McKenna v. Capital Resource Partners, IV

• Decision Date: 25 June 2007
• Docket Number: No. A07A0342.,A07A0342.
• Citation: 650 S.E.2d 580,286 Ga. App. 828
• Parties: McKENNA et al. v. CAPITAL RESOURCE PARTNERS, IV, L.P. et al.
• Court: Georgia Court of Appeals

286 Ga. App. 828

650 S.E.2d 580

McKENNA et al. v. CAPITAL RESOURCE PARTNERS, IV, L.P. et al.

No. A07A0342.

Court of Appeals of Georgia.

June 25, 2007.

Reconsideration Denied July 27, 2007.

Certiorari Denied October 9, 2007.

Brown & Shamp, Laura M. Shamp, Atlanta, for appellants.

Powell Goldstein, Daniel G. Ashburn, Seyfarth Shaw, Matthew N. Foree, Charles W. Ingraham, Atlanta, for appellees.

BARNES, Chief Judge.

The appellant-plaintiffs are minority shareholders in Loyaltyworks.¹ They sued the company and its majority shareholder Capital Resource Partners, IV, L.P. (CRP) to enforce a verbal settlement agreement. The defendants denied reaching an agreement, contending that any agreement had to be in writing to be binding. Loyaltyworks also counterclaimed against plaintiff Rorke on a promissory note he had signed in exchange for exercising his option to buy stock in the company. The trial court granted summary judgment to the appellee-defendants on the main complaint, and to Loyaltyworks on its counterclaim against Rorke. Because we conclude that questions of fact exist regarding whether the parties reached an agreement, we reverse the trial court as to both grants of summary judgment.

On appeal we review the trial court's grant of summary judgment de novo to determine whether the evidence, viewed in the light most favorable to the nonmoving party, demonstrates a genuine issue of material fact. Summary judgment is proper only when no issue of material fact exists and the moving party is entitled to judgment as a matter of law. Preferred Real Estate Equities v. Housing Systems, 248 Ga.App. 745, 548 S.E.2d 646 (2001). On appeal of the grant or denial of a motion for summary judgment, this court conducts reviews of the law and the evidence de novo. Overton Apparel v. Russell Corp., 264 Ga.App. 306, 307, 590 S.E.2d 260 (2003). Further, the court cannot resolve the facts or reconcile the issues when deciding whether summary judgment should be granted. Fletcher v. Amax, Inc., 160 Ga.App. 692, 695, 288 S.E.2d 49 (1981).

Viewed in this light, the record shows that the plaintiffs hired attorney Everette Doffermyre in late 2003 to investigate whether they should sue Loyaltyworks and its two majority shareholders, CRP and Equity-South Partners, L.P., for breach of fiduciary duty. The minority shareholders believed that these entities refinanced the company to dilute their minority shares below two percent, thus rendering them unable to force the company to disclose its financial records. Even before this "downround financing," the plaintiffs had received little or no communication from Loyaltyworks, had no input into company decisions, and did not know how the company was doing financially. Loyaltyworks' board of directors would not pursue offers to buy the company in 2002, because it said the company was not for sale. Although Loyaltyworks had issued options at $2 per share in February 2002, it refinanced the company at 26 cents per share in December 2002. Rorke also wanted to return the 100,000 shares of Loyaltyworks stock he obtained in 2000 when he executed his options at $1 per share and cancel his $100,000 note which was paid for and was secured by that stock.

Doffermyre talked to Loyaltyworks' lawyer, Marc Gustafson, in October 2003 to discuss his clients' claims that the company and its majority shareholders had breached their fiduciary duty, then sent him an offer to settle, indicating that his clients would release their claims if the company bought their shares for a specific amount and cancelled Rorke's $100,000 note. Loyaltyworks' lawyer responded that the company would put together a counterproposal, but then in February 2004, Loyaltyworks' CEO replied that it could not accept the offer because doing so would render the company insolvent.

Stephen Jenks then sent a letter on February 24, 2004, to some of the minority shareholders, offering to buy their stock in Loyaltyworks for a specific price, "contingent upon execution of a mutually acceptable purchase agreement, . . . and neither [the shareholder] nor CRP shall be under any legal obligation unless and until the purchase agreement is executed." Jenks is Loyaltyworks' former chairman of the board and one of the three managing partners of CRP, which is Loyaltyworks' majority shareholder. Each plaintiff testified that he or she was not interested in negotiating a simple stock sale individually with Jenks, which Loyaltyworks' former CEO said she could have done on her own. Instead, they wanted to deal with all of their claims against Loyaltyworks for breach of fiduciary duty, as Doffermyre had already tried to do directly with the company.

Doffermyre's clients told him about the letter, and Doffermyre contacted Jenks to continue the discussions he had begun with Loyaltyworks' lawyer regarding his clients' claims against the company, because Jenks appeared to be someone who was willing "to go beyond" a stock sale and resolve the anticipated lawsuit. When asked if the plaintiffs had authorized him to act on their behalf in responding to this letter, Doffermyre said no, he had already been authorized to act from the time they initially hired him. Doffermyre said he called Jenks because he "appeared . . . to be a fruitful person to talk to about trying to resolve the litigation that I had been engaged to bring." He was a board member, a potential defendant, and had expressed an interest in buying stock from Doffermyre's clients, which Doffermyre thought they could "go beyond." If all his clients were going to do was sell their stock, they did not need Doffermyre; they wanted more than that.

Doffermyre testified that when he first talked to Jenks, Jenks said he was "interested as an investor in buying your clients' shares." Doffermyre asked, "Are you saying you're not interested in negotiating a resolution of claims but just wanted to buy their shares and not obtain a global resolution?" Jenks responded, according to Doffermyre. "No, you're right. I too want a resolution." Doffermyre offered to settle all claims for $2.6 million; Jenks countered he was willing to pay $900,000, but would talk to "his folk" and get back to Doffermyre. Jenks then e-mailed Doffermyre that he was "willing to amend my initial offer" for total consideration of $971,171, or $71,171 more than he previously offered. Doffermyre counter-offered; and Jenks counter-offered again with his "best and final offer." While the defendants argue that the language in Jenks' e-mail about amending his offer 34;explicitly" refers to the letter he sent to the shareholders, it could as easily refer to the first offer he made to Doffermyre.

Doffermyre accepted that "final" offer contingent upon Loyaltyworks cancelling Rorke's note, because some of the stock Rorke proposed to return to the company was secured by the note. Jenks e-mailed the other directors on Loyaltyworks' board that he had a verbal agreement to buy the plaintiffs' stock, cancel the note, and secure releases from all parties, listing the note cancellation as a "related topic." One of the members responded, "You have our support." The next day, Loyaltyworks' CFO emailed Jenks, confirming Rorke's share numbers and stating that their lawyer was "working up the Board consent for the forgiveness of the Rorke note." The next day, Jenks left Doffermyre a voicemail stating that they had an agreement and that his lawyer would send him a written agreement with release language for his review.

Two days later, CRP's lawyer contacted Doffermyre to begin drafting the agreement documents, and two weeks later sent a draft "Security Purchase Agreement" to him. Loyaltyworks' lawyer also sent Doffermyre a draft of a "Notice and Waiver of Right of First Refusal and Right of Co-Sale," which provided that CRP had notified Loyaltyworks of its verbal agreement to buy the shares held by the plaintiffs, and a draft "Note Cancellation Agreement and Lost Stock Affidavit." Doffermyre edited the securities purchase agreement and returned it to CRP's lawyer.

The next day, Doffermyre had "a pleasant conversation" with Loyaltyworks' lawyer regarding the note cancellation agreement and lost stock certificate. Thirty minutes later, CRP's lawyer called Doffermyre and said that Jenks had changed his mind and did not want to go through with the deal because the company's financial performance was "not what it had been hoped to be." This suit followed.

The trial court granted summary judgment to the defendants, finding that CRP had clearly indicated before reaching the verbal agreement that it did not intend to be bound before executing a written agreement, and finding that the parties had disagreed on material terms. Because of these findings, the trial court also granted summary judgment to Loyaltyworks on its counterclaim on Rorke's note.

The appellant-shareholders contend on appeal that the trial court erred (1) in finding that CRP's offer was contingent upon the parties executing a written purchase agreement; (2) in finding that the parties had not agreed to all material terms; and (3) in finding that Rorke's note had not been cancelled. They assert that genuine issues of material fact exist as to all...