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Ironi v. Efi Global, Inc.

United States District Court, N.D. Illinois, Eastern Division

September 30, 2019

DROR IRONI, DENNIS IRONI, and DAN IRONI, Plaintiffs,
v.
EFI GLOBAL, INC. and, CL ACQUISITION HOLDINGS, LTD., Defendants.

          MEMORANDUM OPINION AND ORDER

          Honorable Edmond E. Chang United States District Judge

         Dror Ironi, Dennis Ironi, and Dan Ironi brought this action to rescind the 2015 sale of their environmental consulting business to EFI Global and CL Acquisition Holdings (EFI).[1] The Ironis base their claim for rescission on the theories of breach of contract, mutual mistake, equitable fraud, and unjust enrichment. R.1-1, Compl.[2]In response, EFI has moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), arguing that the Ironis' claims are invalidated by the express language contained in the Purchase Agreement and Subscription Agreement attached to the Complaint. R. 12, Def.'s Br. Because the Court agrees that the Ironis' claims are foreclosed by the plain language in these contracts, the motion for judgment on the pleadings is granted.

         I. Background

         For purposes of this motion, the Court accepts as true the factual allegations in the Complaint. Erickson v. Pardus, 551 U.S. 89, 94 (2007). In 2015, EFI Global (through its holding company CL Acquisition Holdings) acquired Andersen Environmental from brothers Dror, Dennis, and Dan Ironi. Compl. ¶¶ 16-17, 20. As consideration for the sale, the Ironis contracted to receive a $4.2 million cash payment, as well as 28, 000 shares of restricted preferred stock in CL Holdings. Id. ¶¶ 22-23. This dispute arose three years later, when those 28, 000 shares were redeemed at a much lower price than the per share valuation set out in the Andersen transaction documents. With the benefit of hindsight, the Ironis now argue that the original 2015 valuation was the product of either mistake or misrepresentation, and as a result, the entire transaction should be undone.

         A. The Purchase Agreement

         In connection with the Andersen acquisition, the parties executed a Stock Purchase and Contribution Agreement (call it the Purchase Agreement for short). Compl., Exh. A.[3] Section 2.02 of the Purchase Agreement set out an aggregate purchase price of $7, 000, 000, while Section 2.02(b) specifically addressed the preferred shares of CL Holdings. Id. Under Section 2.02(b), “[t]he parties hereto agree that any CLAH Shares issued pursuant to this Agreement shall be issued (i) at an agreed value per CLAH Share of $100.00 (the “Agreed CLAH Share Value”).” Id. (emphasis in original). Although “agreed value” is not an explicitly defined term, Section 8.06 of the Purchase Agreement suggests that the agreed value is distinguishable from any sort of actual or market value, because that later section makes reference to “an agreed value per CLAH Share of $100.00 (regardless of the actual value of the CLAH Shares at the time of such transfer).” Id.

         The Purchase Agreement also details the representations and warranties of both sides-Section 3 lists the representations and warranties of the Ironis, while Section 4 lays out the representations and warranties of EFI and CL Holdings. Compl., Exh. A. Finally, Section 10.06 of the Purchase Agreement also contains an integration clause, which says: “This Agreement and the other Transaction Documents constitute the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein and therein ... .” Id.

         B. The Subscription Agreement

         In addition to the Purchase Agreement, the parties also executed a Subscription Agreement to specifically govern the issuance of the 28, 000 restricted shares in CL Holdings. Compl., Exh. A. The Subscription Agreement is attached to the Purchase Agreement as its Exhibit A.[4] Id. Under Section 1 of the Subscription Agreement, the preferred stock was “issued … at a value of $100 per [share].” Id.

         Like the Purchase Agreement, the Subscription Agreement also contains a series of representations and warranties from both sides. Under Section 3, for instance, the Ironis (referred to as “Subscriber” in the agreement), make several representations and warranties. Some of the representations dealt with the Ironis' tolerance for the risk of investing in the preferred shares:

(c) Subscriber is in a financial position to hold the Preference Shares for an indefinite period of time and is able to bear the economic risk and withstand a complete loss of Subscriber's investment in the Preference Shares;
(e) Subscriber has obtained Subscriber's own personal professional advice with respect to the tax consequences of, and the risks inherent in, the investment in the Preference Shares, and the suitability of an investment in the Preference Shares in light of Subscriber's financial condition and investment needs;
(i) Subscriber realizes and acknowledges that (i) the acquisition of the Preference Shares is a long-term investment; (ii) Subscriber must bear the economic risk of investment in the Preference Shares for an indefinite period of time because the Preference Shares have not been registered under the Securities Act, or under the securities laws of any state or other jurisdiction and, therefore, none of such securities can be sold unless they are subsequently registered under said laws or exemptions from such registrations are available, and there can be no assurance that any such registration will be effected at any time in the future…(iv) the transferability of the Preference Shares is restricted…

Compl., Exh. A. Other representations described the Ironis' own financial background and their access to information about the preferred shares:

(d) Subscriber has such knowledge and experience in financial and business matters that Subscriber is capable of evaluating the merits and risks of the prospective investment in the Preference Shares;
(f) Subscriber believes that the investment in the Preference Shares is suitable for Subscriber based upon Subscriber's investment objectives and financial needs, and Subscriber has adequate means for providing for Subscriber's current financial needs and personal contingencies and has no need for liquidity of investment with respect to the Preference Shares;
(g) Subscriber has been given access to full and complete information regarding the Company and has utilized such access to Subscriber's satisfaction for the purpose of obtaining the information Subscriber believes to be ...

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