Main Street Baseball LLC v. Binghamton Mets Baseball Club

United States District Court for the Northern District of New York · Contracts

ContractsPreliminary agreementsLetters of intentPreliminary injunctionsBreach of contractletter of intentLOIType I agreement

Facts

Plaintiffs negotiated with defendants to buy the BMets and the parties executed a nine-page letter of intent on January 5, 2015, setting out terms for an $8.5 million sale and a sixty-day no-shopping period while the parties negotiated an asset purchase agreement. Plaintiffs paid a $100,000 first security deposit into escrow and the parties exchanged APA drafts, but they later disputed whether the LOI settled all material terms or left major terms, including indemnification, open for negotiation. On March 11, after the sixty-day exclusivity period had expired, defendants said they would consider other offers, and on March 13 they ceased negotiations with plaintiffs and executed a LOI with another buyer. Plaintiffs sought to stop defendants from selling the team to anyone else during the litigation.

Issue

Whether plaintiffs were entitled to a preliminary injunction preventing defendants from selling the BMets to another buyer while the case proceeded. That turned in part on whether the LOI created binding obligations as a Type I or Type II preliminary agreement, and whether plaintiffs showed serious questions on their breach of contract claim plus irreparable harm.

Rule

A party seeking a preliminary injunction must show either a likelihood of success on the merits or sufficiently serious questions going to the merits plus a balance of hardships tipping decidedly in its favor, along with irreparable harm, favorable equities, and no disservice to the public interest. Under New York law, a preliminary agreement may be a Type I agreement, which fully binds the parties to the ultimate transaction, or a Type II agreement, which binds them only to negotiate open issues in good faith; the controlling inquiry is the parties' intent as shown by the agreement's language, partial performance, open terms, and the nature of the transaction, with the context of negotiations also relevant for Type II analysis.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Chicago, Nora Patel signed a six-page letter of intent with Lakefront Fitness Holdings for the sale of a chain of gyms. The document set a price, closing date, and deposit schedule, but it also stated in bold that "neither party shall be bound unless and until a definitive asset purchase agreement is executed," and no deposit was ever paid.

If Nora sues claiming the letter of intent itself bound Lakefront to complete the sale, which fact most strongly undermines her argument that the letter was a Type I preliminary agreement?

Explanation. The majority treated the presence or absence of an express reservation as the first and most important factor in deciding whether a preliminary writing is Type I. An explicit statement that neither side is bound until a definitive agreement is executed strongly cuts against finding a fully binding agreement. Price terms and an expected later formal document do not outweigh such a clear reservation.