Christopher T. Beidel v. Sideline Software, Inc.

2013 WI 56
SUPREME COURT OF WISCONSIN
CASE NO.: 2011AP788
COMPLETE TITLE: Christopher T. Beidel,
Plaintiff-Appellant,
v.
Sideline Software, Inc.,
Defendant-Respondent-Petitioner,
Michael C. Hall and Kevin C. Austin,
Defendants.
REVIEW OF A DECISION OF THE COURT OF APPEALS
Reported at 340 Wis. 2d 433, 811 N.W.2d 856
(Ct. App. 2012 – Published)
PDC NO: 2012 WI App 36
OPINION FILED: July 2, 2013
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: January 9, 2013
SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Milwaukee
JUDGE: William W. Brash III
JUSTICES:
CONCURRED: ZIEGLER, ROGGENSACK, J.J., concur. (Opinion
filed.)
DISSENTED: GABLEMAN, J., dissent.(Opinion filed.)
NOT PARTICIPATING: PROSSER, J., did not participate.
ATTORNEYS:
For the defendant-respondent-petitioner, there were briefs
by Kim Grimmer and Travis J. West and Solheim Billing & Grimmer,
S.C., Madison, with oral argument by Travis J. West.
For the plaintfiff-appellant, there was a brief filed by
Michael J. Aprahamian, Michael A. Bowen, Brian P. Keenan, and
Foley & Lardner LLP, Milwaukee, with oral argument by Michael J.
Aprahamian.
2013 WI 56
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2011AP788
(L.C. No. 2009CV5862)
STATE OF WISCONSIN : IN SUPREME COURT
Christopher T. Beidel,
Plaintiff-Appellant
v.
FILED
Sideline Software, Inc., JUL 2, 2013
Defendant-Respondent-Petitioner, Diane M. Fremgen
Clerk of Supreme Court
Michael C. Hall and Kevin C. Austin,
Defendants.
REVIEW of a decision of the Court of Appeals. Affirmed.
¶1 N. PATRICK CROOKS, J. We review a published court of
appeals decision1 involving a dispute over the amount of money
due to a shareholder for his shares in Sideline Software, Inc.
(Sideline), a company that serves the fantasy football league
market with an online league-management program. Because we
agree that the balancing of the equities required in a specific
performance claim did not occur and summary judgment was
1
Beidel v. Sideline Software, Inc., 2012 WI App 36, 340
Wis. 2d 433, 811 N.W.2d 856.
No. 2011AP788
improperly granted, we affirm the court of appeals' decision to
reverse and remand for the circuit court to evaluate the claim
under the principles governing specific performance, determining
1) whether specific performance is available as a remedy, 2)
whether there was a substantial enough breach to warrant
specific performance, 3) whether the equities lie on the
plaintiff's or defendant's side, and 4) whether anything would
make an order of specific performance unfair, unreasonable or
impossible.
¶2 The minority shareholder, Christopher Beidel, sought
specific performance of the Stock Repurchase Agreement2 that he
and Michael Hall, the majority shareholder, had signed.
Beidel's claim rests on two provisions of the Agreement. One
provision sets a stipulated price per share that is in effect
for two years; if that price expires without a new stipulation,
the share value is to be determined by an appraiser selected by
Sideline. The other provision gives a shareholder whose
employment is terminated without cause while a stipulated price
is in effect the right to exercise a put option3 to sell his
2
In the Agreement, the parties stipulated that "[i]f a
controversy arises concerning the right or obligation to
purchase or sell any of the shares of Stock, such right or
obligation shall be enforceable in a court of equity by a decree
of specific performance." "When a contract specifies remedies
available for breach of contract, the intention of the parties
generally governs." Ash Park, LLC v. Alexander & Bishop, Ltd.,
2010 WI 44, ¶37, 324 Wis. 2d 703, 783 N.W.2d 294.
3
A put option is "[a]n option to sell something (esp.
securities) at a fixed price even if the market declines; the
right to require another to buy." Black's Law Dictionary 1121
(7th ed. 1999).
2
No. 2011AP788
shares at the stipulated price. The dispute: Sideline thinks it
must pay only the appraised value for Beidel's shares, and
Beidel thinks Sideline must pay the stipulated share price,
which is some six times more.4
¶3 After it became clear that Sideline was planning to
terminate him and was transitioning his duties to others while
delaying the termination until the stipulated price expired,
Beidel gave written notice that he was exercising his put option
and demanding that 2,490 of his shares be purchased at the
stipulated price of $1,600 per share, which had not yet expired.
When Sideline refused to purchase Beidel's shares, Beidel
brought a claim for specific performance, seeking to have the
court order Sideline to purchase the shares at the stipulated
price, for a total of nearly four million dollars.
¶4 At the heart of the equitable claim this case presents
is the question of whether it was fair for Sideline to time a
planned termination without cause to avoid paying Beidel $1,600
per share and instead choose to let the stipulated price expire
before terminating him so that Sideline could instead pay only
the fair market value of the shares. Beidel contends that Hall
had explicitly told him in 2008 Sideline would terminate Beidel
as soon as the stipulated purchase price expired; Beidel
contends that Sideline essentially terminated him in 2008,
4
The record does not disclose the precise difference
between the two prices, but there is evidence that the
difference is substantial; a purchase offer made to Sideline in
early 2009 was for an amount that would have bought out the
shareholders at $260 per share.
3
No. 2011AP788
transitioning his duties to others and unfairly delaying the
formal termination solely to avoid paying the stipulated
purchase price then in effect.
¶5 Sideline does not dispute that the delay was due to a
desire to avoid the stipulated share price; rather, it asserts
that it was free to time the termination as it saw fit. Under
Sideline's interpretation of the contract, refusing to pay
Beidel the stipulated share price was not a breach of the
Agreement because Beidel's option to sell the shares for that
price was never triggered: no termination actually occurred
until September 17, 2009. Sideline says Beidel is therefore
entitled, under the applicable provision of the Agreement, only
to "the fair market value of the [s]tock as determined by an
appraiser selected by Sideline."
¶6 The court of appeals decision we review reversed a
grant of summary judgment for Sideline on the grounds that
"[t]he circuit court did not . . . consider the balancing of
equities required in a case where a party seeks specific
performance of a contract." Beidel v. Sideline Software, Inc.,
2012 WI App 36, ¶16, 340 Wis. 2d 433, 811 N.W.2d 856. The court
of appeals considered the fact that Beidel had sought specific
performance and focused on "the special implications of that
request for relief." Id., ¶14. The court of appeals concluded
that although the circuit court's analysis correctly disposed of
one aspect of Beidel's argument, "there is more" to evaluating a
claim seeking specific performance. Id., ¶13.
4
No. 2011AP788
¶7 The circuit court had granted Sideline's motion for
summary judgment on the claim of specific performance, basing
its holding on the conclusion that the claim could not rest on
an allegation that Sideline had constructively terminated Beidel
because a required element of constructive termination was
undisputedly absent.5 That is a correct statement of Wisconsin
law concerning the test for constructive termination. This was
not, however, a claim for wrongful termination, and, as the
court of appeals rightly recognized, the claim that was made was
never properly addressed.
¶8 The record indicates, too, that the circuit court
voiced observations that would be relevant to the task of
balancing the equities. As the court of appeals noted, the
circuit court appeared somewhat reluctant to dismiss Beidel's
claim on these facts; the circuit court stated that "[a] strong
argument can be made that this scenario is so strong [that it
resembles constructive termination]."
¶9 Besides that, it is potentially relevant to consider
the circuit court's disposition of two other counts that were a
part of this multi-count lawsuit,6 claims that were against Hall
5
At several points in the transcript, the circuit court
appears to make reference to equitable considerations, but the
basis for its ruling is clearly stated in terms of a
constructive termination analysis.
6
The amended complaint in this case, 09CV5862, lists three
claims, characterized as follows: Count I: Specific Performance
(as to Sideline Software, Inc.), Count II: Breach of Fiduciary
Duty (as to Michael C. Hall) and Count III: Breach of Fiduciary
Duty (as to Kevin C. Austin).
5
No. 2011AP788
and another individual and arose from the same underlying facts.
When those counts were before the circuit court for summary
judgment disposition along with this one, the court declined to
grant the defendants summary judgment for a notable reason: it
found that "there are questions of fact with respect to
[whether] they act[ed] in good faith" and whether they were
acting in the best interest of the company or were "out to get
Mr. Beidel." Those counts remained after this count was
dismissed, and they proceeded to a jury trial after this count
was dismissed.7 While this appeal does not concern those claims,
the motion hearing transcript in which the circuit court
addressed all three counts clearly reflects the circuit court's
conclusion that summary judgment was precluded as to Counts 2
and 3 by genuine issues of material fact that related to good
faith among the parties and their dealings with each other.
There is no evidence in the record that those concerns were
addressed in the context of the specific performance claim, a
claim that by definition turns on equitable considerations.
7
Beidel moved the court of appeals to take judicial notice
of the special verdict form from the jury trial. The court of
appeals denied the motion, stating that "the verdict does not
affect either the result of this appeal or the analysis of this
opinion." Beidel, 340 Wis. 2d 433, ¶16 n.5. While reference was
made in the briefs to this verdict, we are limited to the
information in the record, which includes the summary judgment
motion hearing transcript referenced above but not the jury
verdict. See Jenkins v. Sabourin, 104 Wis. 2d 309, 313, 311
N.W.2d 600 (1981) (materials that are not a part of the record
cannot be considered).
6
No. 2011AP788
Such a claim should not be disposed of on summary judgment
without addressing them.
¶10 Further, as the court of appeals observed, "[t]he rule
that parties to a contract act in good faith is universal."8
We have held that "[e]very contract implies good faith and fair
dealing between the parties to it," and that mere "compliance in
form, not in substance" is a breach of "the covenant of good
faith that accompanies every contract."9
¶11 We therefore agree with the court of appeals that
summary judgment was improperly granted in this case without the
required balancing of the equities that are due to a specific
performance claim and without a consideration of the potential
application of the covenant of good faith and fair dealing. In
order to make a prima facie case that Sideline was entitled to
summary judgment, its motion would need to show a defense that
would defeat Beidel's claim. That is, it must successfully
attack the requirements for obtaining specific performance:
- that specific performance is available as a remedy10;
8
Beidel, 340 Wis. 2d 433, ¶15 (citing Restatement (Second)
of Contracts § 205 (1981)).
9
Chayka v. Santini, 47 Wis. 2d 102, 107 & n.7, 176 N.W.2d
561 (1970).
10
Ash Park, 324 Wis. 2d 703, ¶37 (when a contract specifies
remedies available for breach of contract, the intention of the
parties generally governs). Otherwise "the primary criterion for
the availability of specific performance has been the inadequacy
of the legal remedy." 12 Joseph M. Perillo, Corbin on Contracts
§ 63.1 (rev. ed. 2012).
7
No. 2011AP788
- that there has been a substantial enough breach to
warrant specific performance11; and
- that the equities lie on [the plaintiff's] side,12 and
that nothing would make an order of specific performance
unfair, unreasonable or impossible.13
In determining whether the requirements for specific performance
have been met in this case, it will be necessary for the court
to interpret and apply the provisions of the Stock Repurchase
Agreement, with special reference to Section 6, Termination of
Employment without Cause, as well as Sections 8(b) and (c),
which relate to valuation. In this case the analysis
necessarily involves interpreting the contract and determining
whether the undefined term "termination" is ambiguous, and if
so, what the parties intended the term to mean. Extrinsic
evidence may be needed in order to make the determination of the
parties' intent.
¶12 Sideline's motion for summary judgment does not set
forth such a defense, and therefore fails to make a prima facie
11
Huntoon v. Capozza, 57 Wis. 2d 447, 452, 204 N.W.2d 649
(1973).
12
Venisek v. Draski, 35 Wis. 2d 38, 51, 150 N.W.2d 347
(1967); Gaugert v. Duve, 2001 WI 83, ¶46, 244 Wis. 2d 691, 628
N.W.2d 861 (describing the circuit court's balancing process in
that case thus: "The circuit court also concluded that as
between the [plaintiffs] and the defendants the equities were
perhaps equal due to the uniqueness of the property and the
competing interests at stake" and explaining that the circuit
court had concluded that one party's failure to take steps to
preserve a remedy tipped the scales).
13
Gaugert, 244 Wis. 2d 691, ¶47.
8
No. 2011AP788
case.14 Accordingly, we affirm the court of appeals and remand
for "the circuit court's determination where the bulk of the
equities lie, including an evaluation of what the parties
intended when they agreed to the stock re-purchase agreement,
and whether it should grant specific performance as Beidel
requested." Beidel, 340 Wis. 2d 433, ¶16. A circuit court may
grant summary judgment to a party on remand as warranted after
the equities have been balanced, recognizing the implications of
the nature of a claim for specific performance and the well-
established obligation of good faith and fair dealing.15
I. BACKGROUND
¶13 The case arises in the context of a deteriorating
relationship between a majority shareholder and a minority
shareholder. We briefly set forth a description of the parties,
their relationship and the terms of the contract at the center
of this dispute.
¶14 Sideline began by selling a computer program for
fantasy football league management; it later moved to online
14
See Swatek v. County of Dane, 192 Wis. 2d 47, 61-62, 531
N.W.2d 45 (1995) (describing the summary judgment methodology of
examining first whether a claim has been stated, then turning to
whether a prima facie case was made by the movant, and if so,
examining the opposing party's materials). The validity of the
claim in this case, the first step of the summary judgment
analysis, is not at issue.
15
Super Valu Stores, Inc. v. D-Mart Food Stores, Inc., 146
Wis. 2d 568, 577, 431 N.W.2d 721 (Ct. App. 1988) (Wisconsin law
does recognize that "[e]very contract implies good faith and
fair dealing between the parties to it, and a duty of
cooperation on the part of both parties.") (citation omitted).
9
No. 2011AP788
products for that same purpose. It was incorporated in 1998 by
Hall and Beidel, who had been college friends. Though the
distribution of the shares changed over the years, Hall was from
the beginning the majority shareholder, and at the relevant
time, Hall owned 2,505 shares (slightly over half) and Beidel
owned 2,495 shares. In the course of expanding the business,
the company purchased in 2001 a small company that had developed
an online product. Its owner, Kevin Austin, possessed the kind
of programming skills that such online products required; he was
initially engaged as a consultant and ultimately was hired and
granted options to purchase outstanding shares of the company.
Austin and Beidel did not have a good relationship; the
deterioration of that relationship appears to have played a
significant role in Beidel's eventual departure from the
company.
¶15 In 2004, Beidel and Hall signed a Stock Repurchase
Agreement that was intended to "provide a means of assuring a
market for the sale of their Stock in certain specified events."
As relevant to this appeal, the Agreement contained the
following provisions. It contained a stipulation that specific
performance is the appropriate remedy for breach.16 It contained
a provision that if a shareholder (that is, Hall or Beidel) were
fired without cause, Sideline would buy that shareholder’s stock
16
In the Agreement, the parties stipulated that "[i]f a
controversy arises concerning the right or obligation to
purchase or sell any of the shares of Stock, such right or
obligation shall be enforceable in a court of equity by a decree
of specific performance."
10
No. 2011AP788
at an agreed price. The clause, section 6 of the Agreement,
reads:
Termination of Employment Without Cause; Shareholder's
Put Option. Upon the termination of a Shareholder's
employment with Sideline without cause (as defined in
section 7(b) below), the terminated Shareholder shall
have a continuing option to sell all or any part of
the Stock owned by him, and upon exercise of such
option, Sideline shall have the obligation to purchase
all of Shareholder's Stock so elected for sale by such
Shareholder, at the price and on the terms provided in
sections 8 and 9 below. Provided, however, that such
purchase and sale shall be subject to the restrictions
and limitations set forth in section 11 hereof. The
terminated Shareholder shall exercise such option by
providing 30 day[s'] prior written notice to Sideline
of his decision to sell his Stock.
(Emphasis added.) The referenced sections relevant here,
sections 8(b) and 8(c), provided for a two-year expiration
date and an alternative valuation:
If no review of the Purchase Price is undertaken, the
Purchase Price set forth in the prior year(s) shall
continue in effect unless a period of 24 months
expires from the last time in which the Shareholders
and Sideline stipulated a Purchase Price.
If the Purchase Price has not been stipulated within
the 24 months prior to a Purchase Event, and a
Purchase Event occurs, the Purchase Price shall be the
fair market value of the Stock as determined by an
appraiser selected by Sideline.
¶16 Pursuant to the Agreement, Beidel and Hall set the
stock price over the years between 2004 and 2007. As the court
of appeals explained:
The last stipulated price was agreed to in a document
signed by both Hall and Beidel, dated March 6, 2007.
It provided for a per-share valuation of $1,600, and
11
No. 2011AP788
thus expired twenty-four months later because Hall and
Beidel never agreed on a new valuation.
Beidel, 340 Wis. 2d 433, ¶4.
¶17 Because there was no new agreed-upon valuation, the
price stipulated to on March 6, 2007, was set to expire on March
6, 2009. In October 2008, Hall told Beidel of his intention to
terminate Beidel. In December of 2008, the two met to discuss
the transitioning of Beidel's duties prior to April of the
following year. Following that meeting, the process of
transitioning duties seemed to be underway in January of 2009.
That month another company interested in purchasing Sideline
made an offer to purchase. The offer contained an employment
agreement and stock options for Hall, but none for Beidel. On
January 20, Beidel submitted written notice to Hall that he was
thereby exercising his put option under the Agreement with
regard to 2,490 shares of Sideline stock. The notice asserted
that he had already been "stripped . . . of [his] job
responsibilities" and his employment had "already been
terminated by Sideline." He demanded that Sideline purchase the
stock at the stipulated price in accordance with the Agreement.
¶18 When Sideline refused, Beidel filed a claim against
Sideline for specific performance.17 Sideline moved for summary
judgment. Sideline claimed that it was entitled to summary
judgment because "Beidel was motivated to claim he was
constructively discharged in order to increase his buy-out,"
17
He also filed related claims against Hall and Austin
individually.
12
No. 2011AP788
because "there was no termination of Beidel prior to March 6,
2009," and because "Beidel cannot establish a single element of
constructive discharge" to establish that events prior to March
6, 2009, constituted termination. The summary judgment motion
described "Hall's right to postpone the termination, in order to
avoid the stipulated price," as "a significant contract right
that Hall and Sideline had under the Agreement." It
acknowledges that Hall "was not motivated to coerce Beidel into
resigning in advance of March 2009" and that Hall "was
motivated" to keep him employed "until at least after the
stipulated price expired." It states that "Hall had
specifically represented to Beidel that he would have a job
until at least then . . . ." It also acknowledges that Beidel's
duties were documented for the purpose of "transitioning them to
others." The motion for summary judgment does not contain any
argument concerning the equitable considerations relevant to a
claim of specific performance.
¶19 The circuit court for Milwaukee County, the Honorable
John J. DiMotto presiding, initially granted partial summary
judgment to Sideline as follows:
The plaintiff may not proceed on the specific
performance claim against Sideline . . . by claiming
that he was constructively discharged. There is no
genuine issue of material fact that one of the
essential elements of a claim of constructive
discharge, actual resignation by the employee, did not
occur in this case. . . . The plaintiff will be
permitted to proceed to trial on Count No. I, but he
will be required to prove that he was actually
discharged by Sideline Software Inc., without cause,
prior to the expiration of the stipulated price.
13
No. 2011AP788
¶20 Following a subsequent hearing, the Honorable William
W. Brash, III, denied Beidel's motion for reconsideration and
dismissed the amended complaint with prejudice as to Sideline,
noting that Beidel did not contend that he was actually
terminated by Sideline prior to March 7, 2009. A subsequent
motion for reconsideration was denied.
¶21 As noted above, the circuit court denied summary
judgment as to related claims because the court found genuine
issues of material fact concerning the good faith dealings of
the parties.
¶22 The court of appeals reversed the grant of summary
judgment; Sideline petitioned for review, and this court granted
review.
II. SPECIFIC PERFORMANCE
¶23 The question presented by the claim is whether Beidel
is entitled to specific performance of the repurchase of his
shares at the stipulated price of $1,600 each after Sideline
refused to honor Beidel's exercise of his put option under the
agreement. We look to our case law on specific performance for
the principles that govern a specific performance claim. There
we see a series of determinations that a court is obligated to
make and the showing a party must make to prevail in such a
claim.
¶24 The threshold question is whether specific performance
is available. In this case, as noted above, the parties agreed
in advance that it would be. In the agreement, the parties
stipulated that "[i]f a controversy arises concerning the right
14
No. 2011AP788
or obligation to purchase or sell any of the shares of Stock,
such right or obligation shall be enforceable in a court of
equity by a decree of specific performance." We have stated
that when a contract specifies remedies available for breach of
contract, the intention of the parties generally governs. Ash
Park, LLC v. Alexander & Bishop, Ltd., 2010 WI 44, ¶37, 324 Wis.
2d 703, 783 N.W.2d 294 (affirming grant of specific
performance). Where there is not such an agreement in advance,
"the primary criterion for the availability of specific
performance has been the inadequacy of the legal remedy." 219
Corbin on Contracts § 63.1. "[T]he general rule defining the
instances where specific performance will be granted may be
stated as follows: where damages are an inadequate remedy and
the nature of the contract is such that specific enforcement of
it will not be impossible or involve too great practical
difficulties . . . equity will grant a decree of specific
performance." 25 Samuel Williston, A Treatise on the Law of
Contracts § 67:1 (4th ed. 2002). "Specific
performance . . . will not be ordered if damages would be
adequate to protect the expectation interest of the injured
party." Restatement (Second) of Contracts § 359(1) (1981). See
also Negus v. Madison Gas & Elec. Co., 112 Wis. 2d 52, 64, 331
N.W.2d 658, 665 (Ct. App. 1983) (holding that specific
performance was unavailable because statute limits plaintiff to
particular remedies: "Because Negus must pursue a statutory
remedy available to him, the trial court erred in concluding
15
No. 2011AP788
that specific performance was an available remedy. The order
granting specific performance therefore must be reversed.").
¶25 After the threshold determination is made that
specific performance is available, the analysis proceeds with a
series of questions.
¶26 First, is there a substantial enough breach to warrant
specific performance? In a case involving a contract, this
necessarily requires the court to interpret the terms of the
contract. The Restatement (Second) of Contracts describes the
relationship of a breach and a claim of specific performance:
"[Specific performance] is seldom granted unless there has been
a breach of contract, either by non-performance or by
repudiation." Restatement (Second) of Contracts § 357 cmt. a
(1981).18 In the context of a land contract, Huntoon v. Capozza
refined the question further to weigh the significance of the
alleged breach. The court focused its analysis on whether there
were breaches "substantial enough" to warrant specific
performance. Huntoon v. Capozza, 57 Wis. 2d 447, 452, 204
N.W.2d 649 (1973). Huntoon concerned a contract between a
seller and buyer of a bar. The seller filed a claim for
specific performance seeking the full balance of the purchase
price and other costs after the buyer defaulted on the payments
following a fire at the property. In addressing the claim, the
18
It also acknowledges the possibility of seeking specific
performance prior to a breach: "In unusual circumstances,
however, it may be granted where there is merely a threatened
breach." Restatement (Second) of Contracts § 357 cmt. a (1981).
16
No. 2011AP788
court differentiated between various claimed breaches on the
basis of whether they were "substantial enough to justify
equitable relief to the vendors." Id. With respect to one
claim, the failure of the buyer to pay an agreed-upon portion of
the real estate taxes, the court said, "[W]e are not prepared to
state on this record that such breach was material." Id. at
453. The other two claimed breaches, failure to make the
monthly payment on time and failure to maintain the
establishment's tavern license in good standing, were, the court
found, "substantial enough to justify equitable relief to the
vendors." Id. at 452. It is apparent from this distinction that
absent the "substantial enough" breach, equitable relief is not
justified.
¶27 In determining whether a substantial enough breach
occurred, it will be appropriate to consider, as the court of
appeals discussed, the covenant of good faith and fair dealing.
As this court has observed, "Every contract implies good faith
and fair dealing between the parties to it, and a duty of
cooperation on the part of both parties." Chayka v. Santini, 47
Wis. 2d 102, 107 n.7, 176 N.W.2d 561 (1970). The Chayka case
illustrates the common disfavor for following the letter but not
the spirit of an agreement,19 and in that case, it was deemed a
19
See, e.g., Mendelson v. Del. River & Bay Auth., 56 F.
Supp. 2d 436, 438 (D. Del. 1999) (rejecting a Maryland
jurisdictional challenge that "look[ed] only to the letter of
its contract, ignoring the spirit of the agreement" where the
contract stated that the product would be shipped to Virginia
but the manufacturer knew that the specially manufactured item
was intended for installation in Maryland).
17
No. 2011AP788
violation of the covenant of good faith and fair dealing to do
so. What had happened in Chayka has been concisely summarized
this way:
In Chayka, a husband and wife contracted to execute
joint and reciprocal wills, which, upon one party's
death, would leave all property to the other and, upon
the survivor's death, would leave all property owned
by the survivor to another relative. After the
husband's death, the wife remarried and, shortly
thereafter, conveyed virtually all of her property to
her new husband (or, in some instances, to herself and
her husband in joint tenancy). On the wife's death,
her estate sought to overturn the conveyances.
Resisting the challenge, the second husband argued
that the will contract had been fully performed
because a will with all of the agreed-upon terms had
been executed (and fully performed, in that the wife
did leave the property that remained to the
relative).20
The Chayka court did not accept the second husband's argument
that the contract had been complied with, as the "property that
remained" had indeed been left to the other relative:
This, as another court has well stated it to be, is "a
mere play upon words." What she in fact has done has
stripped nearly all of the flesh from the bones,
leaving only a skeleton for testamentary disposition
to [the relative who was to receive the property].
This is a compliance in form, not in substance, that
breaches the covenant of good faith that accompanies
every contract, by accomplishing exactly what the
agreement of the parties sought to prevent.
Chayka, 47 Wis. 2d at 107.
20
Foseid v. State Bank of Cross Plains, 197 Wis. 2d 772,
795, 541 N.W.2d 203 (Ct. App. 1995) (citations omitted).
18
No. 2011AP788
¶28 The court of appeals in Foseid acknowledged what was
implicit in Chayka's holding——that "accomplishing exactly what
the agreement of the parties sought to prevent" constituted an
independent breach even if there was no other technical breach
alleged. "[W]e do not consider that reference as a holding that
violation of the implied promise of good-faith dealing may not
be considered independent of any breach (or lack of breach) of
the underlying contract. Indeed, such a holding would run
contrary to the supreme court's decision in [Chayka]." Foseid
v. State Bank of Cross Plains, 197 Wis. 2d 772, 795, 541 N.W.2d
203 (Ct. App. 1995)(citations omitted).
¶29 A party may not, however, employ the good faith and
fair dealing covenant to undo express terms of an agreement.
Reliance on the covenant of good faith and fair dealing did not
avail a franchisee who complained that "even if [the
franchisor's] conduct comported with the terms of the
agreement," the covenant required that the franchisor "not
franchise a second store in [the franchisee's] market area."
Super Valu Stores, Inc. v. D-Mart Food Stores, Inc., 146 Wis. 2d
568, 577, 431 N.W.2d 721 (Ct. App. 1988). In Super Valu Stores,
the franchise agreement "specifically authorized" the franchisor
to act in a manner which could harm the franchisee. The
franchise agreement explicitly stated that the franchise was
non-exclusive and the franchisor had the "sole choice and
discretion" as to whether to enter another franchise agreement
in the same community or any other. Id. at 572. As the court
of appeals said in that case,
19
No. 2011AP788
[W]here, as here, a contracting party complains of
acts of the other party which are specifically
authorized in their agreement, we do not see how there
can be any breach of the covenant of good faith.
Indeed, it would be a contradiction in terms to
characterize an act contemplated by the plain language
of the parties' contract as a "bad faith" breach of
that contract.
Id. at 577. Unlike in Chayka, in Super Valu Stores there was
compliance with both the form and substance of the contract.
¶30 Having determined that specific performance is
available and warranted by a substantial enough breach by a
party, the court arrives at the heart of the matter——the
"balancing of the equities" in which it takes into consideration
all the facts and circumstances and determines whether the
plaintiff is entitled to the equitable relief he seeks. "The
fairness of ordering specific performance depends on the facts
and equities of the individual case before the circuit court and
will vary from case to case." Ash Park, 324 Wis. 2d 703, ¶38.
This balancing has been described as "a judicial discretion":
But this discretion is not one to be exercised at the
mere will and pleasure of the judge. It must be a
judicial discretion, controlled and governed by the
principles and rules of equity. Its exercise therefore
depends upon the existence of a multitude of facts,
events, and incidents surrounding the transaction
. . . .
Mulligan v. Albertz, 103 Wis. 140, 144, 78 N.W. 1093 (1899).
"Accordingly, specific performance will be granted when it is
apparent from a view of all the circumstances of the particular
case that it will serve the ends of justice." 81A C.J.S.
Specific Performance § 4 (2004). Indeed, as one treatise has
stated, "[I]n determining the question [of whether to grant or
20
No. 2011AP788
refuse a decree of specific performance], a greater variety of
facts is to be taken into consideration than is the case in an
action for damages for breach of contract." 12 Joseph M.
Perillo, Corbin on Contracts § 63.1 (rev. ed. 2012).
¶31 As a part of its equitable balancing, the court must
consider countervailing concerns: Are there any factual
considerations that would make specific performance unfair,
unreasonable, impossible, oppressive, harsh or unjust? See
Gaugert v. Duve, 2001 WI 83, ¶47, 244 Wis. 2d 691, 628 N.W.2d
861 (stating, "The circuit court's analysis did not reveal any
factual considerations that would make specific performance
unfair, unreasonable, or impossible." (citing Anderson v.
Onsager, 155 Wis. 2d 504 at 512-13, 455 N.W.2d 885 (1990))).
This determination has been phrased in various ways: "The court
will not grant the relief unless satisfied that the claim is
fair and the contract equal and founded on consideration, that
it is not opposed to public policy, that the plaintiff is guilty
of no inequitable conduct or of delay constituting laches, and
that the result will not be oppressive, harsh or unjust." 9 Jay
Grenig, Wisconsin Pleading and Practice § 81:2 (5th ed. 2012)
(citing cases).
¶32 Consistent with the latitude the circuit court has to
consider many factors is the latitude the circuit court has to
fashion a remedy. Wisconsin cases have recognized that once a
court has determined that equitable relief is appropriate, it
has wide latitude to fashion the remedy based on the equities of
the case. "This being an action for specific performance the
21
No. 2011AP788
circuit court sits as a court of equity and should be able to
fashion relief which will be equitable to both plaintiffs and
defendants." Venisek v. Draski, 35 Wis. 2d 38, 51, 150 N.W.2d
347 (1967). See also Town of Fond du Lac v. City of Fond du
Lac, 22 Wis. 2d 525, 531–32, 126 N.W.2d 206 (1964) ("A court of
equity has inherent power to fashion a remedy to the particular
facts. Continued failure to do so would render equity . . .
sterile and . . . arbitrary in its relief . . . ."); Am. Med.
Servs., Inc. v. Mut. Fed. Sav. & Loan Ass'n, 52 Wis. 2d 198,
205, 188 N.W.2d 529 (1971) ("The court of equity has always had
a traditional power to adapt its remedies to the exigencies and
the needs of the case; that was one of the great virtues and
reasons for the existence of courts of equity."); Ash Park, 324
Wis. 2d 703, ¶73 ("[T]he court of equity has the power of
devising its remedy and shaping it so as to fit the changing
circumstances of every case and the complex relations of all the
parties." (quoting 1 John Norton Pomeroy, A Treatise on Equity
Jurisprudence § 109 (5th ed. 1941)).
¶33 Finally, we note that this case arises in the posture
of a summary judgment motion. We review a summary decision de
novo, applying the same methodology as the circuit court. Green
Spring Farms v. Kersten, 136 Wis. 2d 304, 315, 401 N.W.2d 816
(1987). "Under [Wis. Stat. § 802.08], summary judgment must be
entered '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
22
No. 2011AP788
judgment as a matter of law.'" Swatek v. County of Dane, 192
Wis. 2d 47, 61, 531 N.W.2d 45 (1995). The methodology is
straightforward——evaluate the claim first, then see if the
moving party has presented a prima facie case for summary
judgment, and if so, examine the opposing party's proof:
Our first step is to discern whether the pleadings set
forth a claim for relief as well as a material issue
of fact. If the pleadings meet this initial test, our
inquiry shifts to the moving party's affidavits or
other proof to determine whether a prima facie case
for summary judgment has been presented. If the moving
party has made a prima facie case for summary
judgment, we then examine the affidavits and other
proof of the opposing party to discern whether there
exist disputed material facts, or undisputed material
facts from which reasonable alternative inferences may
be drawn, sufficient to entitle the opposing party to
a trial.
Id. at 61-62.
III. DISCUSSION
¶34 Having set out the analytical framework that applies
to a specific performance case, we now turn to the task of
applying it to the case at hand. We apply the methodology as
described by Swatek. There is no dispute, as to the initial
question, that the pleadings set forth a claim for relief,
specifically for equitable relief, pursuant to a contractual
provision, as well as a material issue of fact. The amended
complaint alleges that Sideline failed to pay the stipulated
price after Beidel exercised his put option.
¶35 The next question is whether the moving party, in this
case Sideline, has made a prima facie case for summary judgment.
"To make a prima facie case for summary judgment, a moving
23
No. 2011AP788
defendant must show a defense which would defeat the plaintiff."
Grams v. Boss, 97 Wis. 2d 332, 338, 294 N.W.2d 473 (1980),
overruled on other grounds by Meyers v. Bayer AG, Bayer Corp.,
2007 WI 99, 303 Wis. 2d 295, 735 N.W.2d 448.
¶36 In order to prevail on his equitable claim, as we have
set forth above, Beidel would have to show that that specific
performance is available to him as a remedy,21 that there was a
substantial enough breach to warrant specific performance, that
the equities lie on his side, and that nothing would make an
order of specific performance unfair, unreasonable or
impossible. In order to make a prima facie case for summary
judgment, Sideline must therefore show "a defense which would
defeat the plaintiff." Grams, 97 Wis. 2d at 338. In the
context of a specific performance claim, the motion for summary
judgment must address the specific requirements the case law
sets forth for such a claim.
A. The Summary Judgment Motion
¶37 An examination of Sideline's summary judgment motion
shows that while it has shown a defense which would defeat a
constructive termination argument in a wrongful termination
claim, it has not shown a defense which would defeat the claim
21
In the Agreement, the parties stipulated that "[i]f a
controversy arises concerning the right or obligation to
purchase or sell any of the shares of Stock, such right or
obligation shall be enforceable in a court of equity by a decree
of specific performance." When a contract specifies remedies
available for breach of contract, the intention of the parties
generally governs. Ash Park, 324 Wis. 2d 703, ¶37.
24
No. 2011AP788
Beidel actually brought. Not only does the summary judgment
motion fail to address the equitable claim directly, it attempts
to support its position with facts and arguments that could be
construed to support Beidel's position on the equitable claim
(e.g., Sideline claims that it had a "right to postpone the
termination, in order to avoid the stipulated price," that Hall
"was not motivated to coerce Beidel into resigning in advance of
March 2009," and that Hall "was motivated" to keep him employed
"until at least after the stipulated price expired"). None of
these assertions are inconsistent with Beidel's theory that
Sideline unfairly refused to purchase his shares at the
stipulated price after delaying his termination for that express
purpose. Because the summary judgment motion does not show a
defense that would defeat the equitable claim, it does not make
a prima facie case. The analysis ends there, and the motion
fails.
¶38 We turn next to the two legal concepts that are likely
to arise again when the case is remanded: the doctrine of
constructive termination and the covenant of good faith and fair
dealing. We examine each of the issues in order to acknowledge
and respond to the parties' arguments.
B. Constructive Termination
¶39 As noted above, Beidel was formally terminated by the
board of Sideline in September 2009. He has asserted that he
was, in reality, terminated long before that. The significance
of the timing is that if the termination took place while the
stipulated price was still in effect, Beidel's shares are worth
25
No. 2011AP788
$1,600 each. If the termination took place after the expiration
of the stipulated price, his shares are worth many times less.
¶40 The constructive discharge doctrine "recognizes that
some resignations are coerced, tantamount to a termination."
Strozinsky v. Sch. Dist. of Brown Deer, 2000 WI 97, ¶68, 237
Wis. 2d 19, 614 N.W.2d 443. We addressed this scenario in
Strozinsky and described the purpose of the doctrine this way:
Actual discharge carries significant legal
consequences for employers, including possible
liability for wrongful discharge. In an attempt to
avoid liability, an employer may refrain from actually
firing an employee, preferring instead to engage in
conduct causing him or her to quit. The doctrine of
constructive discharge addresses such employer-
attempted 'end runs' around wrongful discharge and
other claims requiring employer-initiated terminations
of employment.
Strozinsky, 237 Wis. 2d 19, ¶68.
¶41 The court stated that the significance of the holding
was that "employers cannot escape liability by coercing a
resignation instead of formally uttering the words 'you're
fired.'" Id., ¶83. It then stated what a plaintiff seeking to
establish that a resignation was coerced must show: "The
plaintiff must prevail under an objective standard, establishing
that conditions were so intolerable that a reasonable person
confronted with same circumstances would have been compelled to
resign." Id.
¶42 Beidel asserts that the situation here is governed by
the principle underlying the constructive discharge doctrine—
26
No. 2011AP788
that substance is more important than form. Essentially, he
seeks, at least in the context of an equitable claim, an
interpretation of the constructive discharge test under which
the meaning of being "substantially terminated" would encompass
situations where an employer does not formally terminate an
employee, and the employee does not resign. He has not,
however, brought to our attention any cases in which a court
found constructive termination had occurred where the employee
had not resigned. Sideline agrees that the doctrine is key in
this case; indeed, it asserts that the dispositive question in
this case is whether Beidel can show that he was constructively
discharged prior to the expiration of the stipulated price of
the shares. Sideline argues that Beidel concedes that his
formal termination happened later, and he cannot show that he
resigned, as required by the Strozinsky elements. Sideline
asserts that those facts are fatal to his claim that the put
option was triggered before the stipulated price expired.
¶43 We disagree in key respects with both approaches.
Beidel is wrong because he thinks in an equitable case, the test
for constructive discharge can be applied in a less formalistic
way such that constructive discharge can be found to occur even
where there is not a resignation by an employee. Even though the
rationale underlying the constructive discharge doctrine is, as
Beidel points out, one of making sure that "substance prevails
27
No. 2011AP788
over form," courts have established the test for a constructive
termination, and every Wisconsin case we have found that meets
that test involves a resignation. See Strozinsky, 237 Wis. 2d
19, ¶68. The fact that the test was developed in order to help
courts do justice does not mean that it is to be applied without
regard to the required elements. We see no need to alter the
Strozinsky approach to testing constructive discharge claims.
We recognize that this case is unusual in that it involves an
employee who is also a shareholder and director, who is arguably
compelled by his own self-interest to help keep the company
functioning and profitable and therefore prevented from
resigning as might an employee without those additional roles.
We do not think it wise to alter an established and workable
test to fit the unusual situation presented here.
¶44 However, we cannot agree that this conclusion——that
the constructive termination test is not satisfied——disposes of
Beidel's equitable claim. Sideline argues that specific
performance of the contract is precluded because the
constructive termination elements cannot be shown. But that
argument is based on a fundamental misapprehension of the claim
for specific performance: Beidel was not pursuing a claim for
wrongful termination and does not allege that the termination of
his employment, whenever it happened, violated any contract. As
the court of appeals held, the analysis does not end with the
28
No. 2011AP788
disposal of the constructive termination claim. Further, it is
unhelpful and unnecessary to graft the constructive termination
requirements onto the equitable analysis. On that point, we
agree with Beidel that "[t]he court's discretion in deciding
whether to grant specific performance should not be limited by a
test imported from an entirely different legal theory
implicating entirely different concerns."
¶45 There is one further, related consideration, given
that Beidel's claim turns on the timing of the ending of his
employment with Sideline. The foundation for Beidel's specific
performance claim is that his treatment by Sideline triggered
his right to exercise his put option prior to the expiration of
the stipulated share price. The contract, in section 6,
"Termination of Employment Without Cause; Shareholder's Put
Option," cross-references section 7(b) for the definition of
"Cause":
"Cause" means (i) the commission of a felony or a
crime involving moral turpitude or the commission of
any other act or omission involving dishonesty,
disloyalty or fraud with respect to Sideline, (ii)
failure to devote his entire business time to the
business of Sideline (subject to normal vacation leave
or time off, illness or sick leave, or other periods
of permitted absence), (iii) conduct tending to bring
Sideline into substantial public disgrace or
disrepute, (iv) gross negligence or willful misconduct
with respect to Sideline, or (v) any material breach
of this Agreement.
29
No. 2011AP788
However, we observe that the contract does not define
"termination."22 In the course of weighing the equities in a
specific performance claim based on a contract, a court needs to
of course consider the terms of the contract, and whether
"termination" is ambiguous, and if so, what the parties intended
the term to mean.23 All of this is appropriate to consider when
the circuit court weighs the equities involved.
C. Covenant of Good Faith and Fair Dealing
¶46 The parties also dispute the application of the
covenant of good faith and fair dealing in the context of a
22
We briefly note again the language in Section 6
concerning what triggers the obligation of Sideline to purchase
the shareholder's stock at the price in effect at the relevant
time:
Termination of Employment Without Cause; Shareholder's
Put Option. Upon the termination of a Shareholder’s
employment with Sideline without cause (as defined in
section 7(b) below), the terminated Shareholder shall
have a continuing option to sell all or any part of
the Stock owned by him, and upon exercise of such
option, Sideline shall have the obligation to purchase
all of Shareholder's Stock so elected for sale by such
Shareholder, at the price and on the terms provided in
sections 8 and 9 below.
23
Capital Investments, Inc. v. Whitehall Packing Co., 91
Wis. 2d 178, 190, 280 N.W.2d 254 (1979) ("After a contract has
been found to be ambiguous, it is the duty of the courts to
determine the intent of the parties at the time the agreement
was entered into. In resolving the ambiguity and determining the
parties' intent, the court may look beyond the face of the
contract and consider extrinsic evidence. Additionally, the
court may rely on the canons of construction which are designed
to ascertain the intentions of the parties entering into a
contract." (Citations omitted.)).
30
No. 2011AP788
specific performance claim, especially one that involves an
employee's termination. We set out above the basic principles
that Wisconsin cases have discussed: that every contract implies
good faith and fair dealing between the parties to it, and a
duty of cooperation on the part of both parties; that a
violation of the implied promise of good-faith dealing may be
considered independent of any breach of the underlying contract;
and that the covenant cannot be used to turn what was
specifically authorized in the agreement into a breach.24
¶47 Sideline makes several arguments related to this
topic. It argues that Beidel waived the opportunity to have
this doctrine discussed in connection with his claim, and it
appears to take the position that it is not appropriate or
permitted for the court to consider the application of the
covenant of good faith and fair dealing unless Beidel "pled a
second cause of action that is independent and severable from
the claim for breach of contract based upon constructive
24
See discussion at ¶¶27-29, supra. Contrary to the
dissent's claim (Dissent, ¶5), we do not conclude that the
covenant of good faith and fair dealing can "be used to vitiate
clear contractual language."
31
No. 2011AP788
discharge."25 Sideline also argues that there is no application
of the covenant of good faith and fair dealing because the
covenant is employed as a "gap-filler," to be applied to
circumstances that are not contemplated by the language of the
parties' contract. In this case, Sideline asserts, the contract
has no gaps to fill because the Stock Repurchase Agreement
contemplated that Sideline "might [choose] to make the
termination effective after the stipulated price expired because
of changes in market conditions or other uncertainties impacting
the accuracy of the stipulated price." Finally, it asserts that
to the extent that the covenant of good faith and fair dealing
comes into play here, it was Beidel who breached the duty of
good faith by seeking to obtain a premium for his shares to
which he was not entitled under the terms of the contract.
Beidel argues that the covenant of good faith and fair dealing
is applicable in the analysis of an equitable claim and asserts
that because it is a part of all contracts, there has been no
waiver of its application here.
¶48 Sideline's waiver argument is not persuasive. It
would be absurd to remand for the balancing of the equities
25
We would note that Beidel's claim is pled as an equitable
claim. The complaint lists three claims, characterized as
follows: Count I: Specific performance (as to Sideline Software,
Inc.), Count II: Breach of fiduciary duty (as to Michael C.
Hall) and Count III: Breach of fiduciary duty (as to Kevin C.
Austin).
32
No. 2011AP788
where a party seeks specific performance and to do so on the
condition that the circuit court ignore breaches of good faith
and fair dealing by the parties. While the covenant of good
faith and fair dealing is implicit in all contracts and thus
relevant to all types of contract claims, it is most relevant in
an equitable case, which by its nature deals with the ideal of
fairness. There is no requirement that a claim be pled as a
breach of the covenant of good faith and fair dealing in order
for the doctrine to play a part in the analysis of the case. As
discussed above at paragraph 29, the situation in Super Valu
Stores was one in which the franchisee countersued the
franchisor on the grounds that the franchisor's decision to
grant another franchise in the same city violated the duty of
good faith and fair dealing "even if [the franchisor's] conduct
comported with the terms of the agreement." Super Valu Stores,
146 Wis. 2d at 577. In that case, the contract explicitly
permitted the franchisor to act to the detriment of the
franchisee: The franchise agreement explicitly stated that the
franchise was non-exclusive and gave the franchisor "the
right . . . to enter into . . . Retailer Agreements with other
parties at [its] sole choice and discretion." Id. at 572.
Entering into retailer agreements with other parties, therefore,
did not constitute a lack of good faith and fair dealing because
the franchisee had consented to it in the contract. Whether
33
No. 2011AP788
Sideline's alleged action was "contemplated by the plain
language of the parties' contract," as the franchisor's right in
Super Valu Stores was, will be a matter for the circuit court to
decide. Sideline's and Beidel's remaining arguments about the
application of good faith and fair dealing may also be
appropriately directed to the circuit court on remand.26
IV. CONCLUSION
¶49 We reiterate that the case law on specific performance
is abundantly clear that the equities must be weighed. It is
clear from a review of the record that such a balancing has
never happened in this case. The motion for summary judgment
26
The standard jury instruction on the implied duty of good
faith, Wis JI-Civil 3044, may be of assistance. It states in
part:
Under Wisconsin law, the contract between (defendant)
and (plaintiff) requires that each party act in good
faith towards the other party and deal fairly with
that party when (performing) (enforcing) (carrying
out) the expressed terms of the contract. This
requirement to act in good faith is a part of the
contract just as though the contract stated it.
. . . Whether the duty to act in good faith has been
met in this case should be determined by deciding what
the contractual expectations of the parties were.
Therefore, in deciding whether the defendant breached
the duty of good faith by (e.g., terminating the
contract . . . ), you should determine the purpose of
the agreement; that is, the benefits the parties
expected at the time the agreement was made. This
duty of good faith means that each party to a contract
will not do something which will have the effect of
injuring or destroying the (rights) (ability) of the
other party to receive the benefits of the contract.
34
No. 2011AP788
failed to make a prima facie case that Sideline was entitled to
specific performance because it did not show a defense that
would defeat the equitable claim it opposed.
¶50 We therefore agree with the court of appeals that
summary judgment was improperly granted in this case without the
required balancing of the equities that are due to a specific
performance claim and without a consideration of the possibility
of a breach of the covenant of good faith and fair dealing. In
order to make a prima facie case that Sideline was entitled to
summary judgment, its motion would need to show a defense that
would defeat Beidel's claim. That is, it must successfully
attack the requirements for obtaining specific performance:
- that specific performance is available as a remedy;
- that there has been a substantial enough breach to
warrant specific performance; and
- that the equities lie on his side, and that nothing would
make an order of specific performance unfair,
unreasonable or impossible.
In determining whether the requirements for specific performance
have been met in this case, it will be necessary for the court
to interpret and apply the provisions of the Stock Repurchase
Agreement, with special reference to Section 6, Termination of
Employment without Cause, as well as Sections 8(b) and (c),
which relate to valuation. In this case the analysis
35
No. 2011AP788
necessarily involves interpreting the contract and determining
whether the undefined term "termination" is ambiguous, and if
so, what the parties intended the term to mean. Extrinsic
evidence may be needed in order to make the determination of the
parties' intent.
¶51 Sideline's motion for summary judgment does not set
forth such a defense, and therefore fails to make a prima facie
case. Accordingly, we affirm the court of appeals and remand
for "the circuit court's determination where the bulk of the
equities lie, including an evaluation of what the parties
intended when they agreed to the stock re-purchase agreement,
and whether it should grant specific performance as Beidel
requested." Beidel, 340 Wis. 2d 433, ¶16. A circuit court may
grant summary judgment to a party on remand as warranted after
the equities have been balanced, recognizing the implications of
the nature of a claim for specific performance and the well-
established obligation of good faith and fair dealing.
By the Court.—The decision of the Court of Appeals is
affirmed.
DAVID T. PROSSER, J., did not participate.
36
No. 2011AP788.akz
¶52 ANNETTE KINGSLAND ZIEGLER, J. (concurring). I
concur and join the majority opinion's discussion concerning
termination which is consistent with this concurrence and the
majority's conclusion that the question of when Beidel was
terminated should proceed before the trial court. I agree that
this case should be remanded because the facts need development
as to when a "termination" occurred under the terms of the Stock
Repurchase Agreement such that the proper remedy can be
determined. Here, the remedy hinges upon when the termination
occurred. Based on the record before the court, it is unclear
whether Beidel is entitled to the stipulated price of $1,600 per
share or the lower fair market value price.
¶53 As this case is a matter of contract interpretation, I
repeat the relevant contract language. Section 6 of the Stock
Repurchase Agreement governs when a shareholder who is
terminated without cause is entitled to the stipulated stock
price:
Shareholder's Put Option. Upon the termination of a
Shareholder's employment with Sideline without Cause
(as defined in section 7(b) below), the terminated
Shareholder shall have a continuing option to sell all
or any part of the Stock owned by him, and upon
exercise of such option, Sideline shall have the
obligation to purchase all of Shareholder’s Stock so
elected for sale by such Shareholder, at the price and
on the terms provided in sections 8 and 9
below. . . . The terminated Shareholder shall
exercise such option by providing 30 day[s'] prior
written notice to Sideline of his decision to sell his
Stock.
1
No. 2011AP788.akz
Sideline does not allege that Beidel was terminated for cause.
Its brief states that "Beidel was terminated as an officer and
employee."
¶54 Section 8 of the contract governs the initial per
share price and how the price would be determined thereafter,
including an annual review of the price. "Upon such review, the
Shareholders and Sideline shall either stipulate by an
instrument in writing that there is no change in the price last
stipulated or agree upon a new Purchase Price by an instrument
in writing signed by them and Sideline . . . ." If the parties
did not negotiate a new price, the prior year's price continued
for one more year, such that a stipulated price could stay in
effect for a maximum of two years. If the parties still did not
negotiate a price two years after the last stipulated price, the
price of shares that were sold "shall be the fair market value
of the Stock as determined by an appraiser selected by
Sideline." The most recent stipulated price of $1,600 per share
was entered into on March 6, 2007, and it was set to expire on
March 6, 2009.
¶55 The threshold question that the circuit court must
consider is whether Beidel was "terminated" before March 6,
2009, as that term is used in the contract. If he was, then he
is entitled to the stipulated price of $1,600 per share. If he
was not, then he is entitled to a per share price determined by
the fair market value.1
1
The majority opinion agrees this is a question to be
resolved on remand. See majority op., ¶¶44, 45, 46 n.24.
2
No. 2011AP788.akz
¶56 The goal of contract interpretation is to ascertain
the intent of the parties. Kernz v. J.L. French Corp., 2003 WI
App 140, ¶9, 266 Wis. 2d 124, 667 N.W.2d 751. When the contract
is plain and unambiguous, "we will construe the contract as it
stands." Id. (citation omitted). Under the contract language
and its call for specific performance as the remedy, when Beidel
was terminated is the central issue.
¶57 The Stock Repurchase Agreement does not define
"termination." Black's Law Dictionary defines "termination" as
"[t]he act of ending something." Black's Law Dictionary 1482
(7th ed. 1999). Another dictionary defines "termination" as
"[t]he act of terminating or the condition of being terminated."
The American Heritage Dictionary of the English Language 1852
(3d ed. 1992).
¶58 Sideline argues that Beidel was formally terminated by
the board of directors on September 17, 2009. Beidel argues
that he was terminated before the March 6, 2009, expiration of
the stipulated price. He points to the fact that in October
2008, Sideline informed him that it intended to fire him and in
January 2009, transitioned his duties to other employees. See
majority op., ¶17. On January 20, 2009, pursuant to Section 6
of the contract, Beidel submitted written notice purportedly to
exercise his put option. Id.
¶59 One reasonable interpretation of the word
"termination" in the Stock Repurchase Agreement is a complete
separation or a complete end to the shareholder's employment.
Another reasonable interpretation of "termination" is an act
3
No. 2011AP788.akz
evidencing an employer's intent to end the shareholder's
employment. In this case, Sideline reduced Beidel's employment
duties significantly and admitted to running out the clock on
the stipulated price. Whether that reduction in duties
constitutes a termination under the terms of the agreement is a
question of fact that is not resolved by the language of the
contract or by the record before the court. Cf. Loos v. George
Walter Brewing Co., 145 Wis. 1, 4, 129 N.W. 645 (1911) (stating
that when employer does not permit employee to perform "the
substantial or principal service he agreed to perform" and
directs the employee to perform other tasks, an employee who
refuses to complete new tasks "may treat such refusal and
direction as a discharge"); 1A Steven Plitt, Daniel Maldonada &
Joshua D. Rogers, Couch on Insurance § 8:68 (3d ed. 2010) ("The
employee's performance of administrative functions in relation
to the insured does not conclusively extend the employment.").
The word "termination" in the Stock Repurchase Agreement is
subject to more than one reasonable interpretation and the facts
in the record do not conclusively answer what the parties
intended by "termination." Justice Gableman asserts that the
parties stipulated to the time period of the termination. See
dissent, ¶67 n.2. The record in that regard is not crystal
clear because the record does not contain a copy of the actual
stipulation.2 Therefore, I would remand this case for a hearing
2
Not only does the record not contain a firsthand copy of
the actual stipulation, but the secondhand information we do
have in the record is unclear as to the nature of the
stipulation. The attorneys give two different portrayals of
what was stipulated. Sideline's attorney stated that "we've had
4
No. 2011AP788.akz
before the circuit court to determine when the termination
occurred.
¶60 The majority opinion remands this case for "the
circuit court's determination where the bulk of the equities
lie, including an evaluation of what the parties intended when
they agreed to the stock re-purchase agreement, and whether it
should grant specific performance as Beidel requested."
Majority op., ¶51. The majority's approach of balancing the
equities should not be read to preclude summary judgment when
applying the terms of the contract.
¶61 I agree that unnecessarily injecting good faith and
fair dealing into a contract, especially when the terms of the
contract are clear, is improper. See dissent, ¶69. Indeed, the
Seventh Circuit is rightly wary of using the doctrine of good
faith and fair dealing to overcome the rights and
responsibilities set forth in a contract. See id., ¶72 (quoting
Mkt. St. Assocs. Ltd. P'ship v. Frey, 941 F.2d 588, 593, 595
(7th Cir. 1991) ("[I]t is unlikely that Wisconsin wishes, in the
name of good faith, to make every contract signatory his
brother's keeper. . . . It would be quixotic as well as
presumptuous for judges to undertake through contract law to
raise the ethical standards of the nation's business people.")).
a concession by the plaintiff that there was no actual
termination." Beidel's attorney stated that "we did agree and
stipulate that we would not pursue that," meaning the actual
termination claim. As I do not believe the record before this
court conclusively resolves whether Beidel was terminated under
the terms of the contract, I would remand.
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No. 2011AP788.akz
¶62 Here, the critical contract term, "termination," is
not fully developed within the facts of this case, the meaning
of which must be determined on remand. Therefore, I would
remand for a circuit court hearing to determine when the
termination occurred. If the fact finder concludes Beidel was
not "terminated" prior to March 6, 2009, he will receive only
the fair market value of his shares. If the fact-finder's
decision is to the contrary, the contract sets the per share
price he is to be paid.
¶63 For the foregoing reasons, I respectfully concur.
¶64 I am authorized to state that Justice PATIENCE DRAKE
ROGGENSACK joins this concurrence.
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No. 2011AP788.mjg
¶65 MICHAEL J. GABLEMAN, J. (dissenting). Today the
court undermines contract rights in the name of good faith and
fair dealing, overturns thirty years of precedent, and inverts
the employer-employee relationship. I respectfully dissent.
I. BEIDEL FORFEITED HIS ARGUMENT CONCERNING THE COVENANT
OF GOOD FAITH AND FAIR DEALING
¶66 Before discussing the majority's legal conclusions, it
is important to first note that Beidel forfeited1 his argument
that Sideline violated the covenant of good faith and fair
dealing. Beidel never pled a claim related to the covenant of
good faith and fair dealing, nor did he raise the issue before
the court of appeals. The court of appeals, however, assisted
Beidel by plucking the remedy out of thin air and making it the
basis for its decision to remand to the circuit court to
determine "where the bulk of the equities lie." Beidel v.
Sideline Software, Inc., 2012 WI App 36, ¶16, 340 Wis. 2d 433,
811 N.W.2d 856.
¶67 So how does the majority get around the forfeiture
obstacle? By stating that "[i]t would be absurd to remand for
the balancing of the equities where a party seeks specific
performance and to do so on the condition that the circuit court
ignore breaches of good faith and fair dealing by the parties."
1
The majority refers to Beidel "waiving" his argument but
"forfeiture" is the more accurate term. See State v. Ndina,
2009 WI 21, ¶29, 315 Wis. 2d 653, 761 N.W.2d 612 ("Whereas
forfeiture is the failure to make the timely assertion of a
right, waiver is the intentional relinquishment or abandonment
of a known right.") (citation omitted).
1
No. 2011AP788.mjg
Majority op., ¶48. But this puts the cart before the horse.
Given that the majority is holding that the constructive
discharge doctrine does not apply, and that constructive
discharge was the entire justification for Beidel's specific
performance claim, it is unclear why this court is not
dismissing Beidel's complaint and is instead ordering the
circuit court to consider a claim that was never pled.2
2
The concurrence considers a remand appropriate for further
fact-finding on whether Beidel was actually terminated during
the relevant time period. Concurrence, ¶59 n.2. I read the
record differently. In my view, Beidel conceded that he was not
actually terminated within the relevant period and a hearing on
the issue is therefore unnecessary.
At a telephonic conference regarding Beidel's motion for
reconsideration, Sideline's attorney stated: "I think we've had
a concession by [Beidel] that there was no actual termination of
him by Sideline . . . . [B]ecause of that prior concession by
[Beidel], I would like to prepare the order [dismissing Beidel's
motion for reconsideration]." Beidel's attorney then asked
Sideline's attorney to "send it to me before you send it in.
We'll make sure it's in the right form before we even get it to
the judge." The following month the circuit court signed the
order denying Beidel's motion for reconsideration. The order
contained the following language: "Further, based on an
agreement of the parties placed on the record on January 27,
2011, that Plaintiff [Beidel] does not contend he was actually
terminated by Sideline prior to March 7, 2009, this Order
resolves all claims as to Sideline's alleged liability to
Plaintiff." No party ever objected to this language, and no
party objects to it now.
2
No. 2011AP788.mjg
¶68 While I acknowledge that appellate courts have the
inherent authority to consider issues raised for the first time
on appeal, State v. Huebner, 2000 WI 59, ¶¶27-28, 235 Wis. 2d
486, 611 N.W.2d 727, this discretionary power should be used
sparingly. Green v. Hahn, 2004 WI App 214, ¶21, 277 Wis. 2d
473, 689 N.W.2d 657. Moreover, our forfeiture doctrine permits
us to consider issues or arguments not raised; it does not
extend to causes of action that were never pled. Sohns v.
Jensen, 11 Wis. 2d 449, 458, 105 N.W.2d 818 (1960) ("Where an
issue is neither pleaded nor litigated in the trial court, this
court ordinarily will not consider it on appeal . . . .");
Murphy v. Martin, 58 Wis. 276, 280, 16 N.W. 603 (1883) (noting
that it is not the "province of this court" to "form new
issues"). As we recently stated, "The mutual consolation of
forfeiture is that each party can be confident that a right
forfeited by the other will not be relitigated in some
subsequent appeal or proceeding." State v. Soto, 2012 WI 93,
I regard the exchange between the attorneys quoted above as
an oral stipulation, subsequently memorialized in the court's
order, and binding on the litigants. See, e.g., Wyandotte
Chemicals Corp. v. Royal Elec. Mfg. Co., Inc., 66 Wis. 2d 577,
589, 225 N.W.2d 648 (1975) ("Generally then, oral stipulations
made in open court, taken down by the reporter, and acted upon
by the parties and the court are valid and binding.") (citation
omitted). In my opinion, the doctrine of claim preclusion would
thus bar Beidel from making an argument that he was actually
terminated under the hearing envisioned by the concurrence. See
N. States Power Co. v. Bugher, 189 Wis. 2d 541, 551, 525 N.W.2d
723 (1995) (describing the elements of claim preclusion as: "(1)
an identity between the parties or their privies in the prior
and present suits; (2) an identity between the causes of action
in the two suits; and (3) a final judgment on the merits in a
court of competent jurisdiction.").
3
No. 2011AP788.mjg
¶36, 343 Wis. 2d 43, 817 N.W.2d 848. Or as Justice Scalia has
put it, the purpose of applying the forfeiture rule is to ensure
that the trial remains "the main event," and not simply a
"tryout on the road to appellate review." Freytag v. Comm'r of
Internal Revenue, 501 U.S. 868, 895 (1991) (Scalia, J.,
concurring). The court today provides no justification for
ignoring the forfeiture rule and giving Beidel——a sophisticated
party who has been ably represented throughout this litigation——
a shot at a second trial. In this respect the majority——much
like the court of appeals before it——serves as advocate rather
than adjudicator.
II. THE COVENANT CANNOT OVERRIDE EXPRESS TERMS OF A
CONTRACT
¶69 The most important fact in this case is that Sideline
acted completely in accordance with its contractual rights.
While it is true that the covenant of good faith and fair
dealing inheres in every contract, this equitable doctrine
cannot, contra the majority, be used to vitiate clear
contractual language. Instead, the notion of good faith is
meant to serve as a gap-filler where a contract is silent.
United States v. Basin Elec. Power Coop., 248 F.3d 781, 796 (8th
Cir. 2001). It may not "block use of terms that actually appear
in the contract," and it has "nothing to do with the enforcement
of terms actually negotiated." Continental Bank, N.A. v.
Everett, 964 F.2d 701, 705 (7th Cir. 1992) (Easterbrook, J.)
(citation omitted). Indeed, in a recent decision the United
States Supreme Court unanimously held that equitable remedies
4
No. 2011AP788.mjg
cannot trump the plain terms of a contract and may be used only
to fill contractual gaps. US Airways, Inc. v. McCutchen, 569
U.S. __, 133 S. Ct. 1537, 1546-47, 1549-50 (2013). Here, there
are simply no gaps to be filled.
¶70 The majority seems to recognize these principles when
it states that "[a] party may not, however, employ the good
faith and fair dealing covenant to undo express terms of an
agreement." Majority op., ¶29. In fact, the majority quotes
(but then ignores) the following language from a court of
appeals opinion:
[When] a contracting party complains of acts of the
other party which are specifically authorized in their
agreement, we do not see how there can be any breach
of the covenant of good faith. Indeed, it would be a
contradiction in terms to characterize an act
contemplated by the plain language of the parties'
contract as a "bad faith" breach of that contract.
Super Valu Stores, Inc. v. D-Mart Food Stores, Inc., 146 Wis. 2d
568, 577, 431 N.W.2d 721 (Ct. App. 1988). The majority's
knowing disregard of such a fundamental principle of contract
law is inexplicable. It appears that the majority either thinks
that the concept of good faith and fair dealing is much broader
than it is, or perhaps it wants to expand the doctrine with this
case. In any event, the doctrine of good faith and fair dealing
is plainly inapplicable when a scenario is covered by the terms
of a contract.
¶71 Two of the leading lights of the law and economics
movement, Judges Frank Easterbrook and Richard Posner of the
United States Court of Appeals for the Seventh Circuit, have
sharply criticized the idea——advanced by the majority——that a
5
No. 2011AP788.mjg
party's bargained for contractual rights can be superseded by
the ethereal good faith requirement. As Judge Easterbrook has
said, "Parties to a contract are not each others' fiduciaries;
they are not bound to treat customers with the same
consideration reserved for their families." Kham & Nate's Shoes
No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351, 1357 (7th
Cir. 1990). An individual is "entitled to enforce [a contract]
to the letter," even if this causes "great discomfort" to the
other party. Id. The essence of an at-will contract is that an
"employer may sack its employee for any reason except one
forbidden by law, and it need not show 'good cause.'" Id. at
1358.
¶72 In a similar vein, Judge Posner——in a decision
interpreting Wisconsin law——wrote that "it is unlikely that
Wisconsin wishes, in the name of good faith, to make every
contract signatory his brother's keeper. . . . In fact the law
contemplates that people frequently will take advantage of the
ignorance of those with whom they contract, without thereby
incurring liability." Market Street Assocs. v. Frey, 941 F.2d
588, 593-94 (7th Cir. 1991). What is more, "even after you have
signed a contract, you are not obliged to become an altruist
toward the other party and relax the terms if he gets into
trouble in performing his side of the bargain." Id. at 594.
Judge Posner warned that "[i]t would be quixotic as well as
presumptuous for judges to undertake through contract law to
raise the ethical standards of the nation's business people."
Id. at 595. Living in a free enterprise society means that we
6
No. 2011AP788.mjg
must accept that some contracts may "place one party at the
other's mercy." Id.
¶73 When Beidel and Hall entered into the stock repurchase
agreement, both knew (or should have known) that the put option
would be subject to the whims of the marketplace. For some
reason, the majority has decided to immunize Beidel and punish
Hall for the bargain that each struck. In doing so, this court
has just loosed a great deal of uncertainty upon contract law in
the State of Wisconsin, and in the process inverted the
employer-employee relationship by ceding some of a company's
termination authority to its workers. At the very least, an at-
will employee can now raise a colorable claim on the meager
basis that he was terminated at a time inconvenient for him and
his stock options. This court would do well to heed the words
of Judge Learned Hand: "[I]n commercial transactions it does not
in the end promote justice to seek strained interpretations in
aid of those who do not protect themselves." James Baird Co. v.
Gimbel Bros., Inc., 64 F.2d 344, 346 (2d Cir. 1933).
III. THE MAJORITY OVERTURNS A THIRTY-YEAR-OLD DECISION OF
THIS COURT
¶74 In deciding that Beidel can present a factual argument
that the timing of his firing was in bad faith, this decision
overturns, sub silentio, Brockmeyer v. Dun & Bradstreet, 113
Wis. 2d 561, 335 N.W.2d 834 (1983), a case not even mentioned by
the majority. There, Brockmeyer was fired for smoking marijuana
in front of his employees, poor job performance, and having an
affair with his secretary. Id. at 565. Despite having no
7
No. 2011AP788.mjg
employment contract, Brockmeyer filed a wrongful discharge
action. Id. at 564-65. The issue in the case was whether an
at-will employee could bring a wrongful discharge action. See
id. at 563.
¶75 We began by recognizing the American common law rule,
which was that an employer may discharge an at-will employee
"for good cause, for no cause, or even for cause morally wrong,
without being thereby guilty of legal wrong." Id. at 567
(citations omitted). We then noted that federal and state
statutes have since modified the concept of an at-will employee
such that certain protected classes cannot be fired for
discriminatory reasons. Id. at 567-68. Consistent with these
statutory trends, state courts across the country developed two
common law causes of action for terminated at-will employees.
Id. at 568. One is the "public policy exception," which allows
a discharged employee to recover if "the termination violates a
well-established and important public policy." Id. at 569. The
other cause of action is broader, and provides that an employer
has an implied duty to terminate an employee only in good faith.
Id. A discharge in bad faith would thus constitute a breach of
contract. Id.
¶76 This court adopted the public policy exception while
expressly rejecting the bad faith termination cause of action.
As we stated, "We refuse to impose a duty to terminate in good
faith into employment contracts. To do so would 'subject each
discharge to judicial incursions into the amorphous concept of
bad faith.' . . . Imposing a good faith duty to terminate would
8
No. 2011AP788.mjg
unduly restrict an employer's discretion in managing the
workforce." Id. (citation omitted). That has been the law for
thirty years. With today's decision that Sideline is not
entitled to summary judgment for exercising a clear contractual
right because the timing of Beidel's termination may have been
in bad faith, the majority overrules Brockmeyer and erodes at-
will employment contracts.
IV. THE RECORD DOES NOT SUPPORT A FINDING OF BAD FAITH
¶77 Finally, if this court is going to adopt the bad faith
termination cause of action, it is worth pausing to consider
whether Sideline actually acted in bad faith towards Beidel.
Our decision remands this case to the circuit court to determine
which party has a stronger equitable claim. As I have made
clear throughout this dissent, I am unsure when it would ever be
inequitable for a party to exercise a valid contractual right,
so I do not know how the circuit court is supposed to proceed
under the standard crafted by today's opinion. But be that as
it may, I can see nothing that could plausibly be characterized
as bad faith conduct on the part of Sideline.
¶78 In October 2008, Hall informed Beidel that he planned
to fire him the following March, after Sideline's stock could be
revalued from its overinflated price of $1,600 a share. In
doing so, Hall acted not only in his best interests, but in the
best interests of the company as well. Additionally, by
providing notice to Beidel when he did, Hall gave him five
months to prepare for the inevitable. And during the period
leading up to his termination, Beidel continued to receive
9
No. 2011AP788.mjg
compensation from Sideline——to the tune of $269,000 in salary
and shareholder distributions in 2008.
¶79 The only options Sideline had, besides the one it
took, were: (1) act contrary to its own interests and terminate
Beidel when the stock was overvalued; or (2) keep mum about
Beidel's impending termination and instead spring the news on
him the day after Sideline's stock was revalued. The first
choice is irrational and the second would seemingly fail the
equitable test laid down by the majority, but if Sideline is not
able to rely on the language of the contract, those were its
only alternatives. The court is remanding this case for the
circuit court to determine "whether the equities lie on the
plaintiff's or defendant's side," majority op., ¶1, but I think
today’s decision has already stacked the deck against Sideline.
¶80 For the foregoing reasons, I respectfully dissent.
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No. 2011AP788.mjg
1