Opinion ID: 2819791
Heading Depth: 2
Heading Rank: 2

Heading: Phase II Studies

Text: The asset purchase pursued by the parties included a number of manufacturing facilities. Trovare made clear from the outset that it was concerned, unsurprisingly, about potential environmental liability and remediation costs arising from the real estate at issue. Both parties agreed that socalled “Phase I” environmental studies (“Phase Is”) would be commissioned and paid for by Trovare. This agreement is memorialized in Paragraph 6 (a nonbinding provision) of the LOI. The Phase Is involved a “paper review” of the real estate at issue. Using public records, the Phase Is aimed to 8 No. 13-2005 track the history of the properties, identifying whether there were any areas of potential environmental concern. Trovare had always maintained that if the Phase Is so indicated, Phase IIs would be necessary. Generally speaking, a Phase II entails the physical inspection of a property, including measures such as soil and water sampling. The LOI is silent on the issue of Phase IIs, so a number of matters remained for negotiation, including financial responsibility for the Phase IIs, timing, and selection of the analyst. Trovare also represented to Appellees that its bank would not provide financing for the real estate without the Phase IIs. Shortly after execution of the LOI, Trovare completed the Phase Is. The Phase Is indicated that Phase IIs would be necessary for all of Appellees’ properties, and Trovare promptly notified Appellees, through Mesirow, of that fact. Battaglia indicated to Trovare that a Phase II study consultant would be selected in mid-June and that studies would begin immediately thereafter. Appellees seem to have made further representations about promptly conducting the Phase IIs, though we need not discuss them at length. At the same time, however, Appellees were concerned about financial liability that might arise from the results of the Phase IIs. Gadon testified about those concerns at trial. According to him, Appellees would have been required to turn over to the government the results of the Phase IIs. Appellees were concerned that if the Phase IIs (and the relevant statutory regimes) indicated a need for remediation, Appellees would be on the hook for those costs if the deal with Trovare didn’t materialize. Both parties opined that such costs might reach into the millions of dollars. No. 13-2005 9 So Appellees, contradicting their earlier statements, began representing to Trovare that they needed to receive at least a conditional showing of financing before they would order the Phase IIs. Gadon testified that “to do it before you know you’ve got a deal to me seemed to be ludicrous. I wanted to know I had a deal or at least the making of a deal before we spent the money.” At least in internal emails, if not external representations to Trovare, Appellees formulated the position that the Phase IIs would not be completed before an APA was signed. Trovare, on the other hand, represented to Appellees that it would be impossible to secure even a conditional offer of financing without the Phase IIs. Trovare continued to insist that the Phase IIs be completed prior to the signing of the APA. It appears that Trovare did not provide Appellees with any written verification that their real estate lender, whose identity remains unclear, indeed required the Phase IIs. No real estate lender testified at trial. Gadon testified that at some point in the later phases of negotiation, in either August or September, he “did concede and say, okay, we’ll do it. I just got tired of arguing about it and said, okay, we’ll do a Phase II. We didn’t do it, but we got close to it.” The Phase IIs were never completed.