Schwartz v. Sensi, LLC

Background

Jonathan Schwartz and Sensei, LLC, through its chief executive officer Sean Daniel McDevitt, entered into a Finder’s Agreement. It provided that Schwartz would receive 7% of an investment in Sensei made by a third party he identified, or by parties introduced through that third party. The agreement also included a non-circumvention provision and stated that, if Sensei breached the agreement, Schwartz would be entitled to a fee equal to 15% of the total value of the breaching transaction.

Schwartz introduced Sensei to Odeon Capital Group, LLC, an investment banking entity. Sensei and Odeon later entered into an agreement under which Odeon would provide financial-advisory services, including identifying and contacting potential investors. On or about January 10, 2017, one of Odeon’s clients invested $2 million in Sensei. Sensei paid Odeon $140,000, equal to 7% of that investment, but did not pay Schwartz.

Sensei consented to entry of default. The court explained that default established Sensei’s admission of liability based on the well-pleaded factual allegations, but Schwartz still had to show that those facts stated valid claims and had to prove the amount of damages.

Claims and Liability

The court found that Schwartz adequately pleaded breach of the Finder’s Agreement. It concluded that Schwartz performed by introducing Sensei to Odeon, that Odeon’s client invested in Sensei, and that Sensei breached both the agreement’s general payment obligation and its non-circumvention provision by entering into the Odeon relationship without informing Schwartz and without paying him.

The court did not find adequate support for Schwartz’s fraudulent-conveyance claims concerning the $140,000 payment to Odeon and the $2 million investment. Schwartz did not establish that either transaction was made with the actual intent to hinder, delay, or defraud him or other creditors.

The court also found that Schwartz had not adequately pleaded constructive fraud. It held that Schwartz had not shown the required fiduciary or confidential relationship with Sensei, and had not shown that Sensei intended to defraud him.

Damages and Interest

Schwartz sought $440,000, consisting of the 7% finder’s fee and an additional 15% fee under the agreement’s remedies clause. The court interpreted the agreement as providing the 15% fee as the remedy for breach, rather than allowing both the 7% fee and the 15% fee. It found no evidence that the 15% provision was plainly disproportionate, unconscionable, or contrary to public policy.

The court awarded Schwartz 15% of the $2 million investment, totaling $300,000, as liquidated damages for Sensei’s breach. It also awarded prejudgment interest at 9% per year, calculated from May 10, 2016—the date Sensei entered into the Odeon Agreement—through the date judgment was entered. The court found no basis to award attorney’s fees in the contract case. Judge Sarah Netburn directed the Clerk to enter judgment for Schwartz and close the case.