Kirsch ex rel. Kirsch v. Brightstar Corp.
78 F. Supp. 3d 676
N.D. Ill.2015Background
- In 2010 Brightstar purchased OTBT (a U.S. activation/software business). The SPA included a one-year Earn‑Out tied to OTBT’s GAAP revenue and EBITDA for Apr 1, 2011–Mar 31, 2012 and a Representation & Warranty that Brightstar and its Affiliates (except OTBT) would not sell products/services that would generate Earn‑Out “Revenue.”
- Parties negotiated a Tech Data joint venture (JV) to operate OTBT; the JV Shareholders’ Agreement and related documents were signed in March 2011 but the JV did not close and become effective until April 29, 2011.
- A “Quartering Provision” in the SPA reduced revenue thresholds by dividing them by four if Brightstar had not entered into a JV with a JV Partner by March 31, 2011.
- Brightstar prepared OTBT’s Applicable Financials and calculated an Earn‑Out of $226,000; its accountant later computed an alternate accrual of $554,000 after adding back variable compensation. Shareholders disputed the Revenues (arguing Brightstar and its Affiliates diverted Relevant Sales, including sales through BEL/Tech Data Europe).
- Parties executed a Second Amendment (March 31, 2011) that lowered revenue thresholds; Brightstar later claimed plaintiffs gave consideration (accepting exclusion of Tech Data laptop sales) — plaintiffs deny any such promise. This litigation followed contesting the Earn‑Out calculation and alleged breaches (including implied good‑faith duties and ADR non‑participation).
Issues
| Issue | Plaintiff’s Argument | Defendant’s Argument | Held |
|---|---|---|---|
| Whether Brightstar breached the Representation & Warranty (sold Relevant Products through Affiliates rather than OTBT) | Kirsch: the term “Revenues” includes Relevant Products sold through Relevant Channels to Relevant Resellers (including BEL/other Affiliates), so those sales should count toward OTBT’s Earn‑Out | Brightstar: “Revenues” means OTBT’s GAAP‑reported revenue; it did not divert OTBT sales and Affiliates’ sales did not qualify as Relevant Sales | Court: Grant summary judgment to Brightstar — plaintiff failed to identify specific Relevant Sales or resellers; insufficient evidence that Affiliates made qualifying sales |
| Whether the Quartering Provision was triggered (i.e., was JV "entered into" by Mar 31, 2011) | Kirsch: JV was not entered into until closing (Apr 29, 2011), so Quartering should apply | Brightstar: formation steps and signed JV docs by Mar 28 show the JV was entered into before Mar 31 | Court: JV was not formed/operational until closing Apr 29; Quartering triggered — deny Brightstar summary judgment on this point |
| Validity of Second Amendment (whether supported by consideration) | Kirsch: Second Amendment merely adjusted thresholds and did not exclude laptop sales; plaintiffs did not give consideration | Brightstar: plaintiffs accepted exclusion of Tech Data laptop revenue (consideration for amendment) | Court: Second Amendment invalid for lack/ failure of consideration (plaintiffs never intended to bind themselves and later sued) — grant summary judgment for Brightstar that Second Amendment is invalid |
| Whether EBITDA was miscalculated (add‑backs for variable compensation, industry‑standard salary add‑backs, and business operating expense allocations) | Kirsch: Brightstar failed to add variable compensation and to include certain add‑backs per SPA; allocations to OTBT were improper | Brightstar: variable comp only excluded if exceeding industry standards; no evidence salaries exceeded standards; operating expense term ambiguous and no showing of wrongful allocation | Court: Variable compensation ($329,000) must be added back — partial summary judgment for plaintiff; however, plaintiff failed to prove excess‑of‑industry‑standard salaries or improper operating expense allocations — those issues remain disputed (no summary judgment) |
| Breach of implied covenant of good faith and fair dealing (re: Earn‑Out calculation) | Kirsch: Brightstar prepared Earn‑Out in bad faith and delegated to Izotov who ignored SPA directives | Brightstar: Izotov acted in good faith and reasonably, any error was honest mistake | Court: Denied summary judgment for plaintiff — no evidence of conscious, deliberate act; Izotov’s mistake/interpretation suggests negligence at most |
| ADR Provision / refusal to participate | Kirsch: Brightstar refused ADR and withheld documents | Brightstar: Plaintiffs waived ADR by filing suit; Brightstar moved for summary judgment on that point | Court: Plaintiff failed to respond to defendant’s summary‑judgment argument and thus waived the claim; summary judgment for Brightstar |
| Recoverability of attorneys’ fees under SPA indemnity clause | Kirsch: Indemnification clause allows prevailing party to recover attorneys’ fees | Brightstar: Clause does not unambiguously allow prevailing‑party fees between the parties | Court: Indemnity clause is ambiguous as to inter‑party fee shifting and must be read to apply only to third‑party claims; deny plaintiff’s attorneys’‑fees request |
Key Cases Cited
- Greene v. CCDN, L.L.C., 853 F. Supp. 2d 739 (N.D. Ill. 2011) (court may disregard argumentative or unsupported Local Rule 56.1 responses)
- Hampton v. Ford Motor Co., 561 F.3d 709 (7th Cir. 2009) (materiality standard for summary judgment)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. 1986) (summary judgment — genuine issue standard)
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (movant’s initial burden on summary judgment)
- Brazinski v. Amoco Petroleum Additives Co., 6 F.3d 1176 (7th Cir. 1993) (plaintiff must produce evidence on elements where it bears burden)
- PartyLite Gifts, Inc. v. MacMillan, 895 F. Supp. 2d 1213 (M.D. Fla. 2012) (extrinsic evidence admissible for latent ambiguity under Florida law)
- Strama v. Union Fidelity Life Ins. Co., 793 So. 2d 1129 (Fla. Dist. Ct. App. 2001) (latent ambiguity and extrinsic evidence)
- Jackson‑Shaw Co. v. Jacksonville Aviation Auth., 8 So. 3d 1076 (Fla. 2008) (elements and formation of joint venture)
- Kislak v. Kreedian, 95 So. 2d 510 (Fla. 1957) (joint venture requires community of interest, control, proprietary interest, sharing of profits/losses)
- Narus v. Narus, 382 So. 2d 144 (Fla. Dist. Ct. App. 1980) (failure of consideration where promised consideration is abrogated by subsequent suit)
- Resnick v. AvMed, Inc., 693 F.3d 1317 (11th Cir. 2012) (elements for breach of implied covenant of good faith under Florida law)
- Penthouse N. Ass’n v. Lombardi, 461 So. 2d 1350 (Fla. 1985) (construction of indemnity clause; avoiding anomalous mutual fee obligations)
- Succar v. Safra Nat’l Bank of N.Y., 237 Fed. Appx. 526 (11th Cir. 2007) (indemnity clauses interpreted to apply to third‑party claims absent clear prevailing‑party language)
- Blasland, Bouck & Lee, Inc. v. City of N. Miami, 283 F.3d 1286 (11th Cir. 2002) (prejudgment interest generally awarded in contract cases)