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Musallam v. Ali

Court of Appeals of Texas, Second District

May 2, 2019

Musa (‘Moses') N. Musallam, Appellant
v.
Amar B. Ali, Appellee

          On Appeal from the 67th District Court Tarrant County, Texas Trial Court No. 067-266677-13

          Before Gabriel, Pittman, and Bassel, JJ.

          MEMORANDUM OPINION ON REMAND

          LEE GABRIEL JUSTICE

         This case is before us on remand from the supreme court. In June 2013, appellant Musa ('Moses') N. Musallam and appellee Amar B. Ali signed a document entitled "Stock Transfer and Asset Purchase and Sale Agreement" (the Purchase Agreement). A jury found that Musallam breached that agreement and awarded Ali damages in excess of $900, 000 for past and future lost profits. The trial court rendered judgment on the jury's verdict. Musallam appealed to this court, raising three issues. In the first, he argued the trial court erred by rendering judgment on the jury's verdict because the Purchase Agreement was not a binding, enforceable contract. In the second, Musallam argued the jury's award of past and future lost profits damages was not supported by legally sufficient evidence. And in the third, Musallam argued the trial court erred by refusing to include a question in the jury charge.

         On original submission, we did not address Musallam's first issue because we concluded he had waived it. We also held that the jury's damages award was supported by legally sufficient evidence. And we concluded Musallam had inadequately briefed his third issue. We therefore overruled all of Musallam's issues and affirmed the trial court's judgment.

         Musallam appealed to the supreme court, arguing that he did not waive his first issue and that we should have therefore considered its merits. See Musallam v. Ali, 560 S.W.3d 636, 639 (Tex. 2018). Musallam also asked the supreme court to address the merits of his first issue in the first instance. Id. at 640. The supreme court agreed with Musallam that he did not waive his first issue. Id. at 639. But after turning to the merits of Musallam's assertion that the Purchase Agreement was not a binding, enforceable contract, the supreme court declined to address that argument in the first instance and instead remanded the case to this court for us to "first address issues properly preserved but which [it had] not addressed." See id. at 640. As noted, we addressed Musallam's second and third issues in our prior opinion, and those issues were not the subject of the supreme court's opinion. Thus, we do not address those issues in this opinion on remand.

         In his first issue, Musallam argues that the Purchase Agreement is not an enforceable contract and, thus, the trial court erred by denying his motion for judgment notwithstanding the verdict and by entering judgment in accordance with the jury's verdict. We affirm.

         I. PROCEDURAL AND BACKGROUND FACTS

         In 2007, Musallam acquired Fanci Candy Company, a business that distributes tobacco products (among other things) to convenience stores in north Texas. Fanci Candy held direct distribution agreements with two of the three major tobacco companies in the United States. One of those agreements was with Altria Group Distribution Company, the parent company of several tobacco manufacturers, including Philip Morris USA, U.S. Smokeless Tobacco Company, and John Middleton Company. Fanci Candy's direct distribution agreement with Altria allowed it to purchase tobacco products directly from Philip Morris and U.S. Smokeless Tobacco. Fanci Candy's second direct distribution agreement allowed it to directly purchase tobacco products manufactured by Lorillard Tobacco Company, Inc.[1]

         Because of the way the tobacco industry works, it is difficult to obtain direct distribution agreements like the ones Fanci Candy had with Altria and Lorillard because those companies rarely, if ever, enter into such agreements with new distributors. Thus, if a distributor wants to purchase tobacco products directly from Altria or Lorillard but does not already have direct distribution agreements with one of them, the main way for it to get those agreements is to purchase a company that has an existing agreement with Altria or Lorillard and then be grandfathered into the acquired company's agreements.

         Ali's father owned A to Z Wholesalers, Inc. Like Fanci Candy, A to Z Wholesalers distributed tobacco products to convenience stores. But unlike Fanci Candy, A to Z Wholesalers did not have a direct distribution agreement with Altria allowing it to directly purchase tobacco products from Philip Morris or U.S. Smokeless Tobacco, nor did it have a direct distribution agreement with Lorillard allowing it to directly purchase its tobacco products. So in order for A to Z Wholesalers to distribute those tobacco products to convenience stores, it first had to purchase them from a middleman.

         Ali was A to Z Wholesalers' vice president and general counsel and was essentially responsible for running it. Toward the end of 2012, Musallam decided to sell Fanci Candy. Ali became interested in personally purchasing Fanci Candy because it would provide a means by which he could be grandfathered into Fanci Candi's direct distribution agreements with Altria and Lorillard. With those agreements in hand, Ali could then acquire Philip Morris's, U.S. Smokeless Tobacco's, and Lorillard's tobacco products at the lower cost Fanci Candy was able to. He could then replace A to Z Wholesalers' middleman and sell those tobacco products to A to Z Wholesalers (and other distributors) himself at the same marked-up price the middleman had been charging. Because Ali could sell the tobacco products at a higher price than it cost him to acquire them, he would earn a profit.

         Musallam and Ali reached a tentative agreement for the sale of Fanci Candy. On January 25, 2013, they signed a letter of intent outlining the basic terms of their agreement. The letter, bearing A to Z Wholesalers' letterhead, stated that Ali's father and/or A to Z Wholesalers would purchase Fanci Candy's stock and assets with an "[i]mmediate" closing date, "subject to preapproval from Philip Morris USA, U.S. Smokeless Tobacco Brands, Inc.[, ] and Lorillard Tobacco Company."[2] In addition, the letter stated that it was "not intended to, and [did] not create any binding legal obligation" on the parties and was not "intended to be construed as an agreement-in-principal, agreement to agree, contract, or agreement." It also stated that the terms outlined in the letter "shall be incorporated into a formal agreement . . ., which shall be negotiated at a later date."

         A month after signing the letter of intent, Musallam sent applications to Altria and Lorillard requesting their approval of the sale. By letter dated April 11, 2013, Altria responded to the application. The letter stated that Altria had "decided not to approve [Ali's] company for direct distributor status at this time." Musallam believed the reason Altria had withheld its approval was because it was under the impression that he and Ali intended the sale of Fanci Candy to be a corporate acquisition by A to Z Wholesalers. So Musallam and Ali decided to resubmit the approval application to Altria, this time showing that Ali would be purchasing all of Fanci Candy's stock.

         To effectuate the plan to resubmit the approval application to Altria, Ali executed another letter of intent, this time placing his own name on the letterhead instead of A to Z Wholesalers'. The terms outlined in this letter of intent were essentially the same as those in the previous one, with an important difference being that the new letter listed Ali and/or his father, individually, as the purchasers. On May 1, 2013, Ali resubmitted the application to Altria, clarifying that A to Z Wholesalers was not the intended buyer of Fanci Candy and again requesting Altria to approve the sale. Altria responded on June 7, 2013, stating that it had approved Ali for direct distributor status based on his plan to purchase Fanci Candy's stock.

         By contrast, as of June 7, 2013, Lorillard had not yet provided its written approval of the contemplated sale. But it had sent Musallam an email on June 4, 2013, acknowledging its receipt of the application for approval and stating that "[f]or future reference[, ] A - Z Wholesale [would] receive a financial statement request letter on an annual basis for Fanci Candy Company." Based on this email, Musallam believed Lorillard would approve Ali's purchase of Fanci Candy. Ali, however, asked Musallam to obtain formal written approval from Lorillard. So on June 6, 2013, Musallam replied to the email from Lorillard, asking it to "please send [him] a formal letter on Lorillard letterhead approving [Ali] for [the] Stock ownership change[.]"

         On June 18, 2013-having secured Altria's formal approval but still lacking Lorillard's-Musallam and Ali signed the Purchase Agreement. Section 1.01 of the agreement provided that Ali agreed to purchase from Musallam, and Musallam agreed to sell to Ali, one-hundred percent of Fanci Candy's stock at a closing set to occur on or before July 1, 2013. Section 1.02 provided that in addition to the purchase and sale of Fanci Candy's stock, and as contemplated in Article II of the Purchase Agreement, Ali agreed to accept, and Musallam agreed to convey, what the provision referred to as "Purchased Assets."

         Under Section 1.02, Purchased Assets referred to the terms "Land," "Building," "Inventory," "Vehicles," "Furniture, Fixtures and Equipment," (FF&E) and "Accounts Receivable." Each of those terms was defined in the agreement. The Purchase Agreement also set forth the purchase price for the transaction in Section 1.03:

1.03 Consideration. As consideration for [Musallam's stock in Fanci Candy], [Ali], at the Closing, will pay to [Musallam] 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).

         The Purchase Agreement defined the value of each category composing the Purchased Assets as follows:

2.03 Purchase price of "Inventory". [Ali] and [Musallam] agree that the value of the Inventory, as defined under the Article and Agreement, will be appraised at [Musallam's] cost at the Closing Date. This Inventory appraisal shall be attached to this Agreement on the Closing Date as Exhibit D. [Ali] will compensate [Musallam] for the Inventory at this appraisal value.
2.04 Purchase price of "Land" and "Building". [Ali] and [Musallam] agree that the value of the Land and Building, as defined under the Article and Agreement, will be appraised on or before the Closing Date at [Ali's] expense. The parties agree that this appraisal must be generated by a licensed/certified appraiser as chosen by [Ali]. This appraisal shall be attached to the Agreement on the Closing Date as Exhibit E.
2.05 Purchase price of "Vehicles". [Ali] and [Musallam] agree that the value of the Vehicles, as defined under the Article and Agreement, shall be the Kell[e]y Blue Book Value of the Vehicles on the Closing Date. Evidence of these values shall be attached to the Agreement as Exhibit C.
2.06 Purchase price of "FF&E". [Ali] and [Musallam] agree that the value of the FF&E, as defined under the Article II, Section 2.01 of this Agreement, shall be as mutually agreed upon by the parties prior to the Closing Date. Evidence of this mutual agreement shall be attached to the Agreement as Exhibit B.
2.07 Purchase price of "Accounts Receivable". [Ali] and [Musallam] agree[] that the value of the Accounts Receivable assumed by [Ali] from [Musallam], and as defined under Article II, Section 2.01 of this Agreement, shall be the total amount of the account(s) on the date of Closing. Evidence of the balance of these accounts shall be attached to this Agreement as Exhibit J.

         As noted, Section 1.03 says that the Purchase Price could be reduced "as provided in Section 5.01(c)." In relevant part, that section states the following:

5.01 Conditions Precedent to [Musallam's] Obligation to Sell the Stock. The obligation of [Musallam] to sell [Fanci Candy's stock] is subject to the fulfillment prior to or at the Closing of the following conditions:
. . . .
(c) [Musallam] 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 [Fanci Candy] shall remain in full force and effect after the transfer of [Fanci Candy's stock], and shall remain in full force 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 [Ali] to enter into this Agreement with [Musallam]. Accordingly, should [Ali] fail to obtain written approval from either company (or written approval secured by [Musallam]), the Purchase Price shall be reduced to Two Hundred and Fifty Thousand Dollars and 00/100 ($250, 000.00).

         After executing the Purchase Agreement, Musallam and Ali continued to work toward closing the deal. Ali wrote a $10, 000 earnest-money check, and Musallam received it, though he did not cash it. Ali also hired a licensed appraiser to perform an appraisal of Fanci Candy's land and building. Musallam continued working with Ali, instructing his employees to provide Ali with any financial documents Ali needed and affording Ali access to Fanci Candy's warehouse as needed. At some point, Musallam provided Ali with his proposed value for Fanci Candy's FF&E. By Musallam's calculation, the value of the FF&E was approximately $194, 000.

         As the Purchase Agreement's July 1, 2013 closing date approached, however, the deal went awry in the face of at least three hurdles. First, on June 26, 2013, Musallam learned that Lorillard had decided not to approve the proposed sale of Fanci Candy. Second, a short time before June 28, 2013, Ali sent Musallam a proposed closing statement that reflected he did not agree with Musallam's valuation of Fanci Candy's FF&E. Ali estimated the FF&E was worth approximately $53, 000, a figure that was some $140, 000 less than Musallam had calculated. And third, as of late morning on June 28, 2013, Musallam had not received a copy of the appraisal for Fanci Candy's building and land.

         At approximately 11:30 a.m. on June 28, 2013 (a Friday), Musallam emailed Ali the following:

I have reviewed your proposed closing statement[, ] and the numbers are completely unacceptable.
I am willing to negotiate the FF[&]E but you are far too low. Also, we still do not have the building appraisal. Why has it taken so long to get this information?
Additionally[, ] you know we both assumed we had the Lorillard approval. The deal does not work for me with a 250k reduction. We are trying to resolve the issue[, ] but it ...

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