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Feldman v. Allegheny International Inc.

decided: June 17, 1988.

SHELLEY FELDMAN, INDIVIDUALLY AND D/B/A SHELLEY FELDMAN ASSOCIATES, PLAINTIFF-APPELLANT,
v.
ALLEGHENY INTERNATIONAL, INC., ET AL., DEFENDANTS-APPELLEES



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 82 C 6268--George N. Leighton, Judge.

Richard D. Cudahy, and John L. Coffey, Circuit Judges, and James E. Noland, Senior District Judge.*fn*

Author: Coffey

JOHN L. COFFEY, Circuit Judge.

Alter a period of lengthy negotiations between the parties for the purchase of a group of food-related companies, the deal fell through. Allegheny eventually sold to another buyer and Feldman sued for breach of contract of sale. He also named as defendants his competing suitors, who ultimately purchased the companies, for interfering with his business prospects with Allegheny. At the close of Feldman's presentation of evidence on liability before the jury, the trial judge directed a verdict for the defendants. Having refused Feldman's request to amend the pleadings shortly before trial, the judge denied a similar request after receipt of the plaintiff's evidence, and again after rendering a directed verdict. Feldman appeals from these rulings. We affirm.

I.

In January of 1982, Allegheny International purchased Sunbeam Corporation. Soon after the acquisition, Allegheny acting on Sunbeam's behalf began to seek buyers for a group of Sunbeam's food related subsidiaries. By month's end, two potential buyers came forward. One was Frank L. Moore, then president of Frymaster, one of the five companies Sunbeam wanted to sell. The other was Feldman who gained the upper hand over his rival in late March by signing a "letter of intent" with Allegheny committing Sunbeam not to "hold discussions or negotiate with any person other than . . . Feldman Associates" on the sale of the food companies "while the proposed acquisition is being pursued." The letter specified that the sale price would involve a minimum cash component of $11 million, but otherwise left open the details of the transaction. It also stated that "[i]t is understood that this is not a binding agreement and that the obligations and rights of the parties shall be set forth in the definitive agreement executed by the parties."

On March 31, 1982, the same day as the signing of the letter of intent, Sunbeam officials notified Moore and his group of the general sale terms of the letter and that Sunbeam would work toward a transaction with Feldman. Moore had previously set a date for the making of a cash offer which had been delayed until April 1. That appointment was cancelled because of Feldman's offer. On April 1, Moore wrote a letter to the president of Allegheny outlining his competing offer and requesting that it be considered by the board along with the Feldman offer. Allegheny failed to respond.

Through the months of April, May, and June of 1982, Feldman and Allegheny continued to negotiate over the terms of the sale agreement and considered six different drafts. On May 5, Allegheny met with the Moore group for about an hour. Allegheny related to Moore the cash and note components of Feldman's letter, and Moore responded indicating his continuing interest in the companies if the Feldman proposal stalled.

On the first of June, 1982, storm clouds began to hover over the Feldman/Allegheny negotiations. Feldman told Allegheny that his financier, Citicorp, had decided that the cash portion of the price would be $8.5 million. Feldman acknowledged that this figure varied from the minimum cash component specified in the letter of intent and explained that it reflected his bank's and accountant's lower estimation of the companies' book value. Allegheny responded that it would "test the water" by asking the Moore group if they were still interested but continued to negotiate with Feldman. On June 4, the Moore group made an offer to purchase the companies.

Feldman claims that he and Allegheny and their respective attorneys met on June 22 to discuss the most recent draft of the sale agreement and that the parties agreed on each and every provision of the agreement at that meeting. Allegheny's attorney agreed to prepare a draft of the agreement incorporating the comments of both sides. After the meeting, one of Sunbeam's attorney's shook hands with Feldman and said "[l]ooks like we have a deal, fellows." As things turned out, he was overly optimistic; essential issues in valuing the companies and setting the purchase price had not been resolved nor was a definitive agreement ever executed. The June 22 "agreement" purchase price is premised on "the closing Balance Sheet, which is to be prepared as provided for in Section 3.3 hereof." Section 3.3 provides that the Closing Balance Sheet would be prepared in accordance with generally accepted accounting principles; "provided, however, that for purposes of preparing the Closing Balance Sheet, and notwithstanding that the same may be contrary to generally accepted accounting principles," certain specialized accounting principles (to be set forth in appendices to the agreement) "shall be applied" in computing specified aspects of the companies' value. Substantial assets and liabilities were subject to valuation under these to be negotiated accounting methods, including accounts receivable, inventory, pension obligations and warranty reserves. As a result of the indeterminacy in the formulae to be used in calculating the final price, the allegedly final agreement when reduced to writing left not only the purchase price blank but also the ratio between cash and debt of the payment.

In the days after the alleged "final agreement" had been reached, the parties continued to negotiate in an effort to reach a compromise on the accounting principles that would govern the transaction. None of the proposed alternatives proved mutually acceptable, and the discussions reached an impasse. On July 14, 1982, Allegheny entered into a letter of intent with the Moore group, and so advised Feldman. On October 21, Allegheny sold the companies to Welmoore Industries, Inc., a new company formed by Moore and Welbilt, a large customer of Frymaster.

II.

Alter development of these largely uncontested facts, the district court granted directed verdict for defendants. In granting a directed verdict in diversity, federal courts apply the standard applicable under state law. Chaulk by Murphy v. Volkswagen of America, Inc., 808 F.2d 639, 640 (7th Cir. 1986). Under the applicable Illinois law, a directed verdict should be granted only when "all of the evidence, . . . viewed in its aspect most favorable to the opponent, so overwhelmingly favors the movant that no contrary verdict . . . could stand." Pedrick v. Peoria & Eastern Railroad Co., 37 Ill. 2d 494, 510, 229 N.E.2d 504, 513-14 (1967). The district court applied this standard and concluded that no jury could find that Allegheny was under a contractual obligation to sell to Feldman. From our review of the record, we agree with the district court that the crucial defect in proof was the absence of a definitive signed agreement as both the Illinois statute of frauds and general Illinois contract doctrine require.

Feldman insists that he had a deal, that Allegheny agreed to all the terms of the contract on June 22, and that only the formality of execution remained. Actually signing an agreement is not necessary to bind Allegheny, argues Feldman, because of cases like Borg-Warner Corp. v. Anchor Coupling Co., 16 Ill. 2d 234, 156 N.E.2d 513 (1958) which hold that, although contracting parties may contemplate the execution of a formal document at a later date, that fact does not render an agreement they have reached unenforceable if it is clear that the formal contract will merely embody the agreement they have reached. Alternatively, ...


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