Ikon Office Solutions, Inc. v. Eifert

• Decision Date: 31 July 2003
• Docket Number: No. 14-01-01104-CV.,14-01-01104-CV.
• Citation: 125 S.W.3d 113
• Parties: IKON OFFICE SOLUTIONS, INC., Appellant, v. Steven EIFERT, Appellee.
• Court: Texas Court of Appeals

125 S.W.3d 113

IKON OFFICE SOLUTIONS, INC., Appellant, v. Steven EIFERT, Appellee.

No. 14-01-01104-CV.

Court of Appeals of Texas, Houston (14th Dist.).

July 31, 2003.

Rehearing En Banc Overruled February 5, 2004.

Frank G. Jones, John Wesley Raley and William J. Boyce, Houston, for appellants.

Eugene B. Wilshire, Jr., and Patrick J. Dyer, Houston, for appellees.

Panel consists of Justices YATES, ANDERSON, and FOWLER.

OPINION

JOHN S. ANDERSON, Justice.

A jury found in favor of appellee Steven Eifert on his common law fraud claim against appellant IKON Office Solutions, Inc. The jury awarded $2 million dollars in actual damages and $2 million dollars in punitive damages, and the trial court rendered judgment on the verdict. On appeal, IKON presents six issues challenging the legal and factual sufficiency of the evidence supporting the affirmative findings of fraud, actual damages and punitive damages, and the negative findings on IKON's defenses of waiver and ratification. Concluding there is no evidence to support Eifert's fraud claim, we reverse and render judgment Eifert take nothing.

FACTUAL BACKGROUND

This case arises out of IKON's 1996 acquisition of Global Services, Inc., a Houston based office products dealership, with sales and leasing interests in the Texas Gulf Coast area.¹ IKON is a nationwide office products distributor. In terms of distributors (as opposed to integrated manufacturers like Xerox), Global was IKON's largest Houston competitor in 1995. Eifert owned virtually all of Global's common stock.

The acquisition was structured as a sale/merger in which IKON acquired Eifert's stock in Global in exchange for payment to Eifert of an amount of IKON's publicly traded stock valued at $35,838,799 and other consideration.² The transaction was accomplished by means of two contracts: (1) a "Plan and Agreement of Reorganization" (the "Acquisition Agreement") governing IKON's acquisition of Global's stock and (2) an "Employment and Non-Competition Agreement" (the "Employment Agreement") governing Eifert's role with IKON after the acquisition.

The negotiations leading up to the acquisition spanned several months. In late 1995, IKON designed an acquisition strategy called "Operation Preemptive Strike," intended to preempt acquisition of copier dealers by competitors. At the time, IKON was in transformation from being a roll-up company, which acquired dealerships and let them continue operations as essentially independent units competing against each other, to being an integrated operating company under one market president. Under "Operation Preemptive Strike," IKON gave a target company "a window of opportunity" to join the IKON organization. As explained by IKON president Kurt Dinkelacker, IKON was going to start looking more like an integrated operating company, and "it would be very difficult to bring additional copier dealerships into the fold once we had decided who was going to run a given marketplace."

In October 1995, Dinkelacker called Eifert to ask whether Eifert would be interested in selling Global. According to Eifert, Dinkelacker said Eifert's decision would determine how the Houston marketplace would be run. Dinkelacker did not tell Eifert IKON was transforming its operating structure. Dinkelacker came to Houston to meet with Eifert. At that meeting Eifert told Dinkelacker he wanted a challenging career for himself and his employees, and Dinkelacker assured Eifert his requirements would be accommodated. At trial, Dinkelacker also stated he made a commitment to Eifert that Global would be a stand-alone company for two years. The 1995 meeting concluded with Dinkelacker telling Eifert to expect a call from Mike Dudek, IKON's vice-president of acquisitions. In November, 1995, Eifert wrote Dudek to inform Dudek that Global's attorney, William York, would be handling both the estate tax planning and the documentation of the transaction if it proceeded.

Dudek met with Eifert in Houston in early January 1996. According to Eifert, Dudek offered Eifert the presidency of IKON's Houston marketplace in the copier division, a position that involved "heading up" Global and the eight or nine Houston-area IKON copier dealers that were then reporting to Charlie Hollis as president. Eifert agreed to a price of $42 million, a price he found acceptable if they could "get some other matters arranged."

On January 24, 1996, IKON sent Eifert a letter of intent incorporating the $42 million purchase price, and Eifert signed and returned the letter. Dudek then called to say Galen McClusky, president of IKON's central region and the man who would be Eifert's boss after the sale, would stop by Houston to visit with Eifert.

Around the same time, Dudek, McClusky, and Hollis were in Hawaii attending a meeting of IKON executives. While on a sailboat, Dinkelacker told Hollis and McClusky to go "below decks" to discuss the potential acquisition of Global. Hollis asked how the acquisition would affect his existing position as president of IKON Office Products for Houston. According to Hollis, Dinkelacker said, "[D]on't worry about it, you are going to run Houston for us and everything [sic] is going to end up working for you." Hollis assumed Eifert was just going to take his acquisition money and leave. Eifert was not told about the offer to Hollis.

Shortly after the meeting in Hawaii, McClusky met with Eifert in Houston. According to Dinkelacker, McClusky had to insure that Eifert's "job description would fit into the overall organizational structure of the central region." McClusky had to "put together the original operational view of what Mr. Eifert should be doing." Eifert testified he reiterated to McClusky the non-negotiable aspects of the job description.

A few days later, Dudek called Eifert and told him to go to Kansas City to negotiate Eifert's job with McClusky. According to Eifert, the Kansas City meeting culminated in Eifert's being offered the position of CEO of Texas. Eifert testified McClusky agreed that being CEO meant Eifert (1) would be "boss of all the [IKON] Office Products in the state," (2) would report directly to McClusky and have authority over the district dealerships, and (3) would retain his job description as president of Global Services. McClusky called Dinkelacker on a speaker phone to advise him of the agreement. At trial, Dinkelacker confirmed he had received the call from McClusky, and recalled that an agreement had been reached. Dinkelacker was "pretty sure" they did not tell him the specifics of the agreement.

A few days after Eifert returned to Houston, Dudek called again. According to Eifert, Dudek said Eifert could not be full CEO of Houston because IKON was in mid-fiscal year and a change in revenue reporting structure would affect their bonus programs. Eifert therefore could not have immediate responsibility for sales and service, but he would have responsibility for all administrative, non-revenue functions. Eifert would remain president of Global with both revenue and non-revenue authority. Eifert accepted. He stressed this was just for the "time being," and stated he did not mind "having to earn [his] stripes." After later learning how other's presidents' budgets and bonuses and his own compensation package were set up, Eifert determined placing him in charge of revenue in mid-fiscal year would have had no effect on IKON's bonus programs.

On February 15, 1996, Eifert wrote McClusky to summarize their discussions and agreements. Eifert stated he would carry dual titles: president of Global and CEO of Texas. As Global's president, Eifert would be responsible for all aspects of Global. As CEO of Texas, Eifert's "initial function" would be to take executive and administrative responsibility for all non-revenue producing areas. He confirmed that his career path objective was the eventual combining of revenue producing areas with responsibility for administrative (non-revenue producing) operations under the single position of CEO of Texas. He sought eventually to abandon the "staff support" position on an organizational chart for a direct report position between McClusky and the various dealership principals. Eifert emphasized that mutual understanding of his career path objective was of vital importance to him. Eifert closed by requesting, "Please let me know if any one of the responsibilities, goals or conditions outlined here are not in keeping with your recollection of our agreement."

Neither McClusky nor Dudek responded to the letter. Larry Kludt, IKON's human resources director, talked to Eifert about the letter twice, and, according to Eifert, "there was no discrepancy either time." Kludt met with Eifert, made notes on a copy of the letter, underlined the sentence referring to a single position of CEO of Texas, and wrote, "Original offer prior to Dudek phone call." Another note on the same page indicates, "Marketplace Presidents report to Galen [McClusky] for revenue and to Steve [Eifert] for non-revenue."

On February 27, 1996, Eifert and his assistant, Bill Green, participated in a telephone conference regarding the letter. According to Green's notes of the conference, McClusky stated, "I don't really have a problem with the letter as Steve and I discussed this before he wrote it. There are issues here but mostly they deal with timing." At trial McClusky testified his comment referred to operational issues. Green also reported McClusky as saying, "I agree to everything in the letter but a timeline is needed." McClusky testified he was not saying anything about CEO for Texas. According to Green's notes, Dinkelacker twice referred to the necessity for Global to have credible earnings. Dudek concluded the conference by stating he would execute the employment contract based on what had been discussed and send it to Eifert for review. When Eifert did not hear anything for six weeks, he sent a letter on April 16, 1996, effectively terminating the process.

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