Opinion ID: 2981683
Heading Depth: 3
Heading Rank: 1

Heading: Liability Analysis

Text: The district court found that Invacare breached three sets of provisions: the Finder’s Fee Provisions of the APA, the Accounts Receivable Repurchase Provision of the APA, and the Escrow Agreement. We affirm.
The Finder’s Fee Provisions together state the following: (1) that “[n]o broker or finder has acted for Buyer or its Affiliates in connection with [the APA],” (2) that “no broker or finder retained by Buyer . . . is entitled to any brokerage or finder’s fee,” and (3) that “[n]o representation or warranty by Buyer in [the APA] . . . contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein . . . not misleading.” -8- Nos. 11-5820/11-5844/11-6044/11-6050 Naylor Med. Sales & Rentals, Inc., et al. v. Invacare Continuing Care, Inc., et al. APA §§ 5.2.4 & 5.2.6. The district court found that Invacare paid McDaniel a $30,000 consulting bonus, which “had all of the characteristics of a finder’s fee” and which “[Invacare] internally referred to . . . as a finder’s fee.” The record supports these conclusions. Invacare’s internal documents referred to the flat bonus as a finder’s fee. The Invacare point man for the acquisition, Mike Will, recognized the bonus as a finder’s fee and inquired internally whether it may require disclosure. Drawing all reasonable inferences from these facts in the plaintiffs’ favor, reasonable minds could conclude that Invacare violated the representations in the Finder’s Fee Provisions by promising a “finder’s fee” to McDaniel, who aided as a “finder.” Invacare protests that the district court never specifically identified McDaniel as a “finder,” but the language of the district court opinion suggests otherwise. After noting the Black’s Law Dictionary definition of “finder’s fee” as “[t]he amount charged by one who brings together parties for a business opportunity,” the district court found that “McDaniel introduced Underwood and Naylor to the Defendants”—i.e., acted as a finder by bringing the parties together. Furthermore, while Invacare may have paid the flat fee in lieu of McDaniel’s usual revenuedependent quarterly bonus due to accounting reasons, the court correctly found that the defendants’ accounting rationale does not necessarily preclude the payment from counting as a finder’s fee. (Analogously, if a child usually receives a weekly allowance but receives a birthday present in lieu of the allowance on the week of her birthday, the present would not, for that reason, cease to be a birthday present.) The timing of the payment shortly before the close of sale and the atypical flat payment structure independent of future revenue could lead to the inference that the payment served -9- Nos. 11-5820/11-5844/11-6044/11-6050 Naylor Med. Sales & Rentals, Inc., et al. v. Invacare Continuing Care, Inc., et al. as a reward for McDaniel’s role in facilitating the Naylor deal, rather than the usual reward for growing rental revenue. From these facts, a reasonable mind drawing all inferences in plaintiffs’ favor could conclude, as the district court did, that Invacare offered McDaniel a finder’s fee, both in name and in function. Invacare’s attempts to limit the Finder’s Fee Provisions to circumstances of unfair “surprise” also fail as contrary to the provisions’ plain language. Even if, as Invacare insists, parties usually agree to such prohibitions against finder’s fees only because they want to foreclose “someone coming out of the woodwork claiming [entitlement] to a fee,” the plain language of the agreement provides no exceptions for lack of surprise. Granted, the district court recognized that “Underwood knew McDaniel was consulting for Defendants, Underwood knew McDaniel’s compensation was the bonus or fee based on his growth of Defendants’ rental revenue, [and that] Underwood expected McDaniel to be paid a bonus based on growing the revenue of Naylor in the event that Defendants purchased Naylor.” Even so, it could reasonably infer from the circumstances that Invacare’s promise of a flat bonus created an “entitle[ment]” to a “finder’s fee.” The district court need not credit Invacare’s one-sided explanation that Underwood’s awareness of some aspects of McDaniel’s incentives with Invacare falls outside of the “typical[] use[]” of finder’s fee provisions. Whether or not Underwood reasonably relied on the absence of a direct link between McDaniel’s pay incentives and the Naylor acquisition when accepting a purchase price, the payment still falls under the plain meaning of “finder’s fee.” And where no ambiguities exist, we need not resort to construing provisions against the drafter. Invacare breached the Finder’s Fee Provisions by promising - 10 - Nos. 11-5820/11-5844/11-6044/11-6050 Naylor Med. Sales & Rentals, Inc., et al. v. Invacare Continuing Care, Inc., et al. McDaniel a finder’s fee in lieu of his usual profit-based quarterly bonus, regardless of its accountingrelated motives for paying the fee.
Section 7.6 of the APA provides that, at Invacare’s option, Naylor and Underwood must repurchase accounts receivable unpaid 180 days after the date of invoice, for an amount equal to the unpaid balance less “any amount by which the Closing Net Book Value exceeds the Target Net Book Value.” Central to this dispute, that section provides, “Seller shall have the right to verify the existence of the unpaid balance of any accounts receivable.” APA § 7.6. The district court sided with the plaintiffs in concluding that Invacare’s illegible spreadsheets violated the plaintiff’s contractual right to verify the claimed unpaid balance. Invacare relies on the more general notice provision in Section 3 of the Escrow Agreement, which only requires providing the “natural and dollar amount” of the claim in “reasonable detail.” But the district court rightfully supplanted this requirement with the more specific requirement set forth in the Accounts Receivable Repurchase Provision, which requires the claimant to provide enough evidence for the plaintiffs to “verify the existence of the unpaid balance of any accounts receivable.” See Cocke Cnty. Bd. of Highway Comm’rs v. Newport Utils. Bd., 690 S.W.2d 231, 237 (Tenn. 1985) (“As a rule, where there are, in a contract, both general and special provisions relating to the same thing, the special provisions control.” (internal quotation marks omitted)). The district court accepted Underwood’s testimony that he unsuccessfully attempted to obtain a readable spreadsheet, unpaid invoice numbers, and invoice dates. Though Invacare’s brief quips - 11 - Nos. 11-5820/11-5844/11-6044/11-6050 Naylor Med. Sales & Rentals, Inc., et al. v. Invacare Continuing Care, Inc., et al. that the aggregate figures provided in the notice letter are “clearly legible,” that is beside the point. Plaintiffs cannot “verify” the notice letter by just taking the claimed totals at face value. See App. 273; PageID 806 (conclusorily stating demands in notice letter without providing supporting evidence). Moreover, to identify qualifying unpaid accounts receivable—that is, “accounts receivable unpaid 180 days after the date of invoice”—plaintiffs would, at the least, need to verify the invoice dates associated with each unpaid invoice account. The district court correctly concluded that the plaintiffs could not “verify the existence of the unpaid balance” when Invacare failed to disclose such information. Accordingly, we uphold the district court’s factual findings regarding the inadequate responses to the plaintiffs’ requests for information and accept the district court’s determination that Invacare violated plaintiffs’ verification rights under the Accounts Receivable Repurchase Provision. For similar reasons, Invacare’s related breach-of-contract counterclaim fails as well.2 Invacare alleges that plaintiffs breached the Accounts Receivable Repurchase Provision by refusing to buy back a certain amount of the unpaid accounts receivable. But that provision imposes no obligation on the plaintiffs to honor unverified claims. We thus affirm the district court’s implicit denial of this counterclaim. 2 Though Invacare discusses the counterclaim in its appellate brief as though resolved, it appears that the district court failed to acknowledge the existence of this counterclaim in its opinion. Nevertheless, we need not remand, as we deem this counterclaim implicitly rejected. See Bank of Lexington & Trust Co. v. Vining-Sparks Sec., Inc., 959 F.2d 606, 615 (6th Cir. 1992) (“W here a district court has implicitly decided a narrow and specific issue, we will review the findings of fact and conclusions of law which necessarily support that decision, rather than remand for a certain express determination.” (citing Brown v. Baltimore & Ohio R.R. Co., 805 F.2d 1133, 1141 (4th Cir. 1986))). - 12 - Nos. 11-5820/11-5844/11-6044/11-6050 Naylor Med. Sales & Rentals, Inc., et al. v. Invacare Continuing Care, Inc., et al.
Section 3 of the Escrow Agreement establishes a claims period where “Buyer may give notice (a ‘Notice’) to Seller and Escrow Agent specifying in reasonable detail the nature and dollar amount of any claim (a ‘Claim’) it may have under the Purchase Agreement,” and thus bind the Escrow Agent to make payments from the escrow “only in accordance with (I) joint written instructions of the Buyer and Seller or (ii) a final non-appealable order of a court of competent jurisdiction.” Escrow Agreement § 3. The district court found that Invacare breached the Escrow Agreement by blocking the disbursement of the escrow funds in bad faith with an unsupported claim related to lost customer accounts. Invacare submitted a notice letter complaining that at least three customer accounts ceased doing business with it after its purchase of Naylor. It claimed that Naylor and Underwood falsely represented, in violation of Section 4.5.6 of the APA, that “[n]o customer or supplier which had accounted for more than ten percent . . . of the total sales, rentals or purchases for the year 2007 and no other customer or supplier material to the Business” had “decreased or delayed materially, or threatened to decrease or delay materially” its purchases, rentals, or sales to Naylor; that they had no knowledge of facts or events that “could reasonably be expected” to cause such decreases or delays; and that to their knowledge the sale would not adversely affect customer or supplier relationships. The district court found that Invacare made this claim on the escrow funds in bad faith, deeming the evidence supporting their claim too sparse. - 13 - Nos. 11-5820/11-5844/11-6044/11-6050 Naylor Med. Sales & Rentals, Inc., et al. v. Invacare Continuing Care, Inc., et al. “[T]here is implied in every contract a duty of good faith and fair dealing in its performance and enforcement.” Wallace v. Nat’l Bank of Commerce, 938 S.W.2d 684, 686 (Tenn. 1996) (quoting TSC Indus., Inc. v. Tomlin, 743 S.W.2d 169, 173 (Tenn. Ct. App. 1987)). “What this duty consists of, however, depends upon the individual contract in each case. In construing contracts, courts look to the language of the instrument and to the intention of the parties, and impose a construction which is fair and reasonable.” Id. (quoting TSC Indus., 743 S.W.2d at 173). Because bad faith concerns a question of fact, see Lamar Adver. Co. v. By-Pass Partners, 313 S.W.3d 779, 791 (Tenn. Ct. App. 2009), we uphold the district court’s finding absent clear error. No clear error exists here. Invacare generally protests that its notice met the requirements of the Escrow Agreement by providing “reasonable detail” of the “nature and dollar amount” of the escrow claim. But this assertion is irrelevant; the district court found bad faith with respect to Invacare’s lost-customer-accounts claim not because of the lack of specificity of the notice, but rather because of lack of support underlying the claim in the notice. In determining bad faith, it looked to “all of the evidence presented at trial” rather than the language of the notice, and faulted Invacare for “not [proving] via competent evidence that they had a good faith basis for making this claim.” The available evidence, construed in the plaintiffs’ favor, establishes the following. Invacare lost certain customer accounts about three or four months after the Naylor purchase. At least one account, Briley, briefly increased its business volume after the sale, and several accounts continued to transact with Invacare for a period of time before ceasing business. Denying accusations that he convinced Naylor’s customers to wait to discontinue their business until after the sale, Underwood - 14 - Nos. 11-5820/11-5844/11-6044/11-6050 Naylor Med. Sales & Rentals, Inc., et al. v. Invacare Continuing Care, Inc., et al. attributed the loss of customers to Invacare’s poor service record rather than any intentions of the customers predating the sale. The district court credited Underwood’s testimony regarding the volatility of the customer base in the competitive medical equipment rental industry. The fact that Invacare could not concretely identify any statements or recall the names of people to support their assertions of plaintiffs’ prior knowledge, despite discovery and a full trial, supports the district court’s finding of bad faith. Much of Invacare’s evidence consists of hearsay of unnamed individuals affiliated with customer organizations—individuals who, at best, explain that the customer organization had plans to decrease or cease their business, but fail to demonstrate that Naylor or Underwood would have known about the customer’s plans prior to the closing date of the Naylor sale. As the district court recognized, Invacare’s best evidence comes from the testimony that Invacare’s Will, as well as Naylor’s Underwood, knew about changes in Kindred’s national account and the fact that Charles Nunn, the “point person” at Kindred, felt forced to use Kindred’s national contract exclusively. Yet even this testimony fails to establish that anyone at Naylor knew of Kindred’s intention to decrease or stop business. No one from Kindred appears to have threatened Naylor with loss of business. Though under a de novo standard we might have entertained the possibility that Kindred’s move toward a national contract “could reasonably be expected” to cause decreases in business, we do not view the district court’s contrary finding as clearly erroneous. As Underwood testified, national contracts often function as “list price[s],” and a vendor can transact with a competitor that offers a lower price or better service. A reasonable mind crediting - 15 - Nos. 11-5820/11-5844/11-6044/11-6050 Naylor Med. Sales & Rentals, Inc., et al. v. Invacare Continuing Care, Inc., et al. Underwood’s testimony could infer, together with the fact that Kindred initially maintained the same rental levels as before the sale, that the mere existence of a customer’s national contract is insufficient to support a good-faith accusation that Naylor expected a decrease in business. Thus drawing all inferences in the plaintiffs’ favor and accepting the district court’s credibility determinations, a reasonable mind could deem Invacare’s claim so lacking in objective support as to constitute bad faith.3
Plaintiffs next accuse Invacare of intentionally misrepresenting that no broker or finder acted on its behalf and that no one could claim an entitlement to a finder’s fee. See APA § 5.2.4. As the district court correctly stated, Tennessee law requires proof of the following six elements in order to establish intentional misrepresentation: 1) the defendant made a representation of an existing or past fact; 2) the representation was false when made; 3) the representation was in regard to a material fact; 4) the false representation was made either knowingly or without belief in its truth or recklessly; 5) plaintiff reasonably relied on the misrepresented material fact; and 6) plaintiff suffered damage as a result of the misrepresentation. Walker v. Sunrise Pontiac-GMC Truck, Inc., 249 S.W.3d 301, 311 (Tenn. 2008) (citations omitted). Invacare challenges the second and fifth elements on appeal. 3 Plaintiffs argue in the alternative that none of the lost customers’ accounts involved were material, defining a “material” customer as “a customer that would cause Naylor to lay off some employees if Naylor lost the customer.” But a defendant does not necessarily act in bad faith by failing to comport with the plaintiffs’ idiosyncratic definition of materiality. The APA leaves “material” undefined, and plaintiffs fail to explain why Invacare’s identification of material customers falls so far outside of the contract’s scope that a reasonable mind may infer bad faith. W e thus reject this alternative argument. A reasonable mind may infer bad faith from the dearth of evidence supporting Invacare’s accusations against the plaintiffs, even assuming the materiality of each of the customer accounts lost. - 16 - Nos. 11-5820/11-5844/11-6044/11-6050 Naylor Med. Sales & Rentals, Inc., et al. v. Invacare Continuing Care, Inc., et al. We uphold the district court’s findings regarding the second element for the reasons stated above in Section II.A.1. Regarding the fifth element, Invacare faults the district court for neglecting to state its findings on whether the plaintiffs reasonably relied on misrepresentations. Indeed, though reasonable reliance is a question of fact, see Davis v. McGuigan, 325 S.W.3d 149, 158 (Tenn. 2010), the district court omitted any discussion of reliance in its factual findings sections, and the legal analysis section merely acknowledges that “Underwood vehemently testified that he did rely on [the alleged misrepresentation that Invacare paid no finder’s fee in the APA], and, importantly, he had no opportunity to discover this misrepresentation.” We need not infer from this that the district court failed to support its legal conclusions, however. We may deduce that the district court implicitly found reasonable reliance, given that it specifically noted Underwood’s testimony regarding reliance on the APA language shortly before concluding that intentional misrepresentation occurred, referencing the earlier fact with the word “[t]herefore.” See Bank of Lexington & Trust Co. v. Vining-Sparks Sec., Inc., 959 F.2d 606, 615 (6th Cir. 1992) (permitting appellate courts to infer implicit findings of fact and conclusions of law which “necessarily support” a district court’s decision on a “narrow and specific issue”). Invacare fails to show that the court clearly erred in finding reasonable reliance. It emphasizes the limited nature of the interactions between McDaniel, the recipient of the finder’s fee, and Underwood: McDaniel advised regarding future opportunities for Underwood after the deal, admonished Underwood to remain patient, and counseled Underwood to decrease his valuation of Naylor. Noting that Invacare promised no future opportunities, and even included a “zipper clause” - 17 - Nos. 11-5820/11-5844/11-6044/11-6050 Naylor Med. Sales & Rentals, Inc., et al. v. Invacare Continuing Care, Inc., et al. in Underwood’s Consulting Agreement disclaiming any promises outside of the agreement, Invacare portrays Underwood’s expectation of future opportunities as unreasonable and his decision to sell Naylor at the agreed-upon price as an independent decision unaffected by McDaniel’s representations. This argument misses the point. The district court evaluated whether the APA’s representations regarding the finder’s fee, rather than the finder’s statements themselves, constituted intentional misrepresentation. We need not decide whether Underwood’s reliance on McDaniel’s statements were reasonable; we only need resolve whether Underwood reasonably relied on the written representations about finder’s fees in the APA. The district court did not clearly err: Underwood’s reliance on the express representations in a negotiated contractual document was reasonable under the circumstances. Because the district court’s factual findings support each element, it correctly concluded that Invacare is liable for intentional misrepresentation.
The TCPA declares as unlawful “[e]ngaging in any . . . act or practice which is deceptive to the consumer or to any other person.” Tenn. Code Ann. § 47-18-104(b)(27). After correctly noting that “[a] deceptive act or practice is a material representation, practice or omission likely to mislead a reasonable consumer” and that negligent misrepresentation suffices for deception, Davis, 325 S.W.3d at 162 (citations and internal quotation marks omitted), the district court concluded that Invacare violated the TCPA for the same reasons that it found a breach of contract and intentional misrepresentation. Invacare cursorily contests this ruling, relying on its prior arguments against the breach-of-contract and intentional-misrepresentation claims. Absent any new arguments, we - 18 - Nos. 11-5820/11-5844/11-6044/11-6050 Naylor Med. Sales & Rentals, Inc., et al. v. Invacare Continuing Care, Inc., et al. conclude that this challenge fails for the same reasons stated in our discussion of the breach-ofcontract and intentional-misrepresentation claims. Express representations in a negotiated contract disclaiming the use of finders and finder’s fees would likely mislead a reasonable person into trusting that no finder would claim entitlement to a fee and that no deal facilitator’s incentives depend specifically on the close of the sale. And given that the district court did not clearly err in inferring reckless intent from the fact that Invacare’s leadership discussed disclosing McDaniel’s finder’s fee to Underwood but ultimately declined to do so, it follows that the court did not clearly err in deeming this omission negligent. Because “[w]hether a particular act is unfair or deceptive is a question of fact,” Davis, 325 S.W.3d at 162 (internal quotation marks and citation omitted), we uphold the district court’s determination of deception as sufficiently supported to overcome clear-error review.