DENNIS J. SMITH. CHIEF JUDGE
MARCUS D. WILLIAMS
JANE MARUM ROUSH
LESLIE M.ALDEN
JONATHAN C.THACHER
R, TERRENCE NEY
RANDf I. BELLOWS
CHARLES J. MAXFiELD
BRUCE D.WHTTE
ROBEHTJ. SMITH
DAVID a SCHELL
JAN L BRODIE
LORRAINE NORDLUND
BRETT A KASSABIAN
MICHAEL E DEVINE
JUDGES
BARNARD F.JENNINGS
THOMAS J. M1DOLETON
THOMAS A. FORTXORT
RICHARD J. JAMBORSKY
JACK B. STEVENS
J. HOWE BROWN
F. BRUCE BACH
M, LANGHORNE KEITH
ARTHUR E.. VIEREGG
KATHLEEN H MACKAY
ROBERT W.WOOLDRIDGE.JR
MICHAEL R MCWEENY
GAYLORD L FINCH. JR
STANLEY R KLEIN
RETIRED JUDGES
January 28, 2011
Dear Counsel:
Before the court is the Plaintiffs Motion to Reconsider, and the Defendants' Opposition to the Motion to Reconsider. For the reasons stated beiow, the motion to reconsider will be denied in part and granted in part.
Facts
The plaintiff, Sterling Investors Group Limited ('"Sterling"), has brought a three-count complaint against the defendants, The Allied Defense Group ("ADG") and Mecar USA, Inc. ("Mecar"). Count I alleges a breach of written contract against ADG, Count II alleges a breach of an oral contract against ADG, and Count III alleges a breach of an implied contract and unjust enrichment against both ADG and Mecar. The plaintiff demurred to the complaint. The court sustained the demurrer without leave to amend. The plaintiff has asked the court to reconsider that ruling.
The complaint alleges the ADG contracted with a nonparty, Zurmont Research, Inc. ("Zurmont"), for Zurmont to act as a loan broker and secure for ADG a line of credit in the amount of $10,000,000 to $15,000,000 for ADG's wholly-owned subsidiary, Mecar. Under that agreement, attached to the complaint as Exhibit A, Zurmont agreed to locate for Sterling "an offer of credit deemed acceptable by ADG at their [sic] sole discretion" (emphasis added). ADG agreed to pay Zurmont an unspecified commission upon the signing of the credit agreement.
Zurmont, in turn, contracted with Sterling for Sterling to act as a consultant to help Zurmont locate and negotiate the financing for ADG and Mecar. (A copy of Zurmont's consulting contract with Sterling is attached as Exhibit B to the complaint.) Pursuant to that contract, Zurmont promised to pay Sterling a success fee of 4% of the "loan funding that is made available to, and accepted by, [Zurmont's] Client." The success fee was to be paid "at the time of the first funding to [Zurmont's] Client of the facility arranged." (The "Client" is a defined term under the consulting agreement; it means ADG and/or Mecar.)
The complaint further alleges that Sterling procured financing acceptable to ADG, but that ADG, acting in bad faith, rejected the financing. Sterling alleges that ADG never intended to finalize the financing, and only wanted the loan commitment to make ADG a more attractive merger partner for Chemring Group, PLC.
The complaint alleges that, after Sterling learned of ADG's wrongful conduct, it contacted ADG to request the success fee. ADG said it could not enter into any agreement for payment for services without the consent of its merger partner. Nevertheless, "ADG acknowledged Sterling Investors' right to compensation." Complaint ¶ 28. ADG requested that Sterling continue working for it in the event that the merger fell through and ADG would need the financing. Complaint ¶ 29. In later emails, Sterling told ADG that Sterling would not receive the success fee but also "acknowledged ADG's obligation to compensate Sterling Investors." Complaint ¶ 30.
The Demurrer
ADC and Mecar demurred to the complaint. With respect to Counts I and II, the defendants argued that Sterling had not, and could not, allege the satisfaction of conditions precedent to Sterling's right to payment; namely, that ADG accepted the loan commitment and that funding occurred. The defendants demurred to Count III on the grounds that there can be no implied contract where the parties have negotiated an express agreement.
Sterling opposed the demurrer. Sterling argued that ADG was bound by the terms of Zurmont's consulting contract with Sterling in that Zurmont was acting as an agent for ADG. That agreement contained an express covenant of "good faith, cooperation, due diligence and honesty in fact." Sterling alleged that, by application of the "prevention doctrine," Sterling is excused from alleging satisfaction of the condition precedent that the loan was accepted by ADG. That doctrine provides:
Where a contract is performable on the occurrence of a future event there is an implied agreement that the promisor will place no obstacle in the way of the happening of such event, particularly where it is dependent in whole or in part on his own act; and, where he prevents the fulfillment of a condition precedent or its performance by the adverse party, he cannot rely on such condition to defeat his liability.
Parrish v. Wightman, 184 Va. 86, 93 (1945). Sterling furthers argued that Count III, alleging implied contract and unjust enrichment, is permissible as an alternative to Counts I and II.
The Court's Ruling on the Demurrer
After hearing the parties' oral argument on the demurrer, the court sustained the demurrer without leave to amend. The court ruled that ADG had the right in its sole discretion to reject any financing that Zurmont might procure. Zurmont's consulting contract with Sterling similarly limited Sterling's right to payment of a success fee upon the acceptance of a credit facility. The success fee was payable on first funding, an event which did not occur.
The court found that the "prevention doctrine" did not save Sterling's claims. The covenant of good faith was contained in an agreement between Zurmont and Sterling, not ADG and Sterling. (Zurmont is not a party to this suit.) Zurmont's ability to bind ADG and Mecar was limited by ADG's express reservation of the right to reject any funding in ADG's sole discretion. The use of the term "sole discretion" meant that ADG could reject a proposed loan for any reason or for no reason. In effect, by specifying its ability to reject any proposed funding in its sole discretion, ADG negotiated for the right to act unreasonably. The court concluded that Sterling was asking the court to rewrite ADG's contractual obligation to provide that ADG will not unreasonably withhold its acceptance of any funding procured. The court, of course, cannot rewrite the parties' contracts.
Motion to Reconsider
Having reviewed Sterling's motion to reconsider, the court will not resurrect the counts of the complaint as pleaded. However, accepting that the factual allegations of the complaint as true, the court concludes that the plaintiff arguably has stated some sort of claim for breach of a promise to pay Sterling for its services after Sterling was advised that the funding was rejected in favor of ADG merger with Chemring and was asked to "continue working" for ADG.
Therefore, the court will sustain the demurrer as to Counts I, II and III, with leave to amend Count II to allege a breach of oral contract, if counsel can in accordance with counsel's obligations under Va. Code Ann. § 8.01-271.1, based on the facts alleged in 28 through 30 of the Complaint. Of course, considerably more detail will have to be added to those paragraphs in order for the claim to survive a subsequent demurrer. If there is a subsequent demurrer, it should be heard by me.
Conclusion
For the forgoing reasons, the motion to reconsider is granted in part and denied in part. The demurrer is sustained at to ail counts, will leave granted to amend Count II as specified above. If the complaint is not amended within twenty-one days of the date of the entry of the order granting leave to amend, the complaint will stand as dismissed.
Will Mr. Kay prepare an order consistent with these rulings, forward it to Mr. Blanchard to endorse as to form, and present the order to the court for entry within thirty days of today?
Sincerely,
Jane Marum Kousn