Whitmore v. Hawkins ( 2000 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ARNOLD P. WHITMORE,
Plaintiff-Appellant,
v.
No. 99-1443
LA-VAN HAWKINS; LA-VAN HAWKINS
URBANCITYFOODS, LLC; LA-VAN
HAWKINS INNERCITYFOODS, LLC,
Defendants-Appellees.
Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Joseph H. Young, Senior District Judge.
(CA-97-1959-Y)
Argued: April 5, 2000
Decided: June 27, 2000
Before MOTZ and KING, Circuit Judges, and John C. GODBOLD,
Senior Circuit Judge of the United States Court of Appeals
for the Eleventh Circuit, sitting by designation.
_________________________________________________________________
Affirmed in part, reversed in part, and remanded by unpublished opin-
ion. Senior Judge Godbold wrote the opinion, in which Judge Motz
and Judge King joined.
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COUNSEL
ARGUED: Squire Padgett, LAW OFFICE OF SQUIRE PADGETT,
Washington, D.C., for Appellant. Nathaniel Edmond Jones, Jr.,
JONES & ASSOCIATES, P.C., Baltimore, Maryland, for Appellees.
ON BRIEF: Isaac Joe, Jr., Baltimore, Maryland, for Appellant.
James H. Fields, JONES & ASSOCIATES, P.C., Baltimore, Mary-
land, for Appellees.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
GODBOLD, Senior Circuit Judge:
Arnold Whitmore is a fast food executive employed by La-Van
Hawkins InnerCityFoods, L.L.C. (ICF) to serve as its Chief Operating
Officer. Following his termination in 1996 Whitmore initiated this lit-
igation against ICF, La-Van Hawkins, and La-Van Hawkins UrbanCi-
tyFoods, L.L.C. (UCF). Whitmore contended that Hawkins, ICF, and
UCF were personally liable for breach of the employment agreement
that he signed with ICF. He also alleged that he was entitled to
receive the equitable value of the shares that he owned in ICF and
UCF. The district court dismissed Hawkins and UCF pursuant to Rule
50 and determined that Whitmore was not entitled to the fair market
value of his shares in either company. A jury found that ICF breached
Whitmore's employment contract and awarded him $92,884.65 in
back severance pay and a 5% equitable interest in ICF. Whitmore
appealed the dismissal of UCF and Hawkins and the district court's
finding that the operating agreement precluded him from receiving
the equitable value of his shares in the two companies. We agree with
the district court that UCF is not liable to Whitmore and that Whit-
more is not entitled to receive the value of his equity interest in either
ICF or UCF. We reverse the dismissal of Hawkins in his individual
capacity and remand to the district court for further proceedings.
FACTS AND PROCEDURAL HISTORY
La-Van Hawkins is the President and CEO of ICF, a Maryland lim-
ited liability company. Prior to 1996 ICF owned and operated several
2
Checkers Drive-In Restaurant franchises. In the summer of 1995
Hawkins began negotiating with Burger King Corporation for the
development of numerous Burger King restaurants in major inner city
markets. Hawkins personally recruited the services of Arnold Whit-
more, an experienced fast food executive, to manage the Checkers
restaurants and serve on the future management team of a new entity
(UCF) that would operate the Burger King Restaurants. In October of
1995 Whitmore agreed to serve as COO for ICF and entered into an
employment contract (the employment contract). The initial para-
graph of the employment contract states:
This employment agreement is made and entered into .. .
by and between La-Van Hawkins InnerCityFoods, a Mary-
land Limited Liability Company ("ICF") and Arnold Whit-
more ("Whitmore"), a resident of Illinois, and La-Van
Hawkins ("Hawkins"), a resident of the state of Maryland.
Although the employment contract states that it is"by and between"
ICF, Whitmore, and Hawkins, the only signatories to the agreement
were ICF and Whitmore. Hawkins signed the contract as the represen-
tative of ICF, but he did not sign the contract in his individual capac-
ity, nor was there a signature line for him to sign in his individual
capacity.
The employment contract gave Whitmore "a five percent (5%)
equity interest ("Ownership Interest") in the Company that owns and
operates the Checkers Restaurants or the company that will own and
operate the BKC restaurants and other quick service food concepts."
The ownership interest was to be "issued over a two year period at
2.5% each year at no cost to Whitmore." The employment contract
also provided that Whitmore would receive twelve months base sal-
ary, $115,000, as a final cash settlement if he was terminated. At the
time of his termination Whitmore's base salary was $115,000.
When Whitmore joined ICF all parties expected that Burger King
would sign a franchise agreement allowing Hawkins to operate 125
Burger King franchises. After Whitmore signed the employment con-
tract with ICF Hawkins obtained an agreement from Burger King to
build 125 franchises in inner cities across America.
3
The agreement with Burger King necessitated the formation of a
new company to operate the Burger King restaurants. In February of
1996 Hawkins, Whitmore, and three other executives formed UCF
and signed the UCF operating agreement to operate the Burger King
Restaurants. Whitmore paid $50 for a 5% Class B ownership interest
in UCF.
Hawkins terminated Whitmore and another executive in May of
1996. The only restaurants in existence at the time of Whitmore's ter-
mination were the Checkers restaurants owned and operated by ICF.
At the time of termination UCF owned no restaurants, had no assets,
and conducted no business. Whitmore was tendered $22,115.35 as
severance, an amount equal to two months of his $115,000 annual sal-
ary.
After Whitmore was terminated Hawkins sold some of his Check-
ers restaurants and transferred the remainder to UCF pursuant to his
agreement with Burger King. The sale, which occurred in August of
1996, was allegedly worth between 10 and 40 million dollars.
Whitmore initiated this lawsuit and sought damages for the equity
interest he had in both ICF and UCF and for the severance package
as set forth in the employment contract. He named Hawkins, ICF, and
UCF as separate defendants (collectively the "Hawkins defendants").
During discovery the district court denied Whitmore the financial
records of ICF and UCF after concluding that Whitmore was not enti-
tled to receive cash for his interest in ICF or UCF under the operating
agreements of either company. After the close of discovery the dis-
trict court denied the motion for summary judgment of Hawkins, ICF,
and UCF. Six months after the close of discovery Whitmore moved
to amend his complaint to include detrimental reliance claims. The
district court denied the motion.1
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1 We find no merit in Whitmore's contention that the district court
abused its discretion when it refused to allow him to amend his com-
plaint after the close of discovery. Whitmore admitted that he was aware
of the additional defenses that warranted the amended claims months
before he filed his motion to amend the claims. He elected not to file this
motion because he was busy with other aspects of this case that he felt
more compelling.
4
Prior to the start of the jury trial Hawkins filed a motion in limine
to prevent Whitmore from presenting evidence or argument that Haw-
kins was personally liable under the employment contract. The
motion was granted in open court and was reduced to a written order
after the jury entered its verdict.
The case proceeded to a jury trial. The district court granted Haw-
kins' motion for judgment as a matter of law and dismissed him at the
close of Whitmore's case-in-chief. At the close of all of the evidence
the district court granted UCF's motion for judgment as a matter of
law and dismissed UCF. The jury concluded that Whitmore's contract
with ICF had been breached from which he was entitled to
$92,884.65 and a 5% equitable interest in ICF.
Whitmore's contentions on appeal can be classified into three gen-
eral categories: 1) Hawkins' personal liability and dismissal pursuant
to FRCP Rule 50; 2) UCF's liability under the employment contract
and dismissal pursuant to FRCP Rule 50; and 3) Whitmore's right to
demand the equitable value of his shares in either ICF or UCF. Haw-
kins and UCF deny any liability to Whitmore under the Whitmore-
ICF employment contract. The Hawkins defendants contend that lan-
guage in the operating agreements of ICF and UCF prevent Whitmore
from demanding the value of his shares in the companies.
We apply de novo review to appeals challenging the granting of a
motion for judgment as a matter of law. The question is not whether
there is no evidence but whether there is sufficient evidence upon
which a jury properly can proceed to reach a verdict. On appeal, we
must resolve direct factual conflicts in favor of the nonmovant,
assume as true all facts supporting the nonmovant which the evidence
tended to prove, and give the nonmovant the benefit of all reasonable
inferences. In order to benefit from the favorable inferences available
on a motion for judgment as a matter of law, a nonmovant must pre-
sent substantial evidence. We must uphold the decision of the district
court to withdraw the case from the jury if Whitmore failed to satisfy
this minimal evidentiary standard. See Gairola v. Virginia Dep't of
Gen. Servs., 753 F.2d 1281, 1285 (4th Cir. 1985).
HAWKINS
Whitmore contends that Hawkins should not have been dismissed
from the case pursuant to Rule 50 because there was sufficient evi-
5
dence from which a reasonable juror could conclude that Hawkins
intended to be personally liable under the employment contract. The
parties do not dispute that the opening paragraph in the employment
contract states that the contract was "by and between" Whitmore, ICF,
and Hawkins. Nor do they dispute that there was no signature line for
Hawkins to sign in his individual capacity or that he failed to sign in
his individual capacity. Whitmore contends that these contradictory
areas of the contract create an ambiguity. Therefore the court should
look to other evidence which indicates that it was Hawkins' intent to
be personally liable under the employment contract. Hawkins con-
tends that Maryland law requires that his signature be given effect
only in his representative capacity and that the statute of frauds man-
dates the affirmance of his dismissal.
In determining whether a contract is ambiguous Maryland adheres
to the law of objective interpretation of contracts. Calomiris v.
Woods, 727 A.2d 358, 363 (Md. Ct. App. 1999). Under the objective
view, a written contract is "ambiguous" if, when read by a reasonably
prudent person, it is susceptible of more than one meaning. Id. To
determine if the contract is ambiguous we look to the purpose of the
contract, the facts and circumstances of the parties at the time of exe-
cution, and the language used in the contract. Id. (citing State v. Att-
man/Glazer P.B. Co., 594 A.2d 138, 144 (Md. 1991)).
There exists an ambiguity in the employment contract because the
first paragraph in the contract states that Hawkins was contracting in
his individual capacity, but there was no signature line for Hawkins
to sign in his individual capacity. The parties dispute whether we
should give effect to the opening paragraph or the lack of a signature.
Because the contract is ambiguous we must look at the surrounding
evidence to determine the intent of the parties. Whitmore proffered
sufficient evidence to show that Hawkins intended to be bound in his
individual capacity. The language in the opening paragraph stating
that Hawkins was a party to the contract is strong evidence indicating
Hawkins' intent. This evidence is further strengthened by the fact that
Hawkins instructed the person who drafted the contract. A general
rule of contract interpretation is that all ambiguities must be construed
against the person responsible for drafting the contract. See King v.
Bankerd, 492 A.2d 608, 612 (Md. 1985). Finally, there is evidence of
6
nearly identical contracts entered into by ICF and Hawkins with dif-
ferent employees that contained identical language in the opening
paragraph where Hawkins did sign in his personal capacity. Under the
standard of review for Rule 50 dismissals this evidence is consistent
with Whitmore's contention that Hawkins intended to be personally
liable.
Hawkins contends that the claim against him must fail even if the
contract is ambiguous because the statute of frauds writing require-
ment was not met. Subsection 3 of Maryland's Statute of Frauds, Art.
39 § 1 comprises what is known as the one-year provision, encom-
passing those contracts that cannot possibly be completely performed
within a year. Because this employment contract is undisputedly for
two years, it would usually fall within the one year provision and
would require Hawkins' signature to satisfy the writing requirement.
See, e.g., Collection & Investigation Bureau of Md. v. Linsley, 375
A.2d 47 (Md. Ct. App. 1977); see also Griffith v. One Inv. Plaza
Associates, 488 A.2d 182 (Md. Ct. App. 1985).
However, there is an exception under Maryland law through which
Hawkins can be held liable because he signed the contract as the
agent of ICF. Under Maryland law a party can be bound to a contract
that it did not sign when the evidence unequivocally indicates that the
non-signatory intended to be bound by the contract. See Residential
Warranty Corp. v. Bancroft Homes Greenspring Valley, Inc., 728
A.2d 783, 784 (Md. Ct. App.), cert. denied, 735 A.2d 1107 (Md.
1999); see also Porter v. General Boiler Casing Co., 396 A.2d 1090,
1095 (Md. 1979) (indicating that a non-signatory can be bound by a
contract because of his actions even when he does not sign the con-
tract).
In order for the acts of one party to transcend the bar of the
Statute of Frauds, those acts generally must be of such char-
acter that the court shall, by reason of the act itself, without
knowing whether there was an agreement or not, find the
parties unequivocally in a position different from that
which, according to their legal rights, they would be in if
there were no contract.
Mann v. White Marsh Properties, Inc., 581 A.2d 819, 821 (Md. 1990)
(citations omitted). Whitmore's proferred evidence met this burden.
7
Hawkins relies on Curtis G. Testerman Co. v. Buck, 667 A.2d 649(Md. 1995), for the proposition that contractual stipulations solely
bind the principal when a party acts as the agent of another. In Tester-
man the contract identified the corporation in the heading and signa-
ture page and the parties "were well aware" that Mr. Testerman was
acting as the agent for Curtis Testerman Company. Testerman is dis-
tinguishable from the present case because the opening paragraph
directly contradicts the signature page; in Testerman there was no
opening paragraph naming Mr. Testerman as a principal in his indi-
vidual capacity. A corporate official signing a contract in his official
capacity may be held liable in his individual capacity if the other
party is not aware that he is signing only in his official capacity.
Hawkins' failure to sign the contract is not dispositive of this issue.
See Continental Cablevision of New England, Inc. v. United Broad-
casting Co., 873 F.2d 717, 721 (4th Cir. 1989). Under Maryland law
[whether] an officer of a corporation, signing an agreement,
means to bind himself personally, must, as a general rule, be
determined by the face of the paper itself; but where there
is such ambiguity on the face of the paper as to be consistent
with either construction, whether one means to bind himself
personally, or acts in an official capacity, parol evidence is
clearly admissible to prove the circumstances under which
the contract was made, or, in other words, to prove the true
nature of the transaction.
Morrison v. Baechtold, 48 A. 926, 929 (Md. 1901) (citations omitted).
Therefore extrinsic evidence should have been submitted to the jury
to determine whether Hawkins intended to be bound.
When a court determines that an ambiguity exists the fact finder
may use extrinsic evidence that is consistent with the plain language
in the contract to resolve the ambiguity. See Admiral Builders Sav. &
Loan Ass'n v. South River Landing, Inc., 502 A.2d 1096, 1100 (Md.
Ct. App. 1986). The facts taken in the light most favorable to Whit-
more indicate that Hawkins intended to be personally liable.
A jury has not yet heard any evidence of Hawkins' personal liabil-
ity under the employment contract because this evidence was
8
excluded in a pre-trial motion. The district court dismissed Hawkins
pursuant to Rule 50 at the close of Whitmore's presentation of evi-
dence. In doing so the district court did not recognize the ambiguity
created by the opening paragraph of the contract and the facts that
tended to support Whitmore's contention. A jury should hear the evi-
dence surrounding Hawkins' personal liability to determine if Whit-
more was aware that Hawkins was acting only in his official capacity
when he signed the employment contract. We reverse Hawkins dis-
missal from the case and remand this issue to the district court.
UCF
Whitmore contends that UCF should not have been dismissed
under FRCP Rule 50 because it shared liability under the employment
contract. We conclude that Whitmore was the employee of ICF at all
times and that the district court properly dismissed UCF.
There is no dispute that UCF did not execute the employment con-
tract -- it had not yet been created. Whitmore contends that whether
UCF was an intended third party beneficiary or successor party to the
ICF employment contract was a question for the jury. He bases this
contention on several clauses in the employment contract that men-
tioned the company that was to be formed to operate the Burger King
franchises. Therefore it was reasonable to expect that UCF would rat-
ify the employment contract once it came into corporate existence and
Whitmore began serving as its Chief Operating Officer. See Porter,
396 A.2d at 1094.
However, Whitmore failed to proffer sufficient evidence to show
that UCF took any action in furtherance of the employment contract:
UCF never paid Whitmore any of the salary owed under the employ-
ment contract or paid him a bonus, never reimbursed Whitmore for
any expenses, including business-related expenses, and never pro-
vided any of the fringe benefits set forth in the agreement. ICF per-
formed all obligations set forth in the employment contract, paid his
salary, and provided office space for Whitmore. UCF is not liable
under the ICF contract because no rational trier of fact could conclude
that UCF was a party to the employment contract or in any way rati-
fied or adopted the employment contract. There was no error in the
dismissal of UCF.
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WHITMORE'S ENTITLEMENT TO SHARE VALUE
Whitmore's ownership interest in ICF and UCF requires some clar-
ification. Whitmore owns 5% of UCF and 5% of ICF. The employ-
ment contract with ICF clearly states that Whitmore was entitled to
a 5% share of ICF or the company created to own and operate the
Burger King stores at no cost to Whitmore.2 The purchase of 5% of
UCF in February of 1996 required Whitmore to make an additional
$50 contribution. This 5% share is separate from the 5% share dis-
cussed in the employment contract as is evidenced by the $50 contri-
bution requirement and the fact that other executives who purchased
5% of UCF in February included executives not owed 5% under any
ICF employment contracts. The jury decided that Whitmore has an
additional 5% equity interest in ICF. Therefore, Whitmore owned 5%
of ICF pursuant to his employment contract and purchased an addi-
tional 5% of UCF in February of 1996.
Whitmore contends that the jury should have been allowed to
determine the value of Whitmore's 5% equity interest in the two com-
panies because the Maryland Limited Liability Company Act required
both UCF and ICF to dissolve or redeem his interest for its fair mar-
ket value after his withdrawal as a member. However, both ICF and
UCF adopted operating agreements that modified the Maryland LLC
Act and the default rules set forth in the LLC Act that are relied upon
by Whitmore. Therefore the operating agreements control whether
Whitmore is entitled to receive the value of his shares of the two com-
panies.
ICF SHARES
The district court ruled that the jury could not determine the value
of Whitmore's 5% equity interest in ICF because the operating agree-
ments prevented him from demanding the value of his interest. Whit-
more contends that the previous version of the Maryland LLC Act in
effect at the time required ICF to dissolve or redeem Whitmore's
interest for its fair market value after his withdrawal as a member. See
Md. Limited Liability Company Act, §4A-905. However, the ICF
_________________________________________________________________
2 The contract states: "This ownership interest shall be issued over a
two year period at 2.5% each year at not (sic) cost to Whitmore."
10
operating agreements changed the default rules set forth in the LLC
Act. Therefore Whitmore's right to demand the equitable value of his
shares is controlled by the ICF operating agreement on any provisions
addressed in the operating agreement. See Md. Limited Liability
Company Act, § 4A-402(a). The default rules do not apply in this
case.
The ICF operating agreement requires Whitmore establish that he
withdrew from the company before he can assert any right for the fair
market value of his shares. The ICF operating agreement indicates
that a member may withdraw only under limited circumstances. We
are only concerned with the section addressing involuntary withdraw-
als.3 Whitmore contends that his termination acted as an involuntary
withdrawal. Section I of the operating agreement defines "Involuntary
Withdrawal" as the occurrence of any one of eleven events, none of
which occurred in this case.4 Whitmore failed to present any evidence
demonstrating that an involuntary withdrawal event occurred.
Even if one of the involuntary withdrawal events did apply to
Whitmore he would still not be entitled to the liquidated value of his
shares. Section 6.3 of the operating agreement states:
6.3 Involuntary Withdrawal. Immediately upon the occur-
rence of an Involuntary Withdrawal, the successor of the
withdrawn Member shall thereupon become an interest
holder but shall not become a member. If the Company is
continued . . . the successor interest holder shall have all
rights of an interest holder but shall not be entitled to
receive in liquidation of the Interest pursuant to§ 4A-
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3 Section 6.2 of the ICF operating agreement states that "No Member
shall have the right to Voluntarily Withdraw from the Company." Whit-
more makes no claims under this section.
4 Involuntary withdrawals as defined in the ICF operating agreement
include numerous bankruptcy and insolvency provisions (§ 6.2(i-vii)),
death or adjudications of incompetency of the member (§ 6.2 (viii)), dis-
solution or commencement of winding up of the partnership or LLC if
the member is a partnership or LLC (§ 6.2(x)), and distribution of the
estate's entire interest in the company if the member is an estate
(§ 6.2(xi)).
11
905((1)(ii)) of the Act, the fair market vale of the Member's
Interest as of the date the Member involuntarily withdrew
from the Company.
Record Excerpts at 1572 (emphasis added). Although the jury may
have awarded Whitmore a 5% interest in ICF, he is not entitled to the
fair market value of his equity interest.
UCF SHARES
Whitmore contends that he is entitled to the fair market value of
his shares in UCF. This contention fails for similar reasons.
Whitmore must prove that he is a withdrawn member under the
UCF operating agreement. Section 17.2 of the UCF operating agree-
ment prevents a person with an ownership interest from voluntarily
withdrawing from UCF without the approval of a majority of the
Class A members. R. at 1598. Whitmore received no such approval.
Therefore voluntarily withdrawal does not apply.
The UCF operating agreement also contained a section defining
involuntary withdrawals. Id. at 1598-99. The definition of involuntary
withdrawals under UCF's operating agreement differs from the ICF
operating agreement because § 17.3.1(m) classifies termination from
UCF as an event that satisfies the definition of involuntary with-
drawal. Id. at 1599.5
Whitmore failed to present sufficient evidence that any of the
involuntary withdrawal events occurred. Although Whitmore was ter-
minated, he was never an employee of UCF. At all times during Whit-
more's tenure with the Hawkins' defendants he was the employee of
ICF. Because he failed to present sufficient evidence showing that he
was an employee of UCF, he cannot rely on § 17.3.1(m). Therefore
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5 The UCF operating agreement lists several grounds for involuntary
withdrawal including several related to bankruptcy and receivership,
death and adjudication of insanity, and other situations not relevant to the
current case. Not until Whitmore's reply brief did he offer any sugges-
tion that he relied on § 17.3.1(m) as the involuntary withdrawal event.
12
he failed to satisfy the UCF operating agreement definition for invol-
untary withdrawals.
Even if Whitmore was an employee of UCF he would still not be
entitled to receive the equitable value of his interest. The UCF operat-
ing agreement does not require UCF to purchase the member's own-
ership or to receive the cash value of his ownership interest on his
request interest, even those members who involuntarily withdraw.
Whitmore has no right to require UCF to purchase his shares.
Because we find that the district court acted properly when it held
that Whitmore was not entitled to the equitable value of his shares in
either ICF or UCF, we find no merit in Whitmore's contention that
the court abused its discretion when it prevented Whitmore from
obtaining the financial records of ICF and UCF. We agree that the
financial information and the value of the shares is not relevant to this
case because the operating agreements of both ICF and UCF prevent
Whitmore from demanding the value of his shares.
AFFIRMED IN PART, REVERSED IN PART,
AND REMANDED
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