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Eqt Infrastructure Limited v. Lawrence Smith

March 20, 2012

EQT INFRASTRUCTURE LIMITED, PLAINTIFF,
v.
LAWRENCE SMITH, LAWRENCE INDUSTRIES,
INC., WATERFRONT ENTERPRISES, INC. D/B/A GATEWAY TERMINAL, PORT SERVICE, INC., HARBOR LEASING LLC, LAWRENCE LEASING CORP., CROSBY REALTY, INC., PETROLEUM TERMINALS, INC., LEX ATLANTIC CORP., AND WHEELER BULK STORAGE, LLC, DEFENDANTS.



The opinion of the court was delivered by: Seibel, J.

OPINION AND ORDER

Before the Court is Defendants' Motion to Dismiss Plaintiff's Complaint. (Doc. 12.) For the reasons stated below, the Motion is GRANTED IN PART and DENIED IN PART.

I.Background

I assume the facts, but not the conclusions, in the Complaint ("Compl."), (Doc. 1), to be true for purposes of Defendants' Motion. Plaintiff is a limited liability company organized under the laws of the Bailiwick of Guernsey. (Compl. ¶ 1.) Defendant Lawrence Smith resides in Connecticut. (Id. ¶ 2.) Defendants Lawrence Industries, Inc., Waterfront Enterprises, Inc. d/b/a Gateway Terminal, Port Service, Inc., Harbor Leasing LLC, Crosby Realty, Inc., Petroleum Terminals, Inc., Lex Atlantic Corp., and Wheeler Bulk Storage, LLC are corporations organized under the laws of Connecticut, and Defendant Lawrence Leasing, Corp. is a corporation organized under the laws of Delaware (collectively, the "Corporate Defendants"). (Id. ¶¶ 3--11.) The Corporate Defendants are each owned, directly or indirectly, by Mr. Smith. (Id. ¶ 12.)

A.Negotiations to Buy Defendants' Stevedoring and Bulk Storage Businesses

Defendants own and operate stevedoring and bulk storage businesses (the "Businesses") in and around the Port of New Haven, Connecticut, (id.), as well as a marine services business (the "Marine Business"), (id. ¶ 19). In the fall of 2009, Plaintiff learned of a potential opportunity to purchase the Businesses. (Id. ¶ 15.) In a letter dated November 19, 2009, Plaintiff submitted an offer to purchase 100% of the Businesses, which Plaintiff valued at between $65 and $90 million. (Id. ¶ 16.) Plaintiff sent this letter to Covington Associates ("Covington"), an investment bank that represented Defendants in connection with the possible sale of the Businesses. (Id.)

From the outset, both Plaintiff and Defendants understood that Plaintiff, as a foreign entity, could not own or operate the Marine Business,*fn1 and thus would not purchase it. (Id. ¶ 17.) In December 2009, Covington informed Plaintiff that the high end of Plaintiff's valuation of the Businesses was less than other offers Defendants had received for them and less than the price to which Mr. Smith would agree. (Id. ¶ 18.) In January 2010, Covington informed Plaintiff that Defendants had received various offers to buy the Businesses and Marine Business for $150 million. (Id. ¶ 19.) Covington stated that Mr. Smith valued the Marine Business at about $25 million and that Defendants were seeking $125 million for the Businesses separately. (Id.) On January 29, 2010, Plantiff told Covington that Plaintiff believed it was in a position to bid between $100 and $110 million for the Businesses. (Id. ¶ 20.) Covington responded that Mr. Smith was looking for $125 million for the Businesses, not including the Marine Business, but that Mr. Smith was willing to negotiate with Plaintiff. (Id.)

On February 26, 2010, Covington informed Plaintiff that Defendants had chosen Plaintiff as one of two preferred bidders, and that as a result, Defendants would make a physical data room available so that Plaintiff could engage in due diligence. (Id. ¶ 21.) On March 5, 2010, Plaintiff submitted a second offer to Covington to purchase 100% of the Businesses. (Id. ¶ 22.) Plaintiff valued the Businesses at between $100 and $110 million. (Id.)

Beginning in April 2010, Plaintiff began negotiating directly with Defendants. (Id. ¶ 23.) On May 14, 2010, Plaintiff proposed to Defendants that it was prepared to offer between $100 and $105 million. (Id. ¶ 24.) By letter dated June 21, 2010, Defendants gave Plaintiff a counterproposal of $125 million. (Id. ¶ 25.) On June 25, 2010, Plaintiff responded with a counterproposal of between $100 and $105 million. (Id. ¶ 26.) On June 28, 2010, Defendants responded that Mr. Smith would meet with Plaintiff only if Plaintiff believed it could reach a suitable price somewhere between $110 and $125 million. (Id.)

On July 8, 2010, Plaintiff offered to buy the Businesses for $105 million. (Id. ¶ 27.) On July 12, 2010, Defendants sent a counterproposal from Mr. Smith dated July 9, 2010 for $110 million. (Id.) Defendants stated that none of the Marine Business would be included in that price. (Id.) On July 16, 2010, Mr. Smith offered to sell "most" of the Businesses for $105 million, again specifically excluding the Marine Business. (Id. ¶ 28.)

B.The August 6, 2010 Letter of Intent

After more negotiations, Plaintiff and Defendants entered into a letter of intent dated August 6, 2010 (the "LOI"), signed by Michael Newton and Nigel Govett, directors of Plaintiff, and Mr. Smith. (Id. ¶ 29; Milazzo Decl. Ex. A.*fn2 ) Above Mr. Smith's name, the acknowledgment reads "ACKNOWLEDGED AND AGREED on behalf of the Company." (LOI 4.) The LOI described the "Possible Transaction" as Plaintiff's purchase of the "Stevedoring and Bulk Storage" businesses, "but excluding the Marine Services operations," for $110 million. (Id. at 1.)

Plaintiff's obligation to close the Possible Transaction was "subject to the satisfaction of conditions customary of a buyer in transactions of this type including . . . execution of a definitive purchase agreement (the 'Definitive Agreement') and related agreements . . . reflecting the terms of the Possible Transaction reasonably satisfactory in form and substance to the parties." (Id. ¶ 2, at 1.) In paragraph four, titled "Exclusivity," Defendants agreed that, "until the earlier of (i) September 8, 2010 and (ii) the date on which [Plaintiff] advises [Defendants] in writing that Plaintiff is terminating all negotiations regarding a Possible Transaction (the "Exclusivity Period"), it [would] work with [Plaintiff] in good faith and on an exclusive basis with respect to a Possible Transaction," and would not "solicit, initiate, encourage or facilitate the submission of inquiries, proposals or offers" from any other entity. (Id. ¶ 4, at 2.) The parties also acknowledged that Plaintiff would "expend considerable time, effort, and expense in connection with the Possible Transaction." (Id. at 1.)

Paragraph five of the LOI, titled "Non-Binding Effect," states that the letter did not create any binding obligation, "to enter into the Definitive Agreement or to effect the Possible Transaction," nor "any other binding obligation, except as set forth in paragraphs 4, 6, 7, 8, and this paragraph 5, which provisions will be binding upon and inure to the benefit of the parties." (LOI 3, ¶ 5.) The LOI does not state that the Possible Transaction was conditioned on the sale of the Marine Business to a buyer other than Plaintiff.

After the parties executed the LOI, Plaintiff conducted due diligence in connection with the Possible Transaction. (Compl. ¶ 30.) Plaintiff began drafting the purchase and sale agreement and worked with Defendants to prepare the necessary requests for government approvals. (Id.) Plaintiff also hired lawyers, accountants, and other consultants in connection with its due diligence, spending over $1.5 million. (Id.)

C.The October 19, 2010 Letter

In a letter dated October 19, 2010 (the "October 19th Letter"), Defendants' counsel stated that Defendants would not sell the Businesses for $110 million because Defendant Gateway Terminal "has sought alternative buyers for the marine fleet but to no avail," resulting in Mr. Smith having to run the Marine Business for an extended period of time. (Milazzo Decl. Ex. B.)*fn3

Therefore, in order to make the deal with Plaintiff for the Businesses economically viable for Mr. Smith, Defendants requested an increase of the purchase price from $110 to $125 million. (Id.) Prior to the October 19th Letter, Defendants had not informed Plaintiff that the purchase price of $110 million was contingent on Mr. Smith's ability to sell the Marine Business, (Compl. ΒΆΒΆ 29, 32, 33), but, Plaintiff alleges, Defendants knew during their negotiations with Plaintiff "that they would not sell the ...


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