Explore the legal intricacies of an M&A dispute between a Cleveland-based Buyer and a Covington, La.-based Seller in the scrap metal recycling industry. Learn valuable lessons on confidentiality, exclusivity, and the repercussions of breaching agreements in M&A negotiations.
M&A Stories
September 2, 2018
In a recent legal dispute between a Cleveland-based Buyer and a Covington, La.-based Seller, both prominent scrap metal recycling companies, issues surrounding confidentiality and exclusivity took center stage. The case, PSC Metals, Inc. v. Southern Recycling, LLC, sheds light on the importance of maintaining discretion in M&A negotiations and the repercussions of breaching exclusivity provisions.
The Confidentiality and Non-Disclosure Agreement (NDA) signed on December 9, 2015, set the stage for discussions about the potential acquisition of Seller’s Nashville assets and business operations by Buyer. This agreement, reinforced by a subsequent letter of intent (LOI) on January 20, 2017, mandated confidentiality and granted Buyer exclusive negotiation rights until May 20, 2017.
Trouble arose when Competitor, a regional scrap metal recycling company, learned about the potential deal from sources within Buyer’s team. Despite Seller’s denial and Buyer’s CEO dismissing the claims, it was later revealed that the leak originated from Buyer’s commercial manager.
Seller, despite suspicions, continued negotiations with Buyer. A turning point came when Seller’s president met with Competitor’s president, quoting an exorbitant $30 million for a potential deal. Despite efforts, Buyer and Seller failed to reach an agreement.
Post negotiations, Buyer sued Seller, alleging breach of the exclusivity provision in the LOI. The court ruled in favor of Buyer, acknowledging Seller’s breach but also highlighting Buyer’s failure to keep the deal confidential.
Seller invoked Tennessee’s “first-to-breach” rule, arguing that if Buyer breached the NDA and LOI before Seller breached exclusivity, Buyer should not be entitled to damages. The court agreed, emphasizing Seller’s continued negotiations as a waiver of Buyer’s breach.
The case serves as a cautionary tale for both buyers and sellers. It underscores the importance of preventing employees from disclosing confidential information and highlights the tangible consequences of breaching exclusivity provisions in LOIs.
Case Reference:
PSC Metals, Inc. v. Southern Recycling, LLC, Case No. 3:17-cv-01088, United States District Court, M.D. Tennessee, Nashville Division (August 27, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
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