Stifel, Nicolaus & Company, Inc. v. Shift Technologies, Inc.

Background

Stifel and Shift negotiated an engagement letter under which Stifel would provide services related to a potential offering or private placement of Shift’s equity or equity-linked securities. The agreement also addressed an advisory fee if a “Sale of the Company” occurred before an offering. That term covered either a sale of at least a majority of Shift’s outstanding voting shares, whether through a purchase, merger, exchange, or similar business combination, or a sale of all or substantially all of Shift’s assets or those of its controlled affiliates.

Shift later entered into a merger with Insurance Acquisition, Corp. and its subsidiary, IAC Merger Sub, Inc. Before the merger, Shift terminated the engagement letter. After the merger took effect, Stifel sent Shift an invoice for an advisory fee. Shift stated that it would not pay. Stifel then sued for breach of contract and unjust enrichment and sought attorney’s fees.

Motion to Dismiss

Shift moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim. On such a motion, the court generally accepts well-pleaded factual allegations as true, but it need not accept legal conclusions presented as facts.

Both sides agreed that the dispute turned on the meaning of “sale” in the engagement letter. Shift argued that the word had its ordinary meaning: a transfer of property or title for money or other consideration. Stifel argued that the contract used a broader meaning, that the federal Securities Exchange Act of 1934 supplied the applicable meaning, or that the SPAC transaction was a sale even under the ordinary definition.

Contract Interpretation

The court concluded that the engagement letter did not define “sale” more broadly. It read the language in parentheses—“whether by way of a purchase, merger, exchange, or other business combination transaction”—as illustrative examples of ways a sale of the majority of Shift’s voting shares could occur. The parenthetical did not eliminate the separate requirement that a majority of the voting shares actually be sold.

The court also noted that the engagement letter used quotation marks when it specifically defined other terms, but did not use that method for “sale.” Reading Stifel’s proposed interpretation into the agreement would, in the court’s view, make the majority-share-sale requirement meaningless.

The court applied New York law because the engagement letter contained a New York choice-of-law clause. It held that the ordinary meaning of “sale”—a transfer of property or title for money or other consideration—applied. The court rejected Stifel’s argument that the broader meaning of “sale” used in federal securities law should control. The engagement letter was a services contract governing Stifel’s work as a financial adviser, not a contract for the purchase and sale of securities.

The SPAC Transaction

The court held that the SPAC transaction was not a sale under the contract. The merger agreement provided that the existing Shift shares would be canceled and would automatically represent the right to receive an allocable portion of the merger consideration. The court characterized this as a cancellation of the original shares and the grant of rights to shares in the new company, rather than a transfer of the original Shift shares to new owners.

The court also observed that Shift’s stockholders held a majority of the voting stock before and after the transaction. It cited this continued majority ownership as further support for its conclusion that the transaction did not involve the ownership change required for a sale. The court found that Stifel’s own earlier presentation had distinguished a SPAC transaction from a sale, offering, placement, or merger-and-acquisition transaction, and used that distinction to support its reading of the contract.

Other Claims

The court dismissed the unjust-enrichment claim because the engagement letter was a valid contract governing whether and how Stifel would be paid. It also rejected the theory that Shift received an improper windfall, reasoning that the parties were sophisticated, the agreement was heavily negotiated, Stifel knew a SPAC transaction was a possible path for Shift, and Stifel had not included a fee provision covering that event.

The court rejected Stifel’s claim for attorney’s fees. The agreement’s indemnification provision required Shift to reimburse certain legal expenses when Stifel became involved in an action, proceeding, or investigation connected with matters covered by the engagement letter. Under New York law, however, an indemnification clause does not ordinarily authorize attorney’s fees incurred in a dispute between the contracting parties unless that intent is stated with exceptional clarity. The court found no explicit provision covering fees in this dispute.

Disposition

The court granted Shift’s motion to dismiss and dismissed the complaint with prejudice. At oral argument, Stifel’s counsel sought leave to amend based on language in other paragraphs of the engagement letter. The court denied leave to amend, stating that Stifel had previously been given an opportunity to amend but had not done so, and that the proposed argument would fail because the SPAC transaction canceled Shift’s shares rather than transferring securities. The court directed the Clerk of Court to close the case.