In the
United States Court of Appeals
For the Seventh Circuit
No. 10-2778
T ROVARE C APITAL G ROUP, LLC,
Plaintiff-Appellant,
v.
S IMKINS INDUSTRIES, INCORPORATED , et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 08 C 3133—Robert W. Gettleman, Judge.
A RGUED A PRIL 12, 2011—D ECIDED JULY 20, 2011
Before K ANNE and E VANS, Circuit Judges, and C LEVERT,
District Judge.
K ANNE, Circuit Judge. Trovare Capital Group, LLC
(“Trovare”) was interested in buying the assets and real
The Honorable Charles N. Clevert, Chief Judge of the
United States District Court for the Eastern District of Wiscon-
sin, sitting by designation.
2 No. 10-2778
properties of Simkins Industries, Inc., and its affiliates
Harvard Folding Box Co., Inc.; Linden-Summer Realty
Co., Inc.; and South Union Company, Inc. (collectively,
the “Defendants”). The parties executed a letter of intent
(“LOI”) in which they undertook to negotiate a sale
before a specified date. Negotiations faltered, and the
sale never took place. Trovare subsequently sued to
recover a “break-up fee” it claimed was owed it under
the LOI. The district court determined that no break-up
fee obligation had been triggered and granted summary
judgment in the Defendants’ favor. Because genuine
issues of material fact persist as to whether actual negotia-
tions had terminated, we reverse the entry of summary
judgment and remand the case for further proceedings.
I. B ACKGROUND
An aborted business transaction underlies this diversity
case. In October 2006, Leon Simkins, controlling share-
holder for the family-owned enterprises comprising the
Defendants, decided to sell the Defendants’ assets and
real properties. Simkins engaged Mesirow Financial, Inc.
(“Mesirow”) to act as the Defendants’ broker. Trovare
became interested in purchasing the Defendants’ proper-
ties, and—through its sole member, Randy Cecola—
it contacted Mesirow to begin negotiations.
Trovare and the Defendants executed their LOI on
May 23, 2007, setting forth the intentions of both parties to
negotiate toward Trovare’s purchase of the Defendants’
assets and property. While the LOI was predominately
non-binding, it did obligate the parties to certain terms.
No. 10-2778 3
For example, the parties agreed in Paragraph 13 to a
90-day exclusivity period in which the Defendants would
pursue a sale only with Trovare. Paragraph 14 provided
that the Defendants would owe Trovare a $200,000
“break-up fee” if they either breached the exclusivity
period or provided Trovare written notice of their unilat-
eral termination of negotiations.1 The LOI set a “Termina-
tion Date” of September 30, 2007, after which neither
party would be obligated to further pursue the sale.
The parties agreed to use their best reasonable efforts
to facilitate their negotiations and respective obligations.
For example, Trovare needed to conduct due diligence
investigations, validate the Defendants’ relationships
with key clients, and secure financing for the purchase.
The Defendants eventually would have to provide access
to their records, customers, and facilities to allow for
the due diligence investigations. Both parties knew that
environmental studies would be necessary and that, if an
initial (Phase I) study recommended a more in-depth
study, a more costly second (Phase II) study would be
required before any sale of the properties. The LOI did
not, however, assign either party responsibility for con-
ducting Phase II studies or any required remediations; it
left those matters to negotiation. Paragraph 9 recited some
1
Paragraph 14 read in full: “If the Seller or any other share-
holder of Seller breaches paragraph 13 of this letter or the Seller
provides to Buyer written notice that negotiations toward a
definitive asset purchase agreement are terminated, then
Seller shall pay Buyer a breakup fee of two hundred thousand
dollars ($200,000).”
4 No. 10-2778
conditions precedent to the completion of the trans-
action, including the completion of due diligence investi-
gations to Trovare’s satisfaction, the negotiation of
an Asset Purchase Agreement (“APA”), and Trovare’s
receipt of financial commitments from lenders.
Shortly after the LOI was executed, Trovare completed
the Phase I study and promptly informed Mesirow and
the Defendants that Phase II testing would be necessary
for all of the Defendants’ properties. Anthony Battaglia,
the Defendants’ CFO, indicated that a Phase II consultant
would be selected in mid-June 2007 and that studies
would begin immediately thereafter. Evidence also sug-
gested that the Defendants made further representa-
tions about conducting Phase II studies. These representa-
tions notwithstanding, the studies were never under-
taken. In fact, an internal email indicated that the Defen-
dants’ negotiation position was that Phase II testing
would not be commenced until after a deal was com-
pleted, despite Trovare’s clear statements that Phase II
studies were required before it would proceed and before
lenders would commit to financing the transaction.
At some point during negotiations, the Defendants
began investigating their own potential liabilities arising
from a sale, which they called “exit costs” or “tail items.”
These included pension funding obligations, union notifi-
cations and negotiations, and potential environmental
remediations. The exit costs became a concern for
the Defendants, but the extent of their influence in the
negotiations is unclear. Trovare argues that these costs
actually poisoned the deal, leading the Defendants to
terminate negotiations.
No. 10-2778 5
Following a July 27, 2007, conference call between the
parties discussing an APA draft, Simkins conferred
with members of his family regarding the sale. The family
members, including Simkins, expressed concerns about
the ability to close a favorable deal and disagreement
over the values of the Defendants’ assets and potential
liabilities. As information about the family’s concerns
reached Cecola, Trovare’s counsel informed him that the
Defendants’ counsel, Steve Gadon, had communicated
terms contradicting those agreed to by Simkins in the
July 27 conference call. Cecola began to fear that the
Defendants’ negotiating agents either lacked authority
or acted without Simkins’s knowledge and oversight.
Cecola requested to negotiate directly with Simkins to
determine exactly where negotiations stood. Simkins,
angry over their ensuing conversation, had an email sent
to his negotiators on August 2, 2007: “Leon just called
me [secretary] and said to tell you [accountant/advisor]
that he definitely does not want to go through with the
Trovare Transaction. He has intentions of operating
with his children in charge.” Neither this email nor
Simkins’s expressed intention was communicated to
Trovare during the LOI’s period.
Trovare, unaware of Simkins’s decree, continued its
attempts to reach a deal with the Defendants. Attorney
Gadon responded to Trovare’s attempts by listing the
Defendants’ non-negotiable points, including their
refusal to perform Phase II inspections before the
closing date, their refusal to extend the Termination
Date (which effectively precluded the inspections, given
6 No. 10-2778
their duration), and their refusal to allow validation of
their customer relations until after closing. Soon there-
after, however, Gadon noted that these demands had not
been approved by Simkins and suggested that perhaps
Phase II inspections could proceed so that Trovare could
meet lender-underwriting requirements. Gadon notified
Mesirow and all negotiators that the APA would not be
drafted until after the inspections were complete and
after he had a lender commitment letter from Trovare.
Yet Trovare had informed Gadon that the inspections
and APA were prerequisites to lender consideration.
Further, later depositions showed that Simkins had
already determined he would refuse any lender com-
mitment letter and would insist on a cash transac-
tion—a condition that Trovare had always made clear
was a deal-breaker.
Mesirow employees had begun questioning the
sincerity of the Defendants’ negotiations. One employee
sent an internal email asking if the Defendants were
going to tell Trovare that it wouldn’t allow due diligence
investigations and if the Defendants were going to
prevent investigations by every potential buyer.
Battaglia, the Defendants’ CFO, admittedly had begun
avoiding calls from Mesirow and Trovare. When notified
on August 13, 2007, of the unresolvable timing and se-
quencing issues of the APA, Phase II inspections, and
lender commitment letter, another Mesirow employee
observed, “This is dead.” Later emails pre-dating the
Termination Date included similar statements.
Determining that the Defendants had made it impos-
sible to close a deal, Trovare sent a letter demanding
No. 10-2778 7
payment of the $200,000 break-up fee on August 21, 2007.
Gadon responded with a refusal and five points that
Trovare needed to agree to for the parties to continue
negotiations. These points included restrictions on cus-
tomer and employee access during due diligence inves-
tigations, no decreases in the price of sale, and evidence
of a lender’s unconditional financial commitment.
When Gadon sought to follow up with Trovare’s coun-
sel regarding these demands, he further demanded a
written release from the LOI.
Communications—and, therefore, purported negotia-
tions—continued between Trovare and the Defendants
into November 2007, well beyond the September 30
Termination Date. The Defendants’ agents considered
internal proposals in the first week of October, and Gadon
contacted Cecola about unresolved points from earlier
communications in the second week. Cecola responded,
detailing concerns with what he viewed as impossibilities
in the deal. In late November, a new proposal (which
fundamentally differed from that contemplated by the
LOI) arose, but no deal was ever consummated. Signifi-
cantly, Simkins never communicated a change in his
stance to either the Defendants or Trovare. As foretold
by his August 2 email, Simkins transferred his con-
trolling interests in the Defendants to his children, and
his son became the president of the holding company.
Trovare sued the Defendants in diversity for an alleged
breach of contract, seeking the $200,000 break-up fee
because the Defendants allegedly knew or should have
known that no transaction would be reached before the
8 No. 10-2778
Termination Date. Trovare claimed that the Defendants’
purported negotiations lacked authority from their princi-
pal, Simkins, and were therefore merely dilatory tactics
to avoid liability under Paragraph 14 of the LOI. It
claimed that the Defendants refused, in violation of
their duty of good faith and fair dealing, to issue a
written notice of their termination in order to avoid
paying the penalty.
The Defendants moved for summary judgment after
discovery, arguing that the parties had merely taken
strong and contentious negotiation positions, that all
communications between them had represented good-
faith negotiations, and that those negotiations continued
after the Termination Date. The district court agreed with
the Defendants that “the undisputed facts demonstrate
that [they] did not terminate negotiations . . . and
indeed continued negotiations in good faith beyond
the termination date.” It granted the Defendants’ motion,
and Trovare appeals that final judgment.
II. A NALYSIS
“We review the district court’s grant of summary judg-
ment de novo, construing all facts and drawing all rea-
sonable inferences in favor of the nonmoving party.”
Sutherland v. Wal-Mart Stores, Inc., 632 F.3d 990, 993 (7th
Cir. 2011). Trovare argues that record evidence—properly
construed in its favor—requires us to reverse the dis-
trict court’s entry of summary judgment. It argues
that a trial is necessary to determine whether the Defen-
dants owe a break-up fee under Paragraph 14 of the LOI.
No. 10-2778 9
The parties agree that Paragraph 16 made Paragraph 14
part of an enforceable contract between them. The dis-
trict court correctly noted that Paragraph 14 contained
a condition precedent to the Defendants’ enforceable
duty to pay the break-up fee: their provision of “written
notice that negotiations toward a definitive asset pur-
chase agreement are terminated.” Conceding that no
written notice was provided, Trovare fell back on the
implied covenant of good faith and fair dealing imposed
on parties to a contract under Illinois law.2 See Seip v.
Rogers Raw Materials Fund, L.P., 948 N.E.2d 628, 637-38 (Ill.
App. Ct. 2011); Schwinder v. Austin Bank of Chicago, 809
N.E.2d 180, 193 (Ill. App. Ct. 2004). This implied covenant
extends to circumstances where one party has complete
control over the occurrence of a condition precedent,
prohibiting the controlling party from acting capriciously
and failing to take affirmative steps to satisfy the condi-
tion. Midwest Builder Distrib., Inc. v. Lord & Essex, Inc., 891
N.E.2d 1, 26 (Ill. App. Ct. 2007). The district court accu-
rately articulated how Trovare could prevail under its
theory: “plaintiff would have to prove that defendant
2
Because this is a diversity action, we apply Illinois choice-of-
law rules to determine the applicable substantive law. Storie
v. Randy’s Auto Sales, LLC, 589 F.3d 873, 879 (7th Cir. 2009).
Paragraph 18 of the LOI states: “This letter shall be governed
by the internal laws of the State of Illinois without regard to
conflict of laws.” Neither party now challenges its adoption
of Illinois substantive law, and we will apply it accordingly.
See Khan v. BDO Seidman, LLP, 948 N.E.2d. 132, 148 (Ill.
App. Ct. 2011).
10 No. 10-2778
had in fact decided to terminate negotiations during
the term of the LOI, but refused to issue the notice of
termination in bad faith.”
The appropriate question on appeal is whether
Trovare introduced evidence from which an objective
trier of fact could conclude that negotiations had, in
fact, terminated and that written notice thereof was
deliberately withheld. If genuine issues of material fact
persist on these points, the district court’s entry of sum-
mary judgment was inappropriate. Fed. R. Civ. P. 56(a);
Sutherland, 632 F.3d at 993. The district court concluded
that no such issues persisted, as it was undisputed that
Trovare and the Defendants kept trading proposals at
least into October 2007. The district court entered sum-
mary judgment for the Defendants, stating that nothing
in the record suggested they were simply stringing
Trovare along to avoid any break-up fee obligation.
We cannot agree. If negotiations had indeed terminated
in this case, the Defendants’ refusal to issue a written
notification of that fact to avoid triggering their duty to
pay the break-up fee likely constituted bad faith. See
Midwest Builder Distrib., Inc., 891 N.E.2d at 26. While it
is clear that communications continued into Novem-
ber 2007, whether they constituted actual negotiations
is unclear. Given that the outcome of this litigation
turns on classification of ongoing communications as
negotiations, accurate classification is certainly material.
And as record evidence shows that this material fact
remains in dispute—and that the Defendants may have
been only pretextually “negotiating”—summary judg-
ment was inappropriate in this case.
No. 10-2778 11
Simkins clearly conveyed his state of mind regarding
the potential sale of the Defendants’ assets and prop-
erties to Trovare in his dictated message of August 2,
2007: he “definitely” did not want to go through with the
transaction, preferring to transfer operations to his chil-
dren. Despite the Defendants’ concessions that such a
definitive conclusion by the principal could constitute
termination, (Appellee’s Br. at 27), and that Simkins
alone had control of the termination decision, they mini-
mize the import of the email. They characterize it as
an irrelevant “outburst” and argue that it did not con-
tain an explicit edict to cease negotiations or to throw
a “monkey wrench” into the negotiations. They argue
that Simkins even personally participated in later nego-
tiations, showing that no termination occurred.
The only evidence of his subsequent participation is
a single letter dated August 28, 2007, in which Simkins
wrote that he was “still prepared to make a deal,” but
conditioned any consideration of that deal on Trovare’s
capitulation to five demands in Gadon’s letter of
August 21. If those five demands were deliberately de-
signed to preclude any possibility of closing the deal,
nothing in the August 28 letter necessarily shows
Simkins’s intent to negotiate, and the letter would be
entirely consistent with Simkins’s never-withdrawn
message of August 2. A rational trier of fact could rea-
sonably conclude from the designated evidence that
the Defendants’ principal and decision-maker had con-
clusively determined that he would no longer consider a
sale to Trovare. If he had, the determination effectively
12 No. 10-2778
terminated both the negotiations and his negotiators’
authority.
Trovare acknowledges that it exchanged communica-
tions and proposals with the Defendants after Simkins’s
August 2 email—indeed, even after the Terminal Date.
But it challenges the district court’s characterization of
those communications as negotiations. If Simkins’s erst-
while agents lacked the authority to truly negotiate on
his behalf, the communications between them and
Trovare may have been—at best—attempts to draw their
principal back into considering a favorable deal. But by
interpreting the evidence in Trovare’s favor, a rational
trier of fact could conclude that the communications
were actually bad-faith facades designed to avoid
liability for the break-up fee.
For example, Battaglia had already misrepresented to
Trovare that Phase II inspections were underway, while
the Defendants had not and might have never in-
tended to commission them. Later communications
never remedied these misrepresentations. In addition,
Gadon’s August 21 letter demanded five concessions
from Trovare that Defendants knew would likely
preclude Trovare from securing financing; his Septem-
ber 5 letter also demanded a release from the LOI and
any liabilities under it. The Defendants now spin these
two letters as mere hard bargaining. But that is not the
only permissible inference, and we must draw all rea-
sonable inferences in Trovare’s favor at this stage. These
letters were preceded by emails from the Defendants’
counsel reminding Simkins’s agents to avoid breaching
No. 10-2778 13
their duty of good faith and asking them to review a
chronology of events compiled to “show good faith
negotiations” in case Trovare sued for the penalty. A fact-
finder could reasonably infer that Gadon’s letters were
pretextual.
Even the brokers at Mesirow appear to have concluded
that the communications no longer bore negotiation
potential. Apparently having determined that negotia-
tions were frustrated by the Defendants, Michael Simon
inquired on September 5, 2007, “Is every buyer going to be
be told that they can’t do diligence [sic]?” On August 14,
2007, Bill Hornell wrote, “We’re just about dead on
Trovare/Simkins. Leon never trusted the buyer, so he
insisted on negotiating an [APA] before giving the ok on
final [due diligence.]” Indeed, just four days after
Simkins’s “outburst” foreswearing any deal with Trovare,
Simon described the deal as “[d]ead as dead can be.” The
Defendants argued against making any inferences
from these emails, stating that their characterizations
were flatly contradicted by statements from a deposition
of a Mesirow superior. But such contradiction goes to
the weight of the evidence, an inappropriate considera-
tion at the summary judgment stage.
We conclude that material questions of fact persisted
as to whether actual negotiations continued after
Simkins’s apparent termination up to and beyond the
Termination Date. The evidence at least suggests that
misrepresentations and insistence on impossible condi-
tions occurred. Either could constitute a breach of the
Defendants’ duty to negotiate in good faith under the
14 No. 10-2778
LOI. See, e.g., A/S Apothekernes Lab. for Specialpraeparater
v. I.M.C. Chem. Grp., Inc., 873 F.2d 155, 158 (7th Cir. 1989)
(“[A] party might breach its obligation to bargain in
good faith by unreasonably insisting on a condition
outside the scope of the parties’ preliminary agreement,
especially where such insistence is a thinly disguised
pretext for scotching the deal . . . .”). The district court
erred, therefore, in concluding that nothing in the
record could suggest that the Defendants were simply
stringing Trovare along to avoid the break-up fee.
Finally, we note that neither Trovare nor the Defendants
requested a jury trial, so the district court will likely
hear this case in a bench trial on remand. We recognize
that “[i]f on a certain record a district court believes a
party is entitled to summary judgment, then the same
court, if required to conduct a bench trial on that same
record, will probably decide the case for that same
party.” Patton v. MFS/Sun Life Fin. Distribs., Inc., 480 F.3d
478, 484 (7th Cir. 2007). Indeed, a substantial amount of
record evidence suggests that the Defendants were en-
gaged in bona fide negotiations, including both their
continued engagement of an array of attorneys, accoun-
tants, and others (which would be costly as a mere fa-
cade) and also the lack of any explicit directions from
Simkins to stop the purported negotiations despite his
awareness of them. On the current record, the district
court might conclude that no breach of the duty of good
faith and fair dealing in negotiations occurred.
But we simultaneously warned in Patton that “the
winner of a bench trial might be uncertain even though
No. 10-2778 15
no new evidence will be presented.” Id. at 484 n.2.
Given the factual complexities—including the effect of
Simkins’s statements on his agents’ authority and the
accurate classification of communications as bona fide
negotiations or empty facades—and the issues of credi-
bility inherent in this case, additional evidence in the
form of testimony may be presented on remand. Further,
the district court’s order under review did not—on its
face, at least—weigh competing evidence. When it does
weigh the evidence, it may reach a different conclusion.
For these reasons, we “cannot say with certainty how
the district court will resolve this case on remand,” id., so
remand remains the appropriate remedy.
III. C ONCLUSION
The district court erred in determining that no genuine
issues of material fact remained to be resolved in this
breach of contract case. Accordingly, we R EVERSE its
entry of summary judgment and R EMAND the case for
further proceedings.
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