Motion To Dismiss Breach Of Contract Claims Regarding Agreement To Purchase Past-Due Receivables Granted In Part, Denied In Part

On May 29, 2024, Justice Andrea Masley granted in part and denied in part a motion to dismiss claims brought against a corporation and its parent under a letter of intent that contemplated an agreement to purchase past-due receivables due to non-parties owned by the non-parent defendant entity. Gramercy Funds Mgt. LLC v Schlumberger N.V., Index No. 653657/2022.

In November 2020, defendant Schlumberger Venezuela S.A. (“SLBV”) executed a Letter Agreement with plaintiff Gramercy Funds Mgt. (“Gramercy”) “outlining the parties' intent ‘to negotiate a proposed purchase by Gramercy from [SLBV] of up to US $608,000,000 notional amount of defaulted and past due receivables’” of Petróleos de Venezuela, S.A. (“Petróleos”) and other non-parties. Gramercy Funds Mgt., p. 1. The Letter Agreement prevented any party, directly or through any affiliate or representative, “‘from the date of this Letter Agreement through the end of the Exclusive Negotiating Period,’ from ‘directly or indirectly enter[ing] into any agreement regarding the Financial Assets or any alternative transaction that would preempt or preclude the Potential Purchase.’" Id., pp. 1-2.

In May 2022, Gramercy and SLBV agreed to the terms of a Receivable Purchase Agreement (“RPA”) whereby Gramercy would create and manage a special purpose entity to purchase $579,421,416 of the past-due receivables. However, SLBV never executed the RPA, and Gramercy alleged that, while the Exclusive Negotiating Period was still in effect, “defendants negotiated an alternative agreement with Petróleos whereby defendants agreed to resume business with Petróleos ‘while settling certain past due debt obligations, including the receivables that are the subject of the Letter Agreement.’" Id., p. 3.

Gramercy sued SLBV and its parent, Schlumberger NV a/k/a Schlumberger

Limited (the “Parent”), alleging breach of contract and promissory estoppel. Both defendants moved to dismiss 1) that aspect of the contract claim that concerned the obligation to employ best efforts to proceed from the Letter Agreement to an RPA, (2) the promissory estoppel claim, and 3) plaintiff’s demand for lost profit damages. (Defendants did not move against SLBV with respect to the contract claim’s second aspect, for breach of the Letter Agreement’s exclusivity provision.)

The contract claim was dismissed to the insofar as it was premised on a duty to negotiate in good faith because the Letter Agreement expressly provided that the parties were not to be bound with respect to its purchase and sale provisions unless and until they entered into a more formal written agreement. Id., pp. 6-9. The promissory estoppel claim was dismissed as duplicative of the contract claim. Id., p. 10. The contract claim regarding breach of the Letter Agreement’s exclusivity provision survived against SLBV because defendants did not move on it, and survived against the Parent because Gramercy alleged that the Parent had participated in negotiations and/or controlled SLBV and, independently, because the Letter Agreement defined SLBV as including “certain of its affiliates.” The significance of the Parent’s involvement in negotiations and the identify of SLBV’s relevant affiliates under the Letter Agreement raised issues inappropriate for resolution on a motion to dismiss. Id., pp. 4-5. Plaintiff’s demand for lost profits or specific performance based on breach of the Letter Agreement’s exclusivity provisions were unsupported by New York law, which provides that plaintiff is limited to out-of-pocket damages for breach of an agreement to agree. Id., pp. 10-11.

The attorneys at Schlam Stone & Dolan frequently advise clients with respect to contractual disputes and the enforceability of preliminary agreements. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.