Buying or selling a business often involves complex negotiations between the parties. It is not a good idea to rely on an implied oral understanding or “handshake” agreement, which may leave either side with different interpretations of what has actually been agreed to (or nor agreed to, as the case may be). This, in turn, can lead to unnecessary and expensive litigation which will ultimately leave one party unsatisfied.
Jilted Pharmaceutical Buyer Denied Relief in Court
Here is an illustration of what can go wrong during the process of negotiating the sale of a business. In November 2014, the owners of Ricerca Biosciences in Concord, Ohio, sold the private company to a local investment fund. This prompted a lawsuit by a man who claimed he was in negotiations to buy Ricerca himself.
The plaintiff ran his own company which did business with Ricerca. Upon learning Ricerca might close if it could not locate a suitable buyer, the plaintiff met with Ricerca’s then-CEO to discuss a possible sale. This meeting led to a second teleconference with the chairman of Ricerca’s board and several other individuals. According to the plaintiff, the board chair told him at this time she did not expect any competing bids for Ricerca “due to the ‘fire sale’ nature of the business.” She then indicated the plaintiff would need to secure an agreement with Ricerca’s landlord before any sale could proceed.
The plaintiff said he met with the landlord, and based on that discussion he formally presented Ricerca’s board with an offer to purchase the company for $7.3 million. The next day, the chairman informed the plaintiff “the board had selected another bidder.” The other bidder, it turned out, was an investment fund where one of the partners was also advising Ricerca on its sale and restructuring. The fund subsequently installed this partner as Ricerca’s new chief executive.
The plaintiff sued numerous parties, including the board chair and Ricerca’s new owners. He asked an Ohio judge to award him damages and impose a “constructive trust” over Ricerca, ostensibly due to the company’s “bad faith” negotiations and for other reasons. A Franklin County court dismissed the plaintiff’s complaint in its entirety, and in December 2015, the Ohio Court of Appeals affirmed that dismissal.
Among other things, the appeals court noted under Ohio law, there was no such thing as a claim for “bad-faith contract negotiations” with respect to the sale of a private company. While there is an “implied duty of good faith and fair dealing” attached to any contract, here there was never any legally enforceable agreement to speak of. The court further noted there was no “written agreement regarding either the sale of Ricera or the process by which bids were to be submitted and evaluated.” Indeed, the plaintiff presented no documentation which indicated he was ever promised or offered an “exclusive right to submit an offer” to purchase Ricerca. For those reasons, he had no standing to bring a lawsuit.
Need Help Buying or Selling a Business?
The key lesson from this case is you should never make assumptions when it comes to negotiating for the sale or purchase of a business. If you need help from an experienced Cortland business attorney with negotiating or drafting any type of contract, contact the Law Office of John C. Grundy today.