Beidel v. Sideline Software, Inc.

• Decision Date: 22 February 2012
• Docket Number: No. 2011AP788.,2011AP788.
• Parties: Christopher T. BEIDEL, Plaintiff–Appellant, v. SIDELINE SOFTWARE, INC., Defendant–Respondent,Michael C. Hall and Kevin C. Austin, Defendants.
• Court: Wisconsin Court of Appeals

2012 WI App 36

340 Wis.2d 433

811 N.W.2d 856

Christopher T. BEIDEL, Plaintiff–Appellant,

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

No. 2011AP788.

Court of Appeals of Wisconsin.

Oral Argument Jan. 10, 2012.Opinion Filed Feb. 22, 2012.

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of Michael J. Aprahamian and Brian P. Keenan of Foley & Lardner LLP, Milwaukee. There was oral argument by Michael J. Aprahamian.

On behalf of the defendant-respondent, the cause was submitted on the brief of Kim Grimmer and Travis James West of Solheim Billing & Grimmer, S.C., Milwaukee. There was oral argument by Kim Grimmer.

Before FINE, BRENNAN and HOOVER, JJ.

FINE, J.

[340 Wis.2d 435] ¶ 1 Christopher T. Beidel appeals the circuit court's order denying his motion for reconsideration of an earlier order of the circuit court that dismissed the first count of his amended complaint against Sideline Software, Inc.¹ Sideline Software is a fantasy- football software company. Beidel contends that the circuit court erred by holding that a stock-repurchase agreement between him and Sideline Software was not triggered by what he contends was his constructive discharge as a Sideline Software employee, and that he was not, therefore, entitled to succeed on his claim for specific performance of that agreement. We reverse and remand for further proceedings.

I.

¶ 2 Beidel and Michael C. Hall incorporated Sideline Software in 1998. Hall was the bare-majority stockholder with 2,505 shares of Sideline Software stock; Beidel had 2,495 shares. Hall and Beidel entered into a stock repurchase agreement, which, as material, provided that if a shareholder (that is, Hall or Beidel) were fired without cause, Sideline Software would buy that shareholder's stock at an agreed price. The clause, section 6 of the Agreement, reads:

Termination of Employment Without Cause; Shareholder's Put Option. Upon the termination of a Shareholder's employment with Sideline without cause (as defined in section 7(b) below), the terminated Shareholder shall have a continuing option to sell all or any part of the Stock owned by him, and upon exercise of such option, Sideline shall have the obligation to purchase all of Shareholder's Stock so elected for sale by such Shareholder, at the price and on the terms provided in sections 8 and 9 below. Provided, however, that such purchase and sale shall be subject to the restrictions and limitations set forth in section 11 hereof. The terminated Shareholder shall exercise such option by providing 30 day's [ sic] prior written notice to Sideline of his decision to sell his Stock.

(Underlining and capitalization in original.) Section 7(b) defined “cause” as:

(i) the commission of a felony or a crime involving moral turpitude or the commission of any other act or omission involving dishonesty, disloyalty or fraud with respect to Sideline, (ii) failure to devote his entire business time to the business of Sideline (subject to normal vacation leave or time off, illness or sick leave, or other periods of permitted absence), (iii) conduct tending to bring Sideline into substantial public disgrace or disrepute, (iv) gross negligence or willful misconduct with respect to Sideline, or (v) any material breach of this agreement.

Sideline Software does not contend that Beidel did anything that would be “cause” under this subsection.

¶ 3 Section 8 of the Agreement had an initial stock-valuation of “$400 per share,” and also provided that the valuation could be adjusted by the shareholders' agreement in writing.² Section 8 also provided:

• “If no review of the Purchase Price is undertaken, the Purchase Price set forth in the prior year(s) shall continue in effect unless a period of 24 months expires from the last time in which Shareholders and Sideline stipulated a Purchase Price.” (Section 8(b))

• “If the Purchase Price has not been stipulated within the 24 months prior to a Purchase Event, and a Purchase Event occurs, the Purchase Price shall be the fair market value of the Stock as determined by an appraiser selected by Sideline.” (Section 8(c))

[340 Wis.2d 438] ¶ 4 Over the years, Hall and Beidel agreed to varying valuations of Sideline Software stock for the repurchase agreement. The last stipulated price was agreed to in a document signed by both Hall and Beidel, dated March 6, 2007. It provided for a per-share valuation of $1,600, and thus expired twenty-four months later because Hall and Beidel never agreed on a new valuation.

¶ 5 Section 10(b) of the Agreement provides that if there is a purchase under section 6 (the termination without cause provision), “the date of Closing shall be within 90 days after the exercise of an option described in such section.” As we see in greater detail below, Beidel purported to exercise his option under section 6 on January 20, 2009, which was well before the expiration of the $1600–per–share valuation, even if the thirty-day notice requirement in section 6 delayed the effective date of the purported exercise of the option until February 19, 2009. Contrary to Sideline Software's contention in its brief, the ninety-day window for the “closing” does not mean that exercise of the option could be delayed by Sideline Software until the ninetieth day; indeed, at oral argument before Judge DiMotto, Sideline Software's lawyer acquiesced in the circuit court's assessment that under the Agreement, Beidel's purported exercise of the section 6 option on January 20, 2009, was timely if it was effective.³

[340 Wis.2d 439] ¶ 6 Section 13 of the Agreement provided, as material, “If a controversy arises concerning the right or obligation to purchase or sell any of the shares of Stock, such right or obligation shall be enforceable in a court of equity by a decree of specific performance.” Beidel's amended complaint sought specific performance of the Agreement, contending that the circuit court “should order Sideline to purchase 2490 of Beidel's shares at a price of $1,600 per share, for a total purchase price of $3,984,000.” ⁴ Sideline Software does not want to pay this amount, and argues that Beidel was never terminated as a Sideline employee before the expiration of the $1,600 valuation, and that thus Beidel's shares should be valued by appraisal as provided for in section 8 of the Agreement. Beidel contends that although he was never let go, Hall so reduced his responsibilities and duties that he was constructively discharged, without cause, within twenty-four months of the last price-per-share stipulation, and that this was all part of Hall's scheme to not pay Beidel the $1,600 per share, and was part of Hall's plan to replace Beidel with Austin.

[340 Wis.2d 440] ¶ 7 The parties point us to the following facts in the Record that they say support their respective positions.

Beidel:

• An electronic note of October 16, 2007, from Hall to Beidel: “But to be honest, I don't see a future path anymore with all 3 of us [Hall, Beidel, and Austin] involved, so in my mind, we'll need to focus on some drastic measure to figure out the future of Sideline Software ...” (Ellipses in original.)

• In the fall of 2008, another company, OPEN Sports Network, Inc., approached Sideline Software and explored what Beidel's affidavit calls “a possible purchase of Sideline.” Hall discussed this with Beidel “on or about September 26, 2008.”

• Beidel's affidavit avers that “on October 6, 2008, Hall sought advice from Tom Solheim, counsel for Sideline, about the implications of the right of first refusal that both he and I had under the Stock Repurchase Agreement and how that right might imperil the negotiations with Open Sports.”

• According to Beidel's affidavit, Hall then spoke to him about Beidel's future with Sideline Software:

On October 7, 2008, I had a phone call with Hall in which he said in no uncertain terms that he planned on firing me the following March, after the $1600 per share stipulated price would expire. He again expressed his intention to do so in a phone call we had one week later. Although Hall has said in the course of this lawsuit that it was only “an option” that was “potential,” that is not what he said at the time. Hall said that he intended to fire me and there were no other options presented for me to stay with the company.

• Beidel's affidavit also asserts: “On October 9, 2008, Hall told me that he would accept an offer of $10 million from Open Sports. I agreed that this would be an acceptable offer and that this number was consistent with our stipulated price.”

• Hall and Beidel planned to meet on December 22, 2008, and Hall's agenda recited in part: “Discuss Transition of duties (between now and April, 2008).” (Capitalization in original.) Beidel avers that “2008” “was a typo, and should have read 2009.” Sideline Software does not dispute this.

• On December 22, 2008, Beidel and Hall exchanged the following electronic notes before the meeting (bolding and formatting in original):

“Chris (12/22/2008 11:50 AM):looking over your agenda for today's meeting,it still sounds like you plan on terminating meafter the stipulated price has expired, is thatstill the case?

fflmike (12/22/2008) 11:51 AM):yes, that's the gist of what I feel my best optionis.”

• Hall and Beidel met on December 22, 2008. Beidel's affidavit described the meeting: “He again informed me in no uncertain terms that I would be terminated once the stipulated purchase price expired. In the meeting, he asked me to explain how to do the duties I had performed so that they could easily be transitioned.”

• Beidel's affidavit related that “[i]n response to Hall's request that I document the tasks I performed such that they could be transitioned to others, I created a 19–page document (containing numerous links to other documents) which listed each task I performed at the company and explained how to perform it.” Beidel says that he sent the document to Hall on...