United States District Court, S.D. New York
MEMORANDUM OPINION AND ORDER
GREGORY H.WOODS UNITED STATES DISTRICT JUDGE.
November 2014, Paul Procops, Vice-President of Plaintiff
Mergers and Acquisitions Services, Inc.
(“M&A”) received an email from an employee of
M&A’s former client Eli Global, LLC (“Eli
Global”). In that email, the employee indicated that
Eli Global had purchased an insurance company. Procops was
taken aback. Earlier that year, M&A and Eli Global had
worked together, pursuant to a contract, to find an insurance
company for Eli Global to buy. In Procops’ view,
M&A had introduced the insurance company mentioned in the
email to Eli Global; as a result, under the contract, Eli
Global owed M&A fees for its assistance. That Eli Global
terminated its contract after it signed a stock purchase
agreement to acquire its target-but before the deal
technically closed-may reasonably have been considered by
M&A as sneaky, even underhanded. Being sneaky, however,
does not necessarily amount to a breach of contract as a
matter of law, and in this case, M&A cannot recover under
the contract. This is primarily because the contract, which
was drafted by M&A, contained a provision-a “fee
tail”-that was included to protect against similar
behavior by Defendants. Because M&A did not satisfy the
conditions that it established to earn payment following
termination of its agreement with Eli Global,
Plaintiff’s motion for summary judgment is denied, and
Defendants’ motion for summary judgment is granted in
in this case is M&A, a small corporation that provides
advisory and financial services to other companies.
Pl.’s Resp. to Defs.’ Local Rule 56.1 Statement
(“Pl.’s 56.1”), Dkt. No. 112 at ¶ 1.
Specifically, M&A specializes in advising and assisting
clients that are interested in acquiring insurance companies.
Defs.’ Resp. to Pl.’s Local Rule 56.1 Statement
(“Defs.’ 56.1”), at ¶ 1. Defendant Eli
Global was one such client. Eli Global was founded by
Defendant Greg E. Lindberg (“Lindberg”), an
entrepreneur who has founded or acquired over 195
corporations. Pl.’s 56.1 at ¶ 7; see also
Affidavit of Betty Rodriguez, Dkt. No. 169 (“Rodriguez
Aff.”) Ex. 1 (“Lindberg Dep. Tr.”) at
16:1-5. Lindberg’s “enterprise of portfolio
companies” in the “Eli family of
businesses” operates in multiple sectors of the
economy. Pl.’s 56.1 at ¶ 9-10; Defs.’ 56.1
at ¶ 4.
Eli Global and M&A Begin Working Together
late 2012 and early 2013, Eli Global became interested in
acquiring an insurance company to add to its portfolio.
Despite Eli Global’s experience in buying other
companies, it had never acquired an insurance company.
See Lindberg Dep. Tr. at 95:6-12. Eli Global
therefore turned to M&A for help identifying potential
acquisition targets in the insurance industry. Affidavit of
Donald A. Emeigh, Dkt. No. 93 (“Emeigh Aff.”) Ex.
1. Chris Herwig, the “Portfolio Manager for the
investments and potential investments of Eli Global and its
affiliated entities,” and Paul Procops, M&A’s
Vice President, began discussions over email about the scope
of Eli Global’s interest and how M&A could help
with a potential deal. Affidavit of Chris Herwig, Dkt. No. 97
(“Herwig Aff.”) at ¶ 2; see also
id. Ex. I.
document the relationship between M&A and Eli Global, on
April 17, 2013, the two companies executed a “Fee
Agreement” related to one particular acquisition
target-Defendant Southland National Insurance Corporation
(“SNIC”). Pursuant to that agreement, Eli Global
would pay M&A a flat fee of $500,000 in the event that a
transaction occurred between Eli Global and SNIC or its
parent company, Collateral Holdings, Ltd.
(“Collateral”). Pl.’s 56.1 at ¶ 37;
Am. Compl., Dkt. No. 38 Ex. A (the “Fee
Agreement”). While only Eli Global signed the Fee
Agreement, the parties to the agreement were defined as
M&A and Eli Global “and its subsidiaries and
affiliates.” Pl.’s 56.1 at ¶ 38; Fee
Agreement. M&A got to work right away. That same day, in
order to help Eli Global learn about SNIC, Procops sent
Herwig a “briefing book” about SNIC, which he
explained “compiles the five year statutory data and
provides some expository information pulled from prior AM
Best reports when the company was covered.” Pl.’s
56.1 at ¶ 61; Herwig Aff. Ex. I at ¶ 00385.
than two weeks later, on April 29, 2013, Procops told Herwig
that he had spoken to Mike Anderson, an executive at
Collateral. See Herwig Aff. Ex. H; Pl.’s 56.1
at ¶ 41. By email, Procops stated the following:
“Spoke with the President of Southland National today.
He needs to speak with ownership, but he’s open minded
to an introductory call. I will be back to you when I hear
something concrete.” Herwig Aff. Ex. H; Emeigh Aff. Ex.
9. Three days later, on May 2, 2013, Herwig responded to this
email, “Sounds good, thanks Paul.” Id.
In his deposition, Procops testified that he received a call
from Herwig soon after this email exchange during which
Herwig told Procops that Eli Global was “finalizing
[its] structure” for an insurance company acquisition
and therefore did not want M&A to move forward with its
discussions with Collateral. Rodriguez Aff. Ex. 14
(“Procops Dep. Tr.”) at 13:24 – 14:8.
Herwig did not recall any specific phone calls with Procops
in April or May of 2013, but did not dispute that the call
occurred. Rodriguez Aff. Ex. 7 (“Herwig Dep.
Tr.”) at 365:2-11.
the April exchanges, communication between M&A and Eli
Global ceased until August 6, 2013, when Herwig reached out
to Procops to say that Eli Global had “just about
finalized our structure” and was therefore interested
“in acquiring or reinsuring a block of life
business.” Emeigh Aff. Ex. 10 at ¶ 02034. Procops
responded that he would “circle the email around the
office, [and] see if any of my colleagues are working on
Eli Global and M&A Enter into a New Agreement
Herwig and Procops’ August email exchange, discussions
between M&A and Eli Global again went quiet; it was not
until early December 2013 that Herwig reached out to Procops
to “just check back in” about a potential
acquisition of an insurance company. Emeigh Aff. Ex. 11 at
¶ 02009. Eli Global explained that it had
“broadened [its] scope” in its search for
acquisition targets since entering into the Fee Agreement.
Id. at ¶ 02007. Herwig and Procops discussed,
via email and a telephone call, a new potential engagement
between the companies that would reflect this broader scope.
December 13, 2013, Procops sent Herwig a proposed
“Consulting and Advisory Agreement” (the
“Consulting Agreement”) for review. Emeigh Aff.
Ex. 12 at ¶ 01938. The agreement was “an M&A
form agreement” that had been used by M&A with
other clients. Procops Dep. Tr. at 127:23 – 128:25.
While perhaps a “form” agreement, the Consulting
Agreement was by no means a model agreement, as it was rife
with typographical errors and failed to define a number of
capitalized terms. Regardless, on December 16, 2013, Herwig
returned the signed engagement letter without making any
changes and asked for instructions for wiring the retainer
required pursuant to the agreement. Id.; Emeigh Aff.
Ex. 12 at ¶ 01938. The Consulting Agreement expressly
superseded “all prior understandings and
agreements,” including the Fee Agreement. Consulting
Agreement at § 13; Pl.’s 56.1 at ¶ 45.
Consulting Agreement was “both advisory and success
based,” and the contract divided M&A’s
obligations and Eli Global’s duty to provide
compensation for M&A’s services into two parts.
Emeigh Aff. Ex. 12 at ¶ 01948. First, the agreement
provided that M&A would provide advisory services to Eli
Global, including identifying and contacting potential
“Target” insurance companies on behalf of the
“Company,” defined as “Eli Global
LLC.” See Am. Compl. Ex. B (the
“Consulting Agreement”) at §§ 1(a)-(b).
The Consulting Agreement did not identify a particular target
company, but instead defined “Target” as
“any insurance company or the assets and liabilities of
any insurance business (asset sale).” Pl.’s 56.1
at ¶ 49; Consulting Agreement, Definitions. In exchange
for this service, Eli Global was required to pay M&A a
“monthly advisory fee” of $15,000 during the term
of the agreement. Id. at § 3(a).
the Consulting Agreement imposed an obligation on Eli Global
to compensate M&A in the event that Eli Global entered
into a transaction with a Target. Specifically, section 3 of
the Consulting Agreement provided that if Eli Global pursued
such a transaction, M&A would act as Eli Global’s
advisor for the acquisition, and would be paid a
“Success Fee” of $500,000 or 3% of the total
consideration referenced in a definitive Stock Purchase or
Asset Purchase Agreement at closing of that transaction.
Id. at § 3(b).
Consulting Agreement contained a termination provision that
allowed either party to terminate the agreement with
30-days’ notice but provided no other restraints on
termination. Id. at § 2. In order to protect
itself against an attempt by Eli Global to circumvent its
obligations under the Consulting Agreement by terminating the
agreement and shortly thereafter closing a deal with a
company identified by M&A, M&A included in its
termination section a “fee tail” provision. That
provision of the agreement would allow M&A to capture its
fee if Eli Global closed a transaction after the
agreement’s termination. The fee tail applied only in
limited circumstances described in the agreement.
Specifically, if Eli Global were to terminate the Consulting
Agreement by writing, it would be obligated to pay M&A a
Success Fee for “any Transaction with a Target
Introduced to the Company by M&A, which Closes
within the period ending 18 months after the date of the
termination of this Agreement.” Id. (emphasis
section 3(d) of the agreement stated that “[t]he
Company agrees that no affiliate and/or subsidiary shall
enter into a Transaction with a Target Introduced by
M&A without M&A’s written approval.”
Id. at § 3(d) (emphasis added). So, both
section 2 and section 3(d) of the Consulting Agreement
applied exclusively to a Target “Introduced” by
M&A. As used in those sections, the word
“Introduce” was defined as:
[A] Target company presented by M&A to the company where
M&A provides (i) financial information on the Target
(such as statutory statements, briefing books, etc), and (ii)
arranges meeting (face to face or telephonic) between the
Company and a Target, or (iii) facilities a non disclosure
and/or confidentiality agreement between the Company and a
M&A’s Work Under the Consulting Agreement
January 2014, the two companies continued discussions about
potential acquisition targets for Eli Global. Pursuant to its
obligations under the Consulting Agreement, on January 22,
2014, Procops sent Herwig a “preliminary life and
health .xl screen.” This Excel spreadsheet listed
almost 100 insurance companies and contained information
about each of those companies’ assets and income.
Emeigh Aff. Ex. 15 at 4-5. M&A color-coded the companies
on the spreadsheet to indicate viability for acquisition by
Eli Global. See Herwig Aff. Ex. L at ¶ 01822
(“As a guide, companies in red M&A, [sic] has an
active engagement with, or knows they’re expanding, or
is part of a larger insurance group, or is part of a large
organization such as a church or state fund. Companies in
yellow are companies M&A believes to be
‘maybe’s’ based on prior conversations.
Finally, companies in green, M&A believes are
available.”). SNIC was of the companies highlighted in
green on this spreadsheet. Emeigh Aff. Ex. 15 at 4-5.
acted on this information promptly, and emailed Procops the
next day, explaining that he “went back through [his]
notes on Southland from when [Procops] sent it over the
summer . . .” and noted that Southland “could be
interesting.” See Herwig Aff. Ex. L at ¶
01821-P01822. On January 27, 2014, Herwig requested to speak
to Procops about three companies listed on the Excel
spreadsheet that Eli Global “would like to go after and
arrange meetings with . . .,” one of which was SNIC.
Id. at ¶ 01820. A call between Herwig and
Procops took place the next day. See id.
January 29, 2014, Procops contacted SNIC. Pl.’s 56.1 at
¶ 67. Procops did not immediately provide an update to
Eli Global, so a few days later, Eli Global followed up to
ask whether any progress had been made arranging a meeting
with SNIC. Id. at ¶ 68. Procops responded that
M&A had reached out to Anderson, but “have yet to
get a definitive response from either as to whether or not
they would entertain discussions.” Herwig Aff. Ex. M.
at ¶ 01801. Procops added that he thought it was
“a bit preemptive to try and schedule a meeting at this
attempt to pique SNIC’s interest in Eli Global, on
February 10, 2014, M&A sent Anderson a one-page document
containing general information about the Eli family of
businesses. Pl.’s 56.1 at ¶¶ 71-72. Eli
Global authored this document and had previously provided it
to M&A. Id. M&A could not, however, arrange
a meeting between Eli Global and Collateral because, as
Anderson explained to Procops, SNIC was “currently
under an exclusivity provision” in connection with
another potential deal. Emeigh Aff. Ex. 13 at ¶ 01758.
On February 21, 2014, Procops told Eli Global about the
exclusivity provision, but stated that he “will be
following up with Mike [Anderson] near the end of the 30 day
exclusivity period, and Mike assured me that he would be
circling back with us if problems arise with the party
they’re currently in discussions with.”
Id. Lindberg thanked Procops for the update and
noted that “Southland would be an ideal target”
for Eli Global. Id.
Eli Global Independently Engages with Collateral
same time that M&A was reaching out to SNIC and other
potential targets on Eli Global’s behalf, a separate
and independent company-the Cathcart Group-was also looking
into acquiring SNIC. The Cathcart Group, however, did not
have the funding to complete such a transaction on its own.
Pl.’s 56.1 at ¶ 82; Rodriguez Aff. Ex. 6, Herwig
Dep. Tr. at 282:24 – 284:8.
result, in April 2014, the Cathcart Group reached out to Eli
Global about securing funding for a transaction that would
result in Eli Global gaining ownership over a percentage of
an “insurance company.” Emeigh Aff. Ex. 20 at
ELI0509. In an April 21, 2014 email from Dan Cathcart of the
Cathcart Group to Herwig, Cathcart noted two potential deal
structures with a company identified merely as
“insurance company,” and asked for Herwig to
provide financial documents indicating Eli Global’s
source of capital for this anticipated transaction.
Id. Later that same day, Cathcart replied to his
previous email emailed and noted, for the first time that,
“By the way, the company is Southland National
Insurance Company.” Id. at ELI0508. In
subsequent emails Lindberg asked Herwig, “So the game
gets more interesting . . . [w]asn’t Southland one of
those that ‘got away’?” Id. at
Global wasted no time acting on this potential deal. Promptly
after this exchange, Eli Global had a phone call with
Collateral, and on April 28, 2014, Defendant Southland
National Holdings, LLC (“Southland Holdings”) was
formed to acquire SNIC. Pl.’s 56.1 at ¶¶ 25,
85; Herwig Aff. Ex. D. The next day, on April 29, 2014,
Lindberg, Herwig, and Eli Global associate Devin Solow met
with Collateral executives Anderson, Will Ratliff, Henry
Caldwell, and James Leitner for the first time in Birmingham,
Alabama. Herwig Aff. Ex. T; Rodriguez Aff. Ex. 12, Anderson
Dep. Tr. at 120:16 – 121:8. From there, things moved
quickly. On April 30, 2013, Eli Global and Collateral entered
into a Confidentiality Agreement. Pl.’s 56.1 at ¶
91; Herwig Aff. Ex. U. The very next day, Collateral
Holdings, Ltd., Southland National Holdings LLC, and Lindberg
entered into a stock purchase agreement pursuant to which
Collateral would sell SNIC to Southland Holdings. Pl.’s
56.1 at ¶ 96; Herwig Aff. Ex. E. While the stock
purchase agreement was Dated: May 1, 2014, the closing of the
acquisition was contingent on regulatory approval by the
Alabama Department of Insurance, and thus the transaction did
not close at signing. Herwig Aff. Ex. E at § 6.1(b).
Later that month, Lindberg created Defendant SNA Capital, LLC
(“SNA”) for the purpose of consummating the SNIC
acquisition. Pl.’s 56.1 at ¶ 20; Herwig Aff. Ex.
Eli Global Terminates the Consulting Agreement
Global did not tell M&A about the Cathcart Group’s
invitation to take part in an insurance company acquisition,
nor did it tell M&A that it had independently connected
with SNIC. Despite the fact that Eli Global and M&A
continued to actively discuss other potential acquisition
targets and work to arrange meetings with those other targets
in May and into June 2014, see, e.g., Emeigh Aff.
Ex. 28, M&A was not aware of any of the negotiations,
agreements, or in-person meetings between Eli Global and SNIC
simultaneously taking place, and did not know that a stock
purchase agreement had been signed between SNIC, Southland
Holdings, and Lindberg. See Procops Dep. Tr. at
10, 2014, over a month after that stock purchase agreement
was signed, Eli Global chose to terminate the Consulting
Agreement with M&A pursuant to section 2 of the
agreement. Emeigh Aff. Ex. 18. The same day, M&A’s
Joseph Murgio memorialized the cancellation in a letter,
which stated that the effective termination date of the
Consulting Agreement would be July 10, 2014. Emeigh Aff. Ex.
17. The letter contained a list of companies that would fall
under the eighteen-month “fee tail”
provision-that is, companies for whom a transaction with Eli
Global would trigger the obligation for Eli Global to pay
M&A a Success Fee. Those companies were “Mountain
Life Insurance Company, Old United Life Insurance Company,
[and] First Trinity Life Insurance Company.”
Id. Tellingly, SNIC was not included in this list.