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Benchmark Group, Inc. v. Penn Tank Lines

April 8, 2009

THE BENCHMARK GROUP, INC., PLAINTIFF,
v.
PENN TANK LINES, INC., DEFENDANT.



The opinion of the court was delivered by: Buckwalter, S.J.

MEMORANDUM

Currently pending before the Court is a Motion for Summary Judgment by Defendant Penn Tank Lines, Inc. For the following reasons, the Motion is granted in its entirety.

I. FACTUAL BACKGROUND*fn1

Plaintiff The Benchmark Group ("Benchmark") was formed in 1998 and engages in two lines of business, investment banking and succession planning. (Pl's Opp. Mot. Summ. J., Ex. A, Raymond Dep. ("Raymond Dep."), 11:21-12:18, Aug. 18, 2008.) Stephen Raymond is the Managing Director of Benchmark. (Id. at 11:7-20.) Dean Spear is the President and sole owner. (Pl.'s Me0m. Opp. Mot. Summ. J., Ex. B., Spear Dep. ("Spear Dep."), 5:13-18, Aug. 22, 2008.)

Defendant Penn Tank Lines, Inc. ("Penn Tank") is a motor carrier corporation operating in the highly specialized "tank truck" segment of the trucking industry, and provides transportation services related to the movement of petroleum based products and building materials. (Def.'s Mot. Summ. J., Ex. 28, 7.) It is owned by Jack McSherry, Jack Williams, and Richard Redecker. (Pl.'s Opp. Mot. Summ. J., Ex. D, Stephen McSherry Dep. ("S. McSherry Dep."), 5:19-25, Aug. 19, 2008.) Stephen McSherry, Jack McSherry's son, is the chief financial officer. (Id. at 4:22-25.)

Plaintiff and Defendant entered into a Retainer and Representation Agreement on August 1, 2002, providing that Penn Tank would pay Benchmark a retainer fee in the amount of $5,000 per month, in return for Benchmark's services in identifying both potential suitors of and acquisition targets for Penn Tank. (Def.'s Mot. Summ. J., Ex. 4.) The primary purpose of the agreement was for Benchmark to represent Penn Tank in the sale of the company, and to find, identify, and secure a transaction. (Spear Dep. 14:5-13.) In addition to the retainer fee, Penn Tank also contracted to pay Benchmark a success fee "upon the closing of a successfully concluded [t]ransaction," which would be calculated based on the total consideration received for the transaction. (Def.'s Mot. Summ. J., Ex. 4.)

Pursuant to that agreement, Benchmark put together an Offering Memorandum on Penn Tank. (Pl.'s Opp. Mot. Summ. J., Ex. C, Jack McSherry Dep. ("J. McSherry Dep."), 17:9-16, Aug. 21, 2008.) During the 2002-2003 period, Benchmark contacted both private equity investors and strategic purchasers to obtain a potential investment in or purchase of Penn Tank. (Raymond Dep. 30:11-19.) Nonetheless, Benchmark was unsuccessful in finding an interested buyer or investor. (J. McSherry Dep. 18:18-21, 19:10-16; Raymond Dep. 31:25-32:3.) By May 2003, Penn Tank was having trouble meeting payroll and monthly bills, and, as such, Penn Tank and Benchmark amicably ended the retainer agreement. (J. McSherry Dep. 18:22-19:4; Raymond Dep. 31:22-24.)

Between May 2003 and December 2005, Raymond of Benchmark "touched base" with Penn Tank intermittently to see if Penn Tank had further need for Benchmark's services. (Raymond Dep. 33:16-34:19.) In January 2006, Raymond spoke with Jack McSherry regarding a potential deal with a competitor. (Id. at 35:21-33:15.) According to McSherry, Benchmark convinced Penn Tank that Penn Tank's performance was good enough to "test the waters and see what the company could bring, whether it was a majority interest, a minority interest, or whatever." (J. McSherry Dep. 22:4-9.) This contact culminated in a meeting of Spear, Raymond, and the McSherrys on January 25, 2006. (Id. at 24:6-9; Raymond Dep. 36:54-7.) Raymond recalled Jack McSherry being "in no hurry" to do a deal, but still interested in a recapitalization that would give him liquidity for both personal purposes and company growth. (Id. at 37:17-23.) As McSherry did not want to get into another retainer situation, Benchmark agreed to do the work without a fee and get paid "on the back end" if it was able to find a buyer and close a deal that McSherry wanted. (Spear Dep. 28:4-17.) The compensation calculation was purportedly outlined in the prior agreement. (Raymond Dep. 39:21-40:6.) According to Raymond and Spear, Jack McSherry said he wanted a minimum of five times the value of Penn Tank's earnings before interest, taxes, depreciation, and amortization ("EBITDA"). (Id. at 46:8-20; Spear Dep. 76:17-77:23.) Further, McSherry required good chemistry with the investor, continuity for the business, and an assurance that he had an equity stake going forward. (Raymond Dep. 46:21:-47:3.)

Following the meeting, Benchmark began updating and rewriting the Penn Tank Offering Memorandum. (Spear Dep. 31:2-32:19.) Notably, however, no contract was prepared to memorialize any of the verbal agreements. (Raymond Dep. 40:7-40:18; Spear Dep. 28:23-29:2.) Spear assumed that the old agreement was still operative and had never been terminated, meaning that if Benchmark found a buyer on terms acceptable to the client, it was going to get paid under the formula of the success fee in the prior agreement. (Spear Dep. 29:4-21.) Spear further understood that Benchmark was assuming a risk that it would get no fee whatsoever if it could not get a deal that McSherry wanted. (Id. at 28:18-22.) McSherry, on the other hand, believed that Benchmark was simply assessing the worth of the company in the market, as opposed to actually accomplishing the taking in of an equity partner. (J. McSherry Dep. 53:21-54:6.)

Around the time that Benchmark was soliciting Penn Tank, National Penn Bank ("the Bank") was doing the same with respect to taking over Penn Tank's banking services from Bank of America. (Def.'s Mot. Summ. J., Ex. 14.) On January 17, 2006, Kirk Soxman, Bruce Smith, and Jon Swearer of National Penn Bank met with Steve McSherry and Jack McSherry to discuss the history, business, and banking needs of Penn Tank. (Id.) The Bank completed a cash management analysis and sought information regarding Penn Tank's financial goals. (Id. Ex. 15.) On May 4, 2006, the Bank provided a letter setting forth proposed terms for extending a $2 million line of credit to Penn Tank in order to refinance some of Penn Tank's equipment. (Id. Ex. 16.) The letter was for discussion purposes only and not a commitment to lend. (Id.)

Pursuant to the January 2006 verbal agreement, Benchmark engaged in a targeted analysis of companies that might meet McSherry's criteria and, by the fall of 2006, had a list of less than a dozen private equity groups. (Raymond Dep. 55:2-56:13.) On June 13, 2006, Raymond wrote to Jack McSherry about some items scheduled for their June 16, 2006 meeting, and informed Penn Tank about a private equity investment firm, named the Weatherly Group -- a company that had originally expressed interest in Penn Tank in 2003 and which was a candidate for a recapitalization deal. (Def.'s Mot. Summ. J., Ex. 17; Raymond Dep. 57:11-18; 58:10-59:4.) Multiple conversations ensued between Penn Tank and the Weatherly Group, culminating in both a verbal and a written letter of intent, which Benchmark turned over to Penn Tank. (Raymond Dep. 59:9-63:9; Pl.'s Opp. Mot. Summ. J., Ex. F.) Ultimately, the McSherrys met with Benchmark and the Weatherly Group on June 16, 2008, but Penn Tank was not as excited about the written proposal, which called for an asset sale, as the verbal proposal, which called for a valuation and purchase of stock. (Raymond Dep. 63:14-64:15.)

In the meantime, discussions continued between Penn Tank and National Penn Bank. On June 28, 2006, Steve McSherry e-mailed Kirk Soxman both to update him about Penn Tank's potential movement of its banking lines and to inquire about possibly obtaining some capitalization from the Bank, which would provide liquidity in the business, while maintaining both internal structure and internal family succession. (Def.'s Mot. Summ. J., Ex. 18.) Steve noted, however, that he was simply "reaching out for feedback" and that nothing might transpire during the first year of the banking relationship. (Id.) On July 14, 2006, Steve McSherry met with Kirk Soxman and Bruce Smith to discuss the consolidation of Penn Tank's sister company, Genesis, into Penn Tank, as well as Jack McSherry's plans to create trusts for his children. (Id.; Def.'s Mot. Summ. J., Ex. 19.) The "desk-top appraisal" of the company showed considerable equity in the company's equipment. (Id.) On August 21, 2006, Soxman provided Penn Tank with a Proposed Term Sheet for a credit facility of up to $12,073,762.08, consisting of a revolving loan commitment of up to $5,000,000.00, L/C line of $2,000,000.00, leasing line of $3,000,000.00, and for a refinance of the existing term loan of $2,073,762.08. (Def.'s Mot. Summ. J., Ex. 20.) This proposal would provide liquidity to allow distribution of cash to shareholders. (Def.'s Mot. Summ. J., Ex. 21, Soxman Dep. ("Soxman Dep."), 115:3-116:23, Sep. 8, 2008.) Penn Tank delayed on the proposal, however, to avoid penalties from early termination with Bank of America. (S. McSherry Dep. 13:5-23.)

Penn Tank had a second meeting with Benchmark and the Weatherly Group in the fall of 2006. (Raymond Dep. 62:21-63:13.) Weatherly gave a proposed valuation of $33 million for an asset deal, which was at least five times EBITDA, possibly better. (Id. at 66:18-20; 67:3-12.) The valuation for the stock deal was below five times EBITDA. (Id. 67:13-22; Def.'s Mot. Summ. J., Ex. 24.) Eventually, the Weatherly proposal"died on the vine" without any formal rejection by Penn Tank. (Raymond Dep. 67:23-68:9.) Penn Tank did not accept the offer because Jack McSherry did not feel that they were serious and noted that the stock deal was valued lower than an asset deal. (J. McSherry Dep. 57:22-5:13.) Raymond conceded that Penn Tank did not owe Benchmark any success fee in connection with the Weatherly transaction because the deal did not close. (Raymond Dep. 68:10-17.)

In the fall of 2006, Benchmark began communications with Linx Partners on behalf of Penn Tank. (Id. at 70:14-17.) Following a meeting between Penn Tank and Linx Partners, on October 26, 2006, Linx provided a written proposal to purchase Penn Tank's stock at $23 to $26 million, which was considerably below the parameters of five times EBITDA that Jack McSherry had originally outlined. (Id. at 75-80; Def.'s Mot. Summ. J., Ex. G.) In addition, Jack McSherry was not comfortable with Peter Hicks, Linx's Managing Partner, and would "never get into bed with [him]." (J. McSherry Dep. 62:7-19.) After the meeting, Penn Tank had no further interest in Linx, and Benchmark understood that. (Id. at 62:24-63:2.) Benchmark did not even forward Linx's written indication of interest to the McSherrys and, instead summarized it in an e-mail. (Def.'s Mot. Summ. J., Ex. 34.)

By October 30, 2006, Benchmark provided a revised, updated Confidential Offering Memorandum to Penn Tank. (Def.'s Mot. Summ. J., Ex. 28.) Raymond knew that Benchmark would not be compensated for this book. (Raymond Dep. 49:22-50:2.) He noted that this document was very similar to the original Offering Memorandum prepared back in 2002, but that there was new material, including updated financial information, updated customer information, and information about specific employees. (Id. at 50:15-51:22.) Spear, however, commented that the book presented a different landscape, different company, and different performance, and, thus, was essentially a new book. (Spear Dep. 31:2-16.)

In December 2006, Benchmark sought to introduce Penn Tank to another private equity group by the name of Crystal Ridge Partners ("Crystal Ridge"). (Def.'s Mot. Summ. J., Ex. 39.) At this point, Jack McSherry was becoming more "reticent" about selling a majority equity position in the company because his second son was coming into the business in January. (J. McSherry Dep. 73:11-15.) If, however, there was a "wow factor" out there, he would be willing to take another look at it. (Id. at 73:15-17.) Up to this time, McSherry understood that Benchmark was willing to work without compensation until they found a proper offer. (Id. at 74:8-21.) As such, a meeting between Benchmark, Penn Tank, and Crystal Ridge was scheduled on December 14, 2006, with John "Jack" Baron, the Managing Partner of Crystal Ridge, and Brian Toolan, Managing Director of Crystal Ridge. (Def.'s Mot. Summ. J., Ex. 39.) During the meeting Crystal Ridge asked Raymond for additional information about Penn Tank, the majority of which was provided by Penn Tank. (Raymond Dep. 132:6-18.)

Via an e-mail dated January 12, 2007, McSherry asked Benchmark to explore Crystal Ridge's "appetite for a minority stake in the new company."*fn2 (J. McSherry Dep. 96-97:16.) Both Spear and Raymond, however, indicated the unlikelihood of any company they were talking to being interested in a minority position. (Id. at 98:15-25; Raymond Dep. 99:2-22.) Jack McSherry recalled that, during the time period between September and December 2006, he told Benchmark that bank financing or refinancing was an option as an alternative to taking on an equity investment. (J. McSherry Dep. 43:20-44:7, 44:24-45:21.) Nonetheless, Raymond, Spear, and the McSherrys planned to meet again with Crystal Ridge on January 30, 2007. (Def.'s Mot. Summ. J., Ex. 46.) At that point, Crystal Ridge had given a verbal commitment that if they could buy into and understand a growth plan, they would propose an offer figure between a five and six multiple of Penn Tank's EBITDA. (Id. Ex. 47.) This figure "tweaked" Jack McSherry's interest and brought him closer to the "wow" number. (J. McSherry Dep. 119:14-20.)

After a series of meetings, Crystal Ridge gave Benchmark a written proposal, offering $31,500,000 for Penn Tank, which was five times the EBITDA for calendar year 2006. (Pl.'s Opp. Mot. Summ. J., Ex. H.) Notably, the Crystal Ridge letter of intent was unsigned and explicitly stated that it was neither a binding agreement or offer. (Id.) John R. Baron of Crystal Ridge further testified that even if the letter had been signed, it would not have obligated Crystal Ridge to close on the transaction, since the deal was subject to many conditions precedent in the valuation of due diligence, obtaining financing, and equity investment. (Def.'s Mot. Summ. J., Ex. 57, Baron Dep. ("Baron Dep."), 20:5-21:23, Sep. 5, 2008.) As a general practice, Crystal Ridge typically issued six to ten letters of interest or letters of intent a year and, on average, closed on only two. (Id. at 82:10-16.)

Up until this time, there was no written agreement between Benchmark and Penn Tank Lines for the fees to be paid to Benchmark. Given the pending Crystal Ridge offer, the parties sought to reduce their January 2006 verbal understanding to writing. Spear and Raymond prepared an agreement (the "Agreement"), dated February 7, 2007, indicating that Benchmark would provide various services in connection with the marketing, negotiation, and ultimate sale of all or a significant part of Penn Tank. Penn Tank, for its part, agreed to: retain Benchmark as its exclusive agent to render the Services; to provide Benchmark with all relevant information; to advise Benchmark promptly of all contacts and proposals from prospective purchasers; to use commercially reasonable efforts to cooperate with Benchmark in its providing the Services; to provide Benchmark access to and the cooperation of [Penn Tank]'s employees and agents whose assistance is requested by Benchmark; and to provide Benchmark with all financial and other information requested by it for the purpose of rendering the Services. (Pl's Opp. Mot. Summ. J., Ex. I.) In addition, the Agreement stated that Benchmark would be reimbursed as follows:

Success Fee. [Penn Tank] agrees to pay Benchmark a success fee (the "Success Fee") in US dollars payable in cash or wire transfer upon the closing of a Transaction. Pursuant to this Paragraph 7, the Success Fee shall be calculated based on the total amount of the consideration cumulatively paid and delivered in a Transaction, including but not limited to, payments made subsequent to the closing ("Total Consideration"). Total Consideration paid to [Penn Tank], its affiliates or shareholders shall include, but is not limited to, the following: moneys or cash; the fair market value of any securities issued (including, without limitation, any joint venture interest delivered to, or retained by, [Penn Tank]); real or personal property; the principal amount of any promissory note or other debt instruments; the principal amount of any liabilities or obligations to financial institutions assumed.... Total Consideration shall not include compensation for the fair value of future services to be rendered by management shareholders. [Penn Tank] and Benchmark agree that any fee payable hereunder with respect to a Transaction will be computed as if all the then outstanding equity interests of [Penn Tank] on a fully diluted basis (including options) were acquired in such Transaction at a price per share or unit equal to the price paid per share or units of the equity interest in such Transaction.

* For a Transaction with Total Consideration less than or equal to $25 million, the Success Fee shall be 2% of the Total Consideration.

* For a Transaction with Total Consideration greater than $25 million[,] the Success Fee shall be $500,000 plus 5% of the Total Consideration in excess of $25 million.

The Success Fee is due and payable on the date of Closing. In the event that the terms of the financing commitment permit delayed or staged drawdowns of funds (i.e., working capital or capital expenditure lines) by the Company, Benchmark's full Success Fee shall be due and payable on the date of Closing, whether or not any funds are fully or partially drawn down by the Company at such Closing. (Id.) Finally, the Agreement provided for Benchmark to be reimbursed for reasonable out-of-pocket expenses upon invoice of Penn Tank by Benchmark, "if approved in advance." (Id.) Jack McSherry indicated that he wanted to include a provision for a fee structure on a minority deal. (Def.'s Mot. Summ. J., Ex. 51.) Via an Addendum Letter, dated February 22, 2007, Benchmark agreed to credit the Total Success Fee by fifty percent of the Success Fee attributable to the "rollover equity," which "is defined as the amount of equity that the current shareholders invest in a newly formed company to recapitalize Penn Tank Lines." (Pl.'s Opp. Mot. Summ. J., Ex. I.) McSherry still questioned the fee structure if somebody only bought 49% of the Penn Tank. (Def.'s Mot. Summ. J., Ex. 54.) Without any clear resolution of this issue, however, both parties signed the Agreement and Addendum Letter on February 23, 2007. (Pl.'s Opp. Mot. Summ. J., Ex. I.)

Only after the Agreement was executed did Benchmark show Penn Tank the Crystal Ridge proposal. (J. McSherry Dep. 87:12-88:2; Def.'s Mot. Summ. J., Ex. 56.) Upon review of the Crystal Ridge letter of intent, Penn Tank identified to Benchmark seven issues that it wanted to address with Crystal Ridge, all of which Benchmark agreed to raise. (Pl.'s Opp. Mot. Summ. J., Ex. J.) Although Steve McSherry believed Benchmark managed to successfully resolve each of the seven issues to Penn Tank's satisfaction, (S. McSherry Dep. 105:23-113:2.), both Raymond and Baron indicated that all of these issues would still be subject to future negotiations between the parties and no resolution was included in any written letter of intent. (Raymond Dep. 180:12-187:6; Baron Dep. 65-75.) In addition, as noted by Raymond, Benchmark purportedly got Crystal Ridge to verbally raise the offer by a million dollars. (Id. 107:17-23; Raymond Dep. 113:8-114:2.) Baron noted, however, that if there had been any agreement to raise the price, it would have likely been reflected in a new letter of intent. (Baron Dep. 83:7-25.)

On March 8, 2007, Jack McSherry contacted Kirk Soxman and Bruce Smith of Penn National Bank to inform them that he recently received a letter of intent from Crystal Ridge for roughly five times EBITDA, with McSherry retaining 37%. (Def.'s Mot. Summ. J., Ex. 65.) McSherry explained that he had "pretty much decided he wants to do something internally relative to a liquidity event. He wants to see the business continue in the family and exercising the [Crystal Ridge offer] would have a high likelihood of that not happening." (Id.) Soxman interpreted McSherry's statements to mean that he had yet to make a definitive decision. (Soxman Dep. 120:23-121:17.)

Although Jack McSherry ultimately believed the Crystal Ridge offer was a fair offer as a majority deal, (J. McSherry Dep. 127:20-128:5), he continued to vacillate on what to do. (Raymond Dep. 109:16-17.) Both Raymond and Spear recall Jack McSherry indicating to them that Benchmark did a great job to get him what he wanted and that he would pay or give a "fee" to Benchmark regardless of whether he went through with the deal or not. (Spear Dep. 59:14-60:13; Raymond Dep. 109:10-110:19.) McSherry did not specify what type of compensation he meant or what type of fee he felt he owed. (Id.) At no point, however, did McSherry feel legally obligated to pay. (J. McSherry Dep. 150:16-20.)

In mid to late March, Benchmark informed Baron that Jack McSherry was not excited about signing the deal, and encouraged Baron and McSherry to have dinner and discuss whether or not McSherry was still interested. (Baron Dep. 94:17-95:5.) The two met on April 4, 2007, at which time McSherry indicated that he was not sure that he wanted to go with a majority sale, and may instead want to pursue either a minority deal or bank financing. (Id. at 95:6-96:12.) The following day, Baron wrote to several of his colleagues that he believed the odds were 50/50 that McSherry would close the deal with Crystal Ridge and felt that there was a "better shot at a minority deal." (Def.'s Mot. Summ. J., Ex. 72.)

On April 9, 2007, Steve McSherry, with his father's express permission, gave the confidential Offering Memorandum prepared by Benchmark to National Penn Bank. (Id. Ex. 73; S. McSherry Dep. 14:11-15:23.) With the Offering Memorandum in hand, Soxman began preparing an Underwriting Analysis for National Penn Bank's Commercial Credit Committee seeking approval of several new loan facilities to Penn Tank, totaling up to $15 million, which would allow Penn Tank to make a $6 million distribution to shareholders. (Soxman Dep. 58:2-21.) The Underwriting Analysis copied verbatim much of the language from the confidential Offering Memorandum. (Soxman Dep. 41:5-25; Pl.'s Opp. Mot. Summ. J., Ex. M.) Additionally, the Underwriting Analysis specifically referenced the Benchmark-negotiated Crystal Ridge offer, as follows: "[Penn Tank] has been approached by numerous equity sponsors and currently has an offer from Crystal Ridge Partners for 5.25 x EBITDA. This is considered a very good offer for the industry and equates to an enterprise value of $32 MM." (Pl.'s Opp. Mot. Summ. J., Ex. M, 15.) The application to the Credit Committee was submitted on April 11, 2007, and approved on April 13, 2007. (Def.'s Mot. Summ. J., Ex. 74.) National Penn Bank sent the McSherrys a commitment letter on April 16, 2007. (Id. Ex. 75.)

Upon receipt of National Penn Bank's term sheet, Jack McSherry sent a copy of the competing proposal to Benchmark, who in turn forwarded it to Crystal Ridge. (Id. Exs. 76-77.)

Raymond and Jack McSherry met on April 23, 2007 to discuss this outstanding proposal, at which time McSherry indicated that he did not want to sell a majority interest in the company and asked whether Crystal Ridge would make a proposal to become a minority investor in Penn Tank Lines. (Raymond Dep. 100:10-25.) Through further negotiations, Benchmark persuaded Crystal Ridge to submit a new, written proposal, dated April 25, 2007, for the purchase of a minority interest in Penn Tank. (Pl. Opp. Mot. Summ. J., Ex. K.) This offer called for Crystal Ridge to invest $7.5 million in Penn Tank in exchange for convertible preferred stock in the company. (Id.)

On May 11, 2007, Penn Tank, upon evaluation of both National Penn Bank's proposal and the Crystal Ridge offer, e-mailed Crystal Ridge to formally turn down their offer and thank them for their time. (Def.'s Mot. Summ. J., Ex. 79.) Jack McSherry advised Soxman of his intent to move Penn Tank's banking business to National Penn Bank.

On May 16, 2007, Benchmark sent Jack McSherry a letter demanding a success fee, calculated based on the proposal contained in Crystal Ridge's initial letter of intent, in the amount of $814,423. Specifically, the letter stated, in part:

In short, we delivered the price that exceeded the one that you wanted; we preserved family ownership and participation; and we achieved a structure that met your tax planning goals. We could not and would not have achieved this result for our client without significant effort, for which to date we have received no compensation and been paid no expenses. We would not have undertaken this effort had we not had a contract between us which provides that we be paid for our work if we delivered the results you asked us to deliver. We now seek payment for those results. The risk that we bore was that we would not deliver a buyer that met your needs -- not that once we delivered that buyer after fifteen months of compensation-free work, you would suddenly change your mind. * * * We respect [your position to keep the business for your sons] on a personal level, and nobody can force you to sell your company if you do not want to sell it. That, however, does not displace our entitlement to a fee and your obligation to pay it. Notwithstanding your change of heart, Benchmark has done everything you have asked and delivered to PTL exactly what you assigned us to do. That result activates the payment provision of our contract dated February 7, 2007 and as amended on February 22, 2007 (the "Contract"), which entitles us to a Success Fee of 2% of the total consideration of the Transaction up to $25,000,000, and 5% of the total consideration in excess of $25,000,000, less a rollover credit as provided in the Contract's amendment. (Id., Ex. 80.)

Via letter dated June 4, 2007, Penn Tank, through its counsel, responded that: [Benchmark's] services were provided without any indication by [Penn Tank] or request by you as to what would be an acceptable price, structure, terms and conditions, and without any commitments, directives or parameters from or on behalf of my client. It was merely to determine whether there were Targets that would submit offers that would be considered for acceptance.

Your subsequent letter of May 16, 2007 claiming compensation in connection with the services you rendered based upon the Success Fee, as defined in the previous letter, is unsupported by any of the facts or legal principles. As stated in the previous paragraph, nowhere does the original letter state that my client had set the parameters for an acceptable offer. That letter also clearly states that the Success Fee is due and payable on the date of closing; thus meaning that if there is no acceptable offer and thus no closing, there is no Success Fee. It was based upon an arrangement that you solicited and persuaded my client to pursue. (Id. Ex. 81.) At the close of the letter, Penn Tank rejected the claim for payment of the success fee, rescinded any prior verbal offer to reimburse expenses, and terminated the February 7, 2007 contract between the parties. (Id.)

II. PROCEDURAL HISTORY

Benchmark initiated this litigation against Penn Tank on June 22, 2007, claiming breach of contract (Count I), quantum meruit (Count II), and promissory estoppel (Count III). Penn Tank initially filed a motion to dismiss the entirety of the Complaint, which the Court, by way of Order dated January 30, 2008, denied with respect to the breach of contract count, but granted with respect to the claims under promissory estoppel and quantum meruit. The Benchmark Group, Inc. v. Penn Tank Lines, Inc., Civ. A. No. 07-2630, 2008 WL 282694 (E.D. Pa. Jan. 30, 2008). Thereafter, in April 2008, Plaintiff sought leave to file an Amended Complaint. The Court permitted the requested expansion of the breach of contract count to include allegations of breach of the covenant of good faith and fair dealing, but declined to allow both the addition of an alternative quantum meruit claim and the pleading of a separate claim for breach of the covenant of good faith and fair dealing claim. The Benchmark Group, Inc. v. Penn Tank Lines, Inc., Civ. A. No. 07-2630, 2008 WL 2389463 (E.D. Pa. Jun. 11, 2008). In connection with that Order, Plaintiff filed its Amended Complaint on June 26, 2008.

On October 20, 2008, Defendant filed the current Motion for Summary Judgment, seeking judgment on the entire Amended Complaint. Per the parties' stipulations, Plaintiff responded on December 31, 2008, and Defendant filed its Reply Brief on January 27, 2009. Plaintiff submitted a Sur-reply Brief on February 26, 2009.

III. STANDARD OF REVIEW ON SUMMARY JUDGMENT

Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). A factual dispute is "material" only if it might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). For an issue to be "genuine," a reasonable fact-finder must be able to return a verdict in favor of the non-moving party. Id.

On summary judgment, it is not the court's role to weigh the disputed evidence and decide which is more probative, or to make credibility determinations. Boyle v. County of Allegheny, Pa, 139 F.3d 386, 393 (3d Cir. 1998) (citing Petruzzi's IGA Supermarkets, Inc. v. Darling-Del. Co. Inc., 998 F.2d 1224, 1230 (3d Cir. 1993). Rather, the court must consider the evidence, and all reasonable inferences which may be drawn from it, in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing U.S. v. Diebold, Inc., 369 U.S. 654, 655 (1962)); Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir. 1987). If a conflict arises between the evidence presented by both sides, the court must accept as true the allegations of the non-moving party, and "all justifiable inferences are to be drawn in his favor." Anderson, 477 U.S. at 255.

Although the moving party bears the initial burden of showing an absence of a genuine issue of material fact, it need not "support its motion with affidavits or other similar materials negating the opponent's claim." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). It can meet its burden by "pointing out... that there is an absence of evidence to support the nonmoving party's claims." Id. at 325. Once the movant has carried its initial burden, the opposing party "must do more than simply show that there is some metaphysical doubt as to material facts." Matsushita Elec., 475 U.S. at 586. "There must... be sufficient evidence for a jury to return a verdict in favor of the non-moving party; if the evidence is merely colorable or not significantly probative, summary judgment should be granted." Arbruster v. Unisys Corp., 32 F.3d 768, 777 (3d Cir. 1994), abrogated on other grounds, Showalter v. Univ. of Pittsburgh Med. Ctr., 190 F.3d 231 (3d Cir. 1999).

IV. DISCUSSION

In the pending Motion for Summary Judgment, Defendant seeks dismissal of all claims raised in Plaintiff's Amended Complaint. First, Defendant challenges Plaintiff's claim to a success fee under the parties' contractual Agreement. Second, Defendant asserts that Plaintiff has failed to produce any evidence of bad faith conduct by Penn Tank. Finally, Defendant avers that Plaintiff has no entitlement to attorneys' fees. The Court considers each argument individually.

A. Whether Penn Tank Owes a Success Fee to Benchmark Under the Express Terms of the Agreement

Defendant's first argument contends that, pursuant to the express terms of the Agreement between Penn Tank and Benchmark, Defendant owes no success fee to Plaintiff because no transaction closed. Plaintiff's response is two-fold. Primarily, it asserts that its right to a commission or "success fee" was earned upon production of a ready, willing, and able buyer and was not expressly conditioned on the consummation of an actual sale. Alternatively, Plaintiff contends that even if the contract so had conditioned its right to a commission, Defendant unilaterally prevented the condition from occurring and, thus, is estopped from relying on it. Construing the contract pursuant to Pennsylvania law, the Court agrees with Defendant and, as such, grants summary judgment on this claim.

1. Whether the Closing of a Transaction is a Condition Precedent to Benchmark's Right to a Success Fee

As a threshold matter, "[t]he task of interpreting a contract is generally performed by a court, rather than by a jury.... [t]he goal of that task is, of course, to ascertain the intent of the parties as manifested by the language of the written instrument." Standard Venetian Blind Co. v. Am. Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983) (internal citations omitted). "The intent of the parties is to be ascertained from the document itself when the terms are clear and unambiguous." Hutchison v. Sunbeam Coal Corp., 519 A.2d 385, 390 (Pa. 1986). Thus, "a contract that is unambiguous on its face must be interpreted according to the natural meaning of its terms, unless the contract contains a latent ambiguity, whereupon extrinsic evidence may be admitted to establish the correct interpretation." Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F.3d 79, 96 (3d Cir. 2001). Notably, however, "a claim of latent ambiguity must be based on a 'contractual hook': the proffered extrinsic evidence must support an alternative meaning of a specific term or terms contained in the contract, rather than simply support a general claim that the parties meant something other than what the contract says on its face." Id. "In other words, the ambiguity inquiry must be about the parties' 'linguistic reference' rather than about their expectations." Id.; see also Whole Enchilada, Inc. v. Travelers Prop. Cas. Co. of Am., 581 F. Supp. 2d 677, 689 (W.D. Pa. 2008) ("The polestar of our inquiry... is the language of the insurance policy.... [A]n ambiguity does not exist simply because the parties disagree on the proper construction." (internal quotations omitted)). In cases where the wording is ambiguous, relevant extrinsic evidence should be considered to resolve the ambiguity. 12th Street Gym, Inc. v. Gen. Star Indem., 980 F. Supp. 796, 801 (E.D. Pa. 1997). "When such evidence does not resolve the dispute, the policy provision is to be construed in favor of the insured and against the insurer as the drafter of the agreement." Id. (citations omitted).

Pennsylvania's general and well-established rule for interpreting a brokerage contract provides that a broker becomes entitled to his commission "when he or she presents a purchaser who is ready, willing and able to purchase the property upon terms satisfactory to the seller." Zitzelberger v. Salvatore, 458 A.2d 1021, 1022 (Pa. Super. 1983) (citing inter alia In re Dixon's Estate, 233 A.2d 242, 244 n.2 (Pa. 1967)). It is equally well-settled, however, that the parties have the right to create their own contract terms modifying this general rule. Shumaker v. Lear, 345 A.2d 249, 251 (Pa. Super. 1975). Thus, "[i]f the parties expressed their intention to make the commission contingent or conditional, such as by requiring an actual sale,... the broker does not earn his commission until the condition or contingency has been satisfied." Id. (citing Sork v. Rand, 222 A.2d 890 (Pa. 1966)); see also Dixon, Appellant v. Andrew Title & Mfg. Co., 357 A.2d 667, 669 (Pa. 1976) ("If the agreement between the parties provides that the broker is not entitled to his commission until a condition is performed, then the broker has no claim to his commission until that condition is satisfied."). "Whether a contract contains a condition, the non-fulfillment of which excuses performance, depends upon the intent of the parties to be ascertained from a fair and reasonable construction of the language used in light of all the surrounding circumstances when they executed the contract." Feinberg v. Auto. Banking, 353 F. Supp. 508, 512 (E.D. Pa. 1973) (citing WILLISTON ON CONTRACTS, § 666 (3d ed. 1961); 8 P.L.E. CONTRACTS § 263 (1971)).

As noted above, the primary issue before the Court is whether the Agreement between the parties conditioned Benchmark's entitlement to Success Fee upon the closing of a Transaction or whether Benchmark's production of a ready, willing, and able buyer via the Crystal Ridge Letter of Intent was sufficient to earn payment. The Agreement states, in pertinent part:

[Penn Tank] agrees to pay Benchmark a success fee (the "Success Fee") in US dollars payable in cash or wire transfer upon the closing of a Transaction. Pursuant to this Paragraph 7, the Success Fee shall be calculated based on the total amount of the consideration cumulatively paid and delivered in a Transaction, including but not limited to, payments made subsequent to the closing ("Total Consideration").... * * * The Success Fee is due and payable on the date of Closing. In the event that the terms of the financing commitment permit delayed or staged drawdowns of funds (i.e., working capital or capital expenditure lines) by the Company, Benchmark's full Success Fee shall be due and payable on the date of Closing, whether or not any funds are fully or partially drawn down by the Company at such Closing.

(Pl's Opp. Mot. Summ. J., Ex. I (emphasis added).) A plain reading of this provision clearly indicates that a Success Fee is due "upon the closing of a Transaction." The language is unambiguous and no convoluted interpretation is either required or permissible. Benchmark, a sophisticated commercial entity, as well as the drafter of the Agreement, expressly conditioned its payment upon completion of a transaction. Absent such a transaction, the Agreement does not provide for any payment.

Notwithstanding the facial clarity of this language, Plaintiff contends, on two separate but complementary bases, that nothing in this provision creates any condition precedent to a success fee. First, it argues that, under the law, a broker's right to a commission is not conditioned on consummation of an actual sale unless the parties' contract unequivocally and unmistakably so provides. (Pl's Opp. Mot. Summ. J. 12 (citing Freiwald v. Fid. Interstate Cas. Co., 138 A.2d 146, 148 (Pa. 1958) (although parties may enter an express agreement that a broker shall not be entitled to a commission unless a stipulated condition has been fulfilled, that condition "must be so stipulated categorically in unmistakable terms.")).) It goes on to reason that the language of the Agreement in this case is not clear enough to create a contingency and, thus, cannot be considered by the Court as such.

While the basic legal premise of Plaintiff's argument is correct -- i.e. that a contract must show that the parties intended a condition -- its analysis fails to recognize the fundamental principle that "[i]n making a promise expressly conditional, contracting parties need not use any particular words." Nat'l Prods. Co. v. Atlas Fin. Corp., 364 A.2d 730, 734 (Pa. Super. 1975) (quoting RESTATEMENT (CONTRACTS) § 258 and cmt. a (1932)). "On the contrary,... an intention to make a promise conditional may be manifested by the general nature of a promise or agreement, as well as in more formal ways, and if so manifested the condition is express." Id.; see also Allegheny County v. Maryland Cas. Co. 32 F. Supp. 297, 300 (E.D. Pa. 1940) ("'Any words will create a condition which express, when properly interpreted, the idea that the performance of the promise is dependent on some other event. No particular form of words is necessary in order to create an express condition. Whether a promise is expressly conditional, and if so what is the nature of the condition, depend upon interpretation.'") (quotations omitted). Although an act or event designated in a contract will not be construed as a condition precedent unless that clearly appears to have been the parties' intentions, the court must apply general rules of contract interpretation and the intention of the parties is controlling.*fn3 Beaver Dam Outdoors Club v. Hazleton City Auth., 944 A.2d 97, 103 (Pa. Commw. 2008).

The language of the Agreement, which states that the success fee is due "upon the closing of a Transaction," clearly mandates the closing of a transaction as a condition precedent to Benchmark's entitlement to payment.*fn4 See Feinberg, 353 F. Supp. at 513 (noting that contractual language providing broker a finder's fee from borrower "upon receipt" of funds from the lender, and reference to payment "at settlement" contemplated that there would be a settlement and, thus, a consummated loan prior to the earning of a commission); L.B. Kaye Assoc., Ltd. v. Jews for Jesus, 677 F. Supp. 160, 164 (S.D.N.Y. 1988) ("[L]anguage in a brokerage agreement [indicating that a commission is to be paid upon the closing of title] imports also the notion that closing of title is a condition precedent to the broker's being entitled to a commission.") (quoting Levy v. Lacey, 239 N.E.2d 378, 380 (N.Y. 1968)). Plaintiff was not required to use specialized language and, in fact, no other reasonable construction of the disputed provision is logical under the plain meaning of the words

The Court's interpretation is further bolstered by the context of the provision at issue. According to the Agreement, the Success Fee is calculated as a percentage of "total amount of the consideration cumulatively paid and delivered in a transaction, including but not limited to, payments made subsequent to the closing ('Total Consideration')." (Pl.'s Opp. Mot. Summ. J., Ex. I.) A logical interpretation of this statement would mean that if no cash, securities, or other "consideration" are exchanged between Penn Tank and any buyer, then the Total Consideration is zero. Any percentage of zero Total Consideration leaves a zero Success Fee.

Such a formula properly effectuates the intent of the parties, particularly in this case where the letter of intent issued by Crystal Ridge was neither a binding agreement or offer. (Pl.'s Opp. Mot. Summ. J., Ex. H.) The offer did not obligate either party to close on the transaction, as the deal was subject to many conditions precedent and the precise amount of the offer had yet to be finalized. (Baron Dep. 20:5-21:23, 65-75, 83:7-25.) The absence of any firm amount provides no clear basis on which to calculate any Success Fee. The fact that Plaintiff, as drafter of the contract, chose to base the amount of its compensation upon the Total Consideration changing hands, as opposed to some alternative formula, suggests that it intended a transaction to be a condition precedent to payment.

Finally, although we need not resort to extrinsic evidence, the Court's legal interpretation finds support in the parties' own statements regarding their intentions. Jack McSherry testified to his understanding that Benchmark's compensation was "tied to the end transaction" and that he was "unequivocally told that [he] always had full control of [whether there would be a transaction.]" (J. McSherry Dep. 103:15-104:2.) Moreover, Dean Spear explained the fee arrangement between the parties as "[t]hat [Benchmark] would be willing to do it without a fee and that we would get paid on the back end if we were able to find a buyer and get a deal that [McSherry] wanted." (Spear Dep. 28:12-17 (emphasis added).) He understood that he was "assuming a risk that [Benchmark] would get no fee whatsoever if [it] couldn't get a deal that he wanted" (Id. at 28:18-22 (emphasis added).) Spear did not interpret the Agreement to condition payment on finding a buyer that met specified terms. Finally, Stephen Raymond acknowledged that despite producing a ready, willing, and able buyer in the Weatherly Group, Penn Tank was not excited about the deal and thus did not owe Benchmark any success fee in connection with the Weatherly negotiations because "[t]he deal did not close."*fn5 (Raymond Dep. 63:14-68:17.) In short, the parties themselves understood the Agreement to mean exactly what it said -- that Benchmark was not owed a fee unless a Transaction closed.*fn6

Plaintiff's second -- and interrelated -- basis for its contrary interpretation of the Agreement is similarly unavailing. Plaintiff contends that the contract provision at issue merely specifies the timing of the payment, rather than attaching a condition to it. In support of this reading, Plaintiff cites to several cases interpreting purportedly similar provisions to reference timing as opposed to conditions precedent. First, in Freiwald v. Fid. Interstate Cas. Co., the Pennsylvania Superior Court considered a contract provision between the plaintiff broker and defendant seller that stated, "My charges in this matter will be $1,000 for services in this matter, which is to be shared with Abner Levy when received at the time of final and satisfactory settlement for the proposed loan." 138 A.2d 146, 148 (Pa. 1958) (emphasis added). The court found that this provision simply set forth the timing of the payment and did not stipulate a condition to be performed. Id. Similarly, in Fairbourn Commercial, Inc. v. Am. Housing Partners, Inc., a broker's listing agreement stated, "[i]f, at any time, within said period, Fairbourn Commercial Inc. procures, or presents an offer to purchase said property from [Rochelle], at the price and upon the terms and conditions set forth herein, or at any other price or upon any other terms or conditions acceptable to me, I agree to pay a commission equal to $1,500.00 per lot. " 68 P.3d 1038, 1041 (Utah App. 2003), aff'd, 94 P.3d 292 (Utah 2004). The court found that this provision unequivocally bound defendant to pay a commission upon plaintiff's procurement of a ready, willing, and able buyer. Id. at 1042-43. The defendant then attempted to argue that another provision of the contract -- one stating that "[a]ll commissions shall be due and payable at closing" -- created a condition precedent to payment. Id. at 1042. The court rejected this argument and found that this provision was nothing more than a timing provision that did not create a condition precedent to otherwise unambiguous language.*fn7 Id. at 1042-43

Quite unlike these cases, however, the language in the current Agreement does not remotely lend itself to be interpreted as merely a timing provision. As noted above, the provision at issue indicates that Penn Tank will pay Benchmark a success fee "upon the closing of a Transaction." Later, in the same section of the contract, the Agreement contains a separate timing clause, wherein it states "[t]he Success Fee is due and payable on the date of Closing." (Pl.'s Opp. Mot. Summ. J., Ex. I.) It is well-established that in construing the terms of a contract, the court must read the contract in its entirety, giving effect to all of the contractual language if at all possible. Whole Enchilada, Inc. v. Truckers Prop. Cas. Co. of Am., 581 F. Supp. 2d 677, 690 (W.D. Pa. 2008). "'No provision within a contract is to be treated as surplusage or redundant if any reasonable meaning consistent with the other parts can be given to it.'" AstenJohnson v. Columbia Cas. Co., 483 F. Supp. 2d 425, 463 (E.D. Pa. 2007) (quoting Sparler v. Fireman's Ins. Co. of Newark, N.J., 521 A.2d 433, 438 n.1 (Pa. Super. 1987). Therefore, to read the first clause of the Agreement as merely a timing provision would render the second clause wholly unnecessary and entirely meaningless. As this interpretation violates a fundamental principle of Pennsylvania contract law, the Court must instead read the first clause as setting forth an express condition precedent and the second as a stipulation as to the timing of the payment.*fn8

In short, the Agreement at issue is unambiguous on its face and must be interpreted according to the natural meaning of its terms. Guided by the rules of contract interpretation set forth under Pennsylvania law, the Court finds that the parties intended to condition Benchmark's entitlement to a success fee on the closing of a transaction. Such a reading is supported not only by the plain language of the provision at issue, together with the surrounding language, but also by the parties' own statements regarding their intent. Accordingly, the Court rejects Plaintiff's claim that it was entitled to payment upon production of a ready, willing, and able buyer.*fn9

2. Whether Defendant is Estopped from Relying on the Failure of the Condition Because Defendant is the One Who Prevented It from Occurring

Plaintiff's second argument in support of its claim to a success fee contends that even if the Agreement in this case had conditioned Benchmark's right to a commission on the closing of a sale, it was Penn Tank's arbitrary refusal to consummate the transaction that caused the condition to fail. Plaintiff goes on to reason that, under the applicable law, a party's unilateral prevention of the performance of a condition in a contract estops that party from benefitting from that failure. Because Benchmark secured a proposal from Crystal Ridge that purportedly satisfied all of Penn Tank's terms, Benchmark claims that Penn Tank cannot now avoid liability by arbitrarily walking away from the transaction.

"As a general rule, when one party to a contract unilaterally prevents the performance of a condition upon which his own liability depends, the culpable party may not then capitalize on that failure." Apalucci v. Agora Syndicate, Inc., 145 F.3d 630, 634 (3d Cir. 1998) (citing Pennsylvania law). "In other words, where a party to the contract prevents the other party from performing its part, the contract is breached." ATF Trucking, L.L.C. v. Quick Freight, Inc., Civ. A. No. 06-4627, 2008 WL 2940795, at *3 (E.D. Pa. Jul. 29, 2008).

In order for a party to enforce an agreement, however, it must prove that it has performed all of its obligations under the contract. Id. Where, however, the contract does not define the parameters in which a party must allow the performance of the condition, that party has not acted in breach by preventing the condition from occurring. This principle was fleshed out in two factually-similar cases hailing from this Court. In Miller v. Corson, 321 F. Supp. 861 (E.D. Pa. 1971), the defendant obtained plaintiff's services in securing financing for his business. Id. at 862. Defendant told plaintiff that he needed approximately $250,000 to $300,000 in financing and indicated that he desired to keep the interest rate "as low as possible." Id. No agreement was reached as to the specifics of a loan that would be acceptable to the defendant, either as to the amount, rate, terms of repayment, or security for the loan. Id. Further, there were no precise arrangements for payment of a commission, although the defendant agreed that a commission would be proper if an acceptable loan could be negotiated. Id. Thereafter, plaintiff arranged meetings with a lending institution who set forth various terms for a net loan of $225,000. Id. at 863. After several meetings, defendant advised that the proposal was unacceptable, but plaintiff still sought a commission for his services in effecting the commitment for the loan. Id.

The court noted that "[n]o objective guidelines were established to define exactly what terms would be acceptable to [the defendant]," and "an open-ended agreement whereby [plaintiff] would earn a commission by producing a commitment letter for a loan regardless of the terms of the proposed loan [was] highly unlikely." Id. at 864. It recognized the general rule that "where a broker finds a customer ready, willing, and able to enter into a transaction on the terms proposed by the principal, he cannot be deprived of his right to a commission by reason of the transaction failing because of some fault of the principal." Id. Nonetheless, it deemed this principal inapposite since, in the cases applying it, "there was a prior agreement between the borrower and the broker which set certain standards for the terms of the loan sought." Id. at 864-65. In the present case, there were no "previously agreed upon guidelines relating to what terms would fall within the realm of acceptability." Id. at 865. Accordingly, the court held that "[t]he defendants had the option to reject any proposed loan arrangement so long as their rejection was in good faith and not capricious." Id.

Similarly, in Feinberg v. Auto. Banking Corp., 353 F. Supp. 508 (E.D. Pa. 1973), the defendant was a consumer finance business that contacted plaintiff, a broker, to assist it in finding financing with a suitable lender. Id. at 509-10. Plaintiff found a lender who was willing to loan $300,000 at a six percent interest, and told defendant that it would add a finder's fee of two percent over the life of the loan. Id. at 510. When defendant indicated that this finder's fee was not acceptable, the deal was renegotiated so that the loan amount would be $350,000 at 6% interest, and the finder's fee would be $50,000. Id. Plaintiff, defendant, and the lender agreed to this arrangement. Id. After several weeks of efforts by defendant and the lender to arrive at a formal note purchase agreement, they were unable to ...


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