Winston & Strawn LLP v. Mid-Atlantic Arena, LLC

Background

Winston & Strawn LLP, a law firm, sued Mid-Atlantic Arena, LLC (MAA), and ESG Enterprises, Inc. The complaint sought $833,790.30 in legal fees. Winston had represented JPMorgan Chase in preparing and negotiating financing documents for a planned arena in Virginia Beach. Winston did not represent MAA or ESG, did not perform legal work for either defendant, and was not a party to the Credit Agreement between MAA, JPMorgan, and Sumitomo Mitsui Banking Corp.

The Credit Agreement required MAA, as the borrower, to pay reasonable fees and expenses of counsel for specified bank-related parties. It also stated that no person other than listed parties and specified related persons would receive legal or equitable rights, remedies, or claims under the agreement. The agreement further provided that it would not become effective until JPMorgan had received fees and other amounts due, including counsel fees and expenses.

The arena project did not proceed, and Winston was not paid. Winston sued MAA for breach of contract and unjust enrichment. It sued ESG on those claims under an alter-ego theory, which sought to treat ESG as legally responsible for MAA’s obligations. Winston also sued ESG for tortious interference with contract. MAA and ESG moved to dismiss all claims under Rule 12(b)(6), which allows dismissal when a complaint does not adequately state a legally viable claim.

Breach of Contract

The court applied New York law. A person who is not a party to a contract may sue as an intended third-party beneficiary only when the contract clearly shows that the parties meant to give that person enforceable rights. A person who merely benefits indirectly from a contract cannot enforce it.

The court held that Winston was not an intended third-party beneficiary of the Credit Agreement. Section 9.04 listed categories of people who could have rights or claims under the agreement, but it did not include Winston or attorneys for JPMorgan. Although the agreement’s definition of “Related Parties” could arguably include advisors, the court found no provision expressly giving Winston a right to sue MAA for its fees.

The court also reasoned that the agreement did not require MAA to pay Winston directly. Instead, Sections 9.03(a) and 4.01(e), read together, showed that MAA was obligated to pay JPMorgan for legal fees incurred by JPMorgan’s counsel. JPMorgan, a party to the agreement, could sue to recover those amounts. Because Winston was not the only party that could seek recovery and the agreement did not clearly authorize Winston to enforce it, Winston’s breach-of-contract claim against MAA was dismissed.

The breach-of-contract claim against ESG was also dismissed. ESG was not a party to the Credit Agreement, and because MAA was not liable to Winston under the agreement, ESG could not be liable on the asserted alter-ego theory.

Unjust Enrichment

Under New York law, an unjust-enrichment claim requires a plausible allegation that the defendant was enriched at the plaintiff’s expense and that fairness requires the defendant to pay. The plaintiff must generally have provided services for the defendant; it is not enough that the defendant received an indirect benefit from services performed for someone else.

The court dismissed Winston’s unjust-enrichment claims against MAA and ESG. Winston performed its legal work for JPMorgan, not MAA or ESG. Winston and MAA were on opposing sides of the loan negotiations, and Winston did not allege facts showing that MAA or ESG induced Winston to provide services that would make it unfair for them to retain a benefit. The court also noted that Winston drafted or worked on the relevant agreement and therefore knew of provisions that did not give it a right to sue for payment.

Because the unjust-enrichment claim against MAA was dismissed, the corresponding alter-ego claim against ESG was dismissed as well.

Tortious Interference with Contract

Winston asserted tortious interference with contract only against ESG. The court dismissed this claim because there was no enforceable contract between Winston and MAA with which ESG could interfere. Under the court’s application of New York law, Winston’s ability to sue based on the Credit Agreement depended on being an intended third-party beneficiary, and the court had already determined that Winston was not one.

Disposition

The court granted MAA’s and ESG’s motions to dismiss, and the complaint was dismissed. The opinion states that this dismissal was without prejudice to JPMorgan’s ability to sue to recover attorney fees that it pays to Winston. Judge Colleen McMahon also directed the Clerk of Court to remove Docket Number 30 from the list of open motions.