Am. Mortg. & Equity Consultants, Inc. v. Everett Fin.
| Decision Date | 28 February 2020 |
| Docket Number | File No. 20-cv-426 (ECT/KMM) |
| Parties | American Mortgage & Equity Consultants, Inc., Plaintiff, v. Everett Financial, Inc., d/b/a Supreme Lending, Defendant. |
| Court | U.S. District Court — District of Minnesota |
Ari Karen, Offit Kurman, Fulton, MD; Sarah A. Kleinman, Offit Kurman, Philadelphia, PA; Glen E. Schumann and John P. Boyle, Moss & Barnett, PA, Minneapolis, MN, for Plaintiff American Mortgage & Equity Consultants, Inc.
F. Matthew Ralph, Briana Al Taqatqa, and Michael A. Lindsay, Dorsey & Whitney LLP, Minneapolis, MN, for Defendant Everett Financial, Inc, d/b/a Supreme Lending.
In this breach-of-contract suit between competitors in the mortgage lending industry, Plaintiff American Mortgage & Equity Consultants ("AMEC") seeks a preliminary injunction forbidding Defendant Supreme Lending from recruiting AMEC employees. AMEC claims that Supreme Lending's recruiting activities violate a binding letter of intent executed as part of failed negotiations over Supreme Lending's possible acquisition of AMEC. AMEC's motion will be denied because the law and facts do not show at this preliminary stage that AMEC is likely to prevail on the merits or to suffer irreparable harm.
The Parties' negotiations began in June 2019. That month, AMEC's chief executive officer, Todd Ellestad, and Supreme Lending's president, Scott Everett, discussed Supreme Lending's acquisition of AMEC. See Everett Decl. ¶¶ 1-3 [ECF No. 34]. The two quickly agreed on basic terms of the acquisition, and Everett then asked Supreme Lending's chief operating officer and chief legal counsel, Jeff Joyce, to prepare the deal papers and negotiate remaining details. Id. ¶ 4; Joyce Decl. ¶ 3 [ECF No. 38].
Joyce and Ellestad began by negotiating a letter of intent pursuant to which AMEC and Supreme Lending would "agree[] to negotiate and enter into an Asset Purchase Agreement and related transaction agreements." Ellestad Decl. ¶ 4 [ECF No. 16]. On June 21, 2019, Joyce emailed a first draft of the letter of intent (or "LOI") to Ellestad. Joyce Decl., Ex. 4 [ECF No. 38-10]. Among other things, this first draft provided: "This LOI must be accepted and a signed copy returned to [Supreme Lending] . . . within ten (10) days of the date of this LOI[.]" Id. § 11. Ellestad did not sign and return the first draft, so on July 25, Joyce sent a second, updated draft to Ellestad. Joyce Decl., Ex. 5 [ECF No. 38-11]. Like the first draft, the second draft included a term requiring signed acceptance within 10 days. Id. § 11. That same day, Ellestad transmitted to Joyce by email a signed copy of the second draft that included a lengthy addendum with revisions. Joyce Decl., Ex. 6 [ECF No. 38-12]. Ellestad's proposed revisions effectively created a third draft of the letter of intent. Importantly, Ellestad's proposed revisions in this third draft included the addition of the following paragraph: Id. [ECF No. 38-12 at 8]. Joyce responded that he would review Ellestad's changes and get back to him. Joyce Decl., Ex. 7 [ECF No. 38-13]. On July 30, Joyce emailed a fourth draft letter of intent to Ellestad. Joyce Decl., Ex. 8 [ECF No. 38-14]. The fourth draft incorporated many of the changes Ellestad proposed in the third draft but did not fully incorporate Ellestad's non-solicitation, non-hiring clause. Joyce's fourth draft provided only that Supreme Lending would not solicit AMEC employees for 24 months; Joyce did not incorporate Ellestad's proposed no-hiring clause. Id. § 1.b.ii. Joyce "specifically rejected Ellestad's limitation on 'hiring' AMEC employees" because he knew employees from other companies "frequently initiated contact with Supreme Lending," and he did not want to forbid Supreme Lending from hiring AMEC employees who initiated contact. Joyce Decl. ¶ 17. On August 3, Ellestad responded by email to the fourth draft letter of intent, stating "[h]ere is the signed LOI." Joyce Decl., Ex. 9 [ECF No. 38-15]. But it wasn't that simple. The letter of intent attached to Ellestad's email was not signed and included a handwritten edit reinserting the no-hire provision in the non-solicitation paragraph. Id. at § 1.b.ii. Ellestad's handwritten edit thus created a fifth draft letter of intent. Notably, all five drafts of the letter of intent included this provision:
[E]xcept for the terms, provisions, and conditions of Paragraphs 6 (Confidentiality), 7 (Expenses and Fees), and 10 (Term and Termination) and this sentence, this LOI is not a binding agreement or contract and no binding legal agreement with respect to the subject matter of this LOI will arise until the execution by the parties of the Definitive Agreement.
Joyce Decl., Exs. 4-6, 8-9 at § 9. Each draft also required Ellestad to sign and return it to Supreme Lending. No further drafts of the letter of intent were exchanged or discussed.
In a letter dated January 17, 2020, Supreme Lending "withdr[ew] its offer to enter into an Asset Purchase Agreement with [AMEC] or to otherwise acquire the assets or to assume the liabilities of AMEC." Joyce Decl., Ex. 11 [ECF No. 38-17]. As an alternative to litigation over the failed negotiations, Supreme Lending offered AMEC a mutual release of claims "arising out of or relating to any conduct, event, occurrence, act, or failure to act by [Supreme Lending or AMEC] existing or occurring on or before January 17, 2020." Id.
AMEC and Supreme Lending have different explanations for why their relationship soured and why the acquisition ultimately never occurred. According to AMEC, during and after the Parties' letter of intent negotiations, Everett began disparaging Ellestad to AMEC employees. Harazin Decl. ¶ 4 [ECF No. 18]. AMEC says specifically that Everett told AMEC's president and chief operating officer, Jennifer Harazin, that she "could not trust Ellestad, [] that [she] was underpaid, manipulated, and misled," and that Everett "was going to fire Ellestad once the" acquisition was complete. Id. This disparagement assertedly led Harazin to resign from AMEC. Id. ¶ 5. After her resignation, Harazin received text messages from Everett soliciting her to join Supreme Lending. Id. ¶ 6-7. AMEC also says that, despite the Parties' agreement not to disclose the acquisition negotiations to AMEC employees, Supreme Lending did just that. Ellestad Decl. ¶¶ 10-12. According to AMEC, Supreme Lending's assertedly improper disclosure prompted a second AMEC employee to resign. Id. ¶ 13. And in his declaration, Ellestad testifies that a third AMEC employee, Joe Kolesar, reported learning from various Supreme recruitersthat AMEC was being sold. Id. ¶¶ 14-15. Ellestad says he "immediately" reached out to Everett, who confirmed that Supreme Lending's chief strategy officer had leaked information regarding the acquisition negotiations to one of Supreme Lending's recruiters. Id. ¶ 17. According to Supreme Lending, the acquisition did not occur because "as Supreme Lending began investing the resources necessary to perform due diligence and finalize the deal, AMEC began to fall behind the pace and, ultimately, to engage in acts of outright stalling." Everett Decl. ¶ 7. Essentially, Supreme Lending began to suspect that AMEC was stalling "in order to use Supreme Lending's offer as a stalking horse and to improve [its] negotiating position with other potential buyers." Id. ¶ 9. Supreme Lending eventually gave AMEC a deadline by which it had to sign the acquisition agreement. Id. ¶ 10. When AMEC did not meet that deadline, Supreme Lending withdrew its offer. Id.
This is the second-filed case arising from the Parties' failed negotiations. Supreme Lending filed the first suit against AMEC in the District Court of Dallas County, Texas, on January 24, 2020. ECF No. 29. In that case, Supreme Lending asserts claims of fraud, negligent misrepresentation, promissory estoppel, and exemplary damages, alleging essentially that AMEC had no genuine intention of entering into an acquisition agreement. Id. AMEC filed this case in Minnesota District Court, Hennepin County, three days later, on January 27, and Supreme Lending removed the case to this Court on January 31. ECF Nos. 1, 2. AMEC asserts a single breach-of-contract claim, alleging that the Parties agreed to a letter of intent "[o]n or about July 30, 2019," and that Supreme Lending has and continues to breach the letter of intent by soliciting AMEC employees using information Supreme Lending "received during due diligence." Id. at ¶¶ 7, 34.
AMEC characterizes its motion as one seeking a "temporary restraining order," Motion [ECF No. 13], but the motion does not comply with Federal Rule of Civil Procedure 65(b). Relevant here, Rule 65(b) provides:
Here, with respect to the requirements in subparagraph (b)(1)(A), neither AMEC's affidavits nor its complaint address the need for an ex parte hearing. Regarding subparagraph (b)(1)(B), AMEC's counsel filed no certification describing why noticeshould not be required. For these reasons, AMEC's motion has been adjudicated—and will be decided—as a motion for a preliminary injunction. See Buffalo Wild Wings Int'l, Inc. v. Grand Canyon Equity Partners, LLC, 829 F. Supp. 2d 836, 837-38 (D. Minn. 2011) (...
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