Bankers Beware: The Reach of the Procuring Cause Standard

In our last New York Law Journal article, “Bankers Beware: The Judicial Divide Over Customary Investment Banking Fees” (Nov. 14, 2022), we highlighted the conflicting New York case law on the application of the “agreement to agree” doctrine to investment banking fees. This article highlights another potential area of contract uncertainty for investment bankers, principals, and counsel—the procuring cause standard.

Under New York law, it is well-established that, absent an agreement otherwise, a real estate broker is not entitled to a commission unless she is the “procuring cause” of the sale or lease. The procuring cause requirement is not common in investment banking contracts. Nonetheless, a 2014 decision by the Court of Appeals, Morpheus Capital Advisors v. UBS AG, 23 N.Y.3d 528 (2014), held that, in a related context, investment banking contracts are governed by the same principles as real estate brokerage contracts. Morpheus could be used as an invitation to apply the procuring cause standard to investment banking contracts as well. Below, we assess the post-Morpheus case law applying the procuring cause standard to investment banking contracts and suggest that contracting parties tread carefully.

Procuring Cause Standard