Litton v. Maverick Paper Co.

• Decision Date: 21 September 2005
• Docket Number: No. CIV.A. 03-2377-KHV.,CIV.A. 03-2377-KHV.
• Citation: 388 F.Supp.2d 1261
• Parties: Sherri LITTON, et al., Plaintiffs, v. MAVERICK PAPER CO., et al., Defendants.
• Court: U.S. District Court — District of Kansas

388 F.Supp.2d 1261

Sherri LITTON, et al., Plaintiffs, v. MAVERICK PAPER CO., et al., Defendants.

No. CIV.A. 03-2377-KHV.

United States District Court, D. Kansas.

September 21, 2005.

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Rebecca M. Randles, Luis Mata, Randles, Mata & Brown, LLC, Kansas City, MO, for Plaintiffs.

Kara Marie Dorssom, Eric E. Packel, John J. Yates, Husch & Eppenberger, LLC, Kansas City, MO, for Defendants.

MEMORANDUM AND ORDER

VRATIL, District Judge.

Sherri Litton, Ronald Litton and Paper Consulting And Design, LLC ("Paper Consulting") bring suit against Maverick Paper Company ("Maverick"), Robert W. Hatch and Richard Williamson, for various claims arising out employment and shareholder relationships with Maverick.

By virtue of the Court's order of January 28, 2005, which dismissed some of plaintiff's claims, see Memorandum And Order (Doc. # 66), the following claims remain in the case: Sherri Litton's claims against Maverick for employment discrimination and retaliation under Title VII (Counts I and II); Ron Litton's claims against Maverick for employment retaliation under Title VII (Count III); Ron Litton's claims against Maverick for breach of the executive employment agreement (part of Count IV); Ron Litton's claims against Maverick for breach of the personal services agreement (part of Count V); Sherri Litton and Ron Litton's claims against Maverick for breach of implied contract (Count VIII); Sherri Litton and Ron Litton's claims against all defendants for breach of the shareholders agreement (Count IX); Ron Litton's claims against all defendants for breach of demand notes (Count X); Sherri Litton and Ron Litton's claims against all defendants for tortious breach of duty of good faith and fair dealing (Count XI); Sherri Litton and Ron Litton's claims against all defendants for constructive fraud (Count XII); Sherri Litton and Ron Litton's claims against Hatch and Williamson for breach of fiduciary duty (Count XIII); and Ron Litton's claim against Hatch for fraudulent misrepresentation (Count XIV). This matter comes before the Court on Defendants' Motion For Summary Judgment (Doc. # 67) filed February 7, 2005. For reasons stated below, the Court sustains the motion in part.

I. Legal Standards

Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. See Fed.R.Civ.P. 56(c); accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Vitkus v. Beatrice Co., 11 F.3d 1535, 1538-39 (10th Cir.1993). A factual dispute is "material" only if it "might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. A "genuine" factual dispute requires more than a mere scintilla of evidence. Id. at 252, 106 S.Ct. 2505.

The moving party bears the initial burden of showing the absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Hicks v. City of Watonga, 942 F.2d 737, 743 (10th Cir.1991). Once the moving party meets its burden, the burden shifts to the nonmoving party to demonstrate that genuine issues remain for trial "as to those dispositive matters for which it carries the burden of proof." Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir.1990); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir.1991). The nonmoving party may not rest on its pleadings but must set forth specific facts. Applied Genetics, 912 F.2d at 1241.

"[W]e must view the record in a light most favorable to the parties opposing the motion for summary judgment." Deepwater Invs., Ltd. v. Jackson Hole Ski Corp., 938 F.2d 1105, 1110 (10th Cir.1991). Summary judgment may be granted if the non-moving party's evidence is merely colorable or is not significantly probative. Anderson, 477 U.S. at 250-51, 106 S.Ct. 2505. "In a response to a motion for summary judgment, a party cannot rely on ignorance of facts, on speculation, or on suspicion, and may not escape summary judgment in the mere hope that something will turn up at trial." Conaway v. Smith, 853 F.2d 789, 794 (10th Cir.1988). Essentially, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-52, 106 S.Ct. 2505.

"Supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein." Fed.R.Civ.P. 56(e). Rule 56(e) also requires that "copies of all papers or parts thereof referred to in an affidavit be attached thereto or served therewith." To enforce this rule, the Court ordinarily does not strike affidavits but simply disregards those portions which are not shown to be based upon personal knowledge or otherwise do not comply with Rule 56(e). Maverick Paper Co. v. Omaha Paper Co., Inc., 18 F.Supp.2d 1232, 1234-35 (D.Kan.1998).

II. Facts

The following facts are either uncontroverted or, where controverted, construed in the light most favorable to plaintiffs:¹

A. Maverick And Its Shareholders

In February of 1995, Ken Mast approached Ron Litton about starting Maverick, a paper converting and distributing company. Litton recruited J.D. Battenberg to work for the company and until January of 1996, Mast, Litton and others ran the company. During that time, Maverick was a fast-growing company which faced increasing demand for its services. Maverick was undercapitalized, however, and needed additional capital to maintain excellent credit to meet the growing demand for its services.²

In late 1995, Mast told Litton and Battenberg that he wanted to sell the company. Litton and Battenberg initiated discussions with Robert Hatch about purchasing the company.³ In January of 1996 Litton, Battenberg, Hatch, Richard Williamson and other employees purchased Maverick.⁴ Out of 100,000 shares, Litton purchased 13,676 shares at $1.00 a share, for a debt investment of $13,676.00. Hatch purchased the largest number of shares and Williamson purchased the second largest number of shares.⁵

On January 16, 1996, the Maverick investors entered into a shareholders agreement. With respect to transfer of shares, the agreement provided that "[n]o shareholder will sell, assign, give, grant, donate, pledge, mortgage, encumber, charge or otherwise dispose of or transfer any of his or her shares except with prior Board Approval, or in accordance with the terms and conditions of this Agreement." The agreement further provided that a "redemption event" would occur upon the voluntary or involuntary termination of a shareholder's employment with the company. Defendants Exhibit 8, ¶ 4.1. In cases other than for-cause termination, the agreement stated that the redemption price would be the appraised value of the shares. Id. ¶ 4.2. It defined "appraised value" as the most recent determination of the fair market value of the company prior to the applicable redemption event, divided by the number of shares outstanding on the date of which such determination was made, determined as follows: "The Chief Financial Officer will complete an appraisal of the fair market value of the Company as of the end of each fiscal year of the Company as soon thereafter as financial statements of the Company for such fiscal year are completed, such appraisal to be in accordance with such formulas, factors, and procedures as the Board directs." Id. ¶ 4.2(a).

Maverick shareholders chose Litton to serve as president because he was already running the company and he knew the most about the paper industry. From January of 1996 until January of 2002, Litton served as president and ran the day-to-day operations of the company.⁶ From 1997 to January of 2002, Litton also served as chief executive officer ("CEO") of Maverick. In addition, from January of 1996 until May of 2003, Litton served as a member of the board of directors.

From January of 1996 to the present, Hatch has served as Chairman of the Board of Directors of Maverick.⁷ Since January of 2000, Larry Kibler has served as its chief financial officer ("CFO"). Currently, Maverick operates only as a paper converter, i.e. it converts huge rolls of paper into smaller pieces of paper for customers.

B. Omaha Paper Purchases Maverick Shares

In October of 1996, Robert Powell, who was president of Omaha Paper Company ("Omaha Paper"), told Litton that Omaha Paper would like to buy Maverick. Omaha Paper was substantially larger and had access to paper mills and mill-approved local franchises, which Maverick did not have. At the time, Maverick operated primarily as a paper distributor and access to mill franchises could substantially increase its ability to distribute paper.

At the end of 1996, Hatch loaned Maverick $531,000.00. For 1996, the company suffered operating loss of $25,455.00 and net loss of $333,910.00.

In February of 1997, Maverick's board of directors approved an appraisal of Maverick shares at $2.75 a share. On March 5, 1997, Maverick shareholders reviewed a potential sale of equity to five employees of Omaha Paper. To facilitate the sale, they agreed to increase the total number of Maverick shares from 100,000 shares to 129,473 shares. On the same day, Litton signed an executive employment agreement to work as president and CEO of Maverick. The agreement provided that Maverick would pay Litton a minimum salary of...