Sonoran Scanners, Inc. v. Perkinelmer, Inc., Civil Action No. 06-12090-RCL.
| Decision Date | 22 December 2008 |
| Docket Number | Civil Action No. 06-12090-RCL. |
| Parties | SONORAN SCANNERS, INC. and Joseph P. Donahue, Plaintiffs v. PERKINELMER, INC., Defendant. |
| Court | U.S. District Court — District of Massachusetts |
Edward T. Dangel, III, Dangel, Donlan and Fine, Michael K. Mattchen, Dangel & Mattchen, LLP, Boston, MA, for Plaintiffs.
Jonathan I. Handler, Jillian B. Hirsch, Erica Tennyson, Day Pitney LLP, Boston, MA, for Defendant.
Co-plaintiffs Sonoran Scanners, Inc. and Joseph P. Donahue ("Sonoran" and "Donahue" respectively and "Plaintiffs" collectively) sued defendant PerkinElmer, Inc. ("PerkinElmer") on November 26, 2006 for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of Massachusetts General Laws Chapter 93A. In May 2001, PerkinElmer purchased Sonoran, an unproven but promising start up company founded by Donahue in 1997, that developed and marketed high speed computer-to-plate ("CTP") printing technology to the newspaper industry. Pursuant to the terms of the agreements between the Plaintiffs and PerkinElmer, PerkinElmer received all of Sonoran's intellectual and physical property, and the Plaintiffs, based on their belief that the CTP Business1 would succeed and due to their relatively weak bargaining position, agreed to accept deferred, speculative compensation in the form of "earnout" payments. The earnouts would be triggered only if the CTP Business met various sales thresholds during the first five years after the purchase.
Unfortunately for the Plaintiffs, the CTP Business was a spectacular failure under PerkinElmer's control. In the nearly three and a half years before PerkinElmer ultimately decided to shutter the CTP Business, PerkinElmer sold a total of one CTP unit. The single sale did not satisfy any of the earnout provisions, and consequently the Plaintiffs received no payment in any form from their the sale of Sonoran. The Plaintiffs allege that PerkinElmer's bad faith management of the CTP Business resulted in its poor performance and prevented the Plaintiffs from receiving benefits from earnout provisions.
PerkinElmer moved for summary judgment on all counts, averring that the Plaintiffs have not produced sufficient evidence to support a finding that PerkinElmer (1) violated any express or implied provisions of the contractual agreements, (2) acted in bad faith in order to deprive the Plaintiffs of earnouts payments under the agreements, or (3) engaged in any unfair business practices punishable under Massachusetts General Laws Chapter 93A. For the reasons set forth below, the Court GRANTS PerkinElmer's motion for summary judgment on all three counts.
On November 20, 2006, the Plaintiffs filed a complaint in this Court against PerkinElmer. Docket ("Doc.") No. 1. The complaint alleged three counts: (1) breach of contract (brought by both Plaintiffs), (2) breach of the implied covenant of good faith and fair dealing (by both Plaintiffs), and (3) violation of Massachusetts General Law Chapter 93A section 11 (by Sonoran only). Id. PerkinElmer filed its Answer on February 20, 2007. Doc. No. 7.
PerkinElmer filed its motion for summary judgment ( ) currently before the Court on July 7, 2008, attaching numerous exhibits. Doc. No. 27-30. the Plaintiffs filed their Opposition ( ) to PerkinElmer's Motion on August 7, 2008, also attaching numerous exhibits. Doc. No. 32-35.
Pursuant to the summary judgment standard, the facts below are depicted in the light most favorable to the non-movants, the Plaintiffs Donahue and Sonoran.
This litigation arises out of the sale of co-plaintiff Sonoran, a start-up company incorporated and headquartered in Tucson, Arizona, to PerkinElmer, a Massachusetts corporation headquartered in Wellesley, Massachusetts. Defendant PerkinElmer, Inc.'s Statement of Undisputed Material Facts ("DSOF") [Doc. No. 29] ¶¶ 1, 2, 4.2 Co-plaintiff Donahue founded Sonoran in 1997 to develop and market high speed computer-to-plate technology ("CTP") to large metropolitan newspapers and other graphic arts publishers. Id. ¶ 1. For purposes of this motion, it is necessary only to understand that the CTP product line being developed by Sonoran, a digital alternative to traditional analog printing methods, would require a relatively greater initial capital investment from customers (approximately $500,000), but would allegedly result in significant cost savings over the mid- to long-term. Plaintiffs' Counter-Statement of Material Facts ("PSOF") [Doc. No. 33] ¶ 2. Donahue invested $3,500,000 of his own resources into Sonoran, which by 2000 had produced a prototype product that it demonstrated at the printing industry's premier exposition. Id. ¶¶ 3, 5. Although Sonoran had not yet sold any CTP units, Sonoran employees, namely Norm Bogen ("Bogen"), Sonoran's head of sales and marketing, had made some progress developing relationships with potential buyers in the publishing and graphic arts industries. Id. ¶ 4.
In mid-2000, in response to concerns expressed by potential customers about committing long-term to an untested company and product, and in the face of liquidity issues, Donahue and Bogen began searching for an entity to purchase Sonoran. Id. ¶¶ 4, 5. Donahue and Bogen entered into negotiations with Greg Baxter ("Baxter"), the head of PerkinElmer's Lithography Division, that ultimately led to the sale of Sonoran to PerkinElmer. Id. ¶¶ 6-8. The terms of the sale of Sonoran, representations made or omitted during negotiations, and PerkinElmer's conduct after the sale are the subject of this lawsuit.
Two documents—the Asset Purchase Agreement and the Employment Agreement—governed the terms of the May 2, 2001 sale. In exchange for all of Sonoran's physical and intellectual property, PerkinElmer agreed to pay $3,500,000 to satisfy Sonoran's debts to unsecured creditors. DSOF ¶ 8. Neither Donahue nor any of Sonoran's other shareholders received any of the $3,500,000 lump payment. PSOF ¶ 13. The parties also agreed to a number of "earnout" provisions whereby Sonoran's shareholders would receive additional compensation dependent on the success of the CTP Business during the first five years after the sale. DSOF ¶ 12, 13. Section 1.6 of the Asset Purchase Agreement provided for payments of $150,000 for each of the first ten CTP units sold in the two years after the closing, regardless of the sale price or profit generated. Id. 1112. Section 6.2 of the Asset Purchase Agreement provided for "Additional Earnout Payments" of up to $2,000,000 over four years if various profit thresholds from the sale of CTP units were met. Id. ¶ 13. No provision of the Asset Purchase Agreement limited the manner in which PerkinElmer could operate the CTP Business.3 After the sale, the CTP Business, which remained in Tucson, became a part of PerkinElmer's Lithography Division, which was located in Azusa, California. PSOF ¶ 22.
Donahue, as the primary shareholder and president of Sonoran, entered into a separate Employment Agreement with PerkinElmer. Under the terms of the agreement, Donahue would receive a yearly salary of $150,000 and serve as General Manager and Site Leader of the CTP Business, with "responsibilities inherent to [his] position," DSOF ¶ 8, including management control, integrated within PerkinElmer's management structure, and profit/loss responsibility. PSOF ¶ 18. Like the contract for the sale of Sonoran, Donahue's contract contained detailed earnout provisions whereby Donahue could earn as much as $25,000 per CTP unit sold if the CTP Business met sales thresholds during the first five years under PerkinElmer. DSOF ¶ 16; PSOF ¶ 19.
In order for Sonoran and Donahue to earn the maximum payout under the earnout provisions, the CTP business would have to sell approximately 400 CTP units during the first five years of the contract. Id. ¶ 19.
The CTP Business, as operated by PerkinElmer, was a near-total failure. Between May 2001, when PerkinElmer purchased Sonoran, and October 2004, when Sonoran sold the intellectual property of the CTP Business to another corporation, MacDermid, Inc., the CTP Business sold only one CTP unit. DSOF ¶ 40. In their pleadings and documents filed in conjunction with the instant motion, the Plaintiffs list a litany of complaints about PerkinElmer's decisionmaking and conduct as it relates to the operation of the CTP Business.
One of the sticking points of Sonoran and PerkinElmer's negotiations related to the hiring of Sonoran's existing workforce, specifically Bogen, Sonoran's principal salesperson, by PerkinElmer. During negotiations, Donahue expressed to PerkinElmer representatives, on at least two occasions, that Bogen was critical to future success of the CTP Business, as Bogen had spent two years developing relationships with potential customers and possessed a unique combination of sales skills, engineering background, and technical knowledge of the CTP Business and industry. Affidavit of Joseph P. Donahue ("Donahue Aff.") ¶ 4, attached to Pls.' Opp. Donahue and Bogen emphasized to PerkinElmer representatives that in order for Bogen to remain with the CTP Business, Bogen "needed his compensation level raised [from $100,000 a year to $125,000 a year] and his expenses ... paid and a fair commission." Id.
Pursuant to the terms of the sale, PerkinElmer agreed to offer employment to eight current Sonoran employees, including Bogen. PSOF ¶ 12. On April 20, 2001, twelve days before finalizing the Asset Purchase Agreement, PerkinElmer offered Bogen a position with the CTP Business at his existing salary of $100,000. DSOF ¶ 27. Bogen rejected that offer. Id. 27. Donahue...
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