Diesel Power Equipment, Inc. v. ADDCO, Inc.

Diesel Power Equipment, Inc. (Diesel Power) (plaintiff), wished to purchase a division of ADDCO, Inc. (defendant) called Nicholson Engine Group (Nicholson). Diesel Power and Nicholson were both distributors of Deutz engines. Diesel Power began negotiating with ADDCO in early 2001, then sent ADDCO a preliminary offer letter that included the values of inventory, assets, and furniture that Diesel Power wished to purchase. The parties negotiated the amount Diesel Power would pay for goodwill. ADDCO accepted the offer, and Diesel Power drafted a letter of intent that included details regarding the treatment of accounts receivables and the value of certain assets. Diesel Power revised the letter of intent two times. In September, Diesel Power drafted an Asset Purchase Agreement (APA) containing similar terms to the final letter of intent. ADDCO asked for changes in regard to how the purchase price was allotted between inventory and goodwill. In October, Diesel Power drafted a second APA that included a noncompete agreement valued at $50,000, allocated no funds to goodwill, and valued inventory differently than the earlier APA. Additionally, this agreement required that Deutz sign off on ADDCO assigning its distributorship contract to Diesel Power. Neither party signed either of the APAs. In late October, Interstate Companies, Inc. (Interstate), offered to buy Nicholson from ADDCO for nearly one million dollars more than Diesel Power’s offer. In November, ADDCO sold Nicholson to Interstate. Diesel Power sued ADDCO, alleging that ADDCO had agreed to sell Nicholson through the parties’ final letter of intent and had breached that contract. The district court found that the letter of intent constituted an agreement and that the subsequent APA did not materially alter the letter’s terms. The district court entered a judgment in favor of Diesel Power. ADDCO appealed.