Triad Packaging, Inc. v. SupplyOne, Inc.

• Decision Date: 19 February 2013
• Docket Number: Civil No. 5:10CV5–RLV.
• Citation: 925 F.Supp.2d 774
• Court: U.S. District Court — Western District of North Carolina
• Parties: TRIAD PACKAGING, INC., and Louis S. Wetmore, Plaintiffs, v. SUPPLYONE, INC., Defendant/Third–Party Plaintiff, v. Durham Box Company, Third–Party Defendant.

925 F.Supp.2d 774

TRIAD PACKAGING, INC., and Louis S. Wetmore, Plaintiffs,

v.SUPPLYONE, INC., Defendant/Third–Party Plaintiff,

v.Durham Box Company, Third–Party Defendant.

Civil No. 5:10CV5–RLV.

United States District Court,

W.D. North Carolina,

Statesville Division.

Feb. 19, 2013.

Matthew Kyle Rogers, Hickory, NC, for Plaintiffs.

Mark W. Kinghorn, Stephen David Allred, McGuireWoods LLP, Charlotte, NC, John S. Kingston, Thomas E. Douglass, Thompson Coburn LLP, St. Louis, MO, for Defendant/Third–Party Plaintiff.

Memorandum and Order

RICHARD L. VOORHEES, District Judge.

THIS MATTER is before the Court on the following motions: 1) SUPPLYONE's Motion for Judgment on the Pleadings as to Plaintiffs' First Claim for Relief (Quasi–Contract Claim) (Doc. 20); 2) SUPPLYONE's Motion for Summary Judgment as to Plaintiffs' Third (Fraud) and Fourth (Unfair and Deceptive Trade Practices) Claims for Relief (Doc. 26); 3) SUPPLYONE's Motion for Summary Judgment on Plaintiffs' Second Claim (Breach of Contract) (Doc. 62); 4) SUPPLYONE's Motion for Partial Summary Judgment on its own Breach of Contract Counterclaim (Doc. 63); 5) TRIAD PACKAGING'S, LOUIS WETMORE's, and DURHAM BOX COMPANY's Joint Motion for Summary Judgment as to Plaintiffs' Claims (Docs. 65, 70) ¹; and 6) TRIAD PACKAGING'S, LOUIS WETMORE's, and DURHAM BOX COMPANY's Joint Motion for Summary Judgment as to Defendant's Counterclaims (Doc. 61).

I. Nature of the Case

This case arises out of a dispute concerning an Asset Purchase Agreement (“APA”) entered into by Triad Packaging, Inc. (“TPI”), Durham Box Company (“DBC”), d/b/a as Merit Container (“Merit”), the Sellers, and SupplyONE Holdings Company, Inc. (“SupplyOne”), the Buyer. (Exh. A) The APA was executed on October 8, 2008, with individual Plaintiff Louis S. Wetmore (“Wetmore”) representing TPI and DBC and Chief Financial Officer Jack H. Keeney (“Keeney”) representing SupplyOne.

TPI, a North Carolina corporation, was previously engaged in the manufacturing and sale of corrugated boxes within the packaging industry. (Compl., ¶ 4). DBC (or “Merit”) was also a North Carolina corporation with its principal place of business in South Carolina. (Answer & Counterclaim, ¶ 163). DBC was engaged in the business of reselling corrugated shipping containers, displays, and related packing products. (Answer & Counterclaim, ¶ 163; Pls.' Mem. In Opp'n, at 5). Wetmore was the President and the majority shareholder of both TPI and DBI.² (Compl., ¶ 11; Answer & Counterclaim, ¶ 164).

SupplyOne, a Delaware corporation, was also (and still is) in the packaging industry dealing in corrugated boxes. (Compl., ¶ 6). As part of its business strategy, SupplyOne sought to acquire and consolidate smaller regional packaging businesses “who are recognized leaders in their market areas with excellent customer relationships.” (Compl., ¶¶ 12–13; Answer, ¶¶ 12–13).

In November of 2007, Wetmore entered into discussions with SupplyOne personnel about the possibility of SupplyOne acquiring all of the assets of both TPI and DBC.³ Negotiations commenced in December 2007. (Wetmore Aff., ¶ 2). Altogether, the negotiations and “due diligence” process took approximately ten (10) months.

The first phase of due diligence occurred from November 2007 through early April 2008. SupplyOne dedicated the time and energy of William M. Laughlin, Senior Vice President of Corporate Development (“Laughlin”), and John Caruso, Vice President of Financial Operations (“Caruso”), to this acquisition. (Pls.' Mem. In Opp'n, at 6). SupplyOne's “standard procedure” contemplated that Laughlin would handle all the negotiations with the seller and then transition primary responsibility to Caruso to schedule and coordinate the due diligence. ⁴ (Caruso Dep., 101; Laughlin Dep., 72). Consequently, the dealings between the parties were handled primarily between Wetmore and Laughlin.

The first step taken to facilitate the acquisition involved financial disclosure. On November 27, 2007, Wetmore provided Laughlin with financial information for TBI and DBC. (Pls.'s Exh. 11). Typically, the initial financial disclosure included “financial statements for the last three years plus the most recent trailing 12–month period.” (Caruso Dep., 103, 225–226).

On November 29, 2007, Laughlin forwarded a memorandum and accompanying financial analysis to SupplyOne's Chief Executive Officer, Bill Leith (“Leith”), and Keeney. (Pls.' Exh. 11). Laughlin recognized that “in all likelihood, the receivables are not 100% collectible” and that SupplyOne would “have to make an additional working capital investment to carry accounts receivable.” (Pls.' Exh. 11 at 7). Laughlin was aware that Wetmore had significant “hard liabilities” such that Wetmore may only “break even” on a sale. (Pls.' Exh. 11 at 7). Despite these observations, Laughlin proposed the purchase of TPI and DBC as a “bolt on” acquisition to SupplyOne's existing North Carolina operations located in Rockwell, North Carolina.⁵ (Pls.' Mem. In Opp'n, at 7 / Exh. 11 at 6). In other words, Laughlin suggested that the most attractive option for acquisition would call for shutting down TPI's Conover, North Carolina plant completely, shifting production to Rockwell, and retaining the South Carolina facility [DBC/Merit] as a distribution center. (Pls.' Exh. 11 at 6). Laughlin expressly noted that SupplyOne “would have to share the benefit of some of [its] synergies [savings due to efficiencies associated with the “bolt on” acquisition] to get to the point where the owner would not have to declare bankruptcy.” (Pls.' Exh. 11 at 7).

On April 13, 2008, Wetmore disclosed to Laughlin that he was considering a competing offer to purchase TPI. (Pls.' Exh. 12 / Wetmore Aff., ¶¶ 4–7). According to Wetmore, Plaintiffs received an offer to purchase from Container Supply Corporation (“CSC”). (Doc. 71 / Pls.' Mem. In Supp., at 6.). Wetmore estimated the total value of the proposed CSC deal to be in excess of $3.7 million. (Wetmore Aff., ¶ 6). Wetmore conveyed to Laughlin that “certainty of closing and up-front money were two important factors” in his decision to sell. (Wetmore Aff., ¶ 7).

According to Plaintiffs, on April 14, 2008, the next day, SupplyOne made a verbal offer, including price, to purchase all of the assets of TPI and DBC from Wetmore. (Wetmore Aff., ¶ 7). Laughlin emailed SupplyOne's CEO Leith on April 14th reporting, “[W]e have a deal.” (Pls.' Exh. 14). Laughlin also represented that once the formal Letter of Intent was in place, there would not be any “significant further negotiations.” ( Id.) Although Wetmore understood that the parties' agreement was subject to due diligence, in Wetmore's opinion, all material terms were discussed and agreed upon as of April 14, 2008. (Wetmore Aff., ¶ 8). Upon being advised by Laughlin that a deal had been struck, Wetmore discontinued discussions with CSC in favor of the SupplyOne deal. (Wetmore Aff., ¶ 12).

On April 17, 2008, Laughlin circulated a number of documents for consideration by the SupplyOne Board of Directors (“Board”) as well as Leith and Keeney. (Pls.' Exh. 15; Caruso Dep., 59). The packet included a “strategic fit memorandum,” “draft Letter of Intent,” “highlights and hurdles for the transaction,” and a recommended proposal for acquisition upon which the Board would cast their vote either in favor of or against. (Pls.' Exh. 15; Caruso Dep., 56–57, 59–60). Ordinarily, acquisition materials were presented during an actual board meeting in hard copy.⁶ (Caruso Dep., 56–57). In this instance, however, the packet was forwarded via group email. Laughlin explained:

“I am sending all of this to you at one time, because Lou Wetmore has another offer on the table for his company.”

(Exh. 15).

It was Caruso's responsibility to present the TPI / DBC acquisition to the SupplyOne Board. (Caruso Dep., 52). However, Caruso could not recall when the Board first met to discuss the TPI / DBC acquisition or whether the Board met more than once to discuss it. (Caruso Dep., 52, 54–56). The record reveals that on April 18, 2008, email correspondence was exchanged between certain SupplyOne Board members, including Ryan Northington (“Northington”) and Noel Strauss (“Strauss”), requesting additional information about the acquisition. ⁷ (Caruso Dep., 57–60 / Rule 30(b) Dep. Exh. 4). Caruso surmised from reviewing the email chain that Strauss would have reviewed the acquisition packet in advance of SupplyOne's first quarterly board meeting of the year. (Caruso Dep., 61–62). Caruso confirmed that Strauss “obviously liked the deal.” (Caruso Dep., 62–63).

While the parties disagree as to significance, SupplyOne's first formal review of the proposed acquisition by its Board was positive. Nonetheless, the Board requested additional information, which was not atypical. (Caruso Dep., 57). Apparently, the Board was concerned with the fact that TPI was experiencing cash flow problems. (Caruso Dep., 63). In addition, it was suggested that the accounts payable may require reclassification and need to be reflected as part of the purchase price.⁸ (Caruso Dep., 59–60). At the same time, Caruso confirmed that the acquisition price “was already set.” (Caruso Dep., 60).

The parties' intentions were first reduced to writing in a seven (7) page Letter of Intent (“LOI”) dated April 29, 2008. (Exh. B). On the first page, the LOI confirms that “[t]he purchase price will be $3,500,000....” (LOI, at 1). The LOI, authored by Laughlin, was expressly deemed not binding, with the exception of the agreements as to “Confidentiality,” “Non-solicitation,” and “Professional Fees,” as to which each party intended to be legally bound. (LOI, at 6). The LOI made clear that the current proposal reflected the “present mutual intentions” but did “not contain all matters upon which agreements must be reached in order for the transaction to be completed.” ( Id., at 6). The LOI was to “serve as a guide to the negotiation and preparation of the definitive...