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Churchill v. Chevrolet

June 9, 2005


The opinion of the court was delivered by: Joseph C. Spero United States Magistrate Judge



On Friday, May 6, 2005, at 9:30 a.m., the following motions came on for hearing: 1) Plaintiff's Motion for Summary Adjudication of Counterclaim for Intentional Causation of Emotional Distress ("Plaintiff's Motion"); and 2) Defendants' Motion for Summary Judgment ("Defendants' Motion"). For the reasons stated below, Plaintiff's Motion is GRANTED. Defendants' Motion is GRANTED in part and DENIED in part.*fn1


A. Facts

1. Churchill's Employment by Winter Chevrolet

Churchill was employed as General Manager for Winter Chevrolet from March 2000 to July 7, 2003. Joint Statement of Undisputed Material Facts Re Counterdefendant David Churchill's Motion for Summary Adjudication ("Joint Statement (Plaintiff's Motion)"), No. 11. Rose Winter is a 71-year old widow and the Owner and President of Winter Chevrolet. Counterclaimant Rose Winter's Separate Statement of Undisputed Facts and Genuine Issues of Fact in Opposition to Counterdefendant David Churchill's Motion for Summary Adjudication ("Defendants' Separate Statement (Plaintiff's Motion)"), No. 1 (citing Declaration of Rose Winter in Support of Counterclaimant Rose Winter's Opposition to Counterdefendant David Churchill's Motion for Summary Adjudication ("Winter Decl.") ¶ 1) .

Prior to his employment with Winter Chevrolet, Churchill was employed by Honda of Oakland as a general sales manager. Joint Statement of Undisputed Material Facts Re Defendants Winter Chevrolet Company, Inc. and Rose Winter's Motion for Summary Judgment ("Joint Statement (Defendants' Motion)"), No. 1. His compensation from Honda of Oakland in 1999 was $560,450.00. Id., No. 2. In the fall of 1999, Churchill entered into an agreement with Melody Toyota to become its general manager. Id., No. 4. In late November or early December, Churchill informed Honda of Oakland that he would be leaving to accept the position at Melody Toyota. Id., No. 5.

In the meantime, Churchill was also negotiating for a position as a general manager with Winter Chevrolet. Id., Nos. 6-33. These negotiations began in October, 1999 and included several calls and meetings between Churchill and Winter. Id., No. 6. According to Churchill, in one of the meetings, Winter "did tell [him] her business was in a trust and she would have to research it and that this is what would take the time -- she would have to research how [Churchill could] become an equity partner and how [they] could put this partnership together." Declaration of Richard M. Rogers in Opposition to Defendants' Motion for Summary Judgment ("Rogers Decl. (Defendants' Motion)"), Ex. 5 (Churchill Depo.) at 128. By mid-December, these negotiations had progressed to the point that Churchill notified Honda of Oakland that he had decided not to take the position with Melody Toyota and that he wanted to stay at Honda of Oakland. Id., No. 8.

In late January 2000, Winter asked Churchill to meet with her accountants, Andy Engilis and Don Payne, which Churchill did. Id., Nos. 10, 12. Engilis and Payne had provided tax advice and general business consultation to Winter Chevrolet and Rose Winter for a number of years, and Winter valued their opinions and knowledge of the car dealership business. Id., No. 11. In the January meeting, Engilis and Payne asked Churchill about his background and qualifications. Id., No. 13. They also discussed compensation, including Churchill's desire to obtain an equity interest in the dealership. Id., No. 14. Churchill described the conversation with Engilis in this meeting as follows:

A: . . . [Engilis] was concerned that -- we talked a little about how I would be getting the stock . . . .

Q: And what did he say on that particular subject?

A: His concern was that if we're going to take on a partnership, that the relationship works.

He thought that there ought to be a buy-sell agreement. We talked about me hav[ing] the first right of refusal, and also we talked about me being protected and being able to purchase at the current value, not the future value of the business. He agreed that that's the only way to do these deals.

Q: So, did he bring up purchasing at current value, or did you bring that up?

A: I brought that up.

Rogers Decl. (Defendants' Motion), Ex. 5 (Churchill Depo.) at 136-37.

Around the same time, on January 25, 2000, Churchill faxed a proposed contract to Don Payne. Joint Statement (Defendants' Motion), No. 17. One of the requirements of the proposed agreement was for "20% ownership of Winter Chevrolet - Honda within 6 months of hire date." Cliffe Decl., Ex. B (Churchill Depo., Ex. 9). It did not, however, contain a buy-sell provision. Joint Statement (Defendants' Motion), No. 19. In response, Winter asked Payne to put together the proposed terms of Churchill's compensation plan. Id., No. 20. Payne did so and, after obtaining Winter's approval, faxed a memo with deal points to Churchill on February 18, 2000 ("February 18, 2000 Proposal"). Id., No. 22.

The February 18, 2000 Proposal contained nine paragraphs, which provided: 1) a base salary of $8,000.00 per month; 2) one Company vehicle, plus gas; 3) a monthly bonus of 15% of net profits, payable 10% monthly with the balance payable at the end of the year; 4) a guaranteed minimum of $15,000.00 per month for the first three months of employment; 5) an annual bonus based on net profit ; 6) a required purchase of 4% of corporate stock "at inception"; 7) an additional annual bonus of 4% of corporate stock for 4 years; 8) a buy-sell agreement in the event of Winter's death or disability; and 9) an annual bonus for Rose Winter in the amount of 25% of net profit. Id., No. 23; Cliffe Decl., Ex. B (Churchill Depo., Ex. 10) & Ex. A (Winter Depo., Ex. 9).*fn2 The proposal did not contain signature lines.

Shortly after faxing the February 18, 2000 Proposal to Churchill, Payne decided to add another provision to the proposed compensation plan regarding Winter's ability to transfer the corporate stock referenced in paragraphs 6 through 8 of the initial proposal. Joint Statement (Defendants' Motion), No. 25. That provision states as follows:

Rose is currently in the process of obtaining appraisal on the dealership. Upon completion she will acquire 49% of stock which is now held by trusts created at her husband's death. She is the trustee of the trusts. No stock can be transferred to David until the 49% is acquired by Rose.

Id., No. 27. At his deposition, Don Payne testified as follows concerning the reasons for adding this provision:

In this several-day period in which we were trying to put this together, the employment arrangement together, and after Rose had provided to me a document which, I believe, is this Exhibit 9 you provided, it occurred to me that there could possibly be delays in getting the stock transferred from the trust to Rose in order to sell and provide the shares to David. We needed to value the stock before we could transfer shares to him. We still needed to have an appraisal done for those shares, and I was concerned that it might take a while for that transfer to occur. And I didn't want David to think that he was going to get those shares immediately, I wanted everyone to be aware that it might take some time, so that's the reason I added that provision.

Cliffe Decl., Ex. C (Payne Depo.) at 17. He went on to testify that "[a]t that time there was nothing [he] was aware of in the trust that would create a problem in transferring the stock." Id. at 20. On February 23, 2000, Payne faxed the new proposal ("the February 23, 2000 Proposal"), which did not have signature lines, to Churchill. Id., No. 28, 30.*fn3

Subsequently, the parties signed the February 23, 2000 Proposal, in finalized form (hereinafter, "General Manager Pay Plan"). Cliffe Decl., Ex. A (Winter Depo., Ex. 8). The agreement is dated February 28, 2000. Id. However, Churchill testified in his deposition that he signed the agreement on March 6, 2000 and back-dated his signature to February 28, 2000 at Winter's instruction. Rogers Decl. (Defendants' Motion), Ex. 5 (Churchill Depo.) at 198.

The "Buy-Sell" provision in the General Manager Pay Plan states as follows:

Buy-Sell Agreement for death, disability or separation from service. Within first four years, Rose buys back stock at David's purchase price. Thereafter at appraised value. David has the right to buy Rose's stock at appraised value in the event of her death or disability. David has the right of first refusal if Rose decides to sell.

Declaration of Joshua J. Cliffe in Support of Defendants Winter Chevrolet Company, Inc. and Rose Winter's Motion for Summary Judgment ("Cliffe Decl."), Ex. A (Winter Depo., Ex. 8 (General Manager Pay Plan, ¶ 8)). Churchill testified in his deposition that he interpreted the words "appraised value" in the third sentence to mean the appraised value at the time of the buy-back but that the words "appraised value" in the fourth sentence meant the value at which the stocks were appraised in 2000. Rogers Decl. (Defendants' Motion), Ex. 5 (Churchill Depo.) at 199-201. Churchill testified that his interpretation was based on his conversation with Payne and Engilis in the January meeting discussed above.

On March 1, 2000, Churchill terminated his employment with Honda of Oakland. Cliffe Decl., Ex. B (Churchill Depo., Ex. 13). He began his employment with Winter Chevrolet in the second week of March, 2000. Joint Statement (Defendants' Motion), No. 38.

2. The August 27 Agreements

In March or April 2000,*fn4 Winter consulted with her estate attorney, Beverly Lavin, regarding the transfer of stock to David Churchill from the Q Tip trust of which she was trustee.*fn5 Id., No. 39. In a letter dated August 28, 2000, Lavin advised Winter she would likely violate her fiduciary duty to her stepdaughter if she transferred stock from the Q Tip trust to Churchill. Cliffe Decl., Ex. A (Winter Depo., Ex. 23). Soon after receiving Lavin's opinion, Winter retained a second attorney, Halbert Rasmussen, to advise her on the legal implications of transferring the corporate stock to Churchill. Joint Statement (Defendants' Motion), No. 40. In a memorandum dated September 14, 2000, Rasmussen too advised that the transfer of stock to Churchill could constitute a breach of Winter's fiduciary duty to the Q Tip trust. Id., No. 41; see also Cliffe Decl., Ex. A (Winter Depo., Ex. 22).

Based on the advice of her attorneys, Winter did not immediately transfer the corporate stock as originally planned. Joint Statement (Defendants' Motion), No. 42. According to Churchill, in December 2000, he discussed the question of the stock transfer with Winter, Engilis and Payne. Cliffe Decl., Ex. B (Churchill Depo.) at 211. Churchill stated that Payne "mentioned to me that they were going to have to take an alternative look on how they were going to be able to issue me the shares." Id. According to Churchill, Payne said that "[i]t doesn't look like we can do it the way that we initially planned to do it." Id. at 212. Churchill testified further that Payne did not explain the reasons for the problem and he did not ask. Id.

According to Payne, during the remainder of 2000 and into 2001, he and Winter were "looking for some alternative ways to transfer ownership . . . ." Cliffe Decl., Ex. C (Payne Depo.) at 35. In May 2001, Churchill retained an attorney, Michael Dawe, to represent him in his discussions with Winter Chevrolet. Joint Statement (Defendants' Motion), No. 45. Dawe sent a letter, dated May 11, 2001, demanding transfer of the stock and threatening suit. Id., No. 46; see also Cliffe Decl., Ex. D (Dawe Depo., Ex. 5). Payne then retained an estate attorney, Irving Joseph, to assist in structuring a deal and negotiate with Dawe. Id., No. 48.

Joseph met with Payne and Engilis on June 21, 2001 to discuss the problems relating to the transfer of Churchill's shares. Id., No. 49. At the meeting, he proposed a plan to effectuate the stock transfer, which he memorialized in a memorandum dated June 27, 2001. Declaration of Irving B. Joseph in Support of Defendants' Motion for Summary Judgment ("Joseph Decl."), Ex. A. Joseph devised a plan in which Winter would not acquire the full 49% of the corporate stock in the Q Tip trust, as originally planned, but rather, would acquire 20% of the stock from the Q Tip trust at fair market value and would state in a corporate resolution that this sale would benefit the trust because Churchill was an asset who would drive up the value of the corporation. Joint Statement (Defendants' Motion), No. 51; see also Cliffe Decl., Ex. F (Joseph Depo.) at 15-17.

Joseph then drafted documents to effectuate the General Manager Pay Plan, including: 1) a Stock Purchase and Option Agreement; 2) Stock Redemption Agreement; 3) Cross-Purchase Agreement; and 4) Consent of Spouse. Joint Statement (Defendants' Motion), No. 55; Cliffe Decl. (Defendants' Motion), Ex. F (Joseph Depo., Ex. 103). On August 27, 2001, Churchill was forwarded these documents ("the August 27 Agreements") to sign. Defendants' Separate Statement (Plaintiff's Motion), Nos. 13, 15. Churchill, however, declined to sign the agreements. Id. According to Joseph, Dawe discussed with him the main reason for Churchill's rejection in a telephone conversation on November 20, 2001. Joseph described the conversation as follows:

On November 20, 2001, I spoke with Michael Dawe by telephone. He stated that David Churchill's biggest concern was that the purchase price for the remainder at the other end [ie., in the case of Winter's death or disability] was going to be so large as to make it prohibitive for him to make the buy and that it was counterproductive for Churchill to drive up the value of the business just to have to purchase at the other end. I explained that it would breach Winter's fiduciary duties to sell the corporate stock for less than fair market value.

Joseph Decl., ¶ 8. Similarly, in a letter dated December 12, 2001, Dawe stated:

[I]t would make no sense for Mr. Churchill to be dedicating himself at work only to assure that his eventual purchase price of the dealership would continue to increase without any correlative benefit to him. Additionally, despite the terms of the original agreements, Ms. Winter is apparently unable to acquire the stock for her sole ownership, and to ...

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