Eggett v. Wasatch Energy Corp., 20000079-CA.

• Decision Date: 19 July 2001
• Docket Number: No. 20000079-CA.,20000079-CA.
• Citation: 29 P.3d 668,2001 UT App 226
• Parties: Roger K. EGGETT, Jr., an individual, Plaintiff and Appellee, v. WASATCH ENERGY CORPORATION, a Utah corporation, Defendant and Appellant.
• Court: Utah Court of Appeals

29 P.3d 668

2001 UT App 226

Roger K. EGGETT, Jr., an individual, Plaintiff and Appellee, v. WASATCH ENERGY CORPORATION, a Utah corporation, Defendant and Appellant.

No. 20000079-CA.

Court of Appeals of Utah.

July 19, 2001.

Rehearing Denied September 6, 2001.

Perrin R. Love, Clyde Snow Sessions & Swenson, Salt Lake City, for Appellee.

Merrill F. Nelson and Eric C. Olson, Kirton & McConkie, Salt Lake City, for Appellant.

Before Presiding Judge GREENWOOD, and Judges BILLINGS, and THORNE.

OPINION

THORNE, Judge:

¶ 1 Defendant Wasatch Energy Corporation (Wasatch) appeals from a final judgment awarding plaintiff Roger K. Eggett, Jr. (Eggett) $147,559.96 and attorney fees. We affirm.

BACKGROUND

¶ 2 In 1993, Eggett formed Wasatch to market and distribute natural gas, as well as to purchase, pool, and resell natural gas from producers too small to efficiently do so themselves. On April 13, 1995, Eggett entered into a Shareholder Agreement with two Wasatch employees, Todd Cusick (Cusick) and Curtis Chisholm (Chisholm). The Shareholder Agreement identified Eggett as Wasatch's president. The Shareholder Agreement also set forth each shareholder's allotted shares of Wasatch stock.

¶ 3 The terms of the Shareholder Agreement, specifically, paragraph no. 2, provided that should a shareholder separate from the corporation, the remaining shareholders would have the option to purchase that shareholder's corporate stock. The remaining shareholders, as per the Shareholder Agreement, would either purchase the stock for "book value," if the separating shareholder voluntarily left the corporation, or for "par value" if the shareholder was terminated for cause. The Shareholder Agreement defined "book value" as the shareholder's net equity in the corporation, which would be determined by Wasatch's certified year-end financial statements. The Shareholder Agreement defined "par value" as the original price the shareholder paid for the stock.

¶ 4 In April 1995, Wasatch teamed with Magna Energy International (MEI) to expand Wasatch's business. At MEI's urging, two MEI representatives joined Wasatch's Board of Directors (the Board), which was formerly comprised of Eggett, Cusick, and Chisholm. Eggett, as Wasatch's president, retained personal control over operating expenditures, but a four-fifths majority of the Board was required to approve payroll, debt, and/or equity decisions.

¶ 5 In April 1997, Eggett tendered his resignation to the Board, effective July 14, 1997. Eggett's decision to resign was prompted by a series of disputes with Wasatch concerning the corporation's management structure, financial decisions, and Eggett's salary. As per the Shareholder Agreement, Eggett offered his corporate stock to the remaining shareholders "for the audited [b]ook [v]alue as of June 30, 1997," the date of Wasatch's fiscal year-end audit.

¶ 6 On May 1, 1997, after Eggett had tendered his resignation, Wasatch changed Eggett's employment status to a consultant. Wasatch also began conducting an audit of corporate accounts, including Eggett's expense account. The auditors, as evidenced in their report, concluded that Eggett had taken unauthorized compensation and reimbursements for personal expenses.

¶ 7 On May 16, 1997, Wasatch terminated Eggett for cause. Subsequently, as per the Shareholder Agreement, Wasatch tendered Eggett a check for the par value of his corporate stock, totaling $1,217. Eggett refused the tender, and Wasatch cancelled Eggett's corporate shares on its books.

¶ 8 On September 9, 1997, Eggett brought suit against Wasatch for (1) breach of his Employment Agreement with Wasatch, (2) breach of the Shareholder Agreement, and (3) breach of the covenant of good faith and fair dealing. In his complaint, Eggett sought compensation from Wasatch through his resignation date of July 14, 1997. Eggett also sought the book value for his shares of corporate stock, alleging that his for cause termination by Wasatch was a "sham." In response, Wasatch counterclaimed, alleging the following: (1) breach of fiduciary duties, (2) breach of the Employment Agreement, and (3) conversion of corporate assets.

¶ 9 At trial, Eggett testified that to determine the book value of his stock shares, "you take the equity of the company and you multiply it by my ownership interest which was 36.5%, so we have to determine the amount of ownership equity that was in the company." The parties agreed that determining stockholder equity would be accomplished by adding Wasatch's retained earnings to the stockholders' capital contribution.

¶ 10 Wasatch argued that its retained earnings, according to Wasatch's audited financial statements for June 30, 1997, totaled $57,703. When its retained earnings were added to the stockholders' capital contributions, the ownership equity totaled $75,452. Multiplying that figure by 36.5%, Wasatch argued that the book value of Eggett's shares was $27,540.

¶ 11 Eggett, however, argued that Wasatch's June 30, 1997 retained earnings should be adjusted to include the following: (1) $618,000 from a litigation "reserve fund" for a lawsuit involving United Utilities; (2) a $283,000 reserve for anticipated losses on a "swap contract," which did not occur; (3) $296,252 for "suspense items," which included uncertain earnings or credits held in suspense on Wasatch's books; and (4) $45,533 for a disputed purchase contract with Grynberg Energy. Ultimately, Eggett withdrew his claim to the $618,000 litigation reserve, resulting in a claimed total retained earnings of $682,000. That figure coupled with the stockholders' capital contributions, brought the claimed book value of Eggett's shares of corporate stock to $255,419.

¶ 12 On November 10, 1999, the matter was submitted to a jury. Following deliberations, the jury awarded Eggett $11,888.35 for "additional compensation ... for the period from January 1, 1997, through May 1, 1997, and $135,671.61, as book value for his shares of stock in Wasatch."¹ Prior to discharging the jury and final entry of the judgment, the trial court had the following exchange with the jury foreperson concerning the book value of Eggett's shares of Wasatch stock:

The Court: Question 5. On the date for evaluation of the shares you selected above, what was the book value of Wasatch... as defined by the shareholders agreement? That, the answer is $135,671.61.

....

The Court: Do I understand, Mr Robertson [jury foreperson], that the jury's decision, as I've read this question number, is this the value that the jury believes should be paid for the shares?

Mr. Robertson: We believe that to be the book value.

The Court: And so—

Mr. Robertson: Paid for the shares.

The Court: So, from the, I think the question was confusing and that's why I wanted to ask that question. The book value would be the value from which — yes, did you have a question?

Mr. Stevens (Wasatch's counsel): It seems rather inappropriate to be coming up with questions for the jury at this time. The question is as it's stated and it's answered as it's answered.

The Court: Well, I'm not going to allow that to stand if it is a mistake. So, if I can find that out now, I will find that out now.

The Court: What you're saying by that, let me just be sure that I understand what we're talking about. Is this the value that you think [Wasatch] owes to Mr. Eggett to purchase his shares?

Mr. Robertson: Yes

The Court: All right. Now I'm going to ask that question of all of you as jurors if you concur in that determination. Let me go through.

The Court: Do either of you [the parties' attorneys] desire that I poll the jury on any other questions?

¶ 13 Following the trial court's final question, Wasatch's counsel requested a sidebar wherein the following colloquy occurred:

Mr. Stevens: Your Honor, the way this question is worded and the way this has been argued has been entirely talked about, at least from our point of view, (inaudible) book value of the company is. We know that ... Eggett has 36.5%. That's the number that should be applied here. To have them now—

The Court: Okay, I'm not going to allow that and you can make a record of it but I'm not going to allow it. I don't believe it's consistent with their desire.

Mr. Stevens: And it's certainly not consistent with what they've just said.

The Court: That's exactly right and so— we'll make a record of it and that's just fine.

¶ 14 Upon completion of the sidebar, the trial judge continued with his questioning of the jury,

The Court: Okay. I'm going to poll the jury on particularly question number 5. The question, here's the problem and I want to just explain it to the jury so that I get a clear understanding of what your decision is.

We know from the facts of this case that... Eggett owns 36.5%. If I interpret your answer to this question to be $135,000 for book value. That would mean that he would be entitled to 36.5% of $135,000.00. If I understand it the way I have now asked you the question, he is entitled to $135,671.61 which is a number that you have come to by some calculation method for the purchase of his shares of stock. So, in other words, this figure, $135,000, is a representative smaller figure due to him which represents 36 percent of X which is the larger number. All right?

Now, I want to be sure that I understand that correctly and if any of you disagree with that, I want to know that.

The court then polled the jury, all of whom agreed with the trial court's interpretation of question no. 5. The court then concluded:

The Court: All right. Okay, I'm going to enter, well, we have the record and we have indicated on the record what my understanding is. This question [number 5], I find, is ambiguous in its right and the way it was written and that the jury was [sic] spoken that the value is due to ... Eggett is for lost compensation, $11,888.00 and for his shares of stock, $135,671.61. That means that from this decision of the jury that those two numbers combined would ... $147,559.96.

¶...