Macris v. Sevea Int'l, Inc.

• Decision Date: 18 July 2013
• Docket Number: No. 20110439–CA.,20110439–CA.
• Citation: 739 Utah Adv. Rep. 50,307 P.3d 625
• Parties: Michael N. MACRIS, Plaintiff and Appellee, v. SEVEA INTERNATIONAL, INC.; Jerry Saxton; Katie Saxton; Michael Connor; Sevea International Productions, LLC; American Equities Management, LLC; and Angels of America, LLC, Defendants and Appellants.
• Court: Utah Court of Appeals

307 P.3d 625

739 Utah Adv. Rep. 50

Michael N. MACRIS, Plaintiff and Appellee,

v.SEVEA INTERNATIONAL, INC.; Jerry Saxton; Katie Saxton; Michael Connor; Sevea International Productions, LLC; American Equities Management, LLC; and Angels of America, LLC, Defendants and Appellants.

No. 20110439–CA.

Court of Appeals of Utah.

July 18, 2013.

Zachary E. Peterson and Steven H. Bergman, Attorneys for Appellants.

Robert K. Hilder, Attorney for Appellees.

Judge CAROLYN B. McHUGH authored this Opinion, in which Judges GREGORY K. ORME and MICHELE M. CHRISTIANSEN concurred.

Opinion

McHUGH, Judge:

¶ 1 Jerry Saxton, Katie Saxton, Michael Connor, Sevea International Productions, LLC, American Equities Management, LLC, and Angels of America, LLC (collectively, Appellants) appeal the trial court's entry of judgment in favor of Michael N. Macris. We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

BACKGROUND

¶ 2 Macris and Christina McNally formed Sevea International, Inc. (Sevea) in February 2006, for the purpose of marketing and selling, among other products, customized artificial fingernails.¹ In developing the artificial fingernails, Sevea utilized certain patents, inventions, and discoveries that were transferred to Sevea by Artificial Nail Technologies, Inc. (ANT) pursuant to an asset contribution agreement dated February 28, 2006. The asset contribution agreement also required Sevea to issue ANT ten million shares of Sevea stock. Additionally, Dr. Craig Gifford, a principal and shareholder in ANT and an inventor on the patents, was to assign those patents to Sevea by March 27, 2006.

¶ 3 In March 2006, Jerry Saxton invested $250,000 in Sevea, and on April 15, 2006, Macris became a shareholder of Sevea. However, on April 17, 2006, ANT elected to terminate the asset contribution agreement on the ground that Sevea never issued the ten million shares of Sevea stock to ANT. Shortly thereafter, ANT filed a federal lawsuit (the Federal Lawsuit) against Sevea and Macris seeking the return of its intellectual property held by Sevea and a declaratory judgment that the asset contribution agreement had terminated.

¶ 4 In June 2006, Jerry Saxton invested another $500,000 in Sevea. By August 4, 2006, Macris owned six million shares, Jerry Saxton and his wife, Katie Saxton, together owned six million shares, and McNally owned one-and-a-half million shares of Sevea stock. Macris served as Sevea's Secretary/Treasurer and as a director, Jerry Saxton served as Sevea's CEO and as a director, and Katie Saxton served as Sevea's marketing director. At about that time, Sevea entered into an employment agreement with Gifford that included a non-compete provision precluding him from working for a competing artificial fingernail-making entity for three years after termination of the employment agreement.

¶ 5 On or about September 12, 2006, Sevea entered into an agreement with Macris Enterprises, LLC, making it the base level of a multi-level marketing program selling Sevea products under which all other distributors would be formed. On or about September 29, 2006, Macris, McNally, and the Saxtons entered into a voting agreement (the Voting Agreement) that required Macris and Jerry Saxton to agree on all decisions for the operation of Sevea. The Voting Agreement did not include procedures to be followed in the event that Macris and Jerry Saxton became deadlocked.² By October 2006, Sevea began selling its product in earnest.

¶ 6 By December 2006, problems had developed between Macris and Jerry Saxton regarding the management of Sevea. After attempts to resolve those issues failed, Jerry Saxton unilaterally declared Sevea closed, terminated all of Sevea's employees, and moved all of the company's manufacturing equipment, computers, intellectual property, and other assets to a different office location in Utah. Jerry Saxton formed a new company called Sevea International Productions, LLC (Sevea Productions), rehired Gifford and several other Sevea employees, and continued to develop, manufacture, and sell the same type of artificial fingernails previously sold by Sevea. Sevea Productions also used the same trade name and telephone number as Sevea and wrote to Sevea's distributors suggesting that they become wholesale distributors for the new company.

¶ 7 On February 22, 2007, Macris filed a complaint in the Third District Court asserting a derivative action on behalf of Sevea against the Saxtons, Gifford, and another party not involved in this appeal for breach of fiduciary duties, conversion of corporate assets, and interference with Sevea's prospective contractual rights.³ Macris simultaneously sought a temporary restraining orderand preliminary injunction prohibiting the Saxtons, Gifford, and Sevea Productions from violating various agreements, including Gifford's non-compete agreement, and requiring the return of Sevea's equipment, computers, intellectual property, records, and other assets.

¶ 8 The trial court granted the temporary restraining order against Gifford on March 2, 2007, and held an evidentiary hearing on the motion for preliminary injunction on April 11 and 12, 2007. The trial court issued a memorandum decision granting the preliminary injunction on behalf of Sevea against Gifford, the Saxtons, and Sevea Productions. The preliminary injunction enjoined Gifford from violating the non-compete agreement and enjoined the Saxtons and Sevea Productions from “developing, manufacturing, and/or selling custom fitting, reusable, mass-produced fingernails”; “from engaging in any business enterprise utilizing deceptively similar names to [Sevea]”; “from obtaining, using, or disclosing any confidential, proprietary trade secret information belong[ing] to [Sevea]”; and “from removing, hiding, secreting, harming, injuring, or in any manner altering the inventory, sales materials, accounting books and records, [d]istributor files, customer files, fixtures, and equipment, and any and all other documents and assets of [Sevea].” The injunction also required the Saxtons and Gifford to relinquish all Sevea inventory to Macris, for and on behalf of Sevea.

¶ 9 The Saxtons and Gifford filed an emergency motion to modify the preliminary injunction, asking the trial court “to clarify that Sevea will be managed and controlled in accordance with the Voting Agreement and that the [preliminary injunction] is not to be construed as termination [of the Voting] Agreement.” They also filed a motion requesting that a custodian be appointed to whom the Sevea assets could be returned, indicating that “[a] custodian could ensure that Sevea could continue to operate to provide employment for Sevea employees and produce nail products for sale by Sevea's distributors while Sevea's directors resolve their internal disputes.” In response, Macris argued that the Voting Agreement was terminated because Sevea had ceased doing business or, in the alternative, that he should be appointed as the custodian if the trial court decided that a custodian was appropriate.

¶ 10 On July 16, 2007, the trial court approved the appointment of a custodian and ordered the parties to agree upon an individual to serve in that capacity within ten days, but it declined to determine the continuing validity of the Voting Agreement at that time. The parties agreed to designate Gil Miller as the custodian. Subsequently, the Saxtons and Gifford filed several motions seeking to modify or dissolve the preliminary injunction, claiming that it was overbroad and unnecessary based on the appointment of the custodian and other changed circumstances. The trial court denied these motions.

¶ 11 Instead of turning Sevea's assets over to the custodian, the Saxtons and Gifford removed them from Sevea's Utah facilities. It was later discovered that in May and August 2007, shortly after the appointment of the custodian, Jerry Saxton and Gifford moved Sevea's manufacturing equipment, computers, files, and business records to Texas. In response, Macris filed a motion to hold the Saxtons and Gifford in contempt for violating the preliminary injunction. The trial court held an evidentiary hearing on that motion on December 17, 2007.

¶ 12 On December 19, 2007, the trial court entered an order for civil contempt (the First Contempt Order) finding that “[Appellants'] attorney ... admitted in open court [that] ... [Jerry] Saxton and ... Gifford removed equipment, records and computers in violation of the Court's Preliminary Injunction Order.” The trial court further found that Appellants had continued to produce artificial fingernails after the preliminary injunction was issued; that Appellants sold the nails to individuals and nail salons who comprised the same customer base that had previously purchased from Sevea; that the name Sevea had been used by Appellants on buildings in Texas; and that “[t]he same pictures owned and used by Sevea in advertising brochures are now in the public market place again promoting nail products, despite [Appellants'] claims they have no knowledge thereon,” which the court found not to be credible. In addition, the trial court found that Gifford's employment was “continued through a series of manipulations, including ... forming new companies (including but not limited to [Angels of America, LLC,] and [American Equities Management, LLC,] ) of which ... [the] Saxtons and ... Gifford and his wife are owners,” and that these companies were “a sham and [were] an attempt to try to avoid the Preliminary Injunction.” The trial court further found that Appellants “kept ... equipment and records in Texas, computers and records ... have not [been] returned to the possession of the custodian of [Sevea],” and that “Gifford has removed information and data from computers and has made copies of the information or placed it on other computers in his possession.”

¶ 13 As a sanction for this contemptuous conduct, the trial court ordered that the...