Taylor v. Allen (In re Theag N. Arlington LLC)
| Decision Date | 11 December 2020 |
| Docket Number | Adversary No. 19-04034,Case No. 19-41108-ELM |
| Parties | In re: THEAG NORTH ARLINGTON LLC, et al., Debtors. CHRIS TAYLOR and JEAN-ANN TAYLOR, Plaintiffs, v. CHRISTOPHER ALLEN, SEAN ALLEN, DAWN BERRY and APRIL CROSSE, Defendants/Third-Party Plaintiffs, v. STEARNS BANK, N.A., Third-Party Defendant. THEAG NORTH DALLAS LLC, THEAG NORTH ARLINGTON LLC and THEAG MANAGEMENT LLC, Intervenors, v. CHRIS TAYLOR and JEAN-ANN TAYLOR, Plaintiffs, and STEARNS BANK, N.A., Third-Party Defendant. |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas |
The following constitutes the ruling of the court and has the force and effect therein described.
(Jointly Administered)
MEMORANDUM OPINIONThis removed action from Texas state court involves a dispute arising out of the 2016 sale of a franchised FASTSIGNS® business owned by Plaintiffs Chris and Jean-Ann Taylor (together, the "Taylors") by and through certain of their wholly owned companies to Defendants Christopher and Sean Allen (together, the "Allens") by and through certain of their affiliated companies, including the debtor intervenors THEAG North Dallas LLC, THEAG North Arlington LLC and THEAG Management LLC (collectively, the "Debtor Intervenors"). In 2018, the Taylors initiated litigation against the Allens and their respective spouses Dawn Berry and April Crosse (the Allens and their spouses, collectively, the "Allen Defendants") to pursue collection on a guaranty executed in connection with the sale. Thereafter, the Debtor Intervenors intervened in the action and both the Debtor Intervenors and the Allen Defendants asserted a variety of claims against the Taylors and Third-Party Defendant Stearns Bank, N.A. (the "Stearns"). Following the Debtor Intervenors' filing for bankruptcy protection, the Debtor Intervenors removed the litigation to this Court, thereby initiating the above-captioned adversary proceeding.
Now before the Court for determination are the motions to dismiss filed by the Taylors and Stearns in relation to the Allen Defendants' Second Amended Counterclaim and Third-Party Complaint [Docket No. 46] (the "Defendants' Live Pleading") and the Debtor Intervenors' Amended Petition in Intervention, Third-Party Petition, and Request for Disclosure [Docket No. 45] (). Specifically, the Taylors have filed their Motion to Dismiss Intervenors' Amended Complaint and Defendants' Second Amended Counterclaim [Docket No. 49] (the "Taylor Motion"); Stearns has filed its Motion to Dismiss or For More Definite Statement and Brief in Support Thereof [Docket No. 52] in relation to the Defendants' Live Pleading (the "Stearns Defendant Claim Motion"); and Stearns has filed its Second Motion to Dismiss or For MoreDefinite Statement and Brief in Support Thereof [Docket No. 53] in relation to the Intervenors' Live Pleading (the "Stearns Intervenor Claim Motion").
Having considered the Live Pleadings; the Taylor Motion and filings in support thereof,1 the responses of the Allen Defendants and the Debtor Intervenors thereto,2 and the Taylors' reply;3 the Stearns Defendant Claim Motion, the Allen Defendants' response thereto,4 and Stearns' reply;5 the Stearns Intervenor Claim Motion, the Debtor Intervenors' response thereto,6 and Stearns' reply;7 and the arguments of counsel; for the reasons set forth herein the Court will grant in part, and deny in part, the Taylor Motion; grant in part, and conditionally grant in part subject to the right to replead, the Stearns Defendant Claim Motion; and grant in part, and conditionally grant in part subject to the right to replead, the Stearns Intervenor Claim Motion.
The Court has jurisdiction of this adversary proceeding pursuant to 28 U.S.C. §§ 1334 and 157 and the Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc (Miscellaneous Rule No. 33) of the United States District Court for the Northern District of Texas. Venue of the proceeding in the Northern District of Texas is proper under 28 U.S.C. § 1409. The proceeding is both core and non-core in nature within the meaning of 28 U.S.C. § 157(b)(2). Pursuant to 28 U.S.C. §§ 157(b)(1) and (c)(2) and based upon the parties' consent to this Court's entry of a final order or judgment on all non-core claims and their knowing and voluntary waiverof the right to the adjudication of non-core claims by an Article III court, this Court may enter a final order or judgment in this action.8
Prior to the sale at issue in this case, the Taylors owned and operated a FASTSIGNS® franchised sign production business (the "Business") through their wholly-owned companies C.J. Taylor, Ltd., G.P. Taylor Enterprises, Ltd., CTMM Management, LLC and CJT Real Estate, LLC a/k/a CJ Taylor Real Estate, LLC (collectively, the "Taylor Entities"). The Business was run out of three locations: the North Arlington FastSigns Store (the "Arlington Store"); the North Dallas FastSigns Store (the "Dallas Store"); and the Denton FastSigns Store (the "Denton Store" and together with the Arlington Store and Dallas Store, the "Stores").
In 2014, the Taylors and Allens began to engage in negotiations with respect to the Taylors' sale of the Business to the Allens. Ultimately, the Taylors and Allens executed a Letter of Intent, dated July 2015 (the "LOI"), pursuant to which the Taylors evidenced their intent to sell, and the Allens evidenced their intent to purchase, the Business for $5.75 million, subject to offsets and deductions to be negotiated, and subject to due diligence, franchisor approval, and the preparation of mutually acceptable definitive documentation.9 Several provisions of the LOI are either directly or indirectly referenced by or relevant to the Live Pleadings and are therefore highlighted herein.
First, the LOI called for the Allens to designate an entity substantially owned and controlled by them to serve as the so-called "Purchasing Entity" in relation to the contemplated transaction.10The Allens would later designate the Debtor Intervenors and THEAG Denton LLC (together with the Debtor Intervenors, the "THEAG Entities") to serve as the Purchasing Entity.
Second, Section 4 of the LOI provided for the parties to promptly agree upon a "Due Diligence Checklist" and for the Taylors to then promptly "allow Purchasing Entity to complete an examination of Seller's financial, accounting and business records, contracts and other legal documents and generally to complete due diligence as set forth in the Due Diligence Checklist, which shall take place in the forty-five (45) days immediately following the parties executing this Letter of Intent (the 'Due Diligence Period')."11
Third, Section 3 the LOI required the Allens to arrange for an earnest money deposit of $287,500 (the "Earnest Money Deposit") to be made by the Purchasing Entity within seven business days of execution of the LOI.12 In compliance with the requirement, the Allens arranged for the Earnest Money Deposit to be made by or on behalf of the THEAG Entities.13
Finally, Section 6 of the LOI provided for disposition of the Earnest Money Deposit. Among other things, it provided that should the Purchasing Entity terminate the LOI for any reason after expiration of the Due Diligence Period, or should the transaction contemplated by the LOI fail to close by August 31, 2015, then the escrow agent was to pay the Earnest Money Deposit to the Taylors.14 The parties later amended the LOI to extend the outside closing date to September 30, 2015 as a result of a delay encountered in obtaining franchisor approval for the transaction.15
Ultimately, the Taylor Entities and the Allens entered into a definitive Asset Purchase Agreement, effective as of September 9, 2015 (the "APA").16 As with the LOI, several provisions of the APA are either directly or indirectly referenced by or relevant to the Live Pleadings and are therefore highlighted herein.
First, with respect to the financial terms of the transaction, the previously agreed-upon purchase price of $5.75 million was to be satisfied as follows under the terms of the APA: (a) release of the $287,500 Earnest Money Deposit to the Taylor Entities on the Closing Date; (b) payment of $5.175 million in immediately available funds to the Taylor Entities on the Closing Date (the "Cash Payment"); and (c) the delivery of a promissory note made payable to the Taylors in the original principal amount of $287,500 (the "Promissory Note") on the Closing Date.17 The Taylor Entities and Allens also agreed to an allocation of the purchase price within the APA, with over $4.0 million of the purchase price allocated to the goodwill of the Stores.18
Second, as security for payment of the Promissory Note, the APA also conditioned closing on the delivery of a personal guaranty by the Allen Defendants for the benefit of the Taylors (the "Guaranty").19
Third, under the terms of the APA, the Taylor Entities agreed to the following post-closing non-compete protections:20
Seller [the Taylor Entities] and Seller's principal, Christopher J. Taylor, and the wife of Christopher J. Taylor, Jean-Ann Taylor (collectively, "Seller's Principal"), agree that for a period of two (2) years from and after the Closing Date, neither it,nor Seller's Principal, will own, manage, operate, provide consulting services to, or control any business engaged in sign production (b) [sic] within a forty (40) mile radius of (i) Seller's current Business locations or (ii) any other location in which Purchaser operates a business engaged in sign production. In addition, Seller and Seller's Principal agree that for the same two (2) year period they will not directly or indirectly (a) solicit, induce, encourage or attempt to persuade any ... customer ... or any other person having a...
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