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 i Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 3 of 27 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 ii Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 4 of 27 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 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 5 of 27 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 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 6 of 27 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. 2 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 7 of 27 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. 3 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 8 of 27 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 4 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 9 of 27 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. 5 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 10 of 27 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. 6 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 11 of 27 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. 7 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 12 of 27 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 8 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 13 of 27 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 9 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 14 of 27 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 10 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 15 of 27 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). 11 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 16 of 27 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 12 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 17 of 27 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 13 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 18 of 27 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. 14 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 19 of 27 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 15 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 20 of 27 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 16 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 21 of 27 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 17 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 22 of 27 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)). 18 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 23 of 27 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. 19 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 24 of 27 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. 20 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 25 of 27 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). 21 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 26 of 27 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 22 Case 3:15-cv-00380-DNH-DEP Document 16 Filed 04/10/15 Page 27 of 27 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
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