DONALD SALYER v. HALL ENTERPRISES, INC.
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RENDERED:
November 21, 2001; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
2000-CA-002183-MR
DONALD SALYER
v.
APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE GARY D. PAYNE, JUDGE
ACTION NO. 99-CI-03663
HALL ENTERPRISES, INC.
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
BUCKINGHAM, EMBERTON, AND TACKETT, JUDGES.
BUCKINGHAM, JUDGE: Donald Paul Salyer appeals from a summary
judgment entered by the Fayette Circuit Court in favor of Hall
Enterprises, Inc.
We affirm.
Hall Enterprises, Inc. (Hall’s), operated a motor home
sales business known as Hall’s Campers in Lexington, Fayette
County, Kentucky.
Tommy Hall was the sole shareholder of Hall’s.
Salyer was employed by Hall’s from approximately 1989 through
1995, at which time his employment was terminated.
In 1997, Salyer and Hall began discussions about Salyer
returning to work at Hall’s.
They reached an oral agreement on
April 11, 1997, concerning Salyer’s return. Salyer testified in
his deposition that Hall told him that if he came back to the
business he would be given a 20% ownership interest up front and
an additional 10% ownership interest per year for the following
three years.
Hall likewise testified in his deposition that he
agreed to give Salyer a 20% ownership interest in the business if
he came to work at Hall’s, but he testified that the additional
transfer of a 10% ownership interest per year for three years was
conditional on Salyer’s job performance.
Salyer further stated
that his understanding of the agreement was that he would then be
allowed to purchase the remaining ownership portion of the
business.
On May 16, 1997, Hall presented Salyer a Shareholder
Agreement which contained, among other things, the following
provision:
In the event Donald Paul Salyer,
who is currently an employee of the Company
(“Employee-Shareholder”), should terminate
his employment with the Company, for any
reason, either voluntarily or involuntarily,
upon the effective date of his termination,
he shall be obligated to sell to the Company
all of the shares of the Company then held
and owned by the Employee-Shareholder, and
the Company shall purchase the shares at the
value established by the Shareholders as
provided in Paragraph (5), except he would
not be paid any money for any shares in the
company that he did not pay for himself and
was given to him free. He still would be
obligated to return those shares back to the
company within 15 days of termination.
(Emphasis added.)
Upon the execution of the agreement by the parties, a stock
certificate representing 20% of the outstanding stock of Hall’s
was issued to Salyer.
The certificate stated that it was
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transferrable in accordance with the terms of the Shareholder
Agreement.
Salyer’s employment by Hall’s was terminated on
December 28, 1998.
Hall’s subsequently demanded the return of
the shares of stock in accordance with paragraph three of the
Shareholder Agreement.
When Salyer refused to return the stock,
Hall’s instituted a declaratory judgment action in the Fayette
Circuit Court.
This suit was filed in October 1999.
Hall’s complaint sought a declaration that Salyer was
required to transfer his shares of stock to Hall’s without
payment in return and also sought a permanent injunction
requiring Salyer to transfer the shares.
Salyer filed an answer
and counterclaim alleging he had given nonmonetary consideration
for the shares and contending that he was entitled to payment in
accordance with the value determined under paragraph five of the
agreement.
After the parties engaged in discovery, each party
filed a motion for summary judgment.
On July 6, 2000, the trial
court entered an order granting Hall’s summary judgment motion
and denying Salyer’s summary judgment motion.
The trial court’s
order stated as follows:
The Court finds that the agreement is
clear that the Defendant had to give back any
stocks that were given to him. The Court
finds that the stock in question was given to
the Defendant by the Plaintiff. The Court
does not find that this was given to him as
consideration for the Defendant leaving his
job to come to work at Hall Enterprises, Inc.
Therefore the Plaintiff’s motion for
summary judgment is SUSTAINED, and the
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Defendant’s motion for summary judgment is
OVERRULED. (Emphasis in original.)
Hall’s then filed a motion for the court to enter a final
judgment, and Salyer filed a motion to alter, amend, or vacate
the prior order.
On July 20, 2000, the court entered its final
judgment declaring that Salyer was required to transfer his
shares of Hall Enterprises, Inc., to Hall’s without compensation
and directing Salyer to transfer the shares within ten days from
the date of entry of the judgment.
The judgment also stated that
Salyer’s counterclaim was dismissed.
On July 31, 2000, Salyer filed another motion wherein
he moved the court to vacate its judgment pursuant to CR1 59.
That motion noted that there was a motion pending to set aside
the July 6, 2000 order granting summary judgment to Hall’s and
denying it to Salyer.
Salyer filed other postjudgment motions,
but all of Salyer’s motions were eventually overruled by the
trial court in its order of September 15, 2000.
Salyer then
filed this appeal.
Salyer raises two arguments in his appeal.
First, he
argues that the trial court erred when it ordered him to return
the stock because the stock provision in the Shareholder
Agreement acted as a forfeiture and was an unreasonable
restriction.
Second, he argues that the evidence is undisputed
that he gave consideration for the stock and, therefore, the
provision in the agreement did not apply.
We decline to address
the first argument because Salyer failed to plead illegality as
1
Kentucky Rules of Civil Procedure.
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an affirmative defense.
As to the second argument, we conclude
that the trial court did not err in awarding summary judgment to
Hall’s.
We will address each of Salyer’s arguments in turn.
Salyer first argues that the stock return provision in
the Shareholder Agreement was unenforceable because it acted as a
forfeiture and an unreasonable stock restriction.
In support of
his argument, he cites Man O War Restaurants, Inc. v. Martin,
Ky., 932 S.W.2d 366 (1996).
In Man O War, Martin was hired as a
manager of Man O War’s Sizzler Restaurant and was permitted to
purchase 25% of the stock in the corporation for $1,000.
367.
Id. at
According to the terms of his employment contract, however,
Martin was required to return the stock in exchange for $1,000 if
his employment was terminated by the corporation during the fiveyear term of his employment contract.
Id.
Martin was terminated
during the term of his contract and demand was made by Man O War
for the return of the stock.
Id.
Adopting the opinion of a
panel of this court, the Kentucky Supreme Court held that the
stock return provision in the employment contract operated as a
forfeiture or penalty for breach of contract and was
unenforceable.
Id. at 368.
The court also stated that once the
stock was transferred to Martin, it became his property “and
strong public policy against forfeiture protects property from
being taken without appropriate compensation.”
Id. at 369.
In response to Salyer’s argument, Hall’s argues that
Salyer did not properly preserve the issue for our review.
Salyer acknowledges that he did not raise the issue concerning
the enforceability of the Shareholder Agreement provision until
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he filed his motion to alter, amend, or vacate the trial court’s
July 6, 2000 order awarding Hall’s a summary judgment.
That
motion was filed on July 17, 2000, prior to the entry by the
trial court of its final judgment on July 20, 2000.
In response to Hall’s argument that Salyer did not
preserve the issue for our review, Salyer cites Personnel Bd. v.
Heck, Ky. App., 725 S.W.2d 13 (1986).
In that case, a panel of
this court held:
A judgment which is dispositive of the issues
raised in the CR 59 motion readjudicates all
prior interlocutory orders and judgments
determining claims which are not specifically
disposed of in the latter judgment. CR
54.02(2); CR 73.02(1)(e). Therefore, an
objection raised in a CR 59.05 motion would
be timely, and would not constitute a waiver.
Id. at 18.
In light of our holding in Heck, we conclude that the
issue was preserved by Salyer for our review.
In further response to Salyer’s argument that the stock
return provision in the agreement acted as a forfeiture, Hall’s
asserts that the argument was waived because Salyer failed to
plead illegality as an affirmative defense as required by CR
8.03.
See also Gordon v. NKC Hospitals, Inc., Ky., 887 S.W.2d
360, 363 (1994).
In response, Salyer maintains that his failure
to plead illegality did not waive the issue because the
requirement that an affirmative defense must be pled is waived
when no objection is made to the introduction of the issue to the
trial court.
In other words, Salyer states that he raised the
illegality issue in his motion to alter, amend, or vacate and
that Hall’s may not now assert that the defense was waived
because Hall did not object to the argument before the trial
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court.
In support of his argument, Salyer cites Carney v. Scott,
Ky., 325 S.W.2d 343 (1959), and Rockwood v. Huey, Ky., 348 S.W.2d
915 (1961).
We conclude that Salyer waived the illegality defense
because he did not raise it in his pleadings as required by CR
8.03.
We further conclude that Hall’s did not waive the
requirement that an affirmative defense must be pled even though
it did not object to the introduction of the issue to the trial
court in Salyer’s motion to alter, amend, or vacate.
In our
view, Carney and Rockwood are distinguishable and not supportive
of Salyer’s argument.
In Carney, the court held that the issue of mitigation
of damages, even if it should have been pled as an affirmative
defense, remained an issue in the case because it was tried
before the jury by the consent of the parties.
also CR 15.02.
Id. at 345.
See
In Rockwood, the court held that the requirement
of CR 8.03 that the statute of limitations be specifically pled
in defense was considered waived where the issue “was raised in
the complaint and amended complaint, treated by the parties as
properly an issue, and settled by a final order entered on that
basis.”
Id.
In the case sub judice, however, the parties never
consented to the illegality issue being determined by the court
prior to its ruling.
It was only after the trial court had
awarded summary judgment in favor of Hall’s that Salyer raised
the issue.
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Furthermore, Salyer’s CR 59 motion merely cited KRS2
271B.6-270 in support of his illegality argument and neither
mentioned his present forfeiture argument nor made reference to
the Man O War case.
Under these distinguishable circumstances,
we conclude that Carney and Rockwood are not applicable and that
Salyer’s illegality argument based on the Man O War case was
waived due to his failure to plead illegality as an affirmative
defense to Hall’s action.
Salyer additionally argues that he did not claim the
stock return provision was illegal but merely that it was
unenforceable and invalid.
Citing Adkins v. International
Harvester Co., Ky., 286 S.W.2d 528 (1956), Salyer maintains that
the burden was on Hall to establish his entitlement to have the
stock returned without payment and that Hall failed to satisfy an
essential element of his claim, that being that the provision was
enforceable and valid.
We disagree and hold that Salyer was
clearly required to plead illegality as an affirmative defense or
else be deemed to have waived it.
Salyer’s second argument is that it was undisputed that
he gave consideration for the stock and, therefore, the stock
return provision did not require him to return the stock without
being paid for it.
When Salyer and Tommy Hall made their oral
agreement in 1997 that Salyer would come to work for Hall’s,
Salyer had been working at Northside RV.
Both Salyer and Hall
testified in their depositions that Hall’s gave Salyer a 20%
ownership interest in the business so that he would come to work
2
Kentucky Revised Statutes.
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for Hall’s.
Salyer stated that his annual income at Northside RV
that year would have been approximately $100,000.
His agreement
with Hall’s provided that he would be paid a salary of $75,000
plus 10% of the net profit.
Further, Salyer was required by
Hall’s to sign a covenant not to compete.3
As we have noted, the trial court found in its summary
judgment order that the stock was given to Salyer by Hall’s but
was not given to him as consideration for his leaving his job at
Northside RV.
As we have also noted, paragraph three of the
Shareholder Agreement stated that Salyer would not be paid money
for shares “that he did not pay for himself and was given to him
free.”
We believe the language in paragraph three of the
Shareholder Agreement is clear and unambiguous.
In fact, Salyer
himself stated such in his answer to Hall’s complaint.
The
agreement clearly states that Salyer would not be paid money for
shares “that he did not pay for himself[.]”4
Under these
circumstances, we conclude that the trial court correctly ruled
as a matter of law that Salyer was required to return the shares
of stock to Hall’s without payment in return.
3
We also note that Hall admitted in his deposition that he
had offered Salyer $100,000 for his stock when Salyer was
terminated, but Hall maintained that the offer was for purposes
of compromise.
4
In fact, Salyer testified in his deposition that when he
signed the Shareholder Agreement, Hall said to him, “Do you
realize that that stock that you’re not paying for you would have
to give back?” Salyer acknowledged that he answered “yes,” but
he asserts he understood Hall was referring to the other 30%
interest he was to received over the next years and not the 20%
interest that was transferred to him up front.
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The judgment of the Fayette Circuit Court is affirmed.
ALL CONCUR.
BRIEF AND ORAL ARGUMENT FOR
APPELLANT:
BRIEF AND ORAL ARGUMENT FOR
APPELLEE:
Barbara Anderson
Lexington, Kentucky
Elizabeth Hughes
Lexington, Kentucky
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