On May 28, 2910, the First Department issued a decision in Sassoon v. CDx Diagnostics, Inc., 2019 NY Slip Op. 04112, holding that an agreement for a referral fee relating to the sale of a company’s shares did not apply to a sale of the company’s assets, explaining:
The written agreement between plaintiff and defendant CDx Diagnostics, Inc. provides that plaintiff will receive a fee if “an M & A transaction is concluded with any Referred Investor.” “M & A” is defined as “a Merger or Acquisition transaction for the Company [CDx] in which a majority of our equity would be sold.” Contrary to plaintiff’s contention, An asset sale and an equity sale are two very different transactions with two entirely different consequences. The first amended complaint recognizes the distinction in alleging, in paragraph 34, that “Rutenberg and CDx arranged a deal with Galen such that CDx’s equity would not be sold and instead CDx’s assets would be sold.” The Stock Asset and Purchase Agreement (APA) also recognizes the distinction in providing in article 1.01(b) that CDx’s capital stock is an “Excluded Asset” from the transaction, i.e., “shall remain [an] asset of [CDx] after the Closing.” As the final transaction was not restructured as a sale of the majority of CDx’s equity, plaintiff is not entitled to a fee under the written agreement, and the breach of contract claim was correctly dismissed.
The agreement notwithstanding, the quasi contract claims were correctly sustained because plaintiff alleges that he performed services outside the scope of the agreement. The complaint alleges that plaintiff worked diligently to get the two parties to a point where they could reach a final agreement and that defendants had plaintiff work on the project for close to a year, and is supplemented by emails in which defendants promise, inter alia, to do what we can to fairly compensate you for your services. In view of this documentary evidence, defendants’ Statute of Frauds argument fails. The emails exchanged between the parties establish that plaintiff was performing services for defendants; the obligation to provide reasonable compensation is then implied.
(Internal quotations and citations omitted).
Contract law–usually straightforward–has traps for the unwary, like the requirement that some contracts be in writing (the statute of frauds). And as this decision shows, there are ways to escape from those traps. Contact Schlam Stone & Dolan partner John Lundin at email@example.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.
Click here to subscribe to this or another of Schlam Stone & Dolan’s blogs.