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Barnhill v. Trans Healthcare

July 21, 2006

JEFFREY A. BARNHILL AND H.C.M.B.C., INC., PLAINTIFFS
v.
TRANS HEALTHCARE, INC., TRANS HEALTH MANAGEMENT, INC., THI HOLDINGS, LLC, GTCR FUND VI, L.P., GTCR PARTNERS VI, L.P., GTCR GOLDER RAUNER, LLC, W. BRADLEY BENNETT, AND EDGAR JANNOTTA, JR., DEFENDANTS



The opinion of the court was delivered by: Judge Kane

MEMORANDUM

Before the Court are cross-motions for summary judgment by Defendants and partial summary judgment by Plaintiffs arising out of an employment dispute. (Doc. Nos. 35, 38.) Plaintiff Barnhill alleges that he and Defendants entered into a binding employment contract that Defendants breached, whereas Defendants deny that a valid contract was formed and argue alternatively that Plaintiffs failed to meet conditions precedent to Defendants' obligations under the contract. Defendants further argue that Plaintiffs have failed to produce evidence to support their equitable claims. The Court has diversity jurisdiction over this action pursuant to 28 U.S.C. § 1332. The motions have been fully briefed and are ripe for disposition. For the reasons that follow, the Court will grant Defendants' motion in part and will deny Plaintiffs' motion in toto.

I. Background*fn1

From February 2000 to June 2004, Plaintiff Jeffrey A. Barnhill provided finance-related services to Defendant Trans Healthcare, Inc. ("THI"), a private health-care company in the business of acquiring nursing homes. Prior to working at THI's Camp Hill, Pennsylvania office, Barnhill and his family lived in Coral Springs, Florida, where Barnhill provided financial consulting services to other companies in the medical field. In early 2000, after the conclusion of Thomas R. Waye's brief tenure as THI's Chief Financial Officer, THI's then-President and Chief Executive Officer, Anthony Misitano, requested that Barnhill provide "Chief Financial Officer ("CFO") related services to the Company" on an interim basis until a permanent CFO could be hired, with the understanding that, should Barnhill's performance prove acceptable, he could be offered a permanent position. (Doc. No. 1, Plaintiffs' Ex. A.) Barnhill had previously been considered for the permanent CFO position, but THI claims that it refrained from hiring Plaintiff because Barnhill was at that time under investigation by the Internal Revenue Service regarding outstanding payroll taxes of a company for which Barnhill had previously served as CFO. (Doc. No. 36, ¶ 21; Doc. No. 43, ¶ 21.)

Barnhill, as an independent contractor hired through Plaintiff H.C.M.B.C., Inc. ("HCMBC"),*fn2 signed an agreement with THI on February 1, 2000, (the "February 2000 letter") agreeing that Barnhill would provide consulting services in exchange for THI, in part, paying HCMBC $156,000 annually. (Doc. No. 1, Plaintiffs' Ex. A.) Additionally, in the February 2000 letter, THI and HCMBC "agree[d] to formulate an incentive compensation arrangement . . . mutually agreeable . . . [which] shall be in the form of cash and/or equity" in THI. (Id., ¶ 3(a).)

On March 22, 2000, a few weeks after Barnhill and his son moved from Florida into a company-provided apartment in Pennsylvania, THI CEO Misitano and Barnhill signed a new letter agreement (the "March 2000 letter"). (Doc. No. 1, Plaintiffs' Ex. B.) This letter would, effective April 3, 2000, convert Barnhill's position from a consultant through HCMBC to a direct employee of THI. The March 2000 letter states Barnhill's position as "Senior Vice President of THI and Chief Financial Officer," lists an annual salary of $160,000, provides for vacation time, health insurance, opportunity to receive a bonus, and payment of relocation expenses for Barnhill and his family. Most importantly, the letter provides Barnhill's equity participation in THI at "3% of the Company," along with an "opportunity to co-invest with GTCR" (a venture capital firm that was financing 80% of THI) and "participation in company stock option plan with award grant to be determined once plan is implemented." Id.

Misitano attested that the March 2000 letter agreement was rescinded very soon after it was signed, allegedly because THI learned that the IRS investigation into Barnhill remained ongoing, despite Barnhill's statements to the contrary. (Doc. No. 38, Dep. of Misitano at 27-28.)*fn3 Barnhill continued to provide financial services to THI and continued to be paid through HCMBC. Nevertheless, he contends that he became a THI employee working under the conditions of the March 2000 letter commencing on the letter's April 3, 2000 effective date, and he supports this claim by pointing to documents that list him as the company's CFO.

On December 31, 2001, Misitano and Barnhill signed a third letter agreement (the "December 2001 letter"). (Doc. No. 1, Plaintiffs' Ex. D.) In contrast to the March 2000 letter, the December 2001 letter gave Barnhill the title "Senior Vice President Finance" and did not include the title of CFO. The letter further provided that Barnhill would receive more compensation than agreed to in the March 2000 letter, but also reduced Barnhill's vacation and bonus opportunities. The December 2001 letter contemplates "participation in company stock option plan with award grant to be determined once plan is implemented. One (1) percent of THI Common Stock on terms and conditions consistent with Senior Management Agreement." Id. After this point, Barnhill began to be taxed as an employee of THI.

At THI, an employment contract for a senior executive is typically accompanied by a Senior Management Agreement ("SMA"), a document that essentially exchanges a severance package for executives in exchange for them promising not to disclose company secrets or solicit company clients or employees for a specified period after the termination of their employment. The December 2001 letter appears to contemplate that an SMA would be created for Barnhill. THI's SMAs tended to include provisions as to how and when company stock could be purchased and when it would be vested in the executive. Barnhill attests that soon after November 19, 2001, Misitano told him to create a SMA for himself out of the SMA prepared for former CFO Waye. (Doc. No. 38, Dep. of Barnhill at 189.)*fn4 Barnhill did so on November 26, 2001, but when he presented it to Misitano, he did not review it, instead instructing Barnhill to wait until a time when the office was less busy. (Id. at 176-77; Doc. No. 1, ¶¶ 33, 36.) Defendants' outside counsel, Kirkland & Ellis, was preparing SMAs for THI management in January 2004 but had not created a final SMA for Barnhill by the time he was terminated.*fn5

In September 2003, THI hired Defendant W. Bradley Bennett as the firm's CFO. (Doc. No. 38, Dep. of Bennett at 7.) After Misitano resigned, Bennett became CEO in June 2004. (Id.) For the expressed reasons that Barnhill's "services were no longer required" and that "his role had morphed into a situation where there was nothing for him to do," Bennett informed Barnhill that his employment with THI was to be terminated. (Id. at 76.) Barnhill then presented Bennett with all of the letter agreements and SMAs described above,*fn6 claiming that these agreements entitled him to severance benefits and equity in the company.*fn7 (Doc. No. 36, ¶ 58.)

On June 11, 2004, Bennett offered Barnhill a severance package of $50,000 plus six months' salary, in exchange for Barnhill agreeing to release THI from any claims against the company. (Doc. No. 1, ¶ 58.)*fn8 Plaintiff rejected this offer. (Doc. No. 38, Cont'd Dep. of Barnhill at 13-14.) Instead, Barnhill expected to receive one year's salary and continued health insurance as severance pay, along with THI agreeing to honor Plaintiff's asserted right to purchase equity in the company, consistent with the terms of the SMAs that he had reviewed. (Doc. No. 1, Plaintiffs' Ex. B.) THI declined Plaintiff's counter-offer, and Barnhill was officially terminated on June 18, 2004. (Doc. No. 1, ¶ 56.)

Plaintiffs filed suit on August 20, 2004, alleging Defendants' breach of contract with Plaintiff HCMBC (Count I) and with Plaintiff Barnhill (Count II). Should formation of a contract or its breach not be established, Plaintiffs in the alternative bring counts of promissory and equitable estoppel (Counts III and IV), fraud/intentional and negligent misrepresentation (Counts VI and VIII), and civil conspiracy (Count IX).*fn9 The parties attempted to mediate the claims on August 19, 2005, but mediation was unsuccessful. (Doc. Nos. 31, 32.) After discovery was completed, Defendants moved for summary judgment on all remaining counts, and Plaintiffs moved for partial summary judgment on Counts I and II.

II. Standard of Review

Federal Rule of Civil Procedure 56 provides that summary judgment is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56; see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-51 (1986). When deciding a motion for summary judgment, the Court views the facts in the light most favorable to the nonmoving party, who is "entitled to every reasonable inference that can be drawn from the record." Merkle v. Upper Dublin Sch. Dist., 211 F.3d 782, 788 (3d Cir. 2000). However, the non-moving party may not simply sit back and rest on the allegations in his complaint; instead, he must "go beyond the pleadings and by [his] own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial." Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986) (internal quotations omitted). Summary judgment should be granted where a party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden at trial." Id. at 322.

III. Discussion

A. Contractual Claims

"A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty." Forest Glen Condo. Ass'n v. Forest Green Commons L.P., 2006 Pa. Super. LEXIS 656 at *12 (Pa. Super. May 2, 2006) (citing Restatement (Second) Contracts ยง 1 (1981)). It "is formed when the parties to it (1) reach a mutual understanding, (2) exchange consideration, and (3) delineate the terms of ...


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