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Oppenheimer & Co., Inc. v. Trans Energy, Inc.

United States District Court, Second Circuit

May 23, 2013

OPPENHEIMER & CO., INC., Plaintiff,
v.
TRANS ENERGY, INC. and AMERICAN SHALE DEVELOPMENT, INC., Defendants.

OPINION AND ORDER

JESSE M. FURMAN, District Judge.

Plaintiff Oppenheimer & Co. Inc. ("Oppenheimer") brings this action against Trans Energy Inc. ("Trans Energy") and its wholly-owned subsidiary, American Shale Development Inc. ("American Shale"), alleging two claims for breach of contract. Specifically, Oppenheimer alleges that Defendants failed to properly compensate Oppenheimer pursuant to the terms of an agreement (the "Agreement" or the "contract") under which Oppenheimer agreed to assist Trans Energy in securing capital to finance its drilling operations. Defendants now move, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, for dismissal of the Complaint in its entirety. Defendants' motion to dismiss is GRANTED in part and DENIED in part.

BACKGROUND

On a motion to dismiss, a court may consider facts stated in the complaint, any documents attached to the complaint, and any documents incorporated by reference into the complaint. See, e.g., Nechis v. Oxford Health Plans, Inc., 421 F.3d 96, 100 (2d Cir. 2005). Where the claim is for breach of contract, as here, the complaint is deemed to incorporate the alleged contract by reference because the alleged contract is integral to the claim. See, e.g., Broder v. Cablevision Sys. Corp., 418 F.3d 187, 196 (2d Cir. 2005). Accordingly, the following facts are taken from the Complaint and from documents referenced therein, including the contract, and are assumed to be true for purposes of this motion. See, e.g., LaFaro v. N.Y. Cardiothoracic Grp., PLLC, 570 F.3d 471, 475 (2d Cir. 2009).

A. The Agreement Between Oppenheimer and Defendants

Trans Energy is an independent energy exploration and development company. (Compl. ¶ 11).[1] On June 18, 2010, Trans Energy entered into a letter agreement with Oppenheimer, under which Oppenheimer agreed to assist Trans Energy in raising capital to fund Trans Energy's drilling operations and meet its other financial obligations. After the expiration of the June 18, 2010 Agreement, Trans Energy and Oppenheimer entered into a second letter agreement on July 22, 2011, under which Trans Energy once again engaged Oppenheimer "on an exclusive basis as its financial advisor, investment banker, placement agent and/or arranger with respect to one or more possible Sale(s) and/or Financing(s)... and with respect to such other financial matters as to which [Trans Energy] and [Oppenheimer] may agree in writing during the term of this engagement." (Compl. ¶ 21 & Ex. A ("Agreement") at 1). The Agreement defined the "Company" to include "affiliates of [Trans Energy] and any entity that [Trans Energy] or its affiliates may form or invest in to consummate a Transaction... and shall also include any successor to or assignee of all or a portion of the assets and/or businesses of [Trans Energy]." ( Id. ).

Pursuant to Section (d) of the "Compensation" provision of the Agreement ("Section (d)"), the parties agreed that if the Company consummated a qualifying financial transaction during the term of Oppenheimer's engagement, the Company would pay Oppenheimer:

(i) 1.25% of the aggregate gross proceeds of (or in the case of a revolving credit or multi draw term loan facility, 1.25% of the aggregate committed amount in connection with) any new senior secured indebtedness ("Senior Debt") issued, and 3.0% of the aggregate gross proceeds (or committed amount) of any new indebtedness ranked junior to any Senior Debt; and
(ii) 3.0% of the gross proceeds of any convertible debt or equity linked securities or obligations issued; and
(iii) 6.0% of the gross proceeds of any equity securities or obligations issued; and
(iv) with respect to any other securities or indebtedness issued, such placement fees or other compensation as shall be customary under the circumstances and mutually agreed in good faith by the Company and Oppenheimer.

(Agreement at 5). In other words, Section (d) of the Agreement set forth a schedule of fees based on the type of financing, if any, the Company obtained.

B. The Chambers Financing

According to the Complaint, between September and December 2011, Oppenheimer contacted twenty prospective lenders and eighteen investors on Trans Energy's behalf. Only one company, Chambers Energy Management, LP ("Chambers"), expressed interest in entering into a financial transaction with Trans Energy. (Compl. ¶ 21). Prior to committing to any financing, Chambers required Trans Energy to implement a number of structural changes at the company. Specifically, Chambers insisted that Trans Energy create a separate borrower to insulate assets and minimize Chambers's exposure to lending risks, and required that the founders and certain members of Trans Energy's management team ...


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