United States District Court, D. Colorado
RICHARD B. LANGILLE and GARY F. SKINNER, Plaintiffs,
HUNTER DOUGLAS, INC., Defendant
For Richard B Langille, an individual, Gary F Skinner, an individual, Plaintiffs: Michael E. Lindsay, LEAD ATTORNEY, Christopher J. L. Diedrich, Snell & Wilmer, LLP-Denver, Denver, CO.
For Hunter Douglas Inc., a Delaware Corporation, Defendant: Andrew Bijan Mohraz, Morton Adam Lewis, Stephen D. Gurr, Randall H. Miller, Bryan Cave HRO-Denver, Denver, CO.
For Randall H. Miller, Counter Defendant: Christopher J. L. Diedrich, Michael E. Lindsay, LEAD ATTORNEYS, Snell & Wilmer, LLP-Denver, Denver, CO.
For Hunter Douglas Inc., a Delaware Corporation, Counter Claimant: Andrew Bijan Mohraz, Stephen D. Gurr, Randall H. Miller, Bryan Cave HRO-Denver, Denver, CO.
R. Brooke Jackson, United States District Judge.
This matter comes before the Court on the defendant's Motion for Summary Judgment [ECF No. 36]. The Court exercises diversity jurisdiction pursuant to 28 U.S.C. § 1332. For the following reasons, the motion is denied.
This case begins with the sale of the plaintiff's company, Electronic Solutions, Inc. (" ESI"), to the defendant, Hunter Douglas, Inc. (" HDI") in 2007. ESI is a company that specializes in designing, producing, and selling motorized control products for use with window coverings and other bi-directional motorized products (collectively, the " Products"). HDI is a large manufacturer and seller of window coverings and related products. In early 2007 David Sonnenberg, the co-CEO of HDI, approached the plaintiffs about purchasing ESI and expanding the market presence of the Products. In consideration for all ESI stock, Mr. Sonnenberg proposed a purchase-sale structure that would include an upfront payment as well as future earn-out payments over seven years. According to the plaintiffs, Mr. Sonnenberg impressed upon them the substantial profits and resulting earn-out payments he believed would result from the purchase. In particular, he projected " conservative" estimates of earn-out payments surpassing $18 million over the seven years. See Langille Decl. [ECF No. 40-1] ¶ 6.
On or about March 22, 2007 the parties entered into a Stock Purchase Agreement (" SPA") that contained the terms surrounding HDI's purchase of all ESI stock from the plaintiffs. [ECF No. 30-1]. As had been discussed, the SPA provided that the stock purchase would be funded by a cash payment due at the closing of the SPA as well as cumulative contingent earn-out payments (hereinafter the " Earn-Out Payments") to be paid in accordance with the terms and conditions set forth in Article II of the SPA. Id. § 1.03. Article II provides that the Earn-Out Payments were to be determined on a cumulative basis over an eighty-one (81) month period to be paid out after the end of each applicable year, from December 31, 2007 to December 31, 2013. Id. § 2.01. The Earn-Out Payments would be calculated as a percentage of ESI's profit-after tax (" PAT") as set forth in § 2.02. Id. § 2.01(ii).
The SPA also specified that HDI " shall manage [ESI] as a distinct business entity substantially in accordance with the strategic business plan attached hereto as 'Exhibit A' (the 'Strategic Business Plan'), provided, however, that [HDI] shall be free to deviate therefrom, after consulting with [Langille] and [Skinner] if (i) in its good faith opinion, this is desirable and necessary to address major changes in economic or market conditions or a material deterioration in [ESI's] position or results, or (ii) the PAT of [ESI] for any year is less than 50% of [ESI's] PAT for the immediately preceding year." Id. § 5.01(a) (emphasis added).
As referenced above, HDI developed a Strategic Business Plan (" SBP") that it agreed to follow in guiding ESI's integration into HDI and in fostering ESI's continued success. The SBP provides that HDI will become the " principal marking and sales channel for the Products."  [ECF No. 30-2 at 2]. To that end, HDI agreed to set up a new business unit called Hunter Douglas Home Automation (" HDHA") which was to " market the Products to consumers, home integrators, HD dealers and HD fabricators, and sell the Products to HD fabricators." Id. The SBP continues, " In order to help build HD[I]'s and [ESI's] market position in this channel, HDHA's cumulative advertising and marketing budgets through 2010 will amount to at minimum $1.5m[illio]n." Id. It also provides that " Mermet U.S. will sell and market a selection of Products on behalf of [ESI], principally to larger fabricators servicing the commercial market." Id. The SBP ends by acknowledging " that the implementation of this Strategic Business Plan is likely to have a material and substantial impact (positive and negative) on [ESI's] profitability and, consequently, on the calculation of the incentive amount provided for in the Employment agreements or on the Earn-Out provided for in the Stock Purchase Agreement." Id. at 6.
The plaintiffs claim that HDI repeatedly and consistently failed to manage ESI substantially in accordance with the SBP, thereby negatively impacting ESI's sales and performance, and, in turn, the PAT and yearly Earn-Out Payments. Second Amended Complaint [ECF No. 30] ¶ 40. " As a result of HDI's unilateral decision to materially deviate from the agreed-upon Strategic Business Plan, ESI's PAT steadily declined, resulting in Earn-Out Payments that fell drastically short of the projections authored by HDI." Id. ¶ 50. Instead of receiving nearly $18 million apiece in Earn-Out Payments over the seven year period, HDI paid each plaintiff only $389, 710.50. Id. ¶ 52. Based on these allegations, the plaintiffs have filed two claims: breach of contract and breach of the implied covenant of good faith and fair dealing.
The defendant files the present motion seeking judgment as a matter of law, arguing that the plaintiffs' claims are barred by (1) the plain language of § 2.03(a) of the SPA; (2) the doctrine of waiver; (3) the doctrine of accord and satisfaction; and (4) the ...