Mitchell v. LEED HR, LLC et al

Filing 57

MEMORANDUM DECISION AND ORDER Plaintiff's Motion for Partial Summary Judgment (Dkt. 30 ) is GRANTED. Defendants' Motion to Strike (Dkt. 34 ) is DENIED. Plaintiff's Motion to Strike (Dkt. 43 ) is DENIED. Signed by Judge Edward J. Lodge. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (jp)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

JEFF RAY MITCHELL,
Case No. 2:14-cv-00026-EJL-REB
Plaintiff,
MEORANDUM DECISION
AND ORDER

v.
LEED HR, LLC and MICHAEL
SCHROERING,
Defendants.

Plaintiff Jeff Mitchell moves on summary judgment for an order enforcing (1) an
“Engagement Incentive” clause in his contract with Defendant Leed HR, LLC (“Leed”)
and (2) Defendant Michael Schroering’s personal guaranty of the incentive. (Dkt. 30.)
Having fully reviewed the record, the Court finds that the facts and legal arguments are
adequately presented in the briefs and record. Accordingly, in the interest of avoiding
further delay, and because the Court conclusively finds that the decisional process would
not be significantly aided by oral argument, this matter shall be decided on the record
before this Court without oral argument.
Because Defendants have not shown that the purpose of the engagement incentive
or the personal guaranty was substantially frustrated by Mitchell’s troubled business
relationship with General Employment Enterprises, Inc. (“GEE”), the Court grants
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Mitchell’s motion for partial summary judgment. The Court denies each parties’ motions
to strike portions of the other’s supporting affidavits. (Dkts. 34, 43.)
FACTUAL BACKGROUND
Schroering was the sole member of Leed, and Leed was the largest shareholder of
GEE stock. Apart from its role as a shareholder of GEE, Leed had no business
operations. Schroering was also the CEO and chairman of GEE’s board of directors.
Schroering contacted Mitchell for the purpose of hiring Mitchell as a business
consultant. Schroering entered into a consulting agreement between Leed and Mitchell.
In the section of the contract governing Mitchell’s compensation, Leed promised the
following “Engagement Incentive”: “On September 1, 2013, Schroering shall grant to
Consultant [Mitchell] 400,000 GEE shares as an incentive for Consultant [Mitchell] to
sign Consulting Agreement. The Engagement Incentive shall vest pro-rata over 90 days
or immediately upon termination of this Agreement.” (Dkt. 33-1, p.2.)
The same day Schroering signed the consulting agreement, he executed a personal
guaranty in favor of Mitchell. Schroering agreed, “with or without demand, to pay
Consultant [Mitchell], to the extent that such payment is not made by the [Leed], any and
all amounts owed or incurred under the Contract.” (Id. p.6.)
Although the consulting agreement stated Leed sought Mitchell’s consulting
services, Schroering maintains that the purpose of the agreement was to obtain Mitchell’s
services for the benefit of GEE. It was his intent that Mitchell would join GEE as a full-

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time employee, at which point the consulting agreement would terminate. That never
happened.
According to Schroering, Mitchell had difficulty working with the other members
of GEE’s board from the outset. As a result, the board rebuffed Schroering’s efforts to
bring Mitchell on as a GEE employee or to utilize his services as a consultant. With no
working relationship between GEE and Mitchell, and with Leed not having any need for
Mitchell’s services itself, Leed opted to not transfer the 400,000 shares of GEE stock in
accordance with the Engagement Incentive.
Mitchell filed this lawsuit alleging breach of contract by Leed, breach of the duty
of good faith and fair dealing by Leed, breach of contract on the personal guaranty of
Schroering and breach of the duty of good faith and fair dealing related to the personal
guaranty of Schroering. (Dkt. 2-3.) For purposes of the motion for partial summary
judgment, the Court will only address the breach of contract claims related to the
Engagement Incentive clause of the consulting agreement.
STANDARD OF REVIEW
Summary judgment is proper if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law. Fed. R.
Crim. P. 56(a). “Where the moving party will have the burden of proof on an issue at
trial, the movant must affirmatively demonstrate that no reasonable trier of fact could find
other than for the moving party.” Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984
(9th Cir. 2007). On summary judgment, all disputed facts and reasonable inferences
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must be construed in favor of the nonmoving party. Anderson v. Liberty Lobby, 477 U.S.
242, 255 (1986). However, to defeat a properly supported motion for summary
judgment, the nonmoving party must present more than a mere scintilla of evidence, and
must come forward with evidence sufficient to show that a reasonable jury could return a
verdict in its favor. Id. at 248.
Further, Federal Rule of Civil Procedure 56(c) “mandates the entry of summary
judgment, after adequate time for discovery and upon motion, against a party who fails to
make a showing sufficient to establish the existence of an element essential to that party’s
case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986). If the either party cannot make a showing on elements
essential to his claims or affirmative defenses, there can be no genuine issue of material
fact “since a complete failure of proof concerning an essential element on the . . . party’s
case necessarily renders all other facts immaterial.” Id. at 323.
DISCUSSION
It is undisputed that neither Leed nor Schroering transferred to Mitchell the
400,000 shares of GEE stock on or before November 30, 2013, the last day of the vesting
period set by the engagement incentive. Mitchell therefore concludes that Leed breached
the consulting agreement and that Schroering is liable for the shares pursuant to his
personal guaranty. Defendants counter that partial summary judgment is inappropriate
because (1) the parties dispute whether the purpose of the consulting agreement was
substantially frustrated when Mitchell and GEE failed to form a professional relationship,
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and (2) Mitchell failed to prove that he was damaged by Defendants’ breaches. Before
turning to the merits of the parties’ arguments, the Court will address Mitchell’s
contention that Schroering’s affidavit supporting his frustration defense is barred by
Idaho’s parol evidence rule.
I.
Absent from the consulting agreement is an express statement that Leed engaged
Mitchell only for the benefit of GEE. To the contrary, the agreement states that Leed
“desire[d] assistance in managing its general business affairs.” (Dkt. 33-1 p.1 ¶A.)
According to Mitchell, “parol evidence may [only] be considered to aid a trial court in
determining the intent of the drafter of a document if an ambiguity exists.” Steel Farms,
Inc. v. Croft & Reed, Inc., 297 P.3d 222, 229 (Idaho 2012). Since the consulting
agreement unambiguously states why Leed and he entered into it, Mitchell has moved to
strike from Schroering’s affidavit any mention of GEE as the true beneficiary of the
consulting agreement or Mitchell’s fractured relationship with the GEE board.
Mitchell’s understanding of the parol evidence rule is incomplete. “The parol
evidence rule . . . does not apply to averments of fraud, misrepresentation, mutual
mistake or other matters which render a contract void or voidable.” Tusch Enter. v.
Coffin, 740 P.2d 1022, 1030 n.5 (Idaho 1987); see also World Wide Lease, Inc. v.
Woodworth, 728 P.2d 769, 778 (Id. Ct. App. 1986) (“Although the lease purported to be
‘the entire integrated agreement’ between the parties, evidence of contemporaneous
negotiation is admissible . . . to grant relief from performance.”). Idaho courts have most
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commonly recognized this exception to the parol evidence rule when confronted with
claims of fraud or mistake. E.g., Belk v. Martin, 39 P.3d 592, 597 (Idaho 2001) (“Parol
evidence is also admissible to prove that by reason of mutual mistake the written
agreement does not express the parties’ true intent.”); Lindberg v. Roseth, 46 P.3d 518,
524 (Idaho 2001) (“The parol evidence rule, however, does not preclude admission of
evidence that one party to a contract made representations that fraudulently induced the
other party to enter into the contract.”). However, the Idaho Court of Appeals has also
held that the parol evidence rule will not bar evidence that performance of the contract
was impossible. Landis v. Hodgson, 706 P.2d 1363, 1369 (Id. Ct. App. 1985).
Just as with fraud, mistake, and impossibility, the frustration-of-purpose doctrine
finds home in the principle that parol evidence “of the circumstances in which the
contract was made” is admissible to establish relief from performance. Restatement
(Second) of Contracts § 214, cmt. d (1981) (adopted in Tusch). “The frustration principle
operates in a proper situation to excuse a promisor’s duty of performance if some
supervening event has destroyed the value of the counter-performance bargained for by
the promisor, even though the counter-performance is still literally possible.” Twin
Harbors Lumber Co. v. Carrico, 442 P.2d 753, 758 (Idaho 1968) (per curiam). For the
defense to succeed, the supervening event must have been unforeseen, and its
nonoccurrence, “a basic assumption on which the contract was made.” Restatement
(Second) Contracts § 265. Schroering’s affidavit goes to the issue of foreseeability, and
to the basic assumptions of Mitchell and Leed. It is not offered “to alter the meaning of
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the written contract but to establish a defense provided by law—[frustration of
purpose]—to which the parties’ mutual assumption of facts is relevant.” Landis, 706
P.2d at 1369.
II.
Defendants argue that the GEE’s board’s decision not to employ Mitchell
substantially frustrated the purpose of the consulting agreement because Leed had no
independent need for Mitchell’s services. Mitchell takes a narrower view of things. He
argues that 400,000 shares of GEE stock were promised as an incentive for him to sign
the agreement. Thus, according to Mitchell, the Engagement Incentive’s purpose was
fulfilled when he signed the consulting agreement. Mitchell is correct.
The frustration principle will not excuse a party from preforming when “the
language [of the contract] or the circumstances indicate the contrary.” Restatement
(Second) of Contracts § 265. Neither the language nor the circumstances suggest that
Leed or Schroering should be excused from fulfilling the Engagement Incentive. The
Engagement Incentive was, axiomatically, “an incentive for [Mitchell] to sign [the]
Consulting Agreement.” (Dkt. 33-1, p.2.) This objective was achieved when Mitchell
made his services available to GEE. While Defendants may have envisioned a long-term
relationship between GEE and Mitchell, there is nothing to suggest that the Engagement

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Incentive was conditioned that relationship developing.1 Rather, the Engagement
Incentive functioned as a “signing bonus” and by its own terms was not contingent upon
the rest of the terms of the contract being completed. The frustration principle will not
excuse a party’s performance simply because “the transaction has become less profitable
for [Defendants] or even that [they] will sustain a loss.” Restatement (Second) of
Contracts § 265, cmt. a.
III.
To prove his claim from breach of contract, Mitchell must establish “(a) the
existence of the contract, (b) the breach of the contract, (c) the breach caused damages,
and (d) the amount of those damages.” Mosell Equities, LLC v. Berryhill & Co., Inc.,
297 P.3d 232, 241 (Idaho 2013). Damages refers to economic injury, and “the measure
of damage—as well as the fact of damage—must be proven beyond speculation.”
Melaleuca, Inc. v. Foeller, 318 P.3d 910, 914 (Idaho 2014) (citations omitted).
Defendants argue that Mitchell has not proved the value of the 400,000 GEE shares and,
therefore, the existence and amount of damages.

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To the extent that the Defendants’ statement that the transfer of the stock was
“conditioned upon Mitchell performing work and coming on as a valued employee of GEE,”
Dkt. 37 ¶16, is meant to imply an unincorporated clause into the consulting agreement, that
argument is foreclosed by the parol evidence rule. See AED, Inc. v. KDC Inv., LLC, 307 P.3d
176, 182 n.2 (Idaho 2013) (extrinsic evidence was inadmissible to show that the consideration
supporting the contract was other than what the contract stated); Tusch, 740 P.2d at 1029
(extrinsic evidence of warranties of quality were barred by the parol evidence rule).

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In his amended affidavit, Mitchell stated that GEE stock was trading at $0.24 per
share on December 2, 2013, the first day of trading after the close of the vesting period,
(Dkt. 41), and he submitted a Yahoo! Finance report to that effect, (Dkt. 33-4). Based on
this evidence, Mitchell claims that his loss was $96,000.00. Defendants claim that
Mitchell’s amended affidavit cannot be considered because it was untimely, and that the
Yahoo! Finance report cannot be considered because is unauthenticated. Defendants’
arguments are misplaced. As Mitchell points out, the price of a publicly traded stock is
subject to judicial notice. See Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d
1049, 1064 n.7 (9th Cir. 2008) (affirming judicial notice of “Corinthian’s reported stock
price history and other publicly available financial documents”). Further, Defendants
have not introduced any evidence calling into doubt the accuracy of $0.24 share price.
Defendants’ two remaining arguments are also unpersuasive. First, Defendants
argue that summary judgment is inappropriate because Mitchell’s right to the shares
vested over a 90-day period. This does not alter the fact that at the end of the 90-day
period, all the shares of GEE stock would have been worth $0.24. Moreover, Defendants
have not offered any evidence that Mitchell would have sold the shares prior to
November 30, 2013. Second, Defendants note that Schroering was removed as chairman
before the end of the vesting period. This fact has nothing to do with Leed’s or
Schroering’s ability to transfer the shares of GEE stock to Mitchell and was not included
as a prerequisite for the Engagement Incentive compensation.

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IV.
Finally, Defendants argue that Mitchell did not support his claim to prejudgment
interest. “Idaho Code § 28-22-104 allows for prejudgment interest at a rate of twelve
percent per year in cases of money due on an express contract.” Dillon v. Montgomery,
67 P.3d 93, 96 (Idaho 2003). A court has discretion under the statute to award
prejudgment interest “as a matter of law . . . where the amount claimed, even though not
liquidated, is capable of mathematical computation.” Id. As just discussed, Mitchell’s
damages are $96,000.00. The Court agrees that an award of prejudgment interest is
appropriate to fully compensate Mitchell for his harm, see Kidd Island Bay Water Users
Co-op. Ass'n, Inc. v. Miller, 38 P.3d 609, 613 (Idaho 2001). The Court will set the
amount at a later date when a final judgment is entered in this matter.
ORDER
IT IS SO ORDERED:
1. Plaintiff’s Motion for Partial Summary Judgment (Dkt. 30) is GRANTED.
2. Defendants’ Motion to Strike (Dkt. 34) is DENIED.
3. Plaintiff’s Motion to Strike (Dkt. 43) is DENIED.
DATED: April 10, 2015

_________________________
Edward J. Lodge
United States District Judge

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