed's right to enforce the License Agreement, because BGC was not a signatory to the License Agreement. Next, Refco argues that eSpeed and BGC have failed to prove that the appropriate notice of acceleration of fees due was provided to Refco, as required under the License Agreement. Refco maintains that the failure to provide notice precludes the recovery of the contractual rights at issue. The third alleged factual issue involves whether substitute revenues, received from Refco's former customers between October 2005 and May 2007, operate to reduce or eliminate alleged damages owed BGC. Preeminent among Refco's arguments is the previously raised and rejected by me is the claim that the motion for summary judgment is premature because additional discovery is necessary to piece together a full and complete record of damages. Refco contends that BGC continued to receive payments directly from Refco's customers for the same business under separate contracts. And finally, Refco once again argues that the invalidity of a patent significantly reduces, if not eliminates, BGC's alleged damages. In the alternative, Refco argues that, if BGC is entitled to judgment, then judgment should be limited to liability, because BGC has failed to prove its entitlement to damages, and Refco's defenses serve to reduce or eliminate damages.
For the reasons that follow, BGC's motion for summary judgment on the breach of contract cause of action is granted.
Refco's argument concerning standing and notice of acceleration are raised for the first time in its opposition papers. Refco asserts that BGC has no standing to sue on the License Agreement, because it was executed between eSpeed and Refco, and there is no privity of contract between BGC and Refco.
New York courts have held that a defense based on plaintiff's alleged lack of standing, if not asserted in defendant's answer or in a pre-answer motion to dismiss, is waived, pursuant to CPLR 3211 (c) (see Matter of Fossella v Dinkins, 66 NY2d 162, 167-168 ; McHale v Anthony, 70 AD3d 466, 467 [1st Dept 2010]; Citibank, N.A. v Herrera, 64 AD3d 536, 536 [2d Dept 2009]). I find that the defense is untimely and accordingly, Refco has waived this defense.
Even if the defense had been timely raised, Refco has failed to submit evidence of a triable issue of fact sufficient to refute BGC's prima facie showing that the transaction between it and eSpeed constituted a merger. BGC has submitted sufficient documentation establishing the merger [*4]between eSpeed and BGC in 2008 (compare Home Sav. of Am., F.A. v Lacher, 159 AD2d 235, 236 [1st Dept 1990] [plaintiff did not submit any official document or an affidavit of anyone with personal knowledge to attest to merger]). These documents include the affirmation of Caroline Koster (Koster), vice-president, assistant general counsel, and assistant secretary of BGC Partners, Inc. Koster affirms the merger between the two companies occurred in 2008. As a corporate officer, Koster has the personal knowledge and authority to affirm as she did. Also submitted is a February 11, 2008 letter to eSpeed stockholders, which formed part of the Proxy Statement materials submitted to the United States Securities and Exchange Commission. This public filing supports the information contained in Koster's affirmation. It states, in part:
"eSpeed, Inc.( eSpeed' or the Company') and BGC Partners Inc. ( BGC Partners')... have entered into a definitive Agreement and Plan of Merger...pursuant to which BGC Partners will be merged ... with and into the Company [eSpeed]. The surviving corporation in the merger will be renamed BGC Partners, Inc.'"
The Notice of Special Meeting of Stockholders also states that "BGC Parkers will be merged with and into eSpeed, with eSpeed surviving the merger and renamed as BGC Partners, Inc,'..."Any right lawfully belonging to any of corporations merged together can be asserted by the surviving corporation (see Business Corporation Law § 906 [b]; see also Platt Corp. v Platt, 21 AD2d 116, 120-121 [1st Dept 1964], affd 15 NY2d 705[if an action was brought to recover upon a cause of action in favor of one corporation at the time of its merger with another, and it is still then pending, the action may be continued in the name of the original owner until a substitution of parties is effected]; W.H. McElwain Co. v Primavera, 180 App Div 288, 288-289[1st Dept 1917] [nothing is lost by a merger and merged corporation is entitled to enforce a guaranty of an obligation running to one of its constituent corporations]).
By virtue of the merger, eSpeed's rights were transferred to BGC (see People ex rel Spitzer v Grasso, 54 AD3d 180, 203 [1st Dept 2008]). Therefore, BGC stands in the place of the defunct eSpeed (see Billy v Consolidated Mach. Tool Corp., 51 NY2d 152, 161 ), and accordingly, it is entitled to enforce the License Agreement.
Refco further maintains that BGC has not established that it served the notice of acceleration required by section 11 (a) of the License Agreement. I find there is no issue of fact to resolve concerning BGC's actions in accelerating payment. The License Agreement does not provide what BGC must do to evidence its election to declare the outstanding balance due. Notwithstanding, BGC properly accelerated the payment balance by its filing and service of the summons and complaint (see Logue v Young, 94 AD2d 827, 827 [3d Dept 1983] [option to accelerate payment accomplished by service of summons and complaint]). Further discussion is unnecessary.
I am also unpersuaded by Refco's argument that summary judgment should be denied because additional discovery, related to substitute contracts and commissions that may have been received from third parties, is material and necessary. Refco is rearguing the same issue that I already rejected. It has failed once again to demonstrate that discovery will lead to evidence sufficient to defeat summary judgment as indicated in the court's prior Discovery Decision.[FN2] In any event, since [*5]there is no need for additional information, the argument is insufficient to defeat BGC's motion for summary judgment (see Hayden v City of New York, 26 AD3d 262, 262 [1st Dept 2006] ["In addition, plaintiff failed to show that the representatives already deposed had insufficient knowledge or were otherwise inadequate, or that further discovery was warranted by reason of a substantial likelihood that additional persons sought for deposition possessed information material and necessary to oppose the motion"]).
Refco also continues to insist that the License Agreement is a patent license agreement. Based on the language of the License Agreement, I previously found otherwise. The License Agreement was for the right to use certain technology. All other rights, which include patent rights, were reserved to BGC. Refco's obligation to pay BGC arises out of contract law principles. "[A] written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms" (Greenfield v Philles Records, Inc., 98 NY2d 562, 569 ; see also Innophos v Rhodia, S.A., 10 NY3d 25, 29 ). The License Agreement called for payment of a fixed software licensing fee. Refco never repudiated the License Agreement based on patent invalidity. BGC/eSpeed performed fully, and Refco received substantial benefits under the License Agreement. Refco ceased making payments in late October 2005. Clearly, Refco, as licensee, remains obligated to pay all royalties under the License Agreement.
With regard to the question of damages, plaintiff is not entitled to an award of attorneys' fees absent an agreement between the parties, statutory authorization, or court rule (see Braithwaite v 409 Edgecombe Ave. HDFC, 294 AD2d 233, 234 [1st Dept 2002]; Crispino v Greenpoint Mortg. Corp., 2 AD3d 478, 480 [2d Dept 2003] citing Hooper Assocs. v AGS Computers, 74 NY2d 487, 491-492 ). In this case, BGC lacks any proper basis for the recovery of attorneys' fees. Consequently, BGC's motion for attorneys' fees is denied .
BGC is, however, entitled to its fixed fees, prejudgment interest and costs. BGC uses November 1, 2005 as a "reasonable intermediate date" to begin calculating the interest owed by Refco, and seeks an interest award of nine percent per annum on $1,495,000, representing the total amount owed by Refco from November 1, 2005 to the date of entry of final judgment. Refco disagrees with BGC's method for calculating interest and damages. Since there is a conflict between the parties over the calculation of interest due BGC in this case, that issue will be referred to a Special Referee for a determination on the total amount of damages due BGC.
Because Refco has failed to come forward with any evidence showing the existence of a triable issue of material fact contesting an unpaid balance under the License Agreement, BGC is entitled to summary judgment. Nonetheless, issues related to the total amount of damages due BGC, particularly, the amount of interest due, is referred to a Special Referee.
Accordingly, it is hereby
ORDERED that part of the motion filed by plaintiff BGC Partners, Inc., f/k/a eSpeed, Inc., which seeks summary judgment is granted as to liability; and it is further [*6]
ORDERED that the part of plaintiff's motion which seeks attorneys' fees is denied; and it is further
ORDERED that the issue of interest and costs owed plaintiff by defendant Refco Securities, LLC is referred to a Special Referee to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation of the parties, as permitted by CPLR 4317, the Special Referee, or another person designated by the parties to serve as referee, shall determine the aforesaid issue; and it is further
ORDERED that this motion is held in abeyance pending receipt of the report and recommendations of the Special Referee and a motion pursuant to CPLR 4403 or receipt of the determination of the Special Referee or the designated referee; and it is further
ORDERED that counsel for the party seeking the reference or, absent such party, counsel for plaintiff shall, within 30 days from the date of this order, serve a copy of this order with notice of entry, together with a completed Information Sheet,[FN3] upon the Special Referee Clerk in the Motion Support Office (Room 119), who is directed to place this matter on the calendar of the Special Referee's Part (Part 50R) for the earliest convenient date.
DATED: April ____, 2012
Footnote 1:The fixed monthly fee is the following: (i) Year 1-$17,5000; (ii) Year 2-$25,000; (iii) Year 3-$37,5000;(iv) Year 4—$50,000; (v) Year 5-$50,000; and (vi) Year 6-$60,000.
Footnote 2: Refco's theory is that, although Refco ceased making payments under its contract with eSpeed, BGC, nonetheless, continued to receive payments directly from Refco's former customers for the same business under separate contracts. I found that BGC is only seeking damages based on the fixed obligations of Refco under the License Agreement, not loss of commissions. Thus, subsequent agreements with Refco's former customers and commissions resulting from those agreements are irrelevant to BGC's damages under section 11 (a) of the License Agreement.
Footnote 3: Copies are available in Rm. 119 at 60 Centre Street, and on the Court's website.