American Capital Acquisition Partners, LLC, et al. v. LPL Holdings, Inc., et al. No. 8490-VCG (February 3, 2014) (Glasscock, V.C.)
In 2011, LPL Holdings, Inc. (“LPL”) acquired Concord Capital Partners, Inc. (“Concord”) from American Capital Acquisition Partners, LLC (“American Capital”) under a purchase agreement (the “Purchase Agreement”) that provided for a contingent addition to the purchase price that could be as much as $15 million based upon the 2013 gross margin of Concord (which was renamed “Concord-LPL”). Conford-LPL also entered into employment contracts with senior executives of Concord, which provided for bonuses based upon Concord-LPL’s reaching specified revenue targets in 2011, 2012 and 2013. At the time of the acquisition, LPL discussed with American Capital and Concord’s senior executives the synergies that could be achieved by using LPL’s computerized custody system to provide custody services for Concord-LPL trust accounts. In fact, the LPL computer system could not process those accounts, and LPL did not modify the system to enable it to process them. As a result, Concord-LPL did not generate gross margins sufficient to entitle American Capital to the contingent additional payments and did not generate sufficient revenues to reach the specified targets in the employment contracts. American Capital and the former Concord senior executives sued LPL, alleging that LPL had committed fraud in stating that LPL could, or would become able to, process Concord-LPL’s trust accounts, and had breached the implied covenant of good faith and fair dealing in (a) not doing what was necessary to enable the LPL computer system to be used to process those accounts and (b) diverting business away from Concord-LPL to another company to avoid having to make additional payments to American Capital under the Purchase Agreement and provide bonuses to Concord’s senior executives under the employment contracts.