NTV Management, Inc. v. Lightship Global Ventures, LLC, et al. (Lawyers Weekly No. 12-080-17)
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COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss SUPERIOR COURT
CIVIL ACTION
NO. 2016-0327-BLS1
NTV MANAGEMENT, INC.
vs.
LIGHTSHIP GLOBAL VENTURES, LLC and KENT PLUNKETT
MEMORANDUM OF DECISION AND ORDER ON
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT DISMISSING THE COMPLAINT AND PLAINTIFF’S CROSS-MOTION FOR SUMMARY JUDGMENT ON COUNT I OF ITS COMPLAINT
This case arises out of a Consulting and Advisory Services Agreement (the Agreement) between the plaintiff, NTV Management, Inc. (NTV) and the defendant Lightship Global Ventures, LLC (Lightship). The defendant, Kent Plunkett, founded a company, Salary.Com, Inc., which, following a series of acquisitions, became a division of IBM. Plunkett and a colleague formed Lightship for the purpose of reacquiring Salary.Com from IBM. The Agreement, while containing some one-off terms, was in effect a non-exclusive brokerage agreement pursuant to which NTV would be due a commission if it found financing for the acquisition and a lesser fixed sum for introducing “at least ten qualified sources of capital.” Lightship did acquire Salary.com, but not with equity or debt partners introduced to the deal by NTV. NTV, nonetheless, alleges that it is due fees under the Agreement and damages for a variety of other wrongful conduct on the part of the defendants. It has pled its complaint in seven counts: breach of contract, breach of the covenant of good faith and fair dealing, promissory estoppel, unjust enrichment, deceit, a violation of Chapter 93A, violations of the Uniform Fraudulent Transfer Act, and a count to reach and apply stock or assets of Salary.com (although curiously it has not
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named Salary.com, or the entity that presently owns it, as a defendant).
Apparently, concerned about matching NTV’s imaginative pleading measure for measure, the defendants have asserted five counterclaims against NTV: breach of a duty of confidentiality, breach of contract, defamation, misrepresentation, and tortious interference with contractual or business relations. These counterclaims are not the subject of a motion now before the court.
The case is before the court on the defendants’ motion for summary judgment dismissing all the claims asserted against them, and NTV’s cross-motion for summary judgment on part of its breach of contract claim. For the reasons that follow, the defendants’ motion is Allowed, in part, and Denied, in part, and NTV’s motion is Denied.
FACTS
Based on the summary judgment record, the following facts are undisputed or viewed in the light most favorable to the non-moving party.
Salary.com was founded by Plunkett in 1999. It became a public company in 2007, and then was acquired by a firm called Kenexa, Inc. in 2010. In 2012, Kenexa was acquired by IBM, after which Salary.com was operated as a division of that company or an IBM affiliate. In 2014, IBM informed Plunkett that it was interested in selling Salary.com. Also, in 2014, Plunkett and another former colleague at Salary.com formed Lightship for the purpose of attempting to acquire Salary.com from IBM. Lightship signed a Non-Disclosure Agreement with IBM which limited Lightship’s ability to disclose confidential information concerning Salary.com to others, including that IBM was actively seeking to dispose of this asset. As is typical in these kinds of potential transactions, IBM set up a data room where confidential information concerning
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Salary.com could be reviewed by Lightship and potential investors who would finance the acquisition. The information available to potential investors did not include financial statements specific to Salary.com because it was operated by IBM as division of a larger enterprise. In February, 2015, Lightship and IBM entered into an agreement that gave Lightship the exclusive right, for a period of time, to negotiate a purchase agreement for Salary.com. Lightship had previously entered into an investment banking relationship with the firm Stifel Nicolaus & Co. (Stifel) to assist it in the proposed acquisition.
Through Stifel, a number of potential investors were identified who signed NDAs with Lightship, were informed of the acquisition target, and given access to the data room. A number of potential investors presented Lightship with term sheets for an acquisition of Salary.com. In early 2015, a private equity firm called Genstar Capital signed an agreement with Lightship that gave it an exclusive right to try and negotiate a transaction with IBM. Genstar retained a firm, Alvarez and Marsal, to analyze Salary.com’s earnings and prepare a report. This report was Genstar’s property. Genstar, however, failed to reach terms acceptable to IBM. Thereafter, a firm called Symphony Technology Group (Symphony) entered a similar agreement with Lightship, but it also failed to reach agreement with IBM. In July, 2015, Stifel informed Lightship that it would no longer represent it in connection with a Salary.com transaction.
In July, 2015, a mutual acquaintance, Steven Sandler, introduced Plunkett to a principal of NTV. NTV was then a newly formed organization which was planning to raise a venture capital fund, although it did not yet have any investors. After discussions, Lightship and NTV agreed to enter into an investment banking relationship in which NTV would seek to find investors willing to finance the acquisition of Salary.com. After some negotiations, their relationship was memorialized in the Agreement which was executed on August 5, 2015. As
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relevant to this case, the Agreement contained the following provisions.
The term of the Agreement was six months, but it could be terminated by either party on 14 days notice. Section 4 of the agreement had standard confidentiality terms. It also provided that: “NTV further agrees to abide by all terms and conditions of the NDA entered into between IBM and Lightship.” This meant that NTV should not disclose the name of the target, Salary.com, or any of its data, to a potential investor identified by NTV until the investor had signed an NDA.
Most of provisions of the Agreement relevant to this case are found in a document entitled Scope of Work (SOW) that was an exhibit to the Agreement and made a part of it. The SOW described the services that NTV was going to provide Lightship as follows:
NTV will endeavor to source capital and structure financing transactions from agreed-upon target investors and/or lenders. NTV will facilitate and participate in meetings and due diligence with capital sources, structuring and negotiating terms, and closing financing for the Acquisitions as [Lightship’s] advisor.
With respect to fees potentially due NTV, the SOW provided:
[Lightship] will pay to NTV as transaction fees (collectively, “Fees”) at closing in cash the a [sic] success fee (the Success Fee”) equal to the greater of 3% of the value of the capital that NTV introduces to the project that is invested or $ 330,000. In the event a deal is consummated by management with investment or financial sponsorship other than parties introduced by NTV, but not including sources contacted and/or introduced by NTV, (ie: not a strategic buyer acquiring substantially all of the business other than incentive interests for and direct investment by management where such strategic partner and not management controls) and no success fee is earned, then NTV shall be entitled to a $ 330,000 advisory fee in consideration of its team’s effort, services, time, and opportunity costs associated with working with management, preparing materials, communication with potential sources of capital, and other services, provided NTV shall have introduced at least 10 qualified sources of capital and remained engaged with [Lightship] and available to provide advice and support. It is understood and agreed by the parties that: . . . (ii) NTV expects to introduce and facilitate investment from third party sources collectively able to finance all levels of the transactions (i.e., both equity and debt) and [Lightship] has agreed as to each level of the capital structure for which NTV has one or more sources of capital willing and able to provide financing that [Lightship] has agreed that the Company will close with such investor(s) introduced and facilitated by NTV and not with other investors who might offer such financing on
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substantially the same terms; provided that if [Lightship] determines reasonably and in good faith that accepting financing from one or more of such investors would not be in the best interests of the Company and its management and shareholders (but specifically excluding as an interest of the Company avoidance of fees otherwise payable), [Lightship] shall not be required to close with such investor(s). If third parties not introduced by NTV shall offer better terms than parties introduced by NTV, then NTV will have the opportunity, within five days after notification to match such terms.
As is evident from the terms quoted above, NTV’s agreement with Lightship was not exclusive. If Lightship purchased Salary.com with investors that NTV had not introduced to the deal, it would not be due a Success Fee. NTV might still, however, be due an advisory fee of $ 330,000, if it met the preconditions to the award of that fee described in the SOW.
NTV sent a brief email to 28 potential sources of capital describing the transaction in very general terms. While the parties dispute whether Plunkett approved all of these possible investors as qualified sources of capital before the email was sent, for the purposes of this motion, the court assumes that he did. Of these 28 email recipients, 12 expressed interest in looking more closely at the deal. NTV sent these potential investors a 12 page power point presentation that provided additional information about the proposed transaction, but did not identify the target, although a recipient might have been able to deduce its identity. Lightship admits that NTV scheduled meetings or calls between 7 of these responders and Plunkett. NTV asserts that it had three others ready to speak with Plunkett: Vector Capital, Princeton Capital and Silicon Valley Bank, but the meetings did not take place. These three investors will be addressed further in the “Discussion” section of this memorandum.
Of the potential investors contacted by NTV, only 4 executed NDAs. None of the potential investors contacted by NTV presented Lightship with a proposed term sheet for a Salary.com transaction. NTV’s representatives testified at deposition that all of the investors it approached wanted audited or detailed financial statements for Salary.com, which did not exist
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because it was operated as a division of a larger group.
In August, 2015, Plunkett also began discussions with other investment banking firms, including Moorgate Capital Partners (Moorgate), with a view to finding investors to finance a Salary.com acquisition. Several potential investors signed NDAs, performed due diligence in the IBM data room, and submitted term sheets. In October, Lightship began to focus on two potential investors, one of which—H.I.G. Capital (HIG)—was introduced by Moorgate. On November 3, 2015, Lighthouse and HIG entered into an Agreement providing HIG with a period of exclusivity in which to try and negotiate a purchase with IBM, as had been the case with Genstar and Symphony. HIG was offering to provide only the equity layer of financing, so the debt component would still be necessary even if HIG were more successful than Genstar or Symphony in reaching an agreement with IBM for the purchase of Salary.com. The terms of the debt financing would, of course, have to be acceptable to HIG, which would be contributing the equity at risk in the independent Salary.com enterprise.
Lightship did not provide a copy of the November 3rd letter to NTV; nor was it required to do so. It is, however, undisputed that not long thereafter NTV was aware that HIG was negotiating with IBM for the purchase of Salary.com. In a November 22-23, 2015 email exchange between representatives of a potential debt investor, Ares Management (Ares), introduced to the deal by NTV, and NTV, Ares wrote to NTV: “We were potentially interested at 2-3X EBITDA leverage, but that was so far below HIG’s ask that we didn’t do much work. If that’s interesting, let us know.” In fact, by November 17, 2015, NTV was threatening to sue Lightship for having entered into the agreement with HIG. On December 14, 2015, Lightship sent NTV a letter stating that it was terminating the Agreement on 14 days notice.
HIG was still negotiating with IBM on December 29, 2015. It closed the transaction on
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December 31, 2015, the last day that IBM was willing to move forward at HIG’s offering price. The debt was provided by Prudential. The financing included $ 17 million of equity from HIG and $ 55 million of debt from Prudential, which included $ 10 million of operating capital. The actual terms of the acquisition are not provided in the summary judgment record, but it appears that the acquirer was a new company (the proverbial Newco) owned in undisclosed percentages by HIG, Plunkett, and other members of Salary.com management. At one time, spread sheets showing the sources and uses of funds to be provided HIG and a still unidentified debt financier included a $ 330,000 fee going to NTV, although that fee was not included in the final closing documents and no fee was paid to NTV.
DISCUSSION
Standard for Review
Summary judgment will be granted when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Mass. R. Civ. P. 56(c); Cassesso v. Commissioner of Corr., 390 Mass. 419, 422 (1983). To prevail on its summary judgment motion, the moving party must affirmatively demonstrate the absence of a triable issue, and that the summary judgment record entitles it to a judgment as a matter of law. Pederson v. Time, Inc., 404 Mass. 14, 16-17 (1989). “[A]ll evidentiary inferences must be resolved in favor of the [nonmoving party].” Boyd v. National R.R. Passenger Corp., 446 Mass. 540, 544 (2006).
The nonmoving party, however, cannot defeat a motion for summary judgment by merely asserting that facts are disputed. Mass. R. Civ. P. 56(e); LaLonde v. Eissner, 405 Mass. 207, 209 (1989). Rather, to defeat summary judgment, the nonmoving party must “go beyond the pleadings and by [its] own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial.”
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Kourouvacilis v. General Motors Corp., 410 Mass. 706, 714 (1991). “Conclusory statements, general denials, and factual allegations not based on personal knowledge [are] insufficient.” Cullen Enters., Inc. v. Massachusetts Prop. Ins. Underwriting Ass’n, 399 Mass. 886, 890 (1987), quoting Madsen v. Erwin, 395 Mass. 715, 721 (1985).
Breach of Contract and Breach of the Covenant of Good Faith and Fair Dealing
NTV asserts that Salary.com breached the Agreement by failing to pay the 3% commission, or alternatively failing to pay the $ 330,000 advisory fee. The court will first address the claims asserting a breach for failure to pay the commission.
NTV argues that Lightship breached the Agreement by failing to tell NTV that it was talking to other investment banking firms. However, the Agreement was clearly not exclusive. Indeed, it contemplated what might happen if the transaction closed with investors not introduced by NTV. Lightship was under no obligation to inform NTV concerning other firms it was using to raise capital. NTV also complains that Lightship began focusing on HIG in October and signed an exclusivity arrangement with HIG on November 3, 2015. Never having introduced a potential investor that even submitted a term sheet to Lightship, NTV could not have been surprised that Lightship focused on a potential equity investor that did its due diligence, met with management, and submitted terms on which it would attempt to close a transaction with IBM. NTV also complains that HIG received a copy of the Alvarez and Marsal report; however, it paid Genstar for it. There is no evidence in the summary judgment record that Lighthouse would not have entered into negotiations with an investor generated by NTV, if any such investor presented a term sheet for a proposed transaction.
More specifically, NTV contends that there exists a triable issue of fact concerning whether MTV is due the 3% fee “under the lost opportunity doctrine.” This doctrine, however,
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addresses the question of how lost profits may be proven when they are the consequence of a breach of contract or business tort. It is not a separate means of establishing a breach of contract or a tort. This doctrine simply has no application to this case. See, e.g., Herbert A. Sullivan, Inc. v. Utica Mutual Ins. Co., 439 Mass. 387, 413 (2003) (“An element of uncertainty is permitted in calculating damages . . . This is particularly the case in business torts, where the critical focus is on the defendant’s conduct.”) (emphasis supplied).
NTV argues that an investor that it introduced to the deal, Ares, “might” have “matched the terms that Prudential eventually offered on December 18, 2015.” There are two problems with this argument: one legal and one factual.
First, the Agreement provides: “If third parties not introduced by NTV shall offer better terms than parties introduced by NTV, then NTV will have the opportunity, within five days after notification to match such terms.” NTV never introduced a party to Lightship that offered to enter into a transaction, debt or equity, on any terms, and that includes Ares. Clearly, the contract envisions that a qualified investor introduced by NTV who had made an offer would be given a brief period to attempt to match or exceed a better offer made by another investor. It does not mean that NTV had the right to find a third-party that had never presented an offer sheet who might, on five days-notice, decide to invest more than $ 50 million on terms better than those offered by an investor prepared to close. There is no way to determine if an investor’s terms are better than those produced by an NTV introduced party, where the NTV party never submitted anything to compare.
Additionally, there is no evidence that Ares could possibly close on financing by December 31, 2015, the date by which IBM required the transaction be complete. The December 17, 2015 email from Ares to which NTV points expresses only a vague willingness to
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talk to NTV about the deal. A previous November 23, 2015 email exchange between Ares and NTV shows that Ares had direct contact with HIG about this transaction, but HIG was looking for debt on terms that were of no interest to Ares. There is no evidence that HIG’s position ever changed. Indeed, Lightship submitted an affidavit from a managing director at Ares who attested that he had a good working relationship with HIG from other deals, he looked at material sent to him by HIG and spoke to HIG about it, and then told HIG that Ares would pass. NTV offers no evidence to contradict this affidavit. The summary judgment record contains no evidence creating a triable issue on the question of whether Ares would have presented matching or better terms than Prudential, if offered the opportunity to do so in late December, 2015. NTV’s speculation that this might have happened is insufficient.
NTV’s claims for breach of the implied covenant of good faith and fair dealing as it relates to the claim for the commission fails for similar reasons. There is simply no evidence that NTV brought the Salary.com transaction to the attention of any potential investor who might have provided financing for this transaction on better terms than HIG and Prudential. Even assuming that there is evidence in the summary judgment record that Plunkett was not responsive to requests to meet with an NTV sourced investor, a debatable proposition, there is no evidence that any such investor was actually prepared to invest.1
Turning to the advisory fee, the Agreement states: “In the event a deal is consummated by management with investment or financial sponsorship other than parties introduced by NTV, . . .
1 A brief reference to Silicon Valley Bank is made in the opposition in this regard; however, again defendants have submitted an affidavit from a Managing Director of this firm in which he points out that Silicon Valley was Salarly.com’s banker when it was an independent company, and he knew about the proposed transaction, but never met with Plunkett or anyone else associated with the Salary.com deal and never proposed any terms on which Silicon Valley would invest. NTV has not offered any deposition testimony or other evidence from Silicon Valley suggesting that it was ready to close on a Salary.com transaction by December 31, 2015. For these reasons, there can be no 93A claim premised on a refusal to pay the 3% commission because there is no evidence that NTV generated a potential investor actually interested in financing the acquisition.
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then NTV shall be entitled to a $ 330,000 advisory fee in consideration of its team’s effort, services, time, and opportunity costs associated with working with management, preparing materials, communication with potential sources of capital, and other services, provided NTV shall have introduced at least 10 qualified sources of capital and remained engaged with [Lightship] and available to provide advice and support.” With respect to this fee, Lightship maintains that NTV failed to “introduce[] at least 10 qualified sources of capital and remained engaged with [Lightship] and available to provide advice and support.” It concedes, for purposes of its motion for summary judgment, an introduction to 7 potential investors, but contends that there is no evidence in the record supporting the last 3, viz: Vector Capital, Princeton Capital and Silicon Valley Bank (SVB).
In response, NTV first argues that the Agreement could be read to mean that all NTV had to do was “introduce” potential investors to the deal, i.e., let them know it was out there; it did not have to actually introduce them to Lightship. On this proposed interpretation, sending a brief email very broadly describing the deal to 28 firms fulfilled its obligation. The court does not find that this is a reasonable interpretation of the Agreement. The Agreement contemplated that NTV would find at least 10 qualified sources of capital sufficiently interested in the opportunity that they would want to meet with the principals of Lightship, i.e., be introduced to Lightship. Clearly, sending a cold email to investors, most of whom did not even respond, was not what the parties understood would be sufficient to earn $ 330,000. Moreover, sending a follow-up email that attached a power point providing some additional information, but still without identifying Salary.com as the target, was also inadequate.
As to the three investors, in dispute: Vector, Princeton, and SVB, Lightship argues that: (i) Stifel had already contacted Vector when it was still acting as Lightship’s investment banker;
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(ii) Princeton was not an acceptable source of capital because one if its managers had sought to oust Plunkett as CEO of Salary.com a decade earlier; and (iii) SVB could not be introduced to this transaction because SVB was Salary.com’s banker when it was an independent company and Plunkett had already discussed the deal with SVB. The court finds these arguments insufficient to support dismissal of this claim by summary judgment. If Vector and SVB had previously passed on the Salary.com/Lightship transaction, but were willing to re-engage because of NTV’s efforts, a jury could find that they were introduced, or at least ready and willing to be introduced, to Lighthouse regarding their possible participation in the acquisition within the meaning of the Agreement. As to Princeton, there is evidence in the summary judgment record that Plunkett approved either directly or by inference this firm as an acceptable source of capital when it reviewed the original list of 28 firms to which NTV sent its initial email describing the transaction. The jury could also choose not to believe Plunkett regarding his reason for not meeting with Princeton or find that reason insufficient under the Agreement. While it may be that the literal terms of the Agreement have not been fulfilled if Plunkett or other members of Salary.com team never met with these three firms; however, a breach of the covenant of good faith and fair dealing might be might be demonstrated with evidence that Plunkett avoided meeting with potential investors who NTV had contacted and developed to the point that they wanted to engage with the Salary.com team to discuss the acquisition.
Additionally, there is evidence that at one point the $ 330,000 advisory fee was included in a spread sheet generated by Lighthouse as a transaction expense to be paid at closing. This is certainly not conclusive evidence that the fee was due, as there are other explanations as to why it might be included in an early draft of a closing document. It is, nonetheless, some evidence that Lighthouse believed that NTV had earned this fee.
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Accordingly, summary judgment is denied with respect to so much of Counts I, II and VI as are based on a failure to pay the advisory fee.2 NTV’s motion for summary judgment on this claim is also denied, as NTV has only shown that there are disputed issues of fact material to the claim, not that it is entitled to judgment as a matter of law.
Deceit
NTV alleges a claim for Deceit/Negligent Misrepresentation in Count V. The only allegedly false statement identified in the complaint with any specificity is that Lighthouse represented to NTV that it had an agreement with IBM that gave it an exclusive right to negotiate a purchase of Salary.com, but failed to tell NTV that the agreement had expired. Even if this allegation were true, the summary judgment record establishes that IBM continued to negotiate the terms of the Salary.com purchase with Lighthouse and its equity partner HIG through the end of 2015, closing the transaction on December 31, 2015. This is not a case in which NTV was misled into expending substantial resources in assisting Lighthouse only to have IBM sell to another buyer. A necessary element of a claim of deceit is damages, and NTV has not alleged that it suffered any damage in reliance on this allegedly material misrepresentation. See Kilroy v. Barron, 326 Mass. 464, 465 (1950) (plaintiff must have relied upon the representation as true and “acted upon it to its damage.”)
Remaining Claims
In its opposition to the defendant’s motion for summary judgment, NTV raises no argument in support of its claims for promissory estoppel, unjust enrichment, fraudulent transfer, or its claims to reach and apply debt or other interests due either defendant from some other
2 Count VI alleges the violation of Chapter 93A. The court finds this claim to be quite weak. Nonetheless, there exist circumstances in which a breach of the covenant of good faith and fair dealing will support a Chapter 93A claim and it therefore declines to dismiss this Count to the extent it is related to the advisory fee. See, e.g., Massachusetts Employers Ins. Exchange v. Propac-Mass., Inc., 420 Mass. 39 (1995).
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third-party, not named as a defendant in this action, nor could it. Those claims are dismissed.
ORDER
For the foregoing reasons, the defendants’ motion for summary judgment is ALLOWED, in part, and DENIED, in part, as follows: all Counts of the complaint are dismissed except so much of Counts I, II and VI as allege claims based upon Lighthouse’s refusal to pay the advisory fee. Plaintiff’s motion for summary judgment is DENIED.
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Mitchell H. Kaplan
Justice of the Superior Court
Dated: May 31, 2017