A broker-dealer is not liable for a securities transaction between counterparties, where the parties reserve the right not to be bound absent documentation that is never provided and material terms of the transaction remain unresolved.
Luxor Capital Group, L.P vs. The Seaport Group LLC and Sea Port Group Securities, LLC, No. 654406/2013 (N.Y. Sup., NY Cty., 4/15/16).
The Trade that Failed
Before the Court are plaintiff Luxor Capital Group’s (“Luxor”) and defendant Seaport Group LLC’s (“Seaport”) competing motions for summary judgment. This litigation involves a claim for breach of contract for the failure to settle a trade communicated through instant messages sent between the parties. Luxor manages the assets of hedge funds. Seaport is a registered broker-dealer matching buyers and sellers of securities. Plaintiff and defendant had a history of conducting numerous transactions prior to the event that led to this lawsuit. The aborted trade in question involved the proposed sale of 270,000 pre-IPO shares of Twitter by third-party defendant Omar S. Amanat to Luxor. Luxor and Seaport exchanged instant messages regarding the prospective trade, but after weeks of negotiation between Luxor and Amanat, communications broke off and Amanat never delivered his shares to Seaport.
Addressing plaintiff’s motion for summary judgment first, the Court rejects each of its arguments. First, Luxor maintains that Seaport is estopped from denying the existence of an agreement because it obtained a default judgment on its third-party complaint against Amanat, in which it asserted the existence of a binding agreement. However, the Court asserts that inherent in third-party practice is a defendant’s ability to deny liability to a plaintiff while simultaneously asserting that, if liability exists at all, it is the third-party who is liable; therefore, third-party plaintiffs are not estopped from taking contrary positions in their answer and third-party complaint.
Secondly, the Court rejects plaintiff’s position that there was a binding agreement between Luxor and Seaport. In order to find that plaintiff and defendant entered into an enforceable contract, Luxor must show that there was an objective “meeting of the minds” with respect to the material terms of the contemplated transaction; a mere “agreement to agree,” in which a material term is left open for future negotiations, is unenforceable. Plaintiff relies on the various instant messages as proof that defendant Seaport Group had entered into a binding agreement, but these messages continually characterize the transaction as being “subject to mutually satisfactory” language; clearly, the parties were reserving the right not to be bound absent agreement upon these still to be agreed-upon material terms. Any agreement between the parties was, therefore, at best preliminary and, therefore, unenforceable.
Finally, turning to Seaport’s motion for summary judgment, the Court agrees with it that Seaport’s promise to deliver the shares was implicitly conditioned on its ability to obtain them from Amanat. Luxor was aware that Seaport was acting on Amanat’s behalf and was not independently agreeing to sell Twitter shares to Luxor. Since Amanat never delivered the shares, the agreement failed. The Court grants summary judgment for Seaport.
(SLC Ref. No. 2016-25-08)
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