McCarthy v. U.S.I. Corp., 7718

Citation678 A.2d 48
Decision Date20 June 1996
Docket NumberDocket No. K,No. 7718,7718
Parties132 Lab.Cas. P 58,153 Stephen G. McCARTHY, et al. v. U.S.I. CORPORATION et al. DecisionLawno 95 404.
CourtSupreme Judicial Court of Maine (US)

George Z. Singal (orally), Daniel A. Pileggi, Gross, Minsky, Mogul & Singal, P.A., Bangor, for Plaintiffs.

Wayne R. Crandall (orally), Willard D. Pease, Mari S. Wells, Crandall, Hanscom, Pease & Collins, P.A., Rockland, for Defendants.

Before WATHEN, C.J., and ROBERTS, GLASSMAN, CLIFFORD, RUDMAN, DANA, and LIPEZ, JJ.

DANA, Justice.

Stephen G. McCarthy and Ursula Kruse-Vaucienne appeal from a judgment entered in the Superior Court (Knox County, Atwood, J.) on their complaint against U.S.I. Corporation and its shareholders. 1 Stephen and Ursula contend that the court erred in (1) finding that they are not shareholders in U.S.I.; (2) finding that they were properly terminated; (3) entering judgment as a matter of law in favor of U.S.I. on their claims of fraud and negligent misrepresentation; and (4) awarding excessive costs to U.S.I. We modify and then affirm the judgment.

In 1993 Stephen and Ursula, husband and wife, developed a plan to establish a lobster pound business. The plan involved the purchase of three lobster pounds and a fishing pier in Friendship and the lease of another fishing pier in Phippsburg. A group of investors was formed through the efforts of Ira Hersh.

In November 1993 Stephen, Ursula, and Hersh entered into a purchase and sale agreement for the properties. The investors made the down payment. Stephen, Ursula, and the investors continued to negotiate over the form of the new business until the time of the closing. On December 21, 1993, U.S.I. was incorporated in Maine. On December 31 Stephen, Ursula, and an authorized agent of Hersh and the investors, executed an Incorporation Agreement. Stephen, Ursula, and Hersh then assigned to U.S.I. their right, title, and interest in the purchase and sale agreement. The execution of the Incorporation Agreement, the assignment, and the closing on the properties occurred on the same day. Pursuant to the Incorporation Agreement U.S.I. hired Stephen and Ursula as managers of the corporation for a five year term.

In the summer of 1994 the investors became concerned when they learned that Stephen and Ursula had not authorized any repairs to the lobster pounds, had expended substantial corporate funds on personal expenses, had not obtained insurance on corporate assets, and had not paid U.S.I.'s payroll taxes.

On August 30, 1994, six of U.S.I.'s shareholders signed a document, purporting to be a unanimous resolution of the shareholders in lieu of a meeting, electing Daniel Fitzgerald, Hersh, and Stephen Plopper as directors and authorizing them to terminate Stephen and Ursula as managers of U.S.I. and to remove them from any office they held in U.S.I. The document did not include Stephen and Ursula's signatures and also was not signed by two of the investor shareholders. Fitzgerald, Hersh, and Plopper signed a resolution as "all of the members of the Board of Directors of U.S.I." terminating Stephen and Ursula's employment. When Stephen and Ursula received the resolutions and a letter explaining that they had been terminated, they objected and demanded reinstatement. On January 12, 1995, at a special meeting of the shareholders, the shareholders voted to ratify the prior actions of the shareholders regarding the discharge.

In September 1994 U.S.I. and its shareholders commenced an action against Stephen and Ursula seeking replevin of certain corporate records, a declaratory judgment as to the rights of the parties pursuant to the Incorporation Agreement, an injunction prohibiting Stephen and Ursula from participating in U.S.I. affairs, and a judgment against Stephen and Ursula for breach of the Incorporation Agreement. Stephen and Ursula filed a motion for a temporary restraining order and a preliminary injunction challenging their termination. On the same day they filed a complaint against U.S.I., its shareholders, and Plopper alleging a breach of contract and the tortious interference with contractual relations, and sought a temporary restraining order to reinstate themselves, a declaratory judgment as to the rights of the parties, the appointment of separate counsel for U.S.I., and the dissolution and disbursement of U.S.I.'s assets. U.S.I. counterclaimed alleging the following theories of recovery: conversion, fraud, repayment of monies owed, and breach of a fiduciary duty. The actions were consolidated. Stephen and Ursula were subsequently allowed to amend their complaint to allege fraud and negligent misrepresentation against Fitzgerald, Hersh, and Plopper.

At the close of Stephen and Ursula's case, in a jury-waived trial of the consolidated actions, U.S.I. moved for, and the court orally granted, a judgment as a matter of law against all of Stephen and Ursula's claims and in favor of U.S.I.'s request for a declaratory judgment. See M.R.Civ.P. 50(d). The court found that the Incorporation Agreement constituted a binding contract that Stephen and Ursula had breached and that Stephen and Ursula had been properly discharged for mismanaging U.S.I. and diverting corporate funds to their own use. The court then issued a written decision awarding $46,924.40 as damages, $54,317.59 as attorney fees, and $15,574.96 as costs. 2 Following the court's denial of their motion for findings of fact and conclusions of law, Stephen and Ursula filed this appeal.

When the trial court in a non-jury case grants a motion for a judgment as a matter of law pursuant to M.R.Civ.P. 50(d) at the close of the plaintiff's case after resolving factual issues against the plaintiff, we are not required to view the evidence in the light most favorable to the plaintiff. Smith v. Welch, 645 A.2d 1130, 1132 (Me.1994). Rather, we must accept the facts found by the court unless those findings are clearly erroneous. Id.

I.

The focal point of the parties' disagreement relates to section 3(c) of the Incorporation Agreement that provides:

Twenty-five percent (25%) of the authorized Class A shares (being 1,250) shall be issued to the Managers in accordance with the following schedule and terms:

(1) The 25% interest of Managers shall be issued and vested in Managers as of date of closing; however, such stock shall be escrowed and restricted as follows:

(a) Five percent (5%) of the authorized shares will be released from escrow jointly to McCarthy and Kruse-Vaucienne at the end of each year of the Initial Term [5 years], commencing December 31, 1994, until the total of twenty-five percent (25%) of the authorized Class A shares have been released to McCarthy and Kruse-Vaucienne.

(b) The release of shares from escrow to the Managers is conditional upon their continued employment with the Corporation.

(c) In the event the Shareholders of the Corporation decide to sell either the assets or stock of the Corporation prior to the expiration of the Initial Term, and the Managers are in the employ of the Corporation, then in such event, all of the shares remaining in escrow will be released to the Managers prior to such sale in order that the Managers will have a twenty-five percent (25%) interest in the Corporation at the time of the sale.

(d) The Managers' shares shall be subject to a restrictive legend, which shall be prominently displayed on shares issued to the Managers, and placed in escrow. The restrictive legend shall be removed from shares released from escrow to the Managers. The Managers agree that should their employment with the Corporation be terminated before the end of the Initial Term, either voluntarily or involuntarily, then in such event, the Corporation shall redeem the shares then released to the Managers at fair market value.

The court found that the parties intended that Stephen and Ursula earn their stock ownership over time, specifically five percent of the outstanding stock at the end of each year that they were still employed. Accordingly, the court determined that Stephen and Ursula were not shareholders at any time prior to their termination because the termination occurred in their first year of employment.

Stephen and Ursula contend that the fact that the final agreement did not characterize their stock as treasury stock, as prior drafts of the agreement had, demonstrates the parties' intent that twenty-five percent of U.S.I. stock was vested in them on the date of the closing. Stephen and Ursula also contend that several provisions in the agreement recognize their status as shareholders: the restrictive legend required to be displayed on their shares; their power to elect three members of the board of directors; the lack of temporal limitations on their right to purchase or sell stock; and the failure of the agreement to address the disposition of the shares of stock issued to them and held in escrow in the event they are fired, retire, or resign. Stephen and Ursula contend that the agreement should be construed against U.S.I. because an attorney for the primary investor drafted the agreement. They further contend that the inclusion of Stephen and Ursula's names in a list of shareholders of U.S.I. in its subchapter S election shows that they were shareholders. 3

Stephen and Ursula do not challenge the court's conclusion that the Incorporation Agreement is ambiguous. If contract language is ambiguous its interpretation is a question of fact that must be determined by the factfinder. Tondreau v. Sherwin-Williams Co., 638 A.2d 728, 730 (Me.1994). " 'Once an ambiguity is found then extrinsic evidence may be admitted and considered to show the intention of the parties.' " Fitzgerald v. Gamester, 658 A.2d 1065, 1069 (Me.1995) (citation omitted). A contract should be construed viewing it as a whole. Bartley v. Eastern Me. Medical Ctr., 617 A.2d 1020, 1022 (Me.1992). An interpretation that would render any particular provision in the...

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