Investment Bank Not Entitled To Transaction Fee For Acquisition Where Engagement Letter Applied To "Sale, Transfer or other Disposition" of the Company's Assets

On June 17, 2014, the First Department issued a decision in Miller Tabak + Co., LLC v. Senetek PLC, 2014 NY Slip Op. 04418, reversing the trial court's grant of summary judgment to an investment bank on a breach of claim, and, by a 4 to 1 majority, granting the defendant's motion to dismiss the complaint for failure to state a cause of action. (Note: Schlam Stone & Dolan represents the Defendant-Appellant, Senetek PLC).

Senetek (now known as Independence Resources) retained a New York investment bank, Miller Tabak, as its exclusive financial advisor. In the engagement letter, Senetek agreed to pay Miller Tabak a transaction fee for any "Transaction" consummated during the term of the agreement. The engagement letter defined Transaction as: "The engagement may potentially result in a sale, transfer or other disposition . . . [of] a portion of the assets, businesses or securities" of the company. Miller Tabak sued Senetek in New York Supreme Court, seeking a transaction fee based on Senetek's acquisition of a "participation interest" in the debt of a bankrupt gold mine in Nevada. Senetek argued that no fee was owed because (1) the deal was an acquisition, not a "sale, transfer or other disposition" of a Senetek asset; (2) the transaction was unwound before Senetek completed the acquisition of the mine; and (3) Miller Tabak played no role in the deal.

Justice Bransten of the New York County Commercial Division granted summary judgment to Miller Tabak, concluding that Senetek's expenditure of cash in the acquisition was an "other disposition" of a Senetek asset (i.e., the cash). The First Department reversed the award of summary judgment, and a four-justice majority granted Senetek's motion to dismiss the complaint, explaining:

In our view, the motion court unreasonably construed the parties' agreement in arriving at the conclusion that plaintiff was entitled to a "transaction fee" in connection with defendant's aborted acquisition of a participation interest in the notes. The letter agreement provides that plaintiff is entitled to a "transaction fee" following the consummation or closing of a "transaction," which it defines as the "sale, transfer or other disposition . . . [of] a portion of the assets, businesses or securities of [defendant]." The acquisition in question was admittedly not a "sale" or "transfer." Nor can it be considered a "disposition," as plaintiff contends. The term "disposition" does not appear in isolation in the agreement, but as a catch-all at the end of the phrase "sale, transfer or other disposition." Thus, under the principle of ejusdem generis, the general language "or other disposition" must be construed as limited in scope by the more specific words "sale" and "transfer" that preceded it . . . .

Other provisions of the engagement letter confirm that plaintiff was retained to assist defendant with potential sales of its assets, businesses or securities. In describing the "advice and assistance" plaintiff might provide, the agreement makes specific reference to the possible "sale of [defendant's] biotech or other businesses," and the "private placement of [defendant's] securities." The agreement also anticipates that plaintiff might render "assist[ance] . . . in the preparation of a memorandum describing the Company and its business operations for distribution to potential parties to a Transaction," i.e., materials prepared for potential investors in defendant. The agreement also authorizes plaintiff to place "customary tombstone announcements or advertisements in financial newspapers and journals," i.e., announcements apprising potential investors of a securities offering.

The more general language in the description of the scope of the "engagement," i.e., "a review of strategic options and development of a business plan to evaluate and make recommendations for maximizing the assets of [defendant]" does not illuminate the question of what constitutes a "disposition." In any event, assuming a conflict, the more specific provision concerning the definition of "transaction" would control over the general provisions in the agreement.

Further, as noted by the dissent, the acquisition of the gold mine was never completed or consummated, and the deal was unwound. Thus, the deal lacked the finality necessary to constitute a "disposition," as that term is commonly understood.

(Citations omitted.) Justice Saxe dissented in part, concluding that there were material questions of fact as to the meaning of the parties' engagement letter that, in his view, should have been remanded for trial.