Lowry v. OppenheimerFunds, Inc.

Background

Vincent T. Lowry and Joseph N. Gompers alleged that they entered into a Sale and Purchase Agreement with OppenheimerFunds, Inc. (OFI) concerning the acquisition of VTL Associates, LLC. The agreement provided for fixed payments at closing and additional earn-out payments tied to the future performance of VTL’s exchange-traded funds. It also barred the buyer from taking or failing to take actions for the purpose of reducing or eliminating those payments and restricted assignments that would reduce the buyer’s obligations.

Invesco later acquired OFI from MM Asset Management Holding LLC (MM). The plaintiffs alleged that, after the acquisition, Invesco and OFI took steps that reduced the value of the relevant funds and the plaintiffs’ earn-out payments, including liquidating funds, directing customers to competing funds, and failing to provide sales incentives for the OFI funds. The plaintiffs alleged that these steps were taken partly to meet a cost-savings target for the acquisition. The opinion notes an unresolved factual question about whether OFI continued to exist after the merger or became part of another entity.

The complaint asserted seven counts: breach of contract against OFI; breach of contract against Invesco; breach of the implied covenant of good faith and fair dealing against OFI; the same claim against Invesco; tortious interference with contract against Invesco; breach of contract against MM; and tortious interference with contract against MM. Defendants filed two motions to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to make a claim legally plausible.

Claims Against OFI

The court held that the plaintiffs did not plausibly allege that the Sale and Purchase Agreement was assigned to Invesco. The plaintiffs relied on assignments involving exchange-traded funds and investment-advisory agreements, but they identified no language in the merger agreement showing an intent to assign the Sale and Purchase Agreement. The court therefore did not allow a claim based on an alleged assignment under the agreement’s assignment provision.

The court nevertheless held that the plaintiffs plausibly alleged a breach of the provision barring actions taken for the purpose of reducing earn-out payments. The alleged cost-savings target and the alleged effort to reduce costs that included the earn-out payments supported an inference of the required purpose at the motion-to-dismiss stage. The court allowed Count I to proceed against OFI or, if OFI no longer exists, its successor as appropriate. The court dismissed the implied-covenant claim against OFI because it had been pleaded only as an alternative to the breach-of-contract claim.

Claims Against Invesco

The court held that the plaintiffs had not alleged that the Sale and Purchase Agreement was assigned to Invesco or otherwise shown that Invesco was directly liable as the plaintiffs’ contract counterparty. The court also rejected the plaintiffs’ theory that Invesco should be liable for OFI’s contract obligations by disregarding OFI’s separate corporate identity. The complaint did not allege that Invesco abused OFI’s corporate form, and the court concluded that the plaintiffs had another potential route to recovery through their interference claim.

The court did, however, allow Count V, the tortious-interference claim against Invesco, to proceed. Applying Pennsylvania law, the court found that the alleged direction of actions intended to reduce the plaintiffs’ earn-out payments plausibly supported the required intent to interfere with the contract. The court therefore dismissed the direct contract claim against Invesco but did not dismiss the interference claim.

Claims Against MM

The court granted MM’s motion to dismiss. The plaintiffs did not allege facts showing that MM intended for the merger to interfere with the Sale and Purchase Agreement or acted partly for that purpose. The court also rejected the theory that MM should be liable through OFI’s corporate form because the alleged breaches occurred after MM had sold OFI to Invesco and were allegedly undertaken under Invesco’s direction. Counts VI and VII were dismissed.

Disposition

Judge Broderick granted MM’s motion to dismiss. He granted in part and denied in part the motion filed by Invesco and OFI. Counts I and V remained, and Counts II, III, IV, VI, and VII were dismissed. The clerk was directed to terminate the two pending motions. The opinion did not decide whether OFI had ceased to exist or which entity would ultimately be responsible for OFI’s obligations; it stated that this issue could be addressed later if discovery provided additional information.