EdgePoint Capital Holdings, LLC v. Apothecare Pharmacy, LLC

• Decision Date: 07 August 2020
• Docket Number: Civil Action No. 19-10522-NMG
• Citation: 478 F.Supp.3d 75
• Parties: EDGEPOINT CAPITAL HOLDINGS, LLC, Plaintiff, v. APOTHECARE PHARMACY, LLC, Defendant.
• Court: U.S. District Court — District of Massachusetts

478 F.Supp.3d 75

EDGEPOINT CAPITAL HOLDINGS, LLC, Plaintiff,

v.APOTHECARE PHARMACY, LLC, Defendant.

Civil Action No. 19-10522-NMG

United States District Court, D. Massachusetts.

Signed August 7, 2020

Kevin T. Peters, Michael Brier, Gesmer Updegrove LLP, Boston, MA, R. Christopher Yingling, Matthew T. Fitzsimmons, Nicola, Gudbranson & Cooper, Cleveland, OH, for Plaintiff.

Andrew R. Dennington, Julie M. Muller, Conn, Kavanaugh, Rosenthal, Peisch & Ford, LLP, Boston, MA, Annamarie E. Braga, Mark Robinson Jacobs, Matasar Jacobs, Cleveland, OH, for Defendants.

MEMORANDUM & ORDER

GORTON, J.

This case arises out of a contract dispute between plaintiff EdgePoint Capital Holdings, LLC ("EPCH" or "plaintiff") and defendant Apothecare Pharmacy, LLC ("Apothecare" or "defendant"). Pending before the Court are the cross motions of the parties for summary judgment on plaintiff's claims and the motion of EPCH for summary judgment on Apothecare's defense of fraudulent inducement.

I. Background

A. The Parties

EPCH is a financial services firm located in Beachwood, Ohio that performs investment banking advisory services. EPCH is affiliated with EdgePoint Capital Advisors, LLC ("EdgePoint Advisors", collectively with EPCH, "EdgePoint") which also performs investment banking advisory services but, unlike EPCH, is a registered broker dealer in Massachusetts. EPCH and EdgePoint Advisors are separate legal entities but they are owned by the same person, operate out of the same office and employ many of the same individuals.

Defendant Apothecare is a long-term care pharmacy located in Brockton, Massachusetts. It specializes in providing medications to group home patients, hospice patients, assisted living patients and certain community-based entities that require specialized pharmaceutical packaging. Rudy Dajie ("Dajie") acquired Apothecare in 2012 and served as its Chief Executive Officer until November, 2019.

B. Negotiation

Dajie, who was contemplating a sale of his company, was introduced to EdgePoint by his financial advisor, in December, 2015. At that time, Daniel Weinmann ("Weinmann"), managing director at EPCH, provided an initial "pitch" to Dajie regarding EdgePoint's services which included the brokering of the sales of businesses. He noted that "EdgePoint" was a registered broker dealer. The next day, Weinmann emailed to Dajie a draft engagement agreement which identified EdgePoint Advisors as a contracting entity. Following some discussion, Weinmann sent Dajie a revised agreement on behalf of EdgePoint Advisors.

In June, 2016, Dajie enlisted the assistance of his financial advisor to further negotiate with EdgePoint. Shortly thereafter, Weinmann sent Dajie an updated draft containing several changes, including most notably a change in the contracting entity from EdgePoint Advisors to EPCH.

C. The Agreement

Represented by counsel, Dajie executed the final agreement with EPCH on September 5, 2016, ("the Sell-Side Agreement" or "the Agreement"). The Sell-Side Agreement provides that EPCH would assist Apothecare

in the sale of all or part of [Apothecare] or its assets ... or assist[ ] in the formation of a joint venture.

The Agreement further provides that Apothecare shall pay EPCH a "Success Fee" "[i]n the amount of a percentage ... of the transaction value ... or $350,0000, whichever is greater." Under the terms of the Agreement, Apothecare is

obligated to pay EdgePoint a [Success Fee] in the event of the sale of the company(ies), joint venture creation or similar transaction during the term of this Agreement or within 18 months of the date of the termination of this contract for: (i) any Transaction with a company or individual identified or contacted by Seller or EdgePoint during the term of this agreement (a "Transactional Partner") [that] is consummated by Seller ....

("the Fee Tail Provision"). Dajie asked Weinmann to strike the Fee Tail Provision but Weinmann refused.

Apothecare further agreed to

indemnify and hold EdgePoint, its principals, officers and employees harmless against all claims, losses damages, liabilities, judgments, costs and expenses (including attorneys fees) arising out of or related to EdgePoint's engagement ....

("the Indemnification Provision").

D. Performance of the Agreement

In October, 2016, Weinmann and his EdgePoint colleague, Matthew Lazowski ("Lazowski"), compiled a "Potential Buyers List" of approximately 400 companies that had expressed interest in transactional opportunities in the healthcare services industry. Among the companies listed were Clearview Capital LLC ("Clearview") and Starboard Capital Partners, LLC ("Starboard").

EPCH contends that, prior to sending the Potential Buyers List to Apothecare, Lazowski spoke with an acquaintance at Clearview named Matthew Blevins ("Blevins"). Lazowski asked Blevins if Clearview might be interested in purchasing a company with characteristics similar to Apothecare but did not mention Apothecare by name. Apothecare responds that Lazowski's explanation of this alleged encounter is ambiguous and unsupported.

While preparing the Potential Buyers List, Weinmann and Lazowski simultaneously drafted a confidential information memorandum ("CIM") to distribute to potential buyers. Completion of the CIM required Apothecare to supply certain financial information.

In October, 2016, EPCH transmitted a draft CIM to Dajie that questioned the accuracy of Apothecare's financial statements. Specifically, Apothecare's accounts receivable and revenue from durable medical equipment were purportedly understated.

In November, 2016, Weinmann sent Dajie a revised CIM ("the Client Approved CIM") featuring the same inaccurate financial information but with a note indicating that EPCH was working with Apothecare's CPA to correct the discrepancy.

Weinmann informed Dajie that distributing the Client Approved CIM with the stated inaccuracies would be a "deal killer". Dajie agreed and insisted on withholding the Client Approved CIM until the financial inaccuracies were remedied.

Apothecare was unable to correct the accounting problem and, consequently EPCH was never authorized to transmit the Client Approved CIM to any potential buyers.

E. EdgePoint's Assignment Procedure

Upon engaging a client, it is EdgePoint's practice to assign the contract to either EPCH or EdgePoint Advisors depending on the likelihood that the engagement will entail a securities transaction. If the contract is likely to involve securities, it will be assigned to EdgePoint Advisors, a registered broker dealer, otherwise it will be assigned to EPCH. This procedure was never explained to Dajie or anyone else at Apothecare.

F. Termination of the Agreement

Apothecare sent EPCH a notice of its intent to terminate the Sell-Side Agreement on August 21, 2017, ("the Termination Letter"). The Termination Letter, drafted by Apothecare's attorney Samuel Lauricia ("Attorney Lauricia"), provides "notice of termination of the Agreement" and states with respect to the Fee Tail Provision that

Transactional Partner [a term used in the Agreement] is defined as a company or individual identified or contacted by [Apothecare] or EdgePoint during the term of th[e] Agreement. As no "Transactional Partner" was identified or contacted by [Apothecare] or EdgePoint prior to the date of [the Termination Letter], the 18-month survival period is, for all intents and purposes, moot and without effect....

Notwithstanding the preceding, and in any event, at this time, Mr. Dajie is not interested in selling Apothecare as originally contemplated back when the Agreement was entered into in September of 2016. If in the future Mr. Dajie reconsiders the desire to sell Apothecare, he may, but is not obligated to, re-engage EdgePoint if it so desires to be re-engaged.

EPCH did not respond to or contest the substance of the Termination Letter, other than to the extent it does so in this lawsuit.

G. Apothecare/Clearview/Starboard Transaction

On October 3, 2017, Dajie authorized Attorney Lauricia to solicit potential buyers for Apothecare. Shortly thereafter, Dajie's financial advisor emailed Dajie a copy of EPCH's Potential Buyers List and Client Approved CIM for "review and discussion".

On November 30, 2017, Peter Smith ("Smith"), a Managing Director of Starboard, had lunch with Christopher Graham ("Graham"), Dajie's estate planning attorney to discuss an investment opportunity unrelated to Apothecare. During that lunch, Smith informed Graham that Starboard was interested in investing in companies in the healthcare and pharmacy industries. Graham mentioned Apothecare to Smith, who testified that was the first time he had heard of Apothecare.

The next day, on December 1, 2017, Smith received a non-disclosure agreement ("NDA") regarding Apothecare from Graham. Smith executed the NDA and emailed it to Attorney Lauricia. Smith spoke with Dajie for the first time on December 6, 2017. Thereafter, Smith contacted William Case ("Case") from Clearview about Apothecare. Case testified that was the first time he had been informed about Apothecare. Case further testified that he was unaware of anyone at EdgePoint contacting anyone at Clearview regarding Apothecare.

On December 22, 2017, Starboard and Apothecare executed a non-binding Letter of Intent regarding an equity acquisition of Apothecare. In January, 2018, Starboard and Clearview executed a co-sponsorship agreement regarding the acquisition.

In July, 2018, Apothecare closed on a recapitalization transaction that resulted in an equity sale to Clearview and Starboard ("the Transaction"). Dajie acquired a 30% equity interest in Apothecare Pharmacy Holdings, LLC, an entity formed during the Transaction and received approximately $30 million in cash. Clearview acquired a 64.5% interest and Starboard acquired a 5.5% interest in what was originally Apothecare.

Dajie continued as CEO of Apothecare until November, 2019, when he was involuntarily terminated for cause. Apothecare's current Board of Directors consists exclusively of individuals...