Havlicek/Fleisher Enterprises, Inc. v. Bridgeman, 90-C-909.

• Citation: 788 F. Supp. 389
• Decision Date: 13 February 1992
• Docket Number: No. 90-C-909.,90-C-909.
• Parties: HAVLICEK/FLEISHER ENTERPRISES, INC., Plaintiff, v. Ulysses L. BRIDGEMAN, Jr., Bridgeman Foods, Inc. and Bridgeman Foods II, Inc., Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

788 F. Supp. 389

HAVLICEK/FLEISHER ENTERPRISES, INC., Plaintiff, v. Ulysses L. BRIDGEMAN, Jr., Bridgeman Foods, Inc. and Bridgeman Foods II, Inc., Defendants.

No. 90-C-909.

United States District Court, E.D. Wisconsin.

February 13, 1992.

COPYRIGHT MATERIAL OMITTED

Robert H. Friebert, Friebert, Finerty & St. John, S.C., Milwaukee, Wis., for plaintiff.

Stephen Jacobs, Reinhart, Boerner, Van Deuren, Norris & Rieselbach, Milwaukee, Wis., for defendants.

DECISION AND ORDER

WARREN, Senior District Judge.

Before the Court is the plaintiff's motion for summary judgment based upon the defendant's alleged breach of his fiduciary duty by usurping a corporate opportunity. The Court finds that the defendant has raised several questions of fact which must be resolved at trial; therefore, the plaintiff's motion is denied.

I. BACKGROUND

Larry Fleisher ("Fleisher") was an attorney and an accountant who founded the National Basketball Players Association. Bridgeman Depo. at 22; Marc Fleisher's Aff., Ex. A. He knew many professional basketball players both as clients and as friends. One such athlete was John Havlicek ("Havlicek"), a former guard for the Boston Celtics, whom Fleisher had represented in contract negotiations. Havlicek Depo. at 6.

After Havlicek retired from professional basketball, he wished to explore other financial opportunities. His neighbor, Dave Thomas, was the founder of Wendy's International, which operated Wendy's Old Fashioned Hamburgers Restaurants ("Wendy's"). Thomas sparked Havlicek's interest in the fast food business. Havlicek discussed such a venture with Fleisher, who had prior experience with restaurants as an officer of the Restaurant Associates. Fleisher not only gave his approval but suggested that he and Havlicek join forces and invest in Wendy's together.

The two men formed a corporation named Havlicek/Fleisher Enterprises, Inc. ("HFE") in late 1978 which subsequently acquired the rights to develop Wendy's restaurants in Westchester County, New York. Marc Fleisher's Aff. at ¶ 5. They brought in Alex Fragnito ("Fragnito") to supervise the development and operation of the restaurants in July, 1979. Fragnito's Affidavit at 2. Fragnito owned 15% of HFE's shares and the remaining 85% was divided equally between Fleisher and Havlicek. Id. Havlicek and Fleisher received an annual draw that varied year to year, and Fragnito was paid a management fee which was determined by Fleisher alone. Havlicek Depo. at 13. HFE currently oversees three restaurants, which have been profitable. Fragnito's Aff. at ¶¶ 1-3.

Fleisher was also friendly with the defendant, Junior Bridgeman ("Bridgeman"), who played basketball for the Milwaukee Bucks. Fleisher had helped Bridgeman negotiate basketball contracts, and their business relationship developed into a friendship. He gave Bridgeman occasional tips on investment opportunities, and had recommended several to him in the past, such as breeding horses and building tuna boats. Bridgeman Depo. at 16, 19-20. In 1984, when Bridgeman became a passive investor in a Wendy's franchise in Illinois, Fleisher inspected the store and its staff, negotiated the deal, and hired a local attorney to finalize the transaction. Id. at 28, 30. He also sent Fragnito out to help set up the store's accounting and banking systems. Id. at 52. After Bridgeman acquired the store, Fleisher continued to assist him, looking over the restaurant's financial statements and discussing them with him. Id. at 31.¹

In late 1986, Bridgeman made an offer to buy out the owners of the Illinois store but was turned down.² He informed Lee Dudley, an executive at Wendy's, that he was not happy as a passive investor, whereupon Dudley offered him the chance to purchase five low-volume stores in Milwaukee. Bridgeman Depo. at 61-63. Bridgeman consulted Fleisher about this opportunity, who advised him that it was promising, and told him to take advantage of it. Moreover, Fleisher decided that he would also be interested in investing along with Bridgeman. Although Bridgeman had not anticipated this development, he was not opposed to it and continued to negotiate with Wendy's. Id. at 73.

Eventually, Wendy's agreed to sell the five stores to Bridgeman. Bridgeman entered into the deal as Bridgeman Foods, Inc. ("BFI"), a corporate entity he and Fleisher had formed for the purpose of acquiring the restaurants. BFI closed on the five stores on May 13, 1988. The law firm of Godfrey & Kahn handled the legal work associated with the acquisition, including the incorporation of BFI. Bridgeman Depo. at 80-81.

Although Bridgeman had originally believed that he and Fleisher would be the sole shareholders, Fleisher had not invested in BFI as an individual. Instead, he bought the shares on behalf of HFE, the corporation he owned along with Havlicek and Fragnito. Bridgeman did not realize that the other shareholder would be a corporation until Fleisher presented a check at the closing with the heading "HFE, Inc." at the top. Bridgeman Depo. at 91. However, the deal was practically consummated and Bridgeman did not want to delay it, so he did not object, even though having a corporate shareholder meant that BFI would not be able to enjoy the tax benefits associated with a subchapter S corporation.

Each shareholder made a $25,000 capital contribution to BFI and loaned it an additional $67,000,³ receiving 50 percent of BFI's stock in return. Marcus Depo., Ex. 14. However, only Bridgeman owned voting stock, which made him the controlling shareholder. Bridgeman Depo. at 93. He held this position because Wendy's did not know about HFE's association with Bridgeman, and Fleisher did not wish to disclose this information. Marcus Depo. at 23.⁴ After buying all of the shares, he transferred 50% to HFE when the transaction with Wendy's was finalized, so Wendy's would not be able to object to HFE's involvement in BFI. Marcus Depo. at 23. Bridgeman served as BFI's president, treasurer and chief executive officer; Fleisher was vice-president and secretary as well as a director of the corporation.

Fleisher had told Havlicek about the investment he planned to make on HFE's behalf, but he did not disclose the details of the transaction. He merely stated that there were five Wendy's restaurants in Milwaukee that Junior Bridgeman had been thinking of buying and that HFE could become a 50% owner by paying $90,000. Havlicek Depo. at 19-20. Havlicek went to Milwaukee for one day to look over the restaurants after he had given Fleisher a check for $45,000, his share of the capital investment. After BFI was formed, Fleisher informed Havlicek about its progress once every few months. Although Havlicek received monthly financial statements for HFE, he only received between one and three such statements concerning BFI. He never spoke to Bridgeman about BFI's progress. Havlicek Depo. at 25-27. Fragnito and Bridgeman did not discuss BFI either, since the two men were not on good terms with one another. Fragnito Depo. at 64; Marc Fleisher Depo. at 53. Between the time of BFI's inception and May, 1989, Fleisher was the only shareholder of HFE with whom Bridgeman ever had any contact. Bridgeman Depo. at 121; Marc Fleisher Depo. at 102. This was not unusual, since HFE's accountant observed that Fleisher made the ultimate decisions about whether to invest in an opportunity, and that the other shareholders of HFE generally looked to him for guidance. Eugene McGillycuddy Depo. at 26.

The five franchises improved their sales volume under Bridgeman's ownership, due in part to his local celebrity and willingness to make personal appearances promoting the restaurants and motivating his staff. Bridgeman spent most of his time in Milwaukee and communicated with Fleisher on a regular basis. Bridgeman Depo. at 107-109. They hired William Rewolinski, Bridgeman's personal accountant, to be BFI's accountant, and Paul Thompson to manage the five restaurants. Rewolinski Depo. at 8. Although Bridgeman thought Thompson would make a good employee after the initial interview, he did not hire him on the spot. Instead, Thompson flew to Kansas City where he met with Fleisher. Then Bridgeman and Fleisher made the joint decision to hire Thompson for the job. Bridgeman Depo. at 112.

In October of 1988, Bridgeman became interested in expanding his fast food investments. He and Thompson met with Gilles Gallant, a Wendy's executive, in Chicago for a day to discuss acquiring the remainder of the Wendy's franchises in the Milwaukee area. Bridgeman Depo. at 127-28, 184; Thompson Depo. at 28. Bridgeman informed Fleisher of the meeting afterwards. Bridgeman Depo. at 139. Over a period of several months, Wendy's constructed a 16-store deal which it offered to Bridgeman. Part of the deal included an option to open five additional Wendy's restaurants over a five-year period. Bridgeman Depo., Ex. 19. In January or February of 1989, Bridgeman hired attorney Ulice Payne of Whyte & Hirschboeck to represent Foods II. Payne Depo. at 12-13. Rewolinski told Bridgeman that it might be a good idea to ask Fleisher whether he would be interested in this deal due to Fleisher's experience with Bridgeman and the fast food business. Rewolinski Depo. at 66-67.

Bridgeman discussed the prospect of buying an additional 16 restaurants with Fleisher on several occasions during the winter and spring of 1989 in order to obtain advice about the transaction. He received written information from Wendy's about the sixteen stores in February, 1989, which he forwarded to Fleisher for his review. Fleisher knew that Wendy's did not intend to finance the purchase as it had done previously, and he had been apprised of the costs of acquiring the stores. Bridgeman Depo. at 147-48, 164. He expressed some uneasiness about the fact that Wendy's refused to offer financing, since it had done so previously when BFI acquired the five restaurants. Nevertheless, Bridgeman continued to negotiate with Wendy's. Although...