Acoustic Innovations, Inc. v. Schafer

• Decision Date: 20 February 2008
• Docket Number: No. 4D07-1603.,4D07-1603.
• Citation: 976 So.2d 1139
• Parties: ACOUSTIC INNOVATIONS, INC., a Florida corporation, Jay Miller, individually, and Joanne Miller, individually, Appellants, v. Carey SCHAFER, Appellee.
• Court: Florida District Court of Appeals

976 So.2d 1139

ACOUSTIC INNOVATIONS, INC., a Florida corporation, Jay Miller, individually, and Joanne Miller, individually, Appellants, v. Carey SCHAFER, Appellee.

No. 4D07-1603.

District Court of Appeal of Florida, Fourth District.

February 20, 2008.

Rehearing Denied April 10, 2008.

Joel B. Rothman and Andrew Seiden of Seiden, Alder, Matthewman & Bloch, P.A., Boca Raton, for appellants.

Bruce S. Rogow and Cynthia E. Gunther of Bruce S. Rogow, P.A., and Michael P. Hamaway of Mombach, Boyle & Hardin, P.A., Fort Lauderdale, for appellee.

HAZOURI, J.

Appellants, Jay Miller ("Miller"), his wife, Joanne Miller, and Acoustic Innovations, Inc. ("Acoustic"), appeal an amended final judgment entered in favor of Appellee, Carey Schafer ("Schafer"); an order severing Acoustic's counterclaims; and an order setting non-jury trial in this matter. Schafer cross-appeals. We affirm in all respects.

This case involves a dispute between Schafer and Miller concerning the parties' ownership interests in Acoustic; a company which was formed to design, develop, manufacture, and sell acoustical paneling, carpeting, furniture, and other fixtures to enhance the physical design, appearance, and acoustics of professional home theaters. In September 1992, Miller incorporated Acoustic as a Florida corporation and issued a "Written Action of the Incorporator and First Board of Directors of Acoustic Innovations, Inc.," in which he identified himself as the sole incorporator, director, president, secretary, treasurer, and shareholder of Acoustic. However, Schafer maintains that he is a fifty percent co-owner and shareholder of Acoustic. Miller disputes that contention. Formal share certificates were never issued.

On August 21, 2000, following a meeting at which Schafer's interest in the company was discussed, Miller presented Schafer with a letter signed by Miller, which stated:

Some time ago we discussed your relationship with Joanne and I, and with Acoustic Innovations, Inc. (the "Company"). Our discussions included both your role on a daily basis as well as your and our expectations with respect to the future of the Company and the benefit which each of us might have from our long-term efforts on its behalf.

Each of us has made an important contribution to the Company and I believe that our various contributions will continue at the same level in the future. With respect to the overall operation and control of the Company, all of its stock has been issued to me, and I am its only officer and director. I want to keep things that way so that I can continue to exercise control over the Company and its business. At the same time, I think it imperative that you be provided with a stake in the future success of Acoustic Innovations.

For that purpose, by this letter the Company agrees that in the event of the sale of the Company or its merger with another company in which the Company is not the surviving corporation (which events this letter refers to as a "Transaction") you will receive one-third (1/3) of the aggregate consideration of the Transaction. Aggregate consideration will include, and be limited to, cash consideration; options, warrants and convertible securities; and notes payable by the other party. You will not be entitled to any other form of compensation, including, without limitation, salaries, consulting compensation or compensation from an agreement not to compete.

I think it important that we confirm your understanding described in this letter by the end of the year, and so to that end I ask that you sign and return to me the enclosed copy of this letter no later than close of business on September 1st, 2000. We have had the Company's lawyer prepare this letter, and he wants you to discuss this letter with your own lawyer before signing it.

Schafer ultimately signed the letter on February 5, 2001, but did not consult a lawyer. On February 7, 2002, about a year after Schafer signed the letter, Miller terminated him from his employment at Acoustic, and paid him a lump sum severance payment in the amount of $10,000.

On July 5, 2002, Schafer filed a complaint against Miller, Joanne Miller, and Acoustic, in which he requested that the court rule, inter alia, that he was a shareholder in Acoustic. On October 10, 2006, after amending his pleading twice, Schafer filed an "amended" second amended complaint asserting the following causes of action:

Count I: Involuntary Dissolution and Liquidation of Acoustic pursuant to § 607.1430, et. seq., Florida Statutes.

Count II: Equitable Accounting and Dissolution of Acoustic, pursuant to § 620.8801, et. seq., Florida Statutes.

Count III: Common Law Breach of Fiduciary Duty against Jay Miller and Joanne Miller.

Count IV: Declaratory Relief regarding the effect of the August 21, 2000 letter agreement and whether Schafer should be considered either a shareholder, owner or partner of Acoustic.

Acoustic, Miller, and Joanne Miller filed an answer denying that Schafer was a shareholder in Acoustic and asserted that the affirmative defenses of statute of frauds, statute of limitations, laches, and unclean hands barred Schafer's claims. Acoustic filed a counterclaim against Schafer alleging that Schafer misappropriated Acoustic's valuable trade secrets while he was an employee. Schafer filed a reply to affirmative defenses, which denied the affirmative defenses and asserted an avoidance of unclean hands to the affirmative defense of laches.

Acoustic sought to have Schafer's second amended complaint tried together with its counterclaim. However, the trial court entered an order severing Acoustic's counterclaim, over Acoustic's objection. Six days prior to trial, Schafer filed a notice of voluntary dismissal of Count IV of the second amended complaint. Although Schafer abandoned his claim for declaratory relief, his request that the trial court enter an order finding that he was the owner of a fifty percent interest in Acoustic remained.

The case proceeded to a bench trial, after which the trial court entered an amended final judgment in which it found, inter alia, that Schafer was a fifty percent owner and shareholder of Acoustic. It found further that the August 21, 2000 letter agreement was procured by fraud, coercion, and duress, that it was lacking in consideration, and there was no meeting of the minds.

The trial court awarded Schafer a total of $4,475,537.50 in damages. The trial court computed the damage amount by first determining that Schafer was entitled to one half of the "total direct and indirect distributions" Miller had received from Acoustic from 1998 through 2006. The "total direct and indirect distributions" equaled $5,487,335.00. One half of this amount equaled $2,518,537.50 and was due to Schafer from Miller. The trial court next awarded Schafer $1,957,000.00, an amount it characterized as "representing the value of Schafer's shares in [Acoustic] at the approximate time of Schafer's forced removal from the company," which the amended final judgment states was February 7, 2002. The amended final judgment states that the total value of Acoustic as of December 31, 2001 was $3,914,000.00. The trial court awarded Schafer the value of his shares based on that amount. The trial court then added the two amounts together ($2,518,537.50 + $1,957,000.00) to arrive at a total award "incident to equitable relief" to Schafer, and against Miller, of $4,475,537.50. The trial court also ordered Miller to purchase Schafer's shares in Acoustic for $1,957,000.00. The trial court imposed a constructive trust on all of the shares of stock in Acoustic. The trial court concluded that Joanne Miller was not a shareholder in Acoustic and declined to enter a judgment against her.

When a decision in a non-jury trial is based on findings of fact from disputed evidence, it is reviewed on appeal for competent, substantial evidence. See In re Estate of Sterile, 902 So.2d 915, 922 (Fla. 2d DCA 2005). This is because "the trial judge is in the best position `to evaluate and weigh the testimony and evidence based upon its observation of the bearing, demeanor and credibility of the witnesses.'" Id. (quoting Shaw v. Shaw, 334 So.2d 13, 16 (Fla.1976)). However, where a trial court's conclusions following a non-jury trial are based upon legal error, the standard of review is de novo. Id.

Acoustic and Miller's (collectively referred to as "Miller") first argument on appeal is that the statute of frauds bars Schafer's claim that he is a fifty percent owner of Acoustic because the claim is based upon an oral agreement for the issuance or transfer of stock that cannot be performed within a year, citing Khawly v. Reboul, 488 So.2d 856, 858 (Fla. 3d DCA 1986). Miller asserts:

Schafer testified that when Acoustic was formed he and Miller entered into an oral agreement that each would be 50% owners of the company. Pursuant to their agreement, Miller would be issued all of the shares initially, but that Miller would transfer Schafer's 50% to him upon request. Schafer testified that several years after the formation of Acoustic he requested that Miller transfer Schafer's shares to him and place Schafer on the books, but Miller never did. Schafer testified that he made this demand in either 1995 or 1996.

Miller argues that this testimony establishes that the oral agreement to transfer stock to Schafer was not capable of being performed in one year. We disagree.

No evidence established the existence of an oral contract incapable of being performed within one year. Miller could have transferred the shares to Schafer immediately after forming the oral agreement, had Schafer requested that he do so. The fact that Schafer waited until a year had passed to request the shares is of no import. As stated by this court in Byam v. Klopcich, 454 So.2d 720 (Fla. 4th DCA 1984), "The general rule is that an oral contract for an indefinite time is not barred by the Statute of Frauds. Only if a contract could not...