Once upon a time, not too long ago, there was a contract and a client. The contract gave the client an option to buy a business based on obtaining three appraisals. After the first two appraisals were for the same amount, the seller told the client that he would waive the third appraisal.
The seller tendered a contract of sale for $3 million. A couple of weeks passed, the attorneys exchanged suggested revisions, but on the day before the deadline to exercise the option, the seller sent back the contract with a surprise: He has changed it, increasing the price of the sale by $500,000, based on a third appraisal that he had obtained (despite his stated intentions).
We leapt into action by first requesting an extension to study this new and exciting appraisal. Graciously, the seller’s attorney agreed. As it turns out, according to the first appraiser, the third appraisal was full of internal inconsistencies. Additionally, it was based on outdated information.
Under scrutiny, it became clear that whoever did this was doing it based on cutting and pasting from an old report rather than looking at this transaction in context. The market data it relied on was five years old; the comparables were not really comparable; and the premises on which the seller relied to calculate future income had no stated rationale, but instead seemed to rely on a magical number.
We prepared to bring a lawsuit on an expedited basis against the sellers to stop what they were trying to do (that is, we drafted a summons with notice, and a motion by order to show cause for a temporary restraining order). The goal was to accomplish three things: First, specific performance of the option agreement—that is, the client was entitled to buy, and the seller was entitled to use three appraisals, but one of them was flawed (if not fraudulent), and he was not entitled to a fourth. Second, we were ready to demand specific performance of the draft contract of sale, in which the attorney had initially confirmed his offer to sell for $3,000,000. Finally, we wanted to freeze the asset: only our client should have the right to buy, unless and until the court decided whether to grant or deny the motion (or unless and until the court ultimately determined the case—which can take a long, long time…)
The other attorney asked me for more time; I graciously agreed to give him until noon, the next day, because the option period was about to expire. “My client’s been so nice to your client, can’t you be reasonable?” opposing counsel replied. I wrote back to let him know that I would be at court at 2:30 p.m., and asked if he would like to attend the hearing for the temporary restraining order. With 15 minutes to spare he agreed to honor his original contract of sale.
So the moral of this tale: sometimes you can avoid expensive, time-consuming and distracting litigation simply by being ready to start it.
Mark S. Kaufman
Kaufman & Kahn
747 Third Avenue
New York, NY 10017
Tel. (212) 293-5556
Fax. (212) 355-5009