Sneva v. R&G Food Servs., Inc. (In re Sneva)
| Decision Date | 28 March 2019 |
| Docket Number | Case No. 4:15-bk-13187-BMW,Case No. 4:15-bk-13185-BMW,Adv. Case No. 4:17-ap-00624-BMW |
| Parties | In re: RONDA SNEVA, R&G FOOD SERVICES, INC. dba LATITUDE CATERING, Debtor. RONDA SNEVA, Plaintiff, v. R&G FOOD SERVICES, INC. dba LATITUDE CATERING, Defendant. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Arizona |
Chapter 11 Proceeding
(Jointly Administered)
This matter came before the Court pursuant to the Complaint (Dkt. 1) filed by the Plaintiff, Ronda Sneva, in which Ms. Sneva asserts that the Defendant, R&G Food Services, Inc. dba Latitude Catering ("R&G" or the "Company"): (1) breached that certain Employment Agreement between R&G, as the employer, and Ronda Sneva, as the employee, which became effective October 1, 2016 (the "Agreement") (TE 1);1 (2) breached the confirmed Second Amended JointPlan of Reorganization (the "Plan") (Admin. Dkt. 481);2 (3) breached the covenant of good faith and fair dealing; and (4) terminated her employment "not for cause." Ms. Sneva asks the Court to: (1) award her (a) damages in an amount to be proven at trial, but in no event less than $1.2 million, (b) reasonable attorneys' fees and costs pursuant to the Agreement and A.R.S. §§ 12-341 and 341.01, and (c) pre- and post-judgment interest on the foregoing award; and (2) determine that Ms. Sneva was not terminated "for cause" and is entitled to all associated rights provided for under the Agreement, the Amended and Restated Shareholder Agreement entered into by and among R&G, Ronda Sneva, Jennifer M. Moulton ("Ms. Moulton"), Anthony J. Williams ("Mr. Williams"), Holly J. Lippert ("Ms. Lippert"), and Frank J. Campagna ("Mr. Campagna") (the "Shareholder Agreement") (TE 3), and the Plan.
R&G denies breaching the Agreement, breaching the covenant of good faith and fair dealing, and terminating Ms. Sneva without cause. (Dkt. 6). R&G asks the Court to dismiss the Complaint for failure to state a claim upon which relief can be granted and for lack of jurisdiction, and to award R&G its reasonable attorneys' fees and costs. (Dkt. 6).
A trial was held on March 20-22, 2018, at which time the parties presented evidence and oral argument. Testimony was provided by Ms. Sneva; R&G President, Ms. Moulton; R&G Chief Executive Officer ("CEO"), Jay Moulton ("Mr. Moulton"); former R&G Chief Restructuring Officer, Christopher Linscott ("Mr. Linscott"); R&G general manager and former spouse of Ms. Sneva, Gary Sneva ("Mr. Sneva"); R&G minority shareholder, Mr. Campagna; and former R&G employee and son of Ms. Sneva, Corbett Sneva. At the conclusion of the trial, the Court allowed the parties to submit post-trial briefs. The parties filed post-trial briefs on April 12, 2018, at which time the Court took this matter under advisement. Based on the pleadings, testimony offered, exhibits entered into evidence, and entire record before the Court, the Court now issues its decision.
Pursuant to the Court's September 20, 2017 oral ruling (Admin. Dkt. 671) and September25, 2017 Order Re: Sneva's Emergency Motion to Enforce Chapter 11 Plan (Admin. Dkt. 678), the Court retains post-confirmation jurisdiction to determine this matter. Furthermore, the Court may enter declaratory relief pursuant to 28 U.S.C. §§ 2201-2202 and Federal Rule of Bankruptcy Procedure 7001. This ruling constitutes the Court's findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, as incorporated by Federal Rule of Bankruptcy Procedure 7052.
The parties have agreed that the Court, at this time, is only determining liability, specifically: (1) whether either party breached the Agreement; (2) whether either party breached the covenant of good faith and fair dealing; and (3) whether Ms. Sneva was terminated for cause.3
1. In 1986, Ms. Sneva and her ex-husband, Mr. Sneva, founded R&G, a privately held Arizona corporation headquartered in Tucson, Arizona. R&G is an emergency food services company primarily in the business of providing prepared food, drinks, and other related relief to firefighters and aid workers at natural disaster sites throughout the country. R&G's revenue is primarily generated from service contracts with: 1) federal agencies, including the United States Department of Agriculture ("USDA"), the United States Forest Service ("USFS"), and the Federal Emergency Management Agency ("FEMA"); 2) state agencies, such as the Arizona Department of Forestry ("ADF"); and 3) non-profit organizations. (Admin. Dkt. 480 at 10).
2. On October 14, 2015, Ms. Sneva, individually, and R&G filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code.
3. At that time, Ms. Sneva was the sole shareholder, President, and CEO of R&G, and the primary guarantor of the majority of R&G's pre-petition debt.
4. On October 20, 2015, the Court entered an order directing the joint administration of Ms. Sneva's and R&G's bankruptcy cases. (Admin. Dkt. 17).
5. During the course of the Chapter 11 proceedings, Ms. Sneva and R&G located a strategic partner, World Dining LLC ("World Dining"). World Dining acquired the secured debt held by Wells Fargo Bank, which gave it all rights under the Wells Fargo loan documents and a claim in the R&G bankruptcy case.
6. On or about August 5, 2016, Ms. Sneva relocated from Tucson, Arizona to Sisters, Oregon. (Admin. Dkt. 475).
7. On August 9, 2016, Ms. Sneva and R&G filed the Second Amended Disclosure Statement (the "Disclosure Statement") (Admin. Dkt. 480) and the Plan. The Plan was confirmed by the Court on September 16, 2016. (Admin. Dkt. 544). According to the Disclosure Statement, R&G was in the second year of a five-year contract with the USFS to provide services for locations in Lancaster, CA, Corona, CA, and Grand Junction, CO (Admin. Dkt. 480 at 11).
8. The Plan included an agreement reached with World Dining, which provided that World Dining would pledge its secured debt and additional cash as capital contributions in exchange for a 72.5% equity interest in the reorganized R&G. (Admin. Dkt. 481 at 21-22). Ms. Sneva would retain a 27.5% interest in the reorganized entity.
9. The Plan provided that Ms. Sneva would be replaced as President and CEO of the reorganized R&G, but would continue to be employed by R&G for a period of ten years pursuant to the terms and conditions of the Agreement, wherein Ms. Sneva was to be employed "as the assistant to the President and CEO of the Company." (Admin. Dkt. 481 at 31; TE 1).
10. The effective date of the Plan and the Agreement was October 1, 2016 (the "Effective Date"). (Admin. Dkt. 544 at 3).
The Agreement established Ms. Sneva's base salary at $125,000 per year for a period of ten years commencing on the Effective Date, subject to prior termination as provided in the Agreement. The Agreement also provides that in addition to the base salary, the Company committed to make certain plan payments related to Ms. Sneva's confirmed Plan. (TE 1 at §§ 3-4). Ms. Sneva was further eligible to receive both performance-based bonuses and equitydistributions arising from her retained 27.5% ownership interest in the reorganized R&G. (TE 1 at § 6; Admin. Dkt. 481 at 31).
Pursuant to the terms of the Agreement, and in her capacity as assistant to the President and CEO of the reorganized R&G, Ms. Sneva was "responsible for tasks assigned by the President and CEO of the Company, subject to the general supervision and pursuant to the orders, advice, and direction of the Company." (TE 1 at § 1, ¶ A).
Under Section One of the Agreement, Ms. Sneva was required to:
[a]t the direction of the CEO, . . . provide her professional expertise to the Company as reasonably necessary, to review and assist business affairs, make and maintain business contacts, and assist with future contract planning. . . . perform such other duties as are customarily performed by one holding such position in other, same, or similar businesses or enterprises as that engaged in by the Company in accordance with the policies, objectives, decisions, instructions and/or directives of the Company, as the same may be specified, designated, modified or established from time to time by the Company's CEO and/or Officers of the Company. . . . and . . . render such other and unrelated services and duties as may be assigned to [her] from time to time by the Company.
Section Two of the Agreement required that Ms. Sneva:
at all times faithfully, industriously, and to the best of her ability, experience, and talents, perform all of the duties that may be required of and from her pursuant to the express and implicit terms of this Agreement, to the reasonable satisfaction of the Company.
(TE 1 at § 2). This section goes on to provide that Ms. Sneva would render such duties "over the telephone or in such place or places as the Company shall in good faith require or as the interest, needs, business, or opportunity of the Company shall require." (TE 1 at § 2).
Section Five of the Agreement provides that Ms. Sneva could "from time to time . . . incur various business expenses customarily incurred by persons holding positions of like responsibility, including, without limitation, necessary travel and similar expenses incurred forthe benefit of [the] Company and pursuant to the Company's directions." (TE 1 at § 5). This section states, in part, that:
[s]ubject to the Company's policy and prior approval by the President and/or CEO regarding the reimbursement of such expenses as in effect from time to time during the term of this Agreement, which does not necessarily allow reimbursement for all such expenses, the Company shall reimburse [Ms. Sneva] for such reasonable out-of-pocket business-related expenses that [she] incurs in connection with her services for the Company, at [her] request, and on presentation by [Ms. Sneva] of appropriate vouchers and receipts for such expenses to the...
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