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Credit Suisse Securities (Usa) LLC v. Grand Circle LLC

United States District Court, Second Circuit

September 23, 2013

CREDIT SUISSE SECURITIES (USA) LLC, Plaintiff,
v.
GRAND CIRCLE LLC and GRAND CIRCLE RIVER CRUISE LINES LLC, Defendants.

MEMORANDUM OPINION AND ORDER

JOHN G. KOELTL, District Judge.

These are cross-motions for partial summary judgment in a dispute between the plaintiff, Credit Suisse Securities USA, LLC ("Credit Suisse"), and the defendants, Grand Circle LLC and Grand Circle River Cruise Lines LLC (collectively, "Grand Circle"). The dispute concerns the meaning of a provision in a contract calling for Credit Suisse to act as financial advisor to Grand Circle in conjunction with the sale of Grand Circle to potential buyers. The clause at issue required Grand Circle to pay a $1 million fee to Credit Suisse in the event that Grand Circle decided not to consummate a sale following receipt of a bid reaching a given threshold amount. Credit Suisse contends that it obtained such a bid and that Grand Circle decided not to consummate a sale, and therefore Credit Suisse is entitled to the fee. Grand Circle contends there was no qualifying bid to accept. In its first and third causes of action, Credit Suisse alleges that Grand Circle breached the contract and was unjustly enriched by failing to pay this fee. Grand Circle argues that it was never required to pay the fee.

I.

Unless otherwise indicated, the following facts are not in dispute.

A.

Credit Suisse is a Delaware corporation with its principal place of business in New York. (Am. Compl ¶ 2; Answer to Am. Compl. ¶ 2.) Grand Circle is incorporated in Delaware with its principal place of business in Boston, Massachusetts. (Am. Compl. ¶ 3; Answer to Am Compl. ¶ 3.) Grand Circle offers vacation and cruise packages to clients over the age of fifty. (Def.'s Rule 56.1 Stmt. in Supp. of Motion for Summ. J. ¶ 5; Pl.'s Rule 56.1 Stmt. in Opp. to Motion for Summ. J. at 5.) It has been owned by CEO and Chairman Alan Lewis and his family since 1985. (Decl. of Thomas J. Butters in Supp. of Def.'s Motion for Partial Summ. J. ("Butters Decl."), Ex. D at 12; Def.'s Rule 56.1 Stmt. in Supp. of Motion for Summ. J. ¶ 5; Pl.'s Rule 56.1 Stmt. in Opp. to Motion for Summ. J. at 5.) In 2007, Grand Circle had forty offices and 2, 500 employees worldwide, and generated earnings before interest, taxes, depreciation, and amortization ("EBITDA") of $90 million. (Def.'s Rule 56.1 Stmt. in Supp. of Motion for Summ. J. ¶ 5; Pl.'s Rule 56.1 Stmt. in Opp. to Motion for Summ. J. at 5.)

B.

On April 25, 2006, Credit Suisse and Grand Circle entered into an agreement (the "2006 Agreement") calling for Credit Suisse to serve as "exclusive financial advisor [to Grand Circle] with respect to the Sale... of [Grand Circle]." (Decl. of Joshua C. Klein in Supp. of Pl.'s Motion for Partial Summ. J. ("Klein Decl."), Ex. C at 1.) The agreement called for Credit Suisse to be paid 0.50% of "aggregate consideration" in the sale of Grand Circle if such consideration was less than $500 million; 2.0% of "aggregate consideration" greater than or equal to $500 million but less than $750 million; and 5.0% of "aggregate consideration" greater than or equal to $750 million. (Klein Decl., Ex. C at 2.) "Aggregate consideration" was defined to include:

- The "total fair market value... of all considertion... paid or payable... to [Grand Circle], " plus
- The "principal amount of all indebtedness for borrowed money (exclusive of customer deposits), capital leases and preferred stock obligations of [Grand Circle] assumed, retired, repaid, redeemed or defeased in connection with the Sale or remaining on the balance sheet of the [Grand Cirlce] at the closing of the Sale, " minus
- The "sum of... the amount of any cash or cash equivalents on [Grand Circle's] balance sheet at the time of the closing of the Sale... and... the amount of any [Grand Circle] Cash as of immediately prior to the closing of the Sale distributed to the Company's owners in connection with the sale, " plus
- The "capitalization of any leases entered into in contemplation of the Sale in connection with the m/s Paul Gauguin valued assuming 8.0x the annual lease expense obligation."

(Klein Decl., Ex. C at 2-3.) No fee other than reimbursement for "reasonable expenses" up to $75, 000 was to be paid to Credit Suisse if no sale was consummated. (Klein Decl., Ex. C at 2.)

C.

As is customary in the investment banking industry, the sale process under the 2006 Agreement was set to occur as a twophase auction. (Butters Decl., Ex. G at 14-15; Klein Decl., Ex. D at 17-18.) In the first phase, Credit Suisse would prepare a short document of informational materials about the business being sold, called a "teaser, " which would be sent to potentially interested buyers. (Butters Decl., Ex. G at 14; see Klein Decl., Ex. U.) Those who expressed further interest after receiving the teaser would receive a more robust information packet, called a Confidential Information Memorandum ("CIM"), which would contain detailed business and industry analysis. (Butters Decl., Ex. G at 14-15; see Klein Decl., Ex. T.) Interested buyers would then be invited to submit what Credit Suisse bankers described in testimony as first-round "bids" or "proposals, " (Butters Decl., Ex. G at 15; Klein Decl., Ex. D at 17, 61), and what the potential buyers themselves described as "indication[s] of interest" and "non-binding Indicative Offer[s]." (Klein Decl., Ex. F at 2, 8, 12, 14.) If an interested buyer submitted a bid that was considered acceptable, the buyer would be "moved to a due diligence phase, " and, eventually, invited to make a "final offer." (Butters Decl., Ex. G at 15; see also Klein Decl., Ex. D at 17-18.)

In response to its marketing efforts under the 2006 Agreement, Credit Suisse received four preliminary bids for the purchase of Grand Circle. (Klein Decl., Ex. F at 2, 8, 12, 14; see Klein Decl., Ex. D at 20; Klein Decl., Ex. E at 21.) However, on August 18, 2006, Grand Circle CEO and Chairman Alan Lewis "decided to stop the sale process" after concluding that the offers he received for Grand Circle were not strong enough. (Klein Decl., Ex. G at 1; see also Klein Decl., Ex. H at 1.) The only payment received by Credit Suisse in conjunction with its performance under the 2006 Agreement was reimbursement for its out-of-pocket expenses. (Klein Decl., Ex. A at 71-72; Klein Decl., Ex. I.)

D.

Despite the aborted sale process in 2006, Mr. Lewis and Credit Suisse resumed discussions about the sale of his company in early 2007. (Klein Decl., Ex. A at 74; Klein Decl., Ex. E at 23; Klein Decl., Ex. K at 33-34.) These discussions culminated on May 9, 2007 in a new agreement (the "2007 Agreement") between Credit Suisse and Grand Circle for the provision of financial advice in connection with the sale of Grand Circle. (Klein Decl., Ex. P at 1.) Like the 2006 Agreement, the 2007 Agreement called for reimbursement of "reasonable expenses"-this time up to $100, 000. (Klein Decl., Ex. P at 2.) Although neither Agreement required Credit Suisse to provide financing to potential buyers, both agreements acknowledged that "Credit Suisse may provide or otherwise assist prospective purchasers in obtaining, all or a portion of the financing with respect to a proposed sale." (Klein Decl., Ex. C at 4; Klein Decl., Ex. P at 4.)

Despite their overall similarity, the 2007 and 2006 Agreements differed in two ways. First, the "transaction fee" due to Credit Suisse upon sale of Grand Circle was to be 1.10% of aggregate consideration if the sale was made on or before March 31, 2008, and 0.90% of aggregate consideration if the sale was made after March 31, 2008; "aggregate consideration" was defined in terms identical to the terms used to define it in the 2006 Agreement. (Klein Decl., Ex. C at 2-3; Klein Decl., Ex. P at 2-3.)

Second, the 2007 Agreement contained a new clause (deemed a "walk-away" clause by the plaintiff, a "no-success" clause by the defendants, and referred to in this Opinion as the "Contingency Clause") calling for payment of a fee in the event that Grand Circle decided not to consummate a sale satisfying certain conditions. (Klein Decl., Ex. P at 2.) The Contingency Clause provided:

In the event the Company decides for any reason not to consummate a Sale following receipt of a bid valuing the Company at not less than 7.0 times the Company's 2007 earnings before interest, taxes, depreciation and amortization, a Transaction Fee of $1.0 million shall be payable at the time the Company decides not to pursue a Sale.

(Klein Decl., Ex. P at 2.)

This clause was revised once before it was finalized. Initially, on April 26, 2007, Credit Suisse proposed a clause that provided: "[i]n the event the Company decides for any reason not to consummate a Sale following receipt of either i) preliminary bids, or ii) final bids, a Transaction Fee of $2.0 million shall be payable at the time the Company decides not to pursue a Sale." (Klein Decl., Ex. M at 3; see also Klein Decl., Ex. D at 52, 65.) In a May 1, 2007 letter to Credit Suisse's Rodney Miller, Grand Circle's outside counsel stated that Mr. Lewis "believe[d]... the fee [in the Contingency Clause] should be $1 million, and should be conditioned upon receipt of an offer valuing [Grand Circle] at not less than seven times 2007 EBITDA, which [Mr. Lewis] understands is the low end of the anticipated valuation range." (Klein Decl., Ex. O at 1.) Accordingly, a new draft of the agreement enclosed with this letter provided for a $1 million fee to Credit Suisse upon decision by Grand Circle not to consummate a sale following receipt of a "bid valuing" Grand Circle at not less than seven times the 2007 EBITDA. (Klein Decl., Ex. O at 4.) Credit Suisse accepted this language, and there were no further revisions. (See Butters Decl., Ex. J at 1; Klein Decl., Ex. O at 4; Klein Decl., Ex. P at 2.)

Credit Suisse's Adam Davies testified that the reason for adding a Contingency Clause to the 2007 Agreement was to ensure that if Credit Suisse "again[] delivered offers but [Mr. Lewis] decided not to sell, he'd still owe [Credit Suisse] some payment." (Klein Decl., Ex. D at 60.) In other words, "[i]t wasn't a reward. It wasn't an upside.... [T]he intent was... to put [Mr. Lewis] on the hook a little bit... [so that he would] have some skin in the game." (Klein Decl., Ex. D at 59.) Similarly, Credit Suisse's Simon Taurins testified that "the concept here was that if we had done all of the work to bring about an offer from a buyer and Alan chose not to take it any further, at whatever point that was, then we would still be paid for the work that we had done." (Klein Decl., Ex. E at 42.)

Mr. Davies described the concept of paying a fee for receiving a bid as unusual in the investment banking context. (Butters Decl., Ex H at 52, 69.) More typical is a retainer fee that is creditable against the fee owed to the bank in the event of a successful sale. (Butters Decl., Ex. H at 69.) Indeed, in an April 26 email to Mr. Miller, ...


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