Opinion
C.A. No. 16912
Date Submitted: July 7, 2001
Date Decided: October 11, 2001 Date Revised: October 15, 2001
Arthur G. Connolly, III, Esquire, of CONNOLLY, BOVE, LODGE HUTZ LLP, Wilmington, Delaware; and Peter J. Kahn, Dennis M. Black, Glen Donath and David H. Angeli, Esquires, of WILLIAMS CONNOLLY LLP, Washington, D.C.; and John A. Houlihan and Steven M. Cowley, Esquires, of EDWARDS ANGELL, LLP, Boston, Massachusetts; Attorneys for Plaintiffs and Counterclaim-Defendants.
Todd Charles Schiltz and Michael L. Temin, Esquires, of WOLF, BLOCK, SCHORR AND SOLIS-COHEN LLP, Wilmington, Delaware; and Jay A. Dubow, Matthew A. White, Nathan E. Kase and Robyn D. Kotzker Esquires, of WOLF BLOCK, SCHORR AND SOLIS-COHEN LLP, Philadelphia, Pennsylvania; Attorneys for Defendants and Counterclaim-Plaintiffs.
MEMORANDUM OPINION
Pending are motions for summary judgment in this action brought by Fleet National Group, Inc., Fleet National Bank, Fleet Bank (RI), National Association, Fleet Credit Card Services, LP and Fleet Credit Card Holdings, Inc. (collectively "Fleet"). These plaintiffs seek (among other things) approximately $141 million in damages against the defendants Advanta Corp., Advanta National Bank, Advanta Insurance Company and Advanta Life Insurance Company (collectively, "Advanta"). This lawsuit arises out of Fleet's acquisition of Advanta's $12.1 billion consumer credit card business in February 1998.
Fleet's primary claim in its complaint is that the consideration Advanta received for its consumer credit card business (the "Business") was at least $97.2 million more than what the parties agreed to. Fleet contends that Advanta's refusal to refund that overpayment breached the Contribution Agreement that the parties entered into on October 28, 1997 and that defined the parties' rights and obligations. Fleet asserts additional claims as well, and advances alternative theories of recovery including conversion, money had and received, and unjust enrichment.
In this action Fleet seeks over $140 million from Advanta. On these motions Fleet seeks summary judgment awarding it $97.2 million of that larger total.
As used herein, "Contribution Agreement" means the October 28, 1997 Contribution Agreement as amended on February 20, 1998.
In its answer Advanta denied Fleet's material allegations, and asserted counterclaims against Fleet seeking (among other things) $101 million in damages for breach of contract, breach of fiduciary duty, and tortious interference with contractual relations.
Thereafter, Fleet moved for summary judgment seeking the dismissal of Counts I and II of Advanta's counterclaim. This Court granted that motion in its Opinion dated January 5, 2000. Thereafter, Fleet moved for summary judgment on Counts III through V, and for partial summary judgment on Count IX, of its complaint. Concurrently, therewith, Fleet also filed a separate motion for summary judgment seeking the dismissal of all of Count VII, and of portions of Counts III and IV, of Advanta's counterclaim. These two motions are presently sub judice.
Fleet Financial Group v. Advanta Corp., Del. Ch., C.A. No. 16912, Jacobs, V.C., mem. op. at 12 (Jan. 5, 2000).
For the reasons next discussed, the Court concludes that: (i) partial summary judgment will be granted on Count IX for breach of contract, and that the precise amount of damages must be determined at trial; (ii) because partial summary judgment will be granted on Count IX of Fleet's claim, the Court need not and does not address Counts III through V of Fleet's complaint, since those Counts allege alternate theories of recovery;
(iii) Fleet's motion for summary judgment dismissing Counts III and IV of Advanta's counterclaim, insofar as they relate to Advanta's claim for $68.3 million, will be granted; (iv) Fleet's motion to dismiss Count VII of Advanta's counterclaim, insofar as it relates to payments allegedly owed to Jeffery Denton, a former Advanta employee, will be denied; and (v) Fleet's motion to dismiss the balance of Count VII of Advanta's counterclaim will be granted.
I. FACTUAL BACKGROUND
A. The Mechanics of The Transaction
On October 28, 1997, Advanta Corp. and Fleet Financial Group, Inc. entered into a Contribution Agreement that memorialized the terms of Fleet's acquisition of Advanta's consumer credit card business. To create a tax-free transaction, the parties formed a new entity, Fleet LLC (now Fleet LP) (the "Business"), to which Advanta would transfer certain assets and liabilities of its consumer credit card business. The consideration for Fleet's acquisition of the Business was to be Fleet's assumption of Advanta liabilities that exceeded, by a fixed amount, the value of the assets that Fleet would be acquiring. That excess of liabilities over assets (the "Agreed Deficit") was essentially the purchase price that Fleet would be paying for the Business.
As originally drafted, the Contribution Agreement contemplated that the transaction would close on the last business day of the calendar quarter in which specified conditions were satisfied. But, a covenant in one of Advanta's corporate debt instruments required that if Advanta sold substantially all of its business, Advanta must obtain approval from its bondholders. That covenant caused Fleet and Advanta to become concerned that the bondholders might not approve the transaction, and indeed might seek to enjoin it. Accordingly, the parties decided to close the transaction as soon as possible.
Contribution Agreement § 1.02.
Calamari Dep. (Nov. 8, 2000) at 67:20-22.
Id. at 68:3-25.
Nahigian Dep. (Nov. 29, 2000) at 154:20-156:12
The parties closed the transaction on February 20, 1998 — one week before the last business day of that month. Because the value of many of the accounts Advanta would be contributing to the Business could not be determined until the end of the month (February 28), at the closing the parties executed a "First Amendment" to the Contribution Agreement. The function of that Amendment was to outline a "logical closing procedure to give effect to that mid month [closing]."
Mai Dep. (Sept. 28, 2000) at 77:2-13.
Calamari Dep. (Nov. 8, 2000) at 69:15-70:22.
Id. at 71:21-24.
The underlying, central concept in the amended Contribution Agreement was that the value of Advanta's contributed liabilities would exceed the value of Advanta's contributed assets by an amount equal to the "Agreed Deficit." The Agreed Deficit would be determined independently as of February 20, 1998, and its amount was fixed at (i) $510 million, plus (ii) a "Special Adjustment" of $43 million, plus or minus (iii) an "Agreed Adjustment" that would depend on the volume or amount of "Managed Receivables" as of February 20, 1998. In this manner the purchase price Fleet would pay for the Business was set as of February 20. Advanta estimates (and, for the purposes of this motion, Fleet does not dispute) that the amount of the Agreed Deficit was approximately $534.2 million.
Contribution Agreement § 1.06(a).
Although the purchase price was fixed as of, and the closing would occur on, February 20, 1998, the assets and liabilities of the Business were not actually transferred to Fleet until the end of that month, i.e., February 28, 1998. The reason is that the accounting difficulties of a mid-month closing led the parties to agree that Advanta would not actually transfer the assets and general liability accounts of the Business to Fleet until February 28. To document which assets and liabilities were actually transferred on February 28, Advanta agreed to deliver to Fleet a pro forma balance sheet of the Business (the "Closing Balance Sheet") "as of the close of business on February 28, 1998." Thus, although the transaction "closed" on February 20, the Closing Balance Sheet would present a financial picture of the Business as if the closing had occurred at month-end.
Id. § 1.06(f).
The critical feature of the Closing Balance Sheet is that if it showed that the liabilities actually transferred to Fleet exceeded the assets that were transferred to Fleet by more than the Agreed Deficit, Advanta would compensate Fleet either by reassuming the "excess liabilities" or by wiring funds to Fleet in the amount of the excess liabilities.
Id. § 1.06(l)-(n).
That feature of the Closing Balance Sheet is critical to the parties' dispute, because the main area of contention between them is whether Advanta's draft of the Closing Balance Sheet was prepared in accordance with Schedule 1.06(g) to the Contribution Agreement.
The parties agree that the Closing Balance Sheet was to be prepared in conformity with the provisions of Schedule 1.06(g), which addressed certain items that were to be included on the Closing Balance Sheet.
During the three-month interval between the October, 1997 Contribution Agreement and the February 20, 1998 closing, the parties identified certain to-be-transferred accounts that had not been originally identified when the Contribution Agreement was first executed. Exhibit A to Schedule 1.06(g) ("Exhibit A") was the record of the parties' effort to identify those accounts that were used in Advanta's consumer credit card business and were to be included on the Closing Balance Sheet. As reflected in Section 1.06(f) of the Contribution Agreement, the parties intended that that account identification would continue even after the closing.
Section 1.06(f) states that:
The Estimated Closing Balance Sheet shall be reviewed by [Advanta] on February 23, 1998 and on March 16, 1998 to determine if the Company Transferred Liabilities should be adjusted to more closely approximate the Company Contributed Assets and the Agreed Deficit; to the extent that an adjustment is appropriate, taking into account the then available information, the adjustments shall be made by adding and subtracting Company Transferred Liabilities.
The overall principle governing which accounts would be included on the Closing Balance Sheet was that those account(s) would reflect the Business "as of . . . February 28, 1998." That is, the Closing Balance Sheet was to be a snapshot of the Business as of that date.
Id.
During the interim period between the February 20 closing and the February 28 transfer of assets and liabilities, Fleet funded the Business's assets and liabilities, as the Contribution Agreement required. On February 28, the accounts of the Business, including those that were used to track Fleet's interim period funding, were transferred to Fleet. Advanta did not, however, include those interim period "tracking" accounts on its draft of the Closing Balance Sheet.
Because of its importance to the issues presented on these motions, the process by which Fleet funded the Business during the interim period is next discussed in some detail.
B. Fleet's Interim Period Funding of The Business
During the February 20-28 interim period, Fleet had legal title to the assets and liabilities of the Business. Fleet was also obligated to fund those assets and liabilities, primarily by advancing cash to pay the vendors for the services or goods sold by credit card. All told, during the interim period, Fleet provided about $444.2 million in funding, while Advanta continued to operate the Business.
1. Fleet's Funding of Credit Card Receivables
During the interim period, Fleet provided $412.6 million to fund the growth of the Business's "credit card receivables" arising from new purchases, balance transfers, and cash advances by customers. Fleet did this by wiring the funds to First Data Resources, Inc., a third-party processor of credit card transactions. The result was an increase in the amount of receivables (assets) that were transferred to Fleet on February 28, 1998.
The parties initially anticipated that Advanta would continue to fund the growth in credit card receivables and pay off maturing liabilities during the interim period. Shortly before closing, however, Advanta informed Fleet that this funding could be construed as a commercial loan, in violation of Advanta's charter. Gavin Dep. (August 30, 2000) at 38:24-39:15. Advanta agreed to pay interest on the average of all amounts provided by Fleet to fund the assets and liabilities that Advanta contributed to the Business. Contribution Agreement § 1.07(c).
During the interim period, Advanta customers were also paying off their credit card balances, which had the effect of decreasing the Business's receivables. Advanta used the same bank account to deposit customer payments from all aspects of its business, as it had done before February 20. As a result, Advanta's customer payments from Advanta's overall operations, including those unrelated to the Business, became commingled with the payments by credit cardholders that were related to the Business. The latter would be due to Fleet; the former would not. Advanta attempted to determine which portion of those commingled funds belonged to Fleet and ultimately, wired to Fleet $225.8 million representing collections of credit card payments during the interim period.
Fleet claims that Advanta still owes it $36.9 million in credit card payments. Advanta does not address this point in its brief.
To track Fleet's interim period receivable funding, as well as the customer payments being forwarded to Fleet from Advanta, the parties used Wire Suspense Account No. 152265 (the "Wire Suspense Account"). When Fleet wired money to fund customer purchases or cash advances, the Wire Suspense Account would be credited; and when Advanta repaid Fleet for any credit card payments by customers, that Account would be debited. During the interim period, Fleet funded approximately $412 million in receivables, which meant that $412 million was credited to the Wire Suspense Accounts. During that same period, Advanta forwarded $209 million in customer payments to Fleet, which meant that $209 million was debited to that account as a result.
Account No. 152265 previously existed as a dormant account on Advanta's general ledger.
After February 28, Advanta wired to Fleet and additional $16 million in customer credit card payments.
On February 28, the Wire Suspense Account was transferred to Fleet, together with the other assets of the Business. Because the amount of Fleet's interim funding of the Business exceeded the amount of customer payments by $203 million, the Wire Suspense Account had a negative balance of $203 million at the time it was transferred. Had that Account been included (as an asset) on the Closing Balance Sheet, the effect would have been to reduce the total asset amount by $203 million. Because the Agreed Deficit was a fixed amount, that meant that Fleet would assume $203 million less in liabilities. The Wire Suspense Account was never included on the Closing Balance Sheet, however.
2. Fleet's Interim Period Funding of Maturing Liabilities
A second kind of interim period funding practice also requires discussion. During the interim period, Fleet would deposit the funds in an amount necessary to pay the Business's liabilities that would mature each day. For that purpose Fleet established a demand deposit account at Advanta National Bank (the "DDA Account"), and would wire to the DDA Account the funds necessary to pay the liabilities maturing during the interim period.
Again, to enable the parties to track Fleet's funding of liabilities arising during the interim period, a suspense account (the "Liability Suspense Account" and together with the Wire Suspense Account, the "Suspense Accounts") was established. During the interim period, Fleet deposited approximately $31.4 million into the DDA Account at Advanta, and Advanta paid out $31.4 million from that Account to fund the Business's liabilities. Each and every payment that Advanta paid from the DDA Account was reflected by an offsetting entry to the Liability Suspense Account. As of February 28, 1998, the Liability Suspense Account had a negative balance of $31.4 million. If that Account had been included on the Closing Balance Sheet, Fleet would have had to assume $31.4 million less in liabilities from Advanta. That ($31.4) million Liability Suspense Account was not reflected on the Closing Balance Sheet, however.
The foregoing facts are material to the treatment of these Suspense Accounts on the Closing Balance Sheet, which is the major issue of contention on this motion. Additional issues are also presented on these motions, but the facts that pertain to them are set forth in those sections of this Opinion to which those facts are pertinent.
II. THE CONTENTIONS, ISSUES, AND PROCEDURAL STANDARD
A. The Contentions And Issues
1. Fleet's Motion for Summary Judgment on Counts IX and III through V of the Complaint
In Count IX of its complaint, Fleet claims that it paid to Advanta (in the form of assumed liabilities) $126 million more than Fleet had contracted to pay to acquire Advanta's credit card business. Fleet claims that Advanta breached the Contribution Agreement by not refunding that overpayment to Fleet. of that $126 million claim, $97.2 million is at issue on this motion.
Counts III through V of Fleet's complaint allege alternative theories of recovery: conversion, unjust enrichment, and money had and received. Those Counts rest on the same facts that are the subject of Fleet's Count IX contract claim. Because the Court concludes that Advanta breached the Contribution Agreement, and that Fleet is entitled to contract damages under Count IX, it does not reach or address the claims alleged in Counts III through V.
To understand the Count IX related issues presented by Fleet's motion, a somewhat more detailed description of the Fleet and Advanta transaction is helpful. Fleet's acquisition of Advanta's credit card business was structured so that Fleet would purchase the Business by assuming liabilities whose value exceeded the value of the assets that Fleet would be acquiring. The amount of "excess liabilities" Fleet would assume is equal to the "Agreed Deficit," which was fixed as of February 20, 1998. The core circumstance that generated the problems leading to this lawsuit is that although the Agreed Deficit was fixed as of February 20, 1998, the assets and liabilities of the Business were not transferred until February 28, 1998. The eight day interim period between the "closing" and the actual transfer of assets and liabilities required a mechanism to enable the parties to ascertain whether the net liabilities Fleet actually assumed on February 28 equaled the Agreed Deficit. The mechanism the parties selected was, as the amended Contribution Agreement provides, the "Closing Balance Sheet." To the extent that the excess of assumed liabilities over transferred assets (the "net liabilities") was greater than the Agreed Deficit, then Advanta would either re-assume the excess net liabilities or compensate Fleet in the appropriate amount.
Between February 20 and February 28, 1998 (the interim period), Fleet owned and funded the Business, but Advanta continued to operate it. The parties sharply dispute whether certain transactions relating to the Business, that took place during the interim period, should have been reflected on the Closing Balance Sheet. That disagreement is what generates the two principal issues that drive Fleet's Count IX breach of contract claim: (i) the "Interim Period Funding" issue and (ii) the "Balance Sheet Adjustment" issue, both of which are next summarized.
a. The Interim Period Funding Issue
Of the $97.2 million claimed on this motion, $78.7 million turns on the resolution of the "Interim Period Funding" issue. That issue, succinctly expressed, is whether the accounts that were used to track Fleet's funding of the Business's receivables and maturing liabilities during the interim period should have been included on the Closing Balance Sheet. Had those accounts been included, the result would be that Fleet would assume fewer liabilities, and to that extent would pay less for the Business than had the interim period accounts not been included.
Fleet contends that the Contribution Agreement requires those accounts to be included on the Closing Balance Sheet; Advanta argues the contrary. In Part III of this Opinion, I conclude that the plain language of the Contribution Agreement requires that those accounts be included on the Closing Balance Sheet. The legal consequence of that ruling is that Fleet paid more for the Business than it contracted to pay, and as a consequence, Fleet is entitled to summary judgment on its claim for the overpayment.
Fleet contends that it is entitled to recover $78.7 million in damages on its Count IX claim. Fleet arrived at that amount by making corrections to Advanta's third draft of the Closing Balance Sheet, primarily by valuing the "Managed Receivables" as of February 28, 1998. Advanta contends that the correct valuation date is February 20, not February 28. The present record is insufficiently developed for the Court to decide that issue. Accordingly, the precise amount of damages to which Fleet is entitled must await a trial.
b. The $12.6 Million Balance Sheet Adjustment Issue
The remaining $12.6 million of Fleet's breach of contract claim relates to other adjustments to the Closing Balance Sheet that Fleet contends are required. If these adjustments are made, the effect would be that Fleet would assume $12.6 million fewer liabilities and therefore pay $12.6 million less for the Business.
Fleet is also claiming that the net transferred liabilities exceeded the Agreed Deficit by an additional $5.9 million, apart from the Interim Period Funding and Balance Sheet Adjustment issues. As with the Interim Period Funding issue, I am unable to determine that damages claim until after trial.
At this stage, only $3.4 million of the $12.6 million remains in dispute; moreover, Advanta does not seriously contest that it owes Fleet that $3.4 million amount. Accordingly, I conclude that Fleet is contractually entitled to have those adjustments made to the Closing Balance Sheet, and that the determination of appropriate damages must await a trial.
Advanta alleges that this amount should be offset by amounts that it is owed by Fleet.
2. Fleet's Motion for Summary Judgment on Count VII, and for Partial Summary Judgment on Counts III and IV, of Advanta's Counterclaim
a. Counts III and IV of Advanta's Counterclaim
Counts III and IV of Advanta's counterclaim concern Fleet's failure to make remittances on a daily basis to the trustees of certain securitized investment trusts. Those remittances were made to fund payments due from the Business to the investors in the securitized trusts. Before February 20, 1998, when Advanta was funding those payments, it was required to remit the payments on a daily basis. Because those daily payments usually exceeded the amount required to pay the investors, the trustees would normally refund a significant portion of those remittances to Advanta. That anticipated refund was accounted for as an asset in the Business's "Due From Trust Account."During the February 20-28 interim period, Fleet, because of its superior credit rating, was permitted to remit these payments on a monthly, rather than on a daily, basis. Advanta claims that Fleet's failure to make these interim period remittances on a daily basis caused the Due From Trust Account balance to be $68.3 million less than it otherwise would have been. Advanta further contends that because that $68.3 million would have been reflected as an asset on the Closing Balance Sheet, Fleet would have been required to assume $68.3 million of additional liabilities so that the "net liability" figure would remain equal to the Agreed Deficit. Advanta contends that its inability to include that $68.3 million in additional liabilities on the Closing Balance Sheet caused it financial harm.
Counts III and IV advance the same grievance, but on alternative grounds. In Count IV, Advanta claims that by failing to make these payments on a daily basis, Fleet breached its fiduciary duty and was unjustly enriched. In Count III, Advanta seeks an accounting from Fleet to remedy that alleged breach of duty.
Advanta has not pursued its Breach of Fiduciary Duty and Accounting claims on this motion. Accordingly, the only issue presented is whether Fleet was unjustly enriched by its failure to make daily remittances. In Part IV of this Opinion, I conclude that Fleet was not unjustly enriched by that practice, and that therefore, Fleet is entitled to summary judgment dismissing Counts III and IV of Advanta's counterclaim insofar as those Counts relate to the Due From Trust Account.
b. Count VII of Advanta's Counterclaim
Count VII of Advanta's counterclaim alleges that Fleet breached a Human Resource Assumption Agreement and the Contribution Agreement by failing to make payments allegedly owed to several former Advanta employees who became Fleet employees when Fleet purchased the Business. Fleet has settled the claims of all those employees except Mr. Jeffrey Denton. Because the record discloses disputed material facts regarding that claim, Fleet's motion for summary judgment on Count VII of Advanta's counterclaim must be denied.
B. The Applicable Procedural Standard
A motion for summary judgment will be granted where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. In deciding a Rule 56 motion, the Court must view the evidence in the light most favorable to the nonmoving party, and accept all undisputed factual assertions made by either party as true.
Ch. Ct. R. 56(c); Mentor Graphics Corp. v. Quickturn Design Systems, Inc., Del. Ch. C.A. No. 16584, mem. op. at 7, Jacobs V.C. (October 9, 1998); see also Gilbert v. El Paso Co., Del. Supr., 575 A.2d 1131, 1142 (1990); Brown v. Ocean Drilling Exploration Co., Del. Supr., 403 A.2d 1114, 1115 (1979).
Mentor Graphics, mem. op. at 7 (citing Brown, 403 A.2d at 1115).
As the party moving for summary judgment, Fleet has the initial burden to establish the absence of any genuine issue of material fact. The burden then shifts to Advanta to submit controverting evidence. If Advanta fails to establish a material factual dispute, and if Fleet establishes that it is entitled to judgment on the undisputed material facts, summary judgment may be granted in Fleet's favor. Summary judgment will be denied, however, if "there is any reasonable hypothesis by which the opposing party may recover, or if there is a dispute as to a material fact or inferences to be drawn therefrom." These are the procedural standards to be applied to the claims and counterclaims that are the subject of the pending motions.
Scureman v. Judge, Del. Ch., 626 A.2d 5, 10 (1992).
Feinberg v. Makhson, Del Supr., 407 A.2d 201, 203 (1979).
Seagraves v. Urstadt Property Co., Del. Ch., C.A. No. 10307, mem. op. at 7, Jacobs V.C. (April 1, 1996) (citations omitted).
C. The Structure of This Opinion
The legal analysis that follows comes in two parts. Part III of this Opinion addresses Fleet's motion for summary judgment on Counts III, IV, V, and IX of its complaint. Fleet's primary claim, advanced in Count IX, is that Advanta breached the Contribution Agreement with Fleet.
As earlier noted, Counts III, IV and V advance alternative theories of recovery based on the same facts and conduct as Count IX.
Fleet has also moved for summary judgment dismissing portions of Counts III and IV, and all of Count VII, of Advanta's counterclaim. That latter motion is addressed in Part IV of this Opinion.
III. PARTIAL SUMMARY JUDGMENT ON COUNT IX OF FLEET'S COMPLAINT
Count IX of Fleet's complaint asserts a claim for $126 million. Fleet's partial summary judgment motion seeks judgment for $97.2 million of that larger amount. of this $97.2 million claim, $78.7 million turns on question of whether the accounts used to track Fleet's $444.2 million of interim period funding were required to be reflected on the Closing Balance Sheet (the "Interim Period Funding" issue). The remaining $12.6 million of that claim turns on the question of whether certain other balance sheet adjustments were contractually required (the "Balance Sheet Adjustment" issue). Those issues are separately addressed.
A. The Interim Period Funding Issue
It is undisputed that the contracted-for purchase price for Advanta's Business was Fleet's assumption of net liabilities equal to the $534 million Agreed Deficit. During the February 20-28 interim period, Fleet expended significant monies to operate the Business, even though the assets and liabilities of the Business were not transferred to Fleet until February 28. Fleet claims that it is contractually entitled to be credited on the. Closing Balance Sheet for that interim period funding, and that as a result it is entitled to recover $78.7 million. Advanta's position is that Fleet's interim period funding is not contractually required to be credited on the Closing Balance Sheet.
Having considered to the parties' contentions and the undisputed facts, I conclude that (i) Fleet's position is compelled by the plain language of the Contribution Agreement, and (ii) in all events, the contemporaneous conduct of Advanta's employees, together with admissions made in their affidavits and depositions, establish that Advanta understood that Fleet was to be credited with that funding.
1. The Plain Language and Logic of the Contribution Agreement Dictate that the Closing Balance Sheet Should Reflect Fleet's Interim Period Funding
To reiterate, the Agreed Deficit, which essentially was the net purchase price for the Business, was determined by Advanta to be about $534.2 million. Thus, Fleet agreed to pay for the assets of the Business by assuming $534.2 of excess liabilities.
For the purposes of this motion for summary judgment, Fleet does not dispute this figure.
Because the Agreed Deficit was set as of February 20, and the assets and liabilities comprising the Business were not transferred to Fleet until February 28, the parties needed a mechanism to ensure that the amount by which the liabilities actually transferred exceeded the assets actually transferred, was equal to the Agreed Deficit. As earlier noted, that mechanism was the Closing Balance Sheet. Section 1.06(f) of the First Amendment to the Contribution Agreement required Advanta to deliver a Closing Balance Sheet of the Business as of February 28, 1998, that would confirm that the excess of transferred liabilities over transferred assets equaled the Agreed Deficit. Section 1.06(f) also contemplated that post-closing adjustments might have to be made to the Closing Balance Sheet in order to assure that the net liabilities assumed by Fleet did not exceed the Agreed Deficit.
Thus, after the closing the parties would review the assets and liabilities actually transferred to Fleet, and would adjust the Closing Balance Sheet to reach the Agreed Deficit as the Contribution Agreement required. Because the Suspense Accounts were actually transferred to Fleet on February 28, 1998, Section 1.06(f) of the Contribution Agreement required that those Accounts be included on the Closing Balance Sheet. Although Advanta asserts the contrary, there is no evidence that the parties intended otherwise.
Section 1.06(1) of the Contribution Agreement provides that, "[i]f the value of the Company Transferred Liabilities over the Company Contributed Assets as reflected on the Closing Balance Sheet . . . exceeds the Agreed Deficit, then the Company shall pay to [Fleet] . . . the amount of such excess."
a. The Plain Language of the Agreement Requires the Inclusion of the Suspense Accounts on the Closing Balance Sheet
Advanta's contrary argument runs as follows: Exhibit A to Schedule 1.06(g) constitutes the exhaustive list of all accounts that are required to be included on the Closing Balance Sheet. Because the Suspense Accounts are not listed on Exhibit A, the Contribution Agreement does not require that the Closing Balance sheet reflect Fleet's interim period funding. A "plain-language" reading of the Contribution Agreement and Schedule 1.06(g) thereto, however, compels that Advanta's argument be rejected.
Schedule 1.06(g) states that:
The assets will include all assets in the general ledger accounts included in the September 30, 1997 Pro Forma Balance Sheet and such accounts listed in Exhibit A hereto. . . . A schedule with explanations of any new or deleted accounts will be supplementally provided with the statements.
Contribution Agreement at Schedule 1.06(g)(II)(I) (emphasis added).
Schedule 1.06(g) provides that the accounts listed on Exhibit A are to be "included" on the Closing Balance Sheet. That Schedule does not state, however, that the Exhibit A listed accounts are the only accounts that may be included. Indeed, Schedule 1.06(g) requires that the Closing Balance Sheet be accompanied by "[a] schedule with explanations of any new or deleted accounts" — a requirement that would be meaningless if there could be no "new or deleted" accounts.
Id.
To hold that Exhibit A constitutes the exclusive list of Closing Balance Sheet accounts would also bring Schedule 1.06(g) into conflict with Section 1.06(f), which mandates that the Closing Balance Sheet reflect the Business as of February 28. Under Advanta's interpretation, Schedule 1.06(g) would permit the inclusion in the Closing Balance Sheet of only those accounts listed on Exhibit A — whether or not they were relevant to or impacted the Business as of February 28. During the interim period, transactions occurred that affected the Business as of February 28, such as the payment of maturities and funding of receivables. The plain language and logic of Section 1.06(f) dictate that those interim period transactions must be included on the Closing Balance Sheet to reflect the Business accurately as of February 28.
Advanta's assertion that Exhibit A was meant to be the definitive final list of the only accounts that could appear on the Closing Balance Sheet is also belied by the manner of Advanta's own preparation of the Closing Balance Sheet. On that Balance Sheet Advanta included various accounts that were not listed on Exhibit A. Mr. David Weinstock, Advanta's Chief Accounting Officer and Vice President of Investor Relations, submitted an affidavit stating that the accounts listed on the Closing Balance Sheet that are not listed on Exhibit A "have no impact on the final Closing Balance Sheet because I have adjusted their value [to zero]," or because those accounts netted to zero. Mr. Weinstock goes on to say, however, that the accounts on the Fourth Draft of the Closing Balance Sheet are from Exhibit A or " as otherwise agreed by the parties." This statement necessarily concedes that Advanta recognized that Exhibit A was not the final, determinative list of accounts whose inclusion on the Closing Balance Sheet was required.
Fleet contends that more than fifty accounts on the Fourth Draft of the Closing Balance Sheet were not listed in Exhibit A, including the Wire Suspense Account having a zero balance.
Weinstock Aff. ¶ 4.
Id. ¶ 8 (emphasis added).
Furthermore, Mr. Ernest L. Ten Eyck, Advanta's expert witness on the preparation of the Closing Balance Sheet, testified that accounts should be included on the Closing Balance Sheet if the Contribution Agreement shows that the parties intended for the accounts to be included, even if the particular account numbers were not listed in Exhibit A. Ten Eyck Dep. (June 26, 2001) at 178:3-179:17. Advanta contends that much of this testimony concerning the parties' understanding of the documents is inadmissible parol evidence. I conclude otherwise. See infra, Part III(A)(2) for that discussion.
Advanta also argues that including accounts not listed on Exhibit A would constitute a legally impermissible amendment to Exhibit A, because any amendment to the Contribution Agreement must be in writing. That argument fails, because I have earlier concluded that Exhibit A is not the definitive statement of the universe of accounts whose inclusion on the Closing Balance Sheet was required. Therefore, the inclusion of accounts which were not listed in Exhibit A cannot operate as an "amendment" to the Contribution Agreement.
Contribution Agreement § 9.03.
Fleet points out that it is unclear when Exhibit A was finalized. It appears to have been finalized at least two days after the First Amendment was signed.
Even if the Court were to conclude that Schedule 1.06(g) is ambiguous as to whether the Suspense Accounts must be included on the Closing Balance Sheet, the result would be the same. The logic of the Contribution Agreement itself leads to the same bottom line conclusion that Fleet paid more for the Business than was contractually required.
Now, during the interim period, Fleet, as it was contractulally obligated to do, funded the Business's receivables. As a result, the assets of the Business's balance sheet increased by the amount of that funding. Fleet's interim funding was reflected on the Closing Balance Sheet as an additional asset account of about $203 million. To assure that the net liabilities on the Closing Balance Sheet would equal the Agreed Deficit, Advanta added $203 million of additional liabilities to the Closing Balance Sheet. The problem is that Advanta did not include the Suspense Account that had an offsetting negative balance of $203 million that was used to track that funding. Had that Suspense Account been added to the Closing Balance Sheet, the result would have been a zero (0) increase in assets. Therefore, no (0) increase in liabilities would have been warranted. Because of that omission, Fleet was required to pay $203 million (in assumed liabilities) more for the Business than Fleet had contracted to pay. Similarly, because the Contribution Agreement obligated Fleet to fund maturing liabilities during the interim period, Fleet paid approximately $31.4 million into a Demand Deposit Account established at Advanta National Bank. The funds in that DDA were used to pay liabilities of the Business as they matured during the interim period. Fleet's obligatory payment of those liabilities during the interim period does not entitle Advanta to include $31.4 million in additional liabilities on the Closing Balance Sheet, because that would cause Advanta to receive consideration for the Business above and beyond what the parties had contracted for. The amended Contribution Agreement provides that the purchase price would be the Agreed Deficit, not the Agreed Deficit plus the liabilities Fleet funded during the interim period.
Fleet funded the receivables in the approximate amount of $412.6 million.
Fleet Br. At 10, 15. Advanta does not dispute that as the receivables were funded, the assets to be transferred to Fleet increased by the amount of that funding.
Of the $412.6 million, approximately $209 million was wired to Fleet from Advanta, and that amount was debited to the Wire Suspense Account.
2. The Contemporaneous Evidence Establishes that Advanta Understood that Fleet Would be Credited for the Interim Period Funding
Apart from the language and logic of the Contribution Agreement, contemporaneous documents and the deposition testimony of key Advanta employees establish that Advanta understood that Fleet's interim period funding should be reflected on the Closing Balance Sheet, and that Fleet should be given credit for that funding. Before this contemporaneous evidence is discussed, the Court must first address Advanta's contention that evidence is inadmissible under Pennsylvania's parol evidence rule.
Section 11.06 of the Contribution Agreement provides that it is governed by Pennsylvania law.
Under Pennsylvania law, "the fundamental rule in construing a contract is to ascertain and give effect to the intentions of the parties . . . [which] . . . must be ascertained by the document itself, if its terms are clear and unambiguous." The courts may not rewrite the parties' contract "or give it a construction in conflict with the accepted and plain meaning of the language used." Advanta argues that the contemporaneous evidence is inadmissible because the "parties' dispute begins and ends within the four corners of their signed, integrated contracts — the Contribution Agreement and the First Amendment," with which the contemporaneous evidence conflicts. Advanta misapprehends Fleet's position. Fleet is not seeking a construction that conflicts with the parties' contract. Rather, Fleet relies on the contemporaneous evidence to establish the parties' understanding of a term whose meaning is apparent from the Contribution Agreement and the First Amendment thereto — that Fleet is entitled to Closing Balance Sheet credit for its interim period funding.
Sun Co. v. Pennsylvania Turnpike Comm'n., Pa. Commw., 708 A.2d 875, 878 (1998) (citations omitted).
Steuart v. McChesney, Pa. Supr., 444 A.2d 659, 662 (1982) (quotations and citations omitted) (emphasis added).
Advanta Opp. Br. at 44 (citing Steuart, 444 A.2d at 662).
The Pennsylvania rule does not bar that evidence for a second reason: the rule excludes only evidence that would require the courts to rewrite the parties' contract. In this case the Court has already concluded that the plain meaning and the logic of the amended Contribution Agreement require that Fleet be credited with its interim period funding on the Closing Balance Sheet. At most, Advanta might argue that the contractual terms are ambiguous, but even if that were so, parol evidence would be admissible to clear up the ambiguity. For these reasons, Advanta's parol evidence argument must be rejected.
Steuart, 444 A.2d at 662; Spatz v. Nascone, Pa. Super. 424 A.2d 929 (1981)
See Sun Co., 708 A.2d at 878 ("A determination of whether a contract is ambiguous is a question of law.") (citations omitted).
Id. at 878 (Where . . . ambiguity exists in the contract, parol evidence is admissible to explain, clarify or resolve the ambiguity, irrespective of whether the ambiguity is created by the language of the agreement or by extrinsic collateral circumstances.") (citations omitted).
* * *
Advanta's internal documents and the testimony of its employees show that Advanta understood that Fleet would receive credit for its interim period funding and that the Suspense Accounts would be reflected on the Closing Balance Sheet. That evidence is consistent with this Court's reading of the Contribution Agreement, and it is not materially controverted.
Advanta attempts to dispute the contemporaneous evidence, principally by undercutting the credibility of Ms. Natalie Prosper, the accountant at Arthur Andersen who concluded that Advanta had a $31 million accrual on its books (from Fleet's interim period funding of liabilities). Ms. Prosper determined that that accrual should be paid to Fleet. Advanta characterizes Ms. Prosper as a junior level staff accountant and it asserts that the accrual documented by her is erroneous. But Advanta presents no evidence that anyone as Advanta disagreed with her characterization of the accrual. In fact, it was Advanta that appears to have originally made the accrual. Ms. Prosper's role was to draft a memorandum concerning the accrual based on information given to her by Advanta.
John Calamari, Advanta's Vice President of Finance, Controller, and Chief Accounting Officer, stated that the Wire Suspense Account was used to guarantee that "if Fleet funds growth in receivables, they need to receive credit so they don't pay twice." Mr. Calamari acknowledged that the Fleet Liability Suspense Account was used to ensure that, "If Fleet funds deposit maturities, they need to receive credit so they don't pay twice. Once @ 2/20/98 and again at 2/29/298 when the liabilities are transferred in the LLC Balance Sheet."
Fleet Exh. 21 at ADVR1003318.
Id.
Mr. Calamari also prepared a memorandum describing Advanta's draft closing procedures. In that memorandum, which was distributed to Fleet personnel shortly before the closing, Mr. Calamari recognized that the Closing Balance Sheet would offset, dollar for dollar, any increase in credit card receivables during the interim period, and that receivables funding would be reflected on the Closing Balance Sheet.
Fleet Exh. 38 at 54843; see also Calamari Dep. (Nov.8, 2000) at 110:2-9 (confirming the offsetting entry in that memorandum). Advanta asserts that Mr. Calamari's views are inconsistent with the Contribution Agreement, but provides no evidence to back up the assertion. Advanta Opp. Br. at 33. In addition, Advanta asserts that Mr. Calamari changed his views on whether Fleet should receive credit for its interim funding. But again, Advanta cites no record evidence to support its ipse dixit that Mr. Calamari has since changed his views.
The record shows that Advanta was aware that it had realized approximately $78 million of excess gain on the transaction. As of March 31, 1998, Advanta had backed $223 million out of its transaction gain account. In October of 1998, Mr. Calamari performed an analysis that revealed that Advanta had accrued about $78.6 million on its books for its final settlement with Fleet. After backing out partial settlements previously made to Fleet, $77.1 million remained accrued on Advanta's books at the year-end 1998. That amount is almost exactly what Fleet claims it is owed by Advanta.
Fleet Exh. 13 (Prosper Exh. 2A) at A-02377A; Butz Dep. (Aug. 21, 2000) at 270:15-24.
Fleet Exh. 13 at A-023778A; Fleet Exh. 14 at ADVR1033722; see also Fleet Br. at 13.
In addition, Ms. Donna Butz, who prepared Advanta's transaction gain account, concluded that Advanta had booked over $77 million in that account. Arthur Andersen, Advanta's auditor, also concluded that as of the end of 1998 there was a balance of over $77 million in Advanta's transaction gain account. That $77 million balance was in excess of the Agreed Deficit.
Prosper Dep. (May 15, 2000) at 45:13-16.
Id. at 66:16-22; Fleet Exh. 13 at A-02378A.
Lastly, John Lafferty, Arthur Andersen's engagement partner on the Advanta audit team, testified in his deposition that:
the assets related to [the] consumer credit card business were removed from [Advanta's] ledger and the liabilities were removed . . . and the net impact of that removal was an excess of liabilities transferred over assets. . . . A portion of that credit was deemed to be gain and was recorded in 1998.
Lafferty Dep. (Sept. 7, 2000) at 15 1:12-20.
Advanta argues that those gains were merely a "contingency reserve" created to reflect the parties' dispute over the proper amount of net excess liabilities. Citing Court of Chancery Rule 56(c), Advanta then argues that "information regarding a party's litigation reserves are not appropriate for resolution of summary judgment because such information is irrelevant to the evaluation of a party's claims and would not even be admissible at trial." This argument fails because Advanta has not shown that those "backed out" funds were litigation reserves. Advanta adjusted its "gain" on the transaction long before it learned that Fleet was claiming that those amounts were owed to it. Within one month of the February 28 transfer of assets, Advanta determined that it might have excess gain, and backed out about $223 million out of its transaction gain account to make the gain equal to the Agreed Deficit. After adjusting those amounts for partial settlements with Fleet, $77.1 million remained on Advanta's books. There is no evidence of record that that was done with litigation in mind.
Advanta Opp. Br. at 39.
Fleet Reply Br. at 24.
Fleet Exh. 13 (Prosper Exh. 2A) at A-02377A; Butz Dep. (Aug. 21, 2000) at 270:15-24.
* * *
In sum, the plain language and the logic of the Contribution Agreement, and the testimony of, and contemporaneous evidence generated by, Advanta employees, establish that Fleet is contractually entitled to receive credit for its interim period funding on the Closing Balance Sheet. Because that credit was not received, Fleet paid more for the Business than it had agreed to pay under the amended Contribution Agreement. Accordingly, Fleet's motion for partial summary judgment for breach of contract on Count IX of its complaint will be granted.
3. The Damages Issue
The final Count IX issue concerns the damages to which Fleet is entitled by the entry of partial summary judgment in its favor. Fleet contends that it is entitled to $78.7 million in damages, based on a report prepared by Robert Swegle of Ernst and Young, which calculated that in addition to the Suspense Accounts, an additional $139.6 million adjustment should have been made to the Closing Balance Sheet. That $139.6 million adjustment is based on "corrections" Fleet made to Advanta's third draft of the Closing Balance Sheet. Fleet contends that account items falling within the definition "Managed Receivables" should have been valued, for Closing Balance Sheet purposes, as of February 28. Advanta disagrees, contending that they should have been valued as of February 20. For the reasons next discussed, the record does not permit the determination of the amount of damages at this stage.
Mr. Swegle's firm (Ernst Young) was hired by Fleet to render an expert opinion regarding the accounting of the Fleet's acquisition of the Business.
Simply stated, the cash flows are as follows. Fleet advanced $444.2 million to fund the Business during the interim period. of that amount, Advanta repaid Fleet $225.8 million in the form of wire transfers. By correcting the Closing Balance Sheet for mixed dates, Fleet determined that there was $139.6 million in "Net Asset Growth," a benefit which Fleet received when the Business was transferred on February 28, 1998. This leaves $78.8 million: the amount Fleet claims that is due from Advanta.
The Contribution Agreement defines Managed Receivables as:
all consumer credit card receivables owned, managed or serviced by the Company or the Company Contributors under Master Trust I or Master Trust II or under other agreements relating to the secuntization of such receivables . . . or included as part of the Company Contributed Assets.
Contribution Agreement § 2.01 (bbb).
The critical damages issue is as of what date the Managed Receivables must be valued for Closing Balance Sheet purposes. In its earlier Opinion, this Court held that "the Closing Balance Sheet (including all assets and liabilities disclosed thereon) must be valued as of the close of business on February 28, 1998, with the exception of the items referred to in [Section] 1.06(a) [the Managed Receivables]." The January 5, 2000 Opinion did not decide as of what date — February 20 or February 28 — the Managed Receivables were to be valued. Fleet contends they must be valued as of February 28, 1998. Nor does the Contribution Agreement afford clear guidance as to when the Managed Receivables should be valued.
Fleet Financial Group v. Advanta Corp., Del. Ch., C.A. No. 16912, Jacobs, mem. op. at 12 (Jan. 5, 2000).
I note, however, that Advanta's draft of the Closing Balance Sheet is inconsistent with its argument that the Contribution Agreement requires the Managed Receivables to be valued as of February 20. On Advanta's draft, Managed Receivables appear to be valued as of both February 20 and February 28.
Because the record before me does not permit a determination of the valuation date for the Managed Receivables for Closing Balance Sheet purposes, the damages to which Fleet is entitled on its Count IX claim cannot be determined without a trial.
B. The $12.6 Million of Balance Sheet Adjustments
The remaining $12.6 million portion of Fleet's $97.2 million Count IX claim is next addressed. Most of that $12.6 million is now no longer in issue. The Third and Fourth Drafts of Advanta's Closing Balance Sheet acknowledge that Fleet is entitled to $7.37 million of the $12.6 million. Moreover, Fleet has withdrawn its summary judgment motion as to: (i) the Accrued CFS Account ($662,341), (ii) the accounts relating to Fraud Investigation Items ($282,973), (iii) the Cash Surrender Value Split Account ($59,900) and (iv) the Prepaid Repairs and Maintenance Account ($36,626). Finally, Advanta concedes that Account 152604 should be adjusted in Fleet's favor by $27,376. As a result of the foregoing, approximately $4.19 million remains at issue on this motion. For the reasons next stated, I find that Fleet is entitled to recover that amount, and this summary judgment will be granted in Fleet's favor on this claim.
1. Adjustments Relating to Accounts No. 152321 and 152336
Approximately $3.4 million of the $4.19 million disputed adjustments involve the Balance Transfer Inquiry Suspense Account (Account No. 152321) and the Current Payment Inquiry Suspense Account (Account No. 152336). Those Suspense Accounts held balances that were "subject to settlement" at the time of the closing. For that reason, those Accounts could not be transferred outright at the closing.
Schedule 1.06(g)(II)(1)(d)(3), which governs these accounts, pertinently provides that:
Suspense Accounts (general ledger account number 1523xx) shall include those balances which are aged less than 180 days, subject to subsequent settlement between Fleet and the Company for all items which are charged-off or otherwise unresolved as of the 180th day following the Closing Date, as long as the aggregate amount of such settlement exceeds $250,000.
Both sides agree that these Accounts have aged more than 180 days and that the amounts involved exceed $250,000. Also, Advanta does not dispute that the amounts held in these accounts are owed to Fleet. Rather, Advanta appears to argue that those amounts must be offset by $37 million that (Advanta claims) it overpaid to Fleet. Advanta has made no serious effort to support that offset claim and therefore, Fleet is entitled to summary judgment on the remaining ($4.19 million) portion of its claim. The propriety of any offsets claimed by Advanta must be determined at trial.
Advanta also implies that there may need to be additional settlement amounts, but does not provide any evidence as to these amounts, nor does Advanta even specify what other settlements might be at issue. Advanta Opp. Br. at 51.
Advanta contends that after the close of discovery in this case, it determined that Fleet received from Advanta an additional $37 million in cash collection without giving Advanta credit on the Closing Balance Sheet. Id. at 22-24. This motion is the first time that Advanta has claimed this specific setoff. Advanta did not plead this amount as a setoff, nor did it assert any claim for that setoff in its counterclaim or in any correspondence with Fleet. This claim comes too late to be considered on this motion, and will have to be addressed (if at all) at the trial.
2. Prepaid Securitization Transaction Expense Account
Advanta does not contest Fleet's proposed $848,571 adjustment relating to the Prepaid Securitization Expense Account. Accordingly, Fleet is also entitled to summary judgment on that portion of its claim as well.
IV. FLEET'S MOTION FOR SUMMARY JUDGMENT DISMISSING CERTAIN COUNTS OF ADVANTA'S COUNTERCLAIM
Having decided Fleet's motion for summary judgment on the specific affirmative Counts of its complaint, I next consider Fleet's motion for summary judgment on certain Counts of Advanta's counterclaim.
A. Counterclaim Counts IV (Breach of Fiduciary Duty) And III (Accounting of Fleet LP)
Counts III and IV of Advanta's counterclaim allege that Fleet failed to make daily remittances (to the securitized trusts) of interest payments received on securitized credit card accounts. As a result, Advanta claims, the "Due From Trust Account," (which represented the amounts Advanta expected to be refunded to it from the daily remittances), was $68.3 million less than it should have been. For the reasons discussed below, Fleet's motion for summary judgment dismissing those portions of Counts III and IV that relate to Advanta's claim for $68.3 million is meritorious and will be granted.
1. Advanta's Count IV Unjust Enrichment Claim
Count IV of Advanta's counterclaim pleads unjust enrichment. For Advanta to prevail on a claim of unjust enrichment, it must prove an "unjust retention of a benefit to the loss of another . . . against the fundamental principles of justice or equity and good conscience." Advanta's claim for unjust enrichment must fail because Advanta has not shown how Fleet's failure to make daily remittances to the trustees was in any legal or equitable sense "unjust," or that Fleet was "enriched" as a result.
Fleer Corp. v. Topps Chewing Gum, Inc., Del. Supr., 539 A.2d 1060, 1062 (1988) (citations omitted).
A brief factual description of the circumstances underlying this claim will suffice to make the point. Advanta "securitized" its consumer credit card receivables by pooling those receivables into securitized trusts. Interests in the anticipated principal and income of those trusts were then sold to institutional investors. Advanta was responsible for remitting the amounts received on the securitized accounts to the trustees, to provide the trustees with funds with which to pay the investors.
Because Advanta had a low credit rating, it was required to remit payments to the trustees on a daily basis. Fleet had a far better credit rating, and therefore, it was not required to remit these payments on a daily basis. Rather, Fleet was allowed to make the payments monthly.
As a general practice, Advanta deposited customer payments into a PNC account (which appears as an asset on the Closing Balance Sheet). Those deposits were then swept into Advanta's Fed Account, and a portion of that Account was paid daily to the trustees. These daily remittances generally exceeded the amount that was actually needed to pay the investors. As a result, Advanta would normally be refunded the excess portion of those remittances. The portion that Advanta anticipated would be repaid was booked in Advanta's "Due From Trust Account."
Advanta has abandoned its claim that it was illegal or inequitable for Fleet to remit these payments on a monthly rather than a daily basis. Instead, Advanta is reduced to claiming that the effect of that change in payment practice harmed it to the extent of $68.3 million — the amount Advanta says should have been reflected in the Due From Trust Account. That is, Advanta now claims that (i) the Due From Trust Account should have had a $68.3 million balance, and (ii) because that balance represented an asset, Fleet should have assumed $68.3 million of additional liabilities. Stated differently, Advanta contends the Due From Trust Account should have been reflected on the Closing Balance Sheet so that Advanta could then add another $68.3 million in liabilities that Fleet would be required to assume. What Advanta overlooks, however, is that because those monies were not being paid to the trustees on a daily basis, the Business's cash account would have been $68.3 million higher on the Closing Balance Sheet. Thus, the change in remittance practice had no Closing Balance Sheet impact, therefore, in no event could Advanta have been damaged by Fleet's remittance practice.
Advanta contends that the payments for the Due From Trust Account should not have come from a cash account of the Business, but from the $225 million in two separate customer payments that it wired to Fleet, one on February 27, 1998, and on March 2, 1998. Fleet responds (correctly) that the Wire Suspense Account was the appropriate mechanism by which these payments to Fleet could be tracked. Because I have previously held that the Wire Suspense Account should be included on the Closing Balance Sheet, that conclusion credits Advanta for the amount it wired to Fleet on February 27, and offsets the amount Advanta claims it is owed from the Due From Trust Account.
2. Count IV (as it Relates to Fleet's Alleged Breach of Fiduciary Duty) and Count III of Advanta's Counterclaim
Count IV is a restatement, on alternative grounds, of the claim previously discussed (and rejected) immediately above. Advanta claims that because Fleet failed to operate the Business in its ordinary course (that is, by not making daily remittances to the trustees), Fleet breached a fiduciary duty owed to the Business, thereby causing the assets on the Closing Balance Sheet to be materially understated. Count III seeks an accounting by reason of that breach.
Advanta has now abandoned its claim that the change in remittance practice to the securitization trusts constituted a breach of fiduciary duty. In its brief Advanta concedes that it "has no beef with the change in practice [of remitting payments to the securitization trust] itself; Advanta's claim is based on the effect of the change — enrichment of Fleet at Advanta's expense — not the identity of the decision-maker." That concession establishes that Fleet was not "unjustly" enriched (or, for that matter enriched at all), and entitles Fleet to summary judgment dismissing Advanta's counterclaim against Fleet in Counts III and IV.
Advanta Opp. Br. at 20
B. The Employment Contract Issue
As earlier noted, Fleet has settled the claims of all but one of the former Advanta employees who are the subject of Count VII of Advanta's counterclaim. The only claim not settled is that of Mr. Jeffrey Denton. Accordingly, Count VII will be dismissed as to those employees other than Mr. Denton. With respect to Mr. Denton's claims, I will deny Fleet's motion for summary judgment on Count VII of Advanta's counterclaim insofar as it relates to him.
The basis for the claim is that Advanta offered its senior executives, including Mr. Denton, additional compensation if they remained at Advanta during the reorganization process. That offer is embodied in the "Company Letter Agreement" between Fleet and Advanta, which relevantly stated that:
In the event of a change of control of the company . . . you will receive a bonus of 200% of your base salary. This will be paid out in two parts . . . after the transaction takes place, and after you offer to remain employed in your present position by Advanta, or any successor company, during that year.
Denton Aff. at Exhibit A (the "Company Letter Agreement").
In the Contribution Agreement, the parties agreed to split the costs associated with that contractual undertaking.
Contribution Agreement § 6.08(b)(7),(c)(2)(ii).
Advanta claims that Mr. Denton offered to remain at Fleet in a position commensurate with his position at Advanta, but Fleet rejected Denton's offer. As a result, Advanta contends, Mr. Denton's responsibilities at Fleet were greatly diminished and amounted to a constructive demotion. Unwilling to accept a demotion, Mr. Denton resigned.
Fleet responds that Mr. Denton left the company of his own volition, and that because the Letter Agreement required the employee to stay on for one year, Fleet is not obligated to pay the balance of Mr. Denton's stay bonus.
Because this claim rests on disputed facts and disputed interpretations of the Contribution Agreement and the Letter Agreement, Fleet's motion for summary judgment on Count VII of Advanta's counterclaim, insofar as it relates to Mr. Denton, will be denied.
V. CONCLUSION
For the reasons previously set forth, Fleet's motion for partial summary judgment is granted as to Count IX of the complaint, with the amount of damages to be determined after trial. This Court makes no ruling on Fleet's motion for summary judgment as to Counts III, IV, and V of its complaint. Fleet's motion for summary judgment dismissing Counts VII and III and IV (in part) of Advanta's counterclaim is granted as to Counts III and IV. Fleet's motion is also granted as to Count VII, insofar as Count VII relates to the claims of former Advanta employees other than Mr. Denton. With respect to the claim of Mr. Denton, Fleet's motion as to Count VII is denied. IT IS SO ORDERED.