Cramton v. Grabbagreen Franchising LLC

Kim Cramton, Plaintiff, v. Grabbagreen Franchising LLC, et al., Defendants.

No. CV-17-04663-PHX-DWL

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

June 23, 2021

ORDER

The bench trial in this matter took place between May 24-28, 2021. The Court now issues its findings of fact and conclusions of law.

LEGAL STANDARD

Rule 52(a)(1) of the Federal Rules of Civil Procedure provides that "[i]n an action tried on the facts without a jury . . . , the court must find the facts specially and state its conclusions of law separately. The findings and conclusions may be stated on the record after the close of the evidence or may appear in an opinion or a memorandum of decision filed by the court."

The Ninth Circuit has explained that a district court's findings under Rule 52(a) "should be explicit enough to give the appellate court a clear understanding of the basis of the trial court's decision, and to enable it to determine the ground on which the trial court reached its decision." Alpha Distrib. Co. of Cal., Inc. v. Jack Daniel Distillery, 454 F.2d 442, 453 (9th Cir. 1972). With that said, such findings must also "strike an appropriate balance between detail, simplicity, and efficiency. . . . [E]xcessively long and detailed findings are not necessary . . . and can even be unhelpful. . . . Ultimately, the trial court's findings should be sufficient to reveal the court's concept of the facts and applicable legal standards without being needlessly elaborate or too wordy." See 2 Gensler, Federal Rules of Civil Procedure, Rules and Commentary, Rule 52, at 46-47 (2021). Put another way, "the judge need only make brief, definite, pertinent findings and conclusions upon the contested matters; there is no necessity for over-elaboration of detail or particularization of facts." See Fed. R. Civ. P. 52, advisory committee's note to 1946 amendment.

FINDINGS OF FACT

Although this case originally involved a sprawling array of claims and counterclaims (Docs. 88, 95), only a few claims (and none of the counterclaims) survived summary judgment (Doc. 247). Additionally, one of the surviving claims was stayed when a corporate defendant filed for bankruptcy after summary judgment (Doc. 254) and the remaining claims were later found to be covered by a valid, contractual jury waiver (Doc. 345).¹ As a result, only two sets of claims were presented for resolution during the bench trial: first, Plaintiff Kim Cramton's ("Cramton") claim against Defendant Keely Newman ("Keely")² for violating Arizona's minimum wage laws; and second, Cramton's claims for negligent misrepresentation, fraud, and breach of the implied covenant of good faith and fair dealing against Keely and an entity called Eat Clean Holdings, LLC ("ECH").

The factual findings below are grouped into three parts. Part I sets forth some background facts concerning the relationship between Cramton and Keely and resolves some of the broader disputed factual issues in this case. Part II resolves other contested facts bearing on the minimum wage claim. Part III resolves other contested facts bearing on the remaining claims.

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I. Background

In 2013, Keely created a healthy fast-food restaurant concept called "Grabbagreen." (Doc. 310 at 1-2 [stipulated facts in Final Pretrial Order].)

In September 2014, Cramton began working for a Grabbagreen-related entity called Gulf Girl Squared, Inc. ("GGS"), whose business purpose was to operate certain Grabbagreen stores in Arizona. (Doc. 310 at 1; Trial Ex. 393 [employment agreement].) Cramton also performed work for a different Grabbagreen-related entity that came to be known as Grabbagreen Franchising, LLC ("GFL"),³ whose business purpose was to sell Grabbagreen franchises to third parties across the country. (Doc. 310 at 2.) As Cramton explained at trial: "I was working at the stores as well as working on the franchising concept." (5/24 Tr. 93.)

Over time, Cramton acquired ownership interests in various Grabbagreen-related entities. Most important, Cramton eventually came to possess an 18.6% membership interest in ECH (Trial Ex. 30 [ECH Operating Agreement, Exhibit A]), which in turn owned GFL and the rights to the Grabbagreen brand (Doc. 310 at 2). Critically, the ECH Operating Agreement, which came into effect in late 2016, contained a provision specifying that if Cramton voluntarily resigned "for any reason" within the first five years after its effective date, Keely would have "the right but not the obligation" to purchase Cramton's membership units for only $1. (Trial Ex. 30, § 9.3(b).)

In 2016, Keely and Cramton also formed a partnership to buy out a GFL franchisee who was in the process of building a Grabbagreen store in Phoenix. (Doc. 310 at 2-3; 5/24 Tr. 97-98.) To effectuate the buyout, Keely and Cramton formed an entity called Krowne Enterprises, LLC ("Krowne"), of which Keely owned 51% and Cramton owned 49%. (Id.) Afterward, Cramton used $66,527 of her personal funds to cover construction and build-out expenses for the store. (Id.) In October 2016, an entity called Eat Clean Operations, LLC ("ECO") executed a promissory note under which it was obligated to repay this $66,527 to Cramton. (Trial Ex. 28 [promissory note].)

As the preceding discussion shows, the business relationship between Cramton and Keely was always complicated and multi-faceted. Beginning in the latter half of 2016, things grew even more complicated. From the Court's vantage point as the finder of fact, there were three interrelated reasons for this change.

The first was the deteriorating financial performance of the Grabbagreen entities. Although one component of the Grabbagreen empire, GFL, was successful in selling franchises and building the Grabbagreen brand, the stores operating under the GGS umbrella experienced a downturn in sales in late 2016. (5/27 Tr. 757-59, 788-89 [Mills]; 5/28 Tr. 951-54 [Keely].) Additionally, the store that Keely and Cramton had acquired via their partnership was unprofitable and ECO was not in a position to make payments on the $66,527 loan owed to Cramton. (5/27 Tr. 774-75 [Mills: "ECO did not have the financial capacity to be paying these loan payments."]; 5/28 Tr. 953 [Keely].) These developments resulted in significant cash flow difficulties and financial pressures. (See, e.g., 5/27 Tr. 757-59; Doc. 408 at 293-94 [Mills deposition testimony: Keely admitted in late 2016/early 2017 that "the company was struggling financially from a cash flow perspective" and was experiencing "financial stress"].) In an ill-fated effort to address these financial difficulties, the decision was made—against the advice of Grabbagreen's accountant, Teresa Mills ("Mills")—to characterize payments made to Cramton after December 2016 as loan repayments from ECO, rather than as wage payments from GFL. (5/27 Tr. 774-75 [Mills: "I expressed strongly that they not do this. I thought that it was a tax avoidance scheme, basically."].) This agreement was memorialized in a written document signed by Cramton. (Trial Ex. 32 ["WHEREAS, the [GFL] Board has determined that it is desirable and in the best interests of the Company to discontinue wage accruals for its officers. . . . RESOLVED, that Company authorizes that all wage accruals for all officers discontinue as of December 31, 2016."].)⁴

The second factor was the strained interpersonal relationship between Keely and Cramton. As early as mid-2016, Cramton was complaining to her therapist, Shelly Hess, that Keely was "verbally abusive." (5/25 Tr. 329; Trial Ex. 794.) The rift became so apparent to outsiders that Dana Mavros ("Mavros"), a consultant who had originally been retained by Keely to provide business advice (Doc. 408 at 252-55), wrote a lengthy email to Keely and Cramton in February 2017 in which she described "[t]he relationship between the two of you [as] toxic most of the time. You do not listen to each other, you have a hard time treating each other respectfully, and your communication with each other is poor. Although you both will say it's not 'personal' it sounds and it appears to others that you are personally attacking each other and it is not enjoyable to be around the two of you. . . . Your team sees your dysfunctional relationship and it has created a nonproductive negative company culture." (Trial Ex. 720.)⁵ It was apparent to the Court, as the finder of fact, that the relationship between Keely and Cramton was dysfunctional. As discussed in more detail below, this negative relationship formed an important backdrop for some of the parties' subsequent decisions.

It should be noted that, during trial, Cramton went beyond describing her relationship with Keely as dysfunctional—she (and her counsel) sought to portray it as arelationship infused with abuse and cruelty. Indeed, the very first words uttered during Cramton's opening statement were "cruelty is what this case is all about" (5/24 Tr. 27), and Cramton again returned to the "Case About Cruelty" theme during closing argument (Doc. 412 at 5). In a related vein, Cramton sought to establish, through her testimony and the testimony of the witnesses she called, that Keely repeatedly belittled her, shouted at her, directed foul language toward her, and peppered her with unreasonable work-related demands during weekends, nights, and vacations. Cramton also sought to establish that she was forced to work without pay throughout 2017. Keely and her witnesses, meanwhile, presented a far different picture of the Cramton/Keely relationship—they generally denied that Keely ever insulted or shouted at Cramton and presented evidence that Cramton herself used foul language from time to time while at work.

From the Court's vantage point as the finder of fact, the truth of the Cramton/Keely relationship fell somewhere in the middle of the parties' somewhat self-serving descriptions. Although some of the Keely's communications to Cramton (in particular, the text chain on September 20, 2017, see Trial Ex. 307 at CRA000642-43) were unacceptably...