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Institutional Labor Advisors, LLC v. Allied Resources, Inc.

United States District Court, Sixth Circuit

December 16, 2013

INSTITUTIONAL LABOR ADVISORS, LLC, Plaintiff,
v.
ALLIED RESOURCES, INC., Defendant/Counter-Plaintiff.
v.
INSTITUTIONAL LABOR ADVISORS, LLC and DAVID S. SMITH, Counter-Defendants.

MEMORANDUM OPINION AND ORDER

JOSEPH H. McKINLEY, Jr., Chief District Judge.

Institutional Labor Advisors, LLC ("ILA") is a limited liability corporation that provides consulting, business, and compliance services to mining industry clients with respect to acquisitions and operational matters. On April 4, 2012, ILA filed this breach of contract action against Allied Resources, Inc. ("Allied"), alleging that Allied breached a Compensation Agreement that it had entered into with ILA. (Compl. [DN 1].) Under the Compensation Agreement, Allied had agreed to "pay to ILA an amount in cash equal to five percent (5%) of the value of any Distribution... at such time as any such Distribution is paid." (Comp. Agr. [DN 1-1] 1.) ILA states that while certain distributions were paid, Allied failed to compensate it. (Compl. [DN 1] ¶¶ 11, 13, 16-17.)

Allied challenges the Compensation Agreement's enforceability. In addition, Allied filed a counterclaim against ILA and David Smith ("Smith"), ILA's principal and Allied's former counsel. In its counterclaim, Allied alleges that Smith tortiously interfered with its contract and business expectancy. Allied's counterclaim stems from the belief that Smith falsely represented to Alliance Resource Partners, LP ("Alliance") that ILA had an ownership interest in Allied, or in Allied's assets, under the Compensation Agreement. (Answer, Affirmative Defenses & Countercl. [DN 9].)

This matter is now before the Court on ILA and Smith's summary judgment motion [DN 76], which seeks dismissal of Allied's counterclaim. Also before the Court is Allied's motion for oral argument [DN 97]. Fully briefed, the matter is ripe for decision. For the following reasons, ILA and Smith's summary judgment motion [DN 76] is GRANTED in part and DENIED in part. Further, Allied's motion for oral argument [DN 97] is DENIED.

I. BACKGROUND

The parties agree that in early 2012, Allied was engaged in negotiations with Alliance for the sale of certain coal reserves located in western Kentucky. These reserves were known as the Onton Reserves. (See Answer, Affirmative Defenses & Countercl. [DN 9] ¶ 3; Mem. in Supp. of Summ. J. on Def.'s Countercl. [DN 76-1] 8-9.) At that time, the proposed purchase price for the acquisition was approximately $120 million. (See Richard E. Davis Dep. [DN 77] 123 (noting that the proposal was $120 million, plus $2.5 million paid $500, 000 per year for 5 years); Jeffrey L. Hallos Declaration [DN 85-7] ¶¶ 13-14 (noting that on January 4, 2012, Allied sent a draft purchase agreement to Alliance that included a proposed price of $125 million and also noting that on January 12, 2012, Alliance sent a draft purchase agreement to Allied that included a proposed price of $122.5 million).) On January 31, 2012, however, Alliance informed Allied that it would only pay $100 million. (See Davis Dep. [DN 77] 121-22, 129-30; Hallos Declaration [DN 85-7] ¶ 15.) The parties offer differing accounts on why Alliance decided to reduce the purchase price.

ILA and Smith argue that Alliance's decision to reduce the price to $100 million, and thus not go forward with the transaction at $120 million, "had nothing at all to do with Smith, ILA, or anything Smith had allegedly done." (Mem. in Supp. of Summ. J. [DN 76-1] 9.) In support of this argument, ILA and Smith highlight the testimony of Richard E. Davis, Alliance's general counsel. In his deposition, Mr. Davis unequivocally stated that Alliance's senior management had reduced the purchase price to $100 million after deciding that the economics of the potential acquisition did not support a $120 million price. (Davis Dep. [DN 77] 121-29, 140.) Mr. Davis also stated that the decision had "absolutely nothing" to do with Smith-and that it was based on "pure economics." Mr. Davis outlined several economic considerations which he stated impacted the decision to reduce the price, such as: (1) a decline in market price for coal; (2) discovering during due diligence that there might be higher operating costs; (3) a likelihood for increased capital costs; and (4) concerns over the ability to increase existing levels of production. (See id.)

Allied counters that Alliance's decision to reduce the purchase price to $100 million, and thus not go forward with the transaction at $120 million, resulted from Smith's interference with the Allied-Alliance transaction. In support of this claim, Allied first notes that in early- to mid-January, Smith left a message with Chester Thomas, Allied's principal, stating "Tell Chester the number is 120." (Chester Thomas Dep. [DN 85-4] 335; Call Log [DN 85-5]; Chester Thomas Declaration [DN 85-6] ¶ 17.) According to Allied, this was a "clear reference to the purchase price of $120 million then being discussed by Allied and Alliance, " thus indicating that Smith knew about the Allied-Alliance transaction in early- to mid-January. (Allied's Resp. [DN 85] 5.)

Next, Allied relies on Smith's call log, which shows that Smith called Alliance's CEO, Joe Craft, on December 6, 2011. (See Call Log [DN 105-1] 4.) Alliance's general counsel, Mr. Davis, stated in his deposition that there was a call between Smith and Mr. Craft before February 23, 2012, although neither he nor Mr. Craft could recall the date of this call. (Davis Dep. [DN 85-2] 173-74, 196, 204.) According to Mr. Davis, the substance of the conversation was as follows:

David [Smith] told Mr. Craft that, you know, you don't - you, Joe, don't need to respond to me. You probably have confidentiality obligations, but I've heard that Alliance is considering acquiring Green River or Chester's assets, however he would have phrased it. And you probably recall, you, Joe, probably recall the work, the legal work I did for Chester when he was acquiring those assets from P&M and I just want you to know that the - my compensation arrangement with Chester gave me an interest in the assets and - or the business or the company.

(Davis Dep. [DN 77] 160.) According to Allied, by stating that he had an interest in Allied, or in Allied's assets, Smith made a false representation to Alliance, which interfered with the Allied-Alliance transaction. Allied states that Smith's statement to Mr. Craft caused Alliance to develop concerns regarding whether Smith had an ownership-type of interest in the assets they intended to purchase, which ultimately caused Alliance to reduce its offer. (Davis Dep. [DN 85-2] 198-99, 201-02.) Allied notes that the communication between Smith and Mr. Craft was "before Alliance signed its contract with Allied on February 23, 2012, and well before Alliance dropped its offer from $120 million to $100 million in late January 2012." (Allied's Sur-Reply [DN 112] 4.)

As additional support of its claim that Alliance reduced the purchase price due to Smith's interference, Allied highlights the history of negotiations between Allied and Alliance. Specifically, Allied highlights that when Allied and Alliance were in early negotiations, in December of 2011, Alliance raised what it perceived to be a potential title issue that reduced the property's value. As a result, on December 11, 2011, Alliance reduced the purchase price from $130 million to $120 million. Allied disagreed that the perceived title issue impacted the property's value. Thus, Allied's representatives had several discussions with Alliance's representatives in an attempt to convince them that this was the case. By contrast, when Alliance reduced the purchase price from $120 million to $100 million, Alliance never discussed its rationale with Allied. Instead, Alliance gave a draft purchase agreement to Allied that contained a proposed price of $100 million and refused to explain the reason for its price reduction. (Hallos Declaration [DN 85-7] ¶¶ 9-10, 15; Thomas Declaration [DN 85-6] ¶¶ 11-13, 16, 18.) Allied argues that Alliance's refusal to explain the reason for its price reduction is additional evidence of Smith's tortious interference.

Regardless of the rationale underlying Alliance's decision to reduce the purchase price, it is clear that on February 20, 2012, Alliance raised the question of Smith's rights or interests with Allied. (See Hallos Declaration [DN 85-7] ¶ 18; Thomas Declaration [DN 85-6] ¶ 26.) Allied's counsel responded on February 23, 2012, advising that "Frost Brown Todd is not aware that the Sellers or LLCs have any obligations to, or contracts with, David Smith or any of his affiliates that the Purchaser will be assuming in connection with [the proposed transaction]." (E-mail from Jeffrey L. Hallos [DN 76-15].) This response eased Alliance's concerns about assuming liability to ILA. Allied and Alliance signed a purchase agreement for $100 million on February 23, 2012. Alliance issued a press release on February 24, 2012 disclosing the purchase and sale transaction. (See Press Release Announcing Allied-Alliance Agr. [DN 76-16].)

Approximately two weeks after the press release, on March 8, 2012, Smith called Joe Craft, Alliance's CEO. (See Mem. in Supp. of Summ. J. [DN 76-1]; Call Log [DN 105-1] 4.) According to ILA and Smith, in this conversation, Smith advised Mr. Craft (for the first time) that he was a party to the Compensation Agreement with Allied because he did not want Mr. Craft to learn of ILA's potential interest in distributions from the Allied-Alliance transaction after the fact. (Mem. in Supp. of Summ. J. [DN 76-1] 10-11; Davis Dep. [DN 77] 160-61.) ILA and Smith suggest that Smith felt obligated to contact Mr. Craft because Mr. Craft was Smith's friend and because Alliance was ILA's long-standing client. (Mem. in Supp. of Summ. J. [DN 76-1] 10, 16.) However, Allied characterizes the call as further interference. According to Allied, Smith again inserted himself into the transaction and falsely asserted that ILA had an interest in Allied-or in Allied's assets. (See Allied's Resp. [DN 85] 9; Davis Dep. [DN 77] 160-62.)

The next day, on March 9, 2012, Smith wrote to Allied's principal, Chester Thomas. In that letter, Smith asked Mr. Thomas to provide information regarding all of the distributions that had been made since the effective date of the Compensation Agreement. In addition, Smith told Mr. Thomas that he had seen the announcement regarding Allied's sale of the Onton Reserves to Alliance. Smith stated that those "reserves and assets... are the subject of the Allied Resources - ILA Distribution Agreement." (Letter [DN 76-17].) Smith sent a blind copy of the letter to Mr. Craft, on which he added a handwritten note stating: "Joe, Thank you for your interest in this[.] David." (Id.) Allied characterizes this conduct as additional interference.

ILA and Smith respond that this conduct did not constitute interference. In support, they focus on Smith's deposition testimony, where he stated that he sent Mr. Craft a copy of the letter because Mr. Craft had suggested that Alliance could potentially help bring closure to the issues between ILA and Allied. (See David S. Smith Dep. [DN 76-4] 325-26.) According to ILA and Smith, Mr. Craft subsequently advised Smith that Smith and Mr. Thomas ...


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