Judge Pauley Refuses to Allow New Breach Claim in Contract Dispute
The plaintiffs sought another shot at the claims after allegedly finding evidence during discovery that undermined a key fact that led to the collapse of a revenue sharing agreement.
August 13, 2018 at 05:36 PM
4 minute read
U.S. District Judge William Pauley III of the Southern District of New York declined Monday to allow the plaintiff in an ongoing negligent misrepresentation suit another shot at a breach of contract claim, after already substantially pruning the original complaint down to a single count.
Despite the plaintiff, Kortright Capital Partners, claiming to uncover critical information during the tail end of discovery, Pauley ruled that, under relevant state contract law, the language the parties previously agreed to related to conditions precedent to the formation of the contract itself. Since the performance at issue—the closing of a separate third-party deal—never occurred, the unambiguous contract language meant the contract can't be enforced, providing nowhere for a new breach of contract claim to arise.
Kortright sued Investcorp Investment Advisers in September 2016, claiming an initial breach of contract, covenant of good faith and other claims over the collapse of an investment deal between the two firms. The crux of the suit goes to the impact of Investcorp's pulling out of funds Kortright depended on in a separate transaction involving another party not involved in the lawsuit, Man Group.
Investcorp claimed it had not received the consent of its clients to keep their money in the deal with the third party—a condition Kortright had with Man Group to keep their new deal in place.
To add another but critical layer of complexity, Kortright and Investcorp had a separate revenue sharing agreement in place as part of a legacy investment deal that evolved into the Man Group agreement. In that agreement was a provision that made the revenue sharing agreement conditional on the closing of the Man deal by the end of September 2016.
After Pauley winnowed Kortright's claims down to the single negligent misrepresentation claim over Investcorp's failure to disclose needing client consent, discovery took place. During the process, Kortright claims to have found new information that showed Investcorp didn't actually need its clients' consent at all.
Kortright then sought the court's permission to file a breach of contract claim over the revenue sharing agreement, as they'd believed Investcorp clients, not the company managers themselves, were the reason for the failure of a condition precedent.
Pauley noted that the core of the dispute was which type of contractual condition precedent, either based on some kind of performance or on a formation. Investcorp argued for the former, but, as the judge noted, the argument created a “circular result.” The performance required would be Investcorp's clients' funds staying in for the Man deal to close, which could only incur if the clients' funds were invested until the deal was done.
The bigger issue, Pauley noted, was that the language is concrete in the agreement, which necessarily unravels the revenue sharing agreement because the Man deal fell through, making the contract not valid and enforceable. The language bound the parties only to the condition specified, not to their ultimate intent in the deal. The judge also declined to apply the prevention rule, as a party is under no implied obligation to scuttle something when there is no contract in effect.
“Because this court concludes that [the contract language] creates a condition precedent to the validity and enforceability of the [revenue sharing agreement] that did not occur, Kortright's motion to amend is denied as futile,” Pauley wrote.
Pauley also appeared to show little patience with dueling sanctions motions in the bitter battle over contract language, dismissing both quickly. He also declined Investcorp's attempt to nullify jury waiver language in the contract.
Kortright's legal team was led by Cadwalader, Wickersham & Taft partner Jason Halper. Investcorp was represented by counsel Gibson, Dunn & Crutcher, led by Christopher Joralemon. Neither responded to a request for comment.
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