Damos v. Weitz Co. I, Inc.

• Decision Date: 06 April 2016
• Docket Number: No. 15–0259.,15–0259.
• Citation: 883 N.W.2d 538 (Table)
• Parties: Craig P. DAMOS, Plaintiff–Appellant, v. The WEITZ COMPANY I, INC., an Iowa corporation n/k/a TWC I, LLC, an Iowa limited liability company; The Weitz Company II, Inc., an Iowa corporation, n/k/a TWC II, LLC, an Iowa limited liability company; The Weitz Group, LLC, an Iowa limited liability company; The Weitz Company LLC, an Iowa limited liability company; and Orascom Contruction Industries S.A.E., a/k/a Orascom Construction Industries Company, an Egyptian joint stock company, Defendants–Appellees.
• Court: Iowa Court of Appeals

883 N.W.2d 538 (Table)

Craig P. DAMOS, Plaintiff–Appellant,

v.The WEITZ COMPANY I, INC., an Iowa corporation n/k/a TWC I, LLC, an Iowa limited liability company; The Weitz Company II, Inc., an Iowa corporation, n/k/a TWC II, LLC, an Iowa limited liability company; The Weitz Group, LLC, an Iowa limited liability company; The Weitz Company LLC, an Iowa limited liability company; and Orascom Contruction Industries S.A.E., a/k/a Orascom Construction Industries Company, an Egyptian joint stock company, Defendants–Appellees.

No. 15–0259.

Court of Appeals of Iowa.

April 6, 2016.

Steven P. Wandro, Kara M. Simons, and Shayla L. McCormally of Wandro & Associates, P.C., and Glenn L. Norris of Hawkins & Norris, P.C., Des Moines, for appellant.

Jeffrey A. Stone and Chad D. Brakhahn of Simmons Perrine Moyer Bergman, P.L.C., Cedar Rapids, for appellee Orascom.

Patrick M. Roby and Nicholas J. Kilburg of Elderkin & Pirnie, P.L .C., Cedar Rapids, for appellees Weitz companies.

Heard by MULLINS, P.J., McDONALD, J., and SCOTT, S.J.^*

McDONALD, Judge.

Craig Damos asserted a breach-of-contract claim against The Weitz Company and its related entities for their failure to pay him in accord with various contracts between the parties. Damos asserted a claim of tortious interference with contract against defendant Orascom Construction Industries for its alleged involvement in preventing payment. Following a bench trial, the district court dismissed Damos's claims. We affirm the judgment of the district court.

I.

Plaintiff-appellant Craig Damos is the former president, chief executive officer, and chairman of the board of the directors of The Weitz Company, LLC (“Weitz Company”). He owned stock in The Weitz Company I, Inc. n/k/a TWC I, LLC (“Weitz I”) and The Weitz Company II, Inc. n/k/a TWC II, LLC (“Weitz II”). At all times material to this litigation, Weitz I and Weitz II were Subchapter S corporations whose employees owned all of the shares of the Weitz Group, LLC (“Weitz Group”). Weitz Group was a holding company of Weitz operating entities. Weitz Company, a commercial construction company, was the primary operating entity. Damos was employed at these entities (collectively, “Weitz” or “Weitz defendants”) from 2000 to 2010.

On January 1, 2010, a set of buy-sell agreements between Weitz I and its stockholders and Weitz II and its stockholders went into effect. The agreements were identical except for the company name (i.e., Weitz I or Weitz II). In relevant part, these agreements provided:

6.4 Deferral of Excessive Payments.

(a) Notwithstanding the foregoing provisions of this Article VI, the Company and the Stockholders recognize that it is not in the best interests of the Company or its Stockholders if the annual aggregate payment obligations (including stock redemption payments and payments of principal and interest on any stock redemption notes) incurred by the Company pursuant to this Agreement result in an unreasonable burden on the working capital, equity, cash needs or debt covenant requirements of The Weitz Group, LLC in any year.

(b) Accordingly, the Stockholders agree that if the aggregate of all such payment obligations to be made in any one fiscal year exceeds an amount (the “Cap Amount”) equal to the lesser of:

(i) ten percent (10%) of the value of all outstanding membership units of The Weitz Group, LLC owned by the Company (including the The Weitz Group, LLC membership units then being redeemed) as of the beginning of such fiscal year, or

(ii) ten percent (10%) of the book equity of The Weitz Group, LLC (including the The Weitz Group, LLC membership units then being redeemed) as of the beginning of such fiscal year, or

(iii) the maximum amount of such payment obligations that would still allow The Weitz Group, LLC to remain in compliance with its debt covenants,¹

then all payments to be made by the Company pursuant to this Agreement during such fiscal year may, at the sole election of the Company, be reduced pro rata by the amount of such excess, so that such aggregate payments to be made by the Company pursuant to this Agreement during such fiscal year will not exceed such Cap Amount. For purposes of determining the aggregate of all such payment obligations to be made in any one fiscal year, the payments to be made on the January 31 Settlement Date will be deemed made as of December 31 of the prior year, and all other payments made will be deemed made on the date of such actual payments.

6.5 Payment of Deferred Payments.

(a) The Company shall issue a subordinated promissory note dated as of the Settlement Date in the form and substance of Exhibit “B” attached hereto and by this reference made a part hereof to evidence such deferred payment obligations for any Stock redeemed under Section 6.3 above for which payment is required to be deferred under Section 6.4 above. These deferred stock redemption payments shall accrue interest on the unpaid balance at a rate adjusted semiannually on June 30 and December 31 of each year based on the Wells Fargo Bank, N.A. Prime Rate on such dates. Payments deferred under Section 6.4 as to Section 6.2(d) subordinated promissory notes or under non-subordinated stock redemption notes, shall accrue interest on such deferred amounts at the interest rate set forth in such notes.

....

10.1 Alteration or Amendment.

This Agreement may be altered or amended by a writing signed by the Company and Stockholders holding two-thirds (2/3) or more in number of shares of Stock and such alteration or amendment, if so approved, shall be binding upon all Stockholders who are parties to this Agreement. No alteration or amendment made without the consent of a Stockholder may reduce the price to be paid for such Stockholder's shares of Stock or extend the payment time therefore, if such Stockholder has given notice to the Company of his or her intent to sell the shares of Stock to the Company prior to the adoption of such alteration or amendment.

Damos resigned on June 2, 2010. He entered into a separation agreement, which provided, among other things:

6. Weitz Stock: Except as noted below, your direct stock will be repurchased as stated in the Stockholder's Buy–Sell Agreement. .... Sufficient shares will be redeemed on June 15, 2010 and proceeds applied to fully repay your Wells Fargo stock loan on that date, and the balance of your shares will be repurchased in 5 equal installments over 4 years beginning July 31, 2010 and annually thereafter; otherwise in accordance with the Stockholders' Buy–Sell Agreement. Any amendments to the Buy–Sell Agreement shall apply to any of your shares which are outstanding as of the effective date of the amendment to the Buy–Sell Agreement.

On June 15, 2010, Damos redeemed 6721 Weitz I shares to repay a loan to Wells Fargo collateralized by stock. He also redeemed shares on July 30, 2010 (1135 Weitz I shares and 3431 Weitz II shares); July 29, 2011 (same); and July 31, 2012 (same). Beginning with the July 30, 2010 redemption, Damos was issued two subordinated promissory notes (one for Weitz I and one for Weitz II) rather than immediate payment in accord with his separation agreement (“your direct stock will be repurchased as stated in the Stockholder's Buy–Sell Agreement”) and the limiters of paragraph 6.4 and deferral procedure of paragraph 6.5(a) of the 2010 buy-sell agreements. The limiters prevented payment on the redeemed shares from July 2010 to July 2012.

The six subordinated promissory notes totaled $2,299,209. The notes had differing issue and payment dates:

Note 1: $242,867.30 for sale of 1135 shares of Weitz I stock on July 30, 2010, payable on demand on January 31, 2011;

Note 2: $734,165.38 for sale of 3431 shares of Weitz II stock on July 30, 2010, payable on demand on January 31, 2011;

Note 3: $196,332.30 for sale of 1135 shares of Weitz I stock on July 29, 2011, payable on demand on January 31, 2012;

Note 4: $593,494.38 for sale of 3431 shares of Weitz II stock on July 29, 2011, payable on demand on January 31, 2012;

Note 5: $132,329.65 for sale of 1135 shares of Weitz I stock on July 31, 2012, payable on demand on January 31, 2013; and

Note 6: $400,020.29 for sale of 3431 shares of Weitz II stock on July 31, 2012, payable on demand on January 31, 2013.

Each of the six promissory notes contained this paragraph:

2. Notwithstanding the foregoing provisions of this Note, payments otherwise required to be made under this Note shall be deferred (with interest at above rate) as required under Section 6.4 of the [Weitz I or Weitz II] Inc. Stockholders' Buy–Sell Agreement dated effective January 1, 2010 and as such may thereafter be amended (the “Agreement”), i.e., the deferral will be based on the Cap Amount (as defined in the Agreement) in effect at the time the payment hereunder is otherwise required to be made. Any payments so deferred plus accrued interest thereon shall be paid on the next following Settlement Date (as defined in the Agreement), subject again to the deferral provisions of said Agreement.

Throughout 2012, Weitz was in negotiation to sell the company to OCI Limited, a Cyprus company. A purchase agreement was finalized on September 30, 2012. On November 16, 2012, Weitz issued a “disclosure statement for note exchange,” asking its note holders to exchange their existing promissory notes for new “Exchange Notes .” The proposed Exchange Notes amended the payment structure to pay note holders a pro-rata share of $4,500,000 annually and discontinue the use of the limiters; changed the obligor to The Weitz Group (on Damos's first two notes, the obligors are Weitz I and Weitz II; on his latter four, the obligor is the Weitz Group); and allowed for a balloon payment on July 31, 2018, to pay off the remainder of any outstanding notes. The Exchange Notes also purported to constitute a novation of any prior promissory notes.

At the same time, in the same statement, note holders were informed the company's stockholders had been asked to consider a proposal to amend the buy-sell...