Beckman v. Cybertary Franchising LLC

• Decision Date: 22 March 2018
• Docket Number: No. 20150295-CA,20150295-CA
• Citation: 424 P.3d 1016
• Parties: Patricia BECKMAN, Appellant, v. CYBERTARY FRANCHISING LLC, Franchise Foundry LLC, and Christian Faulconer, Appellees.
• Court: Utah Court of Appeals

424 P.3d 1016

Patricia BECKMAN, Appellant,

v.CYBERTARY FRANCHISING LLC, Franchise Foundry LLC, and Christian Faulconer, Appellees.

No. 20150295-CA

Court of Appeals of Utah.

Filed March 22, 2018

Andrew W. Stavros and Austin B. Egan, Attorneys for Appellant

Daniel K. Brough and James C. Dunkelberger, Attorneys for Appellees

Judge Jill M. Pohlman authored this Opinion, in which Judges Michele M. Christiansen and David N. Mortensen concurred.

Opinion

POHLMAN, Judge:

¶1 Patricia Beckman appeals the trial court’s judgment in her lawsuit against Cybertary Franchising LLC, Franchise Foundry LLC, and Christian Faulconer (collectively, Defendants). We affirm in part, reverse in part, vacate in part, and remand for further proceedings.

BACKGROUND

¶2 In 2005 Beckman established Cybertary, a company offering virtual administrative services to businesses. At a business conference in 2010, Beckman met Faulconer, a principal of Franchise Foundry. Franchise Foundry provided marketing services for companies, and Faulconer expressed an interest in marketing for and investing in Cybertary.

¶3 Beckman and Faulconer ultimately negotiated three agreements. First, Beckman, Franchise Foundry, and another entity executed an operating agreement for Cybertary. Second, Cybertary and Franchise Foundry entered into a service agreement under which Franchise Foundry agreed to perform marketing and sales services in exchange for a minority share in Cybertary. Third, Cybertary and Beckman executed an employment agreement (the Employment Agreement) under which Cybertary agreed to employ Beckman as its chief executive officer for a three-year term "[s]ubject to earlier termination as provided in" that agreement. The Employment Agreement set a base salary for Beckman and provided for bonuses and a monthly benefits allowance. The Employment Agreement allowed Cybertary to terminate Beckman’s employment for "cause" and enumerated seven events that would constitute "cause."

¶4 Beckman’s relationship with Cybertary soured, and Cybertary failed to pay her according to the terms of the Employment Agreement. Concurrently, Beckman filed for bankruptcy on May 20, 2011. In Beckman’s view, Faulconer was threatening to terminate her employment and was considering buying out her shares of Cybertary through the bankruptcy proceeding. In October 2011, Beckman’s counsel sent a letter to Faulconer and a Cybertary manager threatening litigation and demanding that Cybertary pay the amounts it owed Beckman. Faulconer responded and arranged a phone call "for settlement purposes only."

¶5 On October 19, 2011, Beckman and Faulconer had a ninety-minute phone call, which Beckman recorded (the October conversation). At the beginning of the call, Faulconer stated, "This whole conversation ... is really just for settlement purposes only ...." Beckman acknowledged this preface, stating, "Now you said this discussion is for settlement purposes only," and, "If ... this entire discussion is aiming towards a settlement, what is it that you propose?" She and Faulconer then candidly discussed Beckman’s grievances but did not resolve them.

¶6 On November 2, 2011, Beckman sued Cybertary. Beckman alleged claims for breach of contract and unjust enrichment based on Cybertary’s failure to pay her base salary and benefits allowance. Because Beckman expected that all amounts owed to her before May 2011 would be addressed in the bankruptcy proceeding, she sought compensation only for those amounts that came due after her bankruptcy filing.

¶7 Two weeks later, on November 14, 2011, Cybertary formally notified Beckman that, "effective immediately," it was terminating her employment for cause. The notice cited three subsections of the Employment Agreement’s termination provision to support its determination of cause: subsections 6(b)(ii), (iii), and (vi).¹ As evidence of cause, Cybertary explained that it had reason to believe that Beckman had engaged in certain conduct that discredited Cybertary or was detrimental to its reputation or its results of operation or business, pursuant to subsection 6(b)(vi). Cybertary further explained,

Not only does that [particular] conduct fall squarely within Section 6(b)(vi) ... and its prohibition on conduct that harms Cybertary’s reputation or operations, but [it] also constitutes "gross neglect" or "dereliction" of your duties pursuant to Section 6(b)(ii) ..., as well as "material misconduct with regard to" Cybertary pursuant to Section 6(b)(iii) ....

As further evidence of cause, Cybertary believes that you have failed to perform certain crucial duties related to your responsibility as Cybertary’s chief executive officer. Those failures constitute "habitual neglect" or "dereliction" of your duties pursuant to Section 6(b)(ii) ..., as well as "material misconduct" pursuant to Section 6(b)(iii).

The notice also stated that the grounds articulated as cause for Beckman’s termination were "not intended to be a comprehensive list" and that Cybertary "reserve[d] the right to articulate additional grounds for terminating [Beckman’s] employment for cause."

¶8 Beckman subsequently amended her complaint, adding Franchise Foundry and Faulconer as defendants. Beckman’s amended breach of contract claim stated,

In retaliation for filing this lawsuit, Faulconer and Franchise Foundry have attempted on behalf of Cybertary to terminate Beckman as Chief Executive Officer for Cybertary. Faulconer and Franchise Foundry have interfered with Beckman’s ability to perform her duties as Chief Executive Officer .... Such retaliation and actions on behalf of Cybertary further constitute a material breach of the Employment Agreement.

Beckman also added a claim for declaratory judgment, seeking to nullify Cybertary’s termination of the Employment Agreement. In her prayer for relief, Beckman indicated that at trial she would prove damages believed to be "in excess of $300,000, plus interest, attorney’s fees and costs."

¶9 Cybertary filed counterclaims against Beckman for, among other things, breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty. Cybertary alleged that Beckman had disparaged it, failed to keep its affairs confidential, and failed to perform her duties "in an effective and careful manner." Cybertary also asserted that it had "sustained significant damages" and, without specifying an amount, sought "general, specific, and consequential damages, in an amount to be proven at trial."

¶10 In March 2013, Beckman sought leave to amend her complaint for a second time. Beckman sought to amend her factual allegations, expand her claim for unjust enrichment, and add four new causes of action: breach of the operating agreement; breach of fiduciary duty; fraudulent inducement; and civil conspiracy. The trial court denied the motion, finding that it "was untimely and the product of unreasonable delay," and that Defendants would be prejudiced if the amendment were allowed.

¶11 Beckman and Defendants subsequently filed cross-motions for summary judgment. The trial court denied Beckman’s motion but granted Defendants’ motion in part. Specifically, it granted summary judgment to Franchise Foundry and Faulconer on Beckman’s claim for breach of the Employment Agreement. The court explained that it was undisputed that "neither Franchise Foundry nor Faulconer are parties to [the] Employment Agreement" and reasoned that Beckman could not "enforce that contract against individuals or entities that are not parties to the contract." The court otherwise denied Defendants’ motion.

¶12 In advance of trial, Defendants filed a motion in limine, requesting that the trial court exclude the recording of the October conversation. Defendants argued that the recording constituted evidence of settlement negotiations and that it therefore should be excluded at trial pursuant to rule 408 of the Utah Rules of Evidence. The court agreed and granted Defendants’ motion, ruling that "the statements captured therein constitute[d] compromise negotiations."

¶13 The case proceeded to trial. Although Cybertary had provided a supplemental disclosure quantifying its claimed damages as $373,500, the trial court found that the disclosure was untimely and refused to submit the question of Cybertary’s damages to the jury. The court subsequently granted Beckman’s motion for a directed verdict on Cybertary’s counterclaims.

¶14 Before submitting the case to the jury, the parties disagreed about the jury instruction defining "cause" as it related to Cybertary’s termination of Beckman’s employment (Instruction 12). Beckman asserted that Instruction 12 should be worded to define "cause" as the seven events enumerated in the Employment Agreement, and she argued that Cybertary was required to prove at least one event "by a preponderance of the evidence." Defendants, on the other hand, asserted that Instruction 12 should explain that the determination of whether one of the events constituted "cause" "was a matter for Cybertary’s good business judgment." Defendants further proposed that Instruction 12 provide that "[s]o long as Cybertary possessed a fair and honest cause or reason, in good faith, that met one of these [seven enumerated] definitions, cause existed to terminate Beckman, whether or not the facts that Cybertary believed to be true really, in fact, were true." (Citing Uintah Basin Med. Center v. Hardy , 2005 UT App 92, ¶ 16, 110 P.3d 168.)

¶15 The version of Instruction 12 given to the jury included Beckman’s language about Cybertary having to prove at least one of the seven enumerated events by a preponderance of the evidence, while also including Defendants’ language providing that whether "cause" existed "was a matter for Cybertary’s good business judgment."

¶16 The jury found in favor of Beckman, in part. On the special verdict form, the jury indicated that Cybertary breached the Employment Agreement by failing to pay Beckman’s compensation and benefits, but did not breach the agreement...