Opinion
C.A. No. 00C-10-226 HLA.
Submitted: July 11, 2003.
Decided: July 16, 2003.
UPON DEFENDANT, ILLINOIS TOOL WORKS INC.'S, MOTION FOR SUMMARY JUDGMENT.
GRANTED.MEMORANDUM OPINION
On this 16th day of July 2003, upon consideration of Illinois Tool Works, Inc.'s, ("ITW") Motion for Summary Judgment, Plaintiff's Response in Opposition to the Motion, oral argument conducted July 11, 2003 and the record, it appears to the Court that:
STATEMENT OF FACTS
On January 22, 1999, Plaintiff, Acorn USA Holdings, LLC ("Acorn") and Premark signed a letter of intent, pursuant to which they agreed to attempt to complete a transaction in which Premark would sell the stock of Florida Tile, Premark's wholly owned subsidiary, to Acorn. Acorn is an acquisition and holding company incorporated in Delaware that was formed by Kevin Batchelor ("Batchelor"), Herb Dooskin ("Dooskin"), and two other investors, Al Shulman and Howard Teinberg. Acorn's business is the acquisition of companies in the building material and home improvement industries. Premark is incorporated in Delaware with its principal place of business in Illinois. Florida Tile is a Florida corporation that manufactures and distributes ceramic tile for residential and commercial use. Florida Tile is and, at all relevant times, has been a wholly owned subsidiary of Premark. Throughout the relevant time period, Premark has owned and operated several businesses, including the Food Equipment Group, Wilsonart, West Bend, Precor and Florida Tile. Illinois Tool Works ("ITW") is incorporated in Delaware with its principal place of business in Illinois. During the time period that the letter of intent and its extensions were in effect, Mr. James Farrell, was both the CEO of ITW and a member of Premark's Board of Directors.
Premark and Florida Tile are collectively referred to as Defendants in this Motion for Summary Judgment.
The purchase price specified in the January 22, 1999 letter of intent was $125 million, with 90% to be paid in cash at closing and 10% in the form of redeemable preferred stock. The letter of intent contemplated a closing date no later than May 15, 1999. Three mutually agreed upon extensions of time of the original letter of intent were entered into by the parties dated March 16, 1999, May 20, 1999, and July 28, 1999. The March 16, 1999 extension pushed the contemplated closing date to June 15, 1999. The May 20, 1999 extension letter specified a closing date of July 31, 1999. The final extension letter dated July 28, 1999, specified that Premark could terminate the letter of intent anytime upon two weeks' notice beginning August 23, 1999. In this final extension letter, Seller was also permitted to terminate the exclusivity period "for any reason at its sole discretion."
Acorn ultimately obtained financing through Kohlberg Company ("Kohlberg"). However, the financing was on terms other than that which was contained in the original letter of intent. On August 19, 1999 and again on September 13, 1999, Kohlberg submitted unsigned proposals to Acorn outlining the terms under which Kohlberg would be willing to provide equity financing for Acorn's purchase of Florida Tile. These proposals stated specifically that: (i) the transaction should be changed from a stock purchase to an asset purchase; (ii) rather than 90% of the purchase price of $125 million in cash at closing, that $95 million be paid in cash and the balance would be financed by Premark in the form of $15 million in preferred stock and $15 million in subordinated notes; and (iii) Premark would assume responsibility for all potential environmental liabilities rather than Acorn. Subsequently, on September 29, October 11 and October 12, 1999, Kohlberg directly submitted proposed letters of intent to Premark covering a possible sale of Florida Tile. The October 11, 1999 proposal submitted by Kohlberg reduced the purchase price to $120 million, reduced the amount to be paid in cash at closing to $90 million, and proposed a complicated scheme for a sharing of the potential environmental liabilities. The October 12, 1999 proposal only changed the proposed transaction from an asset to a stock purchase.
On September 8, 1999, Premark exercised its right to terminate the letter of intent. On September 9, 1999, Premark signed a merger agreement with ITW whereby Premark would merge with ITW in a stock for stock transaction.
Acorn alleges that by negotiating and signing the merger agreement, Premark breached the exclusivity provisions of the original letter of intent as well as the three extension letters. The specific provisions delineate that during the period covered by the letter of intent and its extensions, Premark would not solicit offers for the acquisition of Florida Tile from any potential acquirors; nor would they provide any information about Florida Tile with a view to selling or disposing of Florida Tile; nor carry on negotiations with any potential acquirors who might make unsolicited inquiries about the acquisition of Florida Tile, provided that Acorn and Wasserstein, Perella Co., its financial advisors, were making progress in securing financing for the acquisition approximately in line with a timetable, which was attached.
The letters also specify the following remedy if, Premark and/or Florida Tile were to execute a letter of intent or definitive agreement with any party for the sale of Florida Tile before the dates which were specified in the original letter of intent and the extensions: Acorn's sole remedy would be that Seller was to immediately reimburse Acorn, up to a maximum of $500,000, for any and all reasonable fees incurred by Acorn in connection with engaging an investment banker, legal counsel, etc. and would pay to Acorn, in addition, the greater of $1,000,000 or 20% of the difference between the price set forth in the original letter of intent and the price to be paid by such third party.
Acorn alleges claims against ITW for tortious interference with contract and tortious interference with prospective economic advantage. Both claims are based on the fact that, during the same time period in which Acorn was attempting to acquire Florida Tile from Premark, ITW proposed, negotiated and executed an agreement calling for a stock for stock merger transaction between itself and Premark. Acorn alleges that the merger was actually a sale or disposition of Florida Tile. Acorn further asserts that by agreeing to the merger Premark breached the terms of the January 22, 1999 letter of intent, and that this alleged breach was tortiously induced by ITW. In the alternative Acorn asserts that the merger transaction tortiously interfered with its "expectancy" of acquiring Florida Tile.
ITW argues that as a matter of black letter corporate law, the Premark/ITW merger was not a sale of Florida Tile, and Premark therefore did not breach the letter of intent. Additionally, ITW states that without a breach of contract, there can be no tortious interference with contract. Further, ITW contends that Acorn did not possess a reasonable expectancy of actually purchasing Florida Tile and without this expectancy, there can be no tortious interference with prospective economic advantage. Moreover, ITW maintains that even if the merger was a sale of Florida Tile, and even if ITW was guilty of some wrongful conduct, the tortious interference claims still fail as a matter of law. ITW states that the real reason the merger failed is because Acorn was unable to obtain the requisite financing pursuant to the terms of the letter of intent, and ultimately Acorn was unwilling to complete the deal. Thus, ITW is seeking summary judgment dismissing with prejudice all claims asserted against it.
STANDARD OF REVIEW
Summary judgment is appropriate when the moving party has shown that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. In considering such a motion, the Court must evaluate the facts in the light most favorable to the non-moving party. Summary judgment will not be granted under circumstances where the record reasonably indicates that a material fact is in dispute or if it seems desirable to inquire more thoroughly into the facts in order to clarify the application of law to the circumstances.
Moore v. Sizemore, 405 A.2d 679 (Del. 1979).
Id.
Ebersole v. Lowengrub, 180 A.2d 467 (Del. 1962).
Tortious Interference with Contract Claim
In order to support a claim for tortious interference with contract against ITW, Acorn must show the following: (i) the existence of a valid contract; (ii) ITW's knowledge of the contract; (iii) the intentional and unjustified inducement of a breach; (iv) a subsequent breach caused by ITW's wrongful conduct; and (v) damages resulting from the breach.DEFENDANT'S CONTENTIONS
ITW argues that Acorn cannot survive summary judgment because the undisputed facts show that (1) Premark did not breach the Acorn/Premark letter of intent or any of the extensions of that letter; (2) ITW's negotiation and consummation of the Premark/ITW merger transaction was not wrongful and therefore is not actionable in any event; and (3) Acorn was not damaged by anything ITW did or failed to do. ITW first points out that as a matter of black letter law the Premark/ITW stock for stock merger was not a "sale or disposition of" Florida Tile, and thus Premark cannot be said to have breached any agreement with Acorn. Further, as a matter of black letter law, without a breach, there can be no tortious interference with contract.ITW contends that even if there had been a breach by Premark, Acorn's tortious interference claim fails because the undisputed facts show that there was no wrongful conduct on the part of ITW. ITW states that beginning in March 1999 and continuing through the second half of July 1999, the CEOs of Premark and ITW, respectively, James Ringler and James Farrell, engaged in preliminary discussions about a possible combination of Premark and ITW. In late July 1999, they began discussing possible terms for a stock for stock "pooling of interests" merger transaction. The discussions continued through September, resulting in an agreement on September 9, 1999, which was publicly announced on that same day. The merger transaction was approved by the shareholders of both Premark and ITW and closed on November 23, 1999. The merger transaction did not change the status of Florida Tile, which is a wholly owned subsidiary of Premark. The merger ultimately benefitted the shareholders who received a 60% premium.
In November of 1999, Premark decided to halt the efforts to sell Florida Tile, because their auditors indicated that there was a substantial risk that if there were to be a sale of Florida Tile at that time, under the existing circumstances, the Securities and Exchange Commission might disallow the "pooling of interests" accounting method for the Premark/ITW merger transaction. ITW alleges that it was not familiar with the terms of the letter of intent and the subsequent letter agreements extending that letter of intent.
ITW states that it had no interest in acquiring Florida Tile; it would have been happy had Premark been able to sell Florida Tile to Acorn; it made no misrepresentations about Acorn and in no way disparaged Acorn; and ITW did not force, compel or coerce Premark to do anything. ITW contends that none of its actions were wrongful and without wrongful conduct, there can be no tortious interference claim.
HPI Health Care, 545 N.E.2d 672 (1997); Audition Division, Ltd., 458 N.E.2d 115 (1983); CPM Indus., Inc., 1998 WL 229534 at 18 (1997); see also In re Estate of Albergo, 656 N.E.2d 97, 103 (Ill.App. 1995).
Moreover, ITW contends that even if its entire motivation for pursuing the Premark merger was its desire to obtain Florida Tile, and even if the merger was considered a sale of Florida Tile, ITW's offer to merge with Premark, and its ultimate consummation of the transaction was not wrongful as a matter of law. The Court has recognized that simply making a competing offer to acquire property which is the subject of a contract between the offeree and some other party is legitimate business activity and is not tortious. ITW states that all it did was pursue a transaction that was in the best interests of ITW, its shareholders and Premark's shareholders.
See Gillenardo v. Connor Broadcasting Delaware Company, 1999 WL 1240837 (Del.Super. 1999). See also Ballis v. Mobil Oil Corp., 1985 WL 3447, at *2 (N.D. Ill. 1985).
Finally, ITW states that its actions did not cause damage to Acorn, as it alleges. ITW points out that Acorn had no right to buy Florida Tile. Pursuant to the terms of the letter of intent, Premark had no obligation to sell and Acorn had no right to buy Florida Tile. ITW cites the following language in the January 22, 1999 letter of intent: "This letter does not constitute a commitment to complete the purchase or sale of the shares" of Florida Tile.
ITW relies on VSA Communication Partners, L.P. v. Palmer Broadcasting L.P., to illustrate that Premark was free at any time and for any reason to decide to retain and not sell Florida Tile. In VS A Delaware Court of Chancery held that an agreement to negotiate did not, "go so far as to constitute a concession from the seller of the right as a property owner to change its mind concerning the disposition of its property prior to the time it agrees to bind itself legally to a sale."
1992 WL 339377 (Del.Ch.).
Id. at 9.
Finally, ITW alleges that Acorn was simply unable to obtain the proper financing and thus the real reason that Florida Tile was not sold to Acorn is because the transaction could not be completed pursuant to the terms of the January 22, 1999 letter of intent. Thus, ITW's negotiation of a stock for stock merger transaction with Premark did not cause either Acorn's failure to secure financing for its proposed purchase of Florida Tile or Acorn's unwillingness to complete the proposal.
PLAINTIFF'S CONTENTIONS
Acorn alleges that ITW intentionally interfered with Acorn's ability to acquire Florida Tile by causing Premark to breach the exclusivity agreements and ultimately demanding that Premark refuse to sell Florida Tile.
To establish an intentional act by ITW, Acorn states it need only show that ITW knew the interference was substantially certain to occur as a result of its actions. ITW contends that the record shows that ITW not only knew its conduct was substantially certain to result in a breach, but specifically intended to cause the agreements to be breached.
PNC Bank v. Berg, C.A. No. 94C-09-208, 1997 Del. Super. LEXIS 19 at *11, Quillen, J. (Jan. 31, 1997).
Acorn relies on the testimony of ITW's officers to point out that they were aware that the sale of Florida Tile would have precluded the use of a "pooling of interests" accounting treatment of the ITW/Premark merger. They further testified that the merger would not have been accomplished without the use of the "pooling of interests" accounting. Acorn alleges that to avoid losing the merger, ITW wrongfully prevented the sale of Florida Tile by causing Premark to execute a Confidentiality Agreement dated August 25, 1999, and a commitment letter dated September 9, 1999 to Ernst Young. Each of these documents contained clauses that contractually required Premark to cease all efforts to sell Florida Tile and precluded the sale of Florida Tile until two years after the Premark/ITW merger. Premark terminated the letter of intent on September 8, 1999.
Further, Acorn contends that Mr. Farrell would likely use his position as a Premark Director and his relationship with Mr. Kinney, a principal of Premark, to block the sale of Florida Tile. Acorn alleges that ITW's wrongful conduct includes its improper acquisition and use of Florida Tile's confidential financial information to further its own interests at the expense of Acorn, in violation of the exclusivity agreements. During the exclusivity period ITW received Florida Tile's confidential and non-public financial information for the purpose of determining whether the sale of Florida Tile would preclude the ITW/Premark merger. Acorn claims this improper use of confidential information by ITW gives rise to a claim for tortious interference with contract. Acorn further contends that ITW's structuring of the merger by a "pooling of interests" accounting method is an affront to prevailing business ethics as it prevented the sale of Florida Tile and was in violation of the exclusivity agreements.
See Grand Ventures, Inc. v. Paoli's Rest. Inc., 1996 WL 30022, at *3 (Del.Super.).
Acorn contends that the cases upon which ITW relies are distinguishable because they: (i) address a claim other than tortious interference with contract; (ii) are factually distinct in that no breach of an underlying contract occurred; (iii) dealt with arms length transactions between three independent parties; and (iv) involved direct competitors acting in the normal course of business. Thus, Acorn alleges these cases are fatally flawed and of no application in this matter.
See Gillenardo v. Connor Broadcasting Delaware Company, 1999 WL 1240837 (Del.Super. 1999). See also Ballis v. Mobil Oil Corp., 1985 WL 3447, at *2 (N.D. Ill. 1985).
Acorn believes that a jury must determine if ITW's conduct was wrongful. Acorn argues that there remain disputed issues of fact regarding whether ITW so manipulated Premark's relationship with Acorn that it improperly encouraged Premark's breach of the exclusivity agreements. As such, Acorn argues that these material issues of fact may only be resolved by the jury, and not in summary judgment.
Lipson v. Anesthesia Services, P.A., 790 A.2d 1261, 1287 (Del.Super. 2001).
Finally, Acorn alleges damages of over $1 million dollars in out of pocket expenses and expending hundreds of hours pursuing the Florida Tile acquisition. Acorn believes that ITW's tortious interference with contract caused Acorn to be unable to acquire Florida Tile and further Acorn contends that it has lost profits it would have realized from the acquisition of Florida Tile. Acorn's expert has calculated these profits to exceed $4 million.
Tortious Interference with Prospective Economic Advantage Claim
In order to prevail on its tortious interference with prospective economic advantage claim against ITW, Acorn must show that: (i) Acorn had a reasonable expectation of purchasing Florida Tile, and (ii) that ITW knew of, intentionally and maliciously interfered with and defeated this legitimate expectancy without any justification.
See Bank Computer Network Corp. v. Continental Illinois Nat'l. Bank and Trust Co. of Chicago, 442 N.E.2d 586, 592 (Ill.App. 1982); Candalaus Chicago, Inc. v. Evans Mill Supply Co., 366 N.E.2d 319, 326 (Ill.App. 1977); and Hursey Porter Assoc. v. Bond, 1994 WL 762670 at *13-14 (Del.Super.) ( quoting DeBonaventura v. Nationwide Mut. Ins. Co., 428 A.2d 1151, 1153 (Del.Supr. 1981).
DEFENDANT'S CONTENTIONS
ITW argues that Acorn did not possess a "reasonable expectancy" of actually acquiring Florida Tile; without this expectancy, there can be no tortious interference with prospective economic advantage. First, the January 22, 1999 letter of intent itself negates Acorn's claim of expectancy. Again, ITW points out that the letter states, "This letter does not constitute a commitment to complete the purchase or sale of the shares" of Florida Tile. Where a letter of intent simply reflects an agreement to negotiate a definitive purchase/sales agreement, the parties are free to change their minds and terminate the negotiations at any time and for any reason.ITW relies on the testimony of Batchelor, Acorn's principal, to show that Acorn has admitted that under the letter of intent, Premark had the absolute right to decide at any time, and for any reason, simply to retain and not sell Florida Tile. Thus, there was no reasonable expectation of a completed transaction.
Finally, ITW points out that the last extension of the January 22, 1999 Acorn/Premark letter of intent states that Premark had the right to terminate the letter of intent any time beginning August 23, 1999, "for any reason at its sole discretion." Therefore, when the agreement itself states on its face that the seller can cease negotiations at any time and for any reason, the buyer cannot be said to have any reasonable expectation that a sale would actually occur.
ITW states that it did not engage in any conduct that could be characterized as wrongful. Further, ITW claims that even if Acorn had possessed a reasonable expectancy of a completed Florida Tile sale, absent ITW's offer, negotiation and consummation of a merger with Premark, then Acorn's claim still fails because the requisite wrongful conduct is lacking.
ITW points to the Restatement (Second) of Torts, § 768, which states that an actor cannot be liable for tortious interference with prospective economic advantage if:
(a) the relation concerns a matter involved in the competition between the actor and the other and
(b) the actor does not employ wrongful means and
(c) his action does not create or continue an unlawful restraint of trade and
(d) his purpose is at least in part to advance his interest in competing with the other.
Feldman v. Allegheny International, Inc., states that authentic competitive efforts, such as indicating an interest in and making offers to acquire a company, are not tortious interferences with business. Moreover, ITW contends that ITW (and Premark) entertained a good faith belief that preserving the "pooling of interests" accounting treatment was in the best interests of both corporations and their shareholders and that selling Florida Tile pursuant to the Kohlberg proposals would create a significant risk that the accounting treatment would be disallowed. ITW points out that, "[n]o authority demonstrates that `intended but purely incidental interference resulting from the pursuit of the defendant's own ends by proper means has been held to be actionable.'"
850 F.2d 1217, 1224 (7th Cir. 1988).
Bank Computer, 442 N.E.2d at 593 (quoting Prosser, Law of Torts § 130, at 952 (4th ed. 1971)).
Finally, ITW contends that Acorn had no reasonable expectancy in purchasing Florida Tile. There was no letter of intent in November of 1999 when ITW and Premark definitively knew that a purchase of Florida Tile would not be possible with the "pooling of interests" merger. At that time, only unacceptable proposals were on the table, which did not conform to the original letter of intent. As such, Acorn cannot be said to have had a reasonable expectation of a completed sale of Florida Tile. Additionally, even during the time period that the letter of intent and its extensions were in effect, Acorn never presented an acceptable offer to Premark. Thus, ITW contends the purchase ultimately fell through due to Acorn's inability to obtain the proper financing and Acorn did not have a reasonable expectancy at any time.
PLAINTIFF'S CONTENTIONS
Conversely, Acorn argues that it did indeed have a protectable reasonable expectation that it would be able to pursue the acquisition of Florida Tile unencumbered by the wrongful interference of third parties, such as ITW. Acorn alleges it had more than a mere expectancy of acquiring Florida Tile, it had the exclusive contractual right to do so. Acorn further points out that in direct disregard of this expectancy, ITW solicited and received information as early as March 1999, related to Florida Tile in furtherance of a transaction that ITW knew would preclude a subsequent sale of Florida Tile to Acorn.
Finally, Acorn points out that ITW seeks to bolster its arguments by asserting, as a defense, that under the Restatement of Torts (Second) § 768, ITW was permitted to interfere with Acorn's expectancy because it did so in its capacity as a competitor. First, Acorn states that the burden of proving the competitor privilege defense is on the defendant. Further, Acorn explains that ITW must satisfy each of the four elements set forth in section 768. Acorn alleges that ITW is unable to establish that it employed proper means, which is a necessary element of the competitor's privilege. Thus, Acorn states that the privilege does not excuse otherwise wrongful conduct, and in fact requires that a party act in a forthright manner before it can invoke the privilege. Furthermore, Acorn points out that the parties are not competitors pursuing the same goal, rather they were dealing with two wholly separate and distinct transactions, with each separately capable of being consummated absent ITW's tortious interference. Acorn alleges that ITW's interference with Acorn's expectancy was more than purely incidental, but rather it was directly aimed at defeating Acorn's expectancy. Likewise, Acorn argues that the means utilized by ITW were improper. Acorn lastly points out that since Acorn has been unable to establish the applicability of Restatement (Second) of Torts, § 768, its Motion for Summary Judgment must be denied.
Bowl-Mor Company, Inc. v. Brunswick Corp., 297 A.2d 61, 66 (Del. Ch. 1972).
Id. See also, Restatement at § 768 and International Business Machines, Corp. v. Comdisco, Inc., 1993 WL 259102 at *21-22 (Del.Super. 1993).
CONCLUSIONS OF THE COURT
Tortious interference with contract requires a breach of contract, which is not present in the instant case. Premark did not sell Florida Tile, but rather Premark merged with ITW and retained Florida Tile as its wholly owned subsidiary. The Delaware Court of Chancery has determined that a merger clearly does not constitute a sale or disposition of a corporation. Further, the Court finds that pursuant to the plain, unambiguous language of the January 22, 1999, Acorn/Premark letter of intent and its extensions, Premark was legally permitted to pursue a merger even if it precluded the sale of Florida Tile. A letter of intent is not a binding commitment to purchase or sell, and hence Premark was free at any time and for any reason to decide to retain and not sell Florida Tile. The Court finds that Premark did not provide information about Florida Tile to any potential acquirer of Florida Tile with "a view to selling or disposing of" Florida Tile, and Premark properly terminated the letter of intent on September 8, 1999. As such, without a breach of contract, there can be no claim for either tortious interference with contract or tortious interference with prospective economic advantage.
Shields v. Shields, 498 A.2d 161 (Del.Ch. 1985).
See VSA Communication Partners, L.P. v. Palmer Broadcasting L.P., 1992 WL 339377 (Del.Ch.).
The Court need not go further with respect to Acorn's claims regarding wrongful conduct or tortious interference.
For the aforementioned reasons, Defendant, Illinois Tool Works Inc.'s, Motion for Summary Judgment is hereby GRANTED.