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Barranco v. Woods

United States District Court, D. Nevada

October 7, 2019

Ronald Barranco, et al., Plaintiffs,
v.
Bernard Woods, III, Defendant.

          ORDER

          Robert C. Jones United States District Judge.

         The Defendant was the chief executive officer (CEO), chairman of the board, president, and largest stockholder of a closely held corporation. The Plaintiffs, the corporation and its new CEO, and the Defendant executed a contract to switch the management of the corporation in exchange for monetary compensation occurring in installments over the next three years. The Plaintiffs brought this suit alleging that the Defendant breached the agreement by refusing to relinquish control, and the Defendant countersues for, among other things, the Plaintiffs' subsequent refusal to pay. Now, the Defendant moves for summary judgment on all claims. The Court finds that a reasonable juror could agree with the Plaintiffs' version of events, so summary judgment is inappropriate.

         I. FACTUAL BACKGROUND

         For this motion, the facts are construed in the light most favorable to the Plaintiffs as the nonmovants. The Defendant was the CEO and president of Plaintiff OnCourse Technologies, Inc. (OnCourse). He and his wife comprised the entirety of the board of directors. After negotiations, the parties signed three different versions of a separation agreement between the company and the Defendant.

         According to the original agreement, three new members were appointed to the board of directors. In exchange, the Defendant was to receive money compensation in the form of $250, 000 in a lump sum payment and $10, 000 per month for thirty-six months. Additionally, the Defendant will have the option to sell his stock over the next three years for a total of $150, 000. In total, if the Defendant opted to sell his stock, then his compensation would be $760, 000. This agreement was modified a couple of weeks later to include that the board of directors would appoint Plaintiff Barranco to be the CEO and president of the company.

         Under the company's bylaws, there is one classification of stock. In order to alter the composition of the board of directors, stockholders representing a majority of that stock must approve the change. The Defendant's wife had authority to vote for the Defendant. Together, they represented the largest single share of the outstanding stock, and she approved the new directors. Another stockholder, Mr. Kevin Bork, approved the new directors with his stock. Both of these stockholders voted in signed writings, and their stock amounted to over 55% of the outstanding stock entitled to vote.

         Subsequently, the parties signed the most recent version of the separation agreement. The version is substantially similar to the prior agreement with only a couple changes. First, the lump sum payment was bifurcated into payments of $125, 000 over two years to alleviate the Defendant's tax burden. Second, the parties affirmed a variation in the tense of the contract to say that the new directors and officers will “continue with their newly appointed positions.”

         Following the agreements, the Plaintiffs made numerous requests to the Defendant to relinquish company assets, to comply with decisions of the board and officers, and to provide company records. A few days after one of these requests, the Defendant claimed that the directors never procured the necessary votes to join the board and sent a filing to the Nevada Secretary of State's Office asserting that he and his wife were the sole directors of the company. Further, he blocked the new directors out of the company emails, bank accounts, and the accounting software. Additionally, he sent emails to all of the employees stating that he would fire them if they communicate with any of the new directors.

         In response, the Plaintiffs initiated a claim with the Secretary of State for Nevada. The Secretary began an investigation and concluded that the claim was valid, because the Secretary “received no response to her demand for information from [the Defendant].” The Secretary nullified the filing and corrected the state's records.

         To counter the Defendant's actions, a stockholder meeting was held to further validate the composition of the board of directors. According to the results of the meeting, the three board members that were listed in the separation agreement continued their appointments and Mr. Bork was added. The Defendant and his wife were not allowed to participate. Furthermore, the participating stockholders voted the Defendant and his wife off of the board. Afterward, the Defendant's wife protested the meeting by sending a letter to OnCourse's transfer agent claiming that the meeting was fraudulent since she was not notified of it.

         The Plaintiffs sought and retained legal counsel. Counsel attempted to negotiate with the Defendant before bringing this suit. These negotiations culminated in the Defendant returning a signed letter to Plaintiffs' counsel. This letter affirmed that the separation agreement entails (1) that he is no longer employed by the company, (2) that he is not authorized to conduct business on behalf of the company, (3) that he will close all bank accounts in the company's name with him as a signatory, (4) that he is required to turnover all historic business related transactions and relevant information as requested by the management, (5) that Plaintiff Barranco is the CEO and chairman of the board, and (6) that he will provide control of all company accounts and return all company assets. However, the Defendant made another deposit in a company account that listed him as a signatory a month later. The Plaintiffs filed this case shortly thereafter.

         By the time that the Plaintiffs brought this action, the Defendant had been paid $155, 000, which was the amount owed by that time. However, the Defendant has not been paid amounts owed under that contract since. The Plaintiffs claim that the Defendant's actions constituted a material breach of the contract relieving their duty to pay.

         The Plaintiffs raised two causes of action in their complaint: (1) the Defendant breached the separation agreement and (2) he filed a false statement with the Secretary of State for Nevada. The Defendant countersues for (1) breach of contract, (2) breach of good faith and fair dealing, (3) bad faith discharge, and (4) misrepresentation.[1] Prior to any discovery except for initial disclosures, the Defendant moves for summary judgment on all claims.

         II. SUMMARY JUDGMENT STANDARD

         A court should grant summary judgment when “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.Civ.P. 56(a). A factual dispute is genuine when “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson ...


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