Cambridge Capital Llc, v. Ruby Has LLC

565 F.Supp.3d 420 (2021)

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Nature of the Case

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Facts

P is a private equity firm that invests in supply chain companies, including businesses in the transportation, distribution, logistics, and supply chain technologies industries. D is an e-commerce fulfillment company. P operates warehouses in the United States and Canada. D stores inventory for its clients in those warehouses and picks, packs, and ships its clients' products as they are ordered online. D regularly solicited outside investors and repeatedly raised money in the form of equity, convertible notes, and equipment debt from outside lenders. P was solicited for an investment in D. The parties executed a six-page Letter of Intent (LOI) for P to invest in exchange for a majority interest in the company. P was to invest $40 million. Twenty million dollars would provide liquidity for existing shareholders while the remaining $20 million would be used as 'growth capital.' for Ruby Has. P would also provide continued advice and guidance in exchange for an annual management fee of $900,000 per year P 'pleased to submit a preliminary, non-binding Letter of Intent. P's proposal was 'subject to the following due diligence process,' which it then described in detail. P 'anticipated' that it 'will complete the due diligence requirements outlined above within 90 days of the execution of the Letter of Intent' and that it was Cambridge Capital's 'intent to move forward to a closing as quickly as possible, without sacrificing the need to do the work properly.' Final approval from the Investment Committee of Cambridge Capital will be required prior to completing the Potential Transaction. The LOI contained an ordinary course covenant. D was to pay reasonable out-of-pocket fees and expenses of d required to consummate the Transaction, such as legal, tax, accounting, insurance, and travel. The LOI also contained a 90-day Exclusivity Period. In addition, If P has completed its core due diligence and is proceeding in good faith toward a closing, then the parties agree to extend the Exclusivity to 120 days. The Exclusivity Period was extended on October 25, 2020, as reflected in the automatic extension in the LOI and confirmed in an email exchange between counsel. Governing law was Delaware. The LOI was not intended to be a binding contract. P went full steam ahead and accomplished most of what it needed to do. P had concluded its business, operational, and third-party due diligence, had the funds committed to D, and was on track to complete definitive documentation, closing, and funding. D missed its working capital and cash balance forecasts meaningfully from what it had sent to P in May and from what P used to determine valuation and deal structure. The parties negotiated a working capital adjustment for the discrepancy. The parties negotiated a four-page Deal Points Memo. D promised that it would execute a formal set of deal documents memorializing the terms reflected in the Deal Points Memo once drafted by counsel. D delayed executing the final deal documents so it could avoid taxes on the deal, which would have generated close to $20 million in capital gains. This dragged out the deal for several months and prevented the parties from executing the transaction in September, as D had initially promised. D demanded additional cash from P while seeking to disperse as much of the existing assets to existing owners as possible before the deal closed. D asked P to pay an additional $2 million in cash at closing. P agreed in exchange for Ruby Has's agreement to sign the deal documents immediately. Summit Partners announced that it had made a $290 million investment in a direct competitor to D called ShipMonk, Inc. In violation of D's duties under the second extended Exclusivity Period, D directly solicited an acquisition by ShipMonk. P alleges that D engaged in secret discussions for other deals. P claims it allegedly passed on potential investments in D's competitors. A week after the ShipMonk transaction was announced, D told P that unless it would increase its valuation of D to $240 million (a more than fourfold increase on a previous valuation), it would renege on the deal. P refused and D refused to sign the final transaction documents, claiming it would hire an investment banker in two months, run an auction process, and find another buyer who would pay more. D refused to pay for P's out-of-pocket expenses of $405,124.03 in connection with the diligence process. P sued D. D counterclaimed. D alleges that P made misrepresentations to induce D to enter into the LOI's exclusivity agreement and to induce D to enter into an investment transaction.