Cole v. Champion Enterprises, Inc.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 07-1794
M. MARK COLE,
Plaintiff – Appellant,
v.
CHAMPION ENTERPRISES, INCORPORATED; SOUTHERN SHOWCASE
HOUSING, INCORPORATED,
Defendants – Appellees,
and
THE CHAMPION ENTERPRISES, INCORPORATED CORPORATE OFFICERS
STOCK PURCHASE PLAN; THE CHAMPION ENTERPRISES, INCORPORATED
DEFERRED COMPENSATION PLAN,
Defendants.
Appeal from the United States District Court for the Middle
District of North Carolina, at Durham. William L. Osteen,
Senior District Judge. (1:05-cv-00415-JAB)
Argued: October 29, 2008 Decided: December 30, 2008
Before KING, GREGORY, and SHEDD, Circuit Judges.
Affirmed by unpublished opinion. Judge Shedd wrote the opinion,
in which Judge King and Judge Gregory joined.
ARGUED: J. Alexander S. Barrett, HAGAN, DAVIS, MANGUM, BARRETT,
LANGLEY & HALE, P.L.L.C., Greensboro, North Carolina, for
Appellant. James Donald Cowan, Jr., ELLIS & WINTERS, L.L.P.,
Greensboro, North Carolina, for Appellees. ON BRIEF: D. Beth
Langley, Jason B. Buckland, HAGAN, DAVIS, MANGUM, BARRETT,
LANGLEY & HALE, P.L.L.C., Greensboro, North Carolina, for
Appellant. Dixie T. Wells, SMITH MOORE, L.L.P., Greensboro,
North Carolina; David C. Wright, III, Julian H. Wright, Jr.,
Pearlynn Houck, ROBINSON, BRADSHAW & HINSON, P.A., Charlotte,
North Carolina, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
2
SHEDD, Circuit Judge:
Mark Cole appeals the district court’s grant of summary
judgment in favor of Champion Enterprises, Inc. and Southern
Showcase Housing, Inc. (“SSH”)(collectively, “Champion”) on his
breach of contract, North Carolina Wage and Hour Act, illegal
restraint of trade, and ERISA claims, as well as the district
court’s dismissal of his unfair trade practices claim. 1 For the
following reasons, we affirm.
I
Champion is a publicly traded manufactured housing
producer. 2 In 1998, it purchased SSH and entered into a written
five-year employment agreement with Cole (the “January 1998
Agreement”). Among other things, the January 1998 Agreement set
Cole’s salary, incentive bonuses, and severance package. Later
that year Champion promoted Cole to President of Retail, a
promotion memorialized in a letter agreement (the “September
1
Cole also appeals the district court’s denial of his
motion to compel evidence. After reviewing the record, we find
that the district court did not abuse its discretion. See Wells
v. Liddy, 186 F.3d 505, 518 n.12 (4th Cir. 1999)(denying motion
to compel).
2
Because this is an appeal from the district court’s grant
of summary judgment to Champion, we review the facts in the
light most favorable to Cole. Iko v. Shreve, 535 F.3d 225, 230
(4th Cir. 2008).
3
1998 Agreement”). The September 1998 Agreement conveyed the
basic terms of Cole’s employment and explicitly incorporated all
terms from the January 1998 Agreement.
In the late 1990s, the mobile home industry experienced an
economic downturn, and over a six-year period Champion’s stock
price dropped from $30 to $2 per share. In 2000, Champion asked
Cole to surrender stock options that had severely plummeted in
value. Champion then re-issued stock to Cole via two Stock
Option Agreements (“SOAs”) adopted in January and September
2001. The two SOAs contained identical covenants not to
compete, providing in part that for two years following
termination Cole could not:
directly or indirectly . . . as owner, partner, joint
venturer, employee, broker, agent, principal, trustee,
corporate officer, licensor, consultant, or in any
capacity whatsoever, engage in, become financially
interested in, or have any connection with, any
business located in the United States or Canada
engaged in the production, sales, financing, insuring,
or marketing of manufactured homes or the development
of manufactured housing parks.
J.A. 125.
In 2002, Champion implemented provisions clarifying that
its Board of Directors (“the Board”) was in charge of all
4
aspects of executive compensation. 3 Any agreements regarding
executive compensation required the Board’s approval.
In 2003, Cole’s five-year employment contract expired, 4 and
Champion’s economic decline caused him to question his future
with the company. At Cole’s request, he met with Champion’s
then-CEO Walt Young in Las Vegas to ensure that the expiration
of his employment contract would not affect his severance or
equity compensation if Champion terminated him. Young told Cole
that he could keep the severance provisions from the expired
January 1998 Agreement and that similar agreements had been
worked out with other executive officers. However, Young
reminded Cole that the Board ultimately had to approve all
compensation related decisions.
A few months later, the Board terminated Young and
installed Albert Koch as interim CEO. Cole informed Koch of his
previous communications with Young, and Koch reiterated that the
Board (not the CEO) had ultimate decision-making authority
regarding executive compensation. In March 2004, Cole traveled
to Detroit and met with Koch. The parties discussed Cole’s
3
This clarification was at least partially in response to
the Sarbanes-Oxley Act of 2002. As Champion’s President of
Retail, Cole qualified as an “executive officer” (also known as
a “Rule 16(b)” officer).
4
Even after Cole’s employment contract expired, he remained
bound by the covenants not to compete located in the SOAs.
5
concerns regarding Champion’s recently disseminated 2004
compensation plan for executive officers. Cole felt that the
new plan’s incentive compensation structure was inconsistent
with his previous conversation with Young and failed to address
his concerns about potential termination. Cole informed Koch
that he was unwilling to continue working for Champion as long
as these issues remained unsettled and that he would resign in
five days if they could not reach an agreement. Koch asked for
time, explaining that he would need to meet with Champion’s pay
consultants and get Board approval before any action could be
taken.
Later that day, Koch and John Collins, Champion’s General
Counsel, called Cole on his cell phone. Koch acknowledged that
Cole’s primary concern was protecting the equity components of
his compensation but said that Champion did not want to amend
its equity compensation plans to provide Cole with immediate
vesting upon termination without cause. Instead, Koch proposed
a resolution whereby in the event of termination, Champion would
continue to employ Cole in a de minimis capacity so that Cole’s
equity could vest. Cole indicated that the arrangement sounded
workable, and Koch agreed to take it to the Board for approval.
Cole contends that an agreement was reached during this phone
call (“the March 2004 Agreement”).
6
At an April 2004 Board meeting, Koch outlined his
discussions with Cole. Koch then presented the following
“Approval Request” to the Board in the form of PowerPoint
slides: 5
Approval Request to Board
• Increase Mark Cole salary by $20,000.
• Salary will increase to $300,000 after two profitable
quarters (versus $285,000 now).
• Give Mark an option to:
o Retain current restricted stock (40,000 shares)
and target bonus of 80%, or
o Take restricted stock of 50,000 shares and reduce
target bonus to 60%.
• Give Mark a change of control agreement[.]
Ed Graskamp concurs with these changes.
If Mark Cole is removed as President of Retail without
cause, then:
• He may continue as a CHC retailer with an approx. 80%
stocking requirement,
• He will remain an employee with a different assignment
requiring about 10 days per year.
• His salary will be reduced to approx. $20,000 to
$30,000 per year.
This will preserve Mark’s existing restricted stock
and option grants. Vesting would occur on targeted
dates if he is still employed.
J.A. 4681-82.
The PowerPoint slides did not address several issues, such as
Cole’s post-termination position and salary, any potential
5
Microsoft PowerPoint is a software program typically used
to create business presentations. The presentations consist of
a progression of individual slides.
7
severance package, and how or when Cole would exercise his
“option” to choose a reduction in his cash bonus in return for
an increase in his number of performance shares. Nevertheless,
the Board and the Compensation Committee approved Koch’s request
and authorized him to proceed with Cole. Koch informed Cole
that the Board had approved the terms and that Collins would
subsequently draft a contract for Cole’s review.
Cole continued working for Champion in reliance on Koch’s
representations. In June 2004, Champion’s legal department sent
a draft of the agreement to Cole’s lawyer, Alex Barrett. The
draft included terms stating that “all previous employment
agreements between [the parties] are hereby rescinded” and that
the document “constitutes the sole and entire agreement.” J.A.
4836. Barrett returned a blacklined modification to Champion,
which Barrett described as “revisions from the first draft.”
J.A. 4692. This modified draft contained several provisions
either inconsistent with or not addressed by the PowerPoint
slides from the Board meeting. For example, the original
provisions requiring Cole to stock 80% of Champion’s products at
his future retail locations and reducing Cole’s annual incentive
targets were deleted from this modified draft.
William Griffiths replaced Koch as Champion’s CEO in August
2004. On or about September 1, 2004, Griffiths announced that
Champion was getting out of the retail business. As Champion
8
continued to review Cole’s modified draft of the employment
agreement, Griffiths sought and received approval from the Board
to terminate Cole’s employment. Champion then demanded that
Cole purchase its Eastern Retail Division in order for contract
negotiations to continue, and in late September Cole submitted
an offer to purchase those assets. The new proposal contained
terms, including a retroactive salary increase and release of
Cole’s covenants not to compete, that did not appear in the
PowerPoint outline.
On or about October 18, 2004, Champion terminated Cole
without cause. 6 Champion offered Cole a one-year severance
requiring him to release all claims against Champion, which Cole
did not sign. Instead, Cole sent Champion a letter attempting
to accept a de minimis employment role pursuant to the alleged
March 2004 Agreement. Champion denied that an agreement had
ever been reached.
Shortly thereafter, Champion began negotiations to sell its
Eastern Retail Division to Phoenix Housing Group, Inc., of which
Cole was the principal shareholder. Champion agreed to waive
Cole’s non-compete agreement to allow him to invest in the new
company, but prevented him from becoming an officer or director.
6
Upon Cole’s termination, the two-year non-competition
provisions located in his Stock Option Agreements began to run.
9
By mid-2005, although Champion had sold all of its traditional
retail operations, it continued to hold Cole to the terms of his
covenants not to compete. Cole abided by the covenants and now
contends that he forewent several promising opportunities and
investments in the manufactured housing industry as a result.
In April 2005, Cole filed suit against Champion and SSH in
North Carolina state court, bringing claims for breach and
repudiation of contract, failure to pay agreed-upon
compensation, failure to pay wages under the North Carolina Wage
and Hour Act, 7 unfair and deceptive trade practices, and illegal
restraint of trade, and seeking a declaratory judgment to
declare the covenants not to compete unenforceable. Champion
removed the action to the district court, claiming that Cole’s
claims were partially preempted by ERISA and that Cole had
fraudulently joined SSH to prevent removal. Champion filed a
motion to dismiss. The district court subsequently ruled on the
motion, converting the portions of Cole’s claims relating to
oral promises to pay severance benefits into ERISA claims and
dismissing Cole’s illegal restraint of trade and unfair and
deceptive trade practices claims. Upon the parties’ cross
motions for summary judgment, the district court granted summary
7
N.C. GEN. STAT. §§ 95-25.1 et seq.
10
judgment to Champion on all remaining claims. Cole subsequently
filed this appeal.
II
On appeal, “we review de novo the district court’s award of
summary judgment, viewing the facts and the reasonable
inferences drawn therefrom in the light most favorable to the
nonmoving party.” Emmett v. Johnson, 532 F.3d 291, 297 (4th
Cir. 2008). Summary judgment is appropriate when “the
pleadings, the discovery and disclosure materials on file, and
any affidavits show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(c).
We also review de novo a district court’s dismissal pursuant
to Fed. R. Civ. P. 12(b)(6). Schatz v. Rosenberg, 943 F.2d 485,
489 (4th Cir. 1991). Upon review, “we must assume the truth of
the material facts as alleged in the complaint.” Jackson v.
Birmingham Board of Educ., 544 U.S. 167, 171 (2005).
11
III
A.
We first consider whether the district court properly
granted summary judgment on Cole’s contract claims. 8 Under
Michigan law, to prevail on a claim for breach of contract, a
plaintiff must establish both the elements of a contract and the
breach of it. Pawlak v. Redox Corp., 453 N.W.2d 304, 307 (Mich.
App. 1990). A valid contract requires mutual assent with
respect to all essential terms, Eerdmans v. Maki, 573 N.W.2d
329, 332 (Mich. App. 1997), and a meeting of the minds regarding
all material facts. Kamalnath v. Mercy Mem. Hosp. Corp., 487
N.W.2d 499, 503 (Mich. App. 1992). “‘[A] meeting of the minds
is judged by an objective standard, looking to the express words
of the parties and their visible acts, not their subjective
8
Because this action was filed in North Carolina, we look
to that state’s conflict of laws analysis to identify the law
governing Cole’s contract claim. Under North Carolina law, the
principle of lex loci contractus applies to choice-of-law
decisions in contract cases; therefore, we apply the law of the
state where the last act essential to a meeting of the minds
occurs. Walden v. Vaughn, 579 S.E.2d 475, 477 (N.C. App. 2003).
Although Cole contends that North Carolina law should control,
we agree with the district court that Michigan law applies
because the Board’s approval, which would have been given in
Michigan, was the last act necessary to form a binding contract.
However, as noted by the district court, there is no relevant
difference between North Carolina and Michigan contract law, and
the outcome would be the same in either jurisdiction.
12
states of mind.’” Kloian v. Domino’s Pizza LLC, 733 N.W.2d 766,
771 (Mich. App. 2006)(quoting Kamalnath, 487 N.W.2d at 503).
We find that there was never an enforceable contract between
the parties on the terms Cole seeks to enforce. Initially, we
conclude that no contract could have been created during Cole’s
April 2003 meeting with Young or his March 2004 meeting with
Koch because both CEOs made it clear that, due to Cole’s status
as an executive officer, the Board’s approval was required
before any binding agreement could be adopted. The CEOs
therefore had no authority to determine Cole’s compensation, and
a contract cannot be formed when “in the contemplation of both
parties thereto, something remains to be done to establish
contract relations.” Central Bitulithic Paving Co. v. Village
of Highland Park, 129 N.W. 46, 48 (Mich. 1910). Because Cole
understood that any agreement could not be final without Board
approval, he cannot credibly contend that Koch or Young had
authority to enter into a valid compensation agreement. 9
Furthermore, a contract was not formed in April 2004 when
the Board approved the proposal presented by Koch. The
9
This also defeats Cole’s claim that an oral severance
agreement was created during a March 2004 conversation between
Koch and Cole. Assuming that Koch did make such a promise, both
parties knew that he did not have authority to enter into a
binding compensation agreement without the Board’s approval.
Cole challenges the district court’s conversion and eventual
dismissal of these severance claims, but we find no error.
13
PowerPoint slides approved by the Board did not contain all
material terms of the potential agreement. For example, the
slides were silent regarding crucial issues such as the specific
position that Cole would fill upon termination, the severance
package to be received by Cole, or whether Cole’s de minimis
employment would be guaranteed until his equity compensation
vested. Even some of the terms that do appear in the PowerPoint
slides are indefinite; for example, there is merely a vague
reference to Cole’s post-termination salary, specifying only
that it will be “approx[imately] $20,000 to $30,000 per year.”
Because the PowerPoint slides were indefinite and uncertain, the
Board’s approval of it could not have created a contract.
Moreover, the actions of the parties following the April
Board meeting confirm that there was never a meeting of the
minds between Cole and Champion. Champion drafted a proposed
contract and sent it to Cole for his approval; instead of
accepting the offer (or suggesting that a binding agreement had
already been reached), Cole’s attorney sent a revised proposal
to Champion’s lawyers. Importantly, this revised draft
contained several changes that had not been discussed by the
parties; for example, the 80% stocking requirement if Cole
became a CHC retailer was struck, and the modified draft gave
Cole the 50,000 performance shares while allowing him to keep
the 80% target bonus.
14
Over the next few months, the parties continued to negotiate
over the eventual final terms of the contract. These
negotiations prevented Cole or Champion from reasonably
believing that they were already obligated by an enforceable
agreement, whether embodied in the PowerPoint slides or created
orally by Cole and Koch. As a result, Cole cannot recover for
breach of contract.
B.
Cole also cannot recover under the North Carolina Wage and
Hour Act. N.C. GEN. STAT. §§ 95-25.1 et seq. The Act provides a
private right of action to employees for recovery of unpaid
wages owed by their employers, and defines “wage” to include
severance pay and other amounts “promised when the employer has
a policy or a practice of making such payments.” N.C.GEN.STAT.
§ 95-25.2(16). As explained above, Champion and Cole never had
an enforceable agreement, and the company therefore does not owe
wages.
C.
Cole also contends that the covenants not to compete found
in his two SOAs are invalid and unenforceable because their
terms are unreasonable restraints on trade. He seeks to recover
damages he allegedly incurred while adhering to the covenants’
15
two-year restriction. 10 Under Michigan law, a covenant not to
compete is enforceable if it “protects an employer’s reasonable
competitive business interests and . . . is reasonable as to its
duration, geographical area, and the type of employment or line
of business.” MICH. COMP. LAWS §445.774a(1). To be reasonable, an
employer’s business interest must be “greater than merely
preventing competition . . . [it] must protect against the
employee’s gaining some unfair advantage in competition with the
employer, but not prohibit the employee from using general
knowledge or skill.” Coates v. Bastian Brothers, Inc., 741
N.W.2d 539, 545 (Mich. App. 2007)(citation omitted). “The
reasonableness of a covenant not to compete is not analyzed in
the abstract, but in the context of the employer’s particular
business interest and the function and knowledge of the
particular employee.” Whirlpool Corp. v. Burns, 457 F.Supp.2d
806, 812 (W.D. Mich. 2006). Put another way, it is not
reasonable to put equally strict restrictions on “an entry level
10
Because Cole seeks damages for illegal restraint of trade
under N.C. GEN. STAT. § 75-1, the reasonableness of the covenants
is not moot even though the terms of the covenant have expired.
Although Cole pursues damages under a North Carolina statute,
the covenants not to compete were located in the SOAs; thus, lex
loci contractus governs which law applies to the reasonableness
of the covenants. The record is unclear as to whether Cole
signed the SOAs in Michigan or North Carolina. Although we
analyze under Michigan law, we note that the outcome is the same
under either state’s law.
16
computer programmer as might be placed upon a system designer.”
Kelsey-Hayes Co. v. Maleki, 765 F.Supp. 402, 406 (E.D. Mich.),
vacated pursuant to settlement, 889 F.Supp. 1583 (E.D. Mich.
1991).
We find that Champion had a legitimate business interest to
protect. Although the company ceased to own any traditional
retail lots in September 2004, it was not automatically stripped
of any legitimate interest in the manufactured housing market as
a whole. Cole, as an executive officer, had confidential and
proprietary knowledge about all aspects of Champion’s business,
and that information went beyond general knowledge or skill.
Even after Champion sold its traditional retail operations, a
significant portion of its business continued to involve selling
manufactured housing wholesale to retail lots, builders, and
developers. Champion thus had an interest in keeping Cole out
of the market for a reasonable amount of time, as his entrance
into the market could have threatened the distribution channels
which were such a large part of Champion’s core business. The
covenants not to compete are therefore valid and enforceable so
long as their terms were reasonable.
In light of Cole’s role as an executive officer possessing
confidential information, we find that a two-year restriction is
reasonable. See Bristol Window & Door, Inc. v. Hoogenstyn, 650
N.W.2d 670 (Mich. App. 2002)(enforcing a three-year non-
17
competition covenant). In addition, Michigan courts have held
that an unlimited geographical scope may be reasonable if the
business’s scope is sufficiently national or international. See
Lowry Computer Products, Inc. v. Head, 984 F.Supp. 1111, 1116
(E.D. Mich. 1997). Champion is a publicly held company
producing and providing manufactured housing throughout North
America; accordingly, we find its business to be geographically
broad enough to justify a restriction covering the United States
and Canada. 11
IV
For the foregoing reasons, we affirm the judgment of the
district court.
AFFIRMED
11
Because the terms of the covenants are reasonable, we do
not reach further “illegal restraint of trade” analysis under
N.C. GEN. STAT. § 75-1. Therefore, Cole’s illegal restraint of
trade claim fails. Cole’s “unfair and deceptive trade
practices” claim under § 75-1.1(a) also fails. As noted by the
district court, the fact that Champion proposed terms that were
unacceptable to Cole is not the type of activity envisioned by
the statute. See e.g. Branch Banking and Trust Co. v. Thompson,
418 S.E.2d 694, 700 (N.C. App. 1992)(holding that a trade
practice is unfair if it is “immoral, unethical, oppressive,
unscrupulous, or substantially injurious”).
18