United Group of National Paper Distributors, Inc. v. Vinson

666 So. 2d 1338, 1996 La. App. LEXIS 30
CourtLouisiana Court of Appeal
DecidedJanuary 25, 1996
DocketNo. 27739-CA
StatusPublished
Cited by11 cases

This text of 666 So. 2d 1338 (United Group of National Paper Distributors, Inc. v. Vinson) is published on Counsel Stack Legal Research, covering Louisiana Court of Appeal primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United Group of National Paper Distributors, Inc. v. Vinson, 666 So. 2d 1338, 1996 La. App. LEXIS 30 (La. Ct. App. 1996).

Opinion

| iBROWN, Judge.

Following a lengthy trial, a jury found that defendants-appellants misappropriated trade secrets, breached duties owed and violated the Louisiana Unfair Trade Practices Act. The jury awarded $9,500,000 in damages to plaintiffs, The United Group of National Paper Distributors, Inc., and Bancroft Paper Company. Defendants-appellants filed motions for judgment notwithstanding the verdict, new trial and/or remittitur. This appeal follows the trial court’s denial of those motions. We reverse and render judgment in favor of defendants.

FACTUAL BACKGROUND

The United Group of National Paper Distributors, Inc. (“United Group”), a Louisiana corporation, was formed in 1983 by Bancroft Paper Company. As a buying group/purchasing cooperative, it is made up of small independent paper distribution companies. By pooling the purchasing power of its members, United Group is able to negotiate and obtain significant discounts or commissions from large paper manufacturers and suppliers. A portion of the discounts go to United Group and the remainder is rebated to the member companies that made the purchases. In 1989, United Group’s profits exceeded $700,000. Members could terminate their affiliation with United Group without reason upon giving thirty days’ notice.

Bancroft Paper Company (“Bancroft Paper”) owned 91% of United Group stock and participated as a member of the buying cooperative. F. Speed Bancroft (“Bancroft”) is Bancroft Paper’s sole shareholder. The remaining 9% of United Group’s stock was owned by defendant, Susan Vinson, who became president of the buying group in 1987. At all relevant times, the only other officers/employees of United Group were Jay Marcel, marketing manager, and Gale Hodge, who served as administrative coordinator and corporate secretary.

| initially, the fiduciary board of directors included people who either owned or were employed by participating member companies of the buying group; however, on December 3, 1986, the structure of United Group was altered by shareholder resolution. The new fiduciary board had only two members, Bancroft and Ms. Vinson. An advisory board of directors was created to represent the interests of United Group’s participating members. According to the shareholder resolution, the corporate structure was changed to avoid potential conflicts of interest and legal exposure of the member companies, [1342]*1342whose employees and owners served as directors of the buying group.

The primary function of the advisory board of directors was to represent membership concerns and views. The advisory board did not set policy, could not hire or fire employees, nor could it take action regarding United Group’s finances. The advisory board members served solely at the pleasure of the corporation and could be removed at any time. The advisory board had no right to information pertaining to the management or operation of United Group. The only thing the advisory board could do was make recommendations, which could be implemented, rejected or ignored. Members serving on the advisory board were paid $500 per meeting plus expenses.

At a meeting of the advisory board in October 1989 in Dallas, Texas, Bancroft proposed to sell 50% of United Group’s stock to the membership for $12,000,000. Also at this meeting, Bancroft introduced to the advisory board Hans Roth, chairman of Muhle-bach/Holzstoff Holdings-A.G., a Swiss corporation, and expressed the foreign corporation’s interest in acquiring paper companies in the United States and in forming a marketing cooperative comparable to United Group.

The advisory directors met in Dallas in December 1989 to discuss Bancroft’s proposal. Bancroft did not attend this meeting. Following their ^meeting, the advisory directors presented a counteroffer on behalf of the membership to purchase United Group for $500,000. Bancroft did not respond to this counteroffer.

On March 2, 1990, the advisory directors met with Bancroft, who announced that the Swiss corporation had made an offer to purchase 40% of United Group stock, with an option for the purchase of an additional 20% within two years. The deal was to be consummated at the annual conference for members and suppliers to be held one week later, March 8-10, 1990, in Hilton Head, South Carolina. The advisory directors met with representatives of the Swiss corporation on the first day of the conference to discuss the sale; however, the general membership of United Group was first informed of the pending sale by Susan Vinson at a breakfast meeting on March 9, 1990. Many of the members were visibly upset upon learning of the proposed sale.1

After the breakfast meeting, members representing 50-80% of United Group’s revenues and the advisory directors met with Bancroft, his attorney, Paul Spillers, and representatives of the Swiss corporation. Recognizing that United Group’s value was tied to its member companies and noting the strong opposition from that membership, the Swiss withdrew their offer. The following day, March 10,1990, Spillers made a presentation on behalf of Bancroft Paper and offered to sell its stock in United Group to the membership. A counteroffer was rejected and, at an impasse, the conference adjourned.

At trial, Bancroft testified that following the Hilton Head conference, he realized that several of the buying group’s members were upset and that they were ^considering forming a competitive group. According to Bancroft, he immediately began preparations for the replacement of the members he expected to lose as a result of the Hilton Head debacle. Bancroft admitted that these members represented the backbone of the buying group.

Even before Hilton Head, Bancroft’s relationship with Susan Vinson, United Group’s president, was strained. Immediately after the Hilton Head conference, Bancroft asked his attorney, Paul Spillers, how much it would cost if he fired Ms. Vinson, who owned 9% of the company’s stock. Ms. Vinson be[1343]*1343lieved that Bancroft blamed her for Hilton Head and that her future with United Group was tenuous.

Further negotiations between Bancroft and the membership regarding United Group stock continued, with an offer on March 13, 1990, by the membership to buy Bancroft Paper’s stock for $1,300,000. Bancroft did not respond. On March 26, 1990, a number of member companies notified Bancroft by letter that they were meeting to discuss their options. Through its attorney, Paul Spillers, Bancroft Paper responded by letter dated April 6,1990.

Spillers’ letter threatened legal action and seemed to be the “straw that broke the camel’s back.” Following a meeting in Atlanta, Georgia, in April 1990, several member companies, including those with advisory directors, decided to leave United Group and form a new purchasing cooperative. Consolidated Distributors, Inc. (“CDI”), was incorporated on May 8, 1990, and funded in June 1990. United Group’s president, Susan Vinson, and marketing manager, Jay Marcel, resigned and went to work for CDI on May 15, 1990. Gale Hodge, administrative coordinator and secretary, resigned from United Group and went to work in that capacity for CDI on June 6,1990.

I ¿PROCEDURAL HISTORY

On March 11, 1991, United Group, Bancroft Paper and F. Speed Bancroft filed suit against: (1) Stephen M. Goodman, Joel Ka-plowitz, Frank D. Hamrick, Murray L. Florence, Jr., Lambert R. Dralle, David M. Muhlendorf, and W.C.

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UNITED GROUP OF NATL. PAPER DISTRIBUTORS, INC. v. Vinson
666 So. 2d 1338 (Louisiana Court of Appeal, 1996)

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Bluebook (online)
666 So. 2d 1338, 1996 La. App. LEXIS 30, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-group-of-national-paper-distributors-inc-v-vinson-lactapp-1996.