Opinion
601920/07.
Decided July 22, 2008.
Clifford James, NY, NY, By: Clifford James, Esq, for Plaintiff.
Levi Lubarsky Feigenbaum LLP, NY, NY, By: Howard B. Levi, Esq, for Defendants.
In this action, plaintiff, Marathon Private Equity Fund I, LLC (Marathon), seeks to recover $167,730.24 pursuant to an agreement it entered into with defendant Questor Management Company, LLC (Questor) and Questor's wholly-owned subsidiary, ASC Incorporated (ASC).
Questor, pursuant to CPLR 3211 (a) (7), seeks dismissal of the amended complaint. The only claim in the amended complaint is for breach of contract as against Questor.
According to Marathon, ASC was a distressed company for which Questor sought a buyer. Marathon contends that in connection with its proposed acquisition of certain divisions of ASC, it, Questor, and ASC executed an agreement, dated December 18, 2006. Marathon further contends that had the sale occurred, Questor was to receive at least $20 million of the purchase price, which the term sheet states was $25 million cash, and thus stood to benefit from the acquisition. Marathon states that it negotiated the agreement with Questor's managing director, who never stated or implied that he needed to consult with ASC regarding the matter and advised Marathon that it should not communicate anything regarding the negotiations to ASC. Marathon states that Questor drafted the agreement. The president of ASC signed it on behalf of ASC.
The term sheet is annexed to the agreement and also includes an earn-out provision.
The agreement, which is short and annexed to the amended complaint, denominates ASC as the "Seller" and states:
"Under this agreement, upon the written request by Marathon, which request shall include reasonably detailed supporting evidence, ASC will promptly reimburse Marathon for its reasonable out-of-pocket expenses incurred in connection with the Proposed Acquisition upon the terms and subject to the conditions specified in this letter. Marathon shall give ASC prompt notice if it believes any event described in (i) or (ii) below has occurred and neither ASC nor Questor shall be responsible for any expenses to the extent incurred by Marathon after such notice is given even if ASC is otherwise responsible under this agreement for Marathon's expenses. ASC will reimburse the amount of Marathon's reasonable out-of-pocket expenses subject to the limits specified below in accordance with this letter as follows:
(i) If Marathon continues to negotiate in good faith with the Seller to enter into a definitive asset purchase agreement regarding the Proposed Acquisition incorporating the terms set forth in the attached term sheet and is prepared to execute a definitive asset purchase agreement consistent with the Term Sheet, and during such period as Marathon continues to negotiate in good faith the Seller either ceases negotiating in good faith the terms of the Proposed Acquisition, refuses to execute a definitive asset purchase agreement consistent with the Term Sheet, or enters into a definitive agreement for a Competing Transaction (as defined below), ASC will reimburse Marathon for all such expenses incurred up to $500,000.
(ii) If Marathon or its advisors or representatives is provided with or otherwise discovers information or documentation from ASC or its subsidiaries through their due diligence investigations of the Targeted Divisions after the date hereof and before 11:59 New York time on January 20, 2007 (such period, the "Diligence Period") that reveals (i) a material adverse change from what ASC disclosed to Marathon prior to the date hereof regarding the Targeted Divisions taken as a whole, or (ii) a material liability of the Targeted Divisions taken as a whole not disclosed to Marathon prior to the date hereof, and as a consequence Marathon is unwilling to proceed with the Proposed Acquisition on terms at least as favorable to the Seller as those set forth in the Term Sheet, ASC will reimburse Marathon for up to one-half of all such expenses incurred up to $250,000.
* * *
Neither ASC nor Questor shall have any obligation to reimburse Marathon for any expenses incurred (whenever such expenses were incurred) if Marathon and ASC enter into a definitive agreement in connection with the Proposed Acquisition or if despite the parties working in good faith toward signing a definitive asset purchase agreement consistent with the Term Sheet, and Marathon is not otherwise entitled to reimbursement of expenses hereunder, such an agreement is not signed within 180 days of the date of this letter."
(Levi Aff., Exh. A [the Agreement Provisions]). In another provision of the agreement, Questor and ASC agreed to provide Marathon and its affiliates and advisors with full access to all diligence materials and information relating to the divisions of ASC up for sale, that were reasonably requested by Marathon during the "Diligence Period" as defined in the Agreement Provisions quoted above.
Marathon contends that it conducted due diligence toward the acquisition which revealed that the information disclosed to it by Questor and ASC was materially inaccurate. Marathon states that on January 19, 2007 it notified Questor and ASC that it was declining to proceed with the proposed acquisition. Thereafter, Marathon maintains that it sent repeated requests for reimbursement for its out-of-pocket due diligence expenses in the amount of $162,730.24, half of Marathon's total due diligence expenses, to Questor and ASC, pursuant to the agreement, to which Questor's managing director initially responded that no reimbursement would be forthcoming. Marathon claims to have received no further response concerning the matter.
ASC has filed for bankruptcy, where most of its assets were sold off. Marathon maintains that, in the bankruptcy proceeding, Questor is claiming the asset sale proceeds.
To prevail on a motion to dismiss under CPLR 3211 (a) (l), a defendant must show that the documentary evidence upon which the motion is based resolves all factual issues as a matter of law and definitively disposes of a plaintiff's claim ( see Goshen v Mut. Life Ins. Co. of NY, 98 NY2d 314, 326).
It is the responsibility of the courts to interpret written instruments in order to determine the intention of the parties from the language employed ( Mallad Constr. Corp. v County Fed. Sav. Loan Assn., 32 NY2d 285, 291). The courts also determine, as a matter of law, whether ambiguity exists by examining the agreement as a whole, considering also "the relation of the parties and the circumstances under which it was executed'" ( Kass v Kass, 91 NY2d 554, 566, quoting Atwater Co. v Panama R.R. Co., 246 NY 519, 524; Nappy v Nappy , 40 AD3d 825 , 826 [2d Dept 2007]). An agreement is ambiguous where it is, on its face, susceptible to two or more interpretations ( Nappy, 40 AD3d at 826).
When the meaning of a contract is plain and clear, the agreement is not to be subverted by straining to find an ambiguity, but is to be enforced according to its terms ( Uribe v Merchants Bank of NY, 91 NY2d 336, 341; W.W.W. Assoc. v Giancontieri, 77 NY2d 157, 162) and without resort to extrinsic evidence ( Master-Built Constr. Co., Inc. v Thorne , 22 AD3d 535 , 535 [2d Dept 2005]). In adjudicating the rights of the parties to a contract, courts may not fashion a new agreement under the guise of contract construction, but are limited to enforcing the instrument according to its precise tenor ( Slatt v Slatt, 64 NY2d 966, 967; see Tonking v Port. Auth. of NY and N.J. , 3 NY3d 486 , 490 [stating that a court may not "rewrite the contract and supply a specific obligation the parties themselves did not spell out"]; Flag Wharf, Inc. v Merrill Lynch Capital Corp. , 40 AD3d 506 , 507 [1st Dept 2007] ["(c)ourts will not rewrite contracts that have been negotiated between sophisticated, counseled commercial entities"]).
Both of the parties support their arguments with the agreement. Questor argues that the complaint should be dismissed because the agreement does not require that it reimburse Marathon for due diligence expenses. In opposition, Marathon contends that the agreement provides that Questor and ASC are to provide due diligence materials and information reasonably requested by Marathon. Marathon states that the agreement "further provides that unsatisfactory due diligence findings not only permit Marathon to decline to complete the [acquisition], but also trigger obligations to reimburse Marathon for half of its out-of-pocket expenses incurred in its due diligence investigation" (Pl. Memo. of Law, at 3). In support of its contentions, Marathon reprints the first paragraph and paragraph "ii" of the Agreement Provisions quoted above.
Marathon argues that Questor's stated reading of the contract — that it imposes liability for the reimbursement of Marathon's due diligence expenses on ASC alone — is inconsistent with the surrounding circumstances, the purpose of the agreement, and the relationship of the parties. It further contends that if the entire agreement were read in the manner in which Questor urges, it would become meaningless.
Marathon also describes Questor's business of buying, turning around, and selling companies for a profit, and highlights Questor's managing director's role in negotiating the agreement drafted by Questor. Marathon maintains that Questor, as a signatory that did not request from Marathon a provision exempting it from liability for reimbursement of Marathon's due diligence expenses in the event that the due diligence that Questor and ASC provided was deficient, is liable for such reimbursement.
The plain language of the agreement does not comport with plaintiff's contention.The agreement provides that under certain conditions, ASC would pay Marathon's due diligence expenses, with certain limits, that is a cap, as to the amount it would pay. The agreement does not impose upon Questor an obligation to reimburse Marathon's due diligence expenses under Paragraph ii of the Agreement Provisions, or otherwise.
Plaintiff argues that Questor's interpretation of the agreement fails because Questor did not request, and the agreement does not contain, a provision exempting Questor from liability to reimburse Marathon for Marathon's expenses (Pl. Memo. of Law, at 7). That Questor did not request, or receive, a provision exempting it from liability for reimbursement does not aid plaintiff where Questor has obligations stated in the agreement, but reimbursement to Marathon for due diligence expenses is not one of them. The parties made clear the responsibilities of the agreement's signatories concerning reimbursement of due diligence expenses; that they did not add the belt-and-suspenders provision that plaintiff claims they should have does not make the parties' stated intentions less clear.
The agreement contains provisions imposing obligations on both ASC and Questor.
Plaintiff argues against what it calls a "literal" interpretation of the agreement (Pl. Memo. of Law, at 12) and it dissects the agreement for inconsistencies that simply do not change the result here. Furthermore, that the parties agreed that the terms contained in the term sheet were "indicative only" except for purposes of determining whether Marathon is due reimbursement of due diligence expenses, does not, as plaintiff argues, make Questor liable for those expenses. This provision merely demonstrates the parties' agreement that while the provisions of the term sheet were subject to modification, any changes made would not affect their agreement concerning due diligence expenses.
Giving effect to all of the provisions of the agreement as required ( American Exp. Bank Ltd. v Uniroyal, Inc., 164 AD2d 275, 277 [1st Dept 1990]), only ASC had the reimbursement obligation plaintiff seeks to here impose on Questor. Marathon seeks a reading that would define the term "ASC" to mean "ASC and Questor," when such a reading does not comport with the parties' definitions in the agreement, or the agreement's plain meaning. Moreover, had these sophisticated parties intended that Questor reimburse Marathon under the same circumstances as ASC, surely they could have drafted the agreement to reflect that intention. While plaintiff seeks to have the court imply a provision into the contract for reimbursement from Questor, a court may not remake a contract under the guise of interpretation ( Republic Nat. Bank of New York v Olshin Woolen Co. Inc., 304 AD2d 401, 402 [1st Dept 2003]; see Slatt, 64 NY2d at 967). As the agreement is unambiguous concerning the issue here, it is unnecessary to resort to the extrinsic evidence submitted by defendants.
Accordingly, it is
ORDERED that motion to dismiss is granted and the complaint is dismissed with costs and disbursements to defendant as taxed by the Clerk of the Court; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly.