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Haertle v. Brennan Investment Group, LLC

United States District Court, E.D. Wisconsin

March 8, 2017

ERIC C. HAERTLE, Plaintiff,
v.
BRENNAN INVESTMENT GROUP, LLC and BIG ACQUISITIONS LLC, Defendants.

          DECISION AND ORDER

          WILLIAM E. DUFFIN U.S. Magistrate Judge

         Factual Background

         In 2007 plaintiff Eric Haertle became the chief operating officer of his family's medical supply manufacturing business, H&P Industries, Inc. (ECF No. 66, ¶ 1.) Haertle's two siblings also worked at H&P. David Haertle was the chief executive officer and Donna Petroff was the chief financial officer. (ECF No. 66, ¶ 3.) In January of 2011 the United States Food and Drug Administration found certain alcohol wipes manufactured by H&P and a related company, Triad Group, Inc., to be contaminated with bacteria. (ECF No. 66, ¶ 4.) The companies recalled the product, but the fallout shut both businesses down and both filed for Chapter 11 bankruptcy protection on August 9, 2012. (ECF No. 66, ¶ 5.) The bankruptcy proceedings of Triad Group and H&P were consolidated and jointly administered (together with a third company, Triad Pharmaceuticals, Inc.) as the “Triad Bankruptcy case.” (ECF No. 66, ¶ 6.)

         The Haertle siblings developed a business plan for Triad to emerge from bankruptcy with an infusion of approximately $2 million in financing to fund operations. (ECF No. 66, ¶ 7.) The Haertles negotiated with the bankruptcy creditors' committee to pay their unsecured creditors with future profits from the business after its reorganization. (ECF No. 71, ¶ 3.) The bankruptcy plan included a proposal that H&P's assets--the most valuable of which was the Triad/H&P manufacturing facility located in Hartland, Wisconsin, hereinafter referred to as the “Hartland Property”--be sold at an auction, where the Haertles would be the “stalking horse bidder”[1] at $6.5 million. (ECF No. 71, ¶¶ 5, 8.)

         To finance the $6.5 million “stalking horse” bid proposal, Eric Haertle reached out to real estate broker Sam Dickman, Jr. to find parties interested in purchasing the Hartland Property. (ECF Nos. 66, ¶8; 71, ¶ 14.) Dickman contacted defendant Brennan Investment Group, LLC (hereinafter “Brennan”) regarding its interest in the Hartland Property. (ECF No. 66, ¶ 10.)

         On October 29, 2013, Scott McKibben-Brennan's managing principal-sent Dickman a “Letter of Intent” outlining certain terms under which Brennan would negotiate a mutually acceptable Purchase and Sale Agreement for Brennan's acquisition of the Hartland Property. (ECF Nos. 66, ¶ 10; 67-1.) The Letter of Intent stated:

We are pleased to provide you this letter of intent, outlining certain terms under which the Purchaser intends to negotiate a mutually acceptable Purchase and Sale Agreement (“Purchase and Sale Agreement”) for Purchaser's acquisition of ownership of the Property from its current owner of record. This letter is in no way intended to be a complete or definitive statement of all the terms and conditions of the proposed transaction, but remains subject to the negotiation of a definitive Purchase and Sale Agreement.

(ECF No. 66, ¶ 11.) The Letter of Intent also contained a provision entitled “Non-Binding Nature” that stated that “[n]othing contained herein shall create any obligation on the part of any person or entity to either approve the terms of the proposed transaction or enter into a Purchase and Sale Agreement” and that “no party will be legally bound in any manner unless and until a formal, written Purchase and Sale Agreement has been prepared, executed and delivered by all parties thereto[.]” (ECF No. 66, ¶ 12.)

         The Letter of Intent outlined a potential deal for the Hartland Property, which would be a “sale leaseback”: the Haertles would sell the property to Brennan, which would then lease the property back to the Haertles as a tenant (enabling the Haertles to re-start their manufacturing business from the same building). (ECF No. 67-1.) The purchase price would be $7, 000, 000, with the Purchaser and Seller entering into a seven- year triple net lease for 100, 000 square feet with an initial base rent of $450, 000 per year with three percent annual escalations. (ECF Nos. 66, ¶ 13, 67-1, 71, ¶ 25.) The Letter of Intent was signed by Brennan (by McKibben as Managing Principal) as the “Purchaser.” (ECF Nos. 67-1; 71, ¶ 25.) The “seller” signature block was left empty and both parties agree that Eric Haertle[2] never signed it and never agreed to either a $7 million purchase price or a seven-year triple net lease for 100, 000 square feet. (ECF No. 70, ¶¶ 14-15.)

         The parties thereafter negotiated the purchase of the Hartland Property. (ECF No. 71, ¶ 33.) On November 22, 2013, McKibben sent an e-mail to Dickman detailing two separate Brennan proposals for the purchase of the property:

Option A: Seller leases back 135k sf at $4.50 absolute net, 7 year term, 3% bumps, price is $7.5 million.
Option B: Seller leases entire building at $3.25 absolute net, 15 year term, 3% bumps, they keep rent from existing tenant through term, $8.6 million price, tenant purchase option after 10 years will be $15 million.
Both options will require some security deposit that we will need to address more in diligence. In Option B, we would want a bigger S.D. holdback.

(ECF Nos. 71, ¶ 33; 68-2.) Under Option A Brennan would keep the lease payment of tenant PM Plastics (another tenant in the Hartland Property), while under Option B Haertle would keep the PM Plastics lease payment. (ECF No. 71, ¶ 35.) Both options were communicated to Haertle on or around November 25, 2013. (ECF No. 71, ¶ 34.)

Two days later, on November 27, 2013, Haertle e-mailed Dickman:
This is what I am thinking:
$8.2 M Sale Price
5 year lease NNN @ $3.50/sq 3% bumps Buyback option during the lease at $9-10M 1st right to assume PM's leased space
I have thoughts on Option B but am leaning towards A.

(ECF No. 74-19 at 7.) Upon learning of Haertle's terms, McKibben told Dickman, “I don't think it will work-that is a huge departure from our proposal.” (ECF No. 74-19 at 6.)

         On December 2, 2013, McKibben responded to Haertle's proposal with an e-mail to Dickman containing another proposal about which he said there was “no room for negotiation”:

$8.5 million (but when I add broker fee of 425k, loan fees of 75k, deal fee of 85k and other costs we are at 9.2M). $3.25 net on entire building-10 year lease.
Purchase option at the end of 5 year (1 time right, not ongoing because it makes debt too tricky), $11.5 million….[T]his is the absolute best I can do on this deal and it is subject to me being able to procure 65% debt.
That is the deal we will be interested in.

(ECF 74-27 at 2.) Haertle claims that sometime in December he told Dickman that he would accept this modified, $8.5 million Option B if Brennan wanted it, “although I preferred the lower Option A.” (ECF No. 72, ¶ 17.) Despite this alleged “acceptance, ” Haertle still believed Brennan would revert to Option A. (ECF No. 71, ¶ 45.) Apparently no documents evidence Haertle's acceptance of Brennan's offer, nor is there any evidence that anyone told Brennan that Haertle would accept Brennan's offer.

         The bankruptcy creditors' committee in Triad's Chapter 11 proceeding requested verification that Haertle would be able to fund the reorganization plan that he had submitted. (ECF No. 71, ¶ 43.) To do so, counsel for Haertle contacted McKibben to ask for Brennan's sign-off on a document entitled “Plan Funding” (the “Plan Funding Document”) to show that Haertle had a reputable financier in place. (ECF No. 74-1.) In relevant part the Plan Funding Document stated:

Brennan Investment Group through BIG Acquisitions LLC (“Investor”) intends to provide funding into the Plan proposed by Triad Group, Inc., H & P Industries, Inc. and Triad Pharmaceuticals, Inc. (collectively, the “Debtors”) in an amount of six million five hundred thousand dollars ($6, 500, 000) in order for the ‘Haertles' to obtain substantially all of the Debtors' assets under the Second Amended Joint Plan of Reorganization… on the ‘Financing Terms' stated below.

(ECF No. 67-2.) Relevant here, “Financing Term” #7 stated, “Investor's [sic] providing funds is dependent upon it and the Haertles finalizing terms of instruments such as a lease to consummate the transaction.” (ECF No. 66, ¶ 19.) The “Effective Date” of the Plan Funding Document - the date on which the closing of the sale would need to occur-was February 15, 2014. (Id.)

         McKibben signed the Plan Funding Document on December 11, 2013, under a signature block that listed “BIG Acquisitions, LLC” as the “Investor.” (ECF No. 67-2.)

         The document was not signed by Haertle or any representative of the seller. (Id.) The Effective Date was later changed to March 31, 2014, in a second, otherwise identical Plan Funding Document, again Dated:ly by McKibben. (ECF Nos. 66, ¶ 20 and 67-3.)

         On December 16, 2013, Dickman sent an e-mail to McKibben stating that “[Eric Haertle] would like a PSA [Purchase and Sale Agreement].” (ECF No. 74-29.) McKibben e-mailed Brennan's in-house lawyer, Sam Mandarino, on December 23, 2013, and provided the following terms: “$8.5 million, $3.25/sf absolute net, 10 year, 3% annual increases, end of year 5, purchase option $11.4 million.” (ECF No. 74-30.) Mandarino understood that he was to place these deal terms into a written draft of a Lease and a Purchase and Sale Agreement. ...


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