UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION
November 16, 1990
CONWAY CORPORATION, Plaintiff,
CARL H. AHLEMEYER, SASH A. SPENCER and CHARLES I. MERRICK, Defendants
The opinion of the court was delivered by: SHADUR
MEMORANDUM OPINION AND ORDER
MILTON I. SHADUR, UNITED STATES DISTRICT JUDGE
Conway Corporation ("Conway") has sued Carl Ahlemeyer ("Ahlemeyer"), Sash Spencer ("Spencer") and Charles Merrick ("Merrick"), all the shareholders (collectively "Shareholders") of Illinois Pork Corporation ("IPC"), for recovery of a commission that Shareholders assertedly owe under an October 31, 1988 letter agreement ("Agreement") as to the then-contemplated sale of Shareholders' IPC shares or of IPC's assets. Conway now seeks summary judgment against all three Shareholders under Fed. R. Civ. P. ("Rule") 56.
For the reasons set forth in this memorandum opinion and order, Conway's motion is granted in its entirety.
IPC was a pork slaughtering and processing business in Monmouth, Illinois formed as the result of a joint effort by Shareholders, the City of Monmouth and the State of Illinois to reopen the former Wilson Foods Plant that had been vacant for almost one year -- thus bringing some 500 jobs to economically-depressed Monmouth. IPC's shares were evenly divided among Ahlemeyer, Spencer and Merrick, and Merrick served as IPC's President and chief executive officer.
IPC began slaughtering operations in March 1987 and was operating profitably by 1988. At that time Ahlemeyer expressed an interest in selling his IPC shares, and Merrick and Spencer, although not wanting to terminate their investment in IPC, considered selling a portion of their shares as well. Ahlemeyer spoke with Bernard Conway ("Mr. Conway"), the principal in Conway (a Chicago business broker), about helping Shareholders in the sale of some or all of their shares. Mr. Conway told Merrick that Mariah Purina Company ("Purina") might be interested in purchasing IPC shares.
In September 1988 Mr. Conway drafted a proposed letter agreement covering his retainer as Shareholders' business broker. After Shareholders had provided their own input via proposed revisions,
Mr. Conway put the document in final form and Shareholders signed it in early November. These provisions of the Agreement are relevant to the present controversy:
The purpose of this letter is to set forth the terms and conditions under which Conway Corporation agrees to serve all of the shareholders of Illinois Pork Corp. in the effort to sell all or some of their Illinois Pork Corp. shares to Mariah Purina Company. For purposes of this Agreement any other type of transaction between the shareholders and/or Illinois Pork Corp. and Mariah Purina Company, as for example a joint venture, sale of assets, merger, or co-investment with Mariah Purina Company in other projects, are specifically included. Excluded however are product sales by Illinois Pork Corp. to Mariah Purina Company in the normal course of business. It is agreed that Conway Corporation shall be the sole and exclusive independent contractor serving the Illinois Pork Corp. shareholders and/or Illinois Pork Corp. for effecting a transaction (as defined above) with Mariah Purina Company.
* * * *
3. FEES. In the event of any transaction during the Term of this Agreement, the shareholders of Illinois Pork Corp. agree to pay Conway Corporation at closing:
Fee based upon the total consideration (including, but not limited to, such considerations as payments in cash, stock, or kind; options; fees; debentures or convertible debentures; notes or other evidence of indebtedness; leases; as well as the total amount of earn out or covenants not to compete) received by Illinois Pork Corporation, its shareholders and affiliates, directly or indirectly arising from or connected to the transaction equal to: five percent (5%) of the first million dollars, four percent (4%) of the second million dollars, three percent (3%) of the third million dollars, two percent (2%) of the fourth million and one percent (1%) of the remaining consideration.
* * * *
9. RIGHT OF REFUSAL. Each shareholder shall have the sole and exclusive right to refuse any offer for his individual shares.
10. ENTIRE AGREEMENT. This is the entire agreement between the parties pertaining to its subject matter and supersedes all prior agreements, representations and understandings of the parties. No modification of this Agreement shall be binding unless agreed to in writing by the parties.
In January 1989
the fresh pork industry experienced a sudden downturn, with the price of hogs increasing and the price of fresh pork decreasing. IPC's financial condition began to deteriorate. Although negotiations with Purina for its purchase of IPC's shares ceased in March, in May Purina expressed its interest in buying IPC's assets. At the end of June IPC's primary bank refused to renew its working capital loan. After the negotiations with a potential buyer of the shares (other than Purina) had fallen through, Purina issued a letter of intent to purchase IPC's assets. Merrick then issued a press release announcing Purina's offer and stating that IPC would cease operations in order to close the transaction and prepare for the transition.
In July Shareholders consented to an assignment of IPC to Development Specialists, Inc. ("DSI") for the benefit of the creditors. William Brandt, Jr. ("Brandt"), in turn the assignee from DSI, apparently agreed -- with no objection from the secured creditors -- that Conway's commission would be treated as an administrative expense. Then on September 11 an involuntary petition for bankruptcy was filed against IPC. Purina told Brandt that it would not close on the asset-sale transaction if IPC did not consent to the bankruptcy filing. On September 18 IPC consented to the filing. Richard Barber was appointed its trustee in bankruptcy ("Trustee").
Trustee promptly entered into an agreement with Purina for the sale of IPC's assets to Purina. On September 28 Conway filed an objection to the sale
in the bankruptcy court but that court overruled the objection, and the sale of IPC's assets to Purina closed on October 3, with the proceeds of sale being paid to the estate of IPC. All the proceeds have been distributed to secured creditors by order of the bankruptcy court, except for that court's retention in escrow of an amount sufficient to cover Conway's claim for commission due from the sale.
Conway then filed its Complaint here, praying for a judgment:
a) declaring the rights and obligations of the parties to the contract and, specifically, that defendants, Ahlemeyer, Spencer and Merrick are individually and personally obligated to pay plaintiff Conway Corporation its fee pursuant to the contract;
b) in favor of plaintiff Conway Corporation and against defendants, Ahlemeyer, Spencer and Merrick jointly and severally in the amount of $ 234,500; and
c) awarding plaintiff Conway Corporation its costs of suit, reasonable attorneys' fees and such other and further relief as the Court deems just and equitable.
This opinion will discuss the issues of liability and damages separately.
Rights and Obligations Under the Agreement
This is a straightforward contract action. Under the Illinois law controlling this case,
"'the meaning of a written contract is ordinarily a question of law and not one of fact'" ( Hufford v. Balk, 113 Ill. 2d 168, 172, 497 N.E.2d 742, 744, 100 Ill. Dec. 564 (1986), quoting Chicago Daily News, Inc. v. Kohler, 360 Ill. 351, 363, 196 N.E. 445, 451 (1935)). This Court's "primary objective in construing a contract is to ascertain the intent of the parties and to give effect to that intent" ( United Airlines, Inc. v. City of Chicago, 116 Ill. 2d 311, 318, 507 N.E.2d 858, 861, 107 Ill. Dec. 705 (1987)). LaSalle National Bank v. Service Merchandise Co., 827 F.2d 74, 78 (7th Cir. 1987) (citations omitted) has set out the basic principles of Illinois law as to the construction of contracts:
The starting point must be the contract itself. If the language of the contract unambiguously provides an answer to the question at hand, the inquiry is over. The question of whether a contract is ambiguous is a conclusion of law . . . . If the trial court determines that the contract is unambiguous, it must then go on to declare its meaning. Such a declaration is also a conclusion of law . . . .
Thus this opinion must first address whether or not the Agreement is ambiguous ( Samuels v. Wilder, 871 F.2d 1346, 1351 (7th Cir. 1989)). Thompson v. Amoco Oil Co., 903 F.2d 1118, 1120 (7th Cir. 1990) quotes the straightforward definition of that concept in UIDC Management, Inc. v. Sears Roebuck & Co., 141 Ill. App. 3d 227, 230, 490 N.E.2d 164, 166, 95 Ill. Dec. 691 (1st Dist. 1986):
A contract is ambiguous when its terms are reasonably capable of interpretation in more than one way.
Although Shareholders make several stabs at an argument that the terms of the Agreement are somehow ambiguous, the ensuing discussion demonstrates the transparency of those attempts to avoid the plain meaning of the Agreement.
Shareholders contend that the Agreement contains both intrinsic and extrinsic ambiguities. FDIC v. W.R. Grace & Co., 877 F.2d 614, 620 (7th Cir. 1989) (citations omitted) has described those two forms of ambiguity under Illinois law:
One is internal ("intrinsic"), and is present when the agreement itself is unclear. The other is external ("extrinsic") and is present when, although the agreement itself is a perfectly lucid and apparently complete specimen of English prose, anyone familiar with the real-world context of the agreement would wonder what it meant with reference to the particular question that has arisen. So parol and other extrinsic evidence is admissible, even in a case involving a contract with an integration clause, to demonstrate that the contract is ambiguous.
Accord, Toys "R" Us, Inc. v. NBD Trust Co. of Illinois, 904 F.2d 1172, 1176 (7th Cir. 1990).
As for intrinsic ambiguities, Shareholders first argue that the Agreement's statement that "Conway Corporation agrees to serve all of the shareholders of Illinois Pork Corp." is ambiguous because Conway ultimately served the Trustee and not Shareholders. Of course, that is not really an argument that the Agreement's language is ambiguous -- instead it urges that Conway did not perform its obligations (which are unambiguous in at least that respect, even in Shareholders' eyes) because it did not indeed "serve" Shareholders. Hence the argument does not properly fit at this point.
Second, Shareholders contend that "IPC" is an ambiguous term because it is unclear whether it was intended to mean "the bankrupt estate of IPC." Again that does not render the language of the Agreement itself ambiguous. It rather begs the question whether the Agreement was performed according to its explicit terms, an issue discussed later in this opinion.
In sum, Shareholders have produced no colorable basis for suggesting that the terms of the Agreement are patently ("intrinsically") ambiguous. This opinion turns then to extrinsic ambiguity.
On that score W.R. Grace, 877 F.2d at 621 (citations omitted) teaches that extrinsic evidence is admissible to demonstrate the existence of such an ambiguity:
even if the contract has no intrinsic ambiguity -- even if it would seem perfectly clear to a normal reader of English, although to persons knowledgeable about the circumstances in which the contract had been intended to apply the "normal" reading might be nonsense.
But that is not at all the line of attack that Shareholders follow. Instead they try to avoid the plain and obvious meaning of the Agreement's terms with extrinsic evidence.
That evidence is two-fold in nature:
1. Shareholders produce affidavits to show that they never intended to be personally responsible for payment of commission upon a sale of assets.
2. They also claim that the Agreement's "RIGHT OF REFUSAL" provision was meant to ensure that Shareholders had complete control over any sale, from which they conclude that Trustee's sale of the assets was not part of the Agreement's coverage.
Once again those are not arguments for ambiguity, but rather fly in the face of the express terms of the Agreement -- terms that provide (as to the first contention) for Shareholders ' unequivocal obligation to pay the commission
and provide (as to the second contention) for Shareholders' right to refuse to sell only their shares.10
Even if Shareholders' arguments are given more credit than they are due, they are at most disagreements on the meanings of the Agreement's provisions (and post hoc disagreements at that). But contract terms are "not rendered ambiguous simply because the parties do not agree on [their] meaning" ( Johnstowne Centre Partnership v. Chin, 99 Ill. 2d 284, 288, 458 N.E.2d 480, 481, 76 Ill. Dec. 80 (1983) (citation omitted)).
Because no ambiguity of either type -- intrinsic or extrinsic -- exists, "the intention of the parties at the time the contract was entered into must be ascertained by the language utilized in the contract itself, not by the construction placed upon it by the parties" ( Lenzi v. Morkin, 103 Ill. 2d 290, 293, 469 N.E.2d 178, 179, 82 Ill. Dec. 644 (1984), citing Chicago Daily News, 360 Ill. at 364, 196 N.E. at 451). Conway argues that the intention of the parties is plain and obvious under the express language of the Agreement:
1. At the outset the Agreement specifically identified a sale of IPC's assets to Purina as a "transaction" within its scope.
2. Agreement para. 3 (emphasis added) specified:
In the event of any transaction during the Term of this Agreement the shareholders of Illinois Pork Corp. agree to pay Conway at closing [a] "fee based upon the total consideration . . . received by Illinois Pork Corp., its shareholders and affiliates."
Shareholders cannot and do not rationally dispute the meaning of those terms, which are clear on their face. Although Shareholders would like to bring in extrinsic evidence to show that they understood the terms to mean something other than what the language clearly conveys,
such use of parol evidence is disallowed absent any ambiguity ( Calder v. Camp Grove State Bank, 892 F.2d 629, 632 (7th Cir. 1990)).
Shareholders do dispute, however, whether the Agreement has been performed in accordance with its terms (D. Mem. 9-10, footnote omitted):
Conway was unsuccessful in its attempts to sell defendants' stock. Conway was also unsuccessful in selling the assets of IPC in a transaction approved by the shareholders in which IPC or the shareholders received the sales proceeds. Instead, the evidence shows that Conway may have assisted a bankruptcy trustee in selling the assets of IPC's bankrupt estate, a separate legal entity from IPC, in a sale over which defendants had no control and in which the secured creditors of IPC, not IPC or its shareholders, received the sales proceeds.
That argument is replete with fallacies.
First, it is immaterial under the express terms of the Agreement just which type of "transaction" occurred, whether a sale of shares or a sale of assets or some other form of deal included in the Agreement's scope. Hence the lack of success in negotiating a sale of shares, regardless of how much Shareholders may have preferred such a sale, is irrelevant to Conway's claim.
Second, Shareholders' argument that the payment of commission was contingent upon their approval of the transaction and their control of the sale is similarly flawed. As already pointed out (see n.10), the Agreement merely provided that any one of Shareholders could refuse an offer for his shares, and it mentions nothing about who must be in control of the sale if the transaction took some other form.
Third, Shareholders make much of the facts that it was the Trustee (and not IPC or Shareholders) who made the sale and that the sale was of the assets of the bankrupt estate of IPC (and not of IPC itself). But Shareholders cannot avoid their obligation under the Agreement based upon a claimed distinction between IPC before and after bankruptcy. Under the Bankruptcy Code (11 U.S.C. § 541(a)(1)), property of the bankruptcy estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case" (see also Koch Refining v. Farmers Union Central Exchange, Inc., 831 F.2d 1339, 1343 (7th Cir. 1987)). Trustee stood as IPC's surrogate, serving as the representative of the estate's and creditors' interests in all property of the estate (see id. at 1342-43, 1352). In law the sale of IPC's assets by Trustee indisputably inured to IPC's benefit -- it was a "transaction" between IPC and Purina within the meaning of the Agreement. That being so, Shareholders had the express and unqualified obligation of payment that they undertook individually under the "FEES" provision of the Agreement.
Furthermore, the fact that Trustee may have reviewed the discussions with Purina and thus instigated the ultimate sale does not change the terms of the Agreement, which did not limit commissionable transactions to those directly negotiated by Conway.
As long as the estate received the proceeds of the sale, the consideration was effectively received in the sense of the Agreement,
and Conway's commission was therefore due and payable.
Although Shareholders may no doubt have hoped or even expected to pay the commission from the proceeds of the sale and may well feel that would be the fairer result, no such limitation was reflected in the terms of the Agreement itself.
Conway performed fully, and Shareholders are obligated under their express and unambiguous contract to pay the commission.
Amount of Damages
Shareholders purport to dispute the amount of total consideration received from the sale and thus the amount of commission due according to the contractual formula. As it turns out, however, that dispute (to the limited extent that it is properly presented in admissible form) is not material (that is, it is not outcome-determinative).
Mr. Conway verifies by his affidavit (P. 12(m) Ex. C paras. 3-4) that the total consideration for the sale was $ 13.45 million, comprising $ 8.25 million in cash, $ 900,000 in release of personal guaranties that had been given by Shareholders and $ 4.3 million in other consideration (including lease assumptions, supplies, net operating losses and liability relief). Based upon the contractually stipulated formula, the commission due from such a sale was $ 234,500. Conway also asserts (id. P 5):
Merrick told me that, based upon his conversations with Ahlemeyer and Spencer, the fee of $ 234,500 was correct and agreeable to them.
On their part Shareholders offer a July 3, 1989 letter invoice from Mr. Conway to Merrick (D. 12(n) Ex. 7) describing the total amount of consideration received as $ 15.90 million
and therefore claiming a fee of $ 259,000. Shareholders also advance the wholly conclusory assertion that Conway's calculations, above and beyond the $ 8.25 million in cash received by IPC, have no basis in fact, and they further offer Merrick's affidavit statement that he never agreed with Mr. Conway's figures (D. 12(n) Ex. 1 para. 36).
That last statement -- Merrick's lack of agreement with Mr. Conway's figures -- must be credited on the current motion. But what controls this case is what the total consideration was in fact, not whether the parties reached common ground on the figures. Thus the existence of that factual dispute (the non-agreement as to amount) is not material in the sense of Rule 56(e).
As for the real question, the amount of commission involved, Shareholders cannot combat something (Mr. Conway's verification) with nothing (their bare denial) -- see Rule 56(e).
And Shareholders themselves have presented (D. 12(n) Ex. 6) the August 30, 1990 decision by Bankruptcy Judge Altenberger (see n.5) in which he expressly finds "The total sale proceeds were $ 13,450,000.00" -- the identical figure verified by Mr. Conway. Although Judge Altenberger denied summary judgment in the case before him because there were genuine issues of material fact requiring resolution, he specifically identified what those open factual questions were, and the disputed factual issues did not include the amount of sale proceeds or the derivative amount of the commission, $ 234,500 (both those items were expressed as Findings of Fact by Judge Altenberger).
In summary, Conway has met its obligation to establish the amount as well as the fact of its entitlement to commission. Shareholders have not succeeded in their effort to muddy the waters with their claimed factual disputes.
There is no genuine issue of material fact, and Conway is entitled to a judgment as a matter of law. This Court therefore orders that judgment be entered in favor of Conway and against all three Shareholders jointly and severally in the sum of $ 234,500.