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Berkeley Research Group, LLC v. FTI Consulting, Inc.

Supreme Court of New York, First Department

January 11, 2018

Berkeley Research Group, LLC, Plaintiff-Appellant,
FTI Consulting, Inc., Defendant-Respondent.

          Alston & Bird LLP, New York (John F. Cambria of counsel), for appellant.

          Cole Schotz P.C., New York (Joseph Barbiere of counsel), for respondent.

          Gische, J.P., Kapnick, Oing, Moulton, JJ.

         Order, Supreme Court, New York County (O. Peter Sherwood, J.), entered October 28, 2016, which granted defendant's motion to dismiss the first amended complaint, unanimously modified, on the law, to deny the portion of the motion seeking to dismiss the causes of action for breach of contract and a declaratory judgment, and otherwise affirmed, without costs. Order, same court and Justice, entered April 17, 2017, which, insofar as appealed from as limited by the briefs, denied plaintiff's motion for leave to replead, unanimously reversed, on the law, without costs, and the motion granted.

         The underlying dispute in this appeal is whether, under the express terms of the operative agreements, defendant had an unfettered, unilateral right to terminate one of them, the subcontractor agreement. After defendant unilaterally terminated the subcontractor agreement, plaintiff commenced this action alleging breach of contract and breach of the covenant of good faith and fair dealing, also seeking a declaratory judgment. Supreme Court granted defendant's motion to dismiss the complaint and denied plaintiff's subsequent motion for leave to replead.

         Plaintiff (BRG) and defendant (FTI) are competing consulting firms. Nonparty Allen D. Applbaum was employed as head of FTI's global risk and investigations practice until January 2015, when he resigned. Shortly thereafter, in March 2015, he began employment with BRG. To resolve disputes regarding a non-compete provision in Applbaum's employment contract with FTI, on March 27, 2015, FTI, BRG and Applbaum entered into a Settlement Agreement that provided that they would, among other things, share the revenue generated by BRG's and/or Applbaum's work on FTI matters. On the same date, FTI and BRG separately entered into a subcontractor agreement that allowed Applbaum, now a BRG employee, to continue to perform certain professional services for FTI in connection with FTI matters. The subcontractor agreement, which was annexed as Schedule 3 to the settlement agreement, identifies FTI as the "Company" seeking to retain Applbaum and BRG as the "Consultant" that employs Applbaum and "agrees to permit [him] to perform such services."

         The settlement agreement requires that BRG share with FTI all fee revenue that Applbaum originates during the first 12 months of his employment at BRG at the rate of 12.5% for work that Applbaum himself performs and 10% for work performed by other BRG employees (FTI revenue share). Conversely, FTI agreed to share with BRG, at a rate of 10%, all professional staff and expert fee revenue generated from matters referred to FTI by Applbaum during that same twelve (12) month period (BRG revenue share). BRG guaranteed that it would pay FTI "a minimum of $500, 000 in respect of the FTI Revenue Share, " in two equal installments. These payments were "Advance Payments" that would be deducted from what was owed as the FTI revenue share. The first advance payment, due upon execution of the settlement agreement, was paid. In December 2015, FTI notified BRG that it had terminated the subcontractor agreement. The second advance payment, due on the first anniversary of the settlement agreement, which occurred only after FTI terminated the subcontractor agreement, was not paid by BRG. [1]

         The settlement agreement references the subcontractor agreement and the subcontractor agreement incorporates certain provisions of the settlement agreement. Section 4(b) of the settlement agreement provides:

"The Parties agree that a material consideration for Applbaum and BRG of this Agreement is the execution of and compliance with the Subcontractor Agreement attached as Schedule 3 to this Agreement, and further agree that this Agreement shall not become effective until the Subcontractor Agreement has been executed by all parties provided that the Revocation Period, as such term is defined below, has expired. The Parties agree to work together to serve the best interests of these two clients and hereby confirm to each other to cooperate in good faith to do so. FTI does not have any present intention of replacing Applbaum as the team leader on these engagements and it is currently contemplated he will remain the team leader for the duration of these engagements; provided, however, the Parties agree that: (i) Applbaum shall report to the Engagement leader... and (ii) FTI... retains exclusive control and discretion to manage these matters"

         As pertinent to this dispute, section 10 of the settlement

         agreement defines the revocation period as follows:

"In the event that Applbaum elects to execute this Agreement, he has a period of seven (7) days following the date of his execution to revoke this Agreement (the "Revocation Period"), which revocation must be in writing.... This Agreement will not be effective or enforceable until the expiration of the Revocation Period (the "Effective Date").

         The subcontractor agreement contains no express revocation period. Section 1(B) of the subcontractor agreement states that "[s]ubject to Section 4 of the settlement agreement, which is incorporated herein, either Party [FTI or BRG] may immediately terminate the Agreement or any State of Work by delivering written notice to the other Party." In addition, the subcontractor agreement is subordinate to the settlement agreement, in that section 9.B provides, "The parties agree that, to the extent any term or condition set forth herein in contrary to, or inconsistent with, the terms of the Settlement Agreement, the terms of the Settlement Agreement shall control."

         It is the interplay of these provisions, in particular the termination language in the subcontractor agreement, that frames BRG's and FTI's dispute over whether FTI had the unilateral and unfettered right to terminate the subcontractor agreement. Relying only on the subcontractor agreement, FTI contends, and the motion court agreed, that section 1(B) gave either party an unfettered right to terminate the subcontractor agreement at any time and without reason. BRG, however, contends that the subcontractor agreement's express incorporation of section 4 of the settlement agreement is important, requiring reference to that section in interpreting the termination provision of the subcontractor agreement. Section 4 of the settlement agreement, in part, refers to a revocation period as well as the parties' intention to work together to serve the best interests of certain of the parties' clients. BRG argues that the incorporation ...

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