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Avatar Business Connection, Inc. v. Uni-Marts

December 29, 2005

AVATAR BUSINESS CONNECTION, INC., PLAINTIFF,
v.
UNI-MARTS, INC., DEFENDANT.



The opinion of the court was delivered by: Simandle, District Judge

OPINION

This matter comes before the Court upon a motion by Defendant Uni-Marts, Inc. for summary judgment against Plaintiff Avatar Business Connection, Inc., and cross-motion by Plaintiff for summary judgment against Defendant. For the reasons discussed below, this Court finds that no reasonable jury could find that Plaintiff is owed a commission under the Second Brokerage Agreement (as defined below). Further, the Court finds that Plaintiff's claims under the doctrine of quantum meruit and for breach of the duty of good faith and fair dealing, raised for the first time in Plaintiff's brief in support of its motion for summary judgment, are not part of the pleadings and will not be considered in these cross-motions; Plaintiff's last-minute motion to amend will be addressed separately. Accordingly, Defendant's summary judgment motion will be granted and Plaintiff's cross-motion for summary judgment will be denied.

I. BACKGROUND

Defendant, Uni-Marts, Inc., ("Uni-Marts" or "Defendant") was until June of 2004, a publicly-traded company with its principal place of business in State College, Pennsylvania. (See Complaint ¶ 2.) Defendant is in the business of owning and operating convenience stores and discount tobacco stores. (See Complaint ¶ 6.) Defendant owns 282 stores (including, in many instances, the real estate on which the stores are situated) throughout New Jersey, Pennsylvania, Maryland, Delaware, New York and Virginia. (See id.)

In early 2002, Defendant began experiencing financial difficulties. (Affidavit of Ara Kervandjian ¶4.) In response to the company's financial situation, Defendant's management devised a strategy for the divestiture of 190 of its convenience stores. (Id.) Management presented its plan to Defendant's board of directors who in turn formed an Ad Hoc Committee charged with studying the divestiture plan. (Id.) In furtherance of the board's directive, the Ad Hoc Committee engaged two companies to serve as the Committee's financial advisors, instructing them that, while Defendant's principal goal was to sell the 190 stores identified in the divestiture plan, they should also explore other strategic alternatives to enhance the value of the company for the stockholders (either through the sale of the company's assets or another business combination). (Proxy Statement of Uni-marts, Inc., dated 6/4/2004, p. 17, Kervandjian Aff., Ex. B.) In July of 2002, the financial advisors prepared a confidential memorandum describing the business assets of the 170*fn1 of the stores for sale and had received two written indications of interest which eventually materialized into definitive purchase offers. (Id.)

A. Defendant Engages Plaintiff under the Expired Brokerage Agreement to Serve as Defendant's Business Broker

While pursuing the plan to divest the 170 identified stores, Defendant also engaged Plaintiff, Avatar Business Connections, Inc. ("Avatar" or "Plaintiff") to serve as its business broker charged with marketing the business assets of 67 other Uni-Marts stores. (See Kervandjian Aff. ¶ 6; see also Deposition Testimony of Braja Mahapatra at 33.) Plaintiff, located in Cherry Hill, New Jersey, specializes in brokering transactions involving convenience stores and gasoline service stations. The agreement between Defendants and Plaintiff was memorialized in a September 19, 2002 exclusive brokerage agreement (the "Expired Brokerage Agreement"). (Expired Brokerage Agreement, Kervandjian Aff., Ex. C.)

The Expired Brokerage Agreement contained two provisions that are important to the dispute now before the Court. First, Defendant agreed to pay Plaintiff an 8% commission in the event that Plaintiff procured a buyer for any of the 67 stores identified in Exhibit A to the agreement (defined in the agreement as the "Assets"). (Id. at § 3.1). Of the 67 stores, Uni-Marts owned the real estate on which the store was located for at least 22 locations. (See Expired Brokerage Agreement, Ex. A.) Second, because Defendant was also exploring the possibility of selling the entire company (either through an asset sale, stock sale or other business combination), the parties negotiated (and the agreement contained) a so-called "wind-up" provision. (See id. §3.3.) This provision stated that, in the event Defendant sells all of the assets of the company or undergoes another business combination resulting in a change of control of equity ownership during the term of the Expired Brokerage Agreement or any renewal period, Defendant will pay Plaintiff a flat fee of $2,500 for any unsold store listed on Exhibit A. (Id.)*fn2 Such payment was to be made in lieu of a commission. (Id.) The Expired Brokerage Agreement expired by its terms on March 19, 2003. (See id. at §5.1.)

B. Defendant and Plaintiff Enter into a Second Brokerage Agreement

On March 26, 2003, Uni-Marts and Avatar entered into a second brokerage agreement (the "Second Brokerage Agreement"). (See Second Brokerage Agreement, Kervandjian Aff. ¶ 11 and Ex. D.) The Second Brokerage Agreement, which also had a six month-term, expressly replaced and superseded the Expired Brokerage Agreement.*fn3 (See Kervandjian Aff. ¶ 13.) In addition, the Second Brokerage Agreement contained a merger clause stating that the agreement "contains the entire agreement and understanding between the parties with respect to the subject matter identified and referenced in this Agreement." (Second Brokerage Agreement, §6.5.) As in the Expired Brokerage Agreement, Plaintiff (1) was entitled to a commission if an "Asset" (as defined in the Second Brokerage Agreement) was purchased by a party procured by Plaintiff*fn4 and (2) would be paid its commission only at the closing of the sale of the Asset(s) and solely from the proceeds Defendant realized from such sale.*fn5

The Second Brokerage Agreement contains four major differences from the Expired Brokerage Agreement relevant to the dispute presently before the Court. They are as follows:

1. The Second Agreement was non-exclusive. (See Second Brokerage Agreement §1.1.)

2. The number of store locations contained in the definition of "Assets" and included on the exhibit attached to the agreement was increased from 67 to 155 stores in the Second Brokerage Agreement. (See Second Brokerage Agreement, Ex. A.) Of the 155 store locations, Uni-Marts owned the real estate on which 99 stores were located and leased the premises for the other 56 locations. (See id.)

3. Instead of receiving an 8% commission on the total gross sale price of the Assets, the parties agreed that Avatar would receive "6% of the total gross sale price of Assets purchased by parties identified by Broker." (Second Brokerage Agreement § 3.1; see Kervandjian Aff. ¶ 18.)

4. The Second Brokerage Agreement did not contain a "windup" provision. (See Second Brokerage Agreement; see also Kervandjian Aff. ¶ 17.)

One major issue discussed by the parties in their briefs and at oral argument is the relevance, if any, of the absence of the provision regarding the "windup fee." According to the declaration of Defendant's former President, Ara Kervandjian, the "windup" provision was eliminated because Defendant was actively pursuing a stock sale and wished to avoid any obligation to pay a "windup fee" in the event of a change in control of the equity interest in Defendant. (Kervandjian Aff. ¶ 17.) Representatives from Plaintiff never inquired about the absence of this provision in the Second Agreement. (Mahapatra Depo. Tr. at 18.) Defendant also used the fact that the Ad Hoc Committee was actively "shopping" the company (as well as shopping individual stores) and pressure from the company's bondholders as the justification for making the Second Brokerage Agreement non-exclusive. (Kervandjian Aff. ¶ 17.)

During the term of the Second Brokerage Agreement, Plaintiff sold a total of eight of the Assets covered in Exhibit A of the Second Brokerage Agreement. (Kervandjian Aff. ¶ 16.)

C. Defendant Attempts, Independent of Plaintiff, to Sell the Company

Beginning in the summer of 2002 and continuing through early 2004, Defendant's Ad Hoc Committee actively investigated many alternatives to divest certain assets or sell the company outside of the efforts being made by Plaintiff. (Proxy Statement, p. 17.) Specifically, according to Defendant's Proxy Statement, the Ad Hoc Committee, through its newly-hired investment bankers, was aggressively pursuing the sale of individual store locations, auctions for individual store locations, a possible stock acquisition of the company and a "going-private" merger transaction. (Id. at 17-30.) Between 2002 and 2004, Defendant had a number of ultimately unsuccessful suitors interested in acquiring either substantial assets of its business or its entire business. (Id.) For example:

1. In May, 2003, Defendant signed letters of intent with an entity named United Refining (for a cash merger) and HFL Corporation (for a purchase of all of Defendant's stock). (Id. at 18-20.) Defendant had negotiations with both companies, but neither lead to a definitive purchase offer. (Id.)

2. In the Spring of 2003, Defendant and representatives of the Ordoukhanian family (owners of 11.7% of Defendant's outstanding common stock) discussed the family acquiring all of the stock of Defendant. (Id. at 26.) No agreement was reached. (Id.)

3. In June of 2003, Defendant entered negotiations with an individual named Raj Vakharia for the purchase of 125 Uni-Marts stores.*fn6 (Mahapatra Depo. Tr. 121, 127.) Negotiations took place and Vakharia submitted a draft asset purchase agreement to Defendant. (Id. at 23.) Defendant eventually terminated negotiations with Vakharia in July of 2003, however, after it became clear that the parties could not reach an agreement as to the structure and timing of the deal. (Id.)

4. In August of 2003, Defendant began talks with an entity called Reliance Management, LLC ("Reliance") regarding the possible acquisition of all of the stock of Defendant. (Proxy Statement, p. 24.) Raj Vakharia and a business associate, Paul Levinsohn, were the principals of Reliance. (Id.) The parties entered into an exclusivity agreement and conducted due diligence. (Id.) The term of the exclusivity was extended several times, but negotiations were eventually terminated due to disagreement over environmental issues and representation and warranty insurance. (Id.)

5. In December of 2003, the Ad Hoc Committee reviewed a financial analysis prepared by the National Real Estate Clearing House, a company specializing in the accelerated divestiture of petroleum and convenience store properties through an auction process. (Id. at 18.) After consideration of the analysis by the committee, the idea of an auction process was dismissed. (Id.)

In December of 2003, Mr. Vakharia again approached Defendant's management about a potential deal to take Defendant private through a merger. (Id.) Specifically, a group of buyers proposed establishing a limited liability company called Green Valley Acquisition Co., LLC. ("Green Valley") that would serve as an acquisition company. (Id. at 28.) Green Valley in turn would be owned by two limited liability companies: Tri-Color Holdings, LLC ("Tri-Color")(whose members were three individuals that were directors and executive officers of Defendant) and KOTA Holdings, LLC ("KOTA")(whose members were Raj Vakharia and ...


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