Medequa LLC v. O'Neill & Partners LLC

Background

Medequa agreed to purchase $10.2 million in 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, O’Neill & Partners LLC served as escrow agent, and Medequa deposited $5.1 million.

SonerMed never delivered the products. On November 22, 2020, Medequa sent a cancellation notice after the failure to deliver and requested the return of the escrow funds. O’Neill & Partners did not return all of the money. It deposited $3.3 million into the court’s registry after court orders required it to deposit the full $5.1 million, leaving $1.8 million unaccounted for. The court later held O’Neill & Partners and its managing partner, Brian O’Neill, in contempt for failing to comply with the deposit orders. The opinion also states that Brian O’Neill was arrested and indicted in a separate criminal proceeding.

Medequa sued for breach of contract, breach of fiduciary duty, and conversion. It moved for partial summary judgment, which asks whether the undisputed evidence requires judgment without a trial. O’Neill & Partners argued that the motion was premature because discovery had not occurred and it had not filed an answer. It filed an opposition brief but did not file the required statement responding to Medequa’s factual statement.

Court’s Analysis

The court held that the escrow agreement was clear and unambiguous. Under the agreement, after Medequa delivered a cancellation notice, the escrow agent was required to return the entire escrow deposit within one business day. The court rejected arguments that the notice used the wrong wording or lacked authorization, finding that the notice conveyed the required substance and that the defendant offered no evidence creating a genuine factual dispute.

The court also rejected O’Neill & Partners’ argument that it could retain the money while conducting additional due-diligence checks. The agreement did not provide for those checks. Although the agreement allowed the escrow agent in certain circumstances to refrain from acting and interplead the funds—that is, deposit disputed funds with the court—the defendant had not complied with that remedy.

The court separately found a contract breach based on the transfer of at least $1.8 million out of the escrow account. The agreement required the funds to remain in the escrow account until disbursed under specified circumstances. The defendant did not claim that the transfer was authorized, and the record did not show that it was made under any permitted circumstance. The court concluded that the only other possible explanation was an unauthorized transfer or appropriation for the defendant’s own use.

The court treated the facts in Medequa’s factual statement as admitted because O’Neill & Partners did not file a statement specifically disputing them. It also rejected the request for more discovery because the defendant did not submit the required affidavit or declaration identifying the evidence it needed.

Other Claims and Disposition

The court ruled that the fiduciary-duty claim was duplicative of the contract claim because both claims relied on the same conduct and sought the same damages. It stated that no additional relief could be awarded on that theory and dismissed Count Two in light of summary judgment on Count One.

The court dismissed the conversion claim because Medequa relied on the same facts and sought the same damages as for its contract claim. The court explained that a conversion claim cannot be maintained when the alleged wrong and damages are merely a breach of contract. Although neither party had requested dismissal of that claim on this ground, the court concluded that it could dismiss a claim for failure to state a legally sufficient claim after providing a fair opportunity to be heard. It dismissed Count Three.

The amended order states that the 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 for $5,100,000, plus interest from the date of judgment and taxable costs. The funds already deposited in the court’s Disputed Ownership Fund were to remain there pending resolution of a motion to intervene and any further proceedings. The order corrected a prior typographical error that had stated the amount as “$5,100,00.”