605 B.R. 201
Bankr. D. Ariz.2019Background
- Ronda Sneva (debtor/plaintiff) and R&G Food Services, Inc. (Latitude Catering) executed an Employment Agreement as part of a bankruptcy reorganization and joint plan; the agreement included a Section 13 severance provision (the "Provision").
- The Court previously found R&G breached the Employment Agreement, breached the covenant of good faith and fair dealing, and terminated Sneva not for cause; Sneva’s own breach was immaterial. (Memorandum Decision, Mar. 28, 2019.)
- After that liability ruling, the parties litigated damages and submitted competing proposed judgments. R&G contended the Provision is an unenforceable liquidated-damages penalty; Sneva sought severance and related damages under the Provision.
- The Provision promises payment of base salary, plan payments, and bonuses for the remainder of the initial term upon involuntary termination (subject to a release), and was negotiated as part of the buy-out/compensation package during the Chapter 11 process.
- The Court held supplemental briefing and oral argument and concluded the Provision is a true and enforceable severance clause; alternatively, it is an enforceable liquidated-damages clause under Arizona’s Restatement test.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Section 13 is severance or liquidated damages | Sneva: Provision is part of compensation/severance triggered by termination without cause | R&G: Provision is liquidated damages (or penalty) and must be tested/enforced accordingly | Court: Provision is a true severance; alternatively, even if liquidated damages, it is enforceable under Restatement test |
| Whether Sneva gets attorneys’ fees | Sneva: Contract §21 entitles prevailing party to fees; she prevailed on major claims | R&G: (did not successfully argue offsets to fee entitlement) | Court: Sneva is prevailing party under A.R.S. §12-341.01 and contract; awarded reasonable fees; counsel to file affidavit |
| Whether R&G must pay Sneva’s U.S. Trustee fees (Plan-related fees) | Sneva: sought unpaid U.S. Trustee fees for certain quarters as part of damages | R&G: Agreement and Joint Plan do not obligate R&G to pay Sneva’s U.S. Trustee fees | Court: Denied—U.S. Trustee fees are not among Plan Payments or otherwise recoverable here |
| Whether treble damages under A.R.S. §23-355(A) apply | Sneva: seeks treble damages for unpaid wages/severance | R&G: contends severance is not "wages" or treble unavailable | Court: Declined to exercise discretion to award treble damages and noted statute’s post-2016 narrowing of "wages" |
Key Cases Cited
- Dobson Bay Club II DD, LLC v. La Sonrisa de Siena, LLC, 242 Ariz. 108, 393 P.3d 449 (Ariz. 2017) (adopts Restatement test for enforceability of liquidated damages clauses)
- Howell v. Federal Deposit Ins. Corp., 986 F.2d 569 (1st Cir. 1993) (viewed severance as akin to liquidated damages)
- Monrad v. Federal Deposit Ins. Corp., 62 F.3d 1169 (9th Cir. 1995) (rejected Howell and treated severance as compensatory)
- Office & Professional Employees Int’l Union, Local 2 v. Federal Deposit Ins. Corp., 27 F.3d 598 (D.C. Cir. 1994) (severance viewed as part of compensation package)
- American Power Products, Inc. v. CSK Auto, Inc., 242 Ariz. 364, 396 P.3d 600 (Ariz. 2017) (governs application of A.R.S. §12-341.01 fee-shifting analysis)