Horizon Holdings v. Genmar Holdings

Decision Date02 October 2002
Docket NumberNo. 01-2193-JWL.,01-2193-JWL.
Citation241 F.Supp.2d 1123
PartiesHORIZON HOLDINGS, L.L.C. f/k/a Horizon Marine L.C.; Geoffrey Pepper; Cassandra O'Tool; and John O'Tool, Plaintiffs, v. GENMAR HOLDINGS, INC.; Genmar Industries, Inc.; and Genmar Manufacturing of Kansas, L.L.C, Defendants.
CourtU.S. District Court — District of Kansas

Todd M. McGuire, Stueve Helder Siegel LLP, Kansas City, MO, Nicole T. Bock, Blackwell Sanders Peper Martin LLP, Omaha, NE, for Plaintiffs.

Timothy K. McNamara, Harlan D. Burkhead, Tedrick A. Housh, III, Rosalee M. McNamara, Lathrop & Gage L.C., Kansas City, MO, Thomas Tinkham, Holly S.A. Eng, Judith Williams-Killackey, Dorsey & Whitney LLP, Minneapolis, MN, for Defendants.

MEMORANDUM & ORDER

LUNGSTRUM, District Judge.

Plaintiffs filed suit against defendants asserting various claims arising out of defendant Genmar's 1 acquisition of plaintiff Horizon Marine LC. This matter is presently before the court on defendants' motion for summary judgment on plaintiffs' commercial claims (doc. # 110) and defendants' motion for summary judgment on plaintiffs' employment claims (doc. # 111). For the reasons explained below, the motions are granted in part and denied in part.

Facts

The following facts are uncontroverted or related in the light most favorable to plaintiffs, the non-moving parties.2 Plaintiff Geoffrey Pepper has worked in the manufacturing field for 34 years and he has spent 24 years working in the marine industry. Indeed, Mr. Pepper has extensive experience in all aspects of the design, engineering, manufacture and sale of recreational boats. In the spring of 1997, Mr. Pepper and his family, with the financial support of a small group of investors, started their own aluminum boat manufacturing company, Horizon Marine LC.

In that regard, Mr. Pepper convinced his daughter and son-in-law, co-plaintiffs Cassandra O'Tool and John O'Tool, to relocate from Denver, Colorado to Junction City, Kansas in order to help start the business. Upon relocating to Junction City, Ms. O'Tool assumed responsibility for human resources, accounting and certain administrative functions of Horizon Marine. Mr. O'Tool assumed the role of Plant Manager. In essence, Mr. and Mrs. O'Tool assisted and supported all facets of the initial start-up and operations of Horizon Marine. Mr. Pepper's wife, Phyllis, also worked to help the company get "up and running."

With high quality aluminum boats designed by Mr. Pepper and an aggressive marketing strategy, Horizon Marine began making significant inroads into the aluminum boat market. In a short period of time, the Horizon brand of boats gained an impressive presence in the market and enjoyed unusual growth and success for a fledgling company. By the fall of 1998, Mr. Pepper and his company, Horizon Marine, had developed numerous business relationships with a growing network of boat dealers and dealerships.

By the end of 1997, Horizon Marine caught the attention of defendant Genmar. Genmar is headquartered in Minneapolis, Minnesota and describes itself as the world's largest manufacturer of recreational boats. Genmar has approximately 7000 employees, 14 manufacturing centers in the United States and Canada and 1800 independent, authorized dealers. Genmar offers more than 400 different boat models and 16 different boat brands, including Champion, Crestliner, Lund and Ranger brands. Genmar's 16 boat brands account for more than 20 percent of all new boats sold with outboard, sterndrive and inboard power.

In November 1997, Bill Ek, a friend of Mr. Pepper who also works as a consultant to Genmar, "dropped in" on Mr. Pepper in Junction City and toured the Horizon Marine facility. Shortly after touring the facility, Mr. Ek drafted a comprehensive analysis of the aluminum boat market and presented it in memorandum format to Genmar's president and CEO, Grant E. Oppegaard. In his analysis, Mr. Ek identified Horizon Marine as a significant potential competitor of Genmar and remarked that Horizon Marine was "one to watch." Mr. Ek's memorandum concluded with the suggestion that Genmar give Horizon Marine "a very hard look for a possible purchase." Mr. Oppegaard thereafter considered Horizon Marine as a possible Genmar acquisition and dispatched Mr. Ek to determine whether Mr. Pepper was interested in selling his company and joining the Genmar organization.

In early August 1998, Mr. Ek contacted Mr. Pepper and conveyed Genmar's interest in acquiring Horizon Marine and retaining Mr. Pepper as president of the company. For a variety of reasons, Mr. Pepper, at first, was not interested in selling his company to Genmar. Nonetheless, Mr. Pepper decided to hear what Genmar had to offer and agreed to host Mssrs. Oppegaard and Ek at the Horizon Marine facility in Junction City. On August 5, 1998, Mr. Pepper showed Mssrs. Oppegaard and Ek the manufacturing facility and visited with them over the course of a few hours. Apparently impressed with Mr. Pepper and his aluminum boat manufacturing operation, Mr. Oppegaard emphasized to Mr. Pepper the advantages of selling his company and joining the Genmar organization.

Immediately upon his return to Minneapolis, Mr. Oppegaard wrote a confidential memorandum to various Genmar board members and executives detailing his findings and recommendations with respect to Horizon Marine and Mr. Pepper. In the memorandum, Mr. Oppegaard cautioned that Horizon Marine "will be a major competitor if left alone to grow," and that the Horizon product line was "competitive with [Genmar's] current Crestliner and Lund product lines." Mr. Oppegaard also commented on Horizon Marine's central location, physical facility, engineering capabilities, dealer network, management and employees. In short, Mr. Oppegaard concluded in his memorandum that he had "found the plant, the people and the location for Genmar to expand into the Southern market."

Genmar then invited Mr. Pepper and his principal investor, Robert K. Weary, to submit a general outline of the sort of transaction that Mr. Pepper would be willing to consider, which would then serve as a tentative proposal upon which to base further negotiations. On August 11, 1998, Mssrs. Pepper and Weary traveled to Minneapolis and presented a proposal to Genmar. The proposal emphasized that any deal would have to contain the following key components: that Genmar pay a fair price for Horizon Marine; that Mr. Pepper continue as president and retain complete control of the production and management of the company; and that Mr. Pepper's daughter and son-in-law, Mr. and Mrs. O'Tool, continue their employment and management roles within the company.

After the presentation of this proposal, a group of Genmar executives traveled to Junction City to tour the Horizon Marine facility and meet with Mr. Pepper. During this visit, Genmar presented a counterproposal to Mr. Pepper which included an "earn-out" concept. Generally speaking, Genmar proposed a transaction by which Genmar would purchase Horizon Marine by paying some money up front and then paying an earn-out that would provide Mr. Pepper more money based on a percentage of profits from the production and sale of certain boats, engines and other products from the Junction City, Kansas location. Uncertain about whether the up-front money and earn-out concept proposed by Genmar would result in the realization of a fair price for Horizon Marine, Mr. Pepper sought specific assurances with respect to the obtainability of the proposed earn-out. In response, Mr. Oppegaard and other Genmar executives repeatedly assured Mr. Pepper that the earn-out would, in fact, be obtainable and that Mr. Pepper would have a fair and genuine opportunity to realize the earn-out consideration proposed by Genmar.

The earn-out concept was not Mr. Pepper's only concern in pursuing a transaction with Genmar. Mr. Pepper also sought assurances with respect to Genmar's commitment to the Horizon brand of boats, the extent of management control and authority that Mr. Pepper would have as president, and Genmar's overall commitment to Mr. Pepper and his family. In response, Mr. Oppegaard and other Genmar executives affirmatively represented to Mr. Pepper that Genmar would support the manufacture, production, marketing, distribution and sale of the Horizon brand of boats; that Genmar would support Mr. Pepper as president of the newly formed Genmar Manufacturing of Kansas, LLC ("GMK"); that Genmar was committed to the growth and expansion of the Horizon brand of boats and would only expect GMK to produce other Genmar brand boats, such as Rangers and Crestliners, to the extent such production would not interfere with Genmar's commitment to the Horizon brand of boats; that Genmar was committed to continuing a relationship with Mr. Pepper's family and specifically approved Mr. and Mrs. O'Tool becoming key employees in the new company; and that Genmar was making a long-term commitment to Mr. Pepper, his family and the new company.

Mr. Pepper agreed to sell the operating assets of Horizon Marine to Genmar in December 1998. The new company was called Genmar Manufacturing of Kansas ("GMK"). The purchase price as set forth in the agreement was made up of two separate components-cash consideration of $2.3 million and earn-out consideration of up to $5.2 million. The $2.3 million cash consideration was paid up front at the time of the closing, which allowed Mr. Pepper to pay off his initial investors and retire certain other debt, leaving only a modest amount for Mr. Pepper personally. The earn-out provision provided for a five-year earn-out consideration period from and after the closing of the deal. Additional payments would be made to Mr. Pepper in an amount equal to a percentage of all annual gross revenues of the GMK facility, subject to achieving certain gross profit percentages set forth in...

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