July 5, 2013 – Whether a closely held company must pay nearly $4 million to a minority shareholder is still an open question, as the Wisconsin Supreme Court has remanded the case to determine if a stock repurchase agreement should be specifically enforced.
To serve the booming fantasy football market, college friends Michael Hall and Christopher Beidel formed Sideline Software in 1998. The company later marketed an online league management program for fantasy football players. Hall was the majority shareholder, and Beidel held a minority stake in the company.
Under a 2004 stock repurchase agreement, a stipulated stock price remained in effect for two years, and upon expiration, an appraiser would determine the new stock price.
A shareholder terminated without cause could sell his shares at the effective rate. Under the agreement, specific performance was the stipulated remedy for breach of contract.
In 2008, Hall informed Beidel that he would soon be terminated, and Hall began transitioning Beidel’s job duties to other employees. By the time Beidel was actually fired, the two-year stock price of $1,600 per share had expired, and Beidel’s 2,490 shares would be priced much lower based on an appraiser’s evaluation.
However, before his formal termination date, Beidel optioned to “put” his Sideline shares before the $1,600 per share price expired, a nearly $4 million stock payout.
Sideline refused to buy the shares, prompting Beidel’s lawsuit for specific performance of the stock repurchase agreement. Beidel argued that Sideline was attempting to lowball his payout by delaying his termination until the effective stock price expired.
Sideline did not dispute Beidel’s claim. Instead, it argued that it was free to delay termination, and Beidel was trying to procure a large payout despite contract terms.
A circuit court granted summary judgment to Sideline, and an appeals court reversed. In Beidel v. Sideline Software Inc., 2013 WI 56 (July 2, 2013), a Wisconsin Supreme Court affirmed the appeals court, meaning the case must go back to the circuit court.
The circuit court granted summary judgment to Sideline, the majority explained, rejecting the apparent allegation that Sideline “constructively terminated” him. But allegations of constructive termination apply to wrongful termination cases.
“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,” wrote Justice Patrick Crooks, joined in full by three other justices.
Beidel was asking for specific performance of the stock repurchase agreement, an equitable claim, the majority determined.
Thus, the majority ruled that the case must go back: “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,” wrote Justice Crooks.
Justice Annette Ziegler wrote a concurring opinion to note that a circuit court hearing should determine when Beidel’s termination occurred.
“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,” she wrote.
Justice Michael Gableman wrote a lone dissent, stating: “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.”
Gableman said Sideline acted in accordance with the contract provisions on termination. Thus, the doctrine of good faith and fair dealing is inapplicable.
“[T]his 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,” he wrote.
“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.”