Matter of TBA Global, LLC v. Fidus Partners, LLC

Manzanet-Daniels, J.

(dissenting). I would affirm the order denying petitioner’s motion to stay the arbitration. In my view, the motion court correctly found that petitioner is bound to arbitrate disputes arising out of the Fidus agreement, the Fidus agreement being one of the liabilities transferred pursuant to the asset purchase agreement (APA). The majority’s conclusion that payments pursuant to the Fidus agreement constitute a “finder’s fee” outside of the scope of the transferred liabilities is contrary to the law and the plain language of the agreement itself.

Petitioner agreed to purchase all of TBA Seller’s assets other than the “Excluded Assets,” which was defined in section 1.2 to include “any equity securities of any of the Sellers” and “all contracts and other agreements relating to brokerage or finders’ fees or agents’ commissions or other similar payments.” Section 1.3 (c) of the APA states:

“Effective as of the close of business on the Closing Date, TBAGE will assume and agree to pay, discharge or perform when due, as appropriate, only those liabilities identified on Schedule 1.3(c) hereto (the ‘Remaining Assumed Liabilities’ and, collectively with the Global Assumed Liabilities and the Canadian Assumed Liabilities, the ‘Assumed Liabilities’).”

“TBAGE” is defined as the entity that became petitioner herein. “Remaining Asset Sellers” is defined as including the TBA Global entity that executed the Fidus agreement. One of the liabilities identified in schedule 1.3 (c) is “[a]ll compensation and other benefits and amounts payable to employees and contractors of the Remaining Asset Sellers accruing since October 31, 2012.”

*213The Fidus agreement expressly acknowledges “that Fidus is providing services hereunder as an independent contractor (and not in any fiduciary or agency capacity).” The amount payable to Fidus as one of TBA Global’s “contractors” was accordingly a liability transferred under the APA. Petitioner’s failure to limit the definition of “contractor” in the APA is all the more glaring given that the parties to the agreement were well aware that TBA Global had hired Fidus pursuant to a written agreement, which, as stated, identified Fidus as an “independent contractor.”

Paragraph A of the Fidus agreement outlines all of the services Fidus agreed to provide, including many that go well beyond the services of a broker or finder. Fidus agreed, inter alia, to analyze the business, properties and operations of TBA Seller; prepare a valuation analysis of TBA Seller, if requested; assist in negotiations with TBA Seller’s largest investor and its primary lender; prepare confidential materials for distribution and presentation to prospective investors; assist in structuring a transaction and negotiating a definitive agreement; and assist in creating management presentations and a data room.

Paragraph B, entitled “Fees and Expenses,” states that “[i]n connection with the services described above, the Company shall pay to Fidus the following compensation.” This language clearly indicates that the compensation to be paid Fidus was consideration for all of the services Fidus was to provide. Nothing in the language of the agreement allows for bifurcation of fees and services in the manner suggested by the majority. Further, nothing in the definition of “Advisory Fee” or “Transaction Fee” suggests that either was to be paid as specific consideration for separate services to be provided by Fidus.

The transaction fee is not a “broker’s fee,” as even the majority appears to recognize. “[A] . . . broker is a fiduciary with a duty of loyalty and an obligation to act in the best interests of the principal” (Sonnenschein v Douglas Elliman-Gibbons & Ives, 96 NY2d 369, 374 [2001] [internal quotation marks omitted]). The Fidus agreement expressly stated, however, that Fidus was being retained to provide certain financial advisory services as an “independent contractor (and not in any fiduciary or agency capacity).” Moreover, unlike a typical broker’s commission, the transaction fee was not conditioned on Fidus’s continued involvement in any ensuing negotiations or in the completion of the sale (see Greene v Hellman, 51 NY2d 197, 206 [1980]).

*214The transaction fee similarly does not qualify as a “finder’s fee.” A finder does not have any obligation or power to negotiate the transaction, and earns its fee only if there is a “continuing connection” between the finder’s introduction of the business opportunity and the consummated transaction (see Simon v Electrospace Corp., 28 NY2d 136, 139-142 [1971]). It is undisputed in this case that Fidus did not “find” the buyer— indeed, petitioner expressly asserts that “Fidus failed to arrange a viable transaction,” and that “Fidus . . . did not introduce TBA Buyer to TBA Seller, nor was Fidus . . . involved in the transaction.”

The majority’s reliance on language from the “Transaction Costs” section of the APA to conclude that the Fidus agreement is outside the scope of the transferred liabilities is similarly misplaced. While section 3.14 provides that TBA Seller is to pay its own fees, costs and expenses incurred in connection with the asset sale transaction, including the “costs and expenses of [its] financial advisors,” it also expressly states that it does not apply to the extent such fees, costs and expenses “comprisje] a portion of the Assumed Liabilities described in Section[ ] . . . 1.3 (c).”

Given the sophistication of the parties to the asset sale transaction, if they had intended to exclude TBA Seller’s obligations under the Fidus agreement from those assumed by petitioner, they could have made such an intention clear in the words of their agreement (see Banco Espirito Santo, S.A. v Concession Do Rodoanel Oeste S.A., 100 AD3d 100, 108-109 [1st Dept 2012]). For example, the APA identifies the “Service Agreement, dated as of December 1, 2011, between Oasis Outsourcing Inc. and TBA Global,” as an excluded asset.

Petitioner is therefore bound to arbitrate any disputes arising out of the Fidus agreement in accordance with the broad arbitration clause providing that “any claim or controversy arising out of or relating to th[e] [Fidus] [a]greement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association.”

Because I would find that petitioner is bound to arbitrate disputes arising out of the Fidus agreement, I need not address Fidus’s additional arguments for holding petitioner to the agreement, including estoppel and successor liability. However, the result reached by the majority would necessitate a remand for a hearing on those issues, since they were not addressed by the court in the order on appeal.

*215Renwick, Moskowitz and Richter, JJ., concur with Friedman, J.P.; Manzanet-Daniels, J., dissents in a separate opinion.

Order, Supreme Court, New York County, entered on or about June 13, 2014, reversed, on the law, with costs, and the petition granted.