Beidel v. Sideline Software, Inc.

• Decision Date: 02 July 2013
• Docket Number: No. 2011AP788.,2011AP788.
• Citation: 842 N.W.2d 240,2013 WI 56
• Parties: Christopher T. BEIDEL, Plaintiff–Appellant, v. SIDELINE SOFTWARE, INC., Defendant–Respondent–Petitioner, Michael C. Hall and Kevin C. Austin, Defendants.
• Court: Wisconsin Supreme Court

842 N.W.2d 240

2013 WI 56

Christopher T. BEIDEL, Plaintiff–Appellant,

v. SIDELINE SOFTWARE, INC., Defendant–Respondent–Petitioner,Michael C. Hall and Kevin C. Austin, Defendants.

No. 2011AP788.

Supreme Court of Wisconsin.

Argued Jan. 9, 2013.

Decided July 2, 2013.

For the defendant-respondent-petitioner, there were briefs by Kim Grimmer and Travis J. West and Solheim Billing & Grimmer, S.C., Madison, with oral argument by Travis J. West.

For the plaintiff-appellant, there was a brief filed by Michael J. Aprahamian, Michael A. Bowen, Brian P. Keenan, and Foley & Lardner LLP, Milwaukee, with oral argument by Michael J. Aprahamian.

N. PATRICK CROOKS, J.

¶ 1 We review a published court of appeals decision ¹ involving a dispute over the amount of money due to a shareholder for his shares in Sideline Software, Inc. (Sideline), a company that serves the fantasy football league market with an online league-management program. Because we agree that the balancing of the equities required in a specific performance claim did not occur and summary judgment was improperly granted, we affirm the court of appeals' decision to reverse and remand for the circuit court to evaluate the claim under the principles governing specific performance, determining 1) whether specific performance is available as a remedy, 2) whether there was a substantial enough breach to warrant specific performance, 3) whether the equities lie on the plaintiff's or defendant's side, and 4) whether anything would make an order of specific performance unfair, unreasonable or impossible.

¶ 2 The minority shareholder, Christopher Beidel, sought specific performance of the Stock Repurchase Agreement ² that he and Michael Hall, the majority shareholder, had signed. Beidel's claim rests on two provisions of the Agreement. One provision sets a stipulated price per share that is in effect for two years; if that price expires without a new stipulation, the share value is to be determined by an appraiser selected by Sideline. The other provision gives a shareholder whose employment is terminated without cause while a stipulated price is in effect the right to exercise a put option ³ to sell his shares at the stipulated price. The dispute: Sideline thinks it must pay only the appraised value for Beidel's shares, and Beidel thinks Sideline must pay the stipulated share price, which is some six times more.⁴

¶ 3 After it became clear that Sideline was planning to terminate him and was transitioning his duties to others while delaying the termination until the stipulated price expired, Beidel gave written notice that he was exercising his put option and demanding that 2,490 of his shares be purchased at the stipulated price of $1,600 per share, which had not yet expired. When Sideline refused to purchase Beidel's shares, Beidel brought a claim for specific performance, seeking to have the court order Sideline to purchase the shares at the stipulated price, for a total of nearly four million dollars.

¶ 4 At the heart of the equitable claim this case presents is the question of whether it was fair for Sideline to time a planned termination without cause to avoid paying Beidel $1,600 per share and instead choose to let the stipulated price expire before terminating him so that Sideline could instead pay only the fair market value of the shares. Beidel contends that Hall had explicitly told him in 2008 Sideline would terminate Beidel as soon as the stipulated purchase price expired; Beidel contends that Sideline essentially terminated him in 2008, transitioning his duties to others and unfairly delaying the formal termination solely to avoid paying the stipulated purchase price then in effect.

¶ 5 Sideline does not dispute that the delay was due to a desire to avoid the stipulated share price; rather, it asserts that it was free to time the termination as it saw fit. Under Sideline's interpretation of the contract, refusing to pay Beidel the stipulated share price was not a breach of the Agreement because Beidel's option to sell the shares for that price was never triggered: no termination actually occurred until September 17, 2009. Sideline says Beidel is therefore entitled, under the applicable provision of the Agreement, only to “the fair market value of the [s]tock as determined by an appraiser selected by Sideline.”

¶ 6 The court of appeals decision we review reversed a grant of summary judgment for Sideline on the grounds that “[t]he circuit court did not ... consider the balancing of equities required in a case where a party seeks specific performance of a contract.” Beidel v. Sideline Software, Inc., 2012 WI App 36, ¶ 16, 340 Wis.2d 433, 811 N.W.2d 856. The court of appeals considered the fact that Beidel had sought specific performance and focused on “the special implications of that request for relief.” Id., ¶ 14. The court of appeals concluded that although the circuit court's analysis correctly disposed of one aspect of Beidel's argument, “there is more” to evaluating a claim seeking specific performance. Id., ¶ 13.

¶ 7 The circuit court had granted Sideline's motion for summary judgment on the claim of specific performance, basing its holding on the conclusion that the claim could not rest on an allegation that Sideline had constructively terminated Beidel because a required element of constructive termination was undisputedly absent.⁵ That is a correct statement of Wisconsin law concerning the test for constructive termination. This was not, however, a claim for wrongful termination, and, as the court of appeals rightly recognized, the claim that was made was never properly addressed.

¶ 8 The record indicates, too, that the circuit court voiced observations that would be relevant to the task of balancing the equities. As the court of appeals noted,the circuit court appeared somewhat reluctant to dismiss Beidel's claim on these facts; the circuit court stated that “[a] strong argument can be made that this scenario is so strong [that it resembles constructive termination].”

¶ 9 Besides that, it is potentially relevant to consider the circuit court's disposition of two other counts that were a part of this multi-count lawsuit, ⁶ claims that were against Hall and another individual and arose from the same underlying facts. When those counts were before the circuit court for summary judgment disposition along with this one, the court declined to grant the defendants summary judgment for a notable reason: it found that “there are questions of fact with respect to [whether] they act[ed] in good faith” and whether they were acting in the best interest of the company or were “out to get Mr. Beidel.” Those counts remained after this count was dismissed, and they proceeded to a jury trial after this count was dismissed.⁷ While this appeal does not concern those claims, the motion hearing transcript in which the circuit court addressed all three counts clearly reflects the circuit court's conclusion that summary judgment was precluded as to Counts 2 and 3 by genuine issues of material fact that related to good faith among the parties and their dealings with each other. There is no evidence in the record that those concerns were addressed in the context of the specific performance claim, a claim that by definition turns on equitable considerations. Such a claim should not be disposed of on summary judgment without addressing them.

¶ 10 Further, as the court of appeals observed, “[t]he rule that parties to a contract act in good faith is universal.” ⁸ We have held that “[e]very contract implies good faith and fair dealing between the parties to it,” and that mere “compliance in form, not in substance” is a breach of “the covenant of good faith that accompanies every contract.” ⁹

¶ 11 We therefore agree with the court of appeals that summary judgment was improperly granted in this case without the required balancing of the equities that are due to a specific performance claim and without a consideration of the potential application of the covenant of good faith and fair dealing. In order to make a prima facie case that Sideline was entitled to summary judgment, its motion would need to show a defense that would defeat Beidel's claim. That is, it must successfully attack the requirements for obtaining specific performance:

- that specific performance is available as a remedy ¹⁰;

- that there has been a substantial enough breach to warrant specific performance ¹¹; and

- that the equities lie on [the plaintiff's] side,¹² and that nothing would make an order of specific performance unfair, unreasonable or impossible. ¹³

In determining whether the requirements for specific performance have been met in this case, it will be necessary for the court to interpret and apply the provisions of the Stock Repurchase Agreement, with special reference to Section 6, Termination of Employment without Cause, as well as Sections 8(b) and (c), which relate to valuation. In this case the analysis necessarily involves interpreting the contract and determining whether the undefined term “termination” is ambiguous, and if so, what the parties intended the term to mean. Extrinsic evidence may be needed in order to make the determination of the parties' intent.

¶ 12 Sideline's motion for summary judgment does not set forth such a defense, and therefore fails to make a prima facie case.¹⁴ Accordingly, we affirm the court of appeals and remand for “the circuit court's determination where the bulk of the equities lie, including an evaluation of what the parties intended when they agreed to the stock re-purchase agreement, and whether it should grant specific performance as Beidel requested.” Beidel, 340 Wis.2d 433, ¶ 16, 811 N.W.2d 856. A circuit court may grant summary judgment to a party on remand as warranted after the equities have been balanced, recognizing the implications of the nature of a claim for specific performance and the well-established obligation of good faith and...