DENIL v. DEBOER, INC. (May 13, 2011)

Ronald DeBoer started a trucking business and managed it for 40 years. Then he decided to retire and sell the business. He entered into an arrangement with Peter Denil and Gerald Nardella, pursuant to which Denil and Nardella were to take over the business and prepare it for sale. DeBoer entered into employment agreements with Denil and Nardella, effective in October 2008. DeBoer had the right to fire either of them with or without cause, but had to pay a penalty if it was without cause. The parties also entered into a stock purchase agreement, pursuant to which Denil and Nardella agreed to purchase a certain amount of the company's stock. Their obligation to buy the stock was expressly conditioned on the execution of a buy-sell agreement, which the parties agreed to use their best efforts to conclude. Failure to conclude the stock purchase was defined in the employment agreement as "cause" for discharge. The parties were unable to conclude negotiations on the buy-sell agreement, Denil and Nardella never purchased the company stock, and DeBoer fired them. He treated it as a firing for cause on the ground that they failed to purchase the stock by the closing date set forth in the agreement. Denil and Nardella brought suit for reinstatement and damages. DeBoer brought a counterclaim for damages it incurred when it issued, and then reversed, a dividend in anticipation of the stock sale proceeds. Judge Crabb (W.D. Wis.) rejected all claims. Both sides appeal.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Evans affirmed. The Court first addressed the best efforts clause. It rejected plaintiffs' argument that it amounted to an agreement to agree, which DeBoer violated. Wisconsin law does not honor such agreements. Since the contract did not define the term and neither party presented any evidence of intent, the Court treated it as a commitment to engage in good-faith bargaining -- and concluded that neither side violated it. Since the stock purchase agreement conditioned the obligation on the successful negotiation of the buy-sell agreement, the purchase obligation never arose. But the Court pointed out that the employment agreement did not contain the same condition-precedent language that the stock purchase agreement did. It simply stated that the failure to purchase the stock by the closing date was cause for termination. Denil and Nardella could have purchased the stock and kept their jobs (or at least avoided termination for cause) even though they were not obligated to do so under the stock purchase agreement. The Court also affirmed that the rejection of DeBoer's counterclaim. Denil and Nardella did nothing more than they were entitled to under their contracts. The fact that DeBoer incurred costs in issuing a dividend in anticipation of the stock purchase does not create any liability on their part.