Kirsch v. Brightstar Corp., 12 C 6966

• Citation: 78 F.Supp.3d 676
• Decision Date: 13 January 2015
• Docket Number: No. 12 C 6966,12 C 6966
• Parties: Lawrence S. Kirsch, as Shareholders' Representative of Lawrence S. Kirsch, Charles W. Kriete, Michael J. Chase, and George Puszka, Plaintiff, v. Brightstar Corporation, Defendant.
• Court: U.S. District Court — Northern District of Illinois

78 F.Supp.3d 676

Lawrence S. Kirsch, as Shareholders' Representative of Lawrence S. Kirsch, Charles W. Kriete, Michael J. Chase, and George Puszka, Plaintiff

v.Brightstar Corporation, Defendant.

No. 12 C 6966

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

Signed January 13, 2015

Brianna L. Golan, Laura A. Balson, Margaret Anne Gisch, Matthew Charles Wasserman, Anita J. Pancholi, Ashley Lauren Orler, Golan & Christie, LLP, Chicago, IL, for Plaintiff.

Mark L. Durbin, Carolyn Wendel O'Connell, Megan M. Lazar, Barnes & Thornburg LLP, Elizabeth A. Peters, Peter N. Moore, Edwards Wildman Palmer LLP, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

Chief Judge Rubén Castillo

Plaintiff Lawrence S. Kirsch, as Shareholders' Representative of Lawrence S. Kirsch, Charles W. Kriete, Michael J. Chase, and George Puszka (collectively “Shareholders”), brings this diversity action against Brightstar Corporation (“Brightstar”) alleging common law breach of contract. (R. 1, Compl.) Presently before the Court are Brightstar's motion for partial summary judgment, (R. 117, Def.'s Mot. Summ. J.), and Plaintiff's cross-motion for summary judgment, (R. 124, Pl.'s Mot. Summ. J.). Additionally, Plaintiff moves to strike some of Brightstar's responses to Plaintiff's statement of facts. (R. 174, Pl.'s Mot. to Strike Resp.) For the reasons stated below, the Court grants in part and denies in part Brightstar's motion for partial summary judgment, and grants in part and denies in part Plaintiff's motion for summary judgment. The Court also denies as moot Plaintiff's motion to strike.

RELEVANT FACTS¹

Before summarizing the facts of this case, the Court first addresses Plaintiff's motion to strike several of Brightstar's responses to Plaintiff's Local Rule 56.1 statement of facts. (R. 174, Pl.'s Mot. to Strike Resp.) Local Rule 56.1 requires the non-movant's response to the movant's statement of facts to contain, “in the case of any disagreement, specific references to the affidavits, parts of the record, and other supporting materials relied upon [.]” L.R. 56.1(b)(3)(B). Plaintiff argues that more than half of Brightstar's responses to his statement of facts violate Local Rule 56.1(b)(3)(B) because they are argumentative, fail to cite to the record, or assert new facts. (R. 174, Pl.'s Mot. to Strike Resp.) The Court has carefully reviewed and considered Plaintiff's objections. To the extent that any of Brightstar's responses are argumentative, conclusory, or fail to cite the record, the Court disregards them. See Greene v. CCDN, L.L.C., 853 F.Supp.2d 739, 744 (N.D.Ill.2011). To the extent that any of Brightstar's responses contain new facts that do not specifically refute Plaintiff's fact statement to which they are responsive, the Court disregards the new facts. Id. Accordingly, Plaintiff's motion to strike is denied as moot.

I. Background

Shareholders are all individuals residing in Illinois or New Hampshire, and Brightstar is a Delaware corporation with its principal place of business in Florida. (R. 146, Def.'s Rule 56.1 Resp. ¶ 1.) Brightstar was founded in 1997 by Marcelo Claure, and is currently the world's largest wireless device distribution company. (R. 151, Pl.'s Rule 56.1 Resp. ¶ 2.) Brightstar's main business is to distribute wireless devices to the “telecom channel,” which means retailers, wireless carriers who maintain their own retail stores, and small dealers. (Id. )

Shareholders collectively owned all of the stock of OTBT, Inc. (“OTBT”).² ( Id. ¶ 3.) In 2010, OTBT was a small technology startup whose business was selling and activating cell phones, accessories, devices, and plans through U.S.-based information technology (“IT”) resellers. (Id. ¶ 4.) OTBT's target market was non-consumer resellers, that is, resellers whose primary customers were not retail, but rather institutional, such as businesses, governments, or health care facilities. (Id. ) On August 31, 2010, OTBT was purchased by Brightstar pursuant to a Stock Purchase Agreement (“SPA”). (Id. ¶ 3.) Plaintiff was the largest pre-acquisition shareholder and acts as representative of all Shareholders for purposes of this suit. (Id. ) Shareholder Charles Kriete was OTBT's president at the time of the acquisition and worked for OTBT while it was owned by Brightstar. (Id. )

Similar to Brightstar, Tech Data Corporation (“Tech Data”) focuses on distribution and logistics; however, unlike Brightstar, Tech Data's primary business is the sale and distribution of IT products (computers, servers, printers, etc.) to resellers and other companies operating in what is referred to as the “IT channel.” (Id. ¶ 7.) The IT channel consists of resellers that primarily service institutional end customers, not consumers. (Id. ) The IT channel includes value added resellers (“VARs”), which are resellers who sell IT products to customers that are typically businesses (small, medium, or enterprise), governments, or health care institutions. (Id. ¶ 8.) An “IT reseller” can also refer to a VAR. (Id. ) However, depending on the context, VAR can have a broader meaning as well, such as any technology reseller. (Id. )

The dispute in this suit involves Brightstar's alleged breaches of certain provisions of the SPA. The SPA dictates that Brightstar, as part of OTBT's purchase price, will pay Shareholders an amount (the “Earn–Out”) that is based upon OTBT's performance during a subsequent one-year period. The SPA outlines specific requirements for calculating the Earn–Out, and the parties disagree over whether Brighstar followed those requirements and properly calculated the Earn–Out.

II. Brightstar's Interest in OTBT

In late 2009, Patrick Stokes was hired by Brightstar to help grow the U.S. business, and one growth strategy he focused on was developing sales to enterprise customers. (R. 146, Def.'s Rule 56.1 Resp. ¶ 12.) Stokes helped launch Brightstar's enterprise group, which Brian Corey became president of in 2010; the role of the group was to assess the services Brightstar could provide to VARs whose primary end customers were businesses or governments. (Id. ¶¶ 13–14; R. 170, Pl.'s Resp. Add'l Facts ¶ 6.) At the same time, Brightstar was also investigating new lines of business altogether, particularly wireless activation services. (R. 151, Pl.'s Rule 56.1 Resp. ¶ 9.)

In January 2010, Brightstar and Shareholders began discussing a possible acquisition of OTBT. (Id. ¶ 10; R. 164, Def.'s Resp. Add'l Facts ¶ 6.) OTBT's greatest assets to Brightstar at that time were: (1) its software platform called CellManage; (2) its wireless carrier contracts (a.k.a. activation agreements) with three U.S. carriers, which allowed wireless plans to be activated by VARs and their customers via OTBT's software platform; and (3) its employees, particularly Shareholders Kriete and Michael Chase. (R. 151, Pl.'s Rule 56.1 Resp. ¶ 5; R. 164, Def.'s Resp. Add'l Facts ¶ 4.) Activation agreements were very challenging to obtain and were hugely valuable. (R. 151, Pl.'s Rule 56.1 Resp. ¶ 6.) None of OTBT's carrier contracts included territories outside of the United States. (Id. ) Additionally, OTBT had no reseller customers outside of the United States. (Id. )

According to Shareholder Kriete, Shareholders were at first reluctant to consider Brightstar as an acquirer because Brightstar's focus was seen as consumer- and retail-oriented, and Brightstar did not have access to the channel that OTBT required to scale the business. (Id. ¶ 10; R. 146, Def.'s Rule 56.1 Resp. ¶ 19.) Shareholder Kriete expressed these concerns to Stokes at an initial dinner meeting, and Stokes told Kriete about Brightstar's existing joint venture with Tech Data in Europe. (R. 146, Def.'s Rule 56.1 Resp. ¶¶ 19, 21.) Tech Data did business in the IT channel, like OTBT, and so the possibility of a joint venture between Brightstar and Tech Data, which would include the acquisition of OTBT, was discussed. (R. 151, Pl.'s Rule 56.1 Resp. ¶ 10.) Tech Data had access to the kinds of customers OTBT targeted, while Brightstar had access to a mobility product and a distribution infrastructure that Tech Data did not have; neither had a software platform or the carrier contracts necessary to sell activated mobile devices to enterprise customers in the IT channel in the United States. (Id. ¶ 11.) Shareholder Kriete believed a joint venture involving OTBT could potentially augment the existing relationship between Brightstar and Tech Data by providing access to business opportunities in the United States that Brightstar did not then have, namely selling to resellers in the IT channel. (Id. ¶ 13.) This led Shareholders to conclude that an acquisition deal that included a partnership between Brightstar and Tech Data might be a good fit. (Id. ¶ 11.)

III. SPA Negotiations and the Earn–OutProvision

In April 2010, Brightstar's attorneys drafted a letter of intent reflecting that Brightstar sought to purchase all of the outstanding capital stock of OTBT. (R. 146, Def.'s Rule 56.1 Resp. ¶ 25.) The final version of the letter of intent, dated June 10, 2010, stated that Brightstar would like to purchase OTBT for a total purchase price of $1 million plus debt obligations and payment of a performance-based Earn–Out. (R. 144, Sealed Def.'s Rule 56.1 Resp. ¶ 26.)

According to Corey, who led the negotiations for Brightstar, Shareholder Kriete and Plaintiff were concerned about how the performance-based Earn–Out would be calculated. (R. 151, Pl.'s Rule 56.1 Resp. ¶ 14.) Plaintiff testified in his deposition that one of his main concerns about the Earn–Out was that Brightstar might “play games” by routing sales that should have rightfully been OTBT's through its other subsidiaries and affiliates in order to avoid paying Shareholders their fair Earn–Out. (Id. ) Plaintiff wanted a provision in the SPA that would protect Shareholders from that possibility. (Id. ¶ 15.) Corey testified in his deposition that Brightstar was willing to provide assurances to Shareholders that revenue...