Kirsch v. Brightstar Corp.

• Decision Date: 04 September 2013
• Docket Number: No. 12 C 6966.,12 C 6966.
• Citation: 968 F.Supp.2d 931
• 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

968 F.Supp.2d 931

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.

Sept. 4, 2013.

Margaret Anne Gisch, Ashley Lauren Orler, Matthew Charles Wasserman, Golan & Christie LLP, Chicago, IL, for Plaintiffs.

Mark L. Durbin, Barnes & Thornburg LLP, Elizabeth A. Peters, Edwards Wildman Palmer LLP, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

RUBEN CASTILLO, Chief Judge.

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. Presently before the Court are Brightstar's motion to dismiss Kirsch's complaint for failure to state a claim upon which relief may be granted pursuant to Federal Rule of Civil Procedure 12(b)(6) and Shareholders' motion for leave to file a supplemental complaint. For the reasons set forth below, Brightstar's motion is denied and Shareholders' motion is granted.

RELEVANT FACTS

Shareholders are all individuals residing in Lake County, Illinois, and Brightstar is a Delaware corporation with its principal place of business in Florida. (R. 1, Compl. ¶¶ 10–14.) Shareholders collectively owned all of the stock of OTBT, Inc. (the “Company”), a distributor of handsets, information technology devices and accessories, and ancillary services.¹ ( Id. ¶¶ 17–18.) On August 31, 2010, Brightstar purchased all of the Company stock from Shareholders. ( Id. ¶ 19.) The details of the purchase were laid out in a Stock Purchase Agreement (the “Agreement”) and two amendments thereto, which Shareholders attached to the complaint. ( Id.; R. 1, Ex. 1, Agreement; R. 1, Ex. 2, First Am. Agreement; R. 1, Ex. 3, Second Am. Agreement.) ² The price was set at $1 million plus debt obligations and payment of an additional performance-based amount (the “Earn–Out”). (R. 1, Compl. ¶¶ 2, 20.) The dispute in this suit revolves primarily around the calculation of the Earn–Out and arises out of a disagreement over the meaning of the language in Section 2.1(c)(i) of the Agreement, which provides:

The Earn–Out shall be linked to tiered milestones of the Company's GAAP-reported revenue (“Revenues”) and EBITDA derived from any and all sales including, but not limited to, all handsets, information technology devices (including laptops, tablets, netbooks, etc.), accessories, activation commission, airtime, and other ancillary service revenue derived through the following channels: Tech Data channel partners, additional IT product distributor relationships such as Ingram Micro or Synnex, and current and future direct Company and/or [Brightstar] IT reseller channel partners (including wireless carrier partners that utilize the Company for back office support, such as billing on behalf of or activation services) with primary end customers in the commercial (small-medium-large business or enterprise), health care, and government (state, local, education, and federal) markets, for the twelve (12) month period commencing on April 1, 2011 and ending on March 31, 2012 (the “Earn–Out Period”) as shown on the Company's financial statements as adjusted pursuant to Section 2.1(c)(ii) below. [Brightstar] represents and warrants that, except as set forth in Section 2.1(c)(ii) below, prior to March 31, 2012, neither [Brightstar] nor any of its Affiliates (except Company) will directly or indirectly sell any products or services which would generate Revenue.

(R. 1, Compl. ¶ 21; R. 1, Ex. 1, Agreement § 2.1(c)(i).)

The Agreement also requires Brightstar to “prepare the Applicable Financials in good faith and deliver them” to Kirsch, the Shareholders' Representative, by June 30, 2012, (R. 1, Ex. 1, Agreement § 2.1(c)(iv)(z)), and defines the “Applicable Financials” as the Company's financial statements for the Earn–Out Period as adjusted in accordance with the Agreement, (R. 1, Ex. 1, Agreement § 2.1(c)(iv)(x)). Further, the Agreement requires Shareholders to notify Brightstar regarding any disagreement with Brightstar's calculation of the Revenues and the EBITDA for the Earn–Out Period within 45 days of receipt of the Applicable Financials. (R. 1, Ex. 1, Agreement § 2.1(c)(v).) On June 28, 2012, Brightstar sent a letter (the “Earn–Out Letter”) to Kirsch, enclosing financial information and concluding that the Earn–Out should be a nominal amount. (R. 1, Compl. ¶ 30; R. 1, Ex. 4, Earn–Out Letter.) Shareholders assert that the single document attached to the Earn–Out Letter does not provide them with sufficient information to calculate the Earn–Out. (R. 1, Compl. ¶ 31.) Shareholders allege that between June 28, 2012, and August 1, 2012, Kirsch repeatedly requested additional financial information from Brightstar. ( Id. ¶ 32.) While Brightstar provided additional documents, Shareholders allege that it did not provide “adequate and complete Applicable Financials as required by the [Agreement].” ( Id.) Shareholders allege that Brightstar incorrectly calculated the Earn Out because, inter alia, it failed to account for all Revenue and appears to have intentionally diverted some Revenue to an affiliate of Brightstar. ( Id. ¶ 36.)

Shareholders specifically allege that Brightstar breached the Agreement by “selling products and services, which would generate Revenue, through entities other than [the Company],” despite the provision in Section 2.1(c)(1) requiring Brightstar to route all sales that would generate Revenue through the Company. ( Id. ¶ 38.) Based on “publicly-available government filings” not included with the complaint, the Shareholders have determined that they are entitled to the maximum Earn–Out payment under the Agreement, not the nominal amount Brightstar informed them they were entitled to in the Earn–Out Letter. ( Id. ¶ 39.) They thus allege damages in excess of $75,000.³ ( Id. ¶ 41.)

PROCEDURAL HISTORY

Shareholders filed their one-count complaint on August 30, 2012. (R. 1, Compl.) In it, they allege that Brightstar breached the Agreement by failing to route all sales of the agreed upon products and services through the Company, instead selling them through other affiliated entities. ( Id. ¶¶ 9, 38.) On December 12, 2012, Brightstar filed the instant motion to dismiss the complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). (R. 11, Def.'s Mot.) Brightstar argues that nothing in the Agreement requires Brightstar to reroute sales of the agreed upon products and services from any affiliated entities through the Company, and therefore Shareholders' allegation that Brightstar is in breach conflicts with the plain language of the Agreement. (R. 12, Def.'s Mem. at 5–6.) Brightstar argues that Shareholders ask the Court to treat the language in Section 2.1(c)(i) of the Agreement as a “global non-compete [clause] that barred Brightstar from conducting its multi-billion dollar business unless Brightstar re-routed it through the newly acquired [Company].” ( Id. at 6.) Brightstar argues that Shareholders have failed to sufficiently plead the elements of an enforceable restrictive covenant. ( Id. at 7–9.) Brightstar additionally argues that Shareholders' allegations are too conclusory to state a claim because they do not allege with sufficient specificity, inter alia, what products and services they believe were improperly sold through what entities other than the Company or the basis for that belief. ( Id. at 2.)

On February 1, 2013, Shareholders responded to Brightstar's motion. (R. 15, Pl.'s Resp.) They argue that Brightstar's characterization of the complaint as asking the Court to impose a global non-compete clause on the Agreement is “erroneous” and “intentionally misleading.” ( Id. at 1.) Shareholders argue that they are not seeking to enforce a fictional non-compete clause and instead have alleged a simple breach of Section 2.1(c)(1) of the Agreement. ( Id. at 3–5.) They also challenge Brightstar's reading of Section 2.1(c)(1) as rendering much of that Section “superfluous” and relying on extrinsic evidence to undermine its plain meaning. ( Id. at 7–14.) Shareholders argue that, at best, Brightstar contends that the Agreement contains a latent ambiguity thereby precluding dismissal at this stage of the litigation. ( Id. at 14.) Brightstar filed its reply in support of its motion to dismiss on February 25, 2013. (R. 16, Def.'s Reply.) On July 12, 2013, Shareholders moved for leave to file a supplemental complaint. (R. 18, Pl.'s Mot. Leave.)

LEGAL STANDARD

A motion under Rule 12(b)(6) “challenges the sufficiency of the complaint to state a claim upon which relief may be granted.” Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir.2009). When reviewing a Rule 12(b)(6) motion to dismiss, the Court construes the complaint in the light most favorable to the nonmoving party, accepts all well-pleaded factual allegations as true, and draws all reasonable inferences in the non-movant's favor. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir.2008). Pursuant to Rule 8(a)(2), a complaint must contain “a ‘short and plain statement of the claim showing that the pleader is entitled to relief,’ sufficient to provide the defendant with ‘fair notice’ of the claim and its basis.” Id. (quoting Fed.R.Civ.P. 8(a)(2) and Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). “Detailed factual allegations” are not required, but the complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955)....