CoE Assoc., LLC v Regulus Intl. Capital Co., Inc.
Annotate this CaseDecided on October 26, 2004
Supreme Court, New York County
CoE Associates, LLC, Plaintiff,
against
Regulus International Capital Co., Inc., Defendant.
101036/02
Diane A. Lebedeff, J.
Plaintiff CoE Associates, LLC ("CoE") moves for an order granting summary judgment and striking the answer, and defendant Regulus International Capital, Co., Inc. ("Regulus"), cross-moves for summary judgment.
Factual Background
Plaintiff claims it earned a $50,000 commission, pursuant to a letter agreement dated June 6, 2001, and amended June 27, 2001. The June 6, 2001, letter agreement records the parties' agreement "with respect to the services of [CoE] in assisting [Regulus] in arranging a $3 million working capital line" for Winstar TV and Video Inc. ("Winstar"). The letter reflects that Regulus anticipated needing a commitment letter in place by the end of June. The letter further provides that, if plaintiff is successful in assisting Regulus in establishing such working capital line, it would receive, at its option, either a flat fee of $50,000, or 3% of the equity of Winstar.
The amended letter agreement, dated June 27, 2001, provides "the date of a commitment letter acceptable to Regulus for the financing sought by Regulus for its acquisition of [Winstar] is extended ... to and including July 31, 2001." It further states that, notwithstanding the extension, CoE is entitled to receive the "stated fee if such financing is obtained by Regulus from any source introduced by CoE" or its principal, Jack Prizzi.
Plaintiff alleges it earned its fee because it introduced Regulus to two financing sources Platinum Funding Corp. ("Platinum") and Prestige Capital Corporation ("Prestige") that initially offered to provide $3,000,000 financing. Regulus first entered into a letter of intent with Platinum for a $3,000,000 line but, prior to closing, Platinum reduced the amount to $1,100,000. Regulus regarded that amount as insufficient to complete the merger with Winstar, and had to pay a "break up" fee of $20,000.
Prizzi then introduced Regulus to Prestige, and Regulus entered into a letter of intent for a $3,000,000 line of credit with Prestige. In or about September of 2001, Regulus received a [*2]working capital line from Prestige in the amount of $1,324,000, and completed the merger on September 10, 2001 (Miller affidavit, paras. 1, 21). Regulus's principal asserts that the limited financing was an obstacle that almost prevented completion of the merger, and resulted in a closing on substantially different terms than contemplated, including a personal investment of $250,000 by each of the individual principals and personal guarantees by them of Regulus's obligations to Prestige.
Defendant takes the position that plaintiff is not entitled to any fee because it failed to obtain a commitment letter for a working capital line of $3,000,000, which was a "condition precedent" to their obligation to pay a fee.
Plaintiff argues that it substantially performed by introducing lenders who entered into letters of intent to provide financing "up to $3,000,000," but that the receivables of Winstar were less than originally represented and the purchase price was reduced by $2,000,000, so that the full amount was not supportable and/or necessary for the merger (Prizzi reply affidavit, para. 3). It points out that, under defendant's view, no fee would be earned even if plaintiff introduced a lender who provided a $2,999,999 line of credit. Defendant replies that the amount financed was less than it wanted for the transaction, even after the purchase price was reduced, and that Prizzi did not seek out financing based on assets of Winstar other than its receivables.
Legal Discussion
It is well-established that to obtain summary judgment under CPLR 3212 (b), the movant must make a "tender of proof in admissible form" to "establish [a] cause of action 'sufficiently to warrant the court as a matter of law in directing judgment' in [movant's] favor" (Friends of Animals v. Assoc. Fur Mfrs., 46 NY2d 1065, 1067 [1979]). The party "opposing a motion for summary judgment must produce evidentiary proof in admissible form sufficient to require a trial of material questions of fact" (Zuckerman v. City of New York, 49 NY2d 557, 562 [1980]).
In analogous cases involving mortgage loans, the general rule is that "a mortgage broker earns a commission when it obtains a commitment letter from a lender which meets all the terms and conditions of the loan which the borrower stipulated to in the agreement with the broker" (Multiloan Mortg. Co., LLC v. Asian Gardens Ltd., 303 AD2d 658 [2d Dept. 2003]; Donald Zucker Co. v. Lieberman, 183 AD2d 553 [1st Dept. 1992]). If the loan obtained "varie[s] substantially" from the terms of the loan which the broker agreed to obtain, then the fee has not been earned (Multiloan Mortg. Co., LLC v. Asian Gardens Ltd., supra; see also Omni Funding Corporation v. Minskoff, 281 AD2d 288 [1st Dept. 2001], if "the loan proposals it procured were not equivalent to the loan prescribed by defendants" broker is not entitled to a fee).
Under this approach, plaintiff was not required to obtain a commitment letter in the exact amount of $3 million as a "condition precedent" to recovery, but was required to obtain a commitment letter for substantially equivalent financing. The $1.3 million line of credit eventually obtained through plaintiff's introduction was substantially less than the $3 million in financing that defendant required to close the transaction. Defendant presents evidence that the shortfall in financing required significant changes in the structure of the transaction.
Plaintiff contends that it was not possible to obtain the desired amount of financing because the amount of account receivables had been overstated, and that defendant benefitted by negotiating a reduced purchase price for Winstar. Assuming these points to be true, plaintiff still [*3]did not earn the $50,000 flat fee under the terms of the parties' letter agreement, because the amount of financing obtained through its efforts was substantially less than the target amount set forth in the letter agreement.
The court is also mindful that "[t]he fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties' intent" (Greenfield v. Philles Records, Inc., 98 NY2d 562 [2002]), and "whenever possible, ... should be given a 'fair and reasonable interpretation'" (Farrell Lines, Inc. v. City of New York, 30 NY2d 76, 83 [1972]). In this case, the $50,000 fee to be paid to plaintiff under the terms of the letter agreement would have been equivalent to 1.6% of $3 million. Defendant's principal asserts that Mr. Prizzi told him that 1.5% is the standard fee for services of the type rendered by plaintiff (Miller affidavit, para. 26), and plaintiff does not dispute that assertion. It would not be fair or reasonable to interpret the letter agreement as providing for payment of a flat fee of $50,000, regardless of the amount of financing actually procured through plaintiff's efforts.
Defendant also addresses a potential quantum meruit claim, which plaintiff has not expressly pleaded in the complaint, but which is fairly encompassed by the record. Defendant argues that plaintiff is not entitled to seek recovery on a quasi-contract theory since the letter agreement governs the parties' relationship (Baumberger Capital v. Canaan Partners, 235 AD2d 216 [1st Dept.], lv. denied, 90 NY2d 804 [1997]). However, plaintiff may proceed on a theory of quantum meruit "where there is a bona fide dispute as to the existence of a contract or where the contract does not cover the dispute in issue" (Joseph Sternberg, Inc. v. Walber 36th Street Associates, 187 AD2d 225, 227 [1st Dept. 1993], agreement, which set amount of broker's fee in event seller received stated price and was silent as to fee if lesser amount were received, did not preclude broker from seeking quantum meruit recovery). Since the letter agreement does not clearly cover the financing actually obtained, quantum meruit recovery may be available.
Accordingly, the motion for summary judgment is denied, the cross-motion is granted to the extent the breach of contract claim is dismissed, and plaintiff is granted leave to amend the complaint to assert a quantum meruit claim. It appearing that the amount remaining in dispute is less than $25,000, the matter is transferred to the Civil Court of the City of New York subject to the provisions of CPLR 325(d). Plaintiff's counsel is reminded to contact the transfer clerk in the County Clerk's Office and to pay any necessary fee.
This decision constitutes the order of the court.
Dated: October 26, 2004
___/s/_________________________
J.S.C.
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