UCC Asset Management Corp. v. Global Merchant Bond Series, Inc.

Background

UCC Asset Management Corp. and Dean Landis owned Entrepreneur Growth Capital LLC. Global Merchant Bond Series, Inc. entered into a September 20, 2019 letter of intent with plaintiffs concerning Global’s possible purchase of 75 percent of plaintiffs’ interest in EGC. The agreement gave Global an exclusive right to purchase the interest for a specified period and required Global to use best efforts to complete the purchase by November 20, 2019, unless the parties agreed in writing to a different closing date.

Section 8 of the letter of intent required Global to pay plaintiffs a $300,000 breakup fee if Global chose not to complete the transaction for any reason other than either the results of its due-diligence investigation or the parties’ inability to agree on final terms materially similar to the letter of intent in the final purchase documents. To terminate based on due-diligence results, Global had to give plaintiffs written notice before the investigation period ended. The agreement stated that its provisions concerning the closing date and breakup fee imposed binding obligations.

After Global identified issues with certain loans in EGC’s portfolio, it sent plaintiffs a proposed amendment on January 6, 2020. Plaintiffs responded with a modified version that made a nonmaterial clarification and added language concerning the closing date and breakup fee. The parties agreed that plaintiffs’ modified version was a rejection and counteroffer, and that Global never accepted it or acted consistently with acceptance. Global also did not provide written notice electing to terminate the original letter of intent based on due-diligence results. The parties did not exchange drafts or negotiate final purchase documents, and Global stipulated that it did not proceed because of the language plaintiffs proposed in the modified amendment.

Plaintiffs asserted two breach-of-contract counts. Count One alleged that Global breached the original 2019 letter of intent by failing to pay the breakup fee. Count Two asserted, in the alternative, that Global breached the proposed amendment and modified proposed amendment by failing to close by January 31, 2020. Plaintiffs later withdrew Count Two. The parties filed cross-motions for summary judgment based on a joint statement of undisputed material facts.

Legal Standard

Summary judgment is appropriate when there is no genuine dispute about a material fact and the moving party is entitled to judgment under the law. In a contract case, a clear and unambiguous contract is enforced according to its terms.

Court’s Analysis

The court held that the 2019 letter of intent was an enforceable contract. Although it contemplated future negotiations over final purchase documents, it imposed binding obligations concerning the closing date and breakup fee. The parties’ failure to agree on a modification did not eliminate the original contract. Instead, the parties remained bound by the original agreement because they never agreed in writing to a later closing date or otherwise established a modification.

The court also held that Global breached Section 8. Global did not give the required notice to terminate based on due-diligence results. The undisputed facts also showed that Global did not stop the transaction because the parties were unable to agree on final terms in the final purchase documents. Rather, Global did not proceed because of plaintiffs’ proposed language in the modified amendment. That reason fell outside Section 8’s exceptions, so Global was required to pay the breakup fee.

Disposition

The court granted plaintiffs’ motion for summary judgment with respect to Count One, denied Global’s motion for summary judgment, and noted that plaintiffs had withdrawn Count Two. The court directed the Clerk to enter the attached judgment and close the case.