Cole v. Champion Enterprises

Filing 920081230

Opinion

UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 07-1794

M. MARK COLE, Plaintiff ­ Appellant, v. CHAMPION ENTERPRISES, HOUSING, INCORPORATED, INCORPORATED; SOUTHERN SHOWCASE

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Affirmed by unpublished opinion.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Unpublished opinions are not binding precedent in this circuit.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 following reasons, we affirm. For the

I Champion producer. 2 five-year is a publicly traded manufactured housing

In 1998, it purchased SSH and entered into a written employment agreement with Cole (the "January 1998

Agreement").

Among other things, the January 1998 Agreement set Later a

Cole's salary, incentive bonuses, and severance package. that year Champion promoted in a Cole letter to President of

Retail,

promotion

memorialized

agreement

(the

"September

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). 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).
2

1

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. Option 2001. compete, Champion then re-issued stock to Cole via two Stock Agreements The two ("SOAs") SOAs in adopted in January and September not to

contained part that

identical for two

covenants years

providing

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 its 2002, of Champion Directors implemented ("the provisions was in clarifying charge of that all

Board

Board")

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 worked 1998 out Agreement with other the and that similar agreements had been Young all

executive Board

officers. had

However, to

reminded

Cole

that

ultimately

approve

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. to Detroit and met with Koch.
3

In March 2004, Cole traveled The parties discussed Cole's

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). Even after Cole's employment contract expired, he remained bound by the covenants not to compete located in the SOAs.
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5

concerns

regarding

Champion's

recently

disseminated

2004

compensation plan for executive officers. new plan's incentive compensation

Cole felt that the was inconsistent

structure

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 with

2004 Cole. to

Board Koch

meeting, then in

Koch

outlined the of

his

discussions "Approval slides: 5 · · ·

presented the form

following PowerPoint

Request"

the

Board

·

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

Microsoft PowerPoint is a software program typically used to create business presentations. The presentations consist of a progression of individual slides.

5

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 The

a draft of the agreement to Cole's lawyer, Alex Barrett. 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." 4836. J.A.

Barrett returned a blacklined modification to Champion,

which Barrett described as "revisions from the first draft." J.A. 4692. either slides This modified draft contained several provisions with or not addressed For by the PowerPoint original

inconsistent from the

Board

meeting.

example,

the

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 As Champion

Champion was getting out of the retail business. 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 without or about October Champion 18, 2004, Champion Cole a terminated Cole

cause. 6

offered

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. 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 Champion denied that an agreement had

Cole's non-compete agreement to allow him to invest in the new company, but prevented him from becoming an officer or director.

Upon Cole's termination, the two-year non-competition provisions located in his Stock Option Agreements began to run.

6

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 of state court, bringing failure claims to for pay breach and

repudiation

contract,

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. motion to dismiss.

Champion filed a

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 deceptive Cole's trade illegal practices restraint claims. of trade the and unfair and

Upon

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. filed this appeal.

Cole subsequently

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." Cir. 2008). Emmett v. Johnson, 532 F.3d 291, 297 (4th judgment is appropriate when "the

Summary

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). 489 (4th Cir. 1991). the material facts Schatz v. Rosenberg, 943 F.2d 485,

Upon review, "we must assume the truth of as alleged in the complaint." Jackson v.

Birmingham Board of Educ., 544 U.S. 167, 171 (2005).

11

III A. We granted first consider judgment whether on the district contract court claims. 8 properly Under

summary

Cole's

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. App. 1990). Pawlak v. Redox Corp., 453 N.W.2d 304, 307 (Mich. 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 "`[A] meeting of the minds

N.W.2d 499, 503 (Mich. App. 1992).

is judged by an objective standard, looking to the express words of the parties and their visible acts, not their subjective

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.

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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 any officer, the Board's could be approval adopted. was required The CEOs

before

binding

agreement

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 Because Cole

of Highland Park, 129 N.W. 46, 48 (Mich. 1910).

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
9

approved

the

proposal

presented

by

Koch.

The

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.

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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 vested. slides would be guaranteed until his equity compensation

Even some of the terms that do appear in the PowerPoint are indefinite; to Cole's for example, there is merely a vague only

reference

post-termination

salary,

specifying

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. contract and sent it to Cole Champion drafted a proposed 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 or of the contract. from These

negotiations

prevented

Cole

Champion

reasonably

believing that they were already obligated by an enforceable agreement, whether embodied in the PowerPoint slides or created orally by Cole and Koch. breach of contract. B. Cole also cannot recover under the North Carolina Wage and Hour Act. private N.C. GEN. STAT. §§ 95-25.1 et seq. of action to employees for The Act provides a recovery of unpaid As a result, Cole cannot recover for

right

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." § 95-25.2(16). N.C.GEN.STAT.

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." employer's preventing MICH. COMP. LAWS §445.774a(1). interest . . . must [it] be must To be reasonable, an than merely the

business

"greater protect

competition

against

employee's gaining some unfair advantage in competition with the employer, knowledge N.W.2d but or not prohibit the v. employee Bastian from using general 741 "The

skill." 545 (Mich.

Coates App.

Brothers,

Inc.,

539,

2007)(citation

omitted).

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." 806, 812 (W.D. Mich.

Whirlpool Corp. v. Burns, 457 F.Supp.2d 2006). Put another way, it is not

reasonable to put equally strict restrictions on "an entry level

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.

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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 developers. housing wholesale to retail lots, builders, and

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. N.W.2d 670 See Bristol Window & Door, Inc. v. Hoogenstyn, 650 (Mich. App. 2002)(enforcing 17 a three-year non-

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. and 1997). providing Champion is a publicly held company North

producing

manufactured

housing

throughout

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

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").

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