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Halo Branded Solutions, Inc v. Donald Goldman

March 22, 2011


The opinion of the court was delivered by: Judge Feinerman


Plaintiff HALO Branded Solutions, Inc. ("HALO") brought this action against Defendants Donald Goldman, Kenneth Goldman, and the Kenneth S. Goldman Living Trust (collectively, the "Goldmans"), alleging breach of warranty and fraudulent inducement to contract. The parties have filed cross-motions for partial summary judgment. Docs. 51, 54. At a status hearing on January 6, 2011 (Doc. 86), the court stated that HALO's motion was granted in part and denied in part, while the Goldmans' motion was denied. This memorandum opinion and order sets forth the basis for those rulings.


In December 2007, HALO expressed an interest in purchasing the Goldmans' promotional products companies ("Goldman"). By late January 2008, the parties signed a Letter of Intent. Over the following three months, HALO conducted due diligence, reviewing financial information and conferring with the Goldmans and Paul Goldstein, Goldman's Chief Financial Officer and Controller. Immediately before the sale closed, HALO communicated with Kevin McHargue, Goldman's Vice President for Sales, and several Goldman sales managers. On April 24, 2008, the parties executed a Stock Purchase Agreement ("SPA") and closed the sale. The total sale price of $7.8 million initially was calculated by multiplying by seven Goldman's trailing twelve-month earnings before interest, taxes, depreciation, and amortization. The figure was reexamined, but did not change, after HALO's due diligence and the Goldman's provision of various representations and warranties required by the SPA.

HALO later came to believe that certain of the representations and warranties were false, and filed this action. The amended complaint (Doc. 6) has three counts. Counts I and III allege that the Goldmans provided false representations and warranties under Sections 3.7, 3.12, and 3.27 of the SPA. Count II alleges that the Goldmans fraudulently induced HALO to purchase Goldman for $7.8 million. Additional pertinent facts are set forth below.


Missouri law governs HALO's contract and fraudulent inducement claims.

I. Counts I and III: Representations and Warranties

Counts I and III allege that the Goldmans breached the SPA by providing false representations and warranties. Under Missouri law, a contract plaintiff must prove: (1) a valid contract exists; (2) the rights and obligations of each party; (3) a breach; and (4) damages. See Emerald Pointe, L.L.C. v. Jonak, 202 S.W.3d 652, 664 (Mo. App. 2006); Power Soak Sys., Inc. v. Emco Holdings, Inc., 482 F. Supp. 2d 1125, 1130 (W.D. Mo. 2007). The parties' cross-motions for summary judgment implicate five provisions of the SPA.

A. Section 3.12

Section 3.12, which required the Goldmans to provide HALO with information concerning Goldman's "material" contracts, provides in relevant part as follows:

Schedule 3.12 is a true, correct and complete list of all material Contracts to which the Company is party or by which any Asset is bound, including but not limited any such item that .

(b) is with one or more of the Company's customers and is (i) for an amount in excess of Fifty Thousand Dollars ($50,000) or (ii) relates to the sale of products with a gross margin to the Company of less than 20% . [and] Sellers have provided Buyer with true and correct copies of all Material Contracts, including all amendments, waivers, and other modifications thereof.

HALO fully complied with Section 3.12 with one exception: it did not list or provide Goldman's written contract with Express Scripts, which called for gross margins between 10% and 13.6% (less than the 20% threshold in Section 3.12) and which was projected to yield annual sales of about $1 million (greater than the $50,000 threshold in Section 3.12). Goldman and Express Scripts entered into the contract in early 2008. While HALO was aware of the Express Scripts relationship, only after the acquisition closed did it learn of the written contract and receive a copy thereof.

HALO submits that the Goldmans' failure to list or turn over the Express Scripts contract indisputably breached Section 3.12. The Goldmans concede that the contract should have been listed on Schedule 3.12 and provided to HALO. They nevertheless contend that summary judgment should be denied because the omission was inadvertent; because HALO had access to financial, sales, and inventory data that would shed light on Goldman's relationship with Express Scripts; and because HALO sustained no actual damages.

The Goldmans' contentions are incorrect. First, an inadvertent breach of Section 3.12 is still a breach; nothing in the provision, or in the SPA as a whole, excuses inadvertent failures to comply with its terms. Second, even if HALO had knowledge of the Goldman-Express Scripts relationship, Goldman still was contractually obligated to list and turn over the written contract, and its failure to do so was a breach. See Power Soak, 482 F. Supp. 2d at 1134 ("The key question is not whether the buyer believed in the truth of the warranted information . but whether it believed it was purchasing the seller's promise as to its truth") (internal quotation marks and citation omitted); Interco Inc. v. Randustrial Corp., 533 S.W.2d 257, 261 (Mo. App. 1976) ("All the buyers are required to establish is that the express warranties were made and that they were false, thereby establishing a breach of contract."); Vigortone AG Prods., Inc. v. PM AG Prods., Inc., 316 F.3d 641, 649 (7th Cir. 2002) ("The general rule . is that a party to a contract can enforce an express warranty even if he should believe or even does believe that the mishap warranted against will occur."). Third, while there is a genuine dispute as to whether the breach caused HALO to sustain actual damages, HALO seeks summary judgment only as to breach, not as to causation or damages, a choice Rule 56 permits. See Fed. R. Civ. P. 56(a) (permitting summary judgment on "part" of a claim); Fed. R. Civ. P. 56(g) (court may grant summary judgment "stating any material fact . that is not genuinely in dispute and treating the fact as established in the case"); Wright, Miller & Kane, Federal Practice and Procedure, § 2736, at 306 (1998) ("it [is] apparent that when there is a genuine issue as to damages but not as to the ultimate liability of the nonmoving party, an interlocutory summary judgment is appropriate") (citing cases); Int'l Paper Co. v. Androscoggin Energy LLC, 2005 WL 2429794, at *2 (N.D. Ill. Sept. 30, 2005).

Accordingly, HALO is entitled to summary judgment on the breach element of its claim that the Goldmans violated Section 3.12 with respect to the Express Scripts contract. The amount (if any) of actual damages will be resolved at trial, though it bears mention that HALO may prevail on its Section 3.12 claim even regardless of whether it proves actual damages. See Power Soak, 482 F. Supp. 2d at 1132 ("even if a party fails to prove actual damages, proof of the existence of a contract and its breach will give rise to nominal damages"); see also Dierkes v. Blue Cross & Blue Shield of Mo., 991 S.W.2d 662, 669 (Mo. 1999); Emerald Pointe, 202 S.W.3d at 664.

B. Section 3.27

Section 3.27(a) required the Goldmans to list Goldman's twenty largest customers for 2006, 2007, and 2008, and to identify any such customers that had cancelled or "otherwise terminated or materially and adversely" modified their relationship with ...

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