Delaware Business Litigation Report

Superior Court Finds that Plaintiff Was Entitled to Advisory Fee Pursuant to Contract

Barker Capital LLC v. Rebus LLC, C.A. No. 04C-10-269 MMJ, 2006 WL 246572 (Del. Super. Ct. Jan. 12, 2006). The plaintiff, Barker Capital LLC ("Barker"), a Delaware LLC, sued Rebus LLC ("Rebus"), also a Delaware LLC, Mark A. Fox ("Fox"), and Twinlab Corporation ("Twinlab"), a Delaware corporation, alleging breach of contract, quantum meruit, tortious interference with contract, and unjust enrichment. Rebus and Barker entered into an Engagement Agreement, pursuant to which Barker would act as Rebus' nonexclusive financial advisor to identify and consummate a transaction to purchase two medical newsletters. Under the terms of the Engagement Agreement, Barker was entitled to an Advisory Fee in the amount of 2.5% of the transaction's value. Both sides moved for summary judgment. The court found that Barker was entitled to 2.5% of a $12 million loan associated with the deal, but was not entitled to a percentage of a $35 million loan connected with the deal. The court also found against the plaintiff on the quantum meruit claim because the plaintiff had been made whole when the court ruled in his favor on the breach of contract claim. Turning to the tortious interference claim, which was only alleged against Fox, the court found that it did not have the subject matter jurisdiction to pierce the corporate veil. After Barker and Rebus entered into the Engagement Agreement, Rebus' acquisition of the newsletters became exceedingly complicated. Rodney Friedman ("Friedman") and Fox each controlled 50% of Rebus. Initially, Barker approached Highbridge Capital Management ("Highbridge") in an attempt to obtain the necessary financing for the deal. Rebus needed $12 million to purchase the businesses and cover the transaction costs. Highbridge agreed to provide that amount. Simultaneously, Remus was engaged in merger discussions with IdeaSphere, Inc. However, Friedman withheld his approval of the transactions. Because of the disputes between the principals, Fox and the IdeaSphere board developed a complicated plan to purchase the newsletters and dilute Friedman. Health Med, Inc. ("Health Med") was formed as a wholly owned subsidiary of IdeaSphere. Highbridge then made its loan to certain individuals rather than to Remus. The individuals transferred $4 million of the loan proceeds to a Health Med account. In turn, Health Med paid Rebus $4 million for an ownership interest in Rebus. The $12 million loan was then added to Rebus' balance sheet, and Rebus counted the interest as expenses. Friedman actually owned a fifty percent interest in the newsletters that Rebus intended to purchase, and he refused to sell. The transaction could not be completed, and the $12 million was returned to Highbridge. Subsequently, Highbridge, IdeaSphere and Twinlab entered into a Loan and Security Agreement for a $35 million loan. Under the terms of the Loan and Security Agreement, $12 million could be invested in one of the newsletters and Rebus. Barker claimed it was entitled to a 2.5% fee on both the original $12 million loan and the $35 million loan. On the breach of contract claim related to the $12 million loan, the court found for Barker. Even though the loan was paid out to individuals, the court relied on the balance sheet liability to find that Rebus had assumed responsibility for the loan. Furthermore, under the terms of the Engagement Agreement, the closing occurred when Highbridge transferred the money to the borrowers. For the purposes of the 2.5% fee, it did not matter that the money was never used to acquire the newsletters. Because the recovery for the breach of contract made Barker whole, the court denied any recovery on its quantum meruit theory. The court rejected Barker's breach of contract and quantum meruit theories concerning the $35 million loan. Barker provided no services to obtain the loan. Furthermore, the court found that a 2.5% fee on the $35 million loan would give Barker a windfall because it would amount to a second fee for the same transaction. Authored by: Jason C. Jowers 302-888-6860 jjowers@morrisjames.com Share