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Cinema Scene Marketing & Promotions, LLC v. Calidant Capital LLC

United States District Court, D. Kansas

February 9, 2018




         Plaintiffs 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.

         I. Factual Background

         The following facts are alleged in the Counterclaim (Doc. 29) and assumed to be true for purposes of deciding this motion.

         Plaintiff 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.

         Defendant Calidant Capital, LLC (“Calidant”) is a Texas capital investment limited liability company with two members, Drew Bagot and David Lai (collectively with Calidant, “Defendants”).

         In 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.

         On June 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 forward.

         On June 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.”[1] 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.

         On 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.

         Immediately 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 partners.

         On September 4, 2015, Defendants submitted a proposed binding LOI to Plaintiffs for the acquisition of Cinema Scene.

         On 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 marketing sector.

         On 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.

         On 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 company.”[2]

         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 the LOI.

         In 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 the Transaction.

         By 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.

         On March 1, 2016, the parties extended the Exclusivity and Good Faith Provision to March 15, 2016.

         On or 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 ...

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