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Judge Davis Denies Motion to Dismiss Claims Related to Investment Banking Fee Dispute on Grounds that Plaintiff Pled Sufficient Facts

February 13, 2019

In Piper Jaffray, Inc. v. Marrone Bio Innovations, Inc., C.A. No.: N18C-04-021 EMD CCLD, Judge Davis denied a motion to dismiss. Plaintiff Piper Jaffray Inc. brought suit against Marrone Bio Innovations, Inc. for payment of a transaction fee that Piper Jaffray claimed was owed under the terms of a January 7, 2017 engagement letter. Under the terms of the engagement letter, Piper Jaffray agreed to provide investment banking services to Marrone Bio in exchange for, among other things, a transaction fee upon consummation of a transaction. Subsequently, Piper Jaffray performed substantial work for Marrone Bio, including execution of thirteen non-disclosure agreements and two written proposals from potential strategic buyers.

In August 2017, Marrone Bio hired another financial advisor, National Securities Corporation, but continued the Piper Jaffray engagement. In October 2017, Marrone Bio entered into a bridge loan with Ospraie AG Sciences LLC, and by December 2017 had entered into a securities purchase agreement with a group of investors led by Ospraie, with an aggregate purchase price of $30 million. This transaction closed on February 6, 2018. Prior to closing, Marrone Bio terminated the engagement letter with Piper Jaffray. Nonetheless, Piper Jaffray argued that there was a “Transaction” under the engagement letter, and it was owed its transaction fee. Marrone Bio filed a motion to dismiss for failure to state a claim under Superior Court Rule 12(b)(6).

The court determined that the dispute turned on the interpretation of the defined terms “Transaction” and “Transaction Fee” in the engagement letter. Marrone Bio argued that the private placement that occurred did not qualify as a “Transaction” under the engagement letter because that would require a “transfer” or “exchange” of shares, and the private placement was an “issuance” of new shares. According to Marrone Bio, Piper Jaffray could only receive compensation for facilitating the sale of the company, not for a refinancing such as the one that occurred. Further, Marrone Bio argued that there was no “written commitment” of any transaction prior to Piper Jaffray’s termination. In contrast, Piper Jaffray argued that the private placement fell under the definition of “Transaction” because it resulted in a change of control of Marrone Bio. Piper Jaffray also argued that the two written proposals received from interested buyers demonstrated a commitment with respect to the private placement prior to Piper Jaffray’s termination.

Ultimately, the court concluded that Marrone Bio failed to demonstrate that “under no reasonable interpretation of the facts alleged does the Complaint fail to state a claim upon which relief might be granted” (emphasis added). According to Judge Davis, “Piper Jaffray has alleged sufficient facts to put Marrone Bio on notice of its claims for breach of contract”; therefore, the court did not dismiss the action. Further, the court concluded that the facts presented allowed the court to reasonably infer that a written commitment existed as of November 3, 2017, the effective date of the engagement letter termination.

Analysis: The Superior Court frequently handles contract actions involving investment banking “success fees.” See, e.g., William Blair & Company, L.L.C. v. Meizler UCB Biopharma S.A, C.A. No. N13C-01-068 FSS CCLD. This case serves as a reminder that disposition of some claims through a motion to dismiss may be inappropriate, and it may be more productive to forgo a motion to dismiss and develop an adequate factual record for summary judgment. In Delaware, the court accepts all well-pled factual allegations as true and only dismisses a case where the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances. See Central Mortg. Co. v. Morgan Stanley Mort. Capital Holdings LLC, 27 A.3d 531, 536 (Del. 2011). This standard is uniformly applied on motions to dismiss and motions for judgment on the pleadings, including SARN I, C.A. No. N17C-06-355 EMD CCLD (Oct. 31, 2018), summarized here.

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