In re Daisy Systems Corp.

The chief executive officer (CEO) of Daisy Systems Corporation (Daisy) (plaintiff), engaged Bear Stearns, a sophisticated investment bank, to provide advice on an acquisition of the company Cadnetix. Daisy’s CEO had no public-company acquisition experience. Michael Tennenbaum of Bear Stearns sent Daisy an engagement letter. Cadnetix, however, rejected Daisy’s merger proposal. Tennenbaum then recommended a hostile takeover to Daisy. Daisy’s board of directors agreed, and the engagement letter was amended to provide for Bear Stearns to act as Daisy’s dealer manager in a hostile tender offer and to assist in securing financing. Bear Stearns would receive further fees for issuing Daisy a letter that Bear Stearns was “highly confident” that Daisy could secure financing. During September and October 1988, Daisy announced multiple tender offers for Cadnetix stock, with each rejected by Cadnetix. After each offer, Bear Stearns issued a “highly confident” letter. On October 24, 1988, Daisy raised its offer to purchase 100 percent of Cadnetix. Bear Stearns committed to loan $130 million to Daisy in transaction financing. On November 6, 1988, Tennenbaum told Bear Stearns’s internal committee that financing was not yet secured because banks were increasingly unwilling to finance hostile deals in Daisy’s industry. On November 10, 1988, Cadnetix agreed to an uncontested merger. The engagement letter was amended to name Bear Stearns as Daisy’s exclusive agent to secure all required financing. On April 18, 1989, Bear Stearns committed $15 million of financing to Daisy, and, on April 20, 1989, Bear Stearns internally approved a $45 million bridge loan to Daisy. However, Tennenbaum told Daisy that approval had not been received. Sometime afterward, Daisy’s financial condition declined, and an involuntary bankruptcy followed. Jack Kenney, Chapter 11 trustee for Daisy, sued Bear Stearns, alleging that the absence of financing had caused Daisy’s bankruptcy. The district court found no support for a breach of fiduciary duty claim and granted Bear Stearns’s summary-judgment motion on the professional-negligence and negligent-misrepresentation claims, and Kenny appealed.