Goebel v. Blocks and Marbles Brand Toys, Inc.
| Decision Date | 12 March 1991 |
| Docket Number | No. 54A01-9006-CV-261,54A01-9006-CV-261 |
| Parties | Lawrence E. GOEBEL, Appellant-Defendant, v. BLOCKS AND MARBLES BRAND TOYS, INC., Appellee-Plaintiff. |
| Court | Indiana Appellate Court |
Stephen W. Lyman, Kevin P. Speer, Gary P. Goodin, Hall, Render, Killian, Heath & Lyman, Indianapolis, for appellant-defendant.
Conrad G. Harvey, Donald G. Thompson, Young, Harris & Harvey, Crawfordsville, for appellee-plaintiff.
Lawrence E. Goebel (Goebel) appeals the trial court's declaratory judgment for Blocks and Marbles Brand Toys, Inc. (Blocks and Marbles) and enjoinder of Goebel from pursuing arbitration of an employment contract. We reverse and remand.
1. Whether the trial court determined that a valid employment contract containing an arbitration clause existed between Goebel and Blocks and Marbles prior to February 3, 1987, and whether such a conclusion was error.
2. Whether, if a valid employment contract existed, the trial court erred in enjoining Goebel from pursuing arbitration and instead in determining, on the merits of the dispute, that the contract was terminated on February 3, 1987.
Mark Launer (Launer) incorporated Blocks and Marbles on May 10, 1985, and operated it and served as its sole director and president until March or April of 1986. On May 20, 1986, he executed an employment agreement with Goebel to employ Goebel as president and chief operating officer. The term of the agreement commenced April 1, 1986, and was to terminate December 31, 1991. Goebel began his duties in April 1986.
On February 3, 1987, the bylaws of the corporation were amended and the board of directors was expanded from one person to not less than three nor more than five persons. Launer resigned as director and sold his stock in Blocks and Marbles. The new board elected Goebel president for a one year term. The directors remaining after Launer's resignation apparently did not become aware of Goebel's employment agreement of May 20, 1986, until some time in 1988.
Although the May 20, 1986, employment agreement provided for Goebel to receive a salary of $5,000 per month plus twenty-five percent of annual pre-tax profits in excess of $150,000, Goebel received substantially less than the agreed-to salary in 1986 and 1987. Nevertheless, he told an accountant and outside auditors preparing financial statements for each year not to show any accrued salary as a liability of the corporation.
On February 9, 1989, four members of the five-member board of directors resigned and a new board was elected on February 27, 1989. On March 14, 1989, the board voted to terminate Goebel's employment effective March 31, 1989. Contending he was owed additional salary for 1986 and 1987, Goebel, on July 12, 1989, filed a notice of intention to hold a corporate employee's lien on Blocks and Marbles' corporate property. In addition, relying on an arbitration provision in the May 20, 1986, contract Goebel filed a request for arbitration of his dispute with Blocks and Marbles. Goebel contended his term of employment was still in effect and benefits were still accruing. The American Arbitration Association scheduled a hearing to arbitrate Goebel's claim on January 17, 1990, but on December 6, 1989, Blocks and Marbles filed a complaint for declaratory judgment and for a preliminary injunction staying the hearing. The trial court ordered a stay of the arbitration proceeding.
On March 2, 1990, the trial court entered findings of fact, conclusions of law, and a judgment granting Blocks and Marbles' request for a preliminary injunction enjoining Goebel from pursuing arbitration and their request for a declaratory judgment. The court determined the employment contract between Goebel and Blocks and Marbles had terminated effective February 3, 1987, because of Goebel's repudiation of the contract. Goebel appeals the trial court's judgment and requests we remand this case to the trial court with instructions to order the parties to proceed to arbitration.
Neither party requested the trial court to make findings of fact. However, Ind. Trial Rule 52(A) requires a trial court to make special findings of fact without request when granting or refusing a preliminary injunction. "The purpose of making special findings is to provide parties and reviewing courts with the theory upon which the judge decided the case ..." Willett v. Clark (1989), Ind.App., 542 N.E.2d 1354, 1357. In reviewing special findings, we "may not affirm the trial court's judgment on any ground which the evidence supports, but must determine if specific findings are adequate to support the trial court's decision." Id. In determining whether a trial court abused its discretion in granting a preliminary injunction, we will review the findings of fact to see if they are supported by the evidence and whether the findings are sufficient to support the judgment. Steenhoven v. College Life Insurance Company of America (1984), Ind.App., 458 N.E.2d 661, 664-65. We will not set aside the findings unless they are clearly erroneous. Then, we must conclude the trial court has abused its discretion in granting the preliminary injunction. Id. at 665.
Goebel contends the trial court erred by determining matters beyond its jurisdiction. Goebel is correct in his assertion that a trial court has jurisdiction to determine whether a valid agreement to arbitrate a dispute exists. A party seeking arbitration is required to show to the court the existence of a valid agreement to arbitrate and a breach of the arbitration clause by the opposing party. McCrary Engineering Corporation v. Town of Upland (1985), Ind.App., 472 N.E.2d 1305, 1307 (citing Great American Trading Corporation v. I.C.P. Cocoa, Inc. (7th Cir.1980), 629 F.2d 1282, 1288). Thus, "[t]he issue of whether an agreement to arbitrate exists is a threshold question for judicial determination." Id.
At the bench trial, Goebel urged the employment agreement of May 20, 1986, which contained a broad arbitration provision in Section Fourteen, was valid and enforceable. Blocks and Marbles argued the circumstances surrounding the execution of the contract rendered it invalid and unenforceable.
On appeal Blocks and Marbles asserts the trial court "found facts sufficient to determine, [sic] as a matter of law that there was never a valid existing contract." Appellee's Brief at 20. We find Blocks and Marbles' argument specious. The trial court entered a number of findings which consistently refer to the contract of May 20, 1986, in a manner from which we can only conclude that the court found the contract was valid and enforceable at its inception. In its Conclusion of Law No. 7, the trial court stated, "The breach of the contract is effective as of and from February 3, 1987." Record at 178. Our review of the evidence supports the court's findings which refer to the initial existence of a valid employment agreement and our review of the findings supports the court's conclusion that such a valid contract initially existed. We do not find the court's findings on this point clearly erroneous or its conclusion on this point contrary to law.
Blocks and Marbles argues the corporation could not legally enter into the employment agreement to employ a president because the contract directly violated both the statute under which the corporation was created and the corporation's own by-laws. Blocks and Marbles relies in part upon IND.CODE Sec. 23-1-2-13(a), which was in effect on May 20, 1986, but was repealed by P.L. 149-1986, SEC. 65 effective August 1, 1987. That statute required the president to be chosen from among the directors. Because, until their amendment on February 3, 1987, the corporate by-laws provided for only one director and Launer was the sole director at the time of the execution of the employment agreement, Blocks and Marbles urges Goebel, who was not a director, could not serve as president of the corporation without being in violation of I.C. Sec. 23-1-2-13(a).
Blocks and Marbles is not arguing that violation of the statute was illegal, in the sense of being an unlawful act, a violation of some public duty, or a contravention of a rule of public policy. See 19 C.J.S. Corporations Sec. 574 (1990). Rather, Blocks and Marbles contends that Goebel did not qualify to serve as president of the corporation and the corporation did not have the power to contract with Goebel. Such a defense is known as an ultra vires defense. See Krukemeier v. Krukemeier Machine & Tool Co., Inc. (1990), Ind.App., 551 N.E.2d 885, 888, n. 2.
Blocks and Marbles also argues that: (1) minutes of the directors do not show a resolution authorizing the entering of a contract to make Goebel president or creating an additional office of chief operating officer, (2) the director's minutes do not show approval of the employment contract or acceptance on behalf of the corporation, (3) the execution of the employment agreement was not attested to by the secretary as required by the by-laws, (4) any blanket ratification of action by shareholders could not be considered ratification of the employment agreement because the shareholders were unaware of the material fact of the existence of the agreement, (5) Launer had no authority to enter into the employment agreement as a shareholder or on behalf of shareholders because Launer had failed to pay his subscription for shares of capital stock and had not been lawfully issued shares of stock, and (6) Goebel was a shareholder and, therefore, an insider improperly contracting with the corporation without the consent and approval of all of the shareholders.
Blocks and Marbles contends I.C. Sec. 23-1-22-5 permits it to challenge the employment agreement as a transaction which was an ultra vires act of the corporation and an insider transaction by Goebel. IND.CODE Sec. 23-1-22-5 exactly tracks the...
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