McElwee v. Wharton

• Decision Date: 03 September 1998
• Docket Number: No. 1:98CV126.,1:98CV126.
• Citation: 19 F.Supp.2d 766
• Parties: John McELWEE, Plaintiff, v. Gary WHARTON, Hazel Wharton, Omni Communications, and Omco, Inc., a Michigan corporation., Defendants.
• Court: U.S. District Court — Western District of Michigan

19 F.Supp.2d 766

John McELWEE, Plaintiff, v. Gary WHARTON, Hazel Wharton, Omni Communications, and Omco, Inc., a Michigan corporation., Defendants.

No. 1:98CV126.

United States District Court, W.D. Michigan, Southern Division.

September 3, 1998.

Thomas F. Kcernke, Boyden, Waddell, Timmons & Dilley, Grand Rapids, MI, Kenneth L. McElwee, Slattery McElwee & Jespersen, Short Hills, NJ, for Plaintiff.

Jack L. Hoffman, Wheeler Upham, PC, Grand Rapids, MI, for Defendants

ORDER

ENSLEN, Chief Judge.

In accordance with the Court's Opinion of this date;

IT IS HEREBY ORDERED that Defendant Hazel Wharton's Motion for Summary Judgment (Dkt. No. 14) is DENIED.

IT IS FURTHER ORDERED that the Defendants' Motion to Dismiss Count I (Dkt. No. 12) is GRANTED and that Count I of

the Amended Complaint is hereby DISMISSED.

IT IS FURTHER ORDERED that Defendants' Motion for Choice of Law Ruling (Dkt. No. 27) is GRANTED to the extent that the Court rules that Michigan law applies as to the trade sales representation contract at issue and further rules that the non-competition clause of the contract was illegal and void under applicable Michigan law. Otherwise, the Motion is DENIED.

IT IS FURTHER ORDERED that the Plaintiff's Motion for Partial Summary Judgment (Dkt. No. 35) is GRANTED to the extent of the Court's rulings.

OPINION

This matter is before the Court on the parties' cross-motions for summary judgment and dismissal in a suit challenging the legality of certain provisions of a trade sales representation agreement as to the sale of Bibles and religious books. The contest between the parties has been grimly waged. There are allegations in the record that the one of the Plaintiff's attorneys wants the "blood" of his adversary and has embarked on a "personal crusade" to "make sure" he "suffers." (Dkt. No. 15, Exhibits R and S.) There are allegations that one of the Defendants' attorneys has threatened sanctions to prevent the filing of legitimate allegations and has pursued the enforcement of an illegal agreement for the purpose of financially ruining the Plaintiff. (Dkt No. 23, Declaration of Ken McElwee.) The Court has also received at least one unsolicited letter from an attorney complaining about a fellow attorney's unprofessional conduct.¹ Overall, the litigation reminds one of Ambrose Bierce's definition of a "Christian" as "one who believes that the New Testament is a divinely inspired book admirably suited to the spiritual needs of his neighbor. One who follows the teachings of Christ insofar as they are not inconsistent with a life of sin." Ambrose Bierce, The Devil's Dictionary (World Pub. Co.1911). Literary allusions aside, the motions will be granted in part and denied in part.

FACTS

Plaintiff John McElwee filed suit against Defendants Gary Wharton, Hazel Wharton, Omni Communications, and Omco, Inc. on February 10, 1998. He filed his Amended Complaint on March 24, 1998. Defendants Gary Wharton and Omco, Inc. counter-sued Plaintiff on April 9, 1998. Both complaints have now been answered. The Case Management Order governing this suit establishes a completion date for discovery of December 31, 1998. Jurisdiction is asserted under both 28 U.S.C. § 1331 and § 1332.

Plaintiff alleges that he is a resident of Tennessee and is in the business of selling Bibles and religious books. He alleges that Defendant Omco, Inc. is a Michigan corporation with its principal place of business in Michigan and that it is in the business of selling Bibles and religious books. He alleges that Defendants Gary Wharton and Hazel Wharton are individuals residing in the State of Michigan and that said Defendants did business through a de facto partnership, Omni Communications. He further alleges that the Defendants in the name of Omni Communications entered into a trade sale representation agreement with Plaintiff that was illegal on several grounds. According to Plaintiff, the contract, which was signed in June 1980, established a "sham" independent contractor arrangement under which the Defendants improperly avoiding paying employment taxes. (Amended Complaint at ¶¶ 43-48.) According to him, he determined that the conduct of Defendants was illegal in this respect such that when presented with a new sales representation trade agreement in June 1997 he refused to sign the agreement and was terminated as a trade representative on July 13, 1997. (Id.) Thus, Plaintiff seeks restitution in Count I for the payment of employment taxes which taxes Defendants should have lawfully paid. (Amended Complaint at ¶¶ 65-66.) Plaintiff also alleges that the trade sales representation agreement signed was illegal under the law of the State of Michigan in that it contained an illegal anti-competition covenant that prevented sales representation of publishers represented by Omni within a year of termination with the exception of World Bible Publishers. (Amended Complaint at ¶¶ 22, 74.) He also charges that the Defendants, unbeknownst to him, engaged in illegal anti-competitive conduct by reaching an agreement with World Bible Publishers (which was later acquired by Riverside Book and Bible) not to hire McElwee within a year of the termination of his relationship with Omni. (Amended Complaint at ¶ 31.) According to his Amended Complaint, Defendants' conduct has illegally interfered with his rights to seek business relationships with others. (Amended Complaint at ¶ 72.) Plaintiff has included the trade sales representation agreement as an exhibit to the Amended Complaint. (Amended Complaint, Exhibit A.) The brief document was last signed by Plaintiff.

Defendant Hazel Wharton in her Motion for Summary Judgment (Dkt. No. 14) challenges Plaintiff's allegation that she participated in an Omni Communications partnership with her husband. According to her supporting brief, in the spring of 1980 Gary Wharton operated a sole proprietorship in the name of Omni Communications. (Id. at 1). The name "Omni Communications" was then a service mark licensed by the U.S. Patent and Trademark Office to Gary Wharton. (Dkt. No. 15, Exhibit A.) At the end of June, 1980, Omni Communications by signature of Gary Wharton approved the challenged trade sales representation agreement with John McElwee. (Dkt. No. 15, Exhibit B.) Thereafter, Omco, Inc. was incorporated by Gary Wharton on or about January 3, 1981. (Dkt. No. 15, Exhibit D.) Omco, Inc. assumed both the assets and liabilities of the sole proprietorship. (Dkt. No. 27, at 1 note 1). According to Hazel Wharton's Affidavit, she took no part in the operation of the sole proprietorship and "never had direct discussions with John McElwee when he was negotiating with my husband to become a sales representative with the business." (H. Wharton Affidavit at ¶ 7.) She admits that she and Gary Wharton "may have talked ... about his negotiations with Mr. McElwee," but denies any specific recollection of those conversations. (Wharton Affidavit at ¶ 7.) She admits that the corporation named her to the Omco, Inc. Board of Directors in 1981 and as Secretary of Omco, Inc. in 1981, though she says that Gary Wharton made all business decisions for the corporation regarding sales representatives. (Id. at ¶ 8.) She admits working for Omco, Inc. between 1984 and 1995, but characterizes her work with Omco, Inc. as that of an employee handling accounts receivable. (Id. at ¶ 9.) She says that Gary Wharton was responsible for negotiating with sales representatives on behalf of Omco, Inc. (Id. at ¶ 11.) She says that in 1997 she may have had discussions with Gary Wharton relating to John McElwee but was never involved in making decisions as to John McElwee. (Id. at ¶ 11.)

Hazel Wharton's characterizations of her role with both Omni Communications and Omco are contradicted by the declarations of the Plaintiff and Nancy Hawkins and various documents filed by the Plaintiff. According to John McElwee, Gary and Hazel Wharton held out Omco, Inc. as a business run by Gary and Hazel Wharton. Several documents are cited as evidence of this, though each of the documents relate to statements about Omni after incorporation of Omco, Inc. (Dkt. No. 23, Exhibits B-H). John McElwee has indicated in his Declaration that Hazel Wharton was intimately involved in the day-to-day operations of Omco including sales and marketing and enforcement of company policy. (Dkt. No. 23, Declaration of John McElwee at ¶ 4.) McElwee has declared that he initially joined Omni because Gary Wharton repeatedly referred to Hazel Wharton as his business partner. (Id. at 8.) A former sales representative's wife (Nancy Hawkins) says that in 1981 Hazel Wharton held herself out to her and her husband as a partner in Omni Communications and persuaded Gary Wharton to employ her husband as a representative. (Dkt. No. 23, Declaration of Nancy Hawkins).

Defendants have brought the issue of the legality of the anti-competition clause to the Court's attention by the filing of a Motion for Choice of Law Ruling as to the anti-competition covenant. It is agreed by the parties that the choice of law (Tennessee versus Michigan law) is a dispositive issue in this litigation in that its resolution in Defendants' favor would result in the dismissal of Count V of the Amended Complaint. (Stipulation, Dkt. No. 42; and Order, Dkt. No. 46.) Plaintiff has also requested partial summary judgment as to Count V. The facts relevant to the formation of the agreement (aside from the participation of Hazel Wharton) are essentially undisputed. Defendants have also moved to dismiss Count I, relating to reimbursement for federal employment taxes, due to insufficiency of the allegations.

STANDARD FOR DISMISSAL

Inasmuch as Defendants seek dismissal of the Plaintiff's claims for tax restitution in Count I of the Amended Complaint, the instant controversy is governed by Federal Rule of Civil Procedure 12(b)(6). Under Rule 12(b)(6), a court must accept all well-pleaded allegations of the complaint as true and construe...