Garwood Packaging Inc. v. Allen & Company Inc., IP 98-1058-C-M/S (S.D. Ind. 12/26/2002), IP 98-1058-C-M/S.

CourtUnited States District Courts. 7th Circuit. United States District Court (Southern District of Indiana)
Writing for the CourtLarry J. Mckinney
PartiesGARWOOD PACKAGING, INC., TONY GARWOOD and PETER McNAMARA, Plaintiffs, v. ALLEN & COMPANY, INCORPORATED, ALLEN INVESTMENTS III, AHI INVESTMENTS III INC, ALLEN, HERBERT A JR, SENIOR, ENRIQUE, MARTIN, RAYMOND J, SIND, ROBERT DISMISSED 8/29/01, RECOVERY MANAGEMENT INC DISMISSED 8/29/01, SLOAN, HARRY EVANS, Defendants.
Decision Date26 December 2002
Docket NumberIP 98-1058-C-M/S.

Page 1

GARWOOD PACKAGING, INC., TONY GARWOOD and PETER McNAMARA, Plaintiffs,
v.
ALLEN & COMPANY, INCORPORATED, ALLEN INVESTMENTS III, AHI INVESTMENTS III INC, ALLEN, HERBERT A JR, SENIOR, ENRIQUE, MARTIN, RAYMOND J, SIND, ROBERT DISMISSED 8/29/01, RECOVERY MANAGEMENT INC DISMISSED 8/29/01, SLOAN, HARRY EVANS, Defendants.
IP 98-1058-C-M/S.
United States District Court, S.D. Indiana, Indianapolis Division.
December 26, 2002.

Paul Demarco Waite Schneider Bayless & Chesley, Vine Tower Cincinnati, OH.

Gary Lynn Hostetler Hostetler and Kowalik, Indianapolis, IN.

Matthew R Gutwein Baker & Daniels, Indianapolis, IN.

ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

LARRY J. MCKINNEY, District Judge.


This cause is now before the Court on motions for summary judgment filed by both the plaintiffs, Garwood Packaging, Inc. ("GPI"), Tony Garwood ("Garwood"), and Peter McNamara ("McNamara") (collectively, the "Plaintiffs") , and the defendants, Allen & Co., Inc. ("Allen & Co.") and Raymond J. Martin ("Martin") (collectively, the "Defendants"). Plaintiffs have brought claims of breach of an implied—in-fact contract, promissory estoppel and fraud against the Defendants. Both parties argue that summary judgment in their favor is appropriate because there are no genuine issues of material fact on any of the Plaintiffs' asserted claims.

The parties have fully briefed the issues and the motions are ripe for ruling. For the reasons stated herein, the Court DENIES the Plaintiffs' motion for summary judgment, but GRANTS the Defendants' motion for summary judgment.

I. FACTUAL BACKGROUND
A. THE PARTIES, THIRD PARTIES, & THEIR RELATIONSHIPS

Plaintiff, GPI, attempted to develop and market a food-packaging system that would increase the shelf life of fresh meats and other foods. Defs.' Stmt. of Facts, ¶ 1. Plaintiff, Garwood, was a co-founder, former director of product development and former director of GPI. Id. ¶ 2. Garwood started work on this food-processing system in the 1980s while he resided in Australia. Id. ¶ 3.

Around 1985, Garwood formed Garwood Ltd., a food-packaging business that used his system. Id. ¶ 4. Garwood Ltd. received several Australian government-sponsored economic development loans totaling approximately $20 million after receivership. Id. ¶ 5. Garwood Ltd. never made a profit; by 1988 the company was insolvent and forced into receivership. Id. ¶¶ 6-7. Consequently, a $20 million judgment was entered against Garwood personally because he was a guarantor of Garwood Ltd.'s loans. Id. ¶ 8. Garwood paid approximately $135,000.00 of this judgment. Id. ¶ 9.

Plaintiff, McNamara, was a co-founder, former director and former president and chief executive officer of GPI. Id. ¶ 10. He received a B.A. in economics from Monash University in Melbourne, Australia, and an M.B.A. from Melbourne University. Id. ¶ 11. After working several years as an executive for General Motors Corp., McNamara became an investment banker with Bank of America. Id. ¶ 12. He worked at Bank of America for eight years, becoming a vice president responsible for banking capital markets in Bank of America's main office in Sydney, Australia. Id. ¶ 13.

During his years as an investment banker, McNamara worked on at least twenty to thirty investment-banking deals. Id. ¶ 14. By 1989, McNamara testified that he considered himself a "sophisticated financial analyst." Id. ¶ 15 (quoting McNamara Dep., at 41, 436).

In 1989, while Garwood Ltd.'s receivership was winding down, Garwood and McNamara decided to form a successor business to Garwood Ltd. Id. ¶ 16. To that end, Garwood and McNamara created an offshore Netherlands corporation that they named Seawell. Id. ¶ 17. Then, Garwood and McNamara set up trusts to hold shares of Seawell. Id. ¶ 18. Garwood and McNamara created Seawell to purchase from the bankruptcy receiver the patents and intellectual property rights to Garwood Ltd.'s food-packaging system. Id. ¶ 19. By using Seawell to purchase the assets, Garwood and McNamara hoped to shield the assets from Garwood's and Garwood Ltd.'s creditors. Id. ¶ 20.

In late 1989, Garwood and McNamara moved from Australia to Indiana; in 1990, they formed GPI. Id. ¶ 22. Upon forming GPI, both Garwood and McNamara transferred their GPI stock into offshore trusts. Id. ¶ 23. Then, GPI signed a licensing agreement with Seawell to market the food-packaging system. Id. ¶ 24. GPI called the product the "Stretch Flavaloc" system. Id. ¶ 25.

In 1992, Seawell became insolvent and Garwood and McNamara were forced to sell all of their interest in that entity. Id. ¶ 27. McNamara testified that the two men "had to sell out for a cheap price." Id. ¶ 28 (citing McNamara Dep. at 57).

Late in 1992, McNamara approached Allen & Co. about the prospect of investing in GPI. Id. ¶ 29. Sam Baker ("Baker"), an investment banker with Allen Value Partners (an investment fund affiliated with Allen & Co.) traveled to Indiana to conduct due diligence and evaluate the attractiveness of GPI as an investment opportunity. Id. ¶ 30. Baker concluded that GPI bordered on bankruptcy. Id. ¶ 31. Baker's understanding at that time was that no other entities were considering investing in GPI. Id. ¶ 32. In addition, Baker believed that GPI was desperate and that McNamara appeared "stressed out." Id. ¶ 33 (quoting Baker Dep. at 28-29). At that time, Allen & Co. declined to invest in GPI. Id. ¶ 34.

In 1992, GPI had expenses of approximately $1.5 million and revenue of less than $50,000; thus, GPI lost over $1 million that year. Id. ¶ 35. By January 1993, GPI had never earned a profit and had exhausted all of its funds. Id. ¶ 36. To allow GPI to stay in business, all of GPI's shareholders agreed in March 1993 to loan GPI $360,000.00. Id. ¶ 37.

Also in March 1993, GPI engaged Allen & Co., a New York investment bank, to provide investment-banking services and to serve as an exclusive private-placement agent. Id. ¶ 38. Allen & Co. agreed, on a "best efforts" basis, to attempt to locate investors willing to put capital into GPI and to assist GPI in restructuring its millions of dollars in debt. Id. ¶ 39. GPI engaged Allen & Co. under a contingency-fee arrangement; Allen & Co. would receive a fee only if it was successful in raising capital for GPI during the term of the agreement, which was March 1993 to July 31, 1993, or such later date as agreed by GPI and Allen & Co. Id. ¶ 40; Martin Aff. Exh. A, Letter, To Garwood Packaging, Inc., From Raymond J. Martin, Vice President, Allen & Co., Mar. 4, 1993 ("Engagement Letter"). Between March and September 1993 defendant, Martin, a vice president at Allen & Co., contacted dozens of prospective investors around the world, including venture capital organizations, major corporations, banks and individuals. Defs.' Stmt. of Facts, ¶ 41. None of those businesses contacted agreed to invest on terms acceptable to GPI. Id. ¶ 42.

Apparently, Allen & Co. viewed its arrangement with GPI as an exclusive one. Martin Dep. at 338. In other words, Allen & Co. told GPI that if it dealt with another placement agent, Allen & Co. would not work for GPI. Id. McNamara affirms that Martin also told GPI, in September 1993, that it could not deal with any investors not approved or introduced by Allen & Co. Garwood Aff. ¶ 3. Apparently, Martin became irate upon learning that an Indianapolis venture capital firm named CID had made a definite proposal to GPI for a deal in which both CID and Allen & Co. would invest in GPI, both would own equal shares of GPI, and the deal would close quickly. Pls.' Stmt. of Add'l Facts, ¶ 66. CID would invest at least $1.5 million in GPI. Id. But, Allen & Co. would not receive a commission. Id.

On July 2, 1993, McNamara extended another personal loan to GPI. Id. ¶ 43. Further, on or about August 31, 1993, GPI agreed to amend its so-called "take-or-pay" contract with a company called Indiana Packers to eliminate any obligation for Indiana Packers to make guaranteed minimum payments to GPI. Id. ¶ 44. It is unclear why this amendment took place. Id. ¶ 45 (and responses thereto).

By August 1993, Martin had told GPI that Allen & Co. would consider investing in GPI and would seek to locate other prospective investors if an agreement could be reached with a suitable strategic partner that would invest similar amounts of capital. Id. ¶ 46 (and responses thereto). McNamara took issue with Allen & Co.'s requirement that a strategic partner get involved; he went to New York to discuss this issue with Enrique Senior ("Senior"), Allen & Co. Managing Director. McNamara Dep. at 179-80. Specifically, McNamara felt that requirement would

complicate the deal. It was clear that when you get a strategic partner involved like [sic] it turned out to be Hobart [sic] that it would really slow the deal down. In other words, the closing. It would take longer to close. Perhaps another four or five months because you have, first, well, it could be longer.

You have to find such a party. Then selling [sic] them on the idea. Then you have to negotiate all the terms and conditions. . . . I knew we were going to run out of money. I explained that to him.

He said he, [sic] that didn't matter. That Allen [& Co.] would not move forward, would not do the deal unless we had such strategic partner [sic] which had to be approved by Allen [& Co.] and him.

Id. at 179-80.

Garwood testified that a strategic partner "was a requirement." Defs.' Stmt. of Facts, ¶ 50 (quoting Garwood Dep. at 95).

GPI identified Hobart Corporation ("Hobart") as a potential strategic partner. Id. ¶ 51. By September 1993, GPI and Allen & Co. were negotiating with Hobart over the terms of a proposed transaction. Id. ¶ 52 (and responses thereto). On October 25, 1993, Richard Gleitsmann ("Gleitsmann"), of Hobart, wrote the following to GPI: "It is understood that this transaction is subject to the negotiation and execution of mutually agreeable definitive agreements with the approval of Hobart's parent company,...

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