Summary
refusing to allow broad liability waiver to release defendant from liability for intentional acts
Summary of this case from Swimwear Sol., Inc. v. Orlando Bathing Suit, LLCOpinion
12 Civ. 6837 (WHP)
02-03-2014
THOMAS W. CHARRON, JR., Plaintiff, v. SALLYPORT GLOBAL HOLDINGS, INC., et al., Defendants.
Counsel of Record: Athanasios Basdekis, Esq. Bailey & Glasser, LLP 2855 Cranberry Square Morgantown, WV 26508 James B. Perrine, Esq. Bailey & Glasser, LLP 201 Monroe Street, Suite 2170 Montgomery, AL 36104 Brian A. Glasser, Esq. Bailey & Glasser, LLP 209 Capitol Street Charleston, WV 25301 Counsel for Plaintiff Brian P. Waagner, Esq. Thomas F. Rath, Esq. Husch Blackwell LLP 750 17th Street N.W. Suite 900 Washington, DC 20006 Daniel P. Jaffe, Esq. Omri E. Praiss, Esq. Husch Blackwell Sanders, LLP 190 Carondelet Plaza, Suite 600 St. Louis, MO 63105-3441 Counsel for Defendants
MEMORANDUM & ORDER
:
Thomas W. Charron Jr. brings this diversity action for breach of contract against Sallyport Global Holdings, Inc. ("Sallyport"); Sallyport Global Services, Ltd.; JPD Private Trust Company, Ltd.; and John P. DeBlasio. Defendants assert counterclaims against Charron for conversion and related torts. Charron moves for summary judgment on liability for his contract claim and on Defendants' counterclaims. Defendants also move for summary judgment on the contract claim or, in the alternative, for summary judgment on their theory of damages on the contract claim. For the following reasons, both motions are denied.
BACKGROUND
Charron and DeBlasio founded Sallyport in 2003 to provide equipment and support to security firms in Iraq. Each owned 50% of the company. In December 2010, Charron and DeBlasio entered into a stock purchase agreement in which Sallyport purchased Charron's 50% interest in the company for $40.7 million, making DeBlasio the sole owner. The agreement included a "windfall protection" provision which provided that, if within a year of the execution of the agreement, DeBlasio or any of his affiliates sold 20% or more of the company's shares "for a price that reflects an enterprise value of the Company equal to or greater than $65,000,000, (a 'Windfall Sale')," then Charron is owed "an amount equal to 20% of the proceeds received from the Windfall Sale." Decl. of John P. DeBlasio, dated Aug. 5, 2013 ("First DeBlasio Decl."), Ex. 1 § 2.04 (ECF No. 162-3) ("Purchase Agreement").
The agreement is dated December 7, 2010, but the parties dispute whether the deal closed on December 7 or December 8. The stock purchase agreement states that the closing "shall take place Tuesday, December 7, 2010 at 2:30 pm at the offices of WilmerHale LLP, 1875 Pennsylvania Ave., NW, Washington, DC 20006, or remotely via the exchange of documents and signatures, concurrently with the execution and delivery of this Agreement." Purchase Agreement § 2.03. The parties did not meet at WilmerHale on December 7. Charron contends the deal closed at 4:10 p.m. on December 8 when an attorney from WilmerHale sent an e-mail with the subject line "Sallyport - CLOSING" confirming the wire transfers and receipt of the signature pages and attaching a fully-executed copy of the agreement. Pl.'s 56.1 Statement, Ex. 24 (ECF No. 165-24). However, Defendants point to several e-mails circulated on December 7 with the word "Closing" in their subject lines. In particular, the same attorney who sent the December 8 e-mail also sent an e-mail on December 7 reporting that
wire payment instructions have been received and confirmed by HSBC/Bank of Bermuda but may clear tomorrow . . . We would expect that everyone can treat today as the closing date as provided in the purchase agreement even if confirmation of the funds deposit lags until tomorrow.Decl. of John P. DeBlasio, dated Aug. 23, 2013 ("Second DeBlasio Decl."), Ex. 14 (ECF No. 169-16).
On December 8, 2010 - either immediately before the deal closed or one day after the deal closed, depending on whose account of events is correct - Charron made out three checks to himself from a Sallyport account totaling $227,364.22. Defendants' counterclaims assert that Charron did not have authority to pay himself these funds.
On May 6, 2011, five months after Charron sold his shares, Sallyport entered into an agreement (the "DC Capital Acquisition") whereby DC Capital Partners, LLC purchased Sallyport and its subsidiary, Sallyport Global, Inc. First DeBlasio Decl., Ex. 2 (ECF No. 162-4). DC Capital Partners created a new entity, Sallyport Holdings, LLC ("New Sallyport"), for the purpose of completing the transaction. New Sallyport acquired all of Sallyport's stock. The parties agreed DeBlasio would receive $64.5 million in the acquisition. A portion of that purchase price was paid in the form of a 38% share in New Sallyport (the "rollover equity interest"), which the parties valued at $3.8 million, but which Charron argues was worth far more. First DeBlasio Decl., Ex. 3 (ECF No. 162-6). The sale occurred on June 29, 2011. Charron contends the DC Capital Acquisition was a windfall sale.
DISCUSSION
I. Legal Standard
Summary judgment should be granted if the record shows that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). The burden of demonstrating the absence of any genuine dispute as to a material fact rests with the moving party. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). Once the moving party has made an initial showing that there is no genuine dispute of material fact, the non-moving party cannot rely on the "mere existence of a scintilla of evidence" to defeat summary judgment, Liberty Lobby, 477 U.S. at 252, but must set forth "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (emphasis in original); see also Niagara Mohawk Power Corp. v. Jones Chem., Inc., 315 F.3d 171, 175 (2d Cir. 2003). "A dispute about a 'genuine issue' exists for summary judgment purposes where the evidence is such that a reasonable jury could decide in the non-movant's favor." Beyer v. Cnty. of Nassau, 524 F.3d 160, 163 (2d Cir. 2008) (quoting Guilbert v. Gardner, 480 F.3d 140, 145 (2d Cir. 2007)). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.'" Scott v. Harris, 550 U.S. 372, 380 (2007) (quoting Matsushita, 475 U.S. at 586-87).
All factual ambiguities are resolved and all inferences are drawn in favor of the non-moving party. See Liberty Lobby, 477 U.S. at 255; Jeffreys v. City of N.Y., 426 F.3d 549, 553 (2d Cir. 2005). A party opposing summary judgment "is not entitled to rely solely on the allegations of [his] pleading, but must show that there is admissible evidence sufficient to support a finding in [his] favor on the issue that is the basis for the motion." Fitzgerald v. Henderson, 251 F.3d 345, 361 (2d Cir. 2001). "Conclusory allegations, conjecture, and speculation . . . are insufficient to create a genuine issue of fact." Kerzer v. Kingly Mfg., 156 F.3d 396, 400 (2d Cir. 1998). Where, as here, both parties move for summary judgment, each party's motion "must be examined on its own merits, and in each case all reasonable inferences must be drawn against the party whose motion is under consideration." Morales v. Quintel Entm't, Inc., 249 F.3d 115, 121 (2d Cir. 2001).
II. Windfall Sale
Charron presents several reasons why the DC Capital Acquisition constituted a "windfall sale." Most notably, in another litigation, Defendants made assertions contradictory to their representations here. Sagent Advisors, an investment bank, sued Sallyport in New York state court to recover fees it believes were owed for its work in the DC Capital Acquisition. See Sagent Advisors Inc. v. Sallyport Global Holdings Inc., No. 653644/2011 (N.Y. Sup. Ct.). Sallyport's counsel in that case, different from its counsel here, advised Sagent's lawyers by letter that the DC Capital Acquisition "resulted in the direct and indirect owners of [Sallyport] and [Sallyport Global Inc.] prior to the Closing selling 64.09% of the affiliated group's capital stock." Pl.'s 56.1 Statement, Ex. 9 (ECF No. 165-9). The representation was repeated in a summary judgment motion, stating that "[l]ooking at this transaction in the aggregate, the direct and indirect owners of Sallyport and [Sallyport Global Inc.] retained 35.91% of the ownership interest . . . in the acquiring entity and, therefore, effectively gave up only 64.09% of their ownership interests." Pl.'s 56.1 Statement, Ex. 8 (ECF No. 165-8). If Defendants only sold 64.09% of the company, then the total "enterprise value" of Sallyport reflected in the transaction would be well over $65 million. The letter to Sagent's counsel appears to recognize this, noting that "nothing provided or discussed herein . . . is to be shared in any way with Tom Charron." Pl.'s 56.1 Statement, Ex. 8.
Defendants' counsel concedes that the admissions by Defendants' other attorneys in the Sagent litigation are "troublesome." Sept. 26, 2013 Tr. 22:22. That is an understatement. Defendants do not deny the truth of these statements. Instead, they respond that Charron mischaracterizes them - in fact, 100% of Sallyport's stock was sold, but because DeBlasio obtained a 35.91% interest in the acquiring company, he effectively sold only 64.09% of the company. But it is not clear why this matters. It is true that 100% of Sallyport's stock was sold to New Sallyport, but by acquiring a 35.91% interest in new Sallyport, the cash DeBlasio received would be to compensate him for just 64.09% of the company, meaning the sale price recognized an enterprise value of well over $65 million.
Charron presents other reasons to believe the transaction was a windfall sale. First, he argues that shortly before the transaction, DeBlasio assigned loans owed to a Sallyport subsidiary from that subsidiary to a foundation he controls, thereby retaining operating assets worth at least $1.2 million that should be included in Sallyport's enterprise value. See Pl.'s 56.1 Statement, Exs. 16-17 (ECF Nos. 165-16, 165-17). Second, he asserts that a valuation performed for the Defendants after the transaction, with certain "corrections" made to it, shows that DeBlasio's rollover equity interest was worth at least $4.55 million, not the $3.8 million he claims. See Pl.'s 56.1 Statement ¶¶ 34-52.
But Defendants offer countervailing evidence that the transaction was not a windfall sale. For example, the valuation performed after the transaction concluded that the rollover equity interest was worth $3.8 million. See Pl.'s 56.1 Statement, Ex. 22 (ECF No. 165-22). Charron disputes the calculations, but the propriety of his "corrections" is a factual dispute that cannot be resolved on summary judgment. Thus, there is at least some evidence that the interest DeBlasio acquired in Sallyport was worth only $3.8 million, making summary judgment inappropriate for either party.
III. Defendants' Counterclaims
Charron moves for summary judgment on the counterclaims against him, arguing the stock purchase agreement exculpates him from any wrongdoing and that Sallyport's bylaws authorized him to make the withdrawals. The agreement contains a release stating Sallyport and its successors
forever release[] and discharge[] with prejudice Sellers, their successors and assigns from any and all Claims arising by any means out of any event, circumstance, act or failure to act relating to Sellers' relationship to the Company to any of its subsidiaries in any capacity preceding the Closing, whether known or unknown, accrued or not accrued, foreseen or unforeseen, or mature or immature, other than Claims made pursuant to this Agreement.Purchase Agreement § 5.03. According to Charron, this release bars all claims against him that accrued before closing. The parties dispute what law applies, as the agreement is governed by New York law but the alleged torts occurred in Florida. Regardless, neither state's law appears to allow a release such as this to insulate Charron from liability for intentional acts. See Lago v. Krollage, 78 N.Y.2d 95, 100 (1991) (exculpatory agreement is "wholly void" to the extent "it purports to grant exemption from liability for willful or grossly negligent acts"); Great N. Assoc. v: Cont'l Cas. Co., 192 A.D.2d 976, 978 (N.Y. App. Div. 1993) ("[U]nder announced public policy [exculpatory agreements] are ineffective to insulate the release from intentional, willful or grossly negligent acts."); Kellums v. Freight Sales Ctrs., Inc., 467 So.2d 816, 817 (Fla. Dist. Ct. App. 1985) ("A party may by an exculpatory clause, absolve itself of liability for negligence, but an attempt to absolve itself from liability for an intentional tort is against public policy.").
In any case, the factual dispute surrounding the date of the closing precludes summary judgment for Charron. The agreement's release only applies to claims arising out of events preceding the closing. There is a genuine dispute of material fact as to whether the withdrawals at issue occurred before or after closing.
Charron also argues he is entitled to summary judgment because the company's bylaws authorized him to withdraw funds from the company's accounts. But the bylaws provided that the board of directors may authorize officers or agents of the corporation to withdraw funds. Pl.'s 56.1 Statement, Ex. 28 at 6-7 (ECF No. 165-28). Five months before the stock purchase agreement, the board passed a resolution stating that any withdrawal of over $25,000 required written approval from both DeBlasio and Charron. Second DeBlasio Decl., Ex. 6 (ECF No. 169-8). Charron argues that a resolution cannot "override" a bylaw, but the bylaws do not give him the unqualified right to withdraw funds, they merely allow the board to authorize officers to withdraw funds. By requiring both DeBlasio and Charron to sign for withdrawals over $25,000, the board withdrew whatever previous authority Charron may have had to do so by himself.
IV. Damages Calculation
The windfall provision provides that in the event of a windfall sale, Defendants must pay Charron "an amount equal to 20% of the proceeds received from the Windfall sale." SPA § 2.04. Defendants move for summary judgment on their interpretation of this provision, arguing that if in fact a windfall sale occurred, they must only pay Charron 20% of any purchase price over $65 million and not 20% of all proceeds received.
Defendants' argument relies on extrinsic evidence concerning the parties' intentions. But
generally . . . a motion for summary judgment may be granted in a contract dispute only when the contractual language on which the moving party's case rests is found to be wholly unambiguous and to convey a definite meaning. . . . To the extent the moving party's case hinges on ambiguous contract language, summary judgment may be granted only if the ambiguities may be resolved through extrinsic evidence that is itself capable of only one interpretation, or where there is no extrinsic evidence that would support a resolution of these ambiguities in favor of the nonmoving party's case.Topps Co., Inc. v. Cadbury Stani S.A.I.C., 526 F.3d 63, 68 (2d Cir. 2008). This is not such a case. For example, Charron e-mailed DeBlasio on December 1, 2010, characterizing their agreement as one in which "if any of the post sale shareholders sell any of their stock over a $6500/share price I would get 20% of those proceeds." First DeBlasio Decl., Ex. 20 (ECF No. 162-23). This e-mail is ambiguous. It may support Charron's claim, which is that he is entitled to 20% of all proceeds received in a windfall transaction. Accordingly, Defendants are not entitled to summary judgment on this issue.
CONCLUSION
The parties' summary judgment motions are denied. The Clerk of Court is directed to terminate the motions pending at ECF Nos. 160 & 163. Dated: February 3, 2014
New York, New York
SO ORDERED:
/s/_________
WILLIAM H. PAULEY III
U.S.D.J.
Counsel of Record:
Athanasios Basdekis, Esq.
Bailey & Glasser, LLP
2855 Cranberry Square
Morgantown, WV 26508 James B. Perrine, Esq.
Bailey & Glasser, LLP
201 Monroe Street, Suite 2170
Montgomery, AL 36104 Brian A. Glasser, Esq.
Bailey & Glasser, LLP
209 Capitol Street
Charleston, WV 25301
Counsel for Plaintiff Brian P. Waagner, Esq.
Thomas F. Rath, Esq.
Husch Blackwell LLP
750 17th Street N.W. Suite 900
Washington, DC 20006 Daniel P. Jaffe, Esq.
Omri E. Praiss, Esq.
Husch Blackwell Sanders, LLP
190 Carondelet Plaza, Suite 600
St. Louis, MO 63105-3441
Counsel for Defendants