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Appeals Court Revives Finder’s Fee Case Against Collection Agency

The Court of Appeals for the Third Circuit has reversed a lower court’s ruling that a collection agency was not obligated to pay a “finder’s fee” to a networking company after winning a contract to work with the Department of Education.

A copy of the ruling in the case of Fed Cetera, LLC v. National Credit Services can be accessed by clicking here.

The defendant sought the services of a networking company to help it win a contract with the federal government. The agreement called for a fee to be paid for any contract the defendant “consummated” during the term of the agreement. The original networking company then assigned the rights to the contract to the plaintiff. While the agreement was in effect, the defendant signed a contract with the federal government, but it did not start working for the government until the agreement with the plaintiff was over. The defendant refused to pay the agreed-upon fee because it claimed it had not “consummated” the relationship with the federal government while the agreement between the two parties was in effect. A lower court ruled in favor of the defendant, which the plaintiff appealed to the Third Circuit.

The original agreement between the defendant and the first networking company was entered into in 2010 and expired on Feb. 1, 2016. It called for the finder’s fee to be paid any time a “fee transaction” was consummated, and defined what a fee transaction was.

The defendant signed two agreements between 2010 and 2016. It paid out the fee, per the agreement, on the first agreement. But because the defendant did not begin working on the second agreement until September 2016, it determined it did not have to pay the finder’s fee because a fee transaction had not been consummated.

Looking into the word choices of the agreement, the Court of Appeals delved into how to defined “consummated” and what “transaction” in “fee transaction” should mean. In this case, the Appeals Court ruled that a “transaction” is “consummated” when it is formed, not when performance has begun.

While it is conceivable that another contract might use “consummate” in a way that refers to performance, both the text of the Agreement and the actions of the parties indicate that is not the case here. The Agreement states that any fee “shall be due and payable until fees are no longer generated from any and all Fee Transactions, within thirty (30) days after each receipt during such period by Principal . . . of revenue.” Accordingly, the Agreement contemplates the ongoing payment of the finder’s fee throughout the life of a relevant contract every time National Credit received revenue from its work on the contract. Because fees are owed only after a contract is “consummated,” the Agreement cannot be using “consummation” to mean “fully complete performance on the contract.”

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