American Mortgage & Equity Consultants, Inc. v. Everett Financial, Inc.

Background

American Mortgage & Equity Consultants (AMEC) and Everett Financial, Inc., doing business as Supreme Lending, negotiated a possible acquisition of AMEC. During those negotiations, the parties exchanged several drafts of a letter of intent. AMEC sought to rely on a provision restricting Supreme Lending from soliciting or hiring AMEC employees for 24 months after the negotiations ended.

Supreme Lending’s drafts required acceptance by returning a signed copy within 10 days. The court found that the first, second, fourth, and fifth drafts were not signed by AMEC’s representative. The third draft was signed but included significant changes, including a proposed restriction on hiring AMEC employees, so it did not constitute an unqualified acceptance. The court also noted that every draft stated that the letter of intent was generally nonbinding and that no binding agreement concerning the acquisition would arise until the parties signed the final acquisition agreement.

Supreme Lending withdrew its offer to acquire AMEC in January 2020. AMEC then sued Supreme Lending for breach of contract, alleging that Supreme Lending was soliciting AMEC employees using information obtained during due diligence. AMEC asked the court to prevent that recruiting.

Preliminary-injunction standard

AMEC called its request a temporary restraining order, but the court treated it as a motion for a preliminary injunction. A temporary restraining order issued without notice requires specific evidence of immediate and irreparable injury and a written explanation from the moving party’s attorney about efforts to provide notice. The court found that AMEC had not satisfied those requirements, and the motion was fully briefed and presented with notice.

To decide whether to issue a preliminary injunction, the court considered four factors: the likelihood that AMEC would succeed on its claim, the threat of irreparable harm without an injunction, the balance of harms, and the public interest.

Likelihood of success on the contract claim

Applying Minnesota law, the court explained that a breach-of-contract claim requires a contract, performance of any required conditions, and a breach. Contract formation requires a definite offer, acceptance, and consideration. An acceptance must match the offer; an acceptance adding terms is treated as a counteroffer. The court also explained that when the parties make signatures a condition of completing their agreement, no contract exists until the required signing occurs.

The court concluded that, at this preliminary stage, none of the letter-of-intent offers had been accepted. The first, second, fourth, and fifth drafts were not signed as required. The third draft was signed but changed the proposed terms. Even if the parties had agreed on the terms in the fifth draft, that draft was not signed and therefore was not a contract under the Minnesota rules the court applied.

The court separately concluded that the non-solicitation provision would not support AMEC’s claim even if the parties had agreed to the fifth draft. Section 9 of each draft stated that the letter of intent was not binding except for specified provisions, and the court understood that language to make the non-solicitation provision nonbinding and unenforceable.

Irreparable harm

The court also found that AMEC had not clearly shown immediate irreparable harm. It explained that irreparable harm generally means an injury that cannot be fully compensated with money damages. AMEC argued that harm could be inferred from the alleged violation of a restrictive covenant, but the court found that argument unpersuasive because the covenant was not valid at this stage.

The court further reasoned that even a valid covenant would not automatically establish irreparable harm. AMEC had not shown that recruiting particular employees would necessarily damage its reputation, goodwill, or business relationships, or that clients were likely to follow recruited employees. Any resulting financial losses appeared capable of being addressed through money damages.

Other factors and order

The balance of harms did not change the result. The court recognized that Supreme Lending’s recruiting created challenges for AMEC, but also considered Supreme Lending’s asserted loss of a business opportunity and the effect an injunction could have on AMEC employees’ employment opportunities. The court found the public-interest factor insubstantial because the dispute primarily involved business interests and the record did not show that recruiting AMEC employees threatened competition in mortgage lending.

Judge Eric C. Tostrud ordered that AMEC’s motion for a temporary restraining order be DENIED and directed that judgment be entered accordingly.