Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 1 of 27
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
MAIN STREET BASEBALL, LLC and CLARK MINKER,
Plaintiffs,
Civil Action No.
3:15-CV-00380-DNH-DEP
v.
BINGHAMTON METS BASEBALL CLUB, INC. and
BEACON SPORTS CAPITAL PARTNERS, LLC,
Defendants.
MEMORANDUM OF LAW IN OPPOSITION
TO MOTION FOR PRELIMINARY INJUNCTION
BOND, SCHOENECK & KING, PLLC
Jonathan B. Fellows, Esq.
Brendan M. Sheehan, Esq.
Attorneys for Defendant Binghamton Mets
Baseball Club, Inc. and Beacon Sports
Capital Partners, LLC
Office and P.O. Address
One Lincoln Center
Syracuse, New York 13202-1355
Telephone: (315) 218-8000
2474897.2 4/10/2015
Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 2 of 27
TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT .....................................................................................................1
BACKGROUND .............................................................................................................................2
ARGUMENT ...................................................................................................................................8
POINT I ...........................................................................................................................................8
PLAINTIFFS HAVE NOT DEMONSTRATED A
LIKELIHOOD OF SUCCESS ON THE MERITS .............................................................8
POINT II ........................................................................................................................................21
PLAINTIFFS HAVE NOT DEMONSTRATED
IRREPARABLE HARM ...................................................................................................21
POINT III .......................................................................................................................................22
PLAINTIFFS MUST BE REQUIRED TO POST
SECURITY IF TEMPORARY RELIEF IS CONTINUED ..............................................22
CONCLUSION ..............................................................................................................................23
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TABLE OF AUTHORITIES
Page(s)
Cases
Adjustrite Sys. v. GAB Bus. Servs.,
145 F.3d 543 (2d Cir. 1998)............................................................................................. passim
Amcam Holdings, Inc. v. Canadian Imperial Bank of Commerce,
70 A.D.3d 423 (1st Dep’t 2010) ..............................................................................................17
Arcadian Phosphates, Inc. v. Arcadian Corp.,
884 F.2d 69 (2d Cir. 1989).................................................................................................10, 14
Blumenthal v. Merrill Lynch,
910 F.2d 1049 (2d Cir. 1990)...................................................................................................23
Bodner v. FDIC,
No. 97-6181, 1998 U.S. App. LEXIS 22384 (2d Cir. March 27, 1998) ..................................22
Brown v. Cara,
420 F.3d 148 (2d Cir. 2005)...............................................................................................11, 13
CAC Group Inc. v. Maxim Group LLC,
523 F. App’x 802 (2d Cir. 2013) .......................................................................................11, 14
EQT Infrastructure Ltd. v. Smith,
861 F. Supp. 2d 220 (S.D.N.Y. 2012)......................................................................................19
Gas Natural, Inc. v. Iberdrola, S.A.,
33 F. Supp. 3d 373, 379 (S.D.N.Y. 2014) ...............................................................................13
Guardian Life Ins. Co. v. Schaefer,
70 N.Y.2d 888 (1987) ..............................................................................................................16
IDT Corp. v. Tyco Grp.,
13 N.Y.3d 209 (2009) ..................................................................................................11, 15, 17
Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc.,
596 F.2d 70 (2d Cir. 1979).......................................................................................................22
Juanes v. Lyzwinski,
875 F. Supp. 2d 155 (N.D.N.Y. 2012) .....................................................................................11
MHR Capital Partners LP v. Presstek, Inc.,
12 N.Y.3d 640 (2009) ..............................................................................................................19
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Reprosystem, B.N. v. SCM Corp.,
727 F.2d 257 (2d Cir. 1984).....................................................................................................13
Ritchie v. Hulihan,
No. 9:08-CV-0706, 2008 U.S. Dist. LEXIS 56759 (N.D.N.Y. July 22, 2008)
(Hurd, J.) ..............................................................................................................................9, 22
Rosenblatt v. Christie, Manson & Woods Ltd.,
195 F. App’x 11 (2d Cir. 2006) .................................................................................................9
Simone v. N.V. Floresta, Inc.,
No. 98 Civ. 0268, 1970, 1999 U.S. Dist. LEXIS 9578 (S.D.N.Y. June 18,
1999) ........................................................................................................................................17
Teachers Ins. & Annuity Ass’n v. Tribune Co.,
670 F. Supp. 491 (S.D.N.Y. 1987) .................................................................................... 10-18
Vacold LLC v. Cerami,
545 F.3d 114 (2d Cir. 2008)...............................................................................................12, 15
Other Authorities
Fed. R. Civ. P. 65(c) ......................................................................................................................27
iii
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PRELIMINARY STATEMENT
Defendant Binghamton Mets Baseball Club, Inc. (the “Binghamton Mets”) and Beacon
Sport Capital Partners, LLC (“Beacon”) submits this memorandum in opposition to the
application for a preliminary injunction. The Plaintiffs in this action are seeking to enforce as a
binding contract a document specifically delineated as a “letter of intent,” which repeatedly
references the negotiation of a binding Asset Purchase Agreement. By its express terms, the
Letter of Intent expired after a 60-day exclusivity period when the parties had executed no
“mutually agreeable Asset Purchase Agreement containing provisions consistent herewith and
such other terms and provisions as are normally included in asset purchase agreements of Minor
League Baseball clubs, including, without limitation, usual and customary representations and
warranties, disclosures and indemnities.”
Plaintiffs’ submissions selectively quote from the Letter of Intent, but conveniently
ignore that it specifically states in Section 12 that it will terminate “upon the expiration of the
No-Shopping Period,” and that: “Upon termination of this Letter of Intent, the Parties shall have
no further obligations hereunder.”
During that 60-day period, the parties negotiated in an effort to reach a mutually
agreeable Asset Purchase Agreement, but they could not reach agreement on the necessary terms
in part because Plaintiffs refused to negotiate “usual and customary representations and
warranties, disclosures and indemnities.”
Accordingly, Plaintiffs are not likely to succeed on the merits and injunctive relief should
be denied. Following that 60-day period, the Binghamton Mets were free to pursue other
transactions, and have done so and the Court should vacate the Temporary Restraining Order.
2474897.2 4/10/2015
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BACKGROUND
On December 27, 2014, Michael Urda, President of the Binghamton Mets, executed a
letter specifically denominated in the first sentence as a “Letter of Intent” (the “Letter of Intent”
or “LOI”). Section 1 of the Letter of Intent in turn states that the “obligations of the Parties shall
be spelled out in greater specificity in a mutually acceptable definitive asset purchase agreement
and schedules and exhibits thereto.” Although Plaintiffs now claim the Letter of Intent was a
binding agreement to sell the team, the very first sentence states that it is intended “to pursue the
proposed acquisition of the Binghamton Mets baseball club.” Plaintiffs quote a portion of the
second paragraph of the Letter of Intent but the Plaintiffs omit certain key language:
– except as set forth in Sections 5, 6, 8, 9, 10, 12 and 13 hereof –
this Letter of Intent shall constitute a legally binding commitment
of the parties to execute and deliver the Asset Purchase Agreement
(referenced in Section 1 below).
LOI, at 1.
Section 12 of the Letter of Intent, one of the sections referenced in the “except as set
forth” provision, states as follows:
Subject to the provisions of Section 6 hereof, the Parties agree to
use their reasonable best efforts to negotiate, execute and deliver,
prior to the expiration of the No-Shopping period, a mutually
agreeable Asset Purchase Agreement containing provisions
consistent herewith and such other terms and provisions as are
normally included in asset purchase agreements of Minor League
Baseball clubs, including, without limitation, usual and customary
representations and warranties, disclosures, and indemnities, …
This Letter of Intent shall terminate upon the earlier of (a) the
execution of the Asset Purchase Agreement, (b) termination by
Purchaser as contemplated by Section 6 or Section 8 herein, or
(c) upon the expiration of the No Shopping Period. Upon
termination of this Letter of Intent, the Parties shall have no further
obligations hereunder except as set forth in Sections 7, 14 and 15.
LOI, § 12.
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Main Street Baseball signed the Letter of Intent on December 28, 2014. The 60-day noshopping period set forth in Section 9 of the Letter of Intent began on that date. Plaintiff did not
deliver the first draft of the Asset Purchase Agreement until February 4, 2015. The initial draft
was completely unacceptable, and Michael Urda provided comments on it the very day it was
received. It took ten days for Plaintiff to then send a revised Asset Purchase Agreement. Mr.
Urda then forwarded this draft to his attorneys at Hinman, Howard & Kattell, LLP (“HHK”) for
review. Urda Declaration, ¶¶ 9-11.
HHK identified several issues with respect to the first draft of the Asset Purchase
Agreement. In particular, one of the first issues was that there was neither a cap nor a deductible
on the seller’s indemnification obligation. However, there were several other issues raised by
HHK with respect to the draft. The proposed Asset Purchase Agreement was complicated by the
fact that the Letter of Intent contemplated a closing no later than September 30, 2015, but that
“[r]egardless of the actual Closing Date, it is the intention of the Parties that Seller would be
entitled to the benefits of, and responsible for the liabilities for, the 2014 year (and all prior
years) and Purchaser would be entitled to the benefits of, and be responsible for the liabilities for,
the 2015 year (and all future years).” LOI, § 13. Even had the Asset Purchase Agreement been
successfully completed, the Letter of Intent contemplated that plaintiff would then need the
approval of Baseball Authorities (both the Eastern League and Minor League Baseball) through
a Control Interest Transfer application. LOI, § 1. Only after this application was approved by
Baseball Authorities was it contemplated that the Asset Purchase Agreement would close.
Accordingly, the parties contemplated an extended period during which the Binghamton Mets
would continue to operate the team even though it would be doing so for the benefit of the
purchaser.
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Although HHK provided a revised draft of the Asset Purchase Agreement on February
24, 2015, plaintiffs did not provide a mark-up of that agreement. Franz Declaration, ¶ 7; Urda
Declaration, ¶¶ 12-13.
The Binghamton Mets were ready, willing and able to execute the February 24, 2015,
draft of the Asset Purchase Agreement. However, Plaintiffs provided, both through themselves
and their counsel, objections to the HHK draft. In particular, Plaintiffs indicated they would not
agree to either a deductible or a cap on the seller’s indemnification obligations. Urda
Declaration, ¶¶ 20-22; Franz Declaration, ¶¶ 13-14.
Plaintiffs refused to negotiate a cap or a deductible on the seller’s indemnification
obligations because they claimed that the Letter of Intent provided for indemnification without
reference to any deductible or cap. However, the Binghamton Mets noted that Section 12 of the
Letter of Intent specifically stated that the parties would negotiate a “mutually agreeable Asset
Purchase Agreement” including
such other terms and provisions as are normally included in asset
purchase agreements of Minor League Baseball clubs, including,
without limitation, usual and customary representations and
warranties, disclosures, and indemnities…
LOI, § 12 (emphasis added). Accordingly, Section 12 of the Letter of Intent specifically
referenced indemnities and provided that the parties would negotiate “usual and customary . . .
indemnities.” Plaintiffs’ assertion that they had no duty to negotiate with respect to indemnities
is thus contrary to the express language of the Letter of Intent.
The Plaintiffs further stated during negotiations that they objected to any cap on
indemnification by the seller because Mr. Heller asserted he had previously purchased a Minor
League team and been presented with a substantial number of unpaid accounts payable. In
response, the Binghamton Mets offered that there would be no deductible or cap on
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indemnification for such accounts payable, or for indebtedness that had been incurred by the
team. Rather, the issue was indemnification for unknown and unasserted claims that might arise
in the future. In addition, the Binghamton Mets proposed a $1,000,000 cap for such unknown
claims, but this was still not acceptable to the plaintiffs. Urda Declaration, ¶ 24; Franz
Declaration, ¶ 13.
The indemnification question was not the only open issue in the negotiations. During the
negotiations, the parties could not reach agreement on several other issues:
•
Plaintiffs wanted an arbitration clause and a prevailing party attorneys’ fees
provision, and the Binghamton Mets did not agree to such a clause.
•
The Binghamton Mets wanted the plaintiffs to agree to use reasonable commercial
efforts to collect unpaid accounts after the closing, and to apply customer payments to
the oldest outstanding accounts, but Plaintiffs refused.
•
Plaintiffs wanted the Binghamton Mets to guarantee there would be no operating loss
during the 2015 season, even though Section 13 of the Letter of Intent specifically
provided that operating losses during the 2015 season would be the responsibility of
the buyer.
•
The parties could not agree on the allocation of a potential loss of a New York State
grant that had been received by the team.
Franz Declaration, ¶¶ 15-20; Urda Declaration, ¶¶ 23, 25-30.
On March 11, 2015, after the parties had been unable to resolve any of these issues, the
Binghamton Mets advised Plaintiffs that the exclusivity period had ended, and that the
Binghamton Mets would explore a sale to an alternative purchaser. Urda Declaration, ¶ 31;
Franz Declaration, ¶ 21.
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On March 13, 2015, the Binghamton Mets signed a new Letter of Intent with a different
purchaser. Plaintiffs assert in their pleadings that the Binghamton Mets must have been
negotiating with the alternative purchaser during the exclusivity period. However, Plaintiffs cite
no evidence in support of this allegation. In fact, the Binghamton Mets advised the Eastern
League office that the negotiations had been unsuccessful with the Plaintiff on March 11, 2015,
and that the exclusivity period had expired. The League President advised the Binghamton Mets
that he was aware of an alternative potential purchaser, and that he would advise the alternative
purchaser that the Binghamton Mets were now open to negotiating with a new potential buyer.
The Binghamton Mets were not even aware of the new purchaser during the exclusivity period
and had no discussions with that purchaser until after advising the Plaintiffs that the exclusivity
period had expired. In fact, as Main Street Baseball executed the Letter of Intent on December
28, 2014, and Mr. Minker executed it on January 5, 2014, the exclusivity period lasted no later
than March 5, 2015, and the Binghamton Mets had no contact with the potential purchaser until
March 11, 2015. Urda Declaration, ¶¶ 37-38; McEacharn Declaration,¶ 4.
Plaintiffs note that Mr. Urda sent an email on February 28, 2015, advising that the Asset
Purchase Agreement needed to be executed prior to him traveling to Florida for spring training.
Nothing in this email, however, references any extension of the exclusivity period or of the
Letter of Intent. Plaintiffs ignore that following this February 28, 2015, email, the negotiations
completely broke down because of Plaintiffs’ refusal to negotiate a usual and customary
indemnification provision, and because of their insistence that the Binghamton Mets guarantee a
profitable 2015 season contrary to the specific provisions of the Letter of Intent. Urda
Declaration, ¶¶ 13-19.
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Plaintiffs assert that they would be irreparably harmed if they cannot proceed with the
purchase of the Binghamton Mets because they had planned to sell their interest in a minor
league team in Wilmington, the purchaser of that team would move the Wilmington team, and
that Plaintiffs would then move the Binghamton Mets to Wilmington.
However, all of these assertions are directly contrary to the Letter of Intent. Section 17 of
the Letter of Intent states as follows:
17. Relocation. Relocation of the Business shall in no way be a
condition of the CIT application or a consideration during the
approval process by Baseball Authorities.
LOI, § 17.
In fact during the discussions leading to the Letter of Intent, the plaintiffs specifically
represented to the Binghamton Mets that they would make no statements regarding relocation of
the team in connection with the proposed purchase. In that email, Mr. Heller stated:
Relocation has nothing to do with this sale, and we intend to keep
it that way.
Urda Declaration, Exhibit K.
Nevertheless, during the negotiations of the Asset Purchase Agreement it became
apparent that Plaintiffs wished to move up the closing date in order to apply for relocation of the
Binghamton Mets to Wilmington in time to move them for the 2016 season. The Letter of Intent
specifically provided that the parties would keep the existence of the Letter of Intent
confidential. LOI, § 7. However, Plaintiffs have filed this action without any effort to maintain
the confidentiality of the Letter of Intent. As a result, the Binghamton Mets have been harmed
by publicity generated by Plaintiffs’ submissions which suggested that there had been an
agreement that the team would move. Urda Declaration, ¶ 48.
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In fact, although Plaintiffs began to raise the possibility of a relocation during the
discussions, they made no provision to provide an alternative team in Binghamton. Plaintiffs
acknowledge in their submission that the lease requires such an alternative team. Heller
Affidavit, ¶ 21. Plaintiffs do not even claim they have a plan to field another team in
Binghamton, nor do they even claim to have league approval for the multiple moves they
propose. In fact, no such applications are pending with the Eastern League. McEacharn
Declaration, ¶ 7.
ARGUMENT
PLAINTIFFS ARE NOT ENTITLED TO A
PRELIMINARY INJUNCTION
Plaintiffs’ misleading allegations fail to show either of the requisite prongs necessary to
entitle a party to preliminary injunctive relief: “(a) irreparable harm; and (b) either (1) a
likelihood of success on the merits of the claim; or (2) sufficiently serious questions going to the
merits and a balance of hardships tipping decidedly” in Plaintiffs’ favor. Ritchie v. Hulihan, No.
9:08-CV-0706, 2008 U.S. Dist. LEXIS 56759, at *9 (N.D.N.Y. July 22, 2008) (Hurd, J.).
Accordingly, the temporary restraining order issued by the Court on April 2, 2015 should be
vacated and Plaintiffs’ motion for a preliminary injunction should be denied.
POINT I
PLAINTIFFS HAVE NOT DEMONSTRATED A LIKELIHOOD OF
SUCCESS ON THE MERITS
Because the Court need not look beyond the fatal flaws in Plaintiffs’ breach of contract
claim to vacate the temporary restraining order and deny Plaintiffs’ motion for a preliminary
injunction, the Binghamton Mets address these shortcomings first. The allegations in plaintiffs’
Amended Complaint are plainly insufficient to establish a likelihood of success on, or sufficient
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questions regarding, the merits of Plaintiffs’ breach of contract claim. See Rosenblatt v. Christie,
Manson & Woods Ltd., 195 F. App’x 11, 12 (2d Cir. 2006) (holding that to establish a breach of
contract claim, a plaintiff must show: “(1) a contract; (2) performance of the contract by one
party; (3) breach by the other party; and (4) damages.”). There was neither a binding contract
between the parties, nor any breach by the Binghamton Mets of contractual obligations, and
Plaintiffs are not entitled to the remedies which they seek.
A. The Letter of Intent Was Not a Binding Contract
Plaintiffs’ breach of contract claim is fatally flawed because the Letter of Intent was
never a binding contract, but simply an agreement to negotiate towards an Asset Purchase
Agreement. Where, as here, “the parties contemplate further negotiations and the execution of a
formal instrument, a preliminary agreement does not create a binding contract.” Adjustrite Sys.
v. GAB Bus. Servs., 145 F.3d 543, 548 (2d Cir. 1998).
The federal courts of this Circuit have identified two types of preliminary agreements,
however, that create binding obligations. Id. at 548. The first – so called “Type I” agreements –
are “created when the parties agree on all the points that require negotiation but agree to
memorialize their agreement in a more formal document.” Id. “Type I” agreements bind “both
sides to their ultimate contractual objective,” and permit a party to demand ultimate performance
of the transaction. Id. “Type II” agreements, on the other hand, are created when “the parties
have committed themselves to some major terms, but some terms . . . remain to be negotiated.”
Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 72 (2d Cir. 1989). Parties to “Type
II” agreements “commit only to negotiate in good faith within the scope that has been settled in
the preliminary agreement.” Teachers Ins. & Annuity Ass’n v. Tribune Co., 670 F. Supp. 491,
498 (S.D.N.Y. 1987).
In determining whether a preliminary writing imposes any obligation on
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the parties, “[t]he key” is “whether the parties intended to be bound, and if so, to what extent.”
Id. at 548-49.
Despite federal case law utilizing this two-type classification system cited by Plaintiffs,
New York law governs this contract claim and the New York State Court of Appeals has made
clear that it does “not find the rigid classifications into ‘Types’ useful,” and that the appropriate
inquiry is “whether the agreement contemplated the negotiation of later agreements and if the
consummation of those agreements was a precondition to a party’s performance.” IDT Corp. v.
Tyco Grp., 13 N.Y.3d 209, 213 n.2 (2009); see also Juanes v. Lyzwinski, 875 F. Supp. 2d 155,
161 n.10 (N.D.N.Y. 2012). Under either framework, the Letter of Intent was not a binding
contract.
Plaintiffs argue that the Letter of Intent was a fully binding “Type I” contract.
Consideration of the four factors that the Second Circuit has identified as relevant to the “Type I”
analysis, however, points to the inescapable conclusion that the Letter of Intent was not a binding
contract. In applying these factors, the Court must be mindful of “a strong presumption against
finding binding obligation in agreements which include open terms, call for future approvals and
expressly anticipate future preparation and execution of contract documents.” CAC Group Inc.
v. Maxim Group LLC, 523 F. App’x 802, 804 (2d Cir. 2013) (internal quotation marks and
citation omitted).
The first and “most important” factor is whether the language of the agreement “discloses
an intention by the parties to be bound to the ultimate objective.” Brown v. Cara, 420 F.3d 148,
154 (2d Cir. 2005). Contrary to Plaintiffs’ selective and misleading quotations, the Letter of
Intent language makes clear that the parties contemplated the need for further negotiation and
that the Letter of Intent’s applicability would be limited in both scope and duration. As plaintiffs
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correctly noted, the Letter of Intent stated that the parties agree that it “shall constitute a legally
binding commitment of the Parties to execute and deliver the Asset Purchase Agreement . . . .”
LOI, at 1. In a glaring omission, however, Plaintiffs failed to inform the Court that the
aforementioned sentence contains a key provision whereby the “legally binding commitment”
described therein applies “except as set forth in Sections 5, 6, 8, 9, 10, 12 and 13 [of the LOI].”
LOI, at 1 (emphasis added). Thus, the parties’ “legally binding commitment” was expressly
qualified by the Letter of Intent Sections cited in this caveat.
Most notably, Section 12 clarifies that “the Parties agree to use their reasonable best
efforts to negotiate, execute and deliver, prior to the expiration of the No-Shopping Period
[Section 9], a mutually agreeable Asset Purchase Agreement . . . .” LOI, § 12. Section 12 states
further:
This Letter of Intent shall terminate upon the earlier of (a) the
execution of the Asset Purchase Agreement . . . or (c) upon the
expiration of the No Shopping Period. Upon termination of this
Letter of Intent, the Parties shall have no further obligations
hereunder. . . .
LOI, § 12.
None of the cases relied upon by Plaintiffs involved a preliminary agreement with a
clause such as Section 12 of the Letter of Intent, in which the parties deliberately set an end to
their negotiation of a binding agreement. Plaintiffs rely heavily on Brown v. Cara, but in that
case the Court held that the memorandum at issue was not a binding “Type I” agreement, 420
F.3d at 156. Plaintiffs also rely on Vacold LLC v. Carami, but the letter agreement at issue
therein was denominated as an “agreement”, not as a letter of intent, and contained no clause like
Section 12 here terminating the obligations of the parties if definitive agreements were not
executed (the letter agreement at issue in Vacold is reproduced in full at 545 F.3d at 136-39).
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Thus, under the express language of the Letter of Intent, any obligations assumed by the
parties were terminated at the expiration of the 60-day No Shopping Period. This express
provision shows a clear intent by the parties not to be bound by the “ultimate objective.” No
case cited by Plaintiffs holds that the parties may not set ground rules for their negotiations as
they clearly did in Section 12 of the Letter of Intent. To the contrary, the cases indicate the
Court should look to what the parties agreed to in their writing.
Beyond this express limitation, the Letter of Intent contains several additional provisions
that have been found to show parties’ intent not to be bound by a preliminary agreement. In fact,
naming the document a “Letter of Intent” has itself been found to “be [a] helpful indicator[] of
the parties’ intentions.” Gas Natural, Inc. v. Iberdrola, S.A., 33 F. Supp. 3d 373, 379 (S.D.N.Y.
2014) (internal quotation marks and citation omitted). The opening sentence of the Letter of
Intent states: “This letter outlines the terms of our mutual and fully binding intention . . . to
pursue the proposed acquisition.” LOI, at 1 (emphasis added). Similarly, in Brown, 420 F.3d at
154, the subject memorandum of understanding (“MOU”) purported to “outline the terms under
which [the parties] will work together to develop, build, market, and manage a new real estate
venture.” Id. (emphasis in original). The Second Circuit found that language to be “decidedly
non-committal” and concluded that the MOU was not a “Type I” agreement. Id.
Moreover, the Letter of Intent at issue here expressly contemplated the future drafting
and execution of contract documents; namely a “mutually acceptable definitive asset purchase
agreement” in which “[t]he obligations of the Parties shall be spelled out in greater specificity.”
LOI, at 1. The Letter of Intent also spelled out additional open terms that were to be contained in
the Asset Purchase Agreement, including “usual and customary representations and warranties,
disclosures, and indemnities,” and contemplated that the acquisition would take place “[u]pon
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the terms and subject to satisfaction of the conditions set forth in the Asset Purchase
Agreement.” LOI, §§ 1, 12. The Letter of Intent further contemplated a potential failure of the
parties to reach an ultimate agreement. Id. Provisions such as these have repeatedly been found
by courts within this Circuit to indicate that the parties did not intend to be bound by a
preliminary writing. See, e.g., CAC Group Inc., 523 F. App’x at 804 (“The correspondence –
including a ‘reference[] to the possibility that negotiations might fail and the reference to a
binding sales agreement to be completed at some future date – shows that [the parties] did not
intend to be bound.” (quoting Arcadian Phosphates, 884 F.2d at 72)). Finally, the inclusion of a
merger clause in the proposed asset purchase agreement drafted by plaintiffs’ attorney “is
persuasive evidence that the parties did not intend to be bound prior to the execution of” the asset
purchase agreement. CAC Group Inc., 523 F. App’x at 805 (quoting Reprosystem, B.V. v. SCM
Corp., 727 F.2d 257, 262 (2d Cir. 1984)); see Fellows Declaration, Exhibit A, § 10(c). The first
and most important factor therefore strongly supports a finding that the Letter of Intent was not a
“Type I” binding contract.
The second factor, “whether there has been partial performance of the contract,” CAC
Group, Inc., 523 F. App’x at 803, also weighs in favor of defendants. Plaintiffs’ only purported
“performance” of the Letter of Intent was the payment of an initial security deposit. The security
deposit structure outlined in the Letter of Intent, however, shows that the Letter of Intent was
viewed by the parties as, at most, an agreement to negotiate. Under Section 14, titled “Security
Deposits,” the Letter of Intent stated that, “[w]ithin two (2) business days of the execution of this
LOI,” the purchaser shall pay an initial security deposit to an “LOI Escrow Agent.” LOI, § 14.
Section 14 continues that “[u]pon the execution of the Asset Purchase Agreement . . . [p]urchaser
shall pay the Second Security Deposit and, if applicable, the Third Security Deposit to [a
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separate] APA Escrow Agent.” LOI, § 14. Thus, the Letter of Intent made Plaintiffs’
performance with respect to the bulk of the security deposits contingent on the execution of a
later-negotiated Asset Purchase Agreement, which plainly cuts against a finding that the Letter of
Intent was a “Type I” agreement. See, e.g., IDT Corp., 13 N.Y.3d at 213 (stating that the
appropriate inquiry is “whether the agreement contemplated the negotiation of later agreements
and if the consummation of those agreements was a precondition to a party’s performance.”).1
Because the LOI left open several issues requiring negotiation, the third factor – “the
existence of open items, i.e., whether any terms of the contract remained open to be negotiated,”
Adjustrite Sys., 145 F.3d at 549 – weighs strongly against a finding that the Letter of Intent is a
“Type I” binding contract. The Letter of Intent expressly stated that
The Parties agree to use their reasonable best efforts to negotiate,
execute and deliver, prior to the expiration of the No-Shopping
Period, a mutually agreeable Asset Purchase Agreement containing
provisions consistent herewith and such other terms and provisions
as are normally included in asset purchase agreements of Minor
League Baseball clubs, including, without limitation, usual and
customary representations and warranties, disclosures, and
indemnities.
LOI, §12. In addition to identifying several open issues, this language expressly contemplates
further negotiation by the parties and refutes Plaintiffs’ contention that only insignificant issues
remained to be added to the asset purchase agreement. See Vacold LLC v. Cerami, 545 F.3d
114, 128 (2d Cir. 2008) (holding that if “the parties enter into a preliminary agreement
perceiving that open issues remain to be worked out and intending simply to bind themselves to
1
Plaintiffs’ contention that they have partially performed by entering into an agreement to sell the Wilmington Blue
Rocks to the Texas Rangers is without merit. Any agreement entered into between plaintiffs and the Texas Rangers
as part of Plaintiffs’ purported master plan to relocate the Binghamton Mets is entirely unrelated to the instant suit.
Such relocation was not contemplated as part of the parties’ negotiations, and Section 17 of the LOI expressly states:
“Relocation of the Business shall in no way be a condition of the CIT application or a consideration during the
approval process by Baseball Authorities.” LOI, § 17.
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good-faith efforts at further negotiation, then the preliminary agreement” is not a Type I
obligation).
Moreover, Plaintiffs’ assertion that they had no duty to negotiate with respect to a cap or
a deductible on indemnification, which plaintiffs base on Section 4 of the Letter of Intent,
ignores the express language in Section 12 of the Letter of Intent regarding the duty to negotiate
the extent of the parties’ duties to indemnify one another. Plaintiffs assert that Section 4 of the
Letter of Intent references indemnification without any reference to a deductible or a cap, but
ignores that Section 12 references that the parties will be negotiating an Asset Purchase
Agreement
with such other terms and provisions as are normally included in
asset purchase agreements of Minor League Baseball clubs,
including, without limitation, usual and customary representations
and warranties, disclosures and indemnities . . .
LOI, § 12 (emphasis added).
At best, the Letter of Intent is ambiguous, (because plaintiffs assert that Section 4
conclusively establishes the terms of the indemnities, but Section 12 provides that the parties will
negotiate “usual and customary . . . indemnities”). Because Plaintiffs drafted the Letter of Intent,
such ambiguity must be construed against them. See Guardian Life Ins. Co. v. Schaefer, 70
N.Y.2d 888, 890 (1987) (“[A]mbiguities in contracts must be construed against the drafter.”).
Plaintiffs’ argument that the terms left open by the Letter of Intent, including the scope of the
seller’s indemnification obligations, were insignificant is particularly unsupported in light of the
fact that indemnification proved to be one of the primary points of contention leading to the
parties’ inability to reach a conclusive agreement. Urda Declaration, ¶¶ 20-24.
Further, it was not simply indemnification that the parties could not agree upon. To the
contrary, Plaintiffs inserted in the draft Asset Purchase Agreement a guarantee by the
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Binghamton Mets that the 2015 season would be profitable, which is contrary to the Letter of
Intent, which specified that profits and losses of the 2015 season would be Seller’s responsibility.
LOI, § 13.
The fourth factor, “whether the agreement at issue is the type of contract that is usually
committed to writing,” CAC Group, Inc., 523 F. App’x at 804, weighs decisively against a
finding that the Letter of Intent is a “Type I” agreement. In Adjustrite Systems, the Second
Circuit held that a “million-dollar acquisition . . . clearly was of the type that ordinarily would be
committed not only to a writing but to a formal contract.” 145 F.3d at 551. The acquisition
contemplated here for $8.5 million is similarly complex, and is undoubtedly the type of contract
that is usually committed to writing.
The aforementioned factors make clear that the intent of the parties, which is paramount,
was that the Letter of Intent not constitute a “Type I” binding contract. Rather, “the agreement
contemplated the negotiation of [a] later agreement[] and . . . the consummation of th[at]
agreement[] was a precondition to [the parties’] performance.” IDT Corp., 13 N.Y.3d at 213 n.2.
Under New York law, which expressly applies here pursuant to the Letter of Intent, a
finding that the Letter of Intent is not a “Type I” agreement, or a similar finding that it is not a
binding agreement under the test set forth in IDT Corporation, should end the Court’s inquiry.
The Court need not entertain Plaintiffs’ alternative argument that the Letter of Intent is a “Type
II” agreement. As noted above, the Court of Appeals in IDT Corporation expressly declined to
adopt the two-type federal classification, Id., and “the concept of a Type II agreement is a
creature of the federal courts,” Simone v. N.V. Floresta, Inc., No. 98 Civ. 0268, 1970, 1999 U.S.
Dist. LEXIS 9578, at *27 n.3 (S.D.N.Y. June 18, 1999); Amcam Holdings, Inc. v. Canadian
Imperial Bank of Commerce, 70 A.D.3d 423, 427 (1st Dep’t 2010). (“[The] Court of Appeals
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recently rejected the federal type I/type II classifications as too rigid . . . .”). Even if the Court
were to find that the Letter of Intent constituted a “Type II” agreement, however, Plaintiffs have
nevertheless failed to show a likelihood of success on the merits because, as discussed below,
Plaintiffs have not plausibly alleged a breach of contract.
B. The Binghamton Mets Did Not Breach Any Contractual Obligations to Negotiate
Plaintiff contends next that, if the Letter of Intent is found to be a “Type II” agreement,
the Binghamton Mets breached their duty to negotiate in good faith. The Binghamton Mets
negotiated at all times in good faith, however, and Plaintiffs’ misleading and incomplete
allegations fail to plausibly allege the existence of any breach. Plaintiffs’ request for injunctive
relief must therefore be denied.
A party to a “Type II” agreement commits “only to negotiate in good faith within the
scope that has been settled in the preliminary agreement.” Teachers Ins. & Annuity Ass’n v.
Tribune Co., 670 F. Supp. 491, 498 (S.D.N.Y. 1987) (emphasis added). “[I]f a final contract is
not agreed upon, the parties may abandon the transaction as long as they have made a good faith
effort to close the deal and have not insisted on conditions that do not conform to the preliminary
writing.” Adjustrite Sys., 145 F.3d at 548.
Plaintiffs ignore the expressly limited scope of the Binghamton Mets’ duty to negotiate in
good faith. As noted above, Section 12 of the Letter of Intent stated that the “Parties agree to use
their reasonable best efforts to negotiate, execute and deliver, prior to the expiration of the NoShopping Period,” a mutually agreeable Asset Purchase Agreement, and that, upon the
termination of the No-Shopping Period, the parties “shall have no further obligations
hereunder.”2 LOI, § 12 (emphasis added). Thus, by the parties’ own terms, the Binghamton
2
Plaintiffs’ suggestion that the No Shopping Period was extended by Mr. Urda’s February 28, 2015 email in which
he expressed his desire to complete the Asset Purchase Agreement prior to a March 19, 2015 trip is baseless. The
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Mets’ duty to negotiate with Plaintiffs in good faith expired when the No Shopping Period
ended.3
Contrary to Plaintiffs’ allegations, the Binghamton Mets negotiated in good faith for the
duration of the No Shopping Period and any delay or bad faith during that period was on the part
of Plaintiffs. Plaintiffs contend first that the Binghamton Mets negotiated in bad faith by
attempting, late in the No Shopping Period, to insert terms into the Asset Purchase Agreement
that were inconsistent with the Letter of Intent. Plaintiffs’ Memorandum of Law, at 21 (Docket
No. 7, attachment 5). Plaintiffs’ attempt to attribute bad faith on the part of the Binghamton
Mets by reference to the late date of the parties’ negotiations is disingenuous at best. In fact,
Plaintiffs did not provide an initial draft of the Asset Purchase Agreement until February 3, 2015
– 38 days after the Letter of Intent was first signed. Urda Declaration, ¶ 9. Mr. Urda promptly
notified Plaintiffs, however, that the initial Asset Purchase Agreement was unacceptably poor,
and Plaintiffs provided a revised draft ten days later, on February 14, 2015. Urda Declaration, ¶¶
10-11. On February 24, 2015, counsel for the Binghamton Mets provided Plaintiffs’ counsel a
revised draft of the Asset Purchase Agreement, and Mr. Urda was ready and willing on that date
to execute that draft. Urda Declaration, ¶ 12. Plaintiffs neither executed this Asset Purchase
Letter of Intent expressly provided: “This Letter of Intent may only be amended or modified by a written instrument
signed by all the Parties hereto and referring to this Letter of Intent.” LOI, § 18. Mr. Urda’s February 28 email was
not signed by the parties and made no mention of any extension or of the No Shopping Period. Urda Declaration, ¶¶
13-14, Exhibit D. The parties never discussed such an extension, and Mr. Urda’s email was not a written extension
of the No Shopping Period. Moreover, plaintiffs ignore that after this email, the negotiations broke down when
plaintiffs refused to negotiate a cap on seller’s indemnities and insisted that the Binghamton Mets guarantee the
team would be profitable in 2015, in contravention of the provisions of the Letter of Intent.
3
Plaintiffs’ citation to EQT Infrastructure Ltd. v. Smith, 861 F. Supp. 2d 220, 231 (S.D.N.Y. 2012) is inapposite.
There, the court noted in unsupported dicta that defendant’s obligation to negotiate in good faith survived the
expiration of an exclusivity period. There is no indication in the decision, however, that the subject agreement
contained language similar to the language in Section 12 of the Letter of Intent, which expressly releases the parties
from all obligations upon the expiration of the No Shopping Period. To ignore the plain and unambiguous language
agreed upon by the parties would violate a basic tenet of New York contract law. See, e.g., MHR Capital Partners
LP v. Presstek, Inc., 12 N.Y.3d 640, 645 (2009) (“[A] written agreement that is complete, clear and unambiguous on
its face must be enforced according to the plain meaning of its terms.” (internal quotation marks and citation
omitted)).
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Agreement, nor did they ever return a revised proposed Asset Purchase Agreement prior to
expiration of the No Shopping Period.
Although the parties were ultimately unable to reach common ground, both Mr. Urda and
the Binghamton Mets’ counsel spoke repeatedly with Plaintiffs and their counsel in an attempt to
resolve open issues in late February and early March. Urda Declaration, ¶¶ 13, 15-18; Franz
Declaration, ¶¶ 10-14. Thus, the Binghamton Mets actively pursued negotiations throughout the
No Shopping Period, and the fact that negotiations took place late in the No Shopping Period
was solely the result of Plaintiffs’ unreasonable delay.
Plaintiffs’ allegation that certain provisions about which the parties negotiated –
primarily indemnification – indicate bad faith on the part of the Binghamton Mets is equally
untenable. The parties’ negotiations regarding indemnification stemmed directly from Section
12 of the Letter of Intent. 4 Urda Declaration, ¶¶ 21-22. As relevant, Section 12 of the Letter of
Intent provided for the parties to “use their reasonable best efforts to negotiate, execute and
deliver” an Asset Purchase Agreement “containing such other provisions as are normally
included in asset purchase agreements of Minor League Baseball clubs, including . . .
indemnities.” LOI, § 12 (emphasis added). The indemnification provisions about which the
Binghamton Mets sought to negotiate were customary in Minor League Baseball asset purchase
agreements, and were thus precisely the types of provisions contemplated by the Letter of Intent.
Urda Declaration, ¶ 22; McEacharn Declaration, ¶ 5.
The Binghamton Mets similarly negotiated in good faith regarding a government grant
that was received shortly after the Letter of Intent was executed. The Binghamton Mets’ position
was eminently reasonable: it sought only to be reimbursed for the actual increase in value to the
4
As noted above, because plaintiffs drafted the Letter of Intent, any ambiguity therein must be construed against
them. See Guardian Life Ins. Co., 70 N.Y.2d at 890.
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team in the event the grant was rescinded by New York State, and sought to share the risk with
Plaintiffs of that potential rescission. Contrary to Plaintiffs’ insinuation, they were apprised of
the pending grant application during discussions leading to the Letter of Intent. Urda
Declaration, ¶ 30.
Moreover, the topics identified by Plaintiffs were not the only open issues standing in the
way of a final agreement. Plaintiffs attempted to add provisions to the Asset Purchase
Agreement, such as an arbitration clause, that were not contemplated in the Letter of Intent. Urda
Declaration, ¶ 23. The parties also could not reach agreement on the collection of accounts
receivable and financial responsibility for the 2015 season. Urda Declaration, ¶¶ 25-29. In
addition to refusing to collect and remit accounts receivable, Plaintiffs included a provision in
their final draft of the Asset Purchase Agreement that would have afforded Plaintiffs the profits
from the 2015 season and required the Binghamton Mets to guarantee no operating loss. Urda
Declaration, ¶¶ 27-29. This negotiating position is directly contrary to Section 13 of the Letter
of Intent. It was thus Plaintiffs who breached their obligation to negotiate by refusing to
negotiate a cap on the seller’s indemnification obligations, and by demanding a guarantee with
respect to the 2015 season, in direct contradiction of Section 13.
The most baseless allegation of Plaintiffs is their last: that the Binghamton Mets shopped
the team during the No Shopping Period. Plaintiffs make this claim with no factual basis, and it
is entirely false. By the agreed-upon terms of the Letter of Intent, the Binghamton Mets were
free to engage or respond to a new buyer following the expiration of the No Shopping Period,
and that is exactly what occurred on March 12 and 13, 2015. The Binghamton Mets did not
know of this new buyer until March 11, 2015. Urda Declaration, ¶¶ 37-38; McEacharn
Declaration, ¶ 4.
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Accordingly, Plaintiffs have failed to show a likelihood of success on their breach of
contract claim, and their request for preliminary injunctive relief should be denied.
C. Plaintiffs Are Not Entitled to Specific Performance
Finally, Plaintiffs have not established a likelihood of success on the merits of their
breach of contract claim because they are not entitled to the sole remedy that they seek: specific
performance. See Amended Complaint, ¶ 81. As articulated above, the Letter of Intent was, at
most, a “Type II” agreement. A “Type II” agreement, however, “lack[s] certain terms necessary
to render it enforceable via specific performance,” Bodner v. FDIC, No. 97-6181, 1998 U.S.
App. LEXIS 22384, at *7-8 (2d Cir. March 27, 1998), and “[a] party to a [“Type II” agreement]
has no right to demand performance of the transaction,” Adjustrite Sys., 145 F.3d at 548. Thus,
Plaintiffs are not entitled to specific performance of the transaction, and any attempt by the Court
to direct the parties to negotiate in good faith would be futile, as evidenced by the parties’
inability to execute an Asset Purchase Agreement during the agreed-upon time frame. Nor
should Plaintiffs be entitled to any such order of further negotiations, when it is Plaintiffs that
failed to negotiate in good faith by refusing to negotiate “usual and customary . . . indemnities,”
and by demanding a guarantee of profits for the 2015 season.
POINT II
PLAINTIFFS HAVE NOT DEMONSTRATED IRREPARABLE HARM
Beyond their failure to show a likelihood of success on the merits, Plaintiffs have failed
to meet the other requirement for preliminary injunctive relief: a showing of irreparable harm.
See Ritchie, 2008 U.S. Dist. LEXIS 56759, at *9 (Hurd, J.). Where, as here, “money damages
[are] adequate compensation” for plaintiffs’ purported injury, “a preliminary injunction will not
issue.” Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979).
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Plaintiffs’ primary argument is that they are entitled to injunctive relief because the
opportunity to relocate the Binghamton Mets is unique. What is clear from the Amended
Complaint and Plaintiffs’ briefing, however, is that plaintiffs only believe the opportunity to own
the Binghamton Mets is unique in the context of their multi-team relocation plan. This
relocation scheme, however, was never part of the parties’ negotiations and, as noted above, any
argument of reliance is unfounded because the topic of relocation was expressly excluded from
the proposed transaction by Section 17 of the Letter of Intent and contrary to plaintiffs’ specific
representations during the negotiation of the Letter of Intent. Urda Declaration, Exhibit K. Nor
can this Court provide the relief Plaintiffs seek: the Eastern League has not approved plaintiffs as
owners, and likewise has not approved any relocation of the team. McEacharn Declaration, ¶¶ 67. The reality is that plaintiffs had an agreed-upon window in which they could have purchased
the Binghamton Mets and sought approval of their grand plans, but through unreasonable delay
and bad faith, failed to do so. To permit Plaintiffs to now impede the Binghamton Mets from
pursuing an alternative transaction in order to salvage a unilateral business plan for which the
Binghamton Mets are not responsible, would be inappropriate and inequitable.
POINT III
PLAINTIFFS MUST BE REQUIRED TO POST SECURITY IF TEMPORARY
RELIEF IS CONTINUED
If the Court continues the temporary restraining order or issues a preliminary injunction,
it is mandatory that Plaintiffs post security as required by Rule 65(c) of the Federal Rules of
Civil Procedure. That Rule provides that a court may issue a temporary restraining order or
preliminary injunction “only if the movant gives security in an amount that the court considers
proper to pay the costs and damages sustained by any party found to have been wrongfully
enjoined or restrained.” Fed. R. Civ. P. 65(c). The theory underlying Rule 65(c)’s mandatory
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requirement of security is “that the applicant consents to liability up to the amount of the bond,
as the price for the [injunction].” Blumenthal v. Merrill Lynch, 910 F.2d 1049, 1054 (2d Cir.
1990).
The potential harm posed to the Binghamton Mets by a continued injunction is
considerable. First, during negotiations, Plaintiffs failed to demonstrate that they had sufficient
financing to complete the transaction. Urda Declaration, ¶ 42. Moreover, the Binghamton Mets
have entered into a Letter of Intent with a motivated buyer committed to keeping the team in
Binghamton and are currently being harmed by their inability to communicate with that
purchaser regarding the sale of the team. Urda Declaration, ¶¶ 37, 40-41. Any continued
injunction would exacerbate that harm and pose the serious risk of foreclosing current and future
opportunities. Accordingly, defendants request that Plaintiffs be ordered to post a security in the
amount of $8.4 million.
CONCLUSION
The motion for preliminary injunction should be denied.
Dated: April 10, 2014
BOND, SCHOENECK & KING, PLLC
By:
s/Jonathan B. Fellows
Jonathan B. Fellows
Brendan M. Sheehan
Attorneys for Defendant Binghamton Mets
Baseball Club, Inc. and Beacon Sports
Capital Partners, LLC
Office and P.O. Address
One Lincoln Center
Syracuse, New York 13202-1355
Telephone: (315) 218-8000
23