Medequa LLC v. O'Neill & Partners LLC

Background

Medequa agreed to purchase $10,200,000 worth of personal protective equipment from SonerMed LLC for donation to the Federal Emergency Management Agency on behalf of the King Salman Humanitarian Aid and Relief Center. Under a contemporaneous escrow agreement, Medequa deposited half of the purchase price—$5,100,000—with O’Neill & Partners LLC, which served as the escrow agent.

SonerMed never delivered the products. Medequa sent a cancellation notice on November 22, 2020, triggering the agreement’s requirement that the escrow agent return the entire deposit. O’Neill & Partners did not return all the funds. After court orders required it to deposit the full $5,100,000 into the court registry, it deposited $3,300,000, leaving $1,800,000 unaccounted for. The court also held O’Neill & Partners and its managing partner, Brian O’Neill, in contempt for failing to comply with the deposit orders.

Medequa sued for breach of contract, breach of fiduciary duty, and conversion. It later moved for partial summary judgment, which asks whether the undisputed evidence requires judgment without a trial. O’Neill & Partners opposed the motion and argued that discovery had not occurred and that it had not yet filed an answer. The defendant did not submit the affidavit required to explain what discovery it needed and did not submit a statement disputing Medequa’s factual statement under the court’s local rules.

Breach of Contract

The court applied New York law because the escrow agreement so provided. It found that the agreement was clear and unambiguous. Medequa had performed its obligation by depositing the funds, and O’Neill & Partners breached the agreement in two ways.

First, the agreement required the escrow agent to return the entire deposit within one business day after receiving a qualifying cancellation notice. The court found that Medequa’s notice contained the required substance, that SonerMed also confirmed the cancellation, and that O’Neill & Partners had no contractual basis to withhold the funds for additional due-diligence checks. The agreement’s provisions allowing the escrow agent to interplead the funds in the event of a dispute did not justify retaining them without interpleading them.

Second, the agreement required the funds to remain in the escrow account until disbursed under specified circumstances. The court found that at least $1,800,000 had been transferred out of the account or appropriated for O’Neill & Partners’ own use without authorization. The court therefore granted summary judgment to Medequa on the breach-of-contract claim.

Breach of Fiduciary Duty

The court ruled that Medequa’s fiduciary-duty claim was duplicative of its contract claim. Both claims were based on the same conduct and sought the same damages. The court stated that no additional recovery could be granted on the fiduciary-duty theory and dismissed Count Two in light of summary judgment on Count One.

Conversion

The court dismissed Medequa’s conversion claim. Under New York law, conversion requires unauthorized control over specifically identifiable property, but a conversion claim cannot be maintained when it merely seeks damages for a contract breach. The court found that Medequa relied on the same facts and sought the same damages for conversion as for breach of contract.

Although neither party had made a motion specifically addressing conversion, the court stated that it could dismiss a claim for failure to state a legally sufficient claim if the plaintiff had notice and an opportunity to be heard. It dismissed Count Three and noted that Medequa could seek reconsideration if it believed it had not received a sufficient opportunity to respond.

Disposition

The court stated that Medequa’s motion for partial summary judgment was granted in part and denied in part. It granted the motion as to Count One, the breach-of-contract claim, and directed the Clerk to enter judgment for Medequa in the amount of $5,100,000, plus interest from the date of judgment and costs. The funds already deposited in the court’s disputed-ownership fund were to remain there pending a motion to intervene and further proceedings. Judge Hellerstein directed the Clerk to terminate the motion.