WCC Funding Ltd. v. GAN INTERN.

• Decision Date: 19 December 1994
• Docket Number: No. 93 C 969.,93 C 969.
• Citation: 871 F. Supp. 1017
• Parties: WCC FUNDING LIMITED, Plaintiff, v. GAN INTERNATIONAL, Defendant/Third-Party Plaintiff, v. Darrell BLAESS and Richard Fanslow, Third-Party Defendants. Darrell BLAESS, Third-Party Counterclaimant, v. GAN INTERNATIONAL, Defendant to Third-Party Counterclaim.
• Court: U.S. District Court — Northern District of Illinois

871 F. Supp. 1017

WCC FUNDING LIMITED, Plaintiff, v. GAN INTERNATIONAL, Defendant/Third-Party Plaintiff, v. Darrell BLAESS and Richard Fanslow, Third-Party Defendants.

Darrell BLAESS, Third-Party Counterclaimant, v. GAN INTERNATIONAL, Defendant to Third-Party Counterclaim.

No. 93 C 969.

United States District Court, N.D. Illinois, Eastern Division.

December 19, 1994.

Richard Cartier Godfrey and Lee Radford, Kirkland & Ellis, Chicago, IL, for WCC Funding Ltd., plaintiff.

Bruce R. Alper, Randall Marc Lending, Edward C. Jepson, Jr., and Carlys Elizabeth Belmont, Vedder, Price, Kaufman & Kammholz, Chicago, IL, for GAN Intern., defendant.

OPINION AND ORDER

NORGLE, District Judge:

Before the court are the cross motions of defendant GAN International ("GAN") and of plaintiff WCC Funding Limited ("WCC") for summary judgment on counts I and II of the complaint. For the following reasons, GAN's motion is granted and WCC's motion is denied.

FACTS¹

WCC is an Illinois corporation, with its principal place of business in Chicago, Illinois, formed specifically to acquire the outstanding capital stock of Hawkeye National Life Insurance Company ("HNL"). HNL is an Iowa corporation with its principal place of business in Des Moine, Iowa. Third-party defendant Darrell Blaess ("Blaess") was the president and director of HNL during the relevant period. GAN is a French international holding corporation with its principal place of business in France which owns all of the outstanding capital stock of HNL.

On April 15, 1992, WCC and GAN entered into a fully integrated written Stock Purchase Agreement ("Agreement").² WCC, as the prospective buyer, and GAN, as the prospective seller, entered into the Agreement for the purpose of buying and selling all of the outstanding HNL capital stock. On April 23, 1992, eight days after the execution of the Agreement, WCC paid $50,000 for the right to conduct the due diligence investigation for a period of thirty days until May 15, 1992. On May 15, 1992, WCC sent a letter identified in WCC's motion as a "notice of breach" which stated that³:

As you may be aware, after our discussion yesterday I sent you a letter agreement for purposes of extending the date by which action would have been required to be taken by WCC Funding Limited under Section 2.03 of the Stock Purchase Agreement between WCC Funding Limited and GAN International relating to the sale and purchase of the stock of HNL. When I called this morning to find out the status of the letter agreement, I was advised that you are out today, and therefore thought that in light of our discussions, it would be appropriate for me to write to you.

I am sure you can appreciate that because GAN International has still not provided WCC Funding with the terms under which GAN or its affiliates will continue to provide reinsurance to HNL, an important element of the completion of WCC Funding's due diligence review is missing. As a result, we expect that the extension agreement will be entered into and the missing information promptly provided to assure that WCC Funding can complete its due diligence review with the benefit of all information which your client agreed to provide under the Stock Purchase Agreement before it is required to pay an additional $100,000 to extend the due diligence period

....

(WCC's Ex. 20.) The alleged "notice of breach" only discussed the insufficiency of § 5.04(a) compliance. No other violations were mentioned or referred to in the "notice of breach." After receiving the "notice of breach," GAN allegedly did not cure the § 5.04(a) violation within fourteen days. Therefore, according to WCC, the Agreement terminated on May 30, 1992, pursuant to the operation of § 8.01(3). Despite WCC's position that the Agreement terminated on May 30, 1992, WCC paid $100,000 on May 15, 1992, to extend the thirty-day period to perform due diligence investigation for an additional thirty days, until June 15, 1992.

On June 11, 1992, in a telephone conversation, WCC and GAN agreed to extend the due diligence period from June 15, 1992, to June 26, 1992. Following the conference, WCC sent a letter to GAN which memorialized the discussion. The letter stated in relevant part that:

As we attempt to communicate to you in our telephone conversation, we have serious interest in continuing a dialogue regarding Hawkeye National with GAN in hopes that we may ultimately resolve our differences amicably. In order to discuss a resolution of the issues pending between us, we accept the offer you made in our telephone conversation today that this matter will be stayed for two weeks, until June 26, 1992. This standstill arrangement will be without prejudice to any parties' position, rights, or remedies....

(WCC's Ex. 17.) In response to the written communication, GAN replied with its own letter on June 15, 1992, which in relevant portion said the following:

Further, since you indicated your serious interest to continue a dialogue regarding the purchase of Hawkeye, we hereby agree to grant you an extension of time to June 26, 1992 in which to complete your due diligence review pursuant to Section 2.03 of the Stock Purchase Agreement dated April 15, 1992 without additional payment from you with respect to this extension....

(GAN's Ex. R.) In extending the due diligence period from June 15, 1992, to June 26, 1992, WCC did not provide additional monetary consideration to GAN. See (Agreement ¶ 8.03.)⁴ On June 16, 1992, WCC replied to GAN's June 15, 1992 letter and stated the following:

Thank you for your June 15, 1992 letter. While we are not in accord with all of the statements made, we too look forward to meeting with you on June 18 and June 19 in Chicago.

Pursuant to your request, we will have our consulting actuaries available for the meeting on June 18 with you, Steve Griffith and Darrell Blaess and our counsel will be available for the meeting on June 19 with you, Peter Williams and Paul Meyer. In addition, Richard Fanslow and I believe that a meeting between principals (without counsel) as was planned in Paris for June 12 would help us resolve our differences and, in combination, allow us to craft a mutually beneficial solution. Please advise me if your schedule would accommodate meeting at your hotel for breakfast on Thursday.

(WCC's Ex. 31.) As scheduled, the parties met, but failed to reach a resolution as to the Agreement. Subsequently, more written communication was exchanged between WCC and GAN.

On June 25, 1992, WCC wrote a letter on the assumption that GAN had granted WCC a second extension of the due diligence period from June 26, 1992, to July 10, 1992:

Thank you for taking the time to speak with me and Mr. Fanslow this morning. As you are aware, we have agreed to a standstill under our agreements relating to WCC Funding Limited's acquisition of Hawkeye National Life Insurance Company from GAN International until June 26, 1992. As a follow up to our conversation, this letter will confirm our agreement to extend such standstill for an additional ten business days, until July 10, 1992, without prejudice to any parties' position, rights or remedies.

Since our meeting in Chicago of June 18 and June 19, we have been working diligently to refine our settlement proposal. As we are expecting a summary of covered benefits under Hawkeye National's extended health plan from Paul Meyer at Rogers & Wells yet today, we hope to complete a more definitive proposal for your consideration by Tuesday, June 30 or Wednesday, July 1. If this timetable does not allow you adequate time to both review your options with M. Cato and M. Belinguier and respond to me or Mr. Fanslow by July 10, please contact me at your earliest convenience with a more appropriate arrangement....

(WCC's Ex. 21.) (Emphasis added). In response to this letter, GAN declined to extend the period and informed WCC of the following:

This letter is written in response to your letter to me dated June 25, 1992 in an effort to avoid any misunderstanding concerning our discussions relating to Hawkeye National Life Insurance Company. As agreed in my letter to you dated June 15, 1992, GAN International granted WCC Funding Limited an extension of time to June 26, 1992 in which to complete its due diligence review pursuant to Section 2.03 of the Stock Purchase Agreement. Therefore, the Stock Purchase Agreement remains in effect but, as we discussed in our meeting in Chicago on June 18 and June 19, will terminate and be of no further force and effect unless WCC Funding Limited advises GAN International in writing today that it is accepting the Stock Purchase Agreement....

(GAN's Ex. V.)

On June 26, 1992, WCC did not accept the terms of the Agreement in writing and tender the requisite earnest money into an escrow account. Instead, WCC sent a letter on July 1, 1992, detailing its proposal to liquidate HNL. Subsequently, WCC's counsel sent a letter on July 6, 1992, to GAN's counsel indicating WCC's position for the first time that GAN breached the Agreement. The letter stated the following:

We understand that WCC Funding Limited and GAN International have been actively discussing the possibility of a reinsurance transaction in the context of the liquidation of Hawkeye National. We know that WCC Funding looks forward to continuing those discussions and receiving a response from GAN regarding the detailed proposal sent to Philippe Cornut last week.

This letter, however, is written in response to Mr. Cornut's letter to Quinn Fanning dated June 26, 1992. Although we are encouraged from the recent meetings and conversations that the parties may be able to reach an agreement which will be beneficial to both sides, we also believe it appropriate that you and your client understand WCC Funding's position with respect to the status of the Stock Purchase Agreement in the context of the standstill arrangement currently in effect. While we understand that you may disagree with our view, we believe that GAN

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