Cowley v. Porter

• Decision Date: 08 December 2005
• Docket Number: No. 20040827-CA.,20040827-CA.
• Parties: Tracy COWLEY, Plaintiff, Appellee, and Cross-appellant, v. Slone PORTER, Defendant, Appellant, and Cross-appellee.
• Court: Utah Supreme Court

127 P.3d 1224

2005 UT App 518

Tracy COWLEY, Plaintiff, Appellee, and Cross-appellant, v. Slone PORTER, Defendant, Appellant, and Cross-appellee.

No. 20040827-CA.

Court of Appeals of Utah.

December 8, 2005.

COPYRIGHT MATERIAL OMITTED

Darrel J. Bostwick, Jeffery R. Price, and Christopher C. Hill, Bostwick & Pricem Salt Lake City, for Appellant and Cross-appellee.

E. Craig Smay, Salt Lake City, for Appellee and Cross-appellant.

Before Judges GREENWOOD, McHUGH, and ORME.

OPINION

McHUGH, Judge:

¶ 1 On appeal from a bench trial, Slone Porter (Porter) challenges the district court's ruling that he breached a contract with Tracy Cowley (Cowley). Porter argues, first, that the district court's judgment should be reversed because it is based on claims not asserted in Cowley's complaint, and second, that several of the district court's factual findings relating to the terms of the contract are clearly erroneous. Cowley cross-appeals, asserting that the district court erred in dismissing Veralynn Porter, Slone Porter's wife (Veralynn), as a defendant. Cowley also argues that he should have been awarded attorney fees because Porter's defense was asserted without merit and in bad faith. See Utah Code Ann. § 78-27-56 (2002). We affirm in part and reverse in part.

BACKGROUND

¶ 2 The district court set forth detailed findings of facts in its ruling after trial. Thus, "we relate the facts granting due deference to the trial court's resolution of factual disputes." Spears v. Warr, 2002 UT 24,¶ 2, 44 P.3d 742.

¶ 3 Porter had been employed by 7-Eleven, Inc. (7-Eleven) for over fourteen years, beginning in February 1981 and ending when he was laid off in November 1995. At the time Porter was laid off, Cowley was employed as the Area Facilities Manager for 7-Eleven and had responsibility for approving all outside maintenance contracts for stores in Utah, as well as the responsibility to oversee that maintenance work. As a matter of corporate policy, 7-Eleven published a Code of Business Conduct that prohibited employees from engaging in conflicts of interest, which expressly included business relationships between any outside companies and any current employees or former employees for a certain restricted time period.

¶ 4 Despite the clear prohibition on such arrangements, Porter and Cowley, then both current 7-Eleven employees, and Bill Berg, a non-7-Eleven employee who was already doing 7-Eleven landscape work, formed Advanced Maintenance Services (AMS)¹. The company was incorporated in Utah on December 6, 1994, for the purpose of entering into contracts with 7-Eleven for general maintenance of its stores. Berg, Cowley, and Porter had equal ownership in AMS, although no stock certificates were ever issued. The participation of Cowley and Porter in AMS was intentionally concealed from 7-Eleven, and Berg served as the contact between the two companies. AMS was successful in obtaining a number of maintenance contracts with 7-Eleven.

¶ 5 AMS acquired Straight Line Striping, Inc. (SLS), a pavement-marking business, in 1997. In June 1997, following arbitration among the three owners of AMS, Berg relinquished his interest in the company in exchange for cash, the landscaping contracts with 7-Eleven, and two vehicles. Thereafter, Porter and Cowley each owned fifty percent of AMS. Without Berg, AMS could no longer conceal its noncompliance with 7-Eleven's Code of Business Conduct. Consequently, Porter requested permission to own and operate AMS as a contractor with 7-Eleven, despite the fact that the time period during which transactions with former employees were prohibited had not yet elapsed. Jim Craig, the Division Facilities Manager for 7-Eleven, waived the remaining time period and agreed to allow AMS to contract with 7-Eleven, despite Porter's involvement. Although Craig was Cowley's direct supervisor at 7-Eleven, neither Porter nor Cowley informed Craig that Cowley had a fifty percent ownership interest in AMS.

¶ 6 During the next few years, the contracts with 7-Eleven proved lucrative and AMS operated successfully. Porter received compensation from AMS and, although Cowley continued to work for 7-Eleven and provided no direct services to AMS, Cowley also received compensation from AMS. To equalize their compensation under this arrangement, Cowley's payments from AMS were reduced to account for his 7-Eleven salary. Porter and Cowley were each receiving between $10,000 and $14,000 per month for their ownership interest in AMS.

¶ 7 In 2000, Porter and Veralynn (collectively, the Porters), together with Cowley and his wife Kerin Cowley (Kerin) (collectively, the Cowleys), formed a new Utah corporation called Listo, Inc. (Listo). Listo was a holding company that owned title to two pieces of real property purchased with funds from AMS. One property was located in Midway, Utah, and the other in St. George, Utah.

¶ 8 Subsequently, Johan de Besche replaced Craig as the Division Facilities Manager for 7-Eleven and became Cowley's direct supervisor. He began to scrutinize the AMS invoices. In February 2001, de Besche confronted Cowley about a family vacation to Hawaii that the Cowleys and the Porters had taken together because he was concerned that AMS may have paid the Cowleys' travel expenses. Fearing that de Besche would discover his connection with AMS, Cowley resigned from 7-Eleven effective March 31, 2001. He then began working directly for AMS and drawing the same salary as Porter. Although de Besche learned of Cowley's employment with AMS, he still was unaware that Cowley owned fifty percent of the company.

¶ 9 Ann Atkin was hired by 7-Eleven to replace Cowley as the Area Facilities Manager. In connection with those duties, she began a detailed review of all of the AMS invoices. Atkin discussed her concerns about the invoices with Porter. At this point, the Porters became concerned that AMS might lose the 7-Eleven contracts if Cowley remained involved with the company.

¶ 10 On June 22, 2002, the Porters arranged a meeting with the Cowleys at the AMS offices in Midway, Utah. At that meeting, the Porters offered to buy Cowley's interest in AMS for $600,000, to be paid over five years at $10,000 per month, without interest. As part of this offer, the Cowleys also would receive SLS, and Cowley would be given his choice of either property owned by Listo. The Porters tape-recorded this meeting. The Cowleys were "stunned" by the offer and left the meeting without accepting it. Later that evening, Cowley called Porter and suggested that if Porter thought the offer was fair, then Cowley should retain AMS and buy Porter out for the amount offered. Porter refused this counter-offer and warned Cowley that AMS would lose the 7-Eleven contracts if Cowley's ownership in AMS became known to 7-Eleven. Cowley indicated that he was confident he could keep the 7-Eleven work.

¶ 11 After participating for over seven years in a scheme to deceive 7-Eleven about Cowley's ownership interest in AMS, Veralynn suddenly decided to inform 7-Eleven of the true nature of the relationship. On June 22, 2002, without first notifying the Cowleys, Veralynn informed Atkin, Cowley's replacement at 7-Eleven, that Cowley had been an owner of AMS since its formation. Veralynn also told Atkin that Cowley had threatened a hostile takeover of AMS that would interfere with the work it performed for 7-Eleven. On June 23, 2002, at a meeting with the Porters, Atkin indicated that she would have to inform her supervisor, de Besche, and 7-Eleven's legal department about the situation. Atkin was unsure whether 7-Eleven would continue to contract with AMS.

¶ 12 On the evening of June 23, 2002, the Cowleys and the Porters met again to discuss the future of AMS. The Porters told the Cowleys about Veralynn's conversation with Atkin, which effectively negated any possibility that the Cowleys could purchase AMS from Porter. The meeting was tape-recorded by the Porters.

¶ 13 After the meeting, the Cowleys agreed that they should accept the buyout terms previously offered by the Porters, with certain changes. Because Kerin was accompanying a youth group on an out-of-state trip leaving early the next morning, Cowley arranged to meet with the Porters alone.

¶ 14 On the morning of June 24, 2002, Cowley met with the Porters. That meeting was again tape-recorded by the Porters. Cowley identified additional terms that he wanted to be included in the buyout, and Veralynn Porter typed up a new agreement that incorporated Cowley's changes. Veralynn then printed two copies of the agreement, which was entitled "Partnership Buy-Out." Porter executed one copy of the agreement and placed it on the desk. Veralynn did not execute the agreement and Cowley did not request that she do so. Cowley indicated that the terms of the agreement were acceptable to him, but that he wanted to read it to Kerin before signing. Cowley attempted to contact Kerin by cell phone, but was unsuccessful. The Porters left, taking the copy of the agreement Porter had signed with them. Cowley never signed the second copy of the agreement. Instead, he left it on the desk with a note stating: "Vera—Call me. T.C." The Porters retained both copies of the agreement.

¶ 15 On the afternoon of June 24, 2002, Cowley called Atkin to confirm that SLS could continue to do striping work for 7-Eleven. Atkin informed Cowley that 7-Eleven would not do business with any company associated with Cowley.

¶ 16 At the direction of Atkin, the Porters formed a new company, Quality Maintenance Systems (QMS), on June 25, 2002. QMS performed the work previously done by AMS. 7-Eleven agreed to work with QMS as long as Cowley was not involved.

¶ 17 On June 27, 2002, de Besche and Atkin held separate meetings with the Porters and Cowley. Both the Porters and Cowley independently informed de Besche that Cowley had agreed to sell his interest in AMS to the Porters and would have no further involvement with the company. The notes of the...