United States District Court, S.D. New York
For Gas Natural, Inc., Plaintiff: Anthony Tobias Pierce, PRO HAC VICE, Akin, Gump, Strauss, Hauer & Feld, LLP (DC), Washington, DC; Jonah Eric McCarthy, Akin, Gump, Strauss, Hauer & Feld, LLP (DC), Washington, DC.
For Iberdrola, S.A., Iberdrola U.S.A., Inc., Defendants: Edward J. Shapiro, LEAD ATTORNEY, Latham & Watkins, Washington, DC; Kathleen Ann Whipple, LEAD ATTORNEY, Latham & Watkins LLP, New York, NY.
OPINION AND ORDER
Ronnie Abrams, United States District Judge.
In this action for breach of contract and promissory estoppel, Plaintiff alleges that Defendants violated their obligation to negotiate in good faith for the sale of their subsidiary, New Hampshire Gas Corp. (" New Hampshire Gas" ). According to the Complaint, after signing a May 16, 2013 Letter of Intent (" Letter of Intent" or " LOI" ) that bound them to negotiate in good faith, Defendants violated that duty by breaking off negotiations with Plaintiff and selling New Hampshire Gas to a third party.
Before the Court is Defendants' motion to dismiss the Complaint for failure to state a claim. The Court concludes that Plaintiff has plausibly alleged that the LOI bound the parties to negotiate in good faith. The Complaint does not plausibly allege, however, that Defendants breached this duty. In view of the parties' conscious decision not to include an exclusivity provision in the LOI, the duty of good faith did not require Defendants to negotiate exclusively with Plaintiff, disclose the existence of competing offers, or correct any mistaken belief that it was the only party interested in purchasing New Hampshire Gas. Accordingly, Defendants' motion is granted.
As it must on a motion to dismiss, the Court draws the following facts from the Complaint and Letter of Intent, which Plaintiff attached as an exhibit to its Complaint and which the Complaint references repeatedly. See, e.g., New York Life Ins.
Co. v. United States, 724 F.3d 256, 258 n. 1 (2d Cir. 2013) (explaining that, on a motion to dismiss, a court may consider documents attached to the complaint and those on which the complaint relies). Neither party disputes that the Court may consider the Letter of Intent in connection with this motion.
According to the Complaint, on January 21, 2013, Plaintiff first contacted Defendants through a broker to express interest in purchasing New Hampshire Gas. (Compl. ¶ 10.) Over the months that followed, the parties began negotiations and exchanged several draft letters of intent. (Id. ¶ ¶ 11-14.)
One of the key points of discussion concerned whether Defendants would negotiate with other parties. The Complaint alleges that " on multiple occasions" after a March 12, 2013 draft letter of intent was sent to Defendants, " Gas Natural expressed to Defendants that [it] expected exclusivity." (Id. ¶ ¶ 12-13.) Subsequently, on May 8, 2013, Defendants sent a revised draft letter of intent, which did not contain an exclusivity provision. According to the Complaint, a representative of Defendants, Thorn Dickinson, then told Plaintiff that " we can discuss an exclusivity clause once we are further advanced." (Id. ¶ 15 (alteration omitted).) In a May 13, 2013 email, a representative from Plaintiff advised that the company's chairman " was adamant on having exclusivity," and stated " I know we all understand most likely there isn't someone else out there .... ." (Id. ¶ 18.) In response, Dickinson allegedly " did not object" to the " representation that both parties understood that Gas Natural was the only company Defendants were in negotiations with concerning a potential sale of New Hampshire Gas." (Id. ¶ 20.)
Despite Plaintiff's requests, the final version of the Letter of Intent--which Plaintiff executed on May 16, 2013, and Defendants on June 4, 2013 (id. ¶ 22 & Ex. A at 2)--did not contain an exclusivity clause.
The Letter of Intent begins by " set[ting] out the terms" on which Defendants will " grant access to the information relating to" Plaintiff's interest in purchasing New Hampshire Gas--the " Transaction" --and describes the " arrangements applying to [the parties'] discussions." (May 16, 2013 Letter of Intent at 1.) In " consideration of [Plaintiff's] interest shown in relation to the Transaction," Defendants explain, they will " undertake[ ] to devote the necessary time and resources to negotiate the Transaction in good faith with Gas Natural during the period of forty-five (45) days from the date" the LOI was executed. (Id. at 1; Compl. ¶ 27.) Consistent with this undertaking, Defendants agreed, within the forty-five-day period, to grant Plaintiff access to confidential information; prepare and provide a " Definitive Agreement" for the purchase of New Hampshire Gas; and provide " a mutually acceptable resolution" to certain litigation that affected New Hampshire Gas. (LOI at 1-2.) During the same forty-five-day period, Plaintiff was to complete " a due diligence process" and " initiate the required processes with the aim of obtaining all necessary internal" approvals and permits that could be required as a precondition to the Transaction. (Id. at 1.)
After laying out the terms of the negotiations, the LOI provides: " This letter (including the agreement constituted by [Plaintiff's] acknowledgement of its terms) shall be governed by and construed in accordance with the laws of the State of New York." (Id. at 2.) Any " appropriate state or federal district court located in" Manhattan was to have " exclusive jurisdiction over any case or controversy arising under or in connection with" the letter,
" including the agreement constituted by [Plaintiff's] acknowledgement of its terms." (Id.)
The final substantive paragraph of the two-page Letter of Intent states that " Notwithstanding the foregoing, this letter constitutes a non-binding letter of intent and that no contract or agreement related to the Transaction or any legal obligations resulting therefrom shall be deemed to exist unless and until a Definitive Agreement has been executed and delivered by all necessary parties." (Id. at 2.)
According to the Complaint, when the forty-five-day period elapsed on July 19, 2013, the parties agreed " to extend the good faith negotiation period through September 1, 2013." (Compl. ¶ 27.) On August 1, 2013, however, " Defendants unilaterally terminated negotiations with Gas Natural," explaining that they " had received a competing offer for the acquisition of New Hampshire Gas." (Id. ¶ ¶ 31-32.)
Plaintiff alleges that " both before and after the Letter of Intent was executed, Gas Natural made it known to Defendants that Gas Natural understood that Gas Natural was the only potential buyer interested in New Hampshire Gas." (Id. ¶ 28.) Despite these communications, Plaintiff alleges, " at no time prior to Defendants' unilateral termination of negotiations did Defendants ever suggest that Defendants were seeking other potential buyers, let alone that they had received an alternate offer for the acquisition of New Hampshire Gas." (Id. ¶ 29.) Defendants, the Complaint alleges, thus " deceitfully led Gas Natural to believe there had been no third-party interest in the purchase of New Hampshire Gas." (Id. ¶ 30.)
Plaintiff filed its Complaint on September 10, 2013. In its first claim, for breach of contract, it alleges that the Letter of Intent obligated Defendants to negotiate in good faith, and that they breached this duty " by, inter alia, leading Gas Natural to believe that it was the only interested buyer with which Defendants were discussing a potential sale of New Hampshire Gas, and by unilaterally terminating negotiations with Gas Natural after receiving a competing offer for the purchase of New Hampshire Gas." (Id. ¶ 38.) In its second claim, for promissory estoppel, Plaintiff alleges that it relied on Defendants' promise " to negotiate in good faith" and that, " [i]n reasonable reliance on that promise, Plaintiff incurred expenses it would otherwise not have incurred related to the acquisition of New Hampshire Gas." (Id. ¶ ¶ 41-42 (alteration omitted).)
Defendants moved to dismiss, and the Court heard oral argument on their motion on July 11, 2014.
" To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Although the Court must accept as true all factual allegations in a complaint, it need not credit " mere conclusory statements." Id. Nor need it credit factual allegations that are " contradicted by more specific allegations" or by " documentary evidence" submitted with the complaint. L-7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 422 (2d Cir. 2011).
To establish a breach of contract claim under New York Law--which the parties agree governs here--Plaintiff must plausibly allege " (1) the existence of a contract between itself and that defendant; (2) performance of the ...