Lead Opinion
¶ 1. We review a pub
¶ 2. The minority shareholder, Christopher Beidel, sought specific performance of the Stock Repurchase Agreement
¶ 3. After it became clear that Sideline was planning to terminate him and was transitioning his duties to others while delaying the termination until the stipulated price expired, Beidel gave written notice that he was exercising his put option and demanding that 2,490 of his shares be purchased at the stipulated price of $1,600 per share, which had not yet expired. When Sideline refused to purchase Beidel's shares, Beidel brought a claim for specific performance, seeking to have the court order Sideline to purchase the shares at the stipulated price, for a total of nearly four million dollars.
¶ 4. At the heart of the equitable claim this case presents is the question of whether it was fair for Sideline to time a planned termination without cause to avoid paying Beidel $1,600 per share and instead choose to let the stipulated price expire before terminating him so that Sideline could instead pay only the fair market value of the shares. Beidel contends that Hall had explicitly told him in 2008 Sideline would terminate
¶ 5. Sideline does not dispute that the delay was due to a desire to avoid the stipulated share price; rather, it asserts that it was free to time the termination as it saw fit. Under Sideline's interpretation of the contract, refusing to pay Beidel the stipulated share price was not a breach of the Agreement because Beidel's option to sell the shares for that price was never triggered: no termination actually occurred until September 17, 2009. Sideline says Beidel is therefore entitled, under the applicable provision of the Agreement, only to "the fair market value of the [s]tock as determined by an appraiser selected by Sideline."
¶ 6. The court of appeals decision we review reversed a grant of summary judgment for Sideline on the grounds that "[t]he circuit court did not... consider the balancing of equities required in a case where a party seeks specific performance of a contract." Beidel v. Sideline Software, Inc., 2012 WI App 36, ¶ 16, 340 Wis. 2d 433, 811 N.W.2d 856. The court of appeals considered the fact that Beidel had sought specific performance and focused on "the special implications of that request for relief." Id., ¶ 14. The court of appeals concluded that although the circuit court's analysis correctly disposed of one aspect of Beidel's argument, "there is more" to evaluating a claim seeking specific performance. Id., ¶ 13.
¶ 7. The circuit court had granted Sideline's motion for summary judgment on the claim of specific performance, basing its holding on the conclusion that the claim could not rest on an allegation that Sideline
¶ 8. The record indicates, too, that the circuit court voiced observations that would be relevant to the task of balancing the equities. As the court of appeals noted, the circuit court appeared somewhat reluctant to dismiss Beidel's claim on these facts; the circuit court stated that "[a] strong argument can be made that this scenario is so strong [that it resembles constructive termination]."
¶ 9. Besides that, it is potentially relevant to consider the circuit court's disposition of two other counts that were a part of this multi-count lawsuit,
¶ 10. Further, as the court of appeals observed, "[t]he rule that parties to a contract act in good faith is universal."
- that specific performance is available as a remedy10 ;
- that there has been a substantial enough breach to warrant specific performance11 ; and
- that the equities lie on [the plaintiffs] side,12 and that nothing would make an order of specific performance unfair, unreasonable or impossible.13
In determining whether the requirements for specific
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¶ 13. The case arises in the context of a deteriorating relationship between a majority shareholder and a minority shareholder. We briefly set forth a description of the parties, their relationship and the terms of the contract at the center of this dispute.
¶ 14. Sideline began by selling a computer program for fantasy football league management; it later moved to online products for that same purpose. It was incorporated in 1998 by Hall and Beidel, who had been college friends. Though the distribution of the shares changed over the years, Hall was from the beginning the majority shareholder, and at the relevant time, Hall owned 2,505 shares (slightly over half) and Beidel owned 2,495 shares. In the course of expanding the business, the company purchased in 2001 a small company that had developed an online product. Its owner, Kevin Austin, possessed the kind of programming skills that such online products required; he was initially engaged as a consultant and ultimately was hired and granted options to purchase outstanding shares of the company. Austin and Beidel did not have a good relationship; the deterioration of that relationship appears to have played a significant role in Beidel's eventual departure from the company.
¶ 15. In 2004, Beidel and Hall signed a Stock Repurchase Agreement that was intended to "provide a means of assuring a market for the sale of their Stock in certain specified events." As relevant to this appeal, the Agreement contained the following provisions. It contained a stipulation that specific performance is the
Termination of Employment Without Cause; Shareholder's Put Option. Upon the termination of a Shareholder's employment with Sideline without cause (as defined in section 7(b) below), the terminated Shareholder shall have a continuing option to sell all or any part of the Stock owned by him, and upon exercise of such option, Sideline shall have the obligation to purchase all of Shareholder's Stock so elected for sale by such Shareholder, at the price and on the terms provided in sections 8 and 9 below. Provided, however, that such purchase and sale shall be subject to the restrictions and limitations set forth in section 11 hereof. The terminated Shareholder shall exercise such option by providing 30 day[s’] prior written notice to Sideline of his decision to sell his Stock.
(Emphasis added.) The referenced sections relevant here, sections 8(b) and 8(c), provided for a two-year expiration date and an alternative valuation:
If no review of the Purchase Price is undertaken, the Purchase Price set forth in the prior year(s) shall continue in effect unless a period of 24 months expires from the last time in which the Shareholders and Sideline stipulated a Purchase Price.
If the Purchase Price has not been stipulated within the 24 months prior to a Purchase Event, and a Purchase Event occurs, the Purchase Price shall be the*373 fair market value of the Stock as determined by an appraiser selected by Sideline.
¶ 16. Pursuant to the Agreement, Beidel and Hall set the stock price over the years between 2004 and 2007. As the court of appeals explained:
The last stipulated price was agreed to in a document signed by both Hall and Beidel, dated March 6, 2007. It provided for a per-share valuation of $1,600, and thus expired twenty-four months later because Hall and Beidel never agreed on a new valuation.
Beidel, 340 Wis. 2d 433, ¶ 4.
¶ 17. Because there was no new agreed-upon valuation, the price stipulated to on March 6, 2007, was set to expire on March 6, 2009. In October 2008, Hall told Beidel of his intention to terminate Beidel. In December of 2008, the two met to discuss the transitioning of Beidel's duties prior to April of the following year. Following that meeting, the process of transitioning duties seemed to be underway in January of 2009. That month another company interested in purchasing Sideline made an offer to purchase. The offer contained an employment agreement and stock options for Hall, but none for Beidel. On January 20, Beidel submitted written notice to Hall that he was thereby exercising his put option under the Agreement with regard to 2,490 shares of Sideline stock. The notice asserted that he had already been "stripped... of [his] job responsibilities" and his employment had "already been terminated by Sideline." He demanded that Sideline purchase the stock at the stipulated price in accordance with the Agreement.
¶ 18. When Sideline refused, Beidel filed a claim against Sideline for specific performance.
¶ 19. The circuit court for Milwaukee County, the Honorable John J. DiMotto presiding, initially granted partial summary judgment to Sideline as follows:
The plaintiff may not proceed on the specific performance claim against Sideline ... by claiming that he was constructively discharged. There is no genuine issue of material fact that one of the essential elements of a claim of constructive discharge, actual resignation by the employee, did not occur in this case. ... The plaintiff will be permitted to proceed to trial on Count No. I, but he will be required to prove that he was actually discharged by Sideline Software Inc., without cause, prior to the expiration of the stipulated price.
¶ 21. As noted above, the circuit court denied summary judgment as to related claims because the court found genuine issues of material fact concerning the good faith dealings of the parties.
¶ 22. The court of appeals reversed the grant of summary judgment; Sideline petitioned for review, and this court granted review.
II. SPECIFIC PERFORMANCE
¶ 23. The question presented by the claim is whether Beidel is entitled to specific performance of the repurchase of his shares at the stipulated price of $1,600 each after Sideline refused to honor Beidel's exercise of his put option under the agreement. We look to our case law on specific performance for the principles that govern a specific performance claim. There we see a series of determinations that a court is obligated to make and the showing a party must make to prevail in such a claim.
¶ 24. The threshold question is whether specific performance is available. In this case, as noted above, the parties agreed in advance that it would be. In the agreement, the parties stipulated that "[i]f a controversy arises concerning the right or obligation to purchase or sell any of the shares of Stock, such right or obligation shall be enforceable in a court of equity by a
¶ 25. After the threshold determination is made that specific performance is available, the analysis proceeds with a series of questions.
¶ 26. First, is there a substantial enough breach to warrant specific performance? In a case involving a contract, this necessarily requires the court to interpret
In Chayka, a husband and wife contracted to execute joint and reciprocal wills, which, upon one party's death, would leave all property to the other and, upon the survivor's death, would leave all property owned by the survivor to another relative. After the husband's death, the wife remarried and, shortly thereafter, conveyed virtually all of her property to her new husband (or, in some instances, to herself and her husband in joint tenancy). On the wife's death, her estate sought to overturn the conveyances. Resisting the challenge, the second husband argued that the will contract had been fully performed because a will with all of the agreed-upon terms had been executed (and fully performed, in that the wife did leave the property that remained to the relative).20
This, as another court has well stated it to be, is "a mere play upon words." What she in fact has done has stripped nearly all of the flesh from the bones, leaving only a skeleton for testamentary disposition to [the relative who was to receive the property]. This is a compliance in form, not in substance, that breaches the covenant of good faith that accompanies every contract, by accomplishing exactly what the agreement of the parties sought to prevent.
Chayka, 47 Wis. 2d at 107.
¶ 28. The court of appeals in Foseid acknowledged what was implicit in Chayka's holding — that "accomplishing exactly what the agreement of the parties sought to prevent" constituted an independent breach even if there was no other technical breach alleged. "[W]e do not consider that reference as a holding that violation of the implied promise of good-faith dealing may not be considered independent of any breach (or lack of breach) of the underlying contract. Indeed, such a holding would run contrary to the supreme court's decision in [Chayka]." Foseid v. State Bank of Cross Plains, 197 Wis. 2d 772, 795, 541 N.W.2d 203 (Ct. App. 1995)(citations omitted).
¶ 29. A party may not, however, employ the good faith and fair dealing covenant to undo express terms of an agreement. Reliance on the covenant of good faith and fair dealing did not avail a franchisee who complained that "even if [the franchisor's] conduct comported with the terms of the agreement," the covenant required that the franchisor "not franchise a second
[W]here, as here, a contracting party complains of acts of the other party which are specifically authorized in their agreement, we do not see how there can be any breach of the covenant of good faith. Indeed, it would be a contradiction in terms to characterize an act contemplated by the plain language of the parties' contract as a "bad faith" breach of that contract.
Id. at 577. Unlike in Chayka, in Super Valu Stores there was compliance with both the form and substance of the contract.
¶ 30. Having determined that specific performance is available and warranted by a substantial enough breach by a party, the court arrives at the heart of the matter — the "balancing of the equities" in which it takes into consideration all the facts and circumstances and determines whether the plaintiff is entitled to the equitable relief he seeks. "The fairness of ordering specific performance depends on the facts and equities of the individual case before the circuit court and will vary from case to case." Ash Park, 324 Wis. 2d 703, ¶ 38. This balancing has been described as "a judicial discretion":
*381 But this discretion is not one to be exercised at the mere will and pleasure of the judge. It must be a judicial discretion, controlled and governed by the principles and rules of equity. Its exercise therefore depends upon the existence of a multitude of facts, events, and incidents surrounding the transaction ....
Mulligan v. Albertz, 103 Wis. 140, 144, 78 N.W. 1093 (1899). "Accordingly, specific performance will be granted when it is apparent from a view of all the circumstances of the particular case that it will serve the ends of justice." 81A C.J.S. Specific Performance § 4 (2004). Indeed, as one treatise has stated, "[I]n determining the question [of whether to grant or refuse a decree of specific performance], a greater variety of facts is to be taken into consideration than is the case in an action for damages for breach of contract." 12 Joseph M. Perillo, Corbin on Contracts § 63.1 (rev. ed. 2012).
¶ 31. As a part of its equitable balancing, the court must consider countervailing concerns: Are there any factual considerations that would make specific performance unfair, unreasonable, impossible, oppressive, harsh or unjust? See Gaugert v. Duve, 2001WT 83, ¶ 47, 244 Wis. 2d 691, 628 N.W.2d 861 (stating, "The circuit court's analysis did not reveal any factual considerations that would make specific performance unfair, unreasonable, or impossible." (citing Anderson v. Onsager, 155 Wis. 2d 504 at 512-13, 455 N.W.2d 885 (1990))). This determination has been phrased in various ways: "The court will not grant the relief unless satisfied that the claim is fair and the contract equal and founded on consideration, that it is not opposed to public policy, that the plaintiff is guilty of no inequitable conduct or of delay constituting laches, and that the result will not be oppressive, harsh or unjust." 9 Jay Grenig, Wisconsin Pleading and Practice § 81:2 (5th ed. 2012) (citing cases).
¶ 33. Finally, we note that this case arises in the posture of a summary judgment motion. We review a summary decision de novo, applying the same methodology as the circuit court. Green Spring Farms v. Kersten, 136 Wis. 2d 304, 315, 401 N.W.2d 816 (1987). "Under [Wis. Stat. § 802.08], summary judgment must
Our first step is to discern whether the pleadings set forth a claim for relief as well as a material issue of fact. If the pleadings meet this initial test, our inquiry shifts to the moving party's affidavits or other proof to determine whether a prima facie case for summary judgment has been presented. If the moving party has made a prima facie case for summary judgment, we then examine the affidavits and other proof of the opposing party to discern whether there exist disputed material facts, or undisputed material facts from which reasonable alternative inferences may be drawn, sufficient to entitle the opposing party to a trial.
Id. at 61-62.
III. DISCUSSION
¶ 34. Having set out the analytical framework that applies to a specific performance case, we now turn to the task of applying it to the case at hand. We apply the methodology as described by Swatek. There is no dispute, as to the initial question, that the pleadings set forth a claim for relief, specifically for equitable relief, pursuant to a contractual provision, as well as a mate
¶ 35. The next question is whether the moving party, in this case Sideline, has made a prima facie case for summary judgment. "To make a prima facie case for summary judgment, a moving defendant must show a defense which would defeat the plaintiff." Grams v. Boss, 97 Wis. 2d 332, 338, 294 N.W.2d 473 (1980), overruled on other grounds by Meyers v. Bayer AG, Bayer Corp., 2007 WI 99, 303 Wis. 2d 295, 735 N.W.2d 448.
¶ 36. In order to prevail on his equitable claim, as we have set forth above, Beidel would have to show that that specific performance is available to him as a remedy,
¶ 37. An examination of Sideline's summary judgment motion shows that while it has shown a defense which would defeat a constructive termination argument in a wrongful termination claim, it has not shown a defense which would defeat the claim Beidel actually brought. Not only does the summary judgment motion fail to address the equitable claim directly, it attempts to support its position with facts and arguments that could be construed to support Beidel's position on the equitable claim (e.g., Sideline claims that it had a "right to postpone the termination, in order to avoid the stipulated price," that Hall "was not motivated to coerce Beidel into resigning in advance of March 2009," and that Hall "was motivated" to keep him employed "until at least after the stipulated price expired"). None of these assertions are inconsistent with Beidel's theory that Sideline unfairly refused to purchase his shares at the stipulated price after delaying his termination for that express purpose. Because the summary judgment motion does not show a defense that would defeat the equitable claim, it does not make a prima facie case. The analysis ends there, and the motion fails.
¶ 38. We turn next to the two legal concepts that are likely to arise again when the case is remanded: the doctrine of constructive termination and the covenant of good faith and fair dealing. We examine each of the issues in order to acknowledge and respond to the parties' arguments.
B. Constructive Termination
¶ 39. As noted above, Beidel was formally terminated by the board of Sideline in September 2009. He has asserted that he was, in reality, terminated long
¶ 40. The constructive discharge doctrine "recognizes that some resignations are coerced, tantamount to a termination." Strozinsky v. Sch. Dist. of Brown Deer, 2000 WI 97, ¶ 68, 237 Wis. 2d 19, 614 N.W.2d 443. We addressed this scenario in Strozinsky and described the purpose of the doctrine this way:
Actual discharge carries significant legal consequences for employers, including possible liability for wrongful discharge. In an attempt to avoid liability, an employer may refrain from actually firing an employee, preferring instead to engage in conduct causing him or her to quit. The doctrine of constructive discharge addresses such employer-attempted 'end runs' around wrongful discharge and other claims requiring employer-initiated terminations of employment.
Strozinsky, 237 Wis. 2d 19, ¶ 68.
¶ 41. The court stated that the significance of the holding was that "employers cannot escape liability by coercing a resignation instead of formally uttering the words 'you're fired.'" Id., ¶ 83. It then stated what a plaintiff seeking to establish that a resignation was coerced must show: "The plaintiff must prevail under an objective standard, establishing that conditions were so intolerable that a reasonable person confronted with same circumstances would have been compelled to resign." Id.
¶ 42. Beidel asserts that the situation here is governed by the principle underlying the constructive discharge doctrine — that substance is more important
¶ 43. We disagree in key respects with both approaches. Beidel is wrong because he thinks in an equitable case, the test for constructive discharge can be applied in a less formalistic way such that constructive discharge can be found to occur even where there is not a resignation by an employee. Even though the rationale underlying the constructive discharge doctrine is, as Beidel points out, one of making sure that "substance prevails over form," courts have established the test for a constructive termination, and every Wisconsin case we have found that meets that test involves a resignation. See Strozinsky, 237 Wis. 2d 19, ¶ 68. The fact that the test was developed in order to help courts do justice does not mean that it is to be applied without regard to the required elements. We see no need to alter the Strozinsky approach to testing
¶ 44. However, we cannot agree that this conclusion — that the constructive termination test is not satisfied — disposes of Beidel's equitable claim. Sideline argues that specific performance of the contract is precluded because the constructive termination elements cannot be shown. But that argument is based on a fundamental misapprehension of the claim for specific performance: Beidel was not pursuing a claim for wrongful termination and does not allege that the termination of his employment, whenever it happened, violated any contract. As the court of appeals held, the analysis does not end with the disposal of the constructive termination claim. Further, it is unhelpful and unnecessary to graft the constructive termination requirements onto the equitable analysis. On that point, we agree with Beidel that "[t]he court's discretion in deciding whether to grant specific performance should not be limited by a test imported from an entirely different legal theory implicating entirely different concerns."
¶ 45. There is one further, related consideration, given that Beidel's claim turns on the timing of the ending of his employment with Sideline. The foundation for Beidel's specific performance claim is that his treatment by Sideline triggered his right to exercise his
"Cause" means (i) the commission of a felony or a crime involving moral turpitude or the commission of any other act or omission involving dishonesty, disloyalty or fraud with respect to Sideline, (ii) failure to devote his entire business time to the business of Sideline (subject to normal vacation leave or time off, illness or sick leave, or other periods of permitted absence), (iii) conduct tending to bring Sideline into substantial public disgrace or disrepute, (iv) gross negligence or willful misconduct with respect to Sideline, or (v) any material breach of this Agreement.
However, we observe that the contract does not define "termination."
C. Covenant of Good Faith and Fair Dealing
¶ 46. The parties also dispute the application of the covenant of good faith and fair dealing in the context of a specific performance claim, especially one that involves an employee's termination. We set out above the basic principles that Wisconsin cases have discussed: that every contract implies good faith and fair dealing between the parties to it, and a duty of cooperation on the part of both parties; that a violation of the implied promise of good-faith dealing may be considered independent of any breach of the underlying contract; and that the covenant cannot be used to turn what was specifically authorized in the agreement into a breach.
¶ 47. Sideline makes several arguments related to this topic. It argues that Beidel waived the opportunity to have this doctrine discussed in connection with his claim, and it appears to take the position that it is not appropriate or permitted for the court to consider the application of the covenant of good faith and fair dealing unless Beidel "pled a second cause of action that
¶ 48. Sideline's waiver argument is not persuasive. It would be absurd to remand for the balancing of the equities where a party seeks specific performance and to do so on the condition that the circuit court ignore breaches of good faith and fair dealing by the parties. While the covenant of good faith and fair dealing is implicit in all contracts and thus relevant to
¶ 49. We reiterate that the case law on specific performance is abundantly clear that the equities must be weighed. It is clear from a review of the record that such a balancing has never happened in this case. The motion for summary judgment failed to make a prima facie case that Sideline was entitled to specific performance because it did not show a defense that would defeat the equitable claim it opposed.
¶ 50. We therefore agree with the court of appeals that summary judgment was improperly granted in this case without the required balancing of the equities that are due to a specific performance claim and without a consideration of the possibility of a breach of the covenant of good faith and fair dealing. In order to make a prima facie case that Sideline was entitled to summary judgment, its motion would need to show a defense that would defeat Beidel's claim. That is, it must successfully attack the requirements for obtaining specific performance:
- that specific performance is available as a remedy;
- that there has been a substantial enough breach to warrant specific performance; and
- that the equities lie on his side, and that nothing would make an order of specific performance unfair, unreasonable or impossible.
¶ 51. Sideline's motion for summary judgment does not set forth such a defense, and therefore fails to make a prima facie case. Accordingly, we affirm the court of appeals and remand for "the circuit court's determination where the bulk of the equities lie, including an evaluation of what the parties intended when they agreed to the stock re-purchase agreement, and whether it should grant specific performance as Beidel requested." Beidel, 340 Wis. 2d 433, ¶ 16. 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.
By the Court. — The decision of the Court of Appeals is affirmed.
Beidel v. Sideline Software, Inc., 2012 WI App 36, 340 Wis. 2d 433, 811 N.W.2d 856.
In the Agreement, the parties stipulated that "[i]f a controversy arises concerning the right or obligation to purchase or sell any of the shares of Stock, such right or obligation shall be enforceable in a court of equity by a decree of specific performance." "When a contract specifies remedies available for breach of contract, the intention of the parties generally governs." Ash Park, LLC v. Alexander & Bishop, Ltd., 2010 WI 44, ¶ 37, 324 Wis. 2d 703, 783 N.W.2d 294.
A put option is "[a]n option to sell something (esp. securities) at a fixed price even if the market declines; the right to require another to buy." Black's Law Dictionary 1121 (7th ed. 1999).
The record does not disclose the precise difference between the two prices, but there is evidence that the difference is substantial; a purchase offer made to Sideline in early 2009 was for an amount that would have bought out the shareholders at $260 per share.
At several points in the transcript, the circuit court appears to make reference to equitable considerations, but the basis for its ruling is clearly stated in terms of a constructive termination analysis.
The amended complaint in this case, 09CV5862, lists three claims, characterized as follows: Count I: Specific Performance (as to Sideline Software, Inc.), Count II: Breach of Fiduciary Duty (as to Michael C. Hall) and Count III: Breach of Fiduciary Duty (as to Kevin C. Austin).
Beidel moved the court of appeals to take judicial notice of the special verdict form from the jury trial. The court of appeals denied the motion, stating that "the verdict does not affect either the result of this appeal or the analysis of this opinion." Beidel, 340 Wis. 2d 433, ¶ 16 n.5. While reference was made in the briefs to this verdict, we are limited to the information in the record, which includes the summary judgment motion hearing transcript referenced above but not the jury verdict. See Jenkins v. Sabourin, 104 Wis. 2d 309, 313, 311 N.W.2d 600 (1981) (materials that are not a part of the record cannot be considered).
Beidel, 340 Wis. 2d 433, ¶ 15 (citing Restatement (Second) of Contracts § 205 (1981)).
Chayka v. Santini, 47 Wis. 2d 102, 107 & n.7, 176 N.W.2d 561 (1970).
Ash Park, 324 Wis. 2d 703, ¶ 37 (when a contract specifies remedies available for breach of contract, the intention of the parties generally governs). Otherwise "the primary criterion for the availability of specific performance has been the inadequacy of the legal remedy." 12 Joseph M. Perillo, Corbin on Contracts § 63.1 (rev. ed. 2012).
Huntoon v. Capozza, 57 Wis. 2d 447, 452, 204 N.W.2d 649 (1973).
Venisek v. Draski, 35 Wis. 2d 38, 51, 150 N.W.2d 347 (1967); Gaugert v. Duve, 2001 WI 83, ¶ 46, 244 Wis. 2d 691, 628 N.W.2d 861 (describing the circuit court's balancing process in that case thus: "The circuit court also concluded that as between the [plaintiffs] and the defendants the equities were perhaps equal due to the uniqueness of the property and the competing interests at stake" and explaining that the circuit court had concluded that one party's failure to take steps to preserve a remedy tipped the scales).
Gaugert, 244 Wis. 2d 691, ¶ 47.
See Swatek v. County of Dane, 192 Wis. 2d 47, 61-62, 531 N.W.2d 45 (1995) (describing the summary judgment methodology of examining first whether a claim has been stated, then turning to whether a prima facie case was made by the movant, and if so, examining the opposing party's materials). The validity of the claim in this case, the first step of the summary judgment analysis, is not at issue.
Super Valu Stores, Inc. v. D-Mart Food Stores, Inc., 146 Wis. 2d 568, 577,431 N.W.2d 721 (Ct. App. 1988) (Wisconsin law does recognize that "[e]very contract implies good faith and fair
In the Agreement, the parties stipulated that "[i]f a controversy arises concerning the right or obligation to purchase or sell any of the shares of Stock, such right or obligation shall be enforceable in a court of equity by a decree of specific performance."
He also filed related claims against Hall and Austin individually.
It also acknowledges the possibility of seeking specific performance prior to a breach: "In unusual circumstances, however, it may be granted where there is merely a threatened breach." Restatement (Second) of Contracts § 357 cmt. a (1981).
See, e.g., Mendelson v. Del. River & Bay Auth., 56 F. Supp. 2d 436, 438 (D. Del. 1999) (rejecting a Maryland jurisdictional challenge that "look[ed] only to the letter of its contract, ignoring the spirit of the agreement" where the contract stated that the product would be shipped to Virginia but the manufacturer knew that the specially manufactured item was intended for installation in Maryland).
Foseid v. State Bank of Cross Plains, 197 Wis. 2d 772, 795, 541 N.W.2d 203 (Ct. App. 1995) (citations omitted).
In the Agreement, the parties stipulated that "[i]f a controversy arises concerning the right or obligation to purchase or sell any of the shares of Stock, such right or obligation shall be enforceable in a court of equity by a decree of specific performance." When a contract specifies remedies available for breach of contract, the intention of the parties generally governs. Ash Park, 324 Wis. 2d 703, ¶ 37.
We briefly note again the language in Section 6 concerning what triggers the obligation of Sideline to purchase the shareholder's stock at the price in effect at the relevant time:
Termination of Employment Without Cause; Shareholder's Put Option. Upon the termination of a Shareholder's employment with Sideline without cause (as defined in section 7(b) below), the terminated Shareholder shall have a continuing option to sell all or any part of the Stock owned by him, and upon exercise of such option, Sideline shall have the obligation to purchase all of Shareholder's Stock so elected for sale by such Shareholder, at the price and on the terms provided in sections 8 and 9 below.
Capital Investments, Inc. v. Whitehall Packing Co., 91 Wis. 2d 178, 190, 280 N.W.2d 254 (1979) ("After a contract has been found to be ambiguous, it is the duty of the courts to
See discussion at ¶¶ 27-29, supra. Contrary to the dissent's claim (Dissent, ¶ 5), we do not conclude that the covenant of good faith and fair dealing can "be used to vitiate clear contractual language."
We would note that Beidel's claim is pled as an equitable claim. The complaint lists three claims, characterized as follows: Count I: Specific performance (as to Sideline Software, Inc.), Count II: Breach of fiduciary duty (as to Michael C. Hall) and Count III: Breach of fiduciary duty (as to Kevin C. Austin).
The standard jury instruction on the implied duty of good faith, Wis Jl-Civil 3044, may be of assistance. It states in part:
Under Wisconsin law, the contract between (defendant) and (plaintiff) requires that each party act in good faith towards the other party and deal fairly with that party when (performing) (enforcing) (carrying out) the expressed terms of the contract. This*393 requirement to act in good faith is a part of the contract just as though the contract stated it. ... Whether the duty to act in good faith has been met in this case should be determined by deciding what the contractual expectations of the parties were. Therefore, in deciding whether the defendant breached the duty of good faith by (e.g., terminating the contract . ..), you should determine the purpose of the agreement; that is, the benefits the parties expected at the time the agreement was made. This duty of good faith means that each party to a contract will not do something which will have the effect of injuring or destroying the (rights) (ability) of the other party to receive the benefits of the contract.
Concurrence Opinion
¶ 52. {concurring). I concur and join the majority opinion's discussion concerning termination which is consistent with this concurrence and the majority's conclusion
¶ 53. As this case is a matter of contract interpretation, I repeat the relevant contract language. Section 6 of the Stock Repurchase Agreement governs when a shareholder who is terminated without cause is entitled to the stipulated stock price:
Shareholder's Put Option. Upon the termination of a Shareholder's employment with Sideline without Cause (as defined in section 7(b) below), the terminated Shareholder shall have a continuing option to sell all or any part of the Stock owned by him, and upon exercise of such option, Sideline shall have the obligation to purchase all of Shareholder's Stock so elected for sale by such Shareholder, at the price and on the terms provided in sections 8 and 9 below.... The terminated Shareholder shall exercise such option by providing 30 day[s'] prior written notice to Sideline of his decision to sell his Stock.
Sideline does not allege that Beidel was terminated for cause. Its brief states that "Beidel was terminated as an officer and employee."
¶ 54. Section 8 of the contract governs the initial per share price and how the price would be determined thereafter, including an annual review of the price. "Upon such review, the Shareholders and Sideline shall either stipulate by an instrument in writing that there
¶ 55. The threshold question that the circuit court must consider is whether Beidel was "terminated" before March 6, 2009, as that term is used in the contract. If he was, then he is entitled to the stipulated price of $1,600 per share. If he was not, then he is entitled to a per share price determined by the fair market value.
¶ 56. The goal of contract interpretation is to ascertain the intent of the parties. Kernz v. J.L. French Corp., 2003 WI App 140, ¶ 9, 266 Wis. 2d 124, 667 N.W.2d 751. When the contract is plain and unambiguous, "we will construe the contract as it stands." Id. (citation omitted). Under the contract language and its call for specific performance as the remedy, when Beidel was terminated is the central issue.
¶ 57. The Stock Repurchase Agreement does not define "termination." Black's Law Dictionary defines "termination" as "[t]he act of ending something." Black's Law Dictionary 1482 (7th ed. 1999). Another dictionary defines "termination" as "[t]he act of terminating or the
¶ 58. Sideline argues that Beidel was formally terminated by the board of directors on September 17, 2009. Beidel argues that he was terminated before the March 6, 2009, expiration of the stipulated price. He points to the fact that in October 2008, Sideline informed him that it intended to fire him and in January 2009, transitioned his duties to other employees. See majority op., ¶ 17. On January 20, 2009, pursuant to Section 6 of the contract, Beidel submitted written notice purportedly to exercise his put option. Id.
¶ 59. One reasonable interpretation of the word "termination" in the Stock Repurchase Agreement is a complete separation or a complete end to the shareholder's employment. Another reasonable interpretation of "termination" is an act evidencing an employer's intent to end the shareholder's employment. In this case, Sideline reduced Beidel's employment duties significantly and admitted to running out the clock on the stipulated price. Whether that reduction in duties constitutes a termination under the terms of the agreement is a question of fact that is not resolved by the language of the contract or by the record before the court. Cf. Loos v. George Walter Brewing Co., 145 Wis. 1, 4, 129 N.W. 645 (1911) (stating that when employer does not permit employee to perform "the substantial or principal service he agreed to perform" and directs the employee to perform other tasks, an employee who refuses to complete new tasks "may treat such refusal and direction as a discharge"); 1A Steven Plitt, Daniel Maldonada & Joshua D. Rogers, Couch on Insurance § 8:68 (3d ed. 2010) ("The employee's performance of administrative functions in relation to the insured does not conclusively extend the employment."). The word
¶ 60. The majority opinion remands this case for "the circuit court's determination where the bulk of the equities lie, including an evaluation of what the parties intended when they agreed to the stock re-purchase agreement, and whether it should grant specific performance as Beidel requested." Majority op., ¶ 51. The majority's approach of balancing the equities should not be read to preclude summary judgment when applying the terms of the contract.
¶ 61. I agree that unnecessarily injecting good faith and fair dealing into a contract, especially when the terms of the contract are clear, is improper. See dissent, ¶ 69. Indeed, the Seventh Circuit is rightly wary of using the doctrine of good faith and fair dealing to overcome the rights and responsibilities set forth in a
¶ 62. 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. Therefore, I would remand for a circuit court hearing to determine when the termination occurred. If the fact finder concludes Beidel was not "terminated" prior to March 6, 2009, he will receive only the fair market value of his shares. If the fact-finder's decision is to the contrary, the contract sets the per share price he is to be paid.
¶ 63. For the foregoing reasons, I respectfully concur.
¶ 64. I am authorized to state that Justice PATIENCE DRAKE ROGGENSACK joins this concurrence.
The majority opinion agrees this is a question to be resolved on remand. See majority op., ¶¶ 44, 45, 46 n.24.
Not only does the record not contain a firsthand copy of the actual stipulation, but the secondhand information we do have in the record is unclear as to the nature of the stipulation. The attorneys give two different portrayals of what was stipulated. Sideline's attorney stated that "we've had a concession by the plaintiff that there was no actual termination." Beidel's attorney stated that "we did agree and stipulate that we would not pursue that," meaning the actual termination claim. As I do not believe the record before this court conclusively resolves whether Beidel was terminated under the terms of the contract, I would remand.
Dissenting Opinion
¶ 65. (dissenting). 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. I respectfully dissent.
I. BEIDEL FORFEITED HIS ARGUMENT CONCERNING THE COVENANT OF GOOD FAITH AND FAIR DEALING
¶ 66. Before discussing the majority's legal conclusions, it is important to first note that Beidel for
¶ 67. So how does the majority get around the forfeiture obstacle? By stating that "[i]t would be absurd to remand for the balancing of the equities where a party seeks specific performance and to do so on the condition that the circuit court ignore breaches of good faith and fair dealing by the parties." Majority op., ¶ 48. But this puts the cart before the horse. Given that the majority is holding that the constructive discharge doctrine does not apply, and that constructive discharge was the entire justification for Beidel's specific performance claim, it is unclear why this court is not dismissing Beidel's complaint and is instead ordering the circuit court to consider a claim that was never pled.
II. THE COVENANT CANNOT OVERRIDE EXPRESS TERMS OF A CONTRACT
¶ 69. The most important fact in this case is that Sideline acted completely in accordance with its contractual rights. While it is true that the covenant of good faith and fair dealing inheres in every contract, this equitable doctrine cannot, contra the majority, be used to vitiate clear contractual language. Instead, the notion of good faith is meant to serve as a gap-filler where
¶ 70. The majority seems to recognize these principles when it states that "[a] party may not, however, employ the good faith and fair dealing covenant to undo express terms of an agreement." Majority op., ¶ 29. In fact, the majority quotes (but then ignores) the following language from a court of appeals opinion:
[When] a contracting party complains of acts of the other party which are specifically authorized in their agreement, we do not see how there can be any breach of the covenant of good faith. Indeed, it would be a contradiction in terms to characterize an act contemplated by the plain language of the parties' contract as a "bad faith" breach of that contract.
Super Valu Stores, Inc. v. D-Mart Food Stores, Inc., 146 Wis. 2d 568, 577, 431 N.W.2d 721 (Ct. App. 1988). The majority's knowing disregard of such a fundamental principle of contract law is inexplicable. It appears that the majority either thinks that the concept of good faith and fair dealing is much broader than it is, or perhaps it wants to expand the doctrine with this case. In any
¶ 71. Two of the leading lights of the law and economics movement, Judges Frank Easterbrook and Richard Posner of the United States Court of Appeals for the Seventh Circuit, have sharply criticized the idea — advanced by the majority — that a party's bargained for contractual rights can be superseded by the ethereal good faith requirement. As Judge Easterbrook has said, "Parties to a contract are not each others' fiduciaries; they are not bound to treat customers with the same consideration reserved for their families." Kham & Nate's Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351, 1357 (7th Cir. 1990). An individual is "entitled to enforce [a contract] to the letter," even if this causes "great discomfort" to the other party. Id. The essence of an at-will contract is that an "employer may sack its employee for any reason except one forbidden by law, and it need not show 'good cause.'" Id. at 1358.
¶ 72. In a similar vein, Judge Posner — in a decision interpreting Wisconsin law — wrote that "it is unlikely that Wisconsin wishes, in the name of good faith, to make every contract signatory his brother's keeper. ... In fact the law contemplates that people frequently will take advantage of the ignorance of those with whom they contract, without thereby incurring liability." Market Street Assocs. v. Frey, 941 F.2d 588, 593-94 (7th Cir. 1991). What is more, "even after you have signed a contract, you are not obliged to become an altruist toward the other party and relax the terms if he gets into trouble in performing his side of the bargain." Id. at 594. Judge Posner warned that "[i]t would be quixotic as well as presumptuous for judges to under
¶ 73. When Beidel and Hall entered into the stock repurchase agreement, both knew (or should have known) that the put option would be subject to the whims of the marketplace. For some reason, the majority has decided to immunize Beidel and punish Hall for the bargain that each struck. In doing so, this 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. 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. This court would do well to heed the words of Judge Learned Hand: "[I]n commercial transactions it does not in the end promote justice to seek strained interpretations in aid of those who do not protect themselves." James Baird Co. v. Gimbel Bros., Inc., 64 F.2d 344, 346 (2d Cir. 1933).
III. THE MAJORITY OVERTURNS A THIRTY-YEAR-OLD DECISION OF THIS COURT
¶ 74. In deciding that Beidel can present a factual argument that the timing of his firing was in bad faith, this decision overturns, sub silentio, Brockmeyer v. Dun & Bradstreet, 113 Wis. 2d 561, 335 N.W.2d 834 (1983), a case not even mentioned by the majority. There, Brockmeyer was fired for smoking marijuana in front of his employees, poor job performance, and having an affair with his secretary. Id. at 565. Despite having no em
¶ 75. We began by recognizing the American common law rule, which was that an employer may discharge an at-will employee "for good cause, for no cause, or even for cause morally wrong, without being thereby guilty of legal wrong." Id. at 567 (citations omitted). We then noted that federal and state statutes have since modified the concept of an at-will employee such that certain protected classes cannot be fired for discriminatory reasons. Id. at 567-68. Consistent with these statutory trends, state courts across the country developed two common law causes of action for terminated at-will employees. Id. at 568. One is the "public policy exception," which allows a discharged employee to recover if "the termination violates a well-established and important public policy." Id. at 569. The other cause of action is broader, and provides that an employer has an implied duty to terminate an employee only in good faith. Id. A discharge in bad faith would thus constitute a breach of contract. Id.
¶ 76. This court adopted the public policy exception while expressly rejecting the bad faith termination cause of action. As we stated, "We refuse to impose a duty to terminate in good faith into employment contracts. To do so would 'subject each discharge to judicial incursions into the amorphous concept of bad faith.'. . . Imposing a good faith duty to terminate would unduly restrict an employer's discretion in managing the workforce." Id. (citation omitted). That has been the law for thirty years. With today's decision that Sideline is not entitled to summary judgment for exercising a clear contractual right because the timing of Beidel's termi
IV THE RECORD DOES NOT SUPPORT A FINDING OF BAD FAITH
¶ 77. Finally, if this court is going to adopt the bad faith termination cause of action, it is worth pausing to consider whether Sideline actually acted in bad faith towards Beidel. Our decision remands this case to the circuit court to determine which party has a stronger equitable claim. As I have made clear throughout this dissent, I am unsure when it would ever be inequitable for a party to exercise a valid contractual right, so I do not know how the circuit court is supposed to proceed under the standard crafted by today's opinion. But be that as it may, I can see nothing that could plausibly be characterized as bad faith conduct on the part of Sideline.
¶ 78. In October 2008, Hall informed Beidel that he planned to fire him the following March, after Sideline's stock could be revalued from its overinflated price of $1,600 a share. In doing so, Hall acted not only in his best interests, but in the best interests of the company as well. Additionally, by providing notice to Beidel when he did, Hall gave him five months to prepare for the inevitable. And during the period leading up to his termination, Beidel continued to receive compensation from Sideline — to the tune of $269,000 in salary and shareholder distributions in 2008.
¶ 79. The only options Sideline had, besides the one it took, were: (1) act contrary to its own interests and terminate Beidel when the stock was overvalued; or (2) keep mum about Beidel's impending termination
¶ 80. For the foregoing reasons, I respectfully dissent.
The majority refers to Beidel "waiving" his argument but "forfeiture" is the more accurate term. See State v. Ndina, 2009 WI 21, ¶ 29, 315 Wis. 2d 653, 761 N.W.2d 612 ("Whereas forfeiture is the failure to make the timely assertion of a right, waiver is the intentional relinquishment or abandonment of a known right.") (citation omitted).
The concurrence considers a remand appropriate for further fact-finding on whether Beidel was actually terminated during the relevant time period. Concurrence, ¶ 59 n.2.1 read the record differently. In my view, Beidel conceded that he was not actually terminated within the relevant period and a hearing on the issue is therefore unnecessary.
I regard the exchange between the attorneys quoted above as an oral stipulation, subsequently memorialized in the court's order, and binding on the litigants. See, e.g., Wyandotte Chemicals Corp. v. Royal Elec. Mfg. Co., Inc., 66 Wis. 2d 577, 589, 225 N.W.2d 648 (1975) ("Generally then, oral stipulations made in open court, taken down by the reporter, and acted upon by the parties and the court are valid and binding.") (citation omitted). In my opinion, the doctrine of claim preclusion would thus bar Beidel from making an argument that he was actually terminated under the hearing envisioned by the concurrence. See N. States Power Co. v. Bugher, 189 Wis. 2d 541, 551, 525 N.W.2d 723 (1995) (describing the elements of claim preclusion as: "(1) an identity between the parties or their privies in the prior and present suits; (2) an identity between the causes of action in the two suits; and (3) a final judgment on the merits in a court of competent jurisdiction.").