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INDIA.COM, INC. v. DALAL

September 10, 2003

INDIA.COM, INC., PLAINTIFF
v.
SANDEEP DALAL, DEFENDANT; SANDEEP DALAL, COUNTERCLAIM PLAINTIFF, V. INDIA.COM, INC., EASYLILNK SERVICES CORPORATION, AND INDIA HOLDINGS, INC., COUNTERCLAIM DEFENDANTS



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION AND ORDER

This case has a tortured and topsy-turvy history for all Page 2 involved. The defendant in this action, Sandeep Dalal ("Dalal"), brings this motion under Rule 59, Fed.R. Civ. P., to amend the judgment awarded on February 20, 2003 (the "February 20 Opinion")*fn1, or in the alternative for a new trial. The February 20 Opinion was itself a ruling on a Rule 59 motion. It found that judgment should be issued in favor of plaintiff India.com, Inc. ("ICI") and its corporate parent and counterclaim defendant EasyLink Services Corporation ("EasyLink").*fn2 The February 20 Opinion reversed the opinion issued following the bench trial on December 9, 2002 (the "December 9 Opinion") in favor of Dalal against ICI and EasyLink. Through the pending motion Dalal essentially seeks reinstatement of a trial verdict in his favor. For the reasons described below, judgment will once again be entered in Dalal's favor on his claim that he is a third-party beneficiary to a contract that EasyLink breached.

In this motion, Dalal contends that the February 20 and December 9 Opinions overlooked controlling authority under New York law that would have permitted Dalal to recover on his breach of contract claim. Dalal argues additionally that he should have been granted a new trial because the February 20 Opinion applied the incorrect standard in its reversal of the December 9 Opinion and because he was severely prejudiced by the fact that EasyLink had not previously presented the legal argument on which the Page 3 February 20 Opinion relied. EasyLink argues that Dalal cannot recover on his breach of contract claim under New York law. EasyLink further contends that Dalal is not entitled to a new trial and that Dalal's Rule 59 motion should be limited to issues raised by the first Rule 59 motion. Clearly, some history is in order.

Background

The findings of fact issued following the bench trial included in substance the following. This action arises from the failed sale of another casualty of the dot.com implosion. In May 2000, EasyLink formed ICI, an internet services company with offices in Bombay, India and New York City. ICI provided various services through its internet portal including information related to India, web consulting services, and the sale of hardware and software. After suffering heavy losses with ICI, EasyLink decided in March 2001 to sell its subsidiary.

The defendant, who had been employed as a senior corporate officer at ICI, signed on April 18, 2001, the first of three broker agreements with EasyLink for the sale of ICI (the "First Agreement"). The First Agreement provided, inter alia, that Dalal would be the exclusive broker for the sale of ICI, that Dalal would receive a commission based upon the amount and timing of the sale, that ICI could not refuse any offer above half a million dollars, and that the agreement would expire after a Page 4 specified time period.*fn3

By May 2001, EasyLink, with the assistance of the defendant, had found a buyer, Business India ("BI"), a media company based in India, willing to sign a term sheet. At the end of July, EasyLink and Dalal signed a second broker agreement (the "Second Agreement") which extended the expiration dates in the First Agreement by thirty days, to November 14, 2001. It confirmed that payment under the formula enumerated in Section 2(b) of the First Agreement would also be extended. EasyLink and BI signed an escrow agreement in August of 2001, which provided that BI would deposit a specified amount into the escrow account and that Page 5 this amount would either be applied to the sale of ICI or would be forfeit to EasyLink in the event that the sale had not closed by the end of November 2001.

ICI continued to experience financial difficulties throughout the summer of 2001. For example, EasyLink could no longer afford its monthly lease payments for ICI's offices and defaulted on the lease. Under the threat of legal action from the landlord, ICI vacated the office space and signed a settlement agreement with its landlord, with EasyLink guaranteeing payment. Additionally, EasyLink's legal counsel in India stopped work for a portion of the summer because EasyLink had not paid its legal bills for six months. Finally, EasyLink negotiated a payment arrangement with ICI's management and staff who had not been fully paid during the summer.

On October 26, EasyLink and BI signed a Stock Purchase Agreement ("SPA") for the sale of ICI for a total consideration of $8 million.*fn4 The SPA contained a clause which specifically identified Dalal as the broker for the sale and indicated that Dalal would be paid under a separate broker agreement.*fn5 The SPA Page 6 also contained a provision which expressly denied the creation of any third-party beneficiary rights under the contract (the "Negating Clause").*fn6 The SPA further required BI to apply for the required government approvals for the sale by November 7, 2001, and permitted EasyLink to terminate the SPA if the application for these approvals had not been made by this date. The SPA gave both parties the unilateral right to terminate the transaction if it had not closed by January 31, 2002, provided that the party seeking to terminate had not been the cause of the failure to close.

On the same date the SPA was signed, the defendant and EasyLink signed their third broker agreement (the "Third Agreement"), an agreement that Dalal had drafted. The Third Agreement did not include the sliding scale on which the first two agreements relied to compute Dalal's compensation. Instead, Page 7 it provided that the defendant would be paid the maximum amount of compensation — a commission of 12.5% of the total consideration — in the event that the transaction with BI closed pursuant to the SPA. The Third Agreement, unlike the Second Agreement, did not extend the expiration periods of the First Agreement, which were due to expire on November 14. As a consequence, the Third Agreement made any payment to Dalal entirely dependent on the SPA and the payment of consideration by the Buyer. There was no preservation of the obligation contained in Section 2(b) of the First Agreement (and extended by the Second Agreement) that EasyLink could not refuse any offer greater than one-half million dollars.

Upon the signing of the SPA the parties turned their attention to the application process for obtaining the appropriate government approvals. As both parties understood, the cooperation of both parties was necessary for the application process to be completed successfully. Prior to the November 7 deadline BI was prepared to file the application, but was thwarted when EasyLink's legal counsel in India engaged in another work stoppage because of unpaid bills. As a result, application for the government approvals was not made prior to the November 7 deadline. This failure was directly due to EasyLink's failure to pay its Indian counsel. The parties nonetheless continued to work together to obtain the government authorizations.

On December 19, prior to the closing of the sale, EasyLink sent a letter to BI terminating the SPA. The termination letter Page 8 explained that EasyLink was terminating the sale because BI had not filed the application for a government approval by November 7, the deadline specified in the SPA. EasyLink informed BI, however, that it still wanted to pursue the transaction and offered new terms for the sale.

EasyLink breached the SPA by improperly terminating it. It had caused the failure to meet the November 7 deadline. EasyLink decided to terminate the SPA because it found itself trapped between the terms of the SPA and the demands of creditors. It was itself in breach of the SPA by that time and faced an obligation to pay $150,000 in liquidated damages.*fn7 It hoped that by terminating the SPA it would have more freedom to reach agreements with its creditors and also to close a deal with BI under new terms. On December 20, the defendant told EasyLink that he believed that he was entitled to his full commission fee, since the transaction would have closed but for delays created by EasyLink in the closing of the transaction.

On January 3, 2002, EasyLink filed this action under the name of its subsidiary ICI. The complaint alleged claims for breach of contract, breach of fiduciary duty, tortious interference with economic opportunity, misrepresentation, and breach of the covenant of good faith and fair dealing, and sought a declaratory judgment that it owed no fee to Dalal. Dalal Page 9 asserted counterclaims of breach of contract, promissory estoppel, quantum meruit, tortious ...


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