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

Heading: Appellees’ Course of Conduct

Text: Trovare next argues that Appellees’ course of conduct makes evident that Appellees had, prior to September 30, decided to end negotiations. Trovare contends that Appellees imposed impossible conditions on Trovare in order to prevent it from securing funding—thereby scuttling the deal. In particular, Trovare contends that Appellees’ positions reNo. 13-2005 15 garding due diligence and the Phase IIs made a deal impossible, and that Appellees intended such an outcome. The district court concluded that Appellees’ course of conduct constituted bona fide negotiation, not pretextual sham negotiations. Once again, we find no clear error in the court’s conclusion.
It is undisputed that Appellees refused to provide the full scope of due diligence information that Trovare requested. Trovare argues that Appellees knew that Trovare could not secure financing without the diligence items it requested. So, Trovare argues, Appellees refused to provide that information (imposing an impossible condition) in order to impair Trovare’s access to financing. That, in turn, would scuttle the deal. Appellees argue, on the other hand, that they (1) considered Trovare’s requests to be unreasonable; and (2) viewed Trovare as a competitor in the cardboard box market, and were therefore particularly sensitive about disclosing information such as customer lists. First, while some aspects of the due diligence process were described in nonbinding LOI provisions, many of the details remained for further negotiation. Appellees were not required to acquiesce to any and all diligence items requested by Trovare or its lender, so a certain amount of bargaining was undoubtedly expected by both parties. As events unfolded, Appellees were not satisfied with some of the diligence items that Trovare requested. Gadon testified that he believed that at least the “field audit” portions of Trovare’s (or the lender’s) requests were excessive and were tantamount to calling Appellees “a bunch of 16 No. 13-2005 crooks.” Trovare counters by pointing to trial testimony that indicated that other individuals, such as Harlan from TCF Bank, considered the diligence requests to be reasonable. But that testimony does nothing to undermine Gadon’s contention that he, negotiating on behalf of Simkins, considered the requests unreasonable. The district court did not make a factual finding as to whether the diligence requests were reasonable. The court stated that “Appellees provided audited financial statements, and yet Mr. Cecola wanted apparently to verify some of those audited financial statements to actually trace cash receipts into bank accounts and that sort of thing, which I think the seller’s people thought was a bit too much.” So the district court credited Gadon’s testimony that he believed the requests to be unreasonable. That belief constitutes a plausible explanation for why Appellees opposed the scope of Trovare’s requests—an explanation other than the supposition that Appellees were stringing along false negotiations. Second, the district court concluded that Trovare and Appellees were indeed competitors. It “credit[ed] Appellees’ evidence that the plaintiff and the defendant were competitors, at least in some of the markets that they competed in.” As such, the court concluded that Appellees were justified in their heightened sensitivity to disclosing customer information. The district court concluded that “the defendant in good faith objected to the plaintiff’s contacting its customers and employees directly.” In short, the district court credited Appellees’ explanations as to why they opposed the scope of Trovare’s requested diligence. Necessarily, then, the court rejected Trovare’s argument that Appellees refused due diligence requests in No. 13-2005 17 order to scuttle the deal. Instead, the court concluded that “[t]his was something that never got resolved. It might have gotten resolved if they had gotten closer to the negotiation of an agreement.” Record evidence supports the district court’s conclusions, and we cannot find them to be clearly erroneous.
The Phase IIs loomed large both in the parties’ negotiations and in the trial testimony. Trovare argues here that, as with the due diligence, Appellees refused to conduct the Phase IIs in order to impair Trovare’s access to financing, and thereby scuttle the deal. Appellees argue that they refused to perform the Phase IIs until they received at least a conditional financing commitment. This was in an effort to minimize their financial liability for environmental remediation, should the deal fall through. The district court’s findings on the Phase II issue are not entirely clear. The court did not mention the Phase IIs prior to reaching its holding that no termination had occurred. After concluding that Simkins did not terminate negotiations prior to September 30, the court made the following statement: One more word before I finish, and that is about this environmental study issue, which a lot of testimony and evidence was presented. Mr. Cecola testified that his financing bank always demanded the Phase II, and that because he didn’t get the Phase II, that frustrated and basically killed his ability to finance the deal. 18 No. 13-2005 But Andrew Harlan, who was the banking witness presented by the [defendant], testified, he was at TCF Bank, testified that that bank did not demand a Phase II, because they weren’t financing the real estate. So there is a definite inconsistency between that testimony and Mr. Cecola’s, which really calls Mr. Cecola’s credibility into question. Trovare argues that this statement by the district court constitutes clear error and calls for reversal. Trovare argues that the court misunderstood either the nature of Harlan’s testimony or Cecola’s representations and made a clearly erroneous factual finding. As the court itself noted, TCF Bank was not providing the real estate financing, so it did not require the Phase IIs. Cecola never represented that it did. Instead, he represented that another bank—the one financing the real estate—demanded the Phase IIs. Therefore, Trovare argues, Cecola’s credibility could not properly have been called into question by Harlan’s testimony. We agree with Trovare that Harlan’s testimony, as far as we can tell, should have had no impact on Cecola’s credibility. However, this statement by the district court does not constitute clear error requiring reversal, for the following reasons. First, it seems to us that the Phase II issue had little or no bearing on the district court’s reasoning or conclusion as to termination. The court mentions the Phase IIs after reaching its holding, and we have no reason to believe that the court’s “[o]ne more word” influenced its already established view on the question of termination. Second, Trovare does not establish that the only reasonable explanation for Appellees’ refusal to conduct the Phase IIs was a desire to scuttle the deal. Appellees put forward a No. 13-2005 19 plausible explanation as to their reluctance—their possible financial liability for remediation—and Trovare’s arguments do not render that explanation implausible. To be sure, Appellees’ actions relative to the Phase IIs give us some pause. At best, Appellees changed their negotiation position regarding the Phase IIs, and at worst, they engaged in misrepresentation about whether the Phase IIs would occur. After Battaglia represented that Appellees would begin the Phase II process, Gadon then represented on multiple occasions that no Phase IIs would be completed until after an APA had been signed. This was a position that Trovare indicated would be a deal-breaker. Gadon also testified, however, that he ultimately “got tired of arguing about it,” and indicated that Appellees would do the Phase IIs prior to signing an APA. The district court credited Gadon’s testimony, and Trovare does not establish that the district court was clearly erroneous.