United States District Court, D. Kansas
CINEMA SCENE MARKETING & PROMOTIONS, INC, BRAD DERUSSEAU, MICHAEL HOLMES, JOSEPH ROSS, AND BRUCE SIMS, Plaintiffs,
CALIDENT CAPITAL, LLC, DREW N. BAGOT, AND DAVID LAI, Defendants.
MEMORANDUM AND ORDER
A. ROBINSON UNITED STATES DISTRICT JUDGE.
filed this action alleging Defendants lied to induce them to
sign a buy-out letter of intent (“LOI”) with
Defendants, who neither had the money to buy Plaintiffs'
business nor the intent to follow through with the purchase.
Defendants filed counterclaims, alleging Plaintiff breached
Paragraphs 10 and 15 of the LOI (Counterclaims II and I,
respectively) and negligently misrepresented that they had an
existing business relationship with a third-party competitor
and would reach an agreement with that competitor to induce
Defendant to execute the LOI (Counterclaim III). Before the
Court is Plaintiffs' Motion to Dismiss Counterclaim III
(Doc. 47). The motion is fully briefed and the Court is
prepared to rule. For the reasons stated below, the Court
denies the motion.
following facts are alleged in the Counterclaim (Doc. 29) and
assumed to be true for purposes of deciding this motion.
Cinema Scene Marketing & Promotions, LLC (“Cinema
Scene”) provides movie theater digital
marketing/advertising and movie theater concessions. Its
principals are Plaintiffs Brad Derusseau, Michael Holmes,
Joseph Ross, and Bruce Sims (“CS Principals”;
collectively with Cinema Scene, “Plaintiffs”),
all of whom are residents of Johnson County, Kansas.
Calidant Capital, LLC (“Calidant”) is a Texas
capital investment limited liability company with two
members, Drew Bagot and David Lai (collectively with
early 2015, Plaintiffs circulated a solicitation seeking to
attract potential investors to purchase ownership interest in
Cinema Scene. Defendants responded to the solicitation and
requested additional information on the company.
4, 2015, Plaintiffs, through their representative Dave
Kakareka, sent Defendants an “Information
Memorandum” which contained information about Cinema
Scene's operations, information about Cinema Scene's
financial records from previous years, and representations
about Cinema Scene's predicted financial success moving
30, 2015, Defendants submitted a non-binding Indication of
Interest (“IOI”) to Plaintiffs. In their IOI,
Defendants proposed that the Transaction (i.e., the
purchase of Cinema Scene) eventually be consummated with
“a combination of equity provided by [Defendants] and
conservative third-party senior debt.” The CS Principals
would stay on as Cinema Scene employees following the
purchase by Defendants. Plaintiffs indicated that they had
received IOIs from other potential investors and were
considering Defendants among multiple groups of investors.
August 25, 2015, the parties met in Overland Park, Kansas.
The CS Principals presented details of Cinema Scene's
operations to Bagot and Lai who, in turn, presented their
strategic vision for executing the Transaction. In this
meeting, Defendants recognized Cinema Scene's digital
marketing product line had significant competition from
another market participant, National CineMedia
(“NCM”). Because NCM could impede Cinema
Scene's growth in the digital marketing sector and pose a
threat to the Transaction, CS Principal Ross orally
represented to Defendants that Plaintiffs had a close
relationship with the president of NCM and could reach a deal
with NCM which would alleviate the threat of competition. The
parties decided to actively work toward reaching a formal
agreement for the sale of Cinema Scene to Defendants.
Accordingly, Plaintiffs sent Defendants their financial
information to begin the due-diligence process and Defendants
set out to obtain third-party investors.
following the August 25, 2015 meeting, Defendants contacted
numerous investors to obtain third-party financing for the
Transaction. In September 2015, Defendants obtained a
non-binding commitment letter from a third-party investor -
Saratoga Investment Corp. (“Saratoga”) - to
support Defendants' acquisition of Cinema Scene.
Defendants continued to solicit other third parties to
participate in the Transaction as investors and/or strategic
September 4, 2015, Defendants submitted a proposed binding
LOI to Plaintiffs for the acquisition of Cinema Scene.
October 26, 2015, Ross had a dinner meeting in Dallas, Texas
with Bagot and Lai. Plaintiffs, through Ross, represented for
a second time that Plaintiffs had a close relationship with
NCM executives and would strike a deal with NCM to neutralize
Cinema Scene's primary competition in the digital
November 2, 2015, Plaintiffs, through Ross, represented for a
third time to Defendants, via email, that, by virtue of his
relationship with NCM's executive team, Plaintiffs were
on the verge of reaching an agreement with NCM that would
virtually eliminate Cinema Scene's competition in the
digital marketing sector.
November 9, 2015, Plaintiffs represented to Defendants for a
fourth time that Plaintiffs were on the verge of closing a
deal with NCM that would have “game-changing
implications for the growth of the
parties executed the LOI on November 11, 2015. The LOI
included a provision that Defendants' obligation to
complete the Transaction was subject to satisfactory
due-diligence review of Cinema Scene by Defendants and their
lenders. The LOI obligated the parties to negotiate in good
faith toward a definitive stock purchase agreement
(“DPA”) -and other documents incident to such
purchase agreement-in conformance with guidelines provided in
the LOI. The LOI also contained an exclusivity term whereby
Cinema Scene agreed not to negotiate with parties other than
Defendants for a period of ninety days following execution of
December 2015, Defendants worked diligently with counsel to
draft legal documents necessary for the closing of the
Transaction. The parties negotiated and traded revisions to
the DPA throughout January 2016. Although Defendants
considered many of Plaintiffs' revision requests
unreasonable or a deviation from industry standard,
Defendants remained ready, willing, and able to consummate
February 2016, negotiations broke down due to Plaintiffs'
increasing demands regarding employment agreements, salaries
for the CS Principals, and post-Transaction income tax
distributions. Despite Plaintiffs' outward bad faith,
Defendants had significant time and resources invested in the
Transaction and thus were still ready, willing, and able to
consummate the Transaction.
March 1, 2016, the parties extended the Exclusivity and Good
Faith Provision to March 15, 2016.
about March 3, 2016, AMC Theatres (“AMC”)
publicly announced its acquisition of Carmike Cinemas (the
“Merger”), which injected significant risk and
uncertainty into the Transaction as a whole. On March 7,
2016, the parties conferred and agreed that the Transaction
could still be consummated but would require amendments to
account for the anticipated loss of revenue due to the