Opinion
01 CIV. 1290 (CSH)
September 30, 2003
MEMORANDUM OPINION AND ORDER
In this diversity action, Plaintiff RLS Associates, LLC ("RLS") brings suit against Defendant United Bank of Kuwait PLC ("UBK" or "the Bank") for breach of a contractual agreement to pay a post-termination fee. RLS brings a second claim against UBK for unjust enrichment. The case is presently before the Court on cross-motions for summary judgment. For the following reasons, Defendant's motion is granted, and Plaintiff's motion is denied.
UBK defaulted in answering the complaint. The Court entered a default judgement in RLS's favor, and referred the case to Magistrate Judge Freeman for an inquest on damages. UBK then moved to be relieved of its default and allowed to defend RLS's suit on the merits, a motion I granted in an opinion reported at 2002 WL 122927 (S.D.N.Y. Jan. 29, 2002). The parties then conducted discovery and submitted affidavits, which form the evidentiary record for these cross-motions for summary judgment.
I. BACKGROUND
In 1994, UBK formed a fund for investment opportunities in equipment leasing and sales. The IIBU Fund II PLC (the "Fund") was a publicly traded entity established by Duncan Smith, head of the Bank's Islamic Investment Banking Unit. Richard Swomley provided consulting services for UBK; first in the capacity of a Smith Barney employee and later, through his own private company, RLS Associates, LLC. The Bank, in turn, acted as the General Investment Advisor ("GIA") to the Fund.RLS and UBK were parties to three contracts captioned "Consultancy Agreements," dated respectively January 16, 1996, April 14, 1996, and June 25, 1996. Each of these Consultancy Agreements also identified as a party one of three "Asset Managers": American Finance Group, ATEL Leasing Corporation, and Capital Associates. The three Consultancy Agreements are identical except for the name of the Asset Manager and the date of execution.
Clause 1 of the Consultancy Agreements describes RLS's obligations to UBK, which were broad ranging and included providing "general consulting and advisory services within the United States." Clause 1(a). Clause 2 sets forth the Asset Managers' responsibilities for paying to the Fund designated percentages of revenues and excess reserves generated by profitable leases and sales. In that regard, each Consultancy Agreement provided that the particular Asset Manager involved, while listed as a party to the Agreement, "is executing this Agreement for the sole purpose of evidencing its agreement to pay the amounts and at the times contemplated by Clause 2 hereof" ¶ E to the Preamble. UBK used the sums remitted to it by the Asset Managers pursuant to Clause 2 to pay RLS for the latter's consulting services.
The Consultancy Agreements provide in Clause 7 that the Agreements could be terminated by either UBK or RLS "forthwith by notice in writing to the parties at any time." This termination clause must be read in conjunction with Clause 6, which provides that "[u]pon termination of this Agreement for any reason: (a) fees shall be payable up to the date of termination . . ."
The Consultancy Agreements provide in Clause 13, captioned "Entire Agreement," that the Agreement "embodies the entire understanding between the parties with respect to the subject matter of this Agreement" and that "no modification or amendment or provision of this Agreement shall be effective unless the same shall be reduced to writing and signed by the parties."
The Consultancy Agreements did not provide specifically for the amount of compensation UBK would pay to RLS for the latter's consultancy services during the life of the Agreements. That subject was addressed in three letters sent by UBK to RLS and countersigned by Swomley for RLS. The first of these letters is undated but the record on discovery shows that it was written on January 16, 1996. The other two letters are both dated November 3, 1997.
The January 16, 1996 letter recites that it is "supplemental to the terms contained in the Consultancy Agreement," and provides that since UBK has agreed to provide RLS with office facilities within the Bank's New York building, "the commissions paid under Clause 2(a) and Clause 2(b) of the Consultancy Agreement shall be shared," so that RLS would receive smaller percentages than might otherwise occur. The first of the two November 3, 1997 letters from UBK to RLS provides for a further sharing of Clause 2(a) and (b) Consultancy Agreement commissions because the Bank has "agreed to undertake certain evaluation and administration functions which would otherwise have been carried out by [RLS] under the Consultancy Agreements."
These two letters, while worth noting in order fully to comprehend the relationship between UBK and RLS, are not of central importance to the issues presented by these cross-motions. But the second November 3, 1997 letter from UBK to RLS goes to the heart of the matter. The letter was written by Duncan Smith, then an officer of UBK, to the attention of Swomley at RLS. It is captioned "one year termination payment." Smith begins the letter from the Bank to Swomley by saying: "We are writing, following discussions between us, to outline the terms on which we agree to vary the termination agreements currently applying' to the Consultancy Agreements . . ." Given the tenor of this letter, I will refer to it as the "November Amendment."
It will be recalled that the Consultancy Agreements permitted termination by either UBK or RLS at any time, with no fee or payment being required at the time of termination. The November Amendment modified this arrangement by requiring UBK to provide commission payments to RLS for one year post-termination, provided that RLS "perform such duties as [UBK] may reasonably request . . . and may if requested by UBK provide reasonable assistance in identifying a replacement for RLS." November Amendment at 2. The November Amendment also provided that RLS would lose some or all of its post-termination fee if it engaged in activity which UBK believed to be prejudicial to its interests. Id.
This provision reads in pertinent part:
If RLS or Richard Swomley directly or indirectly engages in activities which UBK may reasonably believe are in any way prejudicial to its interests, or the interests of any of the collective investment schemes related to US leasing industry and their investors with which UBK has involvement, including but not limited to IIBU Fund II Plc, then UBK shall have the right to stop immediately the payment of any and all commissions as referenced in the Agreements as amended by the letter agreement between UBK and RLS . . .
November Amendment at 2.
For several years, RLS, UBK and the Asset Managers enjoyed an amicable and productive relationship. However, serious problems arose by November 1999 when, due to disagreements with management, Duncan Smith separated from UBK on less than friendly terms. After Smith's departure, Swomley's relationship with the Bank grew increasingly fractious, culminating in UBK's decision to terminate RLS on February 14, 2000. When UBK failed to pay RLS the post-termination fee allegedly promised by the November Amendment, RLS filed suit against UBK for breach of contract. RLS also asserted a claim against UBK for unjust enrichment.
By June 30, 2000, shareholders of the Fund had elected to dissolve the Fund and liquidate its assets.
In response, UBK alleged that the November Amendment was void for improper execution and for lack of consideration, that RLS had violated a condition to payment, and that the Bank was not unjustly enriched.
These cross-motions for summary judgment followed.
II. JURISDICTION
Subject matter jurisdiction in this Court is based on diversity of citizenship, pursuant to 28 U.S.C. § 1332(a)(2). RLS is a limited liability company incorporated under the laws of Connecticut, with its principal place of business in Colorado. UBK is a foreign banking corporation with its principal place of business in London, England, and also maintains an office in New York. RLS is suing to recover $250,000, thereby satisfying the jurisdictional amount under § 1332(a).
The Consultancy Agreements provide in Clause 18 that they "shall be governed by and construed in accordance with the laws of England and the parties hereby submit to the nonexclusive jurisdiction of the English Courts." Because that jurisdictional submission is nonexclusive, RLS is entitled to sue UBK in this Court; UBK does not contend otherwise. This Court must apply English law in determining the rights and obligations of the parties.
III. STANDARD OF REVIEW
The principles governing the grant or denial of a motion for summary judgment under Rule 56, Fed.R.Civ.P., are well established. "[S]ummary judgment is appropriate where there exists no genuine issue of material fact and, based on the undisputed facts, the moving party is entitled to judgment as a matter of law." D'Amico v. City of New York, 132 F.3d 145, 149 (2d Cir.), cert. denied, 524 U.S. 911, 118 S.Ct. 2075 (1998). In addressing a motion for summary judgment, "[t]he court must view the evidence in the light most favorable to the party against whom summary judgment is sought and must draw all reasonable inferences in his favor." LB. Foster Co, v. American Piles, Inc., 138 F.3d 81, 87 (2d Cir. 1998) (citing Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). The party seeking summary judgment bears the initial burden of showing that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
While English substantive law governs the contracts, the Federal Rules of Civil Procedure furnish the standards of review for these summary judgment motions.
Once such a showing is made, the party opposing the motion must come forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). In so doing, the "non-moving party may not rely on conclusory allegations or unsubstantiated speculation." Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998). Moreover, while the party resisting summary judgment must show a dispute of fact, it must also be a material fact in light of the substantive law. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). However, "[t]he mere existence of a scintilla of evidence in support of the [non-movant's] position will be insufficient" to defeat a properly supported motion for summary judgment. Anderson, 477 U.S. at 252. Instead, the non-movant must offer "concrete evidence from which a reasonable juror could return a verdict in his favor." Id. at 256. Summary judgment should only be granted if no rational factfinder could find in favor of the non-moving party. Heilweil v. Mount Sinai Hospital, 32 F.3d 718, 721 (2d Cir. 1994).
IV. DISCUSSION A. The Consultancy Agreements are Ambiguous
UBK alleges that the November Amendment is void by the terms of the original Consultancy Agreements. As noted, each Agreement states "no modification or amendment or provision of this Agreement shall be effective unless the same shall be reduced to writing and signed by the parties." Consultancy Agreements, Clause 13. The November Amendment purports to vary the terms of RLS's termination arrangements from those set out in the original Consultancy Agreements. See November Amendment at 1, Consultancy Agreements, Clauses 6, 7. Since the November Amendment was not brought to the attention of any of the Asset Managers, nor signed by them or their representatives, UBK argues that the November Amendment is void.However, each Consultancy Agreement also includes a clause stating that each Asset Manager is "executing this Agreement for the sole purpose of evidencing its agreement to pay the amounts and at the times contemplated by Clause 2 hereof." Consultancy Agreements, ¶ E (emphasis added). Clause 2 of the Agreements details the commissions that the Asset Managers were required to provide the Fund and does not speak to RLS's termination arrangements.
Thus, the Asset Managers' rights with respect to notice and signature are ambiguous. While the Entire Agreement clause purports to require the Asset Managers' signature before making any modifications of the termination arrangements, ¶ E of the Preamble suggests that the Asset Managers' rights and interests are limited to issues arising from their payment obligations under Clause 2. Indeed, when UBK forwarded the November Amendment to RLS, the Bank did not think it necessary to ask for the Asset Managers' signatures.
It is a long established principle that "[p]arol testimony cannot be received to contradict, vary, add to or subtract from the terms of a written contract, or the terms in which the parties have deliberately agreed to record any part of their contract." Bank of Australasia v. Palmer A.C. 540, 545 (cited in National Westminister Bank Ltd v. Halesowen Presswork Assemblies Ltd A.C. 785, 818-819). See H.G. Beale, Chitty on Contracts § 12-094 (28th ed. 1999). However, the parol evidence rule does not prohibit the introduction of outside evidence in the case of "patent ambiguity," where the language employed is "so vague or contradictory as to be incurable." Chitty on Contracts, supra, § 12-123. Since there is a genuine dispute with regard to the parties' intent, summary judgment cannot be granted on the basis of the Entire Agreement Clause.
I have cited English authorities in text because, as noted supra, the contracts at issue provide that they are governed by English law. These particular authorities are referred to in the affidavits of English barristers submitted on these cross-motions.
B. The November Amendment is Not Void as a Matter of Law
UBK also alleges that the November Amendment was void as a matter of law, as it required the Asset Managers, without their prior consent, to pay RLS an extra year of commissions. "A person should not, as a general rule, have contractual obligations imposed on him without his consent . . ." G.H. Treitel, The Law Of Contract 539 (9th ed. 1995).UBK alleges that the Asset Managers should have received notice and granted permission before RLS was entitled to the post-termination fee, since the Asset Managers paid RLS's commission. However, this misstates the facts. Under the terms of the Consultancy Agreements, the Asset Managers remunerated the Fund itself. UBK then compensated RLS for his services through capital originating from the Fund.
This was the arrangement until August 19, 1999 when control over the Fund account switched from UBK to RLS. Once RLS assumed control of the account, it took over the responsibility of calculating and paying its own commissions. However, RLS's compensation did not change in any material way. See Letter from Smith to Swomley dated August 19, 1999.
This distinction is not a mere technicality; it is dispositive for the following reason: UBK and RLS negotiated RLS's fee arrangement wholly outside the Asset Managers' control or supervision. The post-termination fee did not obligate the Asset Managers to provide additional revenue above and beyond what they were required by Clause 2 of the Consultancy Agreements to provide. RLS's post-termination fee came at UBK's rather than the Asset Managers' expense.
Because the Asset Managers' fiscal obligations remained constant regardless of whether and to what extent RLS received a post-termination payment, it follows that they were not require to provide cosignatory approval. Their lack of consent does not void the November Amendment
C. There is No Consideration for the Promise
Nevertheless, the November Amendment is flawed because it fails to provide valid consideration in exchange for the post-termination payment. RLS asserts a litany of alleged considerations claims. However, despite the breadth of Plaintiff's efforts, none of its proffered theories amount to even a "peppercorn" of consideration. Chitty on Contracts, supra, § 3-017.
I) Past Performances
The first two claims are enumerated in the November Amendment itself, where it is said that the termination arrangements are being varied "in consideration of the following:"
1. That RLS was instrumental in establishing productive relationships between the UBK-sponsored IIBU Fund II Plc, Cantrip Investments Limited (both of Dublin, Ireland) and each of American Finance Group, Capital Associates, Inc. and ATEL Leasing Corporation.
2. That RLS has undertaken to perform other and/or similar duties in connection with the U.S. leasing industry, with other UBK-sponsored collective investment schemes which may or may not involve American Finance Group, Capital Associates International, Inc and ATEL Leasing Corporation from which RLS derives directly or indirectly no financial benefit and other non-leasing related matters for the benefit of UBK. For the avoidance of doubt other duties on behalf of UBK for which RLS is compensated are dealt with and documented separately.
November Amendment at 1.
The first provision recites work already performed by RLS. A promise in exchange for past performance is a "nudum pactum, a promise with no consideration to support it." In re McArdle, [1951] Ch 669, 678.
The second provision compels RLS to perform "other and/or similar duties in connection with the U.S. leasing industry, with other UBK-sponsored collective investment schemes." November Amendment at 1. However, under the terms of the original Consultancy Agreements, RLS promised to perform "general consulting and advisory services" on behalf of the Bank, including "research, analysis and on-going reporting on the leasing market generally" as well as "research, analysis and advice on non-leasing opportunities." Consultancy Agreements, Clause 1. Thus, the duties RLS promised to performed under the second provision are indistinguishable from those RLS had contracted to perform under the terms of the original contract. See Consultancy Agreements, Clause 1. No new consideration arises out of this portion of the Amendment.
2) Promise of Continued Performance
The November Amendment states that in exchange for the one year post-termination fee, "RLS will continue to perform such duties as we may request reasonably within the terms of Paragraph 1 of each Agreement. . . ." November Amendment at 2.
Consideration requires "something of value" to be provided, either a detriment to the promisee or a benefit to the promisor. Chitty on Contracts, supra, § 3-004. See Currie v. Misa (1875) L.R. 10 Ex. 153, 162. This promise by RLS provides neither. It simply states that UBK could dismiss RLS while retaining its services as needed, provided UBK pays RLS a one year post-termination fee. UBK does not gain anything of value it would not have enjoyed prior to this Amendment. Nor does RLS suffer any detriment by the arrangement, since the alleged consideration does not ask RLS to perform duties greater than it had been required to perform under the original Agreements.
If RLS had provided consulting services for more than one year in exchange for the one year post-termination fee, then this could in theory present valid consideration. However, there is no evidence to support this theory, nor is it a reasonable inference from the evidence at hand.
If anything, this alleged consideration is a net detriment to UBK since it effectively obliged UBK to provide RLS one year's notice before termination, whereas under the terms of the original agreement, either party could terminate the agreement "at any time." Consultancy Agreements, Clause 7. Consideration that is to the benefit of the promisee and the detriment of the promisor is no consideration at all.
3) Promise of Assistance in Identifying a Replacement
The November Amendment states that RLS "may if requested by UBK provide reasonable assistance in identifying a replacement for RLS." November Amendment at 2.
Consideration is illusory where "it was alleged to consist of a promise the terms of which left performance entirely to the discretion of the promisor." Chitty on Contracts, supra, § 3-024. See Beswick v. Beswick, [1968] App. Cas. 58, 97 (H.L. 1967). Here, RLS may provide assistance in identifying a replacement. A promise for discretionary performance is not valid consideration.
4) Stop Payments
RLS alleges that the November Amendment gave UBK the privilege of stopping payments to RLS without terminating the relationship, in the event UBK has reason to believe RLS engaged in activity prejudicial to UBK's interests. November Amendment at 2.
It would be unreasonable to interpret this clause as allowing UBK to stop payments to RLS yet continue to retain its consulting services. Nor does the Amendment compel RLS to return to UBK under any circumstances, once UBK has stopped payments. Therefore, this arrangement is equivalent to UBK terminating and then rehiring RLS. Since UBK does not gain any benefit and RLS does not suffer detriment from this arrangement, it is not valid consideration.
5) Promise of Exclusive Services
The original Consultancy Agreements includes a non-exclusivity clause, which entitled RLS to "provide . . . consulting services to other parties save as otherwise provided herein." Consultancy Agreements, Clause 3. RLS claims that, to its detriment, the November Amendment transformed this relationship from a non-exclusive into an exclusive one. However, nothing in the November Amendment leads to a belief that RLS had entered into an exclusive relationship with UBK.
As previously observed, the parol evidence rule dictates that when the Court finds that a document is a complete record of the contract, it will look to the language of that document alone to discern its meaning. Chitty on Contracts, supra, § 12-094. In this case, the November Amendment is not ambiguous or contradictory. Therefore, we must look to the language of the Amendment.
The November Amendment forbids RLS and Swomley from directly or indirectly engaging in activities prejudicial to the Bank's interest. On its face, this language does not prohibit RLS from providing its services to other clients, so long as those activities are not prejudicial to UBK's interests. It would be absurd to assert that prior to the November Amendment, RLS could provide its services to other clients in a way that prejudiced UBK's interest. RLS does not suffer any detriment arising out of this stipulation.
The November Amendment also states that its purpose is to vary the termination arrangements, not the non-exclusivity clause, of the Consultancy Agreements. Based on the context of the November Amendment, it is unreasonable to interpret the "prejudicial interest" provision as an exclusivity clause.
It would not have been difficult, if the parties had so intended, for RLS or Duncan Smith to state explicitly in the November Amendment that RLS would henceforth provide its services exclusively on UBK's behalf.
6) Increased Time Spent
Finally, RLS asserts that it was "spending virtually all its time for UBK" at the expense of developing other business. Pl.'s Opp'n Br. at 5.
In this case, extra time spent is not valid consideration. UBK did not pay RLS for its time but for its services. Nowhere does RLS claim that it billed for its services by the hour. RLS does not offer evidence of time records or a promise to provide a set number of hours to devote to UBK related activities. Even if RLS had spent 100% of its time on UBK related matters following the November Amendment, this would not provide for new consideration.
For these reasons, RLS has failed to present evidence of valid consideration. Since the November Amendment was not a valid contract, RLS's claim for the post-termination fee cannot survive UBK's motion for summary judgment.
D. Violation of a Condition to Payment is Not a Matter for Summary Judgment
In addition to the foregoing allegations, UBK asserts that RLS and Swomley violated a condition to payment of the post-termination fee by making statements prejudicial to the interests of the Bank. Based on the evidence presented, it is the conclusion of the Court that this issue is a fact-intensive question appropriate for jury resolution.
E. Unjust Enrichment
RLS's second claim is that UBK has been unjustly enriched at its expense. A "remedy for unjust enrichment is granted where the defendant has been enriched at the expense of the plaintiff, and it would be unjust to allow the defendant to retain the enrichment." Banque Financiers De La Cite v. Parc (Battersea) Ltd., 2 W.LR. 475, 494 (H.L. 1998). RLS has not provided any evidence that UBK has been unjustly enriched.V. CONCLUSION
Because RLS has failed to demonstrate either valid consideration or unjust enrichment, the Court grants summary judgment in favor of UBK on all claims. For the foregoing reasons, RLS's cross-motion for summary judgment is denied.
The Clerk of the Court is directed to dismiss the complaint with prejudice.
It is SO ORDERED.