Deitrick v. Cibolo Capital Partners I, LLC

Background

William Deitrick, an investment banker, entered into an engagement letter with Gypsy Guitar Corporation. The letter provided for a placement or facilitation fee equal to 20 percent of capital raised or certain asset-sale proceeds, divided between cash and stock options. It also restricted Gypsy from dealing directly with entities Deitrick introduced without his written consent.

Deitrick introduced Cibolo Capital Investments I, LLC to Gypsy. Cibolo and Gypsy then pursued a transaction under which TG LLC, a Cibolo-related entity, would acquire most of Gypsy’s assets. The asset purchase agreement identified Deitrick as Gypsy’s broker and provided for payment to him, but Deitrick was not a party to that agreement and did not sign it. The transaction did not fully close. TG and Gypsy later settled their dispute, with Gypsy receiving back certain property and TG giving Gypsy a $160,000 promissory note and agreeing to pay certain existing-contract liabilities.

Deitrick was never paid the fee he claimed. He sued Cibolo and TG, asserting four claims: breach of a nondisclosure agreement, assumption by TG of Gypsy’s obligations under the engagement letter, tortious interference with the engagement letter, and unjust enrichment. After discovery, the defendants moved for summary judgment under Rule 56, which permits judgment without a trial when no genuine dispute of material fact requires one.

Nondisclosure agreement

The court found a genuine factual dispute about whether Cibolo breached the nondisclosure agreement by dealing directly with Gypsy without Deitrick’s written consent. But it held that Deitrick had not shown that any such breach caused him not to receive his fee. The record did not show that Deitrick’s presence during the negotiations would have produced the fee arrangement he preferred, and the evidence indicated that Gypsy itself failed to pay the fee.

The court also held that the nondisclosure agreement barred recovery of the damages Deitrick sought. The agreement excluded indirect, special, incidental, consequential, punitive, and exemplary damages, including lost revenues, lost profits, and lost business. The court therefore dismissed the First Claim for Relief.

TG’s alleged assumption of the engagement letter

The court rejected Deitrick’s argument that TG assumed Gypsy’s obligations through the asset purchase agreement. The agreement provided that the assumption of liabilities would occur at the closing, but the closing never occurred. In addition, the agreement did not expressly identify Deitrick’s engagement letter as an assumed liability, and the relevant liability schedule was not completed or produced.

The court also rejected arguments based on alleged oral promises. Any oral promise by TG to Gypsy was superseded by the asset purchase agreement’s integration and cancellation provisions. Deitrick’s separate argument that TG promised him payment in exchange for his bridge loan was not pleaded in the complaint and could not be added through summary-judgment briefing. The court stated that the alleged promise also would be unenforceable under either New York or Texas law because agreements concerning compensation for a broker generally must be in writing, and the alleged promise did not qualify for Texas’s “main purpose” exception. The court dismissed the Third Claim for Relief.

Tortious interference

For tortious interference with an existing contract, the court identified the relevant requirements as a contract, the defendants’ knowledge of it, intentional inducement of a breach, an actual breach, causation, and damages. The court found factual disputes about the defendants’ knowledge, whether Gypsy breached the engagement letter, and whether an instruction not to discuss payment could constitute intentional inducement.

However, the court found no evidence that such an instruction caused Gypsy’s failure to pay. The record showed that Gypsy independently decided not to pay Deitrick before or around the asset purchase agreement. The court also found no evidence that Cibolo or TG intended to induce a breach of the engagement letter’s non-circumvention provision; any violation was merely incidental to negotiating the asset purchase agreement. The court granted summary judgment on and dismissed the Second Claim for Relief.

Unjust enrichment

The court held that unjust enrichment, a restitution theory used when no enforceable agreement governs, was unavailable because the engagement letter covered the subject matter of the alleged benefit. It also held that any alleged agreement between Deitrick and the defendants would be barred by New York’s statute of frauds, which requires broker-compensation agreements to be in writing. Finally, even if such a quasi-contract could be enforced, Deitrick had not shown that TG or Cibolo received a benefit from his services that could be returned. The opinion states that the defendants’ motion to dismiss the Fourth Claim for Relief was granted.

Disposition

The court’s conclusion states that the defendants’ motion for summary judgment was granted in its entirety and that all claims in Deitrick’s First Amended Complaint were dismissed. The Clerk was directed to terminate the motion and close the case. Judge Ramos did not award Deitrick relief against Cibolo or TG.