Hooper v. Yoder

• Decision Date: 26 May 1987
• Citation: Hooper v. Yoder, 737 P.2d 852 (Colo. 1987)
• Docket Number: 85SC38
• Parties: Steven J. HOOPER, Petitioner, v. David YODER, Respondent.
• Court: Colorado Supreme Court

Page 852

737 P.2d 852

Steven J. HOOPER, Petitioner, v. David YODER, Respondent.

No. 85SC38.

Supreme Court of Colorado En Banc.

May 26, 1987.

Nelson & Harding, John S. Finn, Denver, for petitioner.

Buchanan, Gray, Purvis & Schuetze, John A. Purvis, William R. Gray, Boulder, for respondent.

LOHR, Justice.

This case presents issues concerning the incorporation of a business previously conducted as a partnership, and the effect of such incorporation on the rights and obligations of the partners with respect to each other. The plaintiff, David Yoder, and the defendant, Steven Hooper, formed a partnership for the manufacture and sale of frozen yogurt bars. Subsequently, they incorporated that business. After disputes arose between the parties, Yoder sought recovery from Hooper in Boulder County District Court, contending that Hooper had breached a fiduciary duty by causing corporate stock to be issued to himself but not to Yoder, and in drawing a salary from the business without the assent or knowledge of Yoder. After a non-jury trial, the district court agreed with Yoder, directed Hooper to transfer one-half of his stock in the corporation to Yoder, and entered judgment in favor of Yoder and against Hooper in the amount of one-half of the salary Hooper had received from the business. On appeal, the Colorado Court of Appeals affirmed. Yoder v. Hooper, 695 P.2d 1182 (Colo.App.1984). We granted certiorari and now affirm the judgment of the court of appeals. Our reasoning, however, differs from that of the court of appeals in some respects.

I.

In the fall of 1976, defendant Steven Hooper, a businessman, initiated several meetings with plaintiff David Yoder to discuss business opportunities in the dairy products field. Yoder had experience in that industry, but Hooper had none. After a series of meetings, Yoder and Hooper agreed to work together to develop and market a novelty dairy product, frozen yogurt bars. Yoder testified that they agreed to share equally in the financial risks, the work load and the potential profits of the business. Hooper's contribution was to be his business acumen and Yoder was to contribute his knowledge of the dairy industry. A third individual supplied the initial working capital in consideration of an agreement by Hooper and Yoder to pay that person a commission on sales of frozen yogurt bars. Although Hooper and Yoder agreed upon their respective roles in the business venture, no formal written partnership agreement was drawn. After reaching agreement, both devoted their efforts to the enterprise.

Hooper and Yoder began discussing the possibility of incorporating their business in the early spring of 1977, which corresponded with the time their product was ready to market. After the two parties had consulted several lawyers, both in Colorado and in California where the yogurt bars were being produced, they incorporated their business in California under the name of Beautiful Daydreams, Inc. (Beautiful Daydreams). Hooper became president and treasurer of the corporation and Yoder was named vice-president and secretary. The two men were the only members of the board of directors. They decided to defer the issuance of stock in the corporation.

In May of 1977, Hooper moved to southern California in order to oversee the production and distribution of the frozen yogurt bars. By September of 1978, Hooper had taken over the responsibility of purchasing, shipping, invoicing, and sales in California, while Yoder was responsible for merchandising, distribution, and sales in the Denver area. Yoder worked closely with Market West Brokers (Market West), a Denver-based food brokerage firm engaged by Beautiful Daydreams to help market its product. Yoder and Hooper kept in close contact, talking to each other on the telephone at least daily and sometimes several times a day. Yoder made several trips to California and believed that his business relationship with Hooper was running smoothly.

Market West loaned money to Beautiful Daydreams to alleviate a cash flow problem, and when Beautiful Daydreams was unable to repay the loan promptly, Market West agreed to accept stock in the corporation in partial payment of the debt. In October of 1978, Hooper and Yoder named Brian Bradley, who was Beautiful Daydreams' principal contact at Market West, as an additional member of the board of directors. Market West initiated Bradley's election in order to protect its financial investment in Beautiful Daydreams.

Starting in October of 1978, Yoder began to have difficulty keeping in contact with Hooper. On November 1, 1978, Yoder received a message from Hooper informing him that Hooper had scheduled a meeting of the board of directors of Beautiful Daydreams in Denver for the following week. Yoder immediately attempted to contact Hooper to remind him that Yoder had long-standing plans to attend a business convention in California during the time that the board of directors was scheduled to meet. Yoder was unable to reach Hooper, and Hooper did not return Yoder's calls. After discussing the scheduling conflict with Bradley, Yoder went to the convention in California and did not attend the board meeting. At the meeting and without Yoder's knowledge, the other two directors adopted a resolution for issuance of 100 shares of stock, 95 to Hooper and 5 to Market West in exchange for cancellation of $9500 of the corporation's indebtedness to Hooper and $500 of its indebtedness to Market West. ¹

When Yoder returned from California, he repeatedly tried to reach Hooper, without success. By this time, Hooper had not communicated with Yoder in more than a month. Yoder then flew to California and on November 14, 1978, appeared at a meeting that Hooper had arranged with Bradley and some distributors in San Francisco. After the meeting, the three board members discussed the financial condition of the company. Hooper and Bradley told Yoder that Market West would be taking reduced compensation, that Hooper and Yoder would not be receiving salary, and that no more money would be taken out of the corporation. Hooper testified that Yoder's involvement in the business was terminated at the San Francisco meeting when Hooper told Yoder that Yoder would have to seek another job because Beautiful Daydreams had run out of funds. Yoder, however, testified that he understood the conversation to mean that no one would be able to take money out of the business until it started to generate more income. Yoder expressed to Hooper his frustration at not being kept informed and not being able to help with the business into which he had poured so much of his time and energy.

Yoder and Hooper met once again on November 15, 1978, at the airport immediately prior to Yoder's flight back to Colorado. Yoder testified that at that meeting Hooper was much more cooperative. According to Yoder, the men discussed the need to get part-time jobs and to work on the company's problems. Hooper discouraged Yoder from moving to California when Yoder expressed such an inclination. Yoder testified that at no time did the men discuss a decision to terminate Yoder's employment permanently, nor did Hooper or Bradley mention that a resolution had been adopted for the issuance of 100 shares of stock in Beautiful Daydreams.

On January 15, 1979, by written "Action of Shareholders Without a Meeting," Hooper and Market West, acting through Bradley, removed the entire board of directors of Beautiful Daydreams and elected Hooper and Bradley as the only directors. On that same day these two directors met and elected Hooper as president and treasurer and Bradley as vice president and secretary. Yoder received no advance notice of the meetings or of the nature of the corporate action to be considered on January 15.

After returning to Colorado from the San Francisco meeting in November, Yoder was again unable to reach Hooper by telephone. Yoder then became concerned that he had never seen Beautiful Daydreams' organizational records. On January 19, 1979, he called the California attorney who had helped with the incorporation of the business, and requested a copy of the corporate records.

On February 1, 1979, Yoder received a mailgram from Hooper stating, "For reasons Brian and I discussed with you at our meeting in November we must permanently lay you off. Letter will follow." Yoder again attempted to contact Hooper, without success. Yoder received a letter from Hooper on February 8, 1979, detailing the reasons that his employment had been terminated. On March 16, Yoder received from the California lawyer copies of the minutes of Beautiful Daydreams' board meetings. It was at this time that Yoder first became aware that corporate stock had been issued to Hooper and Market West, and that Yoder was no longer an officer or director of Beautiful Daydreams. Yoder did not learn of the fact that Hooper was receiving a salary from the business, totaling $141,500 for the years beginning in 1978 and continuing into 1982, until much later.

In August of 1979, Yoder filed the present action against Hooper and Beautiful Daydreams in the District Court for Boulder County. In March of 1982 the trial court heard the case without a jury and made the following oral findings of fact and conclusions of law: (1) a partnership was formed between Hooper and Yoder prior to May of 1977 for the purpose of manufacturing and selling frozen yogurt bars; (2) the parties agreed to continue their partnership enterprise in corporate form; (3) the essential term of the agreement, for the purpose of the present dispute, was that in the event stock were to be issued, it would be issued in equal amounts to Hooper and Yoder; and (4) Hooper breached the agreement and his fiduciary duty by not causing half of Hooper's 95 shares of stock to be issued to Yoder in November 1978, "by freezing him out of the corporation after January 15, 1979 and by drawing a salary for [Hooper]." The trial court also found that...