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Warrenfeltz v. Hogan Assessment Systems, Inc.

United States District Court, N.D. Oklahoma

March 29, 2018




         Before the court is the Motion to Dismiss Counts II and III of Plaintiff's Amended Complaint [Doc. #32] of defendant Hogan Assessment Systems, Inc. (HAS). For the reasons set forth below, the motion is granted.

         I. Allegations of the Amended Complaint

         The Amended Complaint alleges the following facts. HAS is a personality-test publisher and assessment consulting firm headquartered in Tulsa, Oklahoma. [Doc. #26, p. 4, ¶ 15-16]. At the time of HAS's incorporation, husband and wife Robert and Joyce Hogan owned 100% of the company's stock. [Id., ¶ 15]. On July 31, 2000, the Hogans and Rodney Warrenfeltz entered into a stockholders' agreement (“2000 Stockholders' Agreement”), pursuant to which Warrenfeltz purchased 20% of HAS's stock, leaving Robert and Joyce Hogan owning 40% each. [Id., p. 5, ¶ 19]. The 2000 Stockholders' Agreement required HAS to purchase a shareholder's shares if the shareholder should “cease to be employed” by HAS and set the purchase price at $4, 000 per share. [Id., ¶ 20]. On that same date, Warrenfeltz entered into an employment agreement (“2000 Employment Agreement”) to serve as HAS's Managing Partner. [Id., p. 6, ¶ 22]. Pursuant to paragraph 8 of the 2000 Employment Agreement, HAS could not terminate Warrenfeltz for “breach of his obligations, duties or responsibilities, ” unless it provided him thirty-days written notice of the breach with an opportunity to cure. [Id.].

         On July 31, 2000, HAS also adopted the Amended By-Laws that remain in effect. [Id., ¶ 24]. The Amended By-Laws prohibit shareholder actions that conflict with the Stockholders' Agreement. [Id., p. 7, ¶ 25]. Further, the Amended By-Laws govern the authority of the company's Board of Directors, and provide that the Board of Directors “may, by affirmative vote of a majority of the members of the Board then in office, remove any officer elected or appointed by the Board.” [Id., ¶ 26].

         On October 7, 2010, HAS altered the term and renewal provisions of the 2000 Employment Agreement. [Id., p. 11, ¶ 45-46]. The amendment extended the period of the 2000 Employment Agreement for a period of five years, unless earlier termination was provided as under the 2000 Employment Agreement, after which the 2000 Employment Agreement would automatically extend for successive additional one year terms, unless either party gave written notice to the other party at least ninety days prior to the end of the term. [Id., ¶ 46].

         In September 2012, Joyce Hogan suddenly passed away, resulting in the transference of her HAS stock to Robert Hogan. [Id., p. 12, ¶ 51-52]. After Joyce Hogan's death, Robert Hogan's business relationship with Warrenfeltz began to deteriorate, and Warrenfeltz expressed his desire to sell his equity interest in HAS in 5% increments. [Id., p. 13-14, ¶ 55 and 57].

         In connection with Robert Hogan's interest in making other HAS employees stockholders, the 2000 Stockholders' Agreement was revised effective as of January 1, 2013 (“2013 Stockholders' Agreement). [Id., p. 14, ¶ 58 and 60]. The 2013 Stockholders' Agreement identified Warrenfeltz and Robert Hogan as having “Founders' Rights, ” special rights not shared by other shareholders. [Id., p. 14-15, ¶ 61]. Pursuant to the “Founders Rights, ” certain actions required the affirmative vote of both Warrenfeltz and Robert Hogan, including: any material change of the bylaws, the expenditure of any funds or the incurrence of any indebtedness in excess of $50, 000.00, and any change in the governance provisions of paragraph 9. [Id., ¶ 61].

         On October 1, 2014, the 2013 Stockholders' Agreement was amended to accelerate Warrenfeltz's redemption of his shares to HAS. [Id., p. 15-16, ¶ 63-64]. Pursuant to the amendment, HAS was required to purchase 500 shares from Warrenfeltz on October 1, 2014 and another 500 shares from him on June 1, 2017. [Id., p. 16, ¶ 64].

         On July 1, 2016, Robert Hogan sent a letter to Warrenfeltz stating that Hogan had unilaterally made the decision not to renew Warrenfeltz's employment agreement, and that Warrenfeltz would become an “at will” employee effective October 7, 2016. [Id., p. 20-21, ¶ 82-83]. Some ten months later, Hogan sent Warrenfeltz a letter stating that HAS terminated Warrenfeltz's employment effective May 8, 2017 because Warrenfeltz had engaged in “conduct that constitutes grounds for the termination of [his] employment with [HAS] for cause.” [Id., p. 21-22, ¶ 88]. The letter also asserted that the termination of Warrenfeltz for cause permitted HAS to purchase Warrenfeltz's remaining stock for “twenty-five percent (25%) of Base Value, with payments to be made in one hundred and twenty (120) equal installments with no downpayment.” [Id., p. 23, ¶ 92]. The termination letter enclosed two purported Consents of Shareholders of HAS and a purported Unanimous Consent of the Directors of HAS. [Id., ¶ 93].

         Based on these factual allegations, the Amended Complaint asserts three counts: (I) breach of contract, (II) breach of the implied covenant of good faith and fair dealing, and (III) conversion.

         II. Motion to Dismiss Standard

         To survive a Rule 12(b)(6) motion to dismiss, “[a] complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “‘Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements' are not sufficient to state a claim for relief.” Pyle v. Woods, 874 F.3d 1257, 1266 (10th Cir. 2017) (quoting Iqbal, 556 U.S. at 678).

         III. ...

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