Kirsch v. Brightstar Corp.

968 F. Supp. 2d 931, 86 Fed. R. Serv. 3d 738, 2013 WL 4782162, 2013 U.S. Dist. LEXIS 127542
District Court, N.D. Illinois·Decided September 4, 2013·No. No. 12 C 6966·Published·Cited by 2 cases

Opinion

MEMORANDUM OPINION AND ORDER

RUBEN CASTILLO, Chief Judge.

Lawrence S. Kirsch, as Shareholders’ Representative of Lawrence S. Kirsch, Charles W. Kriete, Michael J. Chase, and George Puszka (collectively “Shareholders”), brings this diversity action against Brightstar Corporation (“Brightstar”) alleging common law breach of contract. Presently before the Court are Brights-tar’s motion to dismiss Kirsch’s complaint for failure to state a claim upon which relief may be granted pursuant to Federal Rule of Civil Procedure 12(b)(6) and Shareholders’ motion for leave to file a supplemental complaint. For the reasons set forth below, Brightstar’s motion is denied and Shareholders’ motion is granted.

RELEVANT FACTS

Shareholders are all individuals residing in Lake County, Illinois, and Brightstar is a Delaware corporation with its principal place of business in Florida. (R. 1, Compl. ¶¶ 10-14.) Shareholders collectively owned all of the stock of OTBT, Inc. (the “Company”), a distributor of handsets, information technology devices and accessories, and ancillary services.1 (Id. ¶¶ 17-18.) On August 31, 2010, Brightstar purchased all of the Company stock from Shareholders. (Id. ¶ 19.) The details of the purchase were laid out in a Stock [934] Purchase Agreement (the “Agreement”) and two amendments thereto, which Shareholders attached to the complaint. (Id.; R. 1, Ex. 1, Agreement; R. 1, Ex. 2, First Am. Agreement; R. 1, Ex. 8, Second Am. Agreement.)2 The price was set at $1 million plus debt obligations and payment of an additional performance-based amount (the “Earn-Out”). (R. 1, Compl. ¶¶ 2, 20.) The dispute in this suit revolves primarily around the calculation of the Earn-Out and arises out of a disagreement over the meaning of the language in Section 2.1(c)(i) of the Agreement, which provides:

The Earn-Out shall be linked to tiered milestones of the Company’s GAAP-reported revenue (“Revenues”) and EBITDA derived from any and all sales including, but not limited to, all handsets, information technology devices (including laptops, tablets, netbooks, etc.), accessories, activation commission, airtime, and other ancillary service revenue derived through the following channels: Tech Data channel partners, additional IT product distributor relationships such as Ingram Micro or Synnex, and current and future direct Company and/or [Brightstar] IT reseller channel partners (including wireless carrier partners that utilize the Company for back office support, such as billing on behalf of or activation services) with primary end customers in the commercial (small-medium-large business or enterprise), health care, and government (state, local, education, and federal) markets, for the twelve (12) month period commencing on April 1, 2011 and ending on March 81, 2012 (the “Earn-Out Period”) as shown on the Company’s financial statements as adjusted pursuant to Section 2.1(c)(ii) below. [Brightstar] represents and warrants that, except as set forth in Section 2.1(c)(ii) below, prior to March 31, 2012, neither [Brightstar] nor any of its Affiliates (except Company) will directly or indirectly sell any products or services which would generate Revenue.

(R. 1, Compl. ¶ 21; R. 1, Ex. 1, Agreement § 2.1(c)(1).)

The Agreement also requires Brightstar to “prepare the Applicable Financials in good faith and deliver them” to Kirsch, the Shareholders’ Representative, by June 30, 2012, (R. 1, Ex. 1, Agreement § 2.1(c)(iv)(z)), and defines the “Applicable Financials” as the Company’s financial statements for the Earn-Out Period as adjusted in accordance with the Agreement, (R. 1, Ex. 1, Agreement § 2.1(c)(iv)(x)). Further, the Agreement requires Shareholders to notify Brightstar regarding any disagreement with Brights-tar’s calculation of the Revenues and the EBITDA for the Earn-Out Period within 45 days of receipt of the Applicable Financials. (R. 1, Ex. 1, Agreement § 2.1(c)(v).) On June 28, 2012, Brightstar sent a letter (the “Earn-Out Letter”) to Kirsch, enclosing financial information and concluding that the Earn-Out should be a nominal amount. (R. 1, Compl. ¶ 30; R. 1, Ex. 4, Earn-Out Letter.) Shareholders assert that the single document attached to the Earn-Out Letter does not provide them with sufficient information to calculate the Earn-Out. (R. 1, Compl. ¶ 31.) Shareholders allege that between June 28, 2012, and August 1, 2012, Kirsch repeatedly requested additional financial information from Brightstar. (Id. ¶ 32.) While Brightstar provided additional documents, [935] Shareholders allege that it did not provide “adequate and complete Applicable Financials as required by the [Agreement].” (Id.) Shareholders allege that Brightstar incorrectly calculated the Earn Out because, inter alia, it failed to account for all Revenue and appears to have intentionally diverted some Revenue to an affiliate of Brightstar. (Id. ¶ 36.)

Shareholders specifically allege that Brightstar breached the Agreement by “selling products and services, which would generate Revenue, through entities other than [the Company],” despite the provision in Section 2.1(c)(1) requiring Brightstar to route all sales that would generate Revenue through the Company. (Id. ¶ 38.) Based on “publicly-available government filings” not included with the complaint, the Shareholders have determined that they are entitled to the maximum Earn-Out payment under the Agreement, not the nominal amount Brightstar informed them they were entitled to in the Earn-Out Letter. (Id. ¶ 39.) They thus allege damages in excess of $75,000.3 (Id. ¶ 41.)

PROCEDURAL HISTORY

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Kirsch v. Brightstar Corp., 968 F. Supp. 2d 931, 86 Fed. R. Serv. 3d 738, 2013 WL 4782162, 2013 U.S. Dist. LEXIS 127542 (N.D. Ill. 2013).

968 F. Supp. 2d 931 (Kirsch v. Brightstar Corp.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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