SOFAER GLOBAL HEDGE FUND v. BRIGHTPOINT, INC. et al

Filing 125

ENTRY ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT - For the reasons set forth Defendants' 106 Motion for Summary Judgment is GRANTED. Given the Court's ruling, it need not address Defendants' damages-related arguments. A separate judgment shall accompany this entry. **SEE ENTRY**. Signed by Judge Tanya Walton Pratt on 6/10/2011. (JD)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
SOFAER GLOBAL HEDGE FUND,
Plaintiff,
v.
BRIGHTPOINT, INC., and ROBERT J.
LAIKIN,
Defendants.

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Case No. 1:09-cv-1191-TWP-DML

ENTRY ON DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on Defendants Brightpoint, Inc. (“Brightpoint”) and
Robert Laikin’s (“Mr. Laikin”) (collectively, “Defendants”), Motion for Summary Judgment.
Plaintiff Sofaer Global Hedge Fund’s (“Sofaer”) allegations stem from a single phone
conversation in which Mr. Laikin, Brightpoint’s CEO, stated that a deal was “99.9% done,”
when, in reality, the deal was in its infancy. Based on Mr. Laikin’s statements, Sofaer made a
$10 million loan (“the Loan”) to non-party Chinatron Group Holdings, Limited (“Chinatron”).
Unfortunately, the “99.9% done” deal never came to fruition. Now, Sofaer has sued Defendants
for actual fraud, constructive fraud, and promissory estoppel. The Court is aware that there are
two sides to every story, including this one.

But even under Sofaer’s version, summary

judgment is warranted. Defendants’ Motion (Dkt. 106) is GRANTED.
I. LEGAL STANDARD
Federal Rule of Civil Procedure 56 provides that summary judgment is appropriate if “the
pleadings, depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law.” Hemsworth v. Quotesmith.Com, Inc., 476 F.3d

487, 489-90 (7th Cir. 2007). In ruling on a motion for summary judgment, the court reviews
“the record in the light most favorable to the nonmoving party and draw[s] all reasonable
inferences in that party’s favor.” Zerante v. DeLuca, 555 F.3d 582, 584 (7th Cir. 2009) (citation
omitted). However, “[a] party who bears the burden of proof on a particular issue may not rest
on its pleadings, but must affirmatively demonstrate, by specific factual allegations, that there is
a genuine issue of material fact that requires trial.” Hemsworth, 476 F.3d at 490 (citation
omitted). “In much the same way that a court is not required to scour the record in search of
evidence to defeat a motion for summary judgment, nor is it permitted to conduct a paper trial on
the merits of a claim.” Ritchie v. Glidden Co., 242 F.3d 713, 723 (7th Cir. 2001) (citation and
internal quotations omitted). Finally, “neither the mere existence of some alleged factual dispute
between the parties nor the existence of some metaphysical doubt as to the material facts is
sufficient to defeat a motion for summary judgment.” Chiaramonte v. Fashion Bed Group, Inc.,
129 F.3d 391, 395 (7th Cir. 1997) (citations and internal quotations omitted).
II. BACKGROUND
A.

Relevant Entities and Persons
There are eight notable players in this dispute. First, Brightpoint, an Indiana corporation,

is one of the world’s largest distributors of mobile telephones.

Second, Mr. Laikin is

Brightpoint’s founder and CEO. Third, Sofaer, which made the Loan at issue, is an international
hedge fund. Fourth, Sofaer is headed by Michael Sofaer (“Mr. Sofaer”). Fifth, Chinatron, a
limited liability company incorporated in Hong Kong that invests in telecommunications, was
the recipient of Sofaer’s Loan. Sixth, John Maclean-Arnott (“Mr. Arnott”) founded Chinatron in
1999 and was its managing director and CEO at the time of the Loan. Seventh and Eighth,
2

Mobiltron Europe SAS (“Mobiltron France”) was, at the time of the Loan, a wholly-owned
subsidiary of Chinatron through another entity called Mobiltron Group (“Mobiltron Group”).
Mr. Arnott is also the founder of Mobiltron Group.
B.

Business Dealings between Mr. Laikin and Mr. Arnott
Mr. Laikin and Mr. Arnott have done business together for years. Relevant to this

dispute, in December 2006, Brightpoint approved a line of credit for Mobiltron Group, allowing
it to purchase $5 million worth of products from Brightpoint on a given day, with payment due
four days later. Prior to this arrangement, Mobiltron Group always purchased Brightpoint
products by paying cash in advance. In early 2007, Mobiltron Group began to encounter
financial woes and, in late spring/early summer 2007, became delinquent on its payables to
Brightpoint and other creditors. Between July 10, 2007 and the end of 2007, Mobiltron Group’s
debt to Brightpoint fluctuated between $5.4 million and $7 million. Brightpoint worked with
Mobiltron Group to structure a repayment plan. Unfortunately, Mobiltron Group was unable to
comply with any of the proposed plans.
C.

Mr. Arnott solicits Mr. Sofaer to Raise Money
As a way of raising money and paying down Mobiltron Group’s debt to Brightpoint and

others, Mr. Arnott broached the idea of selling Mobiltron France to Brightpoint. In a November
23, 2007 email to Mr. Laikin, Mr. Arnott described Mobiltron France as “a super clean and
profitable company with 25% growth in the bag for next year. It requires little management time
and has the best manager possible. They are totally self sufficient. Next year they will make
US$1 million net at least.” Mr. Arnott testified that, prior to December 2007, the discussions
regarding Brightpoint’s potential acquisition of Mobiltron France were “strategic.” When asked

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if these discussions were “serious,” Mr. Arnott testified, “I would say depending on how you
define ‘serious’…”. (Arnott Dep. 15:3-8).
In late 2007, in light of Mobiltron Group’s financial difficulties, Mr. Arnott attempted to
raise capital from his own investors. But these efforts faltered, so Mr. Arnott sought “outside
investors to seek additional funding.” (Arnott Dep. 53:1-9). Specifically, on December 13 or 14,
2007, Mr. Arnott contacted Mr. Sofaer and asked him to loan $10 million to Chinatron. Mr.
Arnott told Mr. Sofaer that “the loan would be repaid by means of an asset belonging to
Chinatron…Mobiltron France being sold to Brightpoint for $14 million.” (Sofaer 30(b)(6) Dep.
17:14-20). In response, Mr. Sofaer asked Mr. Arnott to arrange a telephone conference call
among himself, Mr. Arnott, and Mr. Laikin.

Prior to this call, Mr. Sofaer had never

communicated with Mr. Laikin and had no relationship with Brightpoint.
D.

The December 17, 2007 Telephone Call
On December 17, 2007, Mr. Arnott, Mr. Laikin, and Mr. Sofaer participated in a

conference call, in which Mr. Laikin allegedly promised to buy Mobiltron France by the end of
March 2008. During his deposition, Mr. Sofaer testified that “my words were initially to ask
Robert Laikin to give me assurances that he would on behalf of Brightpoint buy Mobiltron
France from Chinatron by March 2008 in order that the loan that I was contemplating on behalf
of Global Hedge Fund to Chinatron be repaid.” (Sofaer 30(b)(6) Dep. 26:1-7). Further, Mr.
Sofaer testified that Mr. Laikin told him that “he intended that Brightpoint should buy Mobiltron
France for $14 million; that it was 99.9% done; that he could get it done without a problem and
that it’s going to happen.” (Sofaer 30(b)(6) Dep. 35:8-14; emphasis added). On this point, Mr.
Arnott testified that Mr. Laikin stated that “it was a relatively small deal by Brightpoint

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standards, and that he could make it happen.” (Arnott Dep. 346:19-21). These statements are, in
essence, the bedrock of the present dispute.
However, even if the broad contours of the deal were shaped at this time, Brightpoint
never entered into any agreement that was “boiled down to writing.” (Arnott Dep. 134:13-16).
In fact, during the telephone call, Mr. Sofaer asked Mr. Laikin to put his assurances in writing,
but Mr. Laikin declined. Mr. Laikin did, however, assure Mr. Sofaer that “his word was his
bond.” (Arnott Dep. 357:20-358:3). The phone call ended after less than 30 minutes. No
recordings, notes, or summaries of that conversation have been produced.
The December 17, 2007 discussion was relatively light on details. For instance, none of
the following was discussed: (1) whether the transaction “would be an asset or stock sale,” (2)
whether it would involve “post-closing working capital adjustments,” (3) “employee retention,”
(4) “tax issues,” (5) “amounts that Chinatron owed Brightpoint,” or (6) “intercompany transfer
issues.” (Sofaer 30(b)(6) Dep. 290:6-291:9).

Mr. Sofaer further testified that during the

December 17th call, “[t]here was no mention of Brightpoint having made an offer” to purchase
Mobiltron France. (Sofaer 30(b)(6) Dep. 37:1-6). Additionally, “as of December 17, 2007,”
Sofaer “didn’t know one way or the other” whether “Brightpoint had sent a letter of intent to
Mobiltron or Chinatron.” (Sofaer 30(b)(6) Dep. 38:10-17). Finally, “there was no discussion of
any due diligence” during the call. (Sofaer 30(b)(6) Dep. 294:4-5).
E.

Sofaer Loans Chinatron $10 million
On December 18, 2007 – one day after the call – Mr. Arnott sent Mr. Laikin the

following email: “Sofaer is worrying you get hit by a bus then what? He is asking me what
guarantees I can give him. He wants a personal guarantee from me as he has highest respect for

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me and knows I am straight.” Three days later, on December 21, 2007, Chinatron’s counsel sent
Mr. Sofaer an email seeking to quell any lingering anxiety about the Loan. In relevant part, it
stated:
[T]o obtain further comfort regarding non-completion of this buy-out, I have
prepared a Personal Guarantee to be given by [Mr. Arnott]….Not only should this
…provide you with the comfort you are seeking but its significance will be
further heightened by the fact that [Mr. Laikin] of Brightpoint is or will be aware
of the giving of this Guarantee by [Mr. Arnott]. This will give yet further resolve
to [Mr. Laikin’s] commitment regarding the buy-out!”
On December 24, 2007, without conducting any due diligence, Sofaer executed a 12-page
agreement for a $10 million loan to Chinatron (the “Loan Agreement”). Pursuant to the Loan
Agreement, Chinatron agreed to repay the $10 million Loan plus a $2 million premium three
months later – by March 31, 2008.1

Moreover, the Loan Agreement contemplated a

“Participating Bonus” for Sofaer, “in the event that the entire issued share capital of [Mobiltron
France]…is sold prior to 31 March 2008 for a consideration in excess of USD 12,000,000…”.
So, if Chinatron sold Mobiltron France before March 31, 2008 for more than $12 million,
Chinatron was obligated to pay Sofaer “50% of such excess.”
Other provisions of the Loan Agreement are worth noting. For instance, Section 8.2.2 of
the Loan Agreement granted Sofaer the right to veto the sale of any asset of Chinatron, including
Mobiltron France. Further, Section 8.1.1 stated that Chinatron “covenants and undertakes…to
secure a sale of [Mobiltron France] on or before the Repayment Date….”. Finally, the Loan
Agreement contained clauses addressing representations and warranties, events of default, and
conditions precedent.

References to Brightpoint, however, were absent from the Loan

Agreement.
1

This premium alone – not counting the “Participating Bonus” – equates to an annualized rate of return of roughly
80%.

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That same day, Mr. Arnott executed a personal guarantee, pursuant to which he
“irrevocably and unconditionally guarantee[d] the due, punctual and complete performance by
Chinatron…of all its obligations, covenants and undertakings…as if [he] were the primary
obligor thereof.”
Brightpoint.

Like the Loan Agreement, the personal guarantee made no mention of

On January 2, 2008, Chinatron received $10 million and immediately paid

Brightpoint $5.4 million that it owed from the prior line of credit. Chinatron used the remaining
$4.6 million as “working capital.”
F.

Brightpoint Offers to buy Mobiltron France
On January 14 and 15, 2008, Brightpoint executed Non-Disclosure and Confidentiality

Agreements with Mobiltron and began undertaking due diligence with regard to Mobiltron
France. On January 28, 2008, Mr. Laikin sent an email to Michael Koehn Milland, thenPresident of Brightpoint International, advising him that Brightstar, one of Brightpoint’s
competitors, was also trying to buy Mobiltron France, but boasted “[w]e get first shot at it.”
In the first quarter of 2008, Brightpoint reviewed Mobiltron France’s financials and
visited its facility. On or around March 17, 2008, Brightpoint offered to purchase 95% of
Mobiltron France for $5 million. Mr. Arnott immediately rejected this offer and then countered
for far less than the $14 million previously discussed. In an email written that same day, Mr.
Arnott wrote:
Pursuant to our discussions I am very disappointed with your offer of US$5
million for 95% of our Mobiltron France business. This is far short of our
internal valuation. I would have thought US$7.5 million for 90% of the business
would be more realistic. Why don’t you consider splitting the difference and
looking at US$6.25 [million] for 92.5%?

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The next day, on March 18, 2008, Brightpoint upped its bid, but Mr. Arnott did not immediately
respond. In the meantime, on March 20, 2008, Mr. Sofaer emailed Mr. Arnott, stating “I am
wondering how close you are to securing agreement and payment from Brightpoint. I do hope
that amid the turmoil in the markets, you will be able to close your deal.” Mr. Arnott responded
that he was “back and forth with Brightpoint who are also in checks and balances stage with
getting our deal closed.” Mr. Arnott also asked Mr. Sofaer to “get one of [his] internal valuation
experts to look at the numbers and model them so [Arnott could] have a sense check on final
valuations from [Brightpoint].”
As Chinatron’s deadline for repayment drew near, tensions mounted. On March 30, 2008
– the day before Chinatron’s repayments came due – Mr. Arnott advised Mr. Laikin he was “in a
very uncomfortable position now with Sofaer” and admonished him to “remember that you said
your word is your bond.” Mr. Laikin responded:
I told you from day 1 that I would try to get my guys in Europe to get you an
offer and buy [Mobiltron France]. My guys like the company. They made an
offer. If you want to sell it to them based on their offer, let me know. If you
have a firm counter, please send it to me. They might walk or they might [go]
a small bit higher. Our flexibility to pay higher went down as our [priceearnings ratio] went from 17 to 8. With a [price-earnings ratio] of 8, our buy
price goes to 5-6….And your partners need to know that you borrowed $10M
USD from [Sofaer] and paid [Brightpoint] $5M USD. That again begs the
question, where did the other $5M USD go? I never offered to blindly offer
you $10M USD for [Mobiltron France] and to suggest that is ridiculous. That
all being said, I have kept my word to you to get an offer. Save everyone the
time and either counter our offer or tell us let’s move forward on our offer to
close….
This back-and-forth continued on March 31, 2008, but the parties remained at an impasse.

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G.

Chinatron Defaults; Sofaer takes over Mobiltron France; this Lawsuit Ensues
On March 31, 2008, Chinatron failed to repay Sofaer, thus defaulting on the Loan. As a

result, Sofaer was authorized to collect the debt under Mr. Arnott’s personal guarantee.
Moreover, Mr. Sofaer testified that, as a result of the default, Sofaer “had the ability to close and
take over Mobiltron.” (Sofaer 30(b)(6) Dep. 200:23-201:10). On December 5, 2008, Sofaer’s
counsel sent an email to Mr. Arnott advising him that he would be sued if he did not pay the $12
million owed under the Loan Agreement. On December 6, 2008, Mr. Sofaer emailed Mr. Arnott
discussing the possibility of a claim against Mr. Laikin and Brightpoint, stating “it is not
straightforward” and “[m]uch rests on whether we can show that Laikin said that Brightpoint
would buy [Mobiltron France] for $12-$14m and that he either lied about that or was negligent.”
From there, Mr. Sofaer asked Mr. Arnott point-blank, “Did [Mr. Laikin] say that he would buy
subject to [due diligence]. I don’t recall that but did he say it to you…?” Finally, Mr. Sofaer
asked Mr. Arnott to compile various communications, stating “[t]hey can file a claim next week
only if you can get your stuff together.” Mr. Arnott assured Mr. Sofaer that “[o]ur collation of
data is ongoing and we will be ready.”
Since then, Sofaer has never sought repayment from Mr. Arnott, despite the personal
guarantee. On this point, Mr. Sofaer testified that he has not pursued legal proceedings because
Mr. Arnott does not have assets sufficient to make such efforts worthwhile.

Mr. Arnott

confirmed this, testifying that he could not afford to repay the amount. Mr. Arnott further
testified that Sofaer is still holding the personal guarantee and could still sue him.
On July 24, 2008, Sofaer entered into a Supplemental Loan Agreement and a Charge
Over Shares document, pursuant to which Sofaer obtained a security interest in the company that
owned 100% of Mobiltron France.

Subsequently, in January 2009, Sofaer formally “took

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control” of Mobiltron France. (Sofaer 30(b)(6) Dep. 251:5-7).2 During the spring and summer
of 2009, Brightpoint continued to make offers for Mobiltron France, even after Sofaer took
ownership. Each was rejected and negotiations apparently unraveled, thus paving the way for
the present lawsuit. On September 24, 2009, Sofaer sued Brightpoint and Mr. Laikin in this
Court. Additional facts are added below as needed.
III. DISCUSSION
As discussed Sofaer has brought three claims against Brightpoint and Mr. Laikin: (1)
actual fraud, (2) constructive fraud, and (3) promissory estoppel. Each is addressed in turn
below.
A.

Actual Fraud
To defeat Defendants’ summary judgment motion on the actual fraud claim, Sofaer must

raise a material issue of fact concerning: “(1) a material misrepresentation of past or existing
facts; (2) made with knowledge or reckless ignorance of falsity; and (3) which caused the
[plaintiff] to rely upon the misrepresentation to [its] detriment.” Reginald Martin Agency, Inc. v.
Conseco Medical Ins. Co., 478 F. Supp. 2d 1076, 1089 (S.D. Ind. 2007) (citation omitted).
Sofaer’s actual fraud claim fails for two reasons. First, Mr. Laikin’s alleged misrepresentation
referred to and related to future events and, second, Sofaer did not reasonably rely on Mr.
Laikin’s misrepresentation.
1.

Mr. Laikin’s statement was about future events

Under Indiana law, a viable fraud claim requires a material misrepresentation relating to a
“past or existing” fact susceptible to “‘exact knowledge’ at the time the statement is made.”
2

Defendants surmise that Sofaer obviously accepted Mobiltron France in satisfaction of the Loan. Sofaer denies
this. Given the Court’s ruling, it need not address this issue head-on. However, it is worth noting that in Sofaer’s
responses to Defendants’ First Interrogatories, Sofaer conceded that it “now owns Mobiltron France, as a partial
remedy for Chinatron’s failure to repay the loan…”. (Dkt. 122-2 at 5).

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Vaughn v. General Foods Corp., 797 F.2d 1403, 1410-11 (7th Cir. 1986).

Statements of

opinion, intent, or promises of future conduct do not amount to past or existing facts. Biberstine
v. New York Blower Co., 625 N.E.2d 1308, 1315 (Ind. Ct. App.1993); see also Siegel v.
Williams, 818 N.E.2d 510, 515 (Ind. Ct. App. 2004) (“actual fraud may not be predicated upon
representations of future conduct.”). In other words, “promises and representations as to the
future should be regarded merely as statements of opinion, hope or expectation upon which a
party has no legal right to rely; that such statements as to a future event cannot by their very
nature be false when made.” Peoples Trust Bank v. Braun, 443 N.E.2d 875, 878 (Ind. Ct. App.
1983).
Sofaer attempts to stave off summary judgment by arguing that Mr. Laikin lied about an
existing fact relating to the Brightpoint/Mobiltron France deal. That is, during the December 17,
2007 telephone call, Mr. Laikin falsely claimed that the deal was “99.9% done,” even though it
was only in a preliminary posture. This misrepresentation, according to Sofaer, relates to an
existing fact because it involves the then-existing status of Brightpoint’s acquisition of Mobiltron
France. Although this argument is cogent and well-crafted, the Court is not persuaded.
First, while Sofaer couches Mr. Laikin’s statement in present terms, it is inescapably a
statement about the future. On this point, well-reasoned cases from other jurisdictions involving
similar types of statements are instructive. See, e.g., 5636 Alpha Road v. NCNB Tex. Nat’l Bank,
879 F. Supp. 655, 665 (N.D. Tex. 1995) (bank officer’s assurance that loan was a “done deal”
referred to future performance and therefore was not actionable under circumstances); Dooner v.
Keefe, Bruyette & Woods, Inc., No. 00-Civ-572(JGK), 2003 WL 135706, at *2 (S.D.N.Y. Jan.
17, 2003) (statements by CEO to employee assuring her that situation would improve, that it
would be worth her while to stay, that IPO was a “sure thing” and a “done deal,” and that

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employee would make a lot of money on IPO related only to future events, and thus did not
constitute material false representation of existing fact).
These cases reinforce the Court’s view that, at its core, Mr. Laikin’s statement was
nothing more than an assessment of the likelihood that the deal would go through in the future.
Given that Mr. Laikin’s representation was inextricably tied to the probability of a future event,
it does not constitute an actionable misrepresentation. See Vaughn, 797 F.2d at 1415 (quoting
Illinois case but applying Indiana law; “[a] statement which is merely an expression of opinion
or which relates to future or contingent events, expectations or probabilities . . . ordinarily does
not constitute an actionable misrepresentation.”). Stated differently, although the phrase “99.9%
done” is framed in present terms, it was really just Mr. Laikin’s opinion about future events. See
Pugh’s IGA, Inc. v. Super Food Services, Inc., 531 N.E.2d 1194, 1198 (Ind. Ct. App. 1988)
(seller’s projections of future financial performance were statements of opinion, which are “not
actionable and the court should refuse to submit such statements to the jury”).
By emphasizing the then-existing status of the deal, Sofaer is merely inviting the Court to
elevate semantic form over actual substance. And, as a practical matter, the question arises: Why
would Mr. Sofaer care about what percentage of terms had been hammered out as of December
17, 2007? After all, a transaction is inherently binary: either it’s completed or it’s not. A deal
that is 99.9% done is worth no more than a deal that is 2% done, and both can be scuttled at the
last-second by myriad intervening, and often unpredictable, events. Further, it is worth noting
that the phrase “99.9% done” is relatively amorphous. Even taken literally, it could mean
different things: for instance, that Mr. Laikin was 99.9% likely to pursue the deal; that Mr.
Laikin was 99.9% sure that the deal would ultimately be completed; or, less realistically under
the circumstances, that 999 out of 1,000 terms of the deal had been finalized. Even under the

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most literal reading of the phrase, however, the door is left open to the possibility that the deal
would not be completed.3
Finally, the Court’s decision is strengthened by the fact that Sofaer knew that the deal
was not actually 99.9% completed as of December 17, 2007. Rather, the credible evidence
shows that, at the time of the phone call, all stakeholders knew that plenty of work remained on
Brightpoint’s prospective acquisition of Mobiltron France. This point is illustrated by the terms
of the Loan Agreement entered into between Sofaer and Chinatron after the phone call.
Tellingly, the Loan Agreement provided that if Chinatron sold Mobiltron France for more than
$12 million before March 31, 2008, Sofaer would receive “50% of the excess.” Additionally,
Section 8.2.2 granted Sofaer the right to veto the sale of any asset of Chinatron, including
Mobiltron France, and Section 8.1.1 required Chinatron to undertake efforts to secure the sale of
Mobiltron France by March 31, 2008. Further, in his deposition, Mr. Sofaer testified that the
proposed purchase price of $14 million “was based on a multiple of earnings that…Mobiltron
France had achieved in the previous year or the latest year.” (Sofaer 30(b)(6) Dep. 180:12-19).
However, Mobiltron France’s full 2007 earnings – a variable affecting price – could not have
been available at the time of the December 17, 2007 call.4 Thus, Sofaer had to know that, at the
3

Defendants also argue that to the extent Mr. Laikin made a misrepresentation about an existing fact, that
misrepresentation was not a material fact. On this point, Mr. Sofaer testified as follows:
The material terms, as far as I was concerned, and [Sofaer] was…concerned, was that Robert
Laikin would procure and ensure that Brightpoint would purchase Mobiltron France for $14
million by the end of March 2008 and by so doing, would ensure that Chinatron had the resources
to repay the loan extended by [Sofaer]…. What was material to [Sofaer] was that this should be
done. It was not.
(Sofaer 30(b)(6) Dep. 289:12-290:5) (emphasis added). According to Defendants, this statement establishes that
the alleged material representations all related to whether the deal would actually go through in the future, not the
present status of the deal. Sofaer argues that this statement is not dispositive, as it also relied on the then-existing
status of the deal. This issue is academic, given the nature of the Court’s ruling.
4

On a few occasions, Mr. Sofaer walked back the testimony. He testified that “Mr. Laikin agreed to buy Mobiltron
France by the end of March 2008 for $14 million, without any caveats.” (Sofaer Dep. 294:7-9). But even if the

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time of the Loan, the sale of Mobiltron France to Brightpoint was not a signed and sealed
foregone conclusion.
In support of its argument, Sofaer relies heavily on Reginald Martin Agency, 478 F.
Supp. 2d 1076. In that case, the district court allowed a fraud claim to proceed where the
defendant falsely represented that it was being sold as a way of managing the company toward
continuing profitability when, in reality, it was hemorrhaging millions of dollars and was being
disposed of as part of an overall debt reduction plan. Id. at 1090.

However, Reginald is

distinguishable, given that the alleged fraudulent statement was susceptible to “exact
knowledge.” Here, by contrast, whether Brightpoint would acquire Mobiltron France was not
susceptible to “exact knowledge” at the time Mr. Laikin’s statement was made. To the contrary,
the evidence shows that, in effect, Mr. Laikin’s statement was one of intent or opinion referring
to a promise to be performed in the future. See Vaughn, 797 F.2d at 1413 (“the real gravamen of
the Vaughns’ case is not that they were affirmatively misled by the appellants’ misstatement of
material facts…[r]ather, they are unhappy with the degree of success which they achieved.”).
Similar to the reasoning employed in Vaughn, the real gravamen of Sofaer’s claim is not its
unhappiness with the actual status of the deal as of December 17, 2007; rather, Sofaer’s quarrel
is with the fact that the deal did not go through after the phone call. At bottom, because an
Indiana fraud claim “cannot be predicated upon matters of futurity or promises to be performed
at some later time,” Braun, 443 N.E.2d at 877, summary judgment is appropriate.

Court ignored Mr. Sofaer’s more specific testimony regarding the significance of Mobiltron France’s full 2007
earnings, none of its conclusion would change. Moreover, “a genuine issue of material fact is not created where the
only issue of fact is to determine which of the two conflicting versions of the plaintiff’s testimony is correct.”
Vantage Marketing, Inc. v. De Amertek Corp., Inc., 31 Fed. Appx. 109, 115 (4th Cir. 2002) (citation and internal
quotations omitted).

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2.

Sofaer did not reasonably rely on Mr. Laikin’s statement

A viable fraud claim also requires the plaintiff to prove that it had a right to act in
reliance on the defendant’s representation. Vaughn 797 F.2d at 1415 (applying Indiana law; “the
fact of reliance is different from the right of reliance…[t]hus, to state a cause of action for fraud,
a party must prove not only that he acted in reliance but also that he had the right to do so…”).
Although generally a question of fact, right to reliance can be determined as a matter of law:
“Where the evidence is so clear as to be susceptible of only one reasonable inference, it is for the
court to determine as a matter of law whether plaintiff was justified in relying on the
representation and whether he was negligent in doing so.” Id. (quoting 37 C.J.S. Fraud § 129, at
455-56 (1955); determining that plaintiffs had no right to rely on representations, even if they did
in fact rely on them).
Moreover, although courts “will not ignore an intentional fraud practiced on the unwary,
[they] will, in most cases, require the exercise of reasonable prudence in business transactions by
professionals who are dealing at arm’s length.” Plymale v. Upright, 419 N.E.2d 756, 768 (Ind.
Ct. App. 1981). Reasonable prudence is determined by multiple factors, including: (1) “the form
of the representations”; (2) “their materiality”; (3) the “relation of the parties”; (4) the
“respective knowledge and means of knowledge of the parties”; (5) “the party to whom the
representations were made”; and (6) “the respective character, intelligence, experience, age, and
mental and physical condition of the parties.” Id. at 761 n.4.
Here, the factors overwhelmingly weigh against a finding of reasonableness. First, all
credible evidence indicates that Sofaer knew the deal was incomplete.

Second, all

representations took place during the course of a brief phone call that was scant on details.
Third, prior to the call, Sofaer and Brightpoint had no relationship whatsoever. Fourth, Sofaer

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had the resources and acumen to ascertain the true status of a Brightpoint/Mobiltron France deal,
but instead failed to make commonsense inquiries about negotiations, due diligence, and any
remaining contingencies that could thwart the deal. Finally, Sofaer – an international hedge fund
– is the paradigmatic sophisticated entity, not an uneducated or vulnerable individual. Sofaer
simply had to understand that there was some risk that the deal would fall apart.
Apparently, though, Sofaer was blinded by rose-colored glasses, believing that a deal in
its infancy was actually carved in stone. But if the deal was “99.9% done” as of December 17,
2007, this begs the question: Why would it possibly take until March 31, 2008 to complete the
deal? Simply stated, Sofaer’s unduly optimistic behavior was not reasonably prudent and, to the
extent Sofaer relied on Mr. Laikin’s “99.9% done” statement, such reliance was unreasonable.
After all, if this course of action were reasonable, sophisticated entities would be well advised to
shield their eyes from facts and ignore the obvious questions, only to claim reliance and sue later.
See Urschel Farms, Inc. v. DeKalb Swine Breeders, Inc., 858 F. Supp. 831, 840 (N.D. Ind.
1994).
On this point, Urschel is instructive. In that case, the plaintiff alleged that the defendant
provided it with oral representations that the hogs the defendant was selling were free of illness.
Id. at 832. The district court ruled that the plaintiffs, experienced hog farmers, had failed to
show reasonable reliance for purposes of establishing fraud, recognizing that “[e]ven to a
layperson, it would seem a fantastic proposition for an experienced farmer to claim he relied on a
guarantee that he was purchasing disease-free animals.” Id. at 840. That reasoning applies with
similar force under the present circumstances. It is settled that “where persons stand mentally on
equal footing, and in no fiduciary relation, the law will not protect one who fails to exercise
common sense and judgment.” Plymale, 419 N.E.2d at 762. Here, Sofaer rolled the dice on an

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investment that offered a more than 80% rate of return and lost. Because Sofaer did not
reasonably rely on Mr. Laikin’s statement, summary judgment is warranted.
B.

Constructive Fraud
Indiana courts define constructive fraud as acts from which a defendant derives an

unconscionable advantage; a breach of confidence coupled with an unjust enrichment which
shocks the conscience; a breach of duty which the law declares fraudulent because of a tendency
to deceive, injure the public interest, or violate public or private confidence; or the making of a
false statement in the context of a confidential relationship. Abdulrahim v. Gene B. Glick Co.,
Inc., 612 F. Supp. 256, 263 (N.D. Ind.1985). Under Indiana law, the specific elements of
constructive fraud are:
(1) a duty existing by virtue of the relationship between the parties, (2)
representations or omissions made in violation of that duty, (3) reliance thereon
by the complaining party, (4) injury to the complaining party as a proximate result
thereof, and (5) the gaining of an advantage by the party to be charged at the
expense of the complaining party.
Dawson v. Hummer, 649 N.E.2d 653, 661 (Ind. Ct. App. 1995) (citation omitted). Defendants
contest elements (1), (2), and (3). Here, the Court has already determined that Sofaer’s reliance
was unreasonable as a matter of law. See Westfield Ins. Co. v. Yaste, Zent & Rye Agency, 806
N.E.2d 25, 31 (Ind. Ct. App. 2004) (to establish constructive fraud, “complaining party must
have had a reasonable right to rely upon the statements made or omitted.”).
However, even if Sofaer’s reliance was reasonable, its constructive fraud claim would fail
on element (1). To assert a claim of constructive fraud under Indiana law, a plaintiff must prove
“the existence of a duty by virtue of a special relationship between the parties….” Mudd v. Ford
Motor Co., 178 Fed. Appx. 545, 547 (7th Cir. 2006) (applying Indiana law). Normally, the
“special relationship” is fiduciary or confidential in nature. Id. (citations omitted); see also Lycan
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v. Walters, 904 F. Supp. 884, 898 (S.D. Ind. 1995) (“For a confidential relationship to exist, it is
essential that there be a dominant and a subordinate party…”). However, Indiana law recognizes
that a confidential or fiduciary relationship is not essential where conditions are inherently likely
to create injustice, such as “when actions or statements mislead the complaining party, and the
actions or statements are of a character which would prevent inquiry.” McDaniel v. Shepherd,
577 N.E.2d 239, 242 (Ind. Ct. App. 1991) (emphasis added). But where, as here, sophisticated
parties sit at arm’s length and one is not truly at the mercy of another, the Court is loath to
impose a “special relationship.”
Remmers v. Remington Hotel Corp., 56 F. Supp. 2d 1046 (S.D. Ind. 1999) illustrates this
point. In Remmers, the plaintiff, a general manager of one of the defendant’s hotel properties,
alleged that the defendant engaged in constructive fraud by promising him at least one year of
work and firing him less than a year into his employment. Id. at 1057-58. The court found that
the plaintiff’s ability to bargain for himself, his history as a hotel general manager, and his
general experience in the hotel industry and its business practices, put him in a position that
would not give rise to a special relationship or place an added duty on the defendant. Id. at 1058.
The court concluded that the defendant was not in such a position of power where it could
influence the plaintiff by making promises to gain his reliance. See id.
The instant case is somewhat analogous. The parties had no relationship whatsoever
prior to the December 17, 2007 call and Sofaer, a sophisticated entity, easily could have
investigated the actual status of the deal or pressed Brightpoint or Chinatron for more details.
Sofaer chose not to do so. The Court is simply not persuaded that circumstances exist that would
create an injustice if the law does not find a fraud. Id. at 1058; see also Lycan, 904 F. Supp. at
898 (granting summary judgment on constructive fraud claim; “[a]t most, the [defendants] were

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involved in an investment transaction with the Plaintiffs”); Sees v. Bank One, Indiana, N.A., 839
N.E.2d 154, 164 n.8 (Ind. 2005) (Boehm, J., concurring in part and dissenting in part) (plaintiff
had no claim of constructive fraud because the two parties were engaged in an ordinary arms
length business transaction).
Moreover, Sofaer’s key cases are inapposite. See McDaniel, 577 N.E.2d at 242 (“Here,
the insurance company’s agent advised an elderly, uneducated, and acutely disturbed woman not
to hire an attorney.”); Scott v. Bodor, Inc., 571 N.E.2d 313, 316-17, 324 (Ind. Ct. App. 1991)
(defendant Scott was trusted financial advisor who also provided tax advice and had a working
relationship with plaintiff for two years prior to events at issue; Scott referred defendant Brown
to the plaintiff; “Brown claimed to be a specialist” in tax planning; and both defendants induced
the plaintiff to enter a plan). Overall, because Sofaer cannot show that Defendants owed it a
duty by virtue of the relationship between the parties, summary judgment is warranted on
Sofaer’s constructive fraud claim.
C.

Promissory Estoppel
Sofaer also pursues a promissory estoppel claim. This species of estoppel encompasses

the following elements: “(1) a promise by the promissor; (2) made with the expectation that the
promisee will rely thereon; (3) which induces reasonable reliance by the promisee; (4) of a
definite and substantial nature; and (5) injustice can be avoided only by enforcement of the
promise.” Brown v. Branch, 758 N.E.2d 48, 52 (Ind. 2001) (citation omitted). For two reasons,
Sofaer’s promissory estoppel claim suffers the same fate as its fraud claims.
1.

Sofaer’s Reliance was Unreasonable

For the reasons set out above, among others, element (3) is dispositive; Sofaer’s reliance
was unreasonable. See, e.g., Garwood Packaging, Inc. v. Allen & Co., Inc., 378 F.3d 698, 704

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(7th Cir. 2004) (applying Indiana law; affirming summary judgment on promissory estoppel
claim because sophisticated principals of corporation could not have reasonably understood
predictive statements by investment company as binding promises; “[u]nless blinded by
optimism or desperation he had to know that Martin could not mean literally that the deal would
go through ‘come hell or high water,’ since if Satan or a tsunami obliterated Ohio that would kill
the deal.”);5 Bowers v. Fed’n Internationale del’ utomobile, 489 F.3d 316, 324 (7th Cir. 2007)
(applying Indiana law and granting motion to dismiss; “[i]f a plaintiff, given [its] background
and knowledge should have known that an event was doubtful and might not occur, then it was
not reasonable for [it] to rely on a defendant’s ‘promise’ that it would.”). Here, Sofaer is a
sophisticated entity with prodigious expertise and experience and, under the circumstances,
could not reasonably rely on a statement that a deal was “99.9% done” as of December 17, 2007,
and would be completed by the end of March – over three months later. As Mr. Sofaer admitted,
“there are always things that can come along to break up a potential acquisition.” (Sofaer
30(b)(6) Dep. 146:22-23). And, in fact, drastic events did come to pass. From December 17,
2007 and March 31, 2008, the price of Brightpoint’s stock dropped from a high of $16.26 to a
low of $8.07 per share. For essentially the same reasons as set out above, the Court finds that
Sofaer’s reliance was not reasonable.
2.

Mr. Laikin’s Promise was not Sufficiently Definite

But even if the Court went the other way on the reasonable reliance issue, its conclusion
would be the same, given that Mr. Laikin’s statement was not sufficiently definite to constitute a
promise for purposes of a promissory estoppel claim. Under Indiana law, “the promise relied on
trigger an estoppel must be definite in the sense of being clearly a promise and not just a
5

Admittedly, Garwood is not directly on-point, given that the representations were made by an investment company
without the power to bind, whereas here they were made by a company’s CEO. Nonetheless, the Court finds that
the reasoning in Garwood is still applicable under the circumstances.

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statement of intentions.” Garwood, 378 F.3d at 702. Moreover, statements that “could not have
been reasonably understood by the persons to whom they were addressed…to be promises rather
than expressions of optimism and determination” do not constitute promises, and therefore do
not give rise to a viable promissory estoppel claim. Id. at 704.
The Court need not rehash all of the reasons for this determination, but a sampling is
instructive. For instance, shortly after the December 17, 2007 call, Sofaer required Mr. Arnott to
sign a personal guarantee. This measure would have been altogether superfluous if the deal was
actually set in stone. Similarly, the plain language of the Loan Agreement, highlighted above,
indicates that Brightpoint’s acquisition was not a done deal. Finally, if a promise was actually in
place for a $14 million purchase price, then Chinatron’s counter-offer for $6.25 million for
92.5% of Mobiltron France makes virtually no sense, and forcefully demonstrates that the deal
was speculative. At bottom, the parties’ conduct simply does not align with the notion that a
definite promise was in place as required for a promissory estoppel claim. For this reason, too,
summary judgment is appropriate.
IV. CONCLUSION
For the reasons set out above, Defendants’ Motion for Summary Judgment (Dkt. 106) is
GRANTED.

Given the Court’s ruling, it need not address Defendants’ damages-related

arguments. A separate judgment shall accompany this entry.
SO ORDERED.
06/10/2011
Date: __________
________________________
Hon. Tanya Walton Pratt, Judge
United States District Court
Southern District of Indiana

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DISTRIBUTION:
Richard G. Baldwin
FOLEY HOAG, LLP
[e-mail]
A. Richard Blaiklock
LEWIS & WAGNER
[e-mail], [e-mail], [e-mail]
Shawnda M. Grady
BLANK ROME, LLP
[e-mail]
James V. Masella , III
BLANK ROME, LLP
[e-mail], [e-mail], [e-mail],
[e-mail], [e-mail]
Anthony A. Mingione
BLANK ROME, LLP
[e-mail]
Matthew L. Rea
HALL RENDER KILLIAN HEATH & LYMAN
[e-mail], [e-mail]
Robert Francis Wagner
LEWIS & WAGNER
[e-mail]
Brandon F. White
FOLEY HOAG LLP
[e-mail]

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