Weigel Broadcasting Co. v. Tv-49, Inc.
466 F. Supp.2d 1011, 2006 U.S. Dist. LEXIS 87246, 2006 WL 3486861 (2006)
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Rule of Law:
A letter of intent that expressly states it is 'non-binding' regarding the ultimate transaction may still create a binding contractual duty to negotiate exclusively and in good faith if it contains a separate, clear promise to do so. This duty, however, is limited to the time frame specified within the agreement.
Facts:
- On May 18, 2005, Weigel Broadcasting Co. made an offer to purchase TV-49, Inc. from Joel Kinlow, but this offer expired.
- On July 7, 2005, Kinlow sent Weigel a document titled a 'non-binding Letter of Intent' (LOI) outlining terms for a potential sale of TV-49's stock.
- The LOI stated that the terms of the potential sale were non-binding, but included a separate paragraph promising that if Weigel signed, TV-49 would 'cease all negotiations to sell to any other party' pending completion of a definitive agreement.
- The LOI specified that a definitive Stock Purchase Agreement (SPA) was to be completed and executed within 40 days of signing.
- Both Weigel and TV-49 signed the LOI on July 13, 2005.
- During the 40-day negotiation period, Weigel requested certain due diligence documents from TV-49, but it is disputed whether TV-49 provided them.
- After the 40-day period passed without a signed SPA, TV-49 entered into discussions with a third party, Entravision.
- On January 12, 2006, TV-49 signed a letter of intent to sell the station to Entravision.
Procedural Posture:
- Weigel Broadcasting Co. filed a complaint for breach of contract against TV-49, Inc. and Joel J. Kinlow Sr. in the Circuit Court of Cook County, Illinois, a state trial court.
- The defendants removed the case to the U.S. District Court for the Northern District of Illinois, a federal court of first instance, based on diversity jurisdiction.
- The defendants' motion to stay discovery was granted.
- The defendants then filed a motion for summary judgment, which is the subject of this opinion.
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Issue:
Does a letter of intent that describes itself as 'non-binding' create an enforceable contractual duty for the parties to negotiate exclusively and in good faith for a specified period?
Opinions:
Majority - Moran, Senior District Judge
Yes. A letter of intent, even if labeled 'non-binding' as to the final sale, can create a binding obligation to negotiate exclusively and in good faith if the language clearly manifests such an intent. The court reasoned that the 'non-binding' clause referred to the terms of the potential sale (e.g., price, deposit), which were listed after a colon, but did not apply to the subsequent, separate promise to cease negotiations with other parties. This reading is supported by the fact that the exclusivity language was taken verbatim from Weigel's original offer, which made exclusivity a precondition for proceeding. However, this duty is not indefinite; it is limited by the terms of the letter itself, which here was the 40-day period for completing a definitive agreement. Because a genuine factual dispute exists as to whether TV-49 negotiated in good faith during that 40-day period, summary judgment on that claim is inappropriate.
Analysis:
This case illustrates the complex legal status of letters of intent under Illinois law, showing that courts will parse their language to find severable, binding commitments even when a document is broadly labeled 'non-binding.' The decision reinforces the principle that parties can bind themselves to a process, such as good-faith negotiation for a limited time, without being bound to the ultimate transaction. This serves as a warning to contract drafters to be extremely precise about which clauses, if any—such as exclusivity, confidentiality, or standstill provisions—are intended to be immediately enforceable obligations apart from the main deal.
