Bass, Berry & Sims attorney Chris Lazarini discussed the case in which an investment bank sought to recover compensation from a client it had assisted in raising capital. The investment bank sued on claims of quantum meruit, unjust enrichment, and breach of contract. The court rejected all claims citing the New York Statute of Frauds, requiring that in order to receive compensation for assisting in the purchase or sale of an interest in a business entity, the contract must be in a writing that evidences the full intention of the parties without recourse to parol evidence.
Chris provided the analysis for Securities Online Litigation Alert (SOLA). The full text of the analysis is below and used with permission from the publication.
Chardan Capital Markets, LLC vs. Northwest Biotherapeutics, Inc., No. 17-cv-4727 (S.D. N.Y., 8/6/18)
Under the New York Statute of Frauds, a contract to pay compensation for assisting in the purchase or sale of an interest in a business entity must be in a writing that evidences the full intention of the parties without recourse to parol evidence.
In December 2016, investment bank Chardan Capital Markets ("Chardan") entered into an exclusive Placement Agent Agreement with Northwest Biotherapeutics ("Northwest") for a private offering of stocks and warrants. Chardan completed the placement in a matter of days and collected the 8% fee owed it under the Agreement. The Agreement had a tail provision providing for additional payments to Chardan if investors purchased additional securities from Northwest during the six-month period following the "termination" of the Agreement.
In March 2017, Northwest decided to raise additional capital and allegedly told Chardan it would use the company as its exclusive placement agent. Working without a new placement agreement, Chardan lined up several investors, only to be informed that Northwest had engaged another firm to act as placement agent. Chardan believed that some funds raised by the new firm came from investors in the December 2016 offering and from other investors Chardan had targeted in March 2017. In an email responding to Chardan's payment demand, Northwest said it would pay Chardan "everything" it was owed. After receiving $50,000, Chardan sued on claims of quantum meruit, unjust enrichment, and breach of the December 2016 Agreement.
The Court grants Northwest's motion to dismiss. Here, the quantum meruit and unjust enrichment claims are barred by New York's Statute of Frauds (the "Statute"), which requires contracts "to pay compensation for services rendered in . . . negotiating the purchase, sale [or] exchange . . . of a business opportunity [or] business" to be in writing. The Court rejects Chardan's argument that the Statute only applies if a controlling interest is transferred, because the word controlling does not appear in the Statute, the Statute's purpose is to prevent intermediaries from making exaggerated fee and compensation claims, and the Statute applies to loans (which transfer no equity interest) and transfers of partnership interests (which might or might not include transfer of a controlling interest).
Chardan's argument that Northwest's email, promising payment of "everything" Chardan was owed, was a writing within the meaning of the Statute also fails, because the parties' full intent could not be ascertained from the email. The Court similarly rejects Chardan's reliance on the tail provision of the December 2016 Agreement. The tail provision is "missing words" and it applies only if the Agreement was terminated at the close of the December placement. The parties specified the conditions under which Chardan could terminate the Agreement (in which case certain provisions, including the tail provision, would survive) and the closing of the placement was not among those conditions. Because the Agreement did not specify that any provision survived the closing, the Court concludes that the closing did not terminate the Agreement.