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Trovare Capital Group, LLC v. Simkins Industries, Inc.

United States Court of Appeals, Seventh Circuit

July 23, 2015

TROVARE CAPITAL GROUP, LLC, Plaintiff-Appellant,
SIMKINS INDUSTRIES, INC., et al., Defendants-Appellees

Argued September 15, 2014.

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 08 C 3133 -- Robert W. Gettleman, Judge.

For Trovare Capital Group, LLC, Plaintiff - Appellant: Ronald A. Stearney Jr., Attorney, Law Offices of Ronald A. Stearney, LLC, Chicago, IL.

For Simkins Industries, Incorporated, Harvard Folding Box Company, Incorporated, Linden-Summer Realty Company, Incorporated, South Union Company, Incorporated, Defendants - Appellees: Peter Nathan Kessler, Attorney, Kutak Rock Llp, Philadelphia, PA; Thomas W. Mulcahy, Attorney, Schuyler, Roche & Crisham, P.C., Chicago, IL.

Before FLAUM, KANNE, and SYKES, Circuit Judges.


Page 773

Kanne, Circuit Judge.

Trovare Capital Group, LLC (" Trovare" ) sought to purchase an affiliated group of family-owned companies (collectively " Appellees" ). The parties executed a Letter of Intent (" LOI" ) that previewed their negotiations toward the sale. The LOI included a provision requiring Appellees, if they terminated negotiations in writing before a certain date, to pay Trovare a breakup fee. Trovare alleged that Appellees intentionally scuttled the deal prior to the termination date, and then engaged in sham " negotiations" to avoid paying the breakup

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fee. After a bench trial, the district court concluded that Appellees had not terminated negotiations before the termination date, and that Trovare was therefore not entitled to the breakup fee. Trovare appeals that judgment. We affirm.

I. Background

This diversity case involves a failed business transaction between Appellees and Trovare. Appellees are an affiliated group of family-owned enterprises that manufacture and import cardboard boxes.[1] At the relevant times, Leon Simkins was the controlling shareholder of the businesses. Randy Cecola was Trovare's sole member.

After decades at the helm, Simkins began to look toward retirement. Because none of his children were interested in running the family business, Simkins sought a buyer for the companies. Appellees engaged Mesirow Financial, Inc. (" Mesirow" ) to act as broker, and through Mesirow, Trovare expressed interest in the purchase. After a lengthy negotiation, Trovare and Appellees executed the LOI on May 23, 2007. The LOI set forth the parties' intention to negotiate an asset purchase agreement (" APA" ) that would govern the sale. The parties then attempted to negotiate the APA over a period of months.

The majority of the LOI was explicitly nonbinding, but it did include several binding terms. At issue here, Paragraph 14, which was binding, provided that " [i]f ... the Seller provides to Buyer written notice that negotiations toward a definitive asset purchase agreement are terminated, then Seller shall pay Buyer a breakup fee of two hundred thousand dollars ($200,000)." In another, nonbinding provision, the LOI set a " termination date" of September 30, 2007, after which time neither party would be obligated to pursue the sale.

The parties engaged in protracted and contentious negotiations following the LOI's signing. On August 21, 2007, over a month before the September 30 termination date, Trovare sent Appellees a letter demanding payment of the $200,000 breakup fee. Trovare alleged that Appellees had internally decided that they no longer wished to pursue the sale, and therefore had terminated negotiations. All parties agree that Appellees never issued a written notice of termination--an event that concededly would have triggered the breakup fee provision of the LOI.

Instead, according to Trovare, in order to avoid becoming liable for the breakup fee, Appellees were at that time engaging in sham, pretextual " negotiations." In doing so, Trovare argued, Appellees were putting forward bad faith communications as a means of providing the appearance of good faith bargaining. Appellees, on the other hand, insisted that bona fide negotiations were ongoing, and they reiterated their desire to complete the sale. Following Trovare's demand letter, communications continued to pass between the two parties through November 2007. Ultimately, however, the deal was never consummated.

Trovare continued to demand the breakup fee, and Appellees continued to insist that no termination had occurred before the termination date (and thus that no breakup fee was owed). Trovare eventually filed suit in the Northern District of Illinois alleging breach of contract, seeking damages in the amount of the $200,000 breakup fee. The district court granted summary judgment for Appellees. We reversed and remanded the case for further proceedings. We concluded that genuine

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disputes of material fact existed as to two issues: (1) whether Appellees had in fact ended negotiations prior to the termination date; and (2) if so, whether Appellees in bad faith refused to issue a written notice of termination.

On remand, the district court held a bench trial in which it reviewed submissions and heard testimony from multiple witnesses. Much of the testimony concerned the history of communications between the parties. We will not recite the entire lengthy history of those communications; suffice it to say, the negotiations were contentious. We focus here on the areas of discussion that were central at trial and to the district court's decision.

A few topics, which we discuss below, were of particular importance: due diligence; " Phase II" environmental studies (" Phase IIs" ); and a " termination email" dictated by Simkins. We treat these in turn.

A. Due Diligence

Two nonbinding paragraphs of the LOI referenced the due diligence previewed by the parties. Paragraph 9 specified that:

Completion of this transaction would be subject to conditions precedent to Buyer's obligations to close as agreed to by the parties, including ... completion by Buyer and its advisors of a due diligence investigation satisfactory to it, in its sole discretion, of the Business' assets, prospects and other relevant information, including validation of relationships with key clients and approval by Buyer's Board.

Paragraph 10 provided that:

Seller will provide Buyer and its representatives reasonable access to the books, records, financial statements, properties, personnel, key suppliers, and key customers of the Business. Seller will provide blind customer order history, volumes and related information to Buyer. ... Buyer and Seller will coordinate and mutually agree upon the timing, scope and content of any customer interaction.

As negotiations proceeded, two types of due diligence became central to the parties' discussions. First, Trovare sought to conduct its own diligence. Appellees' Chief Financial Officer, Anthony Battaglia, testified that he provided Trovare with " historical financial records for the carton plants at Simkins Industries, balance sheets, P& Ls, sales by location ... blind customer lists [and] ... inventory listings." He characterized the information provided as " your standard information that you would use in the due diligence process." Battaglia also provided both unaudited and audited financial statements. In addition, Cecola visited all of the facilities that were ...

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