The Honorable Charles N. Clevert, Chief Judge of the 

United States District Court for the Eastern District of Wisconsin, sitting by designation.

In the

United States Court of Appeals

For the Seventh Circuit

No. 10-2778

TROVARE CAPITAL GROUP, LLC,

Plaintiff-Appellant,

v.

SIMKINS 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.

ARGUED APRIL 12, 2011—DECIDED JULY 20, 2011

Before KANNE and EVANS, Circuit Judges, and CLEVERT,

District Judge.



KANNE, Circuit Judge. Trovare Capital Group, LLC

(“Trovare”) was interested in buying the assets and real
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 negotiations had terminated, we reverse the entry of summary

judgment and remand the case for further proceedings.

I. BACKGROUND

An aborted business transaction underlies this diversity

case. In October 2006, Leon Simkins, controlling shareholder 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’ properties, 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

Paragraph 14 read in full: “If the Seller or any other share- 1

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).”

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 unilateral termination of negotiations. The LOI set a “Termina- 1

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 conducting Phase II studies or any required remediations; it

left those matters to negotiation. Paragraph 9 recited some
4 No. 10-2778

conditions precedent to the completion of the transaction, including the completion of due diligence investigations 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 suggested that the Defendants made further representations about conducting Phase II studies. These representations notwithstanding, the studies were never undertaken. In fact, an internal email indicated that the Defendants’ negotiation position was that Phase II testing

would not be commenced until after a deal was completed, 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 notifications 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 thereafter, 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 commitment letter and would insist on a cash transaction—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 sequencing 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 impossible 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 customer and employee access during due diligence investigations, 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 counsel regarding these demands, he further demanded a

written release from the LOI.

Communications—and, therefore, purported negotiations—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. Significantly, Simkins never communicated a change in his

stance to either the Defendants or Trovare. As foretold

by his August 2 email, Simkins transferred his controlling 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 principal, 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 goodfaith 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. ANALYSIS

“We review the district court’s grant of summary judgment de novo, construing all facts and drawing all reasonable 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 district court’s entry of summary judgment. It argues

that a trial is necessary to determine whether the Defendants owe a break-up fee under Paragraph 14 of the LOI.
No. 10-2778 9

Because this is a diversity action, we apply Illinois choice-of- 2

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).

The parties agree that Paragraph 16 made Paragraph 14

part of an enforceable contract between them. The district 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 purchase 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. See Seip v.

2

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 condition. Midwest Builder Distrib., Inc. v. Lord & Essex, Inc., 891

N.E.2d 1, 26 (Ill. App. Ct. 2007). The district court accurately articulated how Trovare could prevail under its

theory: “plaintiff would have to prove that defendant
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 summary 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 summary 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 November 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 judgment 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 properties 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 children. 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 minimize the import of the email. They characterize it as

an irrelevant “outburst” and argue that it did not contain an explicit edict to cease negotiations or to throw

a “monkey wrench” into the negotiations. They argue

that Simkins even personally participated in later negotiations, 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 designed 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 reasonably conclude from the designated evidence that

the Defendants’ principal and decision-maker had conclusively 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 communications 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 erstwhile 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 intended 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 September 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 reasonable 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 factfinder 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 negotiations 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 consideration 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 conditions 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 engaged in bona fide negotiations, including both their

continued engagement of an array of attorneys, accountants, and others (which would be costly as a mere facade) 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 credibility 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. CONCLUSION

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 REVERSE its

entry of summary judgment and REMAND the case for

further proceedings.

7-20-11