The opinion of the court was delivered by: Judge Algenon L. Marbley
Magistrate Judge Terrence P. Kemp
This contract action is before the Court on Defendant Booth Creek Management Corp.'s Motion for Summary Judgment (Doc. 75). For the reasons that follow, Booth Creek's Motion is GRANTED in part and DENIED in part.
In 2004, Booth Creek-affiliated companies owned four automobile dealership franchises located in Silverthorne, Colorado and were looking to expand with the goal of acquiring dealerships nationwide. In November 2004, Booth Creek approached Sam Schmidt about purchasing the eight to ten dealerships Schmidt owned in Ohio and Tennessee. At the time of Booth Creek's inquiry, Schmidt was not actively trying to sell his dealerships. Schmidt did, however, take part in preliminary telephone conversations with numerous Booth Creek employees, including Booth Creek's Principal George N. Gillett, Jr. In late November 2004, Schmidt agreed to meet Gillett in New York to discuss further the prospect of Booth Creek purchasing Schmidt's dealerships. Despite the New York meeting, the prospect of Booth Creek purchasing Schmidt's dealerships never progressed beyond preliminary discussions and the parties temporarily went their separate ways.
In February 2005, Schmidt's attorney, Stanley Shayne, inquired whether Schmidt would be interested in acquiring, for himself, a large multi-state dealership group in the northeast United States called Berlin City. At the time he approached Schmidt, Shayne was acting as the seller's broker for Berlin City. Schmidt contemplated the purchase but eventually determined that Berlin City was too large for him to acquire. Schmidt did, however, indicate to Shayne that he might know of an interested buyer: Booth Creek.
On February 25, 2005, Shayne, acting as Schmidt's attorney, sent a letter to Gillett with the hopes of negotiating a fee arrangement for Schmidt in exchange for Schmidt's identification of potential automobile dealerships for Gillett and Booth Creek to acquire. The following week Shayne sent Booth Creek a draft of a Broker Agreement that Schmidt and Shayne had prepared together. The terms of the draft proposed by Schmidt and Shayne included a 7.5% commission for Schmidt based on the "total consideration agreed" upon between Booth Creek and the seller of any dealerships identified by Schmidt. The draft also included a section with the heading "CLOSING," which restricted Schmidt's right to a commission to instances where Booth Creek "buys from, invests with, or manages operations for/with any SELLER produced by BROKER . . . during the contract term; or . . . within twenty-four (24) months of the term of this contract. . . ."
After receiving and reviewing the proposed Broker Agreement sent by Shayne, Booth Creek personnel revised the proposed terms. Changes to the proposed Broker Agreement included a reduction of the commission fee percentage from 7.5% to 5%, an explicit one-year duration for the contract, a shortening of the post-termination time frame from two years to one year, and various other changes to the "CLOSING" section. After making these revisions, Gillett signed the Booth Creek version of the Broker Agreement and sent it to Schmidt and Shayne.
Shayne received the signed proposal made by Booth Creek, Shayne contacted Gillett to discuss the possibility of additional changes to the "CLOSING" section of the agreement. During their communications, Gillett indicated to Shayne that the draft sent by Booth Creek was Booth Creek's final offer. Two days after Gillett signed and sent Booth Creek's proposed Broker Agreement, Schmidt also signed it. Although Gillett signed the final Broker Agreement on March 7, 2005, and Schmidt signed the same agreement on March 9, 2005, the terms of the agreement state at the beginning that the Broker Agreement was "entered into on the 2nd day of March, 2005."
It was Gillett's understanding at the time he signed the Broker Agreement that the terms "buys," "invests in," and "manages operations for" all referred to a closing on the transaction and that the "CLOSING" section served the purpose of ensuring that there was a timely closing of the deal. It was Schmidt's understanding that the term "buys" meant the time in which a purchase agreement was entered into and signed between Booth Creek and the seller. Furthermore, Schmidt understood the "CLOSING" section to mean that the closing was the time when his fee was due, not when it was earned.
After the Broker Agreement was finalized and signed by both parties, Schmidt referred Booth Creek to Shayne for information about the Berlin City opportunity. Shortly after learning about Berlin City, Booth Creek began communications with Berlin City about its possible sale to Booth Creek. When negotiations between Booth Creek and Berlin City began, Berlin City was owned by a combination of a single majority shareholder, Daniel Dagesse, who owned 51% of the stock in the company, and an Employee Stock Ownership Program ("ESOP"), which owned 49%. As negotiations moved forward between Booth Creek and Berlin City, a number of obstacles arose which delayed the closing of the sale.
Of the obstacles and delays encountered by Booth Creek and Berlin City, the most prominent was a protracted audit by Department of Labor ("DOL") of Berlin City's ESOP, which implicated a possible $20 million company liability for Berlin City arising out of certain stock transactions engaged in by the ESOP. With the DOL issue unresolved, Booth Creek faced the prospect that the $20 million liability would potentially fall on it in the event it purchased the dealerships. As a result of the DOL issue, negotiations between Booth Creek and Berlin City were placed entirely on hold while awaiting a decision from the Department of Labor.
In the March 7, 2007 Agreement, the parties included a specific contingency provision identifying the DOL audit as an unresolved "condition precedent" to Booth Creek's obligation at closing. In late July 2007, Booth Creek and Berlin City negotiated an alternative arrangement wherein Booth Creek waived the condition and Dagesse agreed to place approximately $10 million in escrow to cover the liability arising from the DOL audit.
In addition to the DOL audit, a number of other issues contributed to the delay in closing. During the period of negotiations, Berlin City's majority shareholder, Dagesse, was suffering from health problems that resulted in at least one period of hospitalization. Dagesse's personal temperament was also an obstacle to the timely negotiations between Booth Creek and Berlin City. A further delay was caused by Degasse's premature start to Toyota's manufacturer approval process. The premature application to Toyota caused Toyota to have concerns about the transaction, adding to the delays. Ultimately Toyota did approve Booth Creek as a purchaser.
Another delay arose after Booth Creek and Berlin City had entered into their initial Stock Contribution and Purchase Agreement in November 2006, when Booth Creek learned of a $29 million tax gain built into the real estate held by Berlin City. The additional $29 million cost required Booth Creek to restructure the agreement to purchase the dealerships. Because of the tax gain issue, Booth Creek was unable to finance the purchase of the real estate associated with the Berlin City Dealerships and the real estate was purchased by a third party Capital Automotive REIT.
One of two final delays was a number of substantial issues that arose between Dagesse and the Berlin City ESOP. As late as May of 2007, disagreements between Dagesse and the ESOP over the amounts of money that would be required to be put into escrow put the transaction in jeopardy. The disagreement over the escrow funds prompted Dagesse to contact Gillett and others conveying his feeling that the deal was "off." Also contributing to the delay in transactions between Booth Creek and Berlin City was the disputes that arose between Shayne and Dagesse over the terms of Shayne's own broker agreement with Berlin City. A final agreement between Dagesse and Shayne was not reached until July 2007.
Booth Creek and Berlin City ultimately entered into a Stock Contribution and Purchase Agreement on November 10, 2006. The parties subsequently entered into an Amended and Restated Stock Contribution and Purchase Agreement on March 7, 2007. It was not until August 3, 2007 that Booth Creek closed on the Berlin City purchase.
On June 13, 2007, Schmidt contacted Booth Creek to congratulate Gillett on the upcoming closing of the Berlin City transaction and to demand payment of his broker's fee payment when he received the letter from Schmidt, Booth Creek executive vice president Jeffrey Joyce conducted an investigation into the validity of the Broker Agreement and as to whether it had expired. Booth Creek determined that it would not initially respond to Schmidt's demand for his broker's fee payment.
On August 3, 2007, Booth Creek and Berlin City closed the transaction for Booth Creek to acquire the Berlin City Dealerships. The closing was not a traditional closing where the parties assembled in person, but instead consisted of a series of wire transfers. The final purchase price paid by Booth Creek to Berlin City for the acquisition of the Berlin City Dealerships was $86,000,000. Schmidt has demanded ...