KeyBanc Capital Markets Inc. v. Extreme Steel, Inc.

Background

KeyBanc Capital Markets, Inc. (KBCM) sued Extreme Steel, Inc., Extreme Crain & Rigging, Inc., and Extreme Rental USA, LLC. KBCM alleged that it entered into an October 5, 2021 Engagement Letter with the three defendants, appointing KBCM as the sole and exclusive financial advisor for possible transactions involving a material portion of the defendants’ business.

The Engagement Letter stated that KBCM would provide financial advice and assistance reasonably requested by the defendants, including help finding potential buyers, evaluating transaction structures and offers, and negotiating financial terms. It provided for a transaction fee of $1.5 million plus 5% of transaction value above $67.5 million, as well as reimbursement of reasonable out-of-pocket expenses. It also stated that the defendants would be responsible for KBCM’s fees and expenses, including reasonable legal fees, incurred to enforce payment of the transaction fee.

The complaint alleged that Extreme Rental was sold for approximately $8 million in July 2022 and Extreme Crain was sold for approximately $32.5 million in October 2022. KBCM alleged that it performed extensive financial-advisory work related to the sales. In August 2023, KBCM sent an invoice seeking $1,504,897, which the defendants refused to pay.

KBCM asserted breach-of-contract, quantum-meruit, and unjust-enrichment claims. Quantum meruit is a claim for the reasonable value of services provided; unjust enrichment seeks restitution when a defendant has unfairly benefited at the plaintiff’s expense. KBCM sought the allegedly unpaid amount, interest, and attorney’s fees.

Motion to Dismiss

The defendants moved to dismiss the entire complaint under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. They principally argued that the Engagement Letter was too indefinite to be enforceable because it allegedly did not adequately define KBCM’s obligations. They also argued that KBCM’s alternative claims were barred by the statute of frauds and insufficiently pleaded because the complaint did not show that the defendants benefited from KBCM’s work. Finally, they challenged the attorney’s-fee provision.

Breach of Contract

The court held that the complaint adequately alleged an enforceable agreement. The Engagement Letter was signed by KBCM and all three defendants, stated that it would become a mutually binding obligation upon signing, and described KBCM’s required services. The court found that the phrase “financial advisor,” together with the listed examples of services and the parties’ alleged conduct, provided sufficient objective meaning. The agreement did not need to list every possible service to be enforceable.

The court also rejected the argument that KBCM provided no consideration—something exchanged to support a contract. The Engagement Letter required KBCM to provide financial advice and assistance reasonably requested by the defendants. The fact that the defendants were not required to request services did not eliminate consideration because a contractual promise may depend on a future event that might or might not occur.

Because the court found the agreement sufficiently definite and containing the essential terms, it also rejected the defendants’ statute-of-frauds argument as applied to the contract claim.

Quantum Meruit and Unjust Enrichment

The court held that KBCM adequately pleaded both alternative claims. The complaint alleged that KBCM performed substantial work in good faith, expected compensation, and provided services that the defendants accepted and benefited from. It also alleged that KBCM’s work resulted in the sales of Extreme Rental and Extreme Crain and had a reasonable value of at least $1,504,897.

The court further explained that the Engagement Letter itself would satisfy the statute of frauds even if it were not an enforceable contract, because the writing sufficiently evidenced the fact that KBCM was engaged to provide services. Although a valid contract ordinarily displaces quasi-contract claims concerning the same subject matter, Federal Rule of Civil Procedure 8 permits alternative pleading. Because the defendants disputed the contract’s validity and could raise factual challenges as the case continued, the court allowed the quantum-meruit and unjust-enrichment claims to proceed at this stage.

Attorney’s Fees

The court held that the Engagement Letter’s provision requiring the defendants to pay KBCM’s reasonable attorney’s fees incurred to collect the transaction fee was not inherently unconscionable. Under the court’s stated rule, a contractual provision requiring one party to pay the other party’s attorney’s fees after a breach may be enforced if the amounts are not unreasonable. The court noted that the provision was negotiated by sophisticated parties and appeared in an agreement requiring payment of at least $1.5 million.

Disposition

At the January 3, 2024 hearing, the court denied the defendants’ motion to dismiss in its entirety. The written opinion, issued by Judge Jed S. Rakoff, explained why the breach-of-contract, quantum-meruit, and unjust-enrichment claims could proceed and why the attorney’s-fee provision was not a basis for dismissal.