Bassett v. Scott Pet Prods., Inc.

194 N.E.3d 1185

Michael R. BASSETT and Kathleen A. Bassett, Appellants-Plaintiffs,

v.SCOTT PET PRODUCTS, INC., Harlan Pet Products, Inc., Hal P. Harlan, Hugh P. Harlan, and Doug H. Harlan, Appellees-Defendants.

Court of Appeals Case No. 22A-PL-433

Court of Appeals of Indiana.

FILED August 30, 2022

Attorneys for Appellants: Libby Y. Goodknight, Christopher W. Bloomer, Scott S. Morrisson, Krieg DeVault, LLP, Indianapolis, Indiana

Attorneys for Appellees: Andrew M. McNeil, Tyler J. Moorhead, David L. Swider, Bose McKinney & Evans, LLP, Indianapolis, Indiana

Riley, Judge.

STATEMENT OF THE CASE

[1] Appellants/Cross-Appellees/Plaintiffs, Michael R. Bassett and Kathleen A. Bassett (collectively, the Bassetts), appeal the trial court's grant of partial summary judgment in favor of Appellees/Cross-Appellants/Defendants, Scott Pet Products, Inc., Harlan Pet Products, Inc., Hal P. Harlan, Hugh P. Harlan, and Doug H. Harlan (collectively, the Harlan Defendants), who cross-appeal the trial court's grant of partial summary judgment in favor of the Bassetts.

[2] We affirm.

ISSUE

[3] The Bassetts present this court with three issues, and the Harlan Defendants cross-appeal. We find the issues presented by the Bassetts to be dispositive, and we consolidate and restate those issues as: Whether genuine issues of material fact exist precluding summary judgment on the Bassetts’ breach of contract, declaratory judgment, and promissory estoppel claims.

FACTS AND PROCEDURAL HISTORY

[4] The following relevant facts are not in dispute. Scott Pet Products, Inc., (SPP)¹ is an Indiana corporation created in 1975 with its principal place of business in Rockville, Indiana, that is engaged in the management, production, storage, and supply of various animal and pet products. Kathleen Bassetts’ (Kathy) father started SPP, and Kathy worked for SPP starting at the age of fifteen. Michael Bassett (Mike) began working for SPP in 1990, after he married Kathy. Prior to 1999, Mike became the president of SPP and remained in that position until March 2020.

[5] Harlan Pet Products, Inc., (HPP) is an Indiana corporation created in 1999 with its principal place of business in Avon, Indiana. Hal P. Harlan, Hugh P. Harlan, and Doug H. Harlan (collectively, the Harlans) are the sole owners and shareholders of HPP. On May 14, 1999, HPP purchased SPP and became its sole owner and shareholder. After HPP acquired SPP, Mike stayed on as president, and Kathy became the customer services director and, later, the marketing director. On May 21, 1999, as part of the process of HPP acquiring SPP, Mike and SPP executed the Employment Agreement which outlined Mike's duties as president and the terms of his remuneration. The Employment Agreement contained the following relevant recitals:

WHEREAS, Employee has been previously employed by Employer and will be employed by the Employer pertaining to the Business pursuant to this Agreement.

In consideration of and as a condition of the continuation of employment of Employee by Employer and the compensation paid to Employee in connection with such employment, IT IS THEREFORE AGREED as follows:

* * *

Compensation. The Employee shall receive as remuneration for his services an annual base salary ... In the event this Agreement shall continue to be in effect after May 21, 2000, the parties agree to review the Employee's performance and compensation annually in May, at which time the compensation may be increased, decreased, or remain the same as the parties may mutually agree.

(Appellants’ App. Vol. III, pp. 117, 118). The Employment Agreement did not contain any recitation or mention of an ownership interest in SPP for Mike. The Employment Agreement provided that it constituted the entire agreement between the parties and could only be changed by an agreement in writing.

[6] From 1999 to 2020, two things happened periodically but consistently: (1) Mike and the Harlans engaged in negotiations, both orally and in writing, regarding Mike acquiring a form of ownership interest in SPP, and (2) the Harlans, Mike, and others engaged in efforts to find a buyer for SPP. Regarding Mike's ownership interest, the parties initially discussed him receiving a 20% interest, but after 2008, Mike's putative interest was always discussed as being 15%. These negotiations would periodically become more pointed or intense, only to eventually die out. From 2000 to 2020, Mike's annual base salary increased from $125,000 to $200,000. In addition, during that same time frame, Mike received an annual bonus of 1% of the sales of pressed-pork products and 5% of SPP's net profit. Mike's annual bonus increased significantly over the term of his SPP employment and in 2019 was in excess of $400,000.

[7] In 2008, a Harlan-controlled entity purchased a small chain of retail pet supply stores, Pet Products Superstores (PPS), from the Bassetts. On October 27, 2008, the Bassetts offered to reduce Mike's ownership interest in SPP from 20% to 15%, which they felt would "far exceed any value that could be placed on the three [PPS] stores." (Appellants’ App. Vol. III, p. 152). As part of the PPS deal, the parties contemplated that the Bassetts would take out a $200,000 loan (PPS Loan) from SPP to finance PPS's accounts receivable, that the PPS Loan would be secured by "Mike and Kathy's [SPP] shares", and that the "parties have agreed that your future ownership that is now being formalized in [SPP] will be 15%." (Appellants’ App. Vol. III, pp. 154, 155). On December 17, 2008, the Bassetts executed a promissory note for the PPS Loan that provided that the loan "will be secured by a pledge of certain stock of HPP or [SPP] now or hereafter held by Bassett pursuant to a certain Collateral Assignment and Pledge of Stock to be executed by Bassett in favor of [SPP]." (Appellants’ App. Vol. III, p. 160). The Collateral Assignment and Pledge of Stock (Collateral Stock Assignment) provided that, as security for the PPS Loan, Mike pledged his shares "of common stock of [HPP]." (Appellants’ App. Vol. III, p. 161). Spaces on the Collateral Stock Assignment for the HPP stock certificate numbers were not filled in, and, although the Bassetts executed the document, SPP did not. As per the parties’ agreement, the PPS Loan was fully repaid through the withholding of Mike's SPP bonuses and commissions until the loan was eventually extinguished.

[8] On March 18, 2020, Mike had a verbal confrontation with an SPP employee. On March 20, 2020, in an email under Hal Harlans’ signature, SPP terminated Mike and Kathy, effective immediately. The primary rationale presented in the email for Mike's and Kathy's termination was Mike's conduct two days before. In an April 20, 2020, email, SPP and the Harlans notified the Bassetts that Mike had no enforceable ownership interest in SPP. The Harlans still own SPP.

[9] On June 29, 2020, the Bassetts filed their Complaint against the Harlan Defendants,² alleging, among other things, breach of contract for failing to honor the agreement that Mike had a 15% equity interest in SPP and promissory estoppel based on the Bassetts’ reliance on the Harlans’ promises that Mike had a 15% equity interest in SPP. The Bassetts subsequently amended their Complaint to add a request for declaratory judgment that Mike had a 15% equity interest in SPP that would entitle him to 15% of the net proceeds in the event that SPP was sold.

[10] On August 28, 2020, the Harlan Defendants answered the Complaint, generally denying the Bassetts’ allegations, specifically denying that any agreement to provide Mike a 15% equity interest existed and raising the defenses of the statute of limitations and the statute of frauds, among others. The Harlan Defendants also brought ten counterclaims, including theft, fraud, breach of contract, and tortious interference based on allegations of financial misconduct and self-dealing on the Bassetts’ part while employed by SPP and for allegedly interfering with customer and supplier relationships after the Bassetts were terminated. The parties exchanged discovery, and Mike, Kathy, Hal Harlan, and others were deposed. At his deposition, Mike testified that discussions regarding his ownership interest did not start until 2000, after HPP had acquired SPP and after he had signed his Employment Agreement. Mike also confirmed that he had not passed up any other specific employment opportunities while employed by SPP.

[11] On July 8, 2021, the Harlan Defendants filed their motion for partial summary judgment, memorandum in support, and designation of evidence, seeking summary judgment on, among other claims, the Bassetts’ breach of contract, declaratory judgment, and promissory estoppel claims. On August 9, 2021, the Bassetts filed their brief in opposition to partial summary judgment, memorandum in support, and designation of evidence. On August 25, 2021, the Harlan Defendants filed their Reply, and on September 20, 2021, they filed a supplemental designation of evidence in support of partial summary judgment. On September 20, 2021, the trial court held a hearing on the Harlan Defendants’ summary judgment motion.

[12] On November 4, 2021, the trial court issued its detailed summary judgment. After entering sixty-five findings on the undisputed facts, the trial court denied the Harlan Defendants summary judgment on their defenses, concluding that the Bassetts’ breach of contract, promissory estoppel, and declaratory judgment claims were brought within the applicable two-year statute of limitations and that genuine issues of material fact existed as to whether the Bassetts’ breach of contract claim was barred by the statute of frauds. However, the trial court granted the Harlan Defendants summary judgment on the merits of the Bassetts’ breach of contract claim, concluding that, although the parties had agreed on many of the essential terms of Mike's ownership interest in SPP, the ownership agreement failed for lack of consideration. The trial court reasoned that Mike's

agreement

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