Venture Associates Corp. v. Zenith Data Systems Corp., 92 C 978.
| Decision Date | 27 March 1995 |
| Docket Number | No. 92 C 978.,92 C 978. |
| Parties | VENTURE ASSOCIATES CORP., a Tennessee corporation, Plaintiff, v. ZENITH DATA SYSTEMS CORPORATION, a Delaware corporation, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Donald L. Johnson, Johnson Law Firm, Leo G. Aubel, Aubel & Aubel, P.C., Tobin Marais Richter, Chicago, IL, for Venture Associates Corp., a Tenn. corp.
Thomas Francis Bush, Jr., Saunders & Monroe, Chicago, IL, Craig A. Newman, Michael D. Schissel, Arnold & Porter, New York City, for Zenith Data Systems Corp., a Del. corp.
Plaintiff Venture Associates Corporation ("Venture") originally brought this action against Zenith Data Systems Corporation ("Zenith") for breach of contract, but on remand from the Seventh Circuit we are left with only a claim that Zenith breached a preliminary agreement to bargain in good faith. Presently before us is Zenith's motion for summary judgment on the issue of damages. For the reasons set forth above, defendant's motion is granted in part and denied in part.
This case arises out of a business transaction gone awry. Beginning in 1991, Zenith began negotiating to sell the Heath Company ("Heath"), one of its subsidiaries which had not turned a profit for several years, to Venture. On March 31, 1991, Venture sent to Zenith's broker, Financiere Indosuez, a letter of intent outlining Venture's proposal to purchase the company for a total of $11 million. In addition to substantive terms, such as the nature of Venture's financing and warranties, the letter contained the following statement:
Richter Affidavit, Exb. 4. Although Zenith did not sign and return the letter, it responded by mail on June 11, 1991, stating that it would begin negotiating the sale of Heath according to the terms and conditions of the March 31 letter. This proposal was accepted by Venture the following day.
In subsequent negotiations, however, the parties encountered substantial difficulties. Zenith demanded a post-closing adjustment of up to $4 million in the purchase price, as well as financial guarantees by Venture. These terms proved unacceptable to Venture, and the two parties never executed a final purchase agreement. Venture then filed this diversity action, alleging that Zenith breached an agreement to sell Heath by interjecting these terms at the last minute.
We dismissed plaintiff's original complaint on the ground that no final binding agreement had been reached by the parties. Venture Associates Corp. v. Zenith Data Systems Corp., 812 F.Supp. 788 (N.D.Ill.1992). On appeal the Seventh Circuit affirmed our dismissal of the breach of contract claim, but held that Venture had sufficiently pleaded a cause of action for breach of a preliminary agreement to negotiate in good faith. Venture Associates Corp. v. Zenith Data Systems Corp., 987 F.2d 429 (7th Cir.1993). Since the Court of Appeals remanded this case back to us, we have denied Zenith's motion for summary judgment on the issue of whether it is liable for breach of the preliminary agreement, finding that material facts remained in dispute. Venture Associates Corp. v. Zenith Data Systems Corp., No. 92 C 978, 1994 WL 71430 (N.D.Ill. March 4, 1994). Although the pretrial order has been filed, we are now faced with the instant summary judgment motion on the question of damages.
A motion for summary judgment will be granted if "there is no genuine issue of material fact and ... the moving party is entitled to judgment as a matter of law." Fed. R.Civ.P. 56(c). This standard places the initial burden on the moving party to identify "those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986) (quoting Fed.R.Civ.P. 56(c)). Once the moving party has met this burden, the non-moving party "must set forth specific facts showing that there is a genuine issue for trial." Fed. R.Civ.P. 56(c); see Maxwell v. City of Indianapolis, 998 F.2d 431, 433 (7th Cir.1993). In deciding a motion for summary judgment, the facts must be read in a light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986).
Defendant contends that even if it is found liable, Venture is only entitled to recover the out-of-pocket expenses it paid in reliance on Zenith's promise to bargain in good faith. Zenith argues that because Venture is suing on a preliminary agreement, rather than a final purchase agreement, its recovery is limited to reliance damages. Defendant also maintains that Venture's claim for the profits it could have made had the transaction been completed is too speculative. Plaintiff responds that Illinois law does not restrict its recovery simply to reliance damages, but also allows it to recover the benefit of its lost bargain. Venture also argues that so long as lost profits can be calculated with reasonable certainty, and were contemplated by the parties, they are recoverable under Illinois law. Therefore, Venture claims, its experts should be allowed to tell the jury how profitable Heath would have been had the sale gone through and the company been turned around.
We first address defendant's contention that only reliance damages are recoverable when a party breaches its duty to negotiate in good faith.3 In resolving this dispute we begin with the letter of intent acknowledged by Zenith, since the scope and nature of any duty to negotiate in good faith is determined in the first instance by the language of the letter of intent itself. A/S Apothekernes Laboratorium, 873 F.2d at 158; Bercoon, Weiner, Glick & Brook v. Manufacturers Hanover Trust Co., 818 F.Supp. 1152, 1157 (N.D.Ill.1993). For example, a letter of intent may simply require the seller to limit its negotiations to a single potential buyer until the two parties disagree, see Feldman v. Allegheny Intern., Inc., 850 F.2d 1217, 1219 (7th Cir.1988), or may obligate the seller to take the property off the market during negotiations. See Channel Home Centers, 795 F.2d at 299-300. A letter of intent could also specify the damages that must be paid by the party breaching the agreement. In the instant case the March 31 letter outlined the general framework for continued negotiations between Venture and Zenith. However, the letter did not address the issue of damages should one of the parties fail to bargain in good faith.4 Therefore, we must determine whether the parties contemplated the sort of damages that Venture alleges it sustained.
Venture claims that it should be allowed to recover what it would have reaped had a purchase agreement with Zenith been completed. Under Venture's theory, damages would be calculated on the assumption that if the parties bargained in good faith, they would have reached an agreement, Venture would have obtained Heath at a beneficial price, it would have made the company profitable, and it would have sold Heath for a profit. By asking for these damages, Venture seeks to bootstrap its claim that Zenith breached the letter of intent into a claim that Zenith violated a purchase agreement. However, the duties imposed by a preliminary agreement to bargain in good faith differ from the duties imposed by a final purchase agreement.
A duty to negotiate in good faith does not encompass an automatic duty to approve the final deal. A letter of intent is no guarantee that the final contract will be concluded, even if the parties fulfill their good faith obligations. Teachers Insurance, 670 F.Supp. at 498.
A/S Apothekernes Laboratorium, 873 F.2d at 159 (emphasis in original). Moreover, because the parties never executed a final purchase agreement, Venture cannot use that "agreement" as a basis for holding Zenith liable. See Goodstein Const. Corp. v. City of New York, 80 N.Y.2d 366, 590 N.Y.S.2d 425, 428-29, 604 N.E.2d 1356, 1360 (1992) (applying New York law). This point appears to have been lost on Venture; indeed, many of the cases cited in its brief deal with the breach of an actual contract for the sale of goods or property, rather than a preliminary agreement to negotiate in good faith. See, e.g., Heritage Commons Partners v. Village of Summit, 935 F.2d 1489, 1495-96 (7th Cir. 1991) ().5
Venture also relies on cases allowing for the recovery of consequential damages where a defendant fails to undertake good faith efforts to perform its obligations under a contract. However, "good faith in the bargaining or formation stages of the contracting process is distinguishable from the common law duty to perform in good faith." Channel Home Centers, 795 F.2d at 299 n. 8. While breach of the later may support a claim for contract damages, see Milex Products, Inc. v. Alra Labs., Inc., 237 Ill.App.3d 177, 177 Ill.Dec. 852, 860-61, 603 N.E.2d 1226, 1234-35 (1992), app. denied, 149 Ill.2d 651, 183...
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