Opinion
Civil No. 03-2823 (RHK/AJB)
March 2, 2004
Henry J. Josefsberg, Josefsberg Law Office, Long Beach, California; Todd M. Johnson, Johnson Law Group, Minnetonka, Minnesota, for Plaintiff
Brace J. Douglas and Chris M. Heffelbower, Larkin, Hoffman, Daly Lindgren, Ltd., Bloomington, Minnesota, for Defendants
MEMORANDUM OPINION AND ORDER
Introduction
This matter comes before the Court on cross-motions for summary judgment. Plaintiff Kirk D. Wall has sued Defendants Air-Serv Group, LLC, and Air-Serv Holding, LLC (collectively, "Air-Serv"), alleging he is entitled to certain bonuses under the terms of his agreement with Air-Serv. Both sides have moved for summary judgment. For the reasons set forth below, the Court will deny Plaintiffs motion and grant Defendants' motion in part.
Wall has objected to certain evidence submitted by Air-Serv in connection with these motions. While most of this evidence has little or no bearing on the Court's reasoning, to the extent these materials are relevant to the discussion below, the Court will overrule Wall's objections without prejudice. Wall may resubmit objections at the time of trial.
Background
On June 21, 2000, Air-Serv executed an asset purchase agreement, acquiring approximately 1, 245 coin-operated vending machines from West Coast Air Vending, Inc. ("West Coast Air"), a central California distributor co-owned by Kirk Wall. (See Douglas Decl. Ex. 2 (Asset Purchase Agreement).) The vending machines, generally found at automotive service stations, offered compressed air and water to motorists for a small fee. (Id. Ex. 1 (Wall Dep.) at 10.) That same day, as part of the same transaction, Air-Serv and Wall signed an employment agreement providing for Wall's employment as Air-Serv's Western Regional General Manager. (Id. Ex. 4 (Employment Agreement).) His duties included overseeing maintenance and coin-collection for both the 1, 245 machines formerly owned by West Coast Air and 3,000 other Air-Serv machines. (Id. Ex. 1 at 293.)Under the terms of the employment agreement, Air-Serv agreed to provide Wall with salary, benefits, and eligibility for two bonuses. (See id. Ex. 4.) The first bonus (the "earn-out premium") required Air-Serv to provide Wall with additional compensation in the event gross revenues from the purchased machines exceeded certain thresholds. (Id. Ex. 4 § 1.3(b).) The earn-out premium was initially to be "based upon gross revenues from the Machines included in the Transferred Assets for the 12-month period commencing on the first day of the month following three full months after the Closing Date." (Id.) Under an amendment dated April 12, 2001, however, this earn-out period was revised to run from February 1, 2001 to January 31, 2002. (See id. Ex. 14 (First Amendment to the Employment Agreement).) If gross revenues in the earn-out period were between $2,300,000 and $2,549,999, Air-Serv was obligated to provide Wall with an earn-out premium of $380,000. (Id.) If, however, gross revenues met or exceeded $2,550,000, Air-Serv was obliged to furnish Wall with an earn-out premium of $580,000. (Id.)
Originally provided for in the asset purchase agreement, the earn-out premium appears to have been moved to the employment agreement so Wall would not have to share any payout with his partner. See infra note 7; (see also Douglas Decl. Ex 1 at 170).
The employment agreement also provided for a salary bonus. Wall "shall be eligible to earn a bonus of up to 50% of his Base Salary pursuant to performance goals and objectives established by the Company's senior management, as set forth in Exhibit A attached hereto." (Id. § 1.3(a).) Exhibit A was blank when Wall signed the agreement. (Id. Ex. 1 at 115.) At some later date, Air-Serv filled in performance targets, including: (1) "[m]aintain[ing] or increas[ing] Machine count" while maintaining net revenues at existing Northern California routes, (2) maintaining budgetary levels for newly acquired routes in Southern California and Arizona, and (3) "[i]ncreas[ing] Machine count in the [newly acquired routes] by 20% for each of the fiscal years 2000 and 2001." (Id. at Ex. A.)
Wall served as Air-Serv's Western Regional General Manager from June 21, 2000 until March 12, 2002. At the end of the amended earn-out period on January 31, 2002, Wall and those under his direction created a spreadsheet showing gross revenue from the vending machines acquired from West Coast Air. (Id. Ex. 1 at 210.) According to Wall's calculations, gross revenue for the earn-out period was $2,647,896.51. (Id. at 207.) Wall arrived at this figure by adding the $2,193,000.26 in cash collected from the machines to $454,896.25 in estimated theft losses. (Id at 206-07.) Wall calculated the theft-loss figure by comparing the meter reading indicating the number of quarters inserted into each machine to the amount of cash collected from that machine. (Id. at 211.) He also consulted police reports. (Id. at 206.)
According to Wall's calculations, gross revenue including theft losses entitled him to an earn-out premium of $580,000 — the largest premium provided for in the agreement. (See id. Ex. 4 § 1.3(b).) Without theft losses factored into gross revenue, however, Wall was not entitled to any premium. (Id.)
On March 1, 2002, Wall submitted his calculations to Air-Serv. Twelve days later, he was fired. (Id. at 267.) To date, Air-Serv has refused to pay the earn-out premium.
Standard of Decision
Summary judgment is proper if, drawing all reasonable inferences favorable to the non-moving party, there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 249-50 (1986). The moving party bears the burden of showing that the material facts in the case are undisputed. See Celotex, 477 U.S. at 322; Mems v. City of St. Paul, Dep't of Fire Safety Servs., 224 F.3d 735, 738 (8th Cir. 2000). The court must view the evidence, and the inferences that may be reasonably drawn from it, in the light most favorable to the nonmoving party. See Graves v. Arkansas Dep't of Fin. Admin., 229 F.3d 721, 723 (8th Cir. 2000); Calvit v. Minneapolis Pub. Schs., 122 F.3d 1112, 1116 (8th Cir. 1997). The nonmoving party may not rest on mere allegations or denials, but must show through the presentation of admissible evidence that specific facts exist creating a genuine issue for trial. See Anderson, 477 U.S. at 256; Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995).
Analysis
Following his termination as Air-Serv's West Coast Regional Manager, Wall "tossed everything in the kitchen, including the sink, at [his] former employer," Hunt-Golliday v. Metropolitan Water Reclamation Dist, 104 F.3d 1004, 1004 (7th Cir. 1997) (Evans, I), asserting claims for (1) breach of contract, (2) unpaid wages, (3) wrongful termination, and (4) unfair business practices. The parties have filed cross-motions for summary judgment on these causes of action. The Court will address each in turn. I. Breach of Contract
Minnesota law applies to these claims. The employment agreement expressly states that it "shall be governed by and construed in accordance with the domestic laws of the State of Minnesota, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Minnesota or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Minnesota." (Douglas Decl. Ex. 4 at § 4.7.) Here, all of the claims, whether styled as contract, tort, or wage claims, "are closely related to the interpretation of the contract and fall within the ambit of the express agreement that the contract would be governed by Minnesota law." Northwest Airlines. Inc. v. Astraea Aviation Servs., Inc., 111 F.3d 1386, 1392 (D. Minn. 1997). While California's wage and labor laws do override choice of law provisions in some instances, the claims must still involve a dispute within the scope of those statutes. As discussed infra, this breach of contract action does not qualify, and Wall cannot bring his claim within that scope by magically and repeatedly invoking the word "wage." See Cal. Lab. Code § 200. The Court will therefore enforce the parties' choice of law provision as written.
Wall claims that Air-Serv breached the employment agreement by failing to pay him an earn-out premium. Under section 1.3(b) of the employment agreement, Air-Serv agreed to pay Wall a premium "based upon gross revenues from the Machines included in the Transferred Assets" from February 1, 2001 to January 31, 2002. (Douglas Decl. Ex 4 § 1.3(b).) If gross revenues in this period fell between $2,300,000 and $2,549,999, Air-Serv was obligated to pay a premium of $380,000. (Id.) If, however, gross revenues were $2,550,000 or greater, Air-Serv was obliged to pay a premium of $580,000. (Id.)
Wall also claims to be entitled to a salary bonus under section 1.3(a) of the employment agreement. He has advanced, however, absolutely no credible evidence indicating that he is actually entitled to it. "In resisting a properly supported motion for summary judgment, the plaintiff has an affirmative burden to designate specific facts creating a triable controversy." Crossley v. Georgia Pacific Corp., 355 F.3d 1112, 1113 (8th Cir. 2004) (internal quotation omitted). Wall has not carried that burden here. Accordingly, the Court will grant summary judgment on all Wall's claims regarding the salary bonus.
Wall contends that gross revenue, including losses due to theft, was $2,647,896.51, entitling him to the highest earn-out premium. Air-Serv, on the other hand, claims that gross revenue does not include theft losses, and therefore totals at most $2,193,000.26, entitling Wall to no earn-out premium.
The parties frame their conflict as a dispute over the meaning of "gross revenue." Both parties, however, assert that the term is not ambiguous and agree that it should be defined as it is in Black's Law Dictionary; namely, as "[r]eceipts of a business before deductions for any purpose except those items specifically exempted." Black's Law Dictionary 703 (6th ed. 1990). The Court finds that this definition accords with the plain meaning of "gross revenue" and that the term is not ambiguous.
The crux of the parties' dispute is not over the meaning of "gross revenue," but rather over when coins inserted into the machines should be recognized as such. If coins are recognized as gross revenue from the moment they are inserted into the machines and exchanged for services, coins stolen from the machines prior to collection must count toward gross revenue. If, however, coins are included as gross revenue only after collection, then any coin loss from theft prior to collection is immaterial-the cash collected and the gross revenues are the same.
Under Generally Accepted Accounting Principles, revenue is recognized when a transaction occurs and (1) the revenue is realized or realizable, and (2) the revenue is earned. See Financial Accounting Standards Board ("FASB"), Statement of Financial Accounting Concepts No. 5 § 83 (December 1984).
The two conditions (being realized or realizable and being earned) are usually met by the time product or merchandise is delivered or services are rendered to customers, and revenues from manufacturing and selling activities and gains and losses from sales of other assets are commonly recognized at the time of sale (usually meaning delivery).Id. § 84; see also Friedman v. Rayovac Corp., 295 F. Supp.2d 957, 973 (W.D. Wis. 2003) (noting that revenue is recognized for accounting purposes "when assets are exchanged for cash or claims to cash, and when the entity has substantially performed the obligations that entitle it to the benefits represented by the revenue"). Only when the collectabiliry of assets is "doubtful" may revenues be recognized on the basis of cash received. See FASB, Statement of Financial Accounting Concepts No. 5 § 84(g).
Here, the coins are recognized at the moment of sale. When the customer inserts coins into Air-Serv's machine, the machine provides services in the form of air and water. At that moment, the coins become the property of Air-Serv and may be properly counted as revenue for accounting purposes. While the scale of theft losses reported by Wall raises questions about the collectabiliry of these assets, Air-Serv furiously disputes Wall's numbers and makes no suggestion that the collection of coins is doubtful. Because all coins inserted into the machines are "[r]eceipts of a business before deductions for any purpose,"Black's Law Dictionary at 703, and because theft losses are not "items specifically exempted," id., every coin inserted into the machines in exchange for services must be recognized as part of gross revenue under the parties' definition.
Thus, gross revenue includes theft losses. As the Minnesota Supreme Court has held with regard to taxation and gross earnings,
The loss any business or industry sustains from bad accounts is always treated as one of the necessary and inexorable expenses of doing business. To deduct such uncollected or uncollectible accounts before reporting gross earnings for taxation would be equivalent to allowing the company to deduct part of its expenses of operation. The remainder would not be gross earnings.Soo Line R.R. Co. v. Commissioner of Revenue, 277 N.W.2d 7, 10 (Minn. 1979) (quoting Op. Att'y Gen. No. 472 (February 4, 1914)). This principle applies with equal force here. Gross, in short, means gross, and the Court will not adopt a definition that equates the term with net.
While this holding effectively disposes of Air-Serv's motion with regard to the earn-out premium, it does not follow that Wall's motion should be granted. As Wall himself testified, his calculation with regard to theft losses is an estimate. While "[estimates] are required in financial statements for many on-going and recurring activities of an enterprise," FASB, Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies' ¶ 2 (March 1975), Air-Serv has raised serious questions about the accuracy of Wall's calculations.
[I]f the credibility of the movant's witnesses is challenged. . . and specific bases for possible impeachment are shown, summary judgment should be denied and the case allowed to proceed to trial, inasmuch as this situation presents the type of dispute over a genuine issue of material fact that should be left to the trier of fact.
For instance, Wall routinely finds estimated theft well in excess of the $630 that, according to his testimony, the machines can hold at any one time. In one example, Wall's spreadsheet shows machine 94495 as having total theft of $9,932.50, a figure that would require the machine to have been robbed at full capacity more than 15 times over the previous year.
C. Wright, A. Miller M. Kane, 10A Federal Practice and Procedure § 2726, at 115-16 (2d ed. 1983). Such is the case here. Because Wall's entitlement to the earn-out premium relies upon an estimate that may be fairly questioned, the Court will deny Plaintiffs' motion regarding the earn-out premium.
Because Wall's estimate, by itself, contains sufficient potential bases for impeachment to generate a dispute of fact, the Court need not reach the question of whether Air-Serv's proposed testimony is admissible lay testimony under Fed.R.Evid. 701.
II. Other Claims
In addition to his breach of contract claim, Wall has bootstrapped claims for unpaid wages, wrongful termination, and unfair business practices to the evidence supporting the earn-out premium. The fit, however, between the facts regarding the unpaid bonuses and these additional causes of action is an uneasy one, and Air-Serv contends that summary judgment is appropriate. The Court agrees.Wall's claim for unpaid wages fails because the earn-out premium is not a wage. As Wall himself testified, the earn-out premium did not purport to compensate Wall for his service as an employee, but rather, for the additional value of the machines in the event Air-Serv were to raise the vending price of certain machines from 25 to 50 cents. (See Douglas Decl. Ex. 1 at 166-70.) While wages are not defined by statute under Minnesota law, the Minnesota Supreme Court has noted that "[t]he statute is only applicable to deductions taken from earned wages or commissions." Stiff v. Associated Sewing Supply Co., 436 N.W.2d 777, 780 (Minn. 1989) (emphasis in original); accord Cal. Lab. Code § 200 ("`Wages' include all amounts for labor performed" (emphasis added)); see also The New Shorter Oxford English Dictionary 3608 (1993) (defining "wage" as "[a] payment made . . . in return for work or services rendered" (emphasis added)). To apply Minnesota's wage law to the earn-out premium, as Wall suggests, would be to invite its application in every contractual dispute between every employer and every employee. This the Court will not do. Because the earn-out premium is not an " earned wage or commission," Stiff, 436 N.W.2d at 780, summary judgment is appropriate.
In his deposition, Wall also suggests that the earn-out premium was "[a] way to reward me for 15 years of being in the business and not having to pay my partner the other half of this earn-out." (Douglas Decl. Ex. 1 at 170.) There is nothing in the employment agreement to suggest that the earn-out premium was related to Wall's prior service. Rather, the earn-out premium is clearly part and parcel of the same money-for-machines exchange provided for in the asset transfer agreement executed on the same day. Where, as here, "instruments [are] executed at the same time, by the same parties, [and] relat[e] to the same transaction," the Court must "consider and construe [the instruments] together, since they are, in the eyes of the law, one contract or instrument." Anderson v. Kammeier, 262 N.W.2d 366, 370 n. 2 (Minn. 1977).
After examining Wall's testimony closely, it appears that this statement and others like it relate not to the consideration underlying the earn-out premium but rather to Wall's justification for excluding his partner. He has reason to tread carefully: "[O]ne entrusted with the active management of a corporation, such as an officer or director, occupies a fiduciary relationship to the corporation and may not exploit his position as an `insider' by appropriating to himself a business opportunity properly belonging to the corporation. If such a business opportunity is usurped for personal gain, it is equally well recognized that the opportunity and any property or profit acquired becomes subject to a constructive trust for the benefit of the corporation." Miller v. Miller, 222 N.W.2d 71, 78 (Minn. 1974); accord Kelegian v. Mgrdichian, 39 Cal.Rptr.2d 390, 393-94 (Cal.App. 1995).
Wall has also failed to state a cognizable claim for wrongful termination. Wall alleges that he was terminated "in retaliation for his inquiry about earned wages and to avoid payment of earned wages." (First Am. Compl. ¶ 27.) Under Minnesota law, however, common law claims for retaliatory discharge have been displaced by the Whistleblower Act.See, e.g., Phipps v. Clark Oil Ref. Corp., 408 N.W.2d 569, 571 (Minn. 1987); Piekarski v. Home Owners Sav. Bank, 956 F.2d 1484, 1493 (8th Cir. 1992). While employees may still bring actions alleging wrongful termination under Minnesota law, they must prove that they were engaged in statutorily protected activity. See Minn. Stat. § 181.932. Wall has advanced no evidence of such activity. Accordingly, the Court will grant Air-Serv's motion with regard to his wrongful termination claim.
Finally, Wall has not established a claim for unfair competition. Wall alleges that Air-Serv is
liable for Unfair Business Practices in various ways, including . . . [falsifying] commissions and accounting statements . . . [flailing] to pay all wages due . . . and [terminating] Plaintiff's employment to avoid payment of commissions.
(First Am. Compl. ¶ 31.) Even were these allegations supported by the evidence — they are not — Minnesota does not recognize a cause of action for unfair competition as alleged by Wall. While he suggests that California law would better suit his purpose — and the Court is deeply skeptical — it is of little moment here because, as discussed above, the unfair competition claim is "closely related to the interpretation of the contract," Northwest Airlines, Ill F.3d at 1392, and therefore governed by Minnesota law. (See Douglas Decl. Ex. 4 at § 4.7 ("This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Minnesota. . . .").) Because Wall fails to state a cognizable cause of action, the Court will grant Air-Serv's motion with regard to this claim.
Conclusion
Based on the foregoing, and all of the files, records and proceedings herein, IT IS ORDERED:
1. Plaintiff's Objections to Defendants' Evidence are OVERRULED WITHOUT PREJUDICE;
2. Plaintiff's Motion for Summary Judgment (Doc. No. 58) is DENIED;
3. Defendants' Motion for Summary Judgment (Doc. No. 64) is GRANTED IN PART;
a. Count I of the First Amended Complaint (Doc. No. 31), to the extent it alleges breach of contract with regard to the salary bonus under section 1.3(a) of the employment agreement, is DISMISSED WITH PREJUDICE; and
b. Counts II, III, and IV of the First Amended Complaint (Doc. No. 31) are DISMISSED WITH PREJUDICE.