A/S APOTHEKERNES LABORATORIUM v. IMC CHEMICAL GROUP

• Decision Date: 26 January 1988
• Docket Number: No. 78 C 2872.,78 C 2872.
• Citation: 678 F. Supp. 193
• Parties: A/S APOTHEKERNES LABORATORIUM FOR SPECIALPRAEPARATER, Plaintiff, v. I.M.C. CHEMICAL GROUP, INC., and Dr. M. B. Gillis, Defendant.
• Court: U.S. District Court — Northern District of Illinois

678 F. Supp. 193

A/S APOTHEKERNES LABORATORIUM FOR SPECIALPRAEPARATER, Plaintiff, v. I.M.C. CHEMICAL GROUP, INC., and Dr. M. B. Gillis, Defendant.

No. 78 C 2872.

United States District Court, N.D. Illinois, E.D.

January 26, 1988.

Robert E. Shapiro, Michael P. Foradas, Kirkland & Ellis, Chicago, Ill., for plaintiff.

John J. Arado, Joan M. Fencik, Wildman Harrold Allen & Dixon, Chicago, Ill., for defendant.

MEMORANDUM AND ORDER

MORAN, District Judge.

This court granted summary judgment for defendants on certain counts, the Court of Appeals dismissed an interlocutory appeal, A/S Apothekernes Laboratorium for Specialpraeparater v. I.M.C. Chemical Group, Inc. and Dr. M.B. Gillis, 725 F.2d 1140 (7th Cir.1984), the matter proceeded to trial, this court made findings of fact upon the record and requested further legal argument, the parties responded, and there the matter has long sat. This court now supplements the findings of fact and enters judgment for the defendants.

Because the facts have in large part been thrice described (in this court's first opinion, the Court of Appeals opinion, and in this court's oral findings after trial), they need not be fully repeated here. Summarized, plaintiff (Apothekernes), through its president, E.W. Sissener (Sissener), entered into extended negotiations with the corporate defendant (IMC), of which the individual defendant (Gillis) was president and chief executive officer, for the purchase of various IMC assets. During the course of those negotiations the scope of the contemplated acquisition considerably narrowed and by December, 1977, the parties were talking about the purchase of some, but not all, of the Terre Haute plant facilities and business, with certain portions of the facility remaining with IMC. On December 9, 1977, the parties entered into a letter of intent "to set forth the terms upon which we ... intend to negotiate and consummate an Agreement of Sale...." That letter, signed by Sissener and Gillis for their companies, evidenced the considerable negotiations which had already taken place, but it also indicated a number of substantial areas requiring further negotiation. Any agreement was "subject to our concluding an Agreement of Sale which shall be acceptable to the Boards of Directors of our respective corporations, whose discretion shall in no way be limited." The parties anticipated agreement within 60 days.

Sissener and IMC (the IMC negotiator was often a Dr. McMillan) continued their negotiations of what was a complex transaction of considerable importance to Apothekernes and of far lesser importance to IMC. The evidence amply established that the negotiations were protracted and, from IMC's perspective, somewhat tedious; that they did proceed in good faith; that they extended well beyond 60 days (without considering the necessity of drawing up a definitive Agreement of Sale); that on February 24, 1977, Sissener and Gillis were still apart on three matters which were "deal breakers"; and that there was by that date no agreement and no obligation by IMC to continue the negotiations. On that date, however, Sissener conceded, in fact capitulated in the face of a perceived ultimatum, on those three matters. The real issue, and only real issue, in this lawsuit is whether or not IMC became obligated when the two negotiators had a meeting of the minds on all substantial terms on February 24, 1977.

That issue here has been somewhat clouded by subsequent procedures. IMC is a wholly owned subsidiary. Gillis did not take his agreement to his board of directors for approval. Instead, he met with Richard Lenon, president of the parent corporation, and George Kennedy, an IMC board member and the parent corporation executive vice-president. Gillis had earlier that day advised Sissener he would talk to Lenon. The discussion was relatively brief, Gillis did not act as an advocate for the deal, Lenon rejected the contemplated sale, and Gillis thereafter induced the IMC board of directors to reject the sale.

Plaintiff has sought to rely to some extent upon the nature of that rejection — it was relatively informal and it was based, without much more, on Lenon's rejection. The IMC board acted as a rubber stamp for Lenon's decision. A parent corporation cannot refuse to recognize the binding effect of a legal obligation entered into by a subsidiary because the parent itself did not acquiesce. It is not, however, improper for the board of a subsidiary to rely uncritically upon the business judgment of the parent corporation as to what is in the best interests of the enterprise so long as that judgment is one which the board could have legally made if it had critically reviewed all the circumstances. See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 769-74, 104 S.Ct. 2731, 2740-43, 81 L.Ed.2d 628 (1984). For our purposes, then, we consider that Lenon could reject the sale to the extent that the IMC board could reject the sale.

Could the IMC board reject the sale on February 27, 1977, or had the matter then progressed beyond the point of reversal? We believe that the IMC was not fully committed in the circumstances, although the articulated legal standards perhaps oversimplify the applicable law.

Illinois law controls. "Under Illinois law the question of whether a binding contract exists is determined by the intent of the parties.... In measuring intent, all relevant circumstances surrounding negotiations and execution of an interim agreement should be considered.... Moreover, the contemplation of the execution of a formal agreement in the future does not render prior agreements mere negotiations where the parties intend that the formal agreement will be substantially based upon the earlier agreement." Evans, Inc. v. Tiffany & Co., 416 F.Supp. 224, 238 (N.D.Ill. 1976). A determination of the "intent of the parties" is, however, dependent not upon their subjective beliefs but upon their objective manifestations of intention, Skycom Corp. v. Telstar Corp., 813 F.2d 810, 814-15 (7th Cir.1987) (applying Wisconsin law); Connecticut General Life Ins. Co. v. Chicago Title & Trust Co., 714 F.2d 48, 50 (7th Cir.1983) (applying Illinois law). In the twilight zone between preliminary agreement and final conclusion, courts have difficulty in ascribing a legal result on the basis of a presumed intent, as a contrast of Computer Systems of America, Inc. v. International Business Machines Corp., 795 F.2d 1086 (1st Cir.1986) with Reprosystem, B.V. v. SCM Corporation, 727 F.2d 257 (2d Cir.), cert. denied, 469 U.S. 828, 105 S.Ct. 110, 83 L.Ed.2d 54 (1984), makes evident. There is, perhaps, sometimes a tendency to rely on the legal talisman of "condition precedent" or sometimes to throw hands in the air and leave it to a trier of fact to decide. It is an odd form of factual determination — in a mix of circumstances have the parties proceeded so far down the road that one of the parties cannot unilaterally decide to end the journey. "Intent" is a conclusion flowing from a complex of facts, Robbins v. Lynch, 836 F.2d 330, 332 (7th Cir.1988), and legal precedent is a far from perfect guide to how we should reach that conclusion.

Many of the cases, at least in Illinois, arise in the following circumstances: parties enter into negotiations and, after some negotiations, they execute a letter of intent or a memorandum of understanding. They intend, ultimately, to enter into a written agreement, but before such an agreement is signed one party decides not to go forward. The other party sues, claiming that there already is a binding contract. The legal issue is framed as to whether or not the parties intended to be bound before a written agreement was executed or whether a written agreement was a condition precedent to the formation of a contract. The resolution of that issue is a factual determination, depending upon all the relevant circumstances.

Parties have power to contract as they please. If a seller insists upon retaining the right to contract with anyone else, should his self interest be thereby served, until a specified event, e.g., the execution of a formal agreement, the purchaser can hardly complain of a sale to another even though his transaction is on the brink of completion. See Arnold Palmer Golf Co. v. Fuqua Industries, Inc., 541 F.2d 584, 587 & n. 2 (6th Cir.1976). Parties are seldom, however, so explicit in preserving their freedom of action, and courts are often called upon to determine what mutual obligations may have arisen from far more ambiguous circumstances. And that determination often depends upon implicit obligations of good faith, although the cases do not customarily distinguish between such obligations implied as a matter of fact or implied in law.

The relevant circumstances include, according to one Illinois case, whether the contract is one usually put into writing, whether there are few or many details, whether the amount involved is large or small, whether the agreement requires a formal writing for a full expression of covenants and promises, and whether negotiations themselves indicate that a written draft is contemplated as the final conclusion of negotiations. Ceres Illinois, Inc. v. Illinois Scrap Processing, Inc., 130 Ill. App.3d 798, 803, 474 N.E.2d 1245, 1248, 86 Ill.Dec. 48, 51 (1st Dist.1984), aff'd, 114 Ill.2d 133, 500 N.E.2d 1, 102 Ill.Dec. 379 (1986). Those circumstances relate primarily to the nature and complexity of the transaction. We believe that the Illinois cases also give significant consideration to where in the negotiating process that process is abandoned, the reasons it is abandoned, the extent of the assurances previously given by the party which now disclaims any contract, and the other party's reliance upon the anticipated completed transaction.

The most significant Illinois case is Borg-Warner Corp. v. Anchor Coupling Co., 16 Ill.2d 234, 156 N.E.2d 513 (1958), where the Supreme Court reversed a dismissal. Th...