Ehmann v. Medflow, Inc.
| Decision Date | 09 April 2020 |
| Docket Number | 15 CVS 3098 |
| Citation | 2020 NCBC 30 |
| Court | Superior Court of North Carolina |
| Parties | EUGENE K. EHMANN; N. WILLIAM SCHIFFLI, JR.; and THAD A. THRONEBURG, Plaintiffs, v. MEDFLOW, INC.; GREG E. LINDBERG; ELI RESEARCH, LLC; ELI GLOBAL, LLC; ELI EQUITY, LLC; SNA CAPITAL, LLC; SOUTHLAND NATIONAL HOLDINGS, LLC; SOUTHLAND NATIONAL INSURANCE CORPORATION; DJRTC, LLC; and MEDFLOW HOLDINGS, LLC, Defendants. |
Caudle & Spears, P.A., by Harold C. Spears and Christopher P Raab, for Plaintiffs.
Condon Tobin Sladek Thornton PLLC, by Aaron Z. Tobin, Michele Spillman (pro hac vice), and Jared T.S. Pace (pro hac vice) and Fox Rothschild LLP, by Matthew Nis Leerberg and Troy D Shelton, for Defendants Medflow, Inc. and Medflow Holdings LLC.
1. THIS MATTER arises from the circumstances surrounding the end of the employment relationship between Plaintiffs and their former employer, Defendant Medflow, Inc. ("Medflow"), and focuses in particular on the manner in which Plaintiffs' employment ended and Plaintiffs' rights to certain benefits under their employment contracts.
2. Now before the Court are multiple motions, detailed below, including post-trial motions following a trial solely against Medflow on a limited issue regarding the enforceability of Plaintiffs' contracts, as well as a renewed summary judgment motion of which the Court deferred full consideration until after the trial.
3. Pursuant to an order in a rehabilitation proceeding in Wake County Superior Court in which Defendant Southland National Insurance Corporation ("SNIC") is also a party (the "Rehabilitation Proceeding"), this Court is enjoined from entering any judgment against SNIC or its assets without the express allowance of the Wake County Superior Court. In this Judgment, Order and Opinion, the Court makes no findings and expresses no opinion as to any right Plaintiffs may have to impose liability upon SNIC.
4. For the reasons stated below, the various motions are DENIED in part and GRANTED in part.
5. Plaintiffs executed employment contracts with Medflow on or about July 5, 2014, which vary as to their effective dates and the amount of annual compensation, but otherwise contain the same terms on all matters central to this litigation. Plaintiffs bring this litigation, in part, to recover unpaid wages, change-of-control payments, and severance benefits to which they allege they are entitled under their agreements.
6. Throughout the course of this litigation, Medflow has maintained that the agreements are altogether unenforceable because they contain terms grossly unfair to Medflow and were negotiated to protect Plaintiffs' personal interests in contravention of Plaintiffs' fiduciary duties to Medflow. It is uncontested that Plaintiffs Eugene K. Ehmann ("Ehmann") and Thad A. Throneburg ("Throneburg") owed fiduciary duties to Medflow at the time they entered their employment agreements as appointed officers. While Plaintiff N. William Schiffli, Jr. ("Schiffli") was an appointed Medflow officer at one time, he was not one when he entered his employment agreement and instead continued in his role as Medflow's Chief Financial Officer ("CFO") as an independent contractor. Medflow contends that Schiffli was nevertheless a de facto officer charged with the same fiduciary duties as Ehmann and Throneburg.
7. Fiduciary duties aside, Medflow contends in any event that Plaintiffs are not entitled to the benefits they seek under their employment agreements because it terminated each of those agreements for cause. Medflow argues it was not required to meet the contractual standard of termination for "Cause" because that standard is unconscionable. Plaintiffs contend the contractual definition of "Cause" applies, that Medflow could not demonstrate such Cause, and instead that they terminated the agreements for "Good Reason," entitling them to their change-of-control payments and severance benefits.
8. In 2016, all parties moved for summary judgment on the enforceability of Plaintiffs' contracts, focusing in particular on whether those transactions were protected by the business judgment rule, and if not, what standard should be applied to determine the fairness of those agreements. In its order and opinion denying the summary judgment motions, the Court held Plaintiffs' employment agreements were interested transactions to the extent each Plaintiff was an officer and fiduciary of Medflow, imposing a duty on the officer to prove his agreement was fair to Medflow when entered. Because of the dispute about his status as a de facto officer, it was unresolved whether Schiffli should be required to shoulder that burden.
9. The Court then severed for early trial the issue of whether any plaintiff charged with fiduciary duties to Medflow could prove that his employment agreement was fair to Medflow when entered (the "Severed Issue"), limited further pre-trial discovery to the Severed Issue, and deferred its consideration of other pending motions including whether any other Defendants could be charged with any liability adjudged against Medflow.[1] First, a jury would determine if Schiffli was a de facto officer. Second, that jury would determine whether the employment agreement of each officer was fair to Medflow when entered.
10. The Severed Issue went to trial on April 22, 2019 ("Severed Issue Trial").
11. The jury concluded its deliberations on May 13, 2019. The jurors issued a unanimous verdict that Schiffli was not a de facto officer at the time he executed his employment agreement and, as a result, did not consider the fairness of his agreement to Medflow when entered. The jury was unable to reach a unanimous verdict on whether Ehmann and Throneburg's employment agreements were fair to Medflow when entered.
12. The Court must now resolve the following post-trial motions: (1) Ehmann and Throneburg's motion for judgment notwithstanding the verdict, (2) Medflow's motion for judgment notwithstanding the verdict or (3) new trial with respect to Ehmann and Throneburg, (4) Medflow's motion for judgment notwithstanding the verdict or (5) new trial as to Schiffli, and (6) Schiffli's motion for entry of judgment and (7) renewed motion for partial summary judgment (together, the "Motions").
13. Medflow is or was a provider of computer software for the medical industry.[3] James Riggi ("Riggi") founded Medflow and was its Chief Executive Officer ("CEO") or president until December 2013. (Aff. D. James Riggi ¶¶ 3-4 ("Riggi Aff."), ECF No. 192.)[4] Prior to December 2014, Riggi and DavLong Business Solutions, LLC ("DavLong") controlled by David Long ("Long"), owned the controlling interest in Medflow, which had other minority shareholders. (Riggi Aff. ¶ 6; Aff. David Long ¶ 5, ECF No. 194.)
14. Ehmann and Throneburg became Medflow shareholders in 2004. (Aff. Thad A. Throneburg ¶ 26 ("Throneburg Aff."), ECF No. 171.16; Eugene K. Ehmann Aff. ¶ 10 ("Ehmann Aff."), ECF No. 176.) Throneburg, a North Carolina attorney, served as Medflow's CEO from January 1, 2005 to November 2007 when he sold his approximate 24% ownership interest to DavLong and returned to active law practice. (Throneburg Aff. ¶¶ 27, 38, 42.)
15. Following Throneburg's departure, Riggi again became CEO. (Ehmann Aff. ¶ 15.) In November 2009, Ehmann accepted a position as Medflow's director of human resources but was not appointed an officer at that time. (Ehmann Aff. ¶ 18.) In June 2010, Schiffli joined Medflow as its CFO pursuant to an independent contractor arrangement and served as an appointed Medflow officer prior to December 2013. (Aff. N. William Schiffli, Jr. ¶ 2, ECF No. 13; see also Throneburg Aff. ¶ 107.)
16. On December 10, 2013, catalyzed by growing dissatisfaction with Riggi's leadership, (see Ehmann Aff. ¶ 24), Medflow shareholders met and took several actions. All existing Medflow officers including Schiffli were removed from their roles as officers. Riggi was ousted from management and Throneburg was hired as interim CEO on a short-term contract. The Board of Directors was reorganized and limited to one member. Ehmann was elected as Vice President, Treasurer, and Secretary, and was appointed as Medflow's sole director.
17. Although Schiffli was terminated as an officer in December 2013, he continued to maintain the title of Medflow's CFO. (See Throneburg Aff. ¶ 55; see also Dec. 10, 2013 Shareholder Meeting Mins. 3.) Ehmann testified that Schiffli's officer status was revoked upon Riggi's ouster because of concern over Schiffli's potential loyalty to Riggi. (Civil Trial Tr. Vol. VI of XII Mon., Apr. 29, 2019 72:12-73:3 ("Trial Tr. Vol. VI"), ECF No. 374.4.) Ehmann eventually reappointed Schiffli as a de jure officer in December 2014. Schiffli therefore negotiated and executed his employment agreement during the interim period in which he was not an appointed Medflow officer.
18. Throneburg testified that, when he returned as Medflow's CEO, he initially prioritized the formation of a senior management team including James Messier ("Messier"), [5] Ehmann, Schiffli, and himself. (Civil Trial Tr. Vol. VII of XII Tue., Apr. 30, 2019 192:19-194:13 ECF No. 374.5; see also Throneburg Aff. ¶¶ 68-69.) Plaintiffs testified that the senior management team adopted a three-year strategic plan in early 2014 that focused on moving Medflow's software platform from a server-based system to a cloud-based system and that Throneburg...
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