Steve Hudson Park v. Electro-Mechanical Corp.

STEVE HUDSON PARK, Plaintiff, v. ELECTRO-MECHANICAL CORPORATION, Defendant.

Case No. 1:19CV00019

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF VIRGINIA ABINGDON DIVISION

December 2, 2020

OPINION AND ORDER

By: James P. Jones United States District Judge

Thomas E. Strelka, L. Leigh R. Strelka, and N. Winston West, IV, STRELKA LAW OFFICE, PC, Roanoke, Virginia, for Plaintiff; Victor O. Cardwell, King F. Tower, Eric J. Sorenson, Jr., and Leah M. Stiegler, WOODS ROGERS PLC, Roanoke, Virginia, for Defendant.

In this breach-of-contract case invoking the court's diversity jurisdiction, plaintiff Steve Hudson Park, a former executive of defendant Electro-Mechanical Corp. ("EMC"), claims that EMC owes him a severance payment pursuant to a Change in Control Severance Agreement. Because I conclude that no change in control occurred, I will deny Park's Motion for Summary Judgment and grant EMC's Motion for Summary Judgment.

I.

The following undisputed facts are taken from the summary judgment record.

The plaintiff Park served as defendant EMC's Vice President of Marketing until his termination in July 2018. EMC is a family-owned business engaged in the manufacture of electrical apparatus. In 2015, EMC entered into Change in Control Severance Agreements with all executives at the vice president level and higher. The stated purpose of these agreements was to provide some security to these executives as the Leonard family, which owned EMC, explored the possibility of selling the company. The Change in Control Severance Agreement executed by Park and EMC includes the following provision:

a. Involuntary Termination Following a Change in Control. If, on or within two years following a Change in Control, Company (or any parent or subsidiary of Company) terminates Executive's employment without Cause, or Executive resigns from such employment for Good Reason, then, in each case subject to Section 5, Executive will receive severance pay (less applicable withholding taxes) in the form of a lump sum payment equivalent to (i) two years of Executive's base salary (as such salary is in effect immediately prior to (A) the Change in Control, or (B) Executive's termination, whichever is greater), and (ii) Twenty Thousand Dollars.

Compl. Ex. A at 1-2, ECF No. 1-1. The agreement defines "Change in Control" as:

(i) Any one person, or more than one person acting as a group, ("Person") becoming the beneficial owner, directly or indirectly, of securities of Company representing fifty percent or more of the total voting power represented by Company's then outstanding voting securities;(ii) The consummation of the sale or disposition by Company of all or substantially all of the Company's assets;

(iii) The consummation of a merger or consolidation of Company with any other corporation, other than a merger or consolidation which would result in the voting securities of Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent of the total voting power represented by the voting securities of Company or such surviving entity or its parent outstanding immediately after such merger or consolidation; or

(iv) A change in the composition of the Board occurring within a two year period, as a result of which less than a majority of the directors are Incumbent Directors. "Incumbent Directors" means directors who either (A) are directors of the Company as of the date of this Agreement, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the directors of the Company at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company.)

For purposes of this definition of Change in Control, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company. Notwithstanding the foregoing, and for the avoidance of doubt, a transaction will not constitute a Change in Control if: (z) its sole purpose is to change the state of Company's incorporation, or (y) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company's securities immediately before such transaction.

Id. at 4-5. In claiming he is entitled to a severance payment, Park relies on definition (i).

On September 21, 2016, Francis Lee Leonard ("F. Leonard") died. At the time of his death, F. Leonard, EMC's largest shareholder, owned 44.16% of EMC's stock.¹ His will provided that upon his death, his shares of EMC would be transferred into a trust called the Marital Business Share. On September 30, 2016, F. Leonard's widow, Jacqueline Leonard; their sons, Roger and Russell Leonard; and attorney C. Thomas Davenport qualified as executors of F. Leonard's estate. The named trustees of the Marital Business Share were Jacqueline, Roger, Russell, the President of EMC (who, at the time of F. Leonard's death, was Russell), and Davenport. The will afforded Russell 1.5 votes upon any vote of the executors or trustees, while all other executors and trustees were granted only one vote.

Jacqueline was the income beneficiary of the Marital Business Share. Upon her death, F. Leonard's will provided that the Marital Business Share would become part of another trust called the Family Trust. F. Leonard's approximately 44.16% interest in EMC thus traveled from his hands into his estate, then into the hands of the co-trustees of the Marital Business Share to be held in trust for the benefit of Jacqueline and, ultimately, into the Family Trust. F. Leonard's will provided that Jacqueline would receive the net income from the Family Trustduring her lifetime and that upon her death, the remainder would be distributed to the couple's four children, Roger, Russell, Renee, and Robin, either directly or through separate trusts.

At no time relevant to this case did F. Leonard own "securities of [EMC] representing fifty percent or more of the total voting power represented by [EMC]'s then outstanding voting securities." Compl. Ex. A at 4, ECF No. 1-1. Therefore, the transfer of his shares could only serve to make the recipient a majority owner of EMC, for purposes of establishing a Change in Control, if the recipient was already the beneficial owner of approximately 6% or more of EMC stock. At the time of F. Leonard's death, Jacqueline directly owned 24.22% of EMC's outstanding stock.²

Park contends that when F. Leonard died on September 21, 2016, Jacqueline became the beneficial owner of his 44.16% stake in EMC by virtue of being the income beneficiary of the Marital Business Share. According to Park, Jacqueline's beneficial ownership interest in her late husband's shares, combined with her outright ownership of 24.22% of EMC's outstanding stock, gave her a majority ownership interest. Importantly, Jacqueline sold her 24.22% of the shares to her children on December 31, 2016, before F. Leonard's shares had been distributed from his estate into the Marital Business Share. Thus, by the time F. Leonard'sshares were transferred to the co-trustees, Jaqueline did not own any other shares of EMC. Moreover, the transfer of F. Leonard's shares from the estate to the co-trustees of the Marital Business Share occurred after Park's termination from EMC.

On these facts, both parties have moved for summary judgment. The motions have been fully briefed and are ripe for decision.³

II.

The court is required to grant a motion for summary judgment "if 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). In ruling on cross-motions for summary judgment, the court must, "[w]ith respect to each side's motion, . . . view the facts and all justifiable inferences arising therefrom in the light most favorable to the nonmoving party." Kolbe v. Hogan, 849 F.3d 114, 130 (4th Cir. 2017) (internal quotation marks and citations omitted). Summary judgment is not a disfavored procedural shortcut, but an important mechanism for weeding out claims and defenses that have no factual basis. Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986). It is the affirmative obligation of the trial judgeto prevent factually unsupported claims and defenses from proceeding to trial. Drewitt v. Pratt, 999 F.2d 774, 778-79 (4th Cir. 1993).

The parties agree that Virginia law applies in this case.⁴ Generally, "[t]he interpretation of a contract presents a question of law." City of Chesapeake v. States Self-Insurers Risk Retention Grp., Inc., 628 S.E.2d 539, 541 (Va. 2006); see also Fulton v. Henrico Lumber Co., 148 S.E. 576, 577 (Va. 1929) (noting the "general rule" that "documents must be construed by the court"). The intended expression of the parties' agreement is "derived from the plain language of [the] contract provision." Jimenez v. Corr, 764 S.E.2d 115, 124 (Va. 2014). Where contract language is ambiguous and evidence of the surrounding circumstances supports conflicting interpretations, the meaning of the contract "becomes a mixed question of law and fact" to be submitted to a jury. Fulton, 148 S.E. at 577. Whether a contract is ambiguous is also a question of law to be decided by the court. Langman v. Alumni Ass'n of Univ. of Va., 442 S.E.2d 669, 674 (Va. 1994) ("The question whether a writing is ambiguous is not one of fact but of law.") Where a contract "is complete on its face, [and] is plain and unambiguous in itsterms, the court is not at liberty to search for its meaning beyond the instrument itself." Monticello Ins. Co. v. Baecher, 477 S.E.2d 490, 491 (Va. 1996) (internal quotation marks and...