Federal court rejects Warren Hill's attempt to dismiss breach of contract counterclaim

By Nicholas Malfitano | Jul 13, 2018

PHILADELPHIA – A federal court has denied a motion to dismiss a counterclaim from a company that believes it mistakenly overpaid more than $200,000 in the course of executing a contract to purchase interest in an Illinois firm.

U.S. District Court for the Eastern District of Pennsylvania Judge Harvey Bartle III denied a motion from plaintiff Warren Hill to dismiss a counterclaim from defendant SFR Equities, which had been brought for the reason of alleged failure to state a claim upon which relief could be granted.

“On Feb. 17, 2016 Warren Hill and SFR entered into a Membership Interest Purchase Agreement effective Jan. 1, 2016. Under the Agreement, Warren Hill agreed to sell SFR its 33.246 percent-membership interest in an Illinois limited liability company known as Vendor Assistance Program, LLC. SFR agreed to pay Warren Hill the purchase price of $4,000,000 over time and in the manner outlined in the Agreement,” Bartle said.

Furthermore, the agreement contained additional terms defining the obligations of the parties, including the obligation of SFR to pay additional payments on a promissory note. The agreement contained a provision that "for each of the three years following the Closing Date, [SFR] shall, within 90 days of the end of each year, pay [Warren Hill] an amount equal to 50 percent of VAP’s Net Income allocable to the Interests for such year."

 Finally, SFR agreed to pay money from VAP’s reserve accounts, as defined under the agreement. The reserve accounts hold funds as security for amounts VAP borrowed from lenders.

“In March 2017 SFR made its first earn out payment for the 2016 year and two follow-up payments. SFR also paid an earn out payment for the 2017 year. According to SFR’s counterclaim, it has mistakenly overpaid Warren Hill by $200,000,” Bartle stated.

Warren Hill claimed when SFR calculated the earn out payments due to it for 2016 and 2017, SFR mistakenly included Vendor Assistance Program revenues that were part of an Excluded Reserve Amount and as a result of the overpayment(s), the plaintiff was unjustly enriched.

Under the circumstances, SFR believes equity demands that it is entitled to restitution from Warren Hill in the amount of any overpayments of $200,000 to plaintiff plus attorney’s fees, expenses of suit and costs.

Warren Hill opposed this rationale and sought to have the counterclaim thrown out, arguing there was no case made for unjust enrichment.

Bartle explained in an action where there is diversity of citizenship between the parties, courts generally look to the choice of law rules of the forum state, in this case Pennsylvania, to determine which state’s substantive law to apply. In the instant litigation, the parties mutually agreed that Illinois law governs the substantive issues of the contract and thus, Illinois law was applied.

“To state a claim for unjust enrichment under Illinois law, the plaintiff must allege that ‘the defendant retained a benefit to the plaintiff’s detriment, and that the retention of that benefit violates fundamental principles of justice, equity, and good conscience.’ Whether ‘unjust enrichment’ is the correct title for or description of the claim for relief in the counterclaim is irrelevant under modern pleading practice, which rejects formalism. The law of Illinois, considering the substance of the counterclaim, allows it to go forward. The argument of Warren Hill is without merit. Accordingly, we will deny its motion to dismiss the counterclaim of SFR for failure to state a claim upon which relief can be granted,” Bartle stated.

U.S. District Court for the Eastern District of Pennsylvania case 2:18-cv-01228

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com

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