219 N.E.3d 206
Ind. Ct. App.2023Background
- In 2018 Tricor, Dealer VSC (Dealer), and Haytham ElZayn formed Allegiance and executed interrelated agreements: a Formation & Contribution Agreement, a Goodwill Purchase Agreement (Allegiance paid ElZayn $7,000,000), a binding MOU, a Convertible Note, and a Unit Pledge Agreement.
- The Goodwill Agreement (as amended) contained an EBITDA earnings contingency: if Assurant Business EBITDA for the 12 months ended June 30, 2019, was below $3,000,000, ElZayn would reimburse Allegiance dollar-for-dollar up to $2,000,000 (the "Goodwill Adjustment").
- The MOU defined default broadly to include material non‑compliance with the Operating Agreement, the Contribution Agreement, or any agreement incorporated therein (including the Goodwill Agreement); an uncured operational default would (among other things) deem ElZayn resigned as CEO and constitute a default under the Note.
- Tricor asserted an EBITDA shortfall, added a $2,000,000 Goodwill Adjustment as a draw on Dealer’s loan (increasing draws from $5.6M to $7.6M), demanded cure, declared Dealer and ElZayn in default, and took steps to convert pledged Allegiance units and remove ElZayn as CEO.
- Dealer and ElZayn moved for summary judgment; the trial court granted it, ruling no default occurred and invalidating Tricor’s unit conversions and operating‑agreement amendments. Tricor appealed, arguing genuine issues of material fact exist—especially as to an operational default premised on ElZayn’s failure to reimburse.
Issues
| Issue | Plaintiff's Argument (Tricor) | Defendant's Argument (Dealer/ElZayn) | Held |
|---|---|---|---|
| Whether an operational default occurred because ElZayn failed to pay the Goodwill Adjustment (EBITDA shortfall). | Designated evidence (Tricor’s EBITDA calculation and Accounting Firm report scenarios) shows an EBITDA shortfall and ElZayn’s failure to reimburse Allegiance, constituting a material breach and operational default under the MOU. | EBITDA calculation is disputed; Goodwill Adjustment improperly treated as a draw; no material breach. | Court: Genuine issue of material fact exists as to an operational default; summary judgment for Dealer/ElZayn was improper. |
| Whether Tricor provided the notice and cure required before declaring an operational default. | Tricor sent October 2019 correspondence notifying ElZayn of the EBITDA shortfall; ElZayn was a designated notice recipient—triggering the cure period. | Tricor failed to give proper notice/cure opportunity; notice insufficient. | Court: Existence of October 2019 notice and notice-designation creates a genuine factual dispute on effective notice/cure. |
| Whether Tricor lawfully converted/transferred pledged Allegiance units and accelerated repayment upon default. | If an operational default occurred, the MOU, Note, and Unit Pledge Agreement permit acceleration and transfer of pledged units to satisfy debt (no right to fractional units). | Tricor wrongfully exercised dominion and converted units without valid default. | Court: Because operational default remains disputed, summary judgment on conversion/pledge claims was inappropriate. |
| Whether Tricor could unilaterally amend the Operating Agreement and remove/declare ElZayn resigned as CEO. | The MOU provides that on default ElZayn is deemed to have immediately resigned and parties would amend the Operating Agreement to implement the MOU, permitting the amendments taken by Tricor if default occurred. | The original Operating Agreement required unanimous member consent for such amendments; Tricor’s unilateral changes were invalid absent consent. | Court: Existence of an operational default creates a factual dispute whether MOU-authorized amendments (and CEO removal) were effective; summary judgment improper on declaratory challenge. |
Key Cases Cited
- Hughley v. State, 15 N.E.3d 1000 (Ind. 2014) (standard of review for summary judgment).
- Williams v. Tharp, 914 N.E.2d 756 (Ind. 2009) (summary judgment standard and material/genuine fact definitions).
- B & R Oil Co., Inc. v. Stoler, 77 N.E.3d 823 (Ind. Ct. App. 2017) (burden-shifting on summary judgment and contract interpretation context).
- Four Seasons Mfg., Inc. v. 1001 Coliseum, LLC, 870 N.E.2d 494 (Ind. Ct. App. 2007) (contract interpretation principles—read contract as whole).
- DLZ Ind., LLC v. Greene Cty., 902 N.E.2d 323 (Ind. Ct. App. 2009) (specific contract terms control over inconsistent general statements).