Bair v. Purcell
| Decision Date | 02 August 2007 |
| Docket Number | Civil Action No. 1:04-CV-1357. |
| Citation | 500 F.Supp.2d 468 |
| Parties | Curtis BAIR, et al., Plaintiffs v. Francis PURCELL, et al., Defendants. |
| Court | U.S. District Court — Middle District of Pennsylvania |
Robert Richard Long, Jr., Lex Terra Ltd., Shiremanstown, PA, James J. West, James J. West, LLC, Harrisburg, PA, for Plaintiffs.
Peter M. Good, Susan M. Zeamer, Smigel, Anderson & Sacks, LLP, Harrisburg, PA, for Defendants.
Before the Court are Defendants' Motion for Summary Judgment (Doc. No. 32), seeking judgment in their favor on all counts of the amended complaint, and Plaintiffs' Motion for Partial Summary Judgment (Doc. No. 34), seeking judgment in their favor on Count III of the amended complaint. The motions have been fully briefed and are ripe for adjudication.
In 1998, Defendant Francis "Corky" Purcell incorporated Defendant Appalachian Baking Company, Inc. ("Appalachian Baking") under Pennsylvania law as a closely-held business corporation. Appalachian Baking maintains a business office and conducts business operations in Harrisburg, Pennsylvania. That same year, Appalachian Baking entered into a ten-year franchise agreement with the Atlanta Bread Company International, Inc., pursuant to which Appalachian Baking was granted exclusive development rights for Atlanta Bread Company stores in Dauphin, Cumberland. and Lebanon counties, the State College, Pennsylvania region, and the Baltimore, Maryland area. At the time, Francis Purcell was the sole shareholder of Appalachian Baking.
Prior to their involvement with Appalachian Baking, Plaintiffs Curtis Bair and Patrice Bair (husband and wife) lived and worked in Atlanta, Georgia. Curtis Bair and Francis Purcell were friends and had previously worked together, primarily on a Peachtree Pretzel Time, Inc., franchise. (Curtis Bair First Supp. Decl. ¶ 7, Doe. No. 55-4.) Curtis Bair held a ten-percent ownership in the franchise, and both he and his wife worked for the pretzel franchise operation. (Id. ¶¶ 7-8, 20.) During a Peachtree Pretzel Time stockholders meeting in May 1998, Francis Purcell, his wife Norma Purcell, Plaintiffs, and Deborah and Jay James (future shareholders of Appalachian Baking) began discussing various franchise opportunities, including Atlanta Bread Company. Later that year, Francis Purcell informed Plaintiffs that he had decided to pursue an Atlanta Bread Company franchise, and Curtis Bair agreed to allow Francis Purcell to use part of their equity in Peachtree Pretzel Time to pay the franchise fee and other start-up expenses of Appalachian Baking. (Id. ¶ 20.) During this time, Plaintiffs claim that Francis Purcell represented to them that he planned to open ten to fifteen Atlanta Bread Company stores and that Plaintiffs would play a long-term role in the company. (Id. ¶ 12.) in June 2000, Francis Purcell sent Curtis Bair a packet of documents to be circulated to potential investors in Appalachian Baking. The packet included an offering and subscription memorandum, a confidential descriptive memorandum, a form subscription agreement, a form shareholder joinder, and a form shareholders agreement. (Pl.Exs.4.1, 4.2, 20, 22, Doc. No. 43.) The confidential descriptive memorandum stated that the company planned to "operate one or more retail bakery and café restaurants under the name Atlanta Bread Company" within their exclusive development territory. (Pl.Ex.4.2.) The form shareholders agreement, dated June 1, 2000, listed Curtis Bair as a shareholder in the company and as a member of the board of directors.2 (Pl.Ex.22.) However, this form agreement was circulated unsigned and contained blanks spaces where additional information was to be filled in later. (Id.) Specifically, the form agreement does not indicate how many of the total shares of the company were owned by the parties and reserved space to add the names of additional investors. (Id.) Plaintiffs allege that Curtis Bair signed ten copies of the form shareholders agreement, returned the copies to Francis Purcell, and became a party to the shareholders agreement.3 (Doc. No. 36, ¶ 47.) Defendants dispute this allegation. (Doc. No. 67, ¶ 47.)
The corporate records of Appalachian Baking contain a different June 1, 2000, shareholders agreement. (Pl.Ex.23, Doc. No. 35.) This agreement lists Francis Purcell as the sole shareholder of Appalachian Baking, although an attached exhibit lists Francis and Norma Purcell as coowning one hundred percent of the company's shares, or 77 shares.4 (Id.) The agreement is signed by Francis and Norma Purcell, as witnessed by their daughter Jessica Purcell.5 (Id.) Notwithstanding the other differences between this agreement and the form shareholders agreement contained in the packet of documents provided to potential investors, this agreement still listed Curtis Bair as a member of the board of directors and provided that all board members must be shareholders. (Id. §§ 2.02-2.03.) Curtis Bair signed neither this agreement nor a joinder agreement. Defendants allege that they asked Curtis Bair to sign, but that he refused. (Doc. No. 67, ¶ 53; see also Stuart Sacks Affidavit ¶¶ 5-6, Def. Ex. Y, Doc, No. 60-3.) Plaintiffs allege that the first time Curtis Bair was informed that he was not a party to the shareholders agreement was on December 12, 2003, during the meeting in which he was voted off the board of directors. (Doc. No. 36, ¶¶ 54, 94.)
On June 7, 2000, Appalachian Baking entered into a ten-year lease for a restaurant location in Harrisburg, Pennsylvania. On June 20, 2000, Robert and Lori Green — friends of the Pureells — executed a shareholder joinder to the Appalachian Baking shareholders agreement and agreed to purchase six shares of the company's stock for $100,000, or approximately $16,666 per share. On July 28, 2000, Deborah and Jay James — Norma Purcell's sister and brother-in-law — executed a shareholder joinder to the Appalachian Baking shareholders agreement and agreed to purchase two shares of the company's stock for $40,000, or $20,000 a share. Appalachian Baking issued the above shares of stock on February 5, 2001. On August 8, 2001, the company issued Curtis Bair fifteen shares of stock at no price. (Doc. No. 36, ¶ 28.)
On February 5, 2001, Norma Purcell became co-owner of Francis Purcell's majority shareholding in Appalachian Baking. (Doc. Nos. 36, ¶ 12; 67, ¶ 12.)
The parties agree that on May 22, 2001, Appalachian Baking held its first shareholders and board meeting in Las Vegas, Nevada, during which the officers and directors of the company were elected. (Doc. Nos. 36, ¶ 30; 67, ¶ 30.) The parties further agree that the company's records contain no minutes from the May 22, 2001, meeting; rather, the corporate records indicate that the company's officers and directors were elected at a shareholders meeting held on December 20, 2001. (Pl. Ex.18, Doc. No. 35.) According to the minutes, Francis Purcell, Norma Purcell, and Curtis Bair were elected as directors of the company, and the directors elected the following officers: Francis Purcell, president and treasurer; Norma Purcell, vice president; and Curtis Bair, secretary. (Id.)
Appalachian Baking's first and only Atlanta Bread Company restaurant ("the restaurant") opened in July 2001 with John Krulock as store manager. Despite the successful opening, John Krulock became unhappy with his position. Shortly after the opening, Curtis Bair quit his job in Atlanta and relocated to Pennsylvania to assist with operating the restaurant, under the title of vice president of store operations.6 Patrice Bair remained in Georgia to sell their house and coordinate their move to Pennsylvania. After joining her husband in Harrisburg, Patrice Bair began working at the restaurant as a catering coordinator in August 2001.
The record indicates that in early 2002, Francis Purcell and Curtis Bair began to disagree about the direction of the company. Curtis Bair expected the company to grow quickly and open additional restaurant locations throughout the exclusive development territory. However, on April 9, 2002, Francis Purcell informed Curtis Bair that he was not planning to open any more restaurants and wanted to retire from the company. In early May 2002, Francis Purcell announced his intention to sell his and his wife's controlling interest in the company to his daughter, Jessica Kiely.
Plaintiffs allege that on May 2, 2002, Francis Purcell offered to purchase Curtis Bair's shares of stock in the company for $203,000, or approximately $13,533 per share. (Doc. No. 36, ¶ 72.) Plaintiffs claim that Curtis Bair verbally accepted Purcell's offer the same day. (Id. ¶ 73.) Defendants contend that Curtis Bair offered to have his stock redeemed by the company for $203,000, but an agreement was never finalized.
On May 10, 2002, Francis Purcell prepared a stock-purchase letter addressed to Deborah and Jay James, and Lori Green7 wherein Francis Purcell stated that he was planning to purchase Curtis Bair's shares for $203,000, and sell his and his wife's controlling shares to Jessica Kiely for $200,000 plus assumption of the corporation's current debt of over $425,000. In the letter, Francis Purcell offered Lori Green and the Jameses the following four options: (1) purchase a proportional share of Curtis Bair's 15% interest; (2) purchase a proportional share of Francis Purcell's 77% interest; (3) sell their shares to the company for their initial purchase price plus 10% interest compounded over two years; and/or (4) keep their current ownership in the company. (Pl.Ex.34, Doc. No. 35.) Lori. Green and Deborah and Jay James agreed to sell their shares to Appalachian Baking.
After Curtis Bair received a copy of the above-mentioned letter, he discussed with Francis Purcell the option of purchasing the restaurant or Purcells' controlling shares. Defendants argue that these negotiations amounted to...
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