Utopia Coach Corp. v. Weatherwax

• Decision Date: 21 August 1978
• Docket Number: No. 3-776A175,3-776A175
• Citation: 177 Ind.App. 321,379 N.E.2d 518
• Parties: UTOPIA COACH CORPORATION and Poloron Products, Inc., Appellants-Defendants, v. Gary WEATHERWAX, Appellee-Plaintiff.
• Court: Indiana Appellate Court

Page 518

379 N.E.2d 518

177 Ind.App. 321

UTOPIA COACH CORPORATION and Poloron Products, Inc. Appellants-Defendants, v. Gary WEATHERWAX, Appellee-Plaintiff.

No. 3-776A175.

Court of Appeals of Indiana, Third District.

Aug. 21, 1978.

Kenneth P. Fedder, South Bend, for appellants-defendants.

Anthony J. Iemma, Elkhart, Gerald A. Kamm, South Bend, for appellee-plaintiff.

STATON, Judge.

Gary Weatherwax and Poloron Products, Inc. executed a Sales Exchange Contract, through which Weatherwax exchanged his entire interest in Utopia Coach Corporation for Poloron stock. Pursuant to the contract, Weatherwax also executed an Employment Contract with Utopia. Contrary to expectations, Utopia subsequently operated at a loss. Poloron terminated Weatherwax and sold Utopia. Weatherwax brought an action for breach of contract. The trial court awarded him earnings under the Employment Contract in the amount of $24,350.00. In addition, the trial court, without hearing evidence on the issue, found that Weatherwax had received a "worthless asset" (the Poloron stock) in exchange for his interest in Utopia; the trial court valued the stock and awarded Weatherwax $45,446.63. The trial court awarded Utopia $10,700.00 on its counterclaim.

On appeal, appellants Poloron and Utopia seek relief; appellee Weatherwax seeks additional damages. We affirm the judgment awarding Weatherwax $13,650.00 ($24,350.00 set off by the $10,700.00 counterclaim). We reverse the award of $45,446.63 and remand to the trial court for presentation of additional evidence on the value of the Poloron stock.

Through the mid-60's, Weatherwax operated the Utopia Coach Corporation, which manufactured recreational travel trailers. In 1966 and 1967, Utopia showed a profit. In 1968, Utopia lost money due to an office fire. In the same year, Weatherwax decided to sell Utopia in order to increase Utopia's operating capital.

On November 1, 1968, two agreements were executed: an Agreement and Plan of Reorganization (the Exchange Contract) between Poloron and Weatherwax, through which Poloron exchanged 4,872 shares of its stock for Weatherwax's entire interest in Utopia, with provision for additional shares based on future earnings; and an Employment Contract between Utopia and Weatherwax, engaging Weatherwax in an executive capacity for a fixed salary plus a percentage of net earnings. The Exchange Contract contained a clause indicating an intent that it be enforced under New York law. The Employment Contract contained a clause requiring binding arbitration of any dispute.

After the transfer of ownership, the quality of construction of trailers gradually declined while prices increased. Weatherwax's authority as president was supplanted by that of various Poloron employees who were dispatched to oversee Utopia's operations. The production division began leaving trailers unfinished due to an inability to secure parts. Relationships with dealers became strained and sales dropped. Friction increased between Weatherwax and the "outsiders" from Poloron. He was told by a manager to stay away from the plant. Finally, on July 8, 1970, Poloron terminated Weatherwax. ¹ Poloron never realized a profit from Utopia, which was sold in 1971.

On March 29, 1971, Weatherwax filed his complaint, seeking damages for Poloron's and Utopia's breach of contract. Poloron and Utopia filed a Motion to Dismiss, which was overruled. ²

At trial, evidence was presented, primarily concerning Utopia's operations before and after Poloron's acquisition, and the ensuing problems. After trial, the court made written findings of fact in which it designated as "worthless" the Poloron stock that Weatherwax had received. On its own initiative, the trial court valued the shares and awarded Weatherwax a judgment.

Appellants Poloron and Utopia raise two issues on review:

ISSUE I: Whether the trial court erred in failing to grant appellants' Motion to Dismiss, in light of the arbitration clause contained in the Employment Contract.

ISSUE II: Whether the trial court erred in granting judgment to Weatherwax for the value of the Poloron shares, where the trial court exercised its discretion, with no evidence before it on the issue.

Appellee has attempted to raise two issues for our review:

ISSUE III: The trial court erred in failing to award punitive damages in light of Poloron's gross negligence in operating Utopia.

ISSUE IV: The trial court erred in finding that Poloron did not breach the Exchange Contract by selling Utopia prior to the end of the "earn-out period."

ISSUE I: ARBITRATION

The Employment Contract between Utopia and Weatherwax contained an arbitration clause:

"9. Any dispute hereunder shall be submitted to and conclusively resolved by arbitration by, and in accordance with the Rules and Regulations of the American Arbitration Association. The parties designate the Chicago, Illinois office of the said Association as the place where such arbitration proceedings shall be conducted."

Appellants Poloron and Utopia claim that the trial court should have granted their Motion to Dismiss, since the contract required Weatherwax to seek his remedy through arbitration rather than the courts.

At the time the contract was executed, November 1, 1968, Indiana followed the common law rule against arbitration of disputes arising after execution of the contract. An agreement which purported to oust the courts of jurisdiction over a future dispute was considered void as against public policy. Kistler v. Indianapolis & St. Louis Railroad Co. (1882), 88 Ind. 460, 464. It was consistently held that, under Indiana law, a contract provision requiring arbitration of future disputes was of no effect. Lerma v. Allstate Insurance Company, 301 F.Supp. 361 (N.D.Ind.1968); Vernon Fire and Casualty Insurance Company v. Matney (1976), Ind.App., 351 N.E.2d 60; Indiana Insurance Company v. Noble (1970), 148 Ind.App. 297, 265 N.E.2d 419.

Appellants suggest that the arbitration clause could be effected under IC 1971, 34-4-2-1 Et seq., Ind.Ann.Stat. § 3-228 Et seq., (Burns Code Ed.), which creates a method of arbitration. The act was effective on August 18, 1969, after the date of execution of the Employment Contract, but prior to the breach of such contract. However, the statute is not retroactive by its own provision. IC 1971, 34-4-2-20. See Pathman Construction Company v. Knox County Hospital Association (1975), Ind.App., 326 N.E.2d 844.

In light of the prevailing law as applied to the Employment Contract, Weatherwax could not have been required to seek arbitration after the Contract had been breached.

Appellants Poloron and Utopia argue that the Employment Contract must be construed together with the Exchange Contract, which contains the following clause:

"25. New York Law. This agreement is being delivered and is intended to be performed in the State of New York and shall be construed and enforced in accordance with the laws of that state."

Under New York law, the arbitration agreement would have been effective. Civil Practice Law & Rules § 7501.

There is no question but that New York law would apply in the event of breach of the Exchange Contract. However, the question remains: what law should the court have applied in an action for breach of the Employment Contract, which contained no express provision of applicable law? Appellants argue that the intent of the parties to apply New York law, here implied from the closely related Exchange Contract, must be given effect in construing the Employment Contract. Paulausky v. Polish Roman Catholic Union of America (1942), 219 Ind. 441, 39 N.E.2d 440. Weatherwax sets forth a contrary position:

"The court will consider all acts of the parties touching the transaction in relation to the several states involved and will apply as the law governing the transaction the law of that state with which the facts are in most intimate contact." Witherspoon v. Salm (1968), 142 Ind.App. 655, 237 N.E.2d 116, 123, quoting W. H. Barber Co. v. Hughes (1945), 223 Ind. 570, 63 N.E.2d 417, 423.

The latter cases closely approximate the position of the Restatement of the Law 2d, Conflict of Laws § 188 (1971). Where, as here, the court is Not satisfied that the parties have chosen the state law to be applied, the court will apply the law of the state having the most significant relationship to the transaction. The court considers such factors as: the place of contract; the place of negotiation; the place of performance; the location of the subject matter; and the domicile or place of incorporation and place of business of the parties.

Clearly, the two contracts involved in this case bore some relationship to each other. Both were effective on the same date. Both involved the outcome of the transfer of control of Utopia. Each made reference to the other. However, the evidence is by no means unequivocal that the two were intended to be construed together, so that New York law would apply to the Employment Contract. In fact, the two contracts had only one party in common Gary Weatherwax. Although he transferred control to Poloron, he was employed by Utopia. Where the parties to two contracts are not the same, the court need not construe the contracts together. Nash Engineering Co. v. Marcy Realty Corporation (1944), 222 Ind. 396, 54 N.E.2d 263.

An examination of the Employment Contract leads us to conclude that Indiana had the closest relationship to the contract. The contract was between an Indiana corporation and an Indiana resident. It involved employment principally in Indiana. In fact, the only connection to New York was a reference to Poloron, the New York corporation which had acquired Utopia's stock.

Since Indiana had the closest relationship to the Employment Contract, the trial court acted properly in applying Indiana law and in giving no effect to the arbitration clause. The trial court did not err in refusing to grant appellants' Motion to Dismiss.

ISSUE II: VALUE OF THE...