On October 11, 2019, the United States Court of Appeals for the Second Circuit affirmed a decision by District Judge Jesse Furman denying in part breach of contract claims for advisory fees brought by investment bank Stone Key LLC and its affiliate against its former client, Monster Worldwide, Inc. Stone Key Partners LLC v. Monster Worldwide Inc., No. 18-2804 (2d Cir. October 11, 2019).

As discussed in our prior post, the trial court had denied claims for fees related to a transaction that it found post-dated termination of the advisor’s contract and a claim for an earlier transaction that it found did not qualify as a “partial sale” for which the advisor was entitled to a fee. Significantly, as we discussed, the trial court also based its denial of the claim related to the earlier transaction on its finding that the partial sale fee provision in the engagement letter amounted to an unenforceable agreement to agree. By summary order, the Second Circuit affirmed largely for the reasons articulated by the lower court. However, because the Second Circuit agreed that the earlier transaction did not constitute a “partial sale” under the contract and affirmed the lower court’s denial of the claim on that basis, the Second Circuit “decline[d] to consider whether the compensation provision itself was enforceable.” Summary orders do not have binding precedential effect.

As to the later transactions, the Second Circuit affirmed the trial court’s determination that a provision regarding termination was ambiguous and found that the extrinsic evidence considered by the lower court supported its conclusion that the agreement ended before the later transactions. Specifically, the Second Circuit noted that a provision that the “engagement . . . may be terminated at any time . . . by written notice” did not state that “it ‘must’ be terminated in writing.” As to the earlier transaction, the Second Circuit agreed that a sale of 49.9% of a particular subsidiary did not constitute a sale of a “material portion” of defendant’s assets so as to qualify as a “partial sale” under the engagement letter. Specifically, the Court “decline[d] to overturn the district court’s holding that the sale of 3.7% of [defendant’s] assets as measured by their book value was not ‘material,’ citing the oft-used 5% rubric for ‘quantitative materiality’ in the context of securities fraud case law.”

Stone Key Partners LLC v. Monster Worldwide Inc.