646 F.3d 994
7th Cir.2011Background
- LOI dated May 23, 2007 between Trovare and Simkins entities to negotiate asset sale; LOI included a 90-day exclusivity (Paragraph 13) and a $200,000 break-up fee if exclusivity/preservation failed (Paragraph 14) with a September 30, 2007 termination date.
- Phase I due diligence completed; Phase II testing was required for all properties but never undertaken; negotiations suggested Phase II would occur pre-closing, though not mandated by the LOI.
- Simkins expressed an August 2, 2007 belief that he did not want to proceed and preferred handing control to his children; this was not communicated to Trovare during the LOI period.
- Defendants’ counsel sent a August 21, 2007 letter with five conditions and demanded a written LOI release; later letters sought to condition or preclude financing and to secure a release.
- Mesirow brokers and Trovare remained engaged post-August 2007, with continued communications into October–November 2007; no definitive APA was signed and no lender commitment was obtained.
- Diversity case governed by Illinois law; the district court granted summary judgment for Defendants, holding no termination and continued negotiations, with Trovare appealing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether genuine issues exist as to whether negotiations terminated before the termination date. | Trovare argues termination occurred in bad faith without notice. | Defendants contend negotiations continued in good faith beyond termination. | Material facts disputed; summary judgment improper. |
| Whether implied covenant of good faith and fair dealing can create a duty to terminate with notice. | Implied covenant obligates honest termination and notice. | Covenant may not override explicit LOI terms; notice not provided. | Issue of bad faith with respect to termination fact-specific; remand warranted. |
| Whether Simkins's August 2, 2007 email constitutes a termination directive. | Email shows decisive termination of negotiations by principal. | Email is an outburst, not a clear directive; negotiations may have continued. | Evidence could support either view; material facts remain unresolved. |
| Whether the district court erred by not weighing conflicting evidence on summary judgment. | Record supports ongoing negotiations or bad-faith pretext. | Evidence shows bona fide negotiations; no error in granting summary judgment. | Remand required; bench trial may weigh evidence anew. |
Key Cases Cited
- Midwest Builder Distrib., Inc. v. Lord & Essex, Inc., 383 Ill.App.3d 645 (Ill. App. 2007) (implied covenant applicability to ensure non-arbitrary termination)
- A/S Apothekernes Lab. for Specialpraeparater v. I.M.C. Chem. Grp., Inc., 873 F.2d 155 (7th Cir. 1989) (good-faith negotiation; insistence on outside-scope conditions may breach)
- Seip v. Rogers Raw Materials Fund, L.P., 408 Ill.App.3d 434 (Ill. App. 2011) (implied covenant extended to control over performance of condition precedent)
- Sutherland v. Wal-Mart Stores, Inc., 632 F.3d 990 (7th Cir. 2011) (summary judgment standard; de novo review of facts)