• David Slarskey

Avoiding and Resolving Advisory Fee Disputes

Though a small portion of a transaction, advisory fees can be hundreds of thousands or millions of dollars. It is thus not surprising that renegotiations, disputes, and lawsuits frequently arise on the eve or consummation of a financing or M&A transaction. This note discusses some key issues related to advisory fee disputes, and ‘best practices’ to assist clients in avoiding and resolving them.


Issue 1: Define the Mandate Clearly

What begins as the sale of a company may turn into a sale of assets. An equity deal may evolve into a debt deal. Or a financing may turn into a sale. It is important to clearly define what events will result in a payment.

In Miller Tabak & Co., LLC v Senetek PLC, 118 A.D.3d 520 (1st Dep’t 2014), a split panel of the Appellate Division, First Department, took a narrow view of the phrase “sale, transfer, or other disposition” of assets. The Court construed “other disposition” to be a “catch-all” phrase, limited in its application by the more specific terms “sale” and “transfer.” Thus, an acquisition of notes for value did not constitute a “disposition” of defendant’s (cash) assets.

By contrast, in StormHarbour Securities LP v. IIG Trade Opportunities Fund N.V., 145 A.D.3d 497 (1st Dep’t 2016) (a case successfully litigated by Slarskey LLC), the First Department upheld the plaintiff’s right to a fee when the engagement letter specified the characteristics of a contemplated financing (size, type, investors, and security), and that the fee obligation applied to any “substantially similar transaction.”

The court effectively determined that the defined criteria set standards for determining whether a transaction triggered the fee obligation, while the extension clause, “substantially similar transaction,” provided flexibility to assure the advisor would get paid under various scenarios. Acknowledging both the specific criteria and the extension clause, the court found that there was no genuine dispute that the transaction as contemplated and as consummated were “substantially similar.”

The lesson for advisors is to be specific in defining the types of transactions that will trigger a fee payment obligation. Once defined, the inclusion of an extension clause -- such as “other substantially similar transactions” -- may create the flexibility necessary to assure payment.

Issue 2: Get it in Writing

Under New York’s Statute of Frauds, an agreement “to procure a business opportunity,” including an investment, must be in writing to be enforceable. In Nemelka v Questor Mgt. Co., LLC, 40 A.D.3d 505 (1st Dep’t 2007), the court dismissed a claim for compensation when the plaintiff alleged an oral agreement to be compensated for procuring a business opportunity. The Court noted the requirement for such agreements to be in writing, and refused to enforce an oral agreement -- notwithstanding the parties’ performance. Get it in writing.

Issue 3: Define the Compensation

It is common for advisors -- who wish to not get bogged down in compensation negotiations when a mandate is moving quickly -- to ask for a fee amount, to be determined at a later date. Be aware, however, that the parties’ agreement must contain all of the essential terms, including how compensation will be calculated. It is not necessary to define the precise amount of compensation, but if the fee is not fixed, the agreement must include “an objective standard to determine it,” e.g., compensation in accordance with “market standards.” Mark Bruce Intern., Inc. v Blank Rome LLP, 19 Misc. 3d 1140(A) (Sup. Ct. 2008), aff'd, 60 A.D.3d 550 (1st Dept 2009).

In Mark Bruce Intern., Inc., the parties’ left the issue of compensation solely “for future determination by the parties themselves.” The court thus held that the agreement failed to define a critical term -- compensation -- and was an unenforceable agreement to agree. The case provides a cautionary tale, as the parties had set forth their terms in an exchange of emails. When significant compensation is at stake, take the time to document your agreement properly, and make sure the manner in which compensation will be calculated is adequately specified.

Issue 4: Avoid “Fleeing Cash”

Advisors are often paid their transaction fee from the proceeds available at closing. But what happens when the client is a paper entity, or foreign-based, and it repudiates its obligation to assure the advisor is paid its fee? Chasing a client to a foreign jurisdiction or seeking enforcement from a thinly-capitalized entity can be expensive, complicated, and unpredictable.

In a recent case, Slarskey LLC successfully obtained injunctive relief to freeze a transaction, relying on a provision in the advisor’s engagement letter to require the client instruct the advisory fee be paid from proceeds at closing. When the client refused to issue the requisite instructions, the court enjoined the closing, insofar as (i) the advisor would not be able to obtain performance of the instructions provision after the transaction closed, and (ii) the advisor might not obtain adequate relief at law (i.e. damages) from a remote party.

The court determined, effectively, that the pre-transactional instructions constituted a benefit, separate and apart from the compensation to be paid, the loss of which could not adequately be valued or remedied with an award of damages. This “instructions provision” simplified what might otherwise have been a much more complicated and uncertain process to recover the advisor’s fee, after the fact, from a shell company in a foreign jurisdiction. It is wise to include in the engagement letter a provision that (i) requires the client to issue irrevocable instructions that the advisory fee be paid at closing; (ii) acknowledges that the failure to issue those instructions may cause the advisor irreparable harm; and (iii) authorizes the court to issue injunctive relief in the event of a breach.


Investment banking mandates, contingent upon closing a transaction, are risky enough for advisors without worrying about whether their compensation agreements are enforceable. Make sure that your engagement letters are sound, so that you can rely on them when your work comes to fruition.