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Authored - NJ Contract Law Update - Radiant v. Cargo Warehouse: What To Do When (1) An Informal Arrangement Becomes Operational, And (2) Agreements Overlap
OCTOBER 05, 2012 | Windels Marx - Commercial Litigation

Radiant Global Logistics, Inc. ("Radiant") v. Cargo Warehouse Distribution Services, Inc. ("Cargo"), 2012 WL 3791557 (N.J.App.Div. Sept. 4, 2012), involved a relationship between (1) a publicly-traded freight-forwarding company, and (2) entities appointed by Radiant that seem to have been somewhat analogous to 'franchises' (though not so delineated)1. These satellite entities employed the same name (Airgroup), and paid a percentage of revenues to the main company (Radiant, a/k/a Airgroup), pursuant to a "Transportation Services Agreement" ("TSA"). When defendants (the satellite, Cargo, and its principal, Suraci) began to suffer financial setbacks, they offered the Cargo company back to Radiant.

The parties then entered into a letter of intent ("LOI") for Radiant to acquire Cargo. The LOI "set forth the parties['] 'understanding'"; was signed; but expressly was "not 'a legally binding contract ... until a definitive acquisition agreement is duly executed". But some portions were expressly binding, such as non-disclosure and exclusive negotiations. There was also an important condition about Cargo's payment of a tax lien. As noted below, the LOI took on more meaning as the parties continued to do business together.

Further steps occurred that are symptomatic of circumstances where there is only partial documentation, but then reasonably pervasive performance follows: (1) employment agreements were then signed (certainly with Suraci himself, and perhaps with his family members as well); (2) the LOI was executed; and (3) business (in the non-legal sense of that word) went ahead. But the actual acquisition agreement was never signed.

As the one-year anniversary of the LOI's execution approached, the parties' relationship had significantly deteriorated. The acquisition agreement with Radiant was never finalized.2 Ostensibly fearing that the Radiant was going to expropriate his business, Suraci refused Radiant access to the business' building and its assets; whereupon Radiant fired him and filed suit.

Radiant's claims were as follows: violation of the "Executive Employment Agreement" ("EEA"); violation of the LOI; violation of the promissory note; misappropriation of confidential trade secrets; unfair competition; tortious interference with Radiant's employee contracts; computer tampering and the like; "breach of the common law duties of loyalty"; and unjust enrichment.

"Defendants answered and filed a counterclaim asserting claims suggesting unjust enrichment; breach of the implied covenant of good faith and fair dealings; breach of contract seeking enforcement of the accounting obligations3; wrongful termination of the EEA; and tortious interference with prospective economic advantage".4

In addition, there were unpleaded (but tried) defenses of "coercion and duress".

In its decision, the Court ruled for Radiant in many respects; focusing on: (1) the promissory note; (2) monies advanced by Radiant for defendants' prior debts; and (3) a "bad debt reserve deficiency", pursuant to separate covenants in the TSA.

The Court also held the LOI was indeed contingent in most respects--expressly "contingent upon resolution of the IRS lien, which Cargo and Surachi never accomplished".

The Court then proceeded to rule that the facts did not make out an "unjust enrichment" claim for Cargo, especially where the customers allegedly taken by Radiant "had no long term contracts" with Cargo. And unjust enrichment could not be found where the employees were hired after their employment with Cargo already ended. The Appellate Division agreed with the trial Court's reasoning, as follows:

  1. Unjust enrichment requires unjust benefit, at variance with an agreement.
  2. "The parties have an express contract addressing the same issues, unjust enrichment is inapplicable, ... and the parties must seek damages for breach of contract - and the terms control." [citations omitted.]

The Court also rejected the duress/coercion defense, for several reasons:

  1. Radiant was not the only candidate to buy Cargo's assets.
  2. Defendants negotiated--i.e., they "rejected the initial LOI", and "negotiated additional beneficial terms" for both Suraci and his family.
  3. Defendants had "legal counsel" during negotiations.
  4. The amounts supposedly lost by defendants (for assets, etc.) were substituted-for by the bargained, guaranteed employment agreements for Suraci and his family.

Interestingly, the Court also held that the 'mostly-non-binding' LOI had became binding by virtue of "the parties' conduct and course of dealing before and after the LOI's execution".

Also of interest: Cargo's ostensibly-reasonable mathematical position--that the closing could have taken place and the IRS lien paid from the proceeds, thus mooting the contingency--was rejected by the Court because: "Quite simply, that was not the deal defendants and Airgroup [Radiant] negotiated."

On the counterclaim, the Court found merit in the point that if Cargo was a separate entity, as Radiant said, then Radiant retained the obligation to remit net payments to Cargo (net of the standard fees Radiant charged to its satellites), and nothing in the LOI said otherwise. So, the original agreement persisted--even through the existence and performance of the LOI--as to issues not addressed in the LOI. (The Court's conclusion was that an accounting, in effect, was needed receipts for during the LOI period, to be offset against the "bad debt reserve deficit".)

Morals of the Story

The morals of the story are these:

  1. If you want to terminate or supersede an old agreement, do so with extreme clarity. Otherwise, you may have parts of two agreements proceeding simultaneously.
  2. The fact that a party is in distress does not equate to coercion--especially where there are negotiated terms, but really in any circumstance where the third party was not the cause of the duress.6
  3. Quasi-contract and contract substitute claims cannot be expected to be successful (or at least the risk of failure is greatly enhanced) where there is a clear written agreement.
  4. Agreements may be enforced strictly as written, perhaps even to the point of mathematical illogic. (However, if faced with that circumstance, there are creative arguments not raised in Radiant.)

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

1 An actual "franchise"--an arrangement that involves (in addition to very specific criteria) at least an allegation of franchise status, not present in Radiant--entails a particular statutory scheme (N.J.S.A. 56:10-1 et seq.) in addition to the terms of the agreements. See generally my prior Article, "Some Types of Contracts Are Sui Generis", September 24, 2012.

2 The articulated reason: "Suraci failed to satisfy the IRS lien".

3 Likely a reference to the TSA revenue 'sharing'.

4 See my prior Articles about quasi-contract and contract substitute claims; e.g., "Quasi-Contract Claims", June 27, 2012, and "Contract-Substitute Claims", August 28, 2012.

5 See my prior Article, "The Written Contract Is As Clear As Day--And It Was Reaffirmed In Writing--But It Can't Be Enforced", August 23, 2012.

6 See my prior Article, "The Contractual Defense of Duress: The 'Horse' Cases", May 17, 2012.

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