| Diamond Castle Partners IV PRC, L.P. vIAC/InterActiveCorp |
| 2011 NY Slip Op 01571 [82 AD3d 421] |
| March 3, 2011 |
| Appellate Division, First Department |
| Diamond Castle Partners IV PRC, L.P., et al.,Respondents, v IAC/InterActiveCorp, Appellant. |
—[*1] Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York (Jonathan H. Hurwitz ofcounsel), for respondents.
Order, Supreme Court, New York County (Ira Gammerman, J.H.O.), entered June 2, 2010,which, in an action for breach of a contract under which defendant sold its subsidiary to anacquisition entity formed by plaintiffs, insofar as appealed from, denied defendant's motion todismiss the complaint for lack of standing, unanimously affirmed, with costs.
Plaintiffs are a group of private equity funds and related entities. In July 2006, plaintiffssubmitted a proposal to purchase PRC, a wholly-owned subsidiary of defendant. Following duediligence, plaintiffs submitted a bid for PRC of approximately $286.5 million, which defendantaccepted. In order to effect the transaction, plaintiffs formed Panther as an acquisition vehicle.On November 2, 2006, Panther, defendant and PRC entered into a purchase agreement providingfor the transfer of all of defendant's outstanding interest in PRC to Panther. Plaintiffs mergedPanther into PRC immediately following the closing. PRC filed for bankruptcy in January 2008,and plaintiffs' equity interest in PRC was extinguished by the plan of reorganization.
On August 20, 2008, plaintiffs commenced the instant suit alleging breaches of variousrepresentations, warranties and covenants in the purchase agreement and seeking indemnificationunder article X. Defendant moved to dismiss, asserting, inter alia, that the claims of plaintiffs,which were not signatories to the agreement, were barred by the "No Third-Party Beneficiaries"provision in the agreement.
The motion court correctly rejected defendant's claim that plaintiffs lack standing. Althoughnot signatories to the purchase agreement, the agreement was plainly intended to give themenforceable rights. Section 10.2 of the purchase agreement expressly provides that defendantshall indemnify and hold harmless the buyer and its "Affiliates," defined to include plaintiffs,from and against any and all losses sustained due to breaches by defendant or PRC of therepresentations, warranties and covenants in the purchase agreement. The term "parties," thoughundefined, was used in various clauses in the agreement to include nonsignatory affiliates of thebuyer and seller. For example, the "Buyer Indemnified Parties" are granted rights under section2.3, relating to claims against the purchase escrow, and section 7.3, relating to indemnificationfor certain tax obligations.[*2]
It is "elementary" that "clauses of a contract should beread together contextually in order to give them meaning" (HSBC Bank USA v NationalEquity Corp., 279 AD2d 251, 253 [2001]). "[I]t is a cardinal rule of construction that a courtadopt an interpretation that renders no portion of the contract meaningless" (Matter ofWallace v 600 Partners Co., 205 AD2d 202, 206 [1994], affd 86 NY2d 543 [1995][internal quotation marks and citation omitted]). The motion court properly construed theagreement as granting plaintiffs enforceable rights that were not extinguished by the "boilerplate'no third-party beneficiaries' language" contained in section 11.7, which limited enforcement ofthe agreement to "parties." In light of the numerous contract provisions granting plaintiffsenforceable rights, it was reasonable to construe section 11.7 to exclude only persons who areneither signatories nor buyer or seller indemnified parties. This reading is supported by the plainlanguage of section 11.7, which precludes claims by any person other than the "parties" and theirrespective successors and permitted assigns.
To construe the purchase agreement in the manner suggested by defendant would be toignore the clear, specific provisions of the purchase agreement recognizing plaintiffs' rights underthe agreement, which we decline to do (see Board of Mgrs. of Alfred Condominium v CarolMgt., 214 AD2d 380, 382 [1995], lv dismissed 87 NY2d 942 [1996] [contract'sreference to unit owners as beneficiaries trumped general disclaimer of obligations to thirdparties in agreement between construction manager and sponsor]; see also Amirsaleh v Boardof Trade of the City of N.Y., Inc., 2008 WL 4182998, * 5, 2008 Del Ch LEXIS 131, *16[Del Ch 2008] [contract's "specific grant of benefits" afforded nonsignatories the right to sue toenforce the agreement, notwithstanding "a general provision disclaiming the existence of anythird-party beneficiaries"]).[FN*]Further, it would leave plaintiffs without remedy since Panther, the contracting entity, wasmerely an acquisition vehicle which was merged into PRC immediately following the closing.
We have considered defendant's other arguments and find them unavailing.Concur—Andrias, J.P., Catterson, Moskowitz, Manzanet-Daniels and RomÁn, JJ.
Footnote *: We recognize that a federalcourt in the Southern District of New York has suggested that the ability of a contracting party tobring suit on behalf of an injured indemnitee/third-party beneficiary, in a case where a contract,like the one herein, contains both an indemnification provision in favor of a third-party and a nothird-party beneficiary clause, may preclude direct suit by the third-party beneficiary (seeControl Data Sys., Inc. v Computer Power Group, Ltd., 1998 WL 178775, 1998 US DistLEXIS 5277 [SD NY 1998]). Nonetheless, even in that case, the District Court found that"practical considerations" warranted joinder of the noncontracting third-party beneficiary in theaction (1998 WL 178775, *3, 1998 US Dist LEXIS 5277, *7). In any event, the no third-partybeneficiary clause in Control Data Sys. differed from the clause herein insofar as itapplied to "any person not a signatory" (1998 WL 178775, *2, 1998 US Dist LEXIS 5277, *5).To the extent the opinion in Control Data Sys. may be construed as reaching a differentconclusion from this Court's today, we respectfully disagree with the District Court's reasoning.