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On December 1, 2016, Parker Hannifin Corporation and CLARCOR Inc. announced that the companies have entered into a definitive agreement under which Parker will acquire CLARCOR for approximately $4.3 billion in cash, including the assumption of net debt. The transaction has been unanimously approved by the board of directors of each company. Upon closing of the transaction, expected to be completed by or during the first quarter of Parker’s fiscal year 2018, CLARCOR will be combined with Parker’s Filtration Group to form a leading and diverse global filtration business. Bass, Berry & Sims has served CLARCOR as primary corporate and securities counsel for 10 years and served as lead counsel on this transaction. Read more here.

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Securities Law Exchange BlogSecurities Law Exchange blog offers insight on the latest legal and regulatory developments affecting publicly traded companies. It focuses on a wide variety of topics including regulation and reporting updates, public company advisory topics, IPO readiness and exchange updates including IPO announcements, M&A trends and deal news.

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Chris Lazarini Examines Limits on the Scope of the Duty of Good Faith and Fair Dealing in Breach of Contract Dispute

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December 22, 2015

Bass, Berry & Sims attorney Chris Lazarini examined the case of Great Water Capital Partners, LLC vs. Down-lite Int'l, Inc. in which Great Water claimed Down-lite breached the duty of good faith and fair dealing by failing to close on a deal after retaining Great Water to locate potential buyers or investors. The Court rejected Great Water's claims because under the contract, Down-lite retained absolute authority to reject any proposed transaction. Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.

Great Water Capital Partners, LLC vs. Down-lite Int'l, Inc., Nos. C-160015 & C-150023, 2015 Ohio 4877 (Ohio App., 1Dist., 11/18/15) 

*The duty of good faith and fair dealing does not apply where a party to the contract has unconditional authority to make the decision at issue.
**A party to a contract may not prove fraud by claiming the inducement to enter into the contract was a promise within the scope of the agreement but which was ultimately not included in the agreement. 

Great Water is an investment bank that assists middle-market companies with mergers, acquisitions, and capital-raising. In 2008, Down-lite, a family-owned bedding material manufacturer, approached Great Water for assistance in finding a buyer or investor. The parties entered into a contract under which Great Water was to identify and analyze potential transactions for Down-lite. Great Water received a retainer fee and, under the contract, would receive additional fees if a transaction closed. Down-lite retained discretion to approve any proposed deal. After three prospective acquirers submitted letters of intent, Down-lite demanded that the company headquarters remain in Cincinnati, family members be given employment opportunities, and the business continue as a non-union business. No sale or investment transaction was consummated, and Down-lite terminated the agreement with Great Water. The trial court dismissed some of Great Water's claims for failure to state a claim, refused to allow certain proposed amended claims, and granted summary judgment for Down-lite on the claims that survived. 

On appeal, the Court affirms, agreeing with the trial court that Great Water's claims suffered from the same defect – Down-lite had sole discretion to approve any proposed transaction. Implicit in this notion, the Court concludes, is that there was no breach of contract, because Down-lite did not have to close a deal. Nor was there a breach of the duty of good faith. The Court rejects Great Water's claim that Down-lite had a duty to act reasonably, finding that the duty of good faith cannot supplant an express contract term. Here, the Court explains, the duty of good faith did not apply, because Down-lite retained the absolute and exclusive right to reject any proposed transaction and could impose whatever conditions on a potential deal it felt appropriate.

Applying the same rationale, the Court finds that the trial court correctly rejected Great Water's efforts to amend and add claims of unjust enrichment, excuse of condition and prevention of performance. It would have been futile to add those claims, the Court states, when the contract gave Down-lite unconditional decision-making authority.

The Court also agrees with the trial court's grant of summary judgment on Great Water's breach of warranty and fraudulent inducement claims. Those claims were grounded in the concept that Down-lite failed to disclose and/or misrepresented its transaction conditions when negotiating its contract with Great Water. Rejecting the theory, the Court finds that Great Water cannot show it was damaged and cannot complain that it was fraudulently induced to enter into a contract giving Down-light sole discretion when it could have placed limitations on transaction conditions or a requirement that consent to a sale not be unreasonably withheld in the Down-lite contract. 

The Court declines to address the trial court's finding that the contract was unenforceable because Great Water was acting in violation of the Ohio Securities Act by not registering as a dealer with the Ohio Securities Division.


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