Smart Oil, LLC v. DW Mazel, LLC, No. 19-2542 (7th Cir. 2020)
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DWM agreed to purchase 30 gasoline station-convenience stores from Smart for $67 million. It was understood that it was a "flip" because Smart did not yet own the properties. Both parties were represented by counsel. The Agreement requires DWM to deposit $300,000 into an escrow account. At the close of the due diligence period, DWM is to pay a second deposit of $450,000. DWM never paid the initial earnest money deposit but the parties continued their due diligence investigations and negotiations. The Agreement requires DWM to provide Smart with written notice to terminate the Agreement if, after its investigations, DWM disapproved of the purchase. If DWM did not provide that written notice, the Agreement states that Smart is entitled to keep the earnest money if the deal falls through. DWM failed to provide notice of disapproval and did not pay the second deposit. In the meantime, Smart executed contracts to acquire the properties. When the DWM-Smart deal fell through, Smart sued DWM for breach of contract, arguing it was entitled to $750,000 in earnest money as liquidated damages. DWM counterclaimed for breach of contract and fraudulent inducement, for failure to provide adequate due diligence materials.
The Seventh Circuit affirmed holdings that DWM breached the contract, that DWM’s obligation to pay the earnest money remained, and that Smart was entitled to the earnest money as liquidated damages under Illinois law.
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