PSM Holding Corp. v. National Farm Financial Corp.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTION FOR RESTITUTION AND ATTORNEYS’ FEES

I. BACKGROUND

Defendant Larry P. Chao and his wife Julie Chao founded Business Alliance Insurance Company (“BAIC”) in the 1990s. The Chaos ran BAIC as a family business that provided insurance to small businesses, including small restaurants and grocery stores owned and operated by Asian Americans. BAIC was not profitable for many years after its founding; after the Chaos invested several million dollars and their own labor in the business, however, BAIC became profitable.

In 2005, the Chaos entered into negotiations with PSM Holding Corp. (“PSM”) to sell of BAIC to PSM for approximately $21.5 million. The parties anticipated that the proposed stock purchase agreement (“SPA”) would be accompanied by a host of ancillary agreements governing future competition, employment, and licensing. Section 14.11 of the SPA stated that the agreement would not become effective until all parties had executed it:

Larry Chao signed the proposed SPA in September 2005. Discussions concerning an amended, restated SPA continued, however, until November 2005, when PSM ceased negotiations. In December…