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Musallam v. Ali

Court of Appeals of Texas, Second District, Fort Worth

August 3, 2017

MUSA ("MOSES") N. MUSALLAM APPELLANT
v.
AMAR B. ALI APPELLEE

         FROM THE 67TH DISTRICT COURT OF TARRANT COUNTY TRIAL COURT NO. 067-266677-13

          PANEL: LIVINGSTON, C.J.; GABRIEL and PITTMAN, JJ.

          MEMORANDUM OPINION [1]

          LEE GABRIEL JUSTICE

         A jury found that Appellant Musa N. Musallam breached a contract he had with Appellee Amar B. Ali for the sale of a wholesale distribution company and awarded Ali $904, 924 in damages for past and future lost profits. Musallam appeals, arguing that the contract is unenforceable as a matter of law and that the jury's lost-profits award is not supported by legally sufficient evidence. We affirm.

         I. BACKGROUND

         Musallam was the sole shareholder of Fanci Candy Company, a wholesale distribution company in the business of distributing consumer goods such as candy, soft drinks, and (particularly relevant to this case) tobacco products to convenience stores in north Texas. As part of its tobacco-distribution business, Fanci Candy held direct-distribution agreements with two of the major tobacco companies in the United States, Altria Group Distribution Company and Lorillard Tobacco Company, Inc., which enabled it to purchase tobacco products directly from certain of Altria's and Lorillard's tobacco manufacturers and then sell those products to convenience stores, which made them available for retail purchase. Direct-distribution agreements with these manufacturers were not easy to come by because Altria and Lorillard rarely, if ever, entered into such agreements with distributors who did not already have them. Thus, if an entity that lacked existing direct-distribution agreements with Altria's and Lorrillard's manufacturers desired to purchase tobacco products directly from them, the main way for it to do so was to purchase a company that had a direct-distribution agreement and be grandfathered into the agreement.

         Toward the end of 2012, Musallam decided to sell Fanci Candy and found an interested buyer in Ali. Ali's father owned A to Z Wholesalers, Inc., a company that, like Fanci Candy, was in the business of distributing candy, soft drinks, and tobacco products to convenience stores. Ali had no ownership interest in A to Z Wholesalers, but he served as its vice president and was essentially responsible for running it. Unlike Fanci Candy, A to Z Wholesalers did not have direct-distribution agreements allowing it to purchase tobacco products directly from two of Altria's three major tobacco manufacturers, Phillip Morris USA and U.S. Smokeless Tobacco, or from certain of Lorillard's tobacco manufacturers. Because A to Z Wholesalers could not purchase tobacco products directly from those manufacturers, it had to purchase them from a middleman distributor. And unsurprisingly, it cost more for A to Z Wholesalers to purchase those tobacco products from its middleman than it cost Fanci Candy to purchase them directly from their manufacturers. Thus, Ali was interested in purchasing Fanci Candy because it presented an avenue by which he could acquire its direct-distribution agreements with Altria and Lorillard, thereby enabling him to purchase certain tobacco products at the price the manufacturers charged Fanci Candy. He could then turn a profit by selling those tobacco products to A to Z Wholesalers at the same marked-up price its middleman charged for them. In other words, acquiring Fanci Candy would enable Ali to step into the shoes of A to Z Wholesalers' middleman.

         Ali's interest in purchasing Fanci Candy hinged on Altria and Lorillard continuing their direct-distribution agreements with Fanci Candy after Ali acquired it. After some negotiations, Musallam and Ali reached an agreement in principle whereby Ali would acquire Fanci Candy, subject to Altria's and Lorillard's approval. However, Musallam believed that Altria and Lorillard were more likely to approve the sale of Fanci Candy if they saw A to Z Wholesalers as the buyer instead of Ali. Thus, as Musallam and Ali initially structured the deal, Ali's father and/or A to Z Wholesalers would be the buyer. Once Altria and Lorillard approved the sale, Ali could then replace Ali's father and/or A to Z Wholesalers as Fanci Candy's owner. To that end, Musallam and Ali executed a letter of intent on January 21, 2013, reflecting that Ali's father and/or A to Z Wholesalers would purchase Fanci Candy's stock and assets, subject to Altria's and Lorillard's approval of the change in ownership. The letter of intent also stated that Ali's father and/or A to Z Wholesalers "retain[ed] the right to assign this offer to any other individual or company" at their sole discretion.

         Consistent with the letter of intent, on February 25, 2013, Musallam mailed to Altria and Lorillard documentation explaining the details of the proposed purchase of Fanci Candy and requesting their approval of it. By letter dated April 11, 2013, Altria notified Ali that it did not approve his request for A to Z Wholesalers to become a direct distributor of Phillip Morris USA and U.S. Smokeless Tobacco products. Musallam and Ali reworked the documentation that had been submitted to Altria by clarifying that Ali and not A to Z Wholesalers would be the purchaser, and on May 1, 2013, they submitted to Altria the updated documentation and again requested its approval of the sale. This resubmission was successful, and by letter dated June 7, 2013, Altria notified Ali that it approved the second submitted plan to purchase the stock ownership of Fanci Candy and continue as a direct distributor of Phillip Morris USA and U.S. Smokeless Tobacco products. Unlike Altria, however, Lorillard had not sent a formal letter approving Ali's purchase of Fanci Candy.

         Despite having secured Altria's approval but not Lorillard's, Musallam and Ali proceeded to formalize the terms of their letter of intent into a written stock transfer and asset purchase and sale agreement. The agreement reflects that Ali would purchase all of Fanci Candy's stock and assets from Musallam and provided, in relevant part, as follows:

1.03 Consideration. As consideration for the Subject Stock, Buyer, at the Closing, will pay to Seller the purchase price (the "Purchase Price") in an amount as follows:
Total purchase price: $500, 000.00*, plus Purchased Assets.
*unless reduced as provided in Section 5.01(c). . . . .
1.04 Closing. The closing of the purchase and sale of the Subject Stock (the "Closing") shall take place at a Title Company, as selected by Buyer in his sole discretion, on or before July 1, 2013, (the "Closing Date").
. . . .
5.01 Conditions Precedent to Seller's Obligation to Sell the Stock. The obligation of Seller to sell the Subject Stock is subject to the fulfillment prior to or at the Closing of the following conditions:
. . . .
(c) Seller shall obtain formal written approval from the following suppliers on suppliers' official corporate letterhead confirming that any direct contracts that exist between said suppliers and the Company shall remain in full force and effect after the transfer of the Subject Shares, and shall remain in fullforce and effect for the remainder of the existing contract:1)Altria Group Distribution Company to include: Phillip Morris, USA and U.S. Smokeless Tobacco Brands, Inc., and 2) Lorillard Tobacco Company, Inc. The parties agree that written approval of both Altria Group Distribution Company and Lorillard Tobacco Company and the continuing existence of the direct contracts with these companies is material in inducing Buyer to enter into this Agreement with Seller. Accordingly, should Buyer fail to obtain written approval from either company (or written approval secured by Seller), the Purchase Price shall be reduced to Two Hundred and Fifty Thousand Dollars and 00/100 ($250, 000.00).

         The "Purchased Assets" described in paragraph 1.03 included Fanci Candy's accounts receivable; real property; furniture, fixtures, and equipment (FF&E); inventory; and vehicles. Rather than setting a fixed value for these assets, the agreement instead provided a means of calculating their value on or before the closing date. Pertinent to this appeal, the agreement provided,

2.05 Purchase price of "Vehicles". The Buyer and Seller agree that the value of the Vehicles . . . shall be the Kelly Blue Book Value of the Vehicles on the Closing Date.
2.06 Purchase price of "FF&E". The Buyer and Seller agree that the value of the FF&E . . . shall be as mutually agreed upon by the parties prior to the ...

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