Ascento Capital, LLC v. MinervaWorks, LLC

Background

Ascento Capital, LLC, described in the opinion as a financial advisory firm, entered a written agreement with MinervaWorks, LLC in July 2019. The agreement retained Ascento as MinervaWorks’ exclusive financial adviser for merger-and-acquisition activity. It required MinervaWorks to pay Ascento 5% of the aggregate purchase price received by MinervaWorks or its stockholders if a covered transaction occurred during the engagement or within 12 months after termination.

Ascento alleged that it performed at least 330 hours of advisory work, including developing a sale strategy, preparing presentations, calculating a valuation, and identifying potential customers. In March 2020, MinervaWorks’ parent company, MinervaWorks Holdings, Inc., entered a share purchase agreement with Xalles Holdings, Inc. The transaction resulted in Xalles’ wholly owned subsidiary acquiring MinervaWorks and its subsidiaries. The opinion states that MinervaWorks was acquired for $3,750,000 and that Ascento calculated its claimed fee as $187,500. MinervaWorks sent Ascento a termination letter on March 31, 2020, stating that it did not intend to pay the 5% fee.

Ascento asserted claims including breach of contract, tortious interference with contract, fraud, unjust enrichment, quantum meruit, violations of federal and Delaware trade-secret laws, constructive trust, and declaratory judgment. The Minerva defendants moved to dismiss the complaint entirely for lack of personal jurisdiction and separately sought dismissal of the fraud claim for failure to state a legally sufficient claim, failure to plead fraud with the required detail, and duplication of the contract claim.

Personal Jurisdiction

Personal jurisdiction is a court’s power to require a defendant to litigate in that court. The court applied New York’s long-arm statute, which permits jurisdiction over an out-of-state defendant that purposefully conducts business in New York when the claims arise from that business. The court also considered constitutional due process, which requires sufficient connections with New York and a reasonable exercise of jurisdiction.

The court held that MinervaWorks had conducted business in New York. Its agent, Roy DiBenerdini, met with Ascento’s founder in New York; the parties negotiated the agreement partly in New York; MinervaWorks maintained an ongoing relationship with Ascento, a New York company; and Ascento performed more than 330 hours of work from New York. The court found that all of Ascento’s claims arose from that contractual relationship.

The court also held that Ascento had adequately alleged jurisdiction over MinervaWorks Holdings, Inc. because it alleged that the two companies were alter egos. For jurisdictional purposes, alter egos are treated as one entity. As to Rodney Bowers, the court found jurisdiction because he signed the agreement for MinervaWorks and communicated with Ascento about it. The court further concluded that exercising jurisdiction was consistent with due process and reasonable under the circumstances.

The court therefore denied the Minerva defendants’ motion to dismiss for lack of personal jurisdiction in its entirety.

Fraud Claim

Ascento based its fraud claim on Bowers’ January 2020 statements that MinervaWorks wanted to continue working with Ascento and was temporarily pausing its merger-and-acquisition activity, followed by MinervaWorks’ transaction with Xalles without involving or notifying Ascento. Ascento alleged that it declined two other potential clients in anticipation of resuming work for MinervaWorks.

The court explained that when a fraud claim is brought with a breach-of-contract claim, the fraud theory must involve a separate legal duty, a fraudulent statement outside the contract, or special damages. The court rejected Ascento’s argument that the parties had a fiduciary relationship, finding that the agreement described the relationship as arm’s-length and expressly stated that it did not create a fiduciary relationship.

The court also found that Bowers’ alleged statements were not outside the contract. The agreement addressed MinervaWorks’ obligation to pay Ascento a 5% fee even for a transaction occurring within 12 months after termination, including when Ascento was excluded from the merger-and-acquisition activity. Because Ascento could not assert the alleged fraud without relying on the contract, the court found the fraud claim duplicative of the contract claim.

Finally, the court rejected Ascento’s claimed $390,000 in lost business opportunities as special damages. It was not persuaded that Ascento could not have accommodated other clients while continuing its work for MinervaWorks, and it described the claimed loss as speculative. The court therefore granted the motion to dismiss the fraud claim.

Disposition

The court granted in part and denied in part the Minerva defendants’ motion to dismiss. It denied the motion to dismiss for lack of personal jurisdiction in its entirety and granted the motion to dismiss Ascento’s fraud claim. Judge Naomi Reice Buchwald directed the Clerk of Court to terminate the pending motion.