Diesel Power Equipment, Inc. v. Addco, Inc.

377 F.3d 853 (2004)

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Nature of the Case

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Facts

P is a Deutz engine distributor based in Omaha, Nebraska. D is a Minnesota company that owned a division called the Nicholson Engine Group (NEG), which engaged in the sale and distribution of Deutz engines and products in Minnesota, South Dakota, North Dakota, and parts of Wisconsin. P began negotiating the purchase of NEG in early 2001. P met with D several times over the summer and P sent a preliminary offer letter ton August 24, 2001, detailing values for the inventory, fixed assets, and furniture that P was interested in purchasing. The letter stated that it was not the entire offer and listed goodwill, consulting, and noncompete payments, as well as other elements, as items that needed to be discussed. The parties met on August 30 to finalize specific inventory and fixed-asset items to be included in the purchase. P offered $275,000 for goodwill or $350,000 to be paid in installments. D indicated he wanted more money for goodwill. P agreed to draft a joint letter to be sent to Deutz for its approval of the sale. They discussed closing the sale in October or November 2001. The next day, D called P and accepted the offer, and P agreed to draft a letter of intent. P drafted a proposed letter of intent, which specified amounts for various assets and discussed how to handle the purchase of accounts receivables. The letter of intent offered to pay for goodwill in one of two ways: either $275,000 paid at closing or $100,000 at closing with five annual installments of $50,000 for a total of $350,000. D responded that one item was missing from the list of fixed assets and that one amount was not as agreed. P forwarded a revised letter of intent correcting these items. Upon receipt, D called P and discussed changing the goodwill price to $350,000 due in full at closing. P offered to pay $300,000 at closing and $25,000 per year over the next two years. D responded, 'we've got a deal.' A third revised letter of intent was forwarded, which D signed. The total purchase price was $1,290,400. The Letter of Intent stated that closing 'will depend on when we get the agreements in place.' D also signed the joint letter to Deutz, which stated that Diesel Power had 'agreed in principle' to buy NEG and requested Deutz's approval of the transfer of the distributorship. Deutz approved of the sale with the conditions that P maintain a facility in the Minneapolis area, P comply with its distributorship contract, there be a separate contract for the NEG territory, and the accounts of both P and NEG be brought current. P prepared a draft Asset Purchase Agreement and forwarded it. It included the agreed upon terms with the addition of closing procedures and other miscellaneous provisions. D asked that various prices be shifted between the goodwill figure and the other assets. A second draft was forwarded which varied the first: it allocated $180,000 toward the Deutz distributorship, whereas the first agreement placed no value on the distributorship; the second agreement provided for a noncompete agreement for the three principals of d and allocated $50,000 (payable in two installments of $25,000 over a two-year period) toward the value of the noncompete, whereas the first agreement did not mention a noncompete agreement; the second agreement made no mention of a goodwill payment, whereas the first agreement allocated $350,000 to goodwill, to be paid $ 300,000 at closing and two $25,000 annual payments; and the second agreement allocated full value to the inventory, whereas the first agreement discounted older inventory. Neither of the draft Asset Purchase Agreements was ever signed. On November 6, D informed P that he had another offer that was $1 million higher. D subsequently entered an Asset Purchase Agreement with Interstate for a total price of $2,181,896, and the sale closed on November 30. P sued D for breach. The court found that the commitments and agreements were certain and definite and that the parties' conduct evinced an objective intent to be bound by the terms of the Letter of Intent. The court found that the second draft did not materially alter the terms of the first. The court entered judgment for P for $809,396, and D appealed.