Institutional Labor Advisors, LLC v. Allied Resources, Inc.

2014 WL 4211196 (August 25, 2014)

Facts

ILA (P) is a labor law firm that provided consulting, business, and compliance services to mining industry clients founded by Smith, an attorney. Allied (D) is a corporation that was owned by Thomas. Thomas wanted to acquire certain coal reserves. The reserves were known as the Onton Reserves. Thomas retained his business lawyer, Stigger, to begin negotiating over the terms of a potential acquisition. To address the labor liabilities, Thomas engaged Smith, and P. Thomas and Smith orally agreed that the payment of a fee to P would be contingent on the transaction's successful closing. This agreement was made without Stigger's involvement. Between October of 1999 and May of 2000, Smith spent a substantial amount of time and effort on the deal. On May 12, 2000, two separate Asset Purchase Agreements were finalized and signed: under one, a newly formed corporation that Thomas owned and controlled called Cochise Coal Co. ('Cochise') acquired the idled Sebree Mine; under the second, D acquired the Onton Reserves. Smith and Thomas began the process of negotiating and drafting a written compensation agreement regarding the percentage fee that they had previously discussed. Stigger was now involved. Stigger proposed that P would obtain an 'ownership of and entitlement to a limited undivided five percent (5%) of the net profits realized by D with respect to the Onton Reserves. During the negotiation, the parties shifted concepts-from 'net profits' to 'net operating income' to 'distributions.' On February 8, 2001, both P and D signed the Compensation Agreement. D agreed to pay to P an amount in cash equal to five percent (5%) of the value of any Distribution as defined by the agreement when a Distribution is paid. P alleges that while certain Distributions were paid, D failed to compensate P. P argues that the Compensation Agreement is valid and enforceable and that D is liable for breaching the Compensation Agreement. At present, D is alleged to owe $2,256,525, plus interest compounded annually at the statutory rate of 8%. P claims that D cannot offset its liability to P through a malpractice claim. D claims the Compensation Agreement is invalid and unenforceable.