Miller v. U.S. Foodservice, Inc.
| Decision Date | 23 March 2005 |
| Docket Number | No. CIV.A. CCB04-1129.,CIV.A. CCB04-1129. |
| Citation | 361 F.Supp.2d 470 |
| Parties | James L. MILLER v. U.S. FOODSERVICE, INC., et al. |
| Court | U.S. District Court — District of Maryland |
James L. Miller, former President, Chief Executive Officer, and Chairman to United States Foodservice, Inc. ("USF"), and director to its parent company, Koninklijke Ahold N.V. ("Royal Ahold"), sued his former employers, including three individual officers of Royal Ahold and the wholly-owned subsidiary Ahold U.S.A., Inc., for failing to provide him with the post-termination benefits he claims he is entitled to under his employment agreement.1 Miller's complaint contains claims for breach of contract, including anticipatory breach of contract, fraudulent inducement, negligent misrepresentation, and promissory estoppel. He is seeking a declaratory judgment as to whether and to what extent he is entitled to benefits, as well as compensatory damages in the amount of at least $ 10 million, and a temporary restraining order and preliminary injunction ordering the companies to pay his benefits pending the outcome of this litigation.2 Royal Ahold and USF ("the companies") countersued,3 claiming, among other causes of action, that Miller violated the fiduciary duties of due care, good faith, and loyalty, and therefore they are not obligated to provide him with the benefits conferred by the contract. The companies also are suing under the theory of corporate waste, and are bringing contract claims for mutual mistake and unjust enrichment. They are seeking forfeiture, disgorgement, and restitution to Royal Ahold and USF of compensation, incentive-based bonuses, and other benefits, as well as rescission of the employment agreement if its enforcement would result in ill-gotten gains. Miller has moved for dismissal, or in the alternative, for summary judgment, on the grounds that Royal Ahold and USF have failed to state a claim because he is protected by the business judgment rule, or the indemnification provisions of the USF by-laws. The issues regarding Royal Ahold and USF's counterclaim have been fully briefed and no hearing is necessary. See Local Rule 105.6. For the reasons set forth below, Miller's motion to dismiss will be denied in part and granted in part.
James Miller joined USF, a Delaware corporation engaged in the food distribution business and headquartered in Columbia, Maryland, in 1983 and rose to the position of CEO in 1994. Miller also served as USF's Chairman of the Board of Directors, President, and CEO since 1997. After Royal Ahold, an international food provider based in the Netherlands, acquired USF in 2000, Miller became a member of Royal Ahold's Executive Board (also known as its Managing Board or "RVB") on or about September 1, 2001. He served in this dual capacity as officer and director for USF and director for Royal Ahold until May 13, 2003, the day he resigned from his positions.
Miller's resignation was precipitated by an accounting scandal involving USF's income from promotional allowances, which are payments made by vendors to the company to promote their goods. In 2003, internal investigations revealed that USF "accounting irregularities" had resulted in an overstatement of USF's income by nearly $900 million for fiscal years 2000 and 2001, and during fiscal year 2002. (Countercl.¶ 6.) Consequently, Royal Ahold restated its earnings in October 2003 in the 2002 Form 20-F filed with the SEC. (Countercl.¶ 7.) The 2002 Form 20-F reported that Royal Ahold "determined that certain senior officers and other USF employees had violated generally accepted accounting principles by improperly and prematurely recognizing promotional allowances" and that "material weaknesses in USF's accounting procedures and internal controls had permitted this improper revenue recognition over the preceding three years." (Countercl.¶ 9.) Miller avers that he had "absolutely no involvement in the purported wrongful conduct" and that the companies have treated him as a "scapegoat" for the problem (Compl.¶¶ 11, 12.) The companies contend that as President, CEO, and Chairman of USF during the relevant years, Miller had "supervisory, managerial, and oversight responsibilit[y]" for USF's operations and accounting practices, that he knew by July 2000 of material weaknesses in USF's internal controls, and that he failed to oversee correction of the known accounting deficiencies for almost three years. (Countercl.¶¶ 10-24.) The counterclaimants assert that Miller was alerted to the internal control problems by a July 24, 2000 letter from Deloitte & Touche, the company's external auditor, which stated that "deficiencies in the design and operation of [USF's] internal controls ... could adversely affect the Company's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements." (Countercl.¶ 15.) In addition, the companies assert that Miller intentionally misrepresented that corrective measures were being implemented several times during USF Audit Committee meetings in 2000 through 2002. (See Countercl. ¶¶ 17-21, referring to meetings on November 29, 2000, April 5, 2001, October 29, 2001, April 8, 2002, and in October and November 2002.) The companies contend they later learned that, contrary to Miller's positive assertions, "no significant progress had been made on implementing the necessary changes." (Countercl.¶ 19.)
At the request of senior Royal Ahold executives, Miller resigned from his USF and Royal Ahold positions on May 13, 2003. (Compl.¶ 13.) According to Miller, in exchange for his resignation, he was promised he would receive post-termination benefits as specified by his employment agreement with USF, a severance payment in consideration for his service with the Royal Ahold Executive Board ("RVB"), and all rights and benefits through his Ahold USA retirement plan vested through December 31, 2003. (Compl.¶ 12.) On September 29, 2003 Miller received a letter from USF (see Compl. ¶ 21, Ex. 7) stating that his employment would officially terminate October 1, 2003 and at that time all benefits, other than those expressly addressed in his initial employment terms letter from October 4, 2001 and the addenda attached thereto (Compl., Ex. 1), as well as the February 2, 2001 letter regarding post-termination benefits (Compl., Ex. 6), would also cease. On January 28, 2004, Miller received a letter from Royal Ahold stating that the company would terminate his post-termination benefits on February 29, 2004. (Compl.¶ 22, Ex. 8.) On February 17, 2004, Miller received a letter from Royal Ahold and USF explaining that they would continue to provide some, but not all, post-termination benefits on a voluntary basis, subject to modification for any reason that the companies deem appropriate. (Compl.¶ 22, Ex. 9.) Miller contends that Royal Ahold and USF fraudulently induced him to resign by promising these benefits, and that they materially breached their agreement when they unilaterally ceased providing him with post-termination benefits. The companies argue that Miller materially breached his employment agreement by violating the fiduciary duties of due care, good faith, and loyalty, and therefore they are discharged from their obligations under the employment and severance agreements.
Generally, the law of a corporation's state of incorporation applies to claims arising from the company's internal affairs. Gonzalez v. Fairgale Props. Co., N.V., 241 F.Supp.2d 512, 516 n. 4 (D.Md.2002). USF is incorporated in Delaware, and the parties rely on Delaware law throughout their motions.4 Likewise, because Miller's employment agreements were executed in Maryland and related to his employment in Maryland, Maryland law will apply to the companies' contract claims.5
Miller has moved to dismiss the companies' counterclaim or, in the alternative, for summary judgment. Miller urges the court to consider documents outside the pleadings, namely, the indemnification provisions of the USF by-laws, to dispose of Royal Ahold and USF's claims on summary judgment. He contends that the indemnification provisions negate the companies' claims because they establish that he cannot be personally liable for acts undertaken while serving as an officer and director. Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment
shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
See Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 525 (4th Cir.2003) () Accordingly, summary judgment is generally a more appropriate standard of review once the facts have been elicited through the development of the record, whereas a motion to dismiss standard generally tests the sufficiency of the pleadings alone. See Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir.1999) () (internal quotation...
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