The U.S. Supreme Court on Monday opted against taking up a dispute over an $829,000 award in favor of a satellite technology company that tested how far federal court jurisdiction extends to state law causes of action.
The high court denied AST & Science LLC's petition for writ of certiorari asking for a reversal of an Eleventh Circuit ruling that tossed an $829,000 finder's fee for AST because the original claim was based on a contract between AST and Delclaux Partners SA that was governed by state law.
In its petition, AST argued that Section 27 of the Securities Exchange Act confers exclusive federal jurisdiction over claims "brought to enforce any liability or duty created by" the act. In this case, AST said both the district court and the Eleventh Circuit acknowledged that AST's claim depended on a violation of the Exchange Act, but the appeals court found the case failed the federal jurisdiction test set out by the U.S. Supreme Court in 2005 in Grable & Sons Metal Products Inc. v. Darue Engineering & Manufacturing .
"If left to stand, the Eleventh Circuit's decision will shut out from the federal courts a lawsuit that clearly invokes the Exchange Act and turns on its application and construction," AST said. "This would run directly counter to the plain meaning of Section 27."
The dispute dates to 2017, when AST signed a finder's fee contract with Delclaux to help AST prepare an initial round of financing. Delclaux introduced AST to LionTree Advisors LLC, which AST then contracted to help in the financing efforts.
Under the terms of the finder's fee agreement, AST would pay a fee to Delclaux if investment banking fees became payable to LionTree at the close of a financing, according to AST's brief. AST said it paid a fee to Delclaux after its Series A round of financing closed. But before it began its Series B round, AST terminated LionTree and hired a new investment banker, according to AST.
Delclaux argued AST closed multiple transactions during the tail period after the termination of LionTree's contract, which would have entitled both LionTree and Delclaux to a cut of the fees. But AST said LionTree had no involvement in the transactions, so neither was entitled to fees.
AST said Delclaux's demands prompted AST to look more closely at the finder's fee agreement, and it found that Delclaux's activities went beyond the scope of a "finder" and that Delclaux had been acting as an unregistered broker-dealer.
AST sued Delclaux in August 2020 claiming Delclaux breached the agreement by acting as an unregistered broker-dealer and failing to obtain membership with the Financial Industry Regulatory Authority. Delclaux filed a counterclaim for the fees it says it is owed. In February 2023, the district court granted summary judgment in AST's favor and ordered Delclaux to pay the company $828,888.13 in damages.
The Eleventh Circuit wrote in July that the government did not have a strong interest in litigating the dispute in a federal court and that allowing a state court to resolve the case "won't undermine the development of a uniform body of securities law."
"Third, the government has no strong interest in having cases like this litigated and adjudicated in a federal forum," the Eleventh Circuit said. "Here, the government isn't a party, nor is there any governmental action upstream of the suit. To the contrary, the [U.S. Securities and Exchange Commission] took no action against Delclaux, and this case arose solely because AST accused Delclaux of violating a private agreement."
AST is represented by Geoffrey Raux, Mark J. Neuberger and John R. FitzGerald of Foley & Lardner LLP.
Delclaux is represented by Joseph J. Mamounas, Adrian Nuñez and Bethany J.M. Pandher of Greenberg Traurig LLP.
The case is AST & Science LLC v. Delclaux Partners SA, case number 25-433, in the U.S. Supreme Court.
Nov 10
Deal Summary
