The Seventh Circuit Court of Appeals held that under Illinois law a covenant of good faith and fair dealing was implied under a letter of intent¹ to purchase the assets and real property of the plaintiff.   The defendants refused to allow the Phase II Environmental Site Assessment to proceed, and Trovare sued after determining that defendants had made it impossible to close.  The Seventh Circuit found that defendant’s actions causing termination of the deal created genuine issues of material fact² that required reversal of summary judgment in favor of the defendants.³  The court’s decision in Trovare Capital Group, LLC v. Simkins Industries, Inc., — F.3d —, 2011 WL 2864444 (C.A. 7, July 20, 2011 (Ill.)) follows the general reasoning of the Sixth Circuit Court of Appeals in Hometown Folks, LLC, v. S & B Wilson, Inc., et al., — F.3d –, 2011 WL 2566825 (C.A. 6, June 30, 2011 (Tenn.)).⁴  My July 7 article discussing Hometown Folks⁵ summarizes the Sixth Circuit’s analysis.  These two opinions, taken together and applying the respective laws of Tennessee and Illinois, establish that good faith must prevail when negotiating for the purchase and sale of corporate assets, even if the environmental provisions of the agreement allow for termination of the deal.

¹Most provisions of the letter of intent were nonbinding, but the parties agreed to use “best reasonable efforts” to facilitate negotiations. Trovare Capital Group, LLC v. Simkins Industries, Inc., — F.3d —, 2011 WL 2864444, at *1 (C.A. 7, July 20, 2011 (Ill.)).

²Defendant Simkins Industries refused to perform a Phase II Environmental Site Assessment requested by plaintiff Trovare.Trovare Capital Group, LLC v. Simkins Industries, Inc., — F.3d —, 2011 WL 2864444, at **2-3 (C.A. 7, July 20, 2011 (Ill.)).

³Plaintiff Trovare sued to recover a $200,000 break-up fee under the letter of intent.Trovare Capital Group, LLC v. Simkins Industries, Inc., — F.3d —, 2011 WL 2864444, at *3 (C.A. 7, July 20, 2011 (Ill.)).