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IN RE 131 LIQUIDATING CORP.

April 12, 1999

IN RE 131 LIQUIDATING CORP. FKA/FDBA ALEXANDER DOLL COMPANY, INC., DEBTOR. 131 LIQUIDATING CORP. FKA/FDBA ALEXANDER DOLL COMPANY, INC., DEBTOR/COUNTERCLAIMANT, AND JEFFREY CHODOROW, LINDA CHODOROW, JACK POLSENBERG, GERALD BROKER, AND SYDELL SMITH, THIRD-PARTY PLAINTIFFS,
v.
LASALLE CAPITAL GROUP, INC., CHARLES S. MEYER, WILLIAM V. GLASTRIS, JR. AND ARTHUR M. PEISNER, DEFENDANTS. LASALLE CAPITAL GROUP, INC., COUNTERPLAINTIFF, V. JEFFREY CHODOROW AND IRA SMITH, COUNTERDEFENDANTS.



The opinion of the court was delivered by: Cedarbaum, District Judge.

OPINION

131 Liquidating Corp., fka/fdba Alexander Doll Company, Inc., (the "Debtor") seeks partial summary judgment precluding any recovery by LaSalle Capital Group, Inc. ("LaSalle") of expectancy damages for the Debtor's alleged breach of the exclusivity provision of a certain letter of intent. Because the Debtor did not enter into the deal contemplated by the letter of intent with either LaSalle or a different source of financing, the motion is granted.

BACKGROUND

Pursuant to the Letter of Intent LaSalle was to arrange the financing that the Debtor needed to exercise the Option. The parties undertook to use "best efforts" to close on or before March 27, 1995, the Option's expiration date. (Kaiser Aff. Ex. A at 5). The Letter of Intent outlined the terms for the proposed financing. It specified that the Debtor would borrow through several tranches of debt and that LaSalle's principals and the lenders would purchase 51% of the equity in the recapitalized Debtor. (Kaiser Aff. Ex. A at 3). The original shareholders would receive a distribution of up to $1.5 million in cash and 40% of the stock in the new entity. They would also be represented on the board of directors. (Kaiser Aff. Ex. A at 2). However, the parties understood that the above terms were just a preliminary, non-binding sketch of the deal. The Letter of Intent expressly provides:

  Since this is a letter of intent, the parties shall
  not be deemed to have entered into a legally binding
  contract by signing this letter, with the exception
  of the binding agreements of the parties in the
  "Exclusivity" and "Public Disclosure" sections
  herein, and the Purchase Agreement, when executed,
  will be the binding agreement with respect to this
  transaction.

(Kaiser Aff. Ex. A at 4).

In the exclusivity section of the Letter of Intent, the Debtor agreed that it would not discuss a possible refinancing deal with anyone but LaSalle. The exclusivity provision provides:

  Alexander agrees that, unless negotiations between
  LaSalle and Alexander are terminated in writing (it
  being understood that Alexander will not unilaterally
  terminate negotiations so long as LaSalle is
  proceeding in good faith), it will not discuss a
  possible sale of or refinancing of Alexander with any
  other party. Notwithstanding the above, Alexander
  will be free to discuss refinancing or sale of the
  company with other parties in the event that LaSalle
  does not produce written financing term sheets for
  the Subordinated financing within 21 days of [the]
  execution date hereof and for the Senior financing
  within 30 days of the execution date hereof. Upon
  execution of this letter, LaSalle will promptly
  identify its proposed lending sources and schedule
  meetings between Alexander and these lending sources.

(Kaiser Aff. Ex. A at 4).

There is evidence that once negotiations were underway, LaSalle proposed certain fundamental changes to the terms outlined in the Letter of Intent, such as casting the deal as an asset purchase rather than a stock purchase and giving the existing shareholders only an indirect equity interest in the new company. (Kaiser Aff. Exs. B, K, L, M).

On March 10, 1995, Debtor tried to terminate its relationship with LaSalle so that it could proceed with a different source of financing, Gefinor Acquisition Partners. (Rubin Aff. Ex B). On the same day, the Debtor paid NatWest $250,000 to extend the Option until April 14, 1995. (Debtor Mem. at 7; Kaiser Ex. C at 2).

On or about March 13, 1995, LaSalle sued the Debtor in Illinois state court alleging breach of the exclusivity provision in the Letter of Intent, since the Debtor had negotiated with competitors of LaSalle. (Kaiser Ex. C at 3). The Debtor removed the action to the United States District Court for the Northern District of Illinois, which, on March 16, 1995, issued a temporary restraining order ("TRO") enjoining the Debtor from negotiating with anyone but LaSalle. (Kaiser Aff. Ex. C at 3, 4).

The parties then resumed negotiations, but they never executed a Purchase Agreement. Id. On or about April 6, 1995, LaSalle notified the Debtor that its proposed mezzanine lender would be unable to fund a transaction for at least 20 days, and therefore, LaSalle would be unable to close by April 14, 1995, the expiration date of the Option. Id. On April 10, NatWest declined to extend the deadline for exercising the Option, and the district court in Chicago lifted the TRO, enabling the Debtor to negotiate with other capital providers. (Kaiser Aff. Ex. B at 68). In the following four days, the Debtor did not close a transaction with LaSalle or anyone else. Instead, on April 14, 1995, the Debtor filed its chapter 11 petition in the bankruptcy court of the ...


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