Villar v. Kernan

1997 ME 132, 695 A.2d 1221, 1997 Me. LEXIS 133
CourtSupreme Judicial Court of Maine
DecidedJune 11, 1997
StatusPublished
Cited by1 cases

This text of 1997 ME 132 (Villar v. Kernan) is published on Counsel Stack Legal Research, covering Supreme Judicial Court of Maine primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Villar v. Kernan, 1997 ME 132, 695 A.2d 1221, 1997 Me. LEXIS 133 (Me. 1997).

Opinion

DANA, Justice.

[¶ 1] Pursuant to 4 M.R.SA § 57 (1989) and M.R.Civ.P. 76B, the United States District Court for the District of Maine (Hornby, [1222]*1222J.) has certified the following questions of state law to this Court:

(1) Does Maine law, including but not limited to 13-A M.R.S.A. § 618, preclude an action for breach of an oral contract between two shareholders of a closely held corporation prohibiting their receipt of salaries from the corporation?
(2) If the answer to the first question is “no,” what factors are to be considered in determining whether specific performance is available to take an oral contract outside the statute of frauds provision, 33 M.R.S.A. § 51(5), for contracts not to be performed within one year?

[¶2] Pursuant to M.R.Civ.P. 76B(b), the United States District Court has prepared a statement of findings of facts. These facts disclose that in 1988 Frederick Villar and Peter Keman agreed to go into the brick oven pizza business. Villar was responsible for operating the new business and Kernan assumed responsibility for the business’s finances. When Villar and Keman incorporated their business as Ricetta’s, Inc., Villar received 49 percent of the shares and Kernan received 51 percent. According to Keman, the parties agreed that “there would never be salaries. In other words, as owners [they] would never get salaries, just distribution.” At some point Ronald Stephan, the manager of the restaurant, became a two percent shareholder of Ricetta’s, Inc., obtaining one percent from both Keman and Villar.

[¶ 3] The parties’ pizza restaurant succeeded as a business but their relationship deteriorated. Villar and Stephan attempted to buy Keman out, but the buyout was unsuccessful and ultimately Stephan became allied with Keman.

[¶ 4] In March 1994 Keman entered into a “so-called consulting agreement” with Ricet-ta’s. The agreement provided for automatic payments to him of $2,000 per week. The agreement was ratified at a shareholders’ and board of directors’ meeting at which Villar was not present. Kernan’s obligations pursuant to the agreement were not specified, but the corporation’s rights were restricted. For example, Keman’s compensation could be increased but not decreased by a majority vote of the board of directors, and his services could be terminated only for criminal violation involving dishonesty, fraud, breach of trust, or for willful engagement in misconduct in the performance of his duties. Pursuant to the agreement Kernan received $90,000 in consulting fees in 1994 and $24,000 in early 1995.

[¶ 5] In May 1995 Villar filed a complaint in the United States District Court asserting six counts against four defendants. On Ker-nan’s motion for a judgment on the pleadings or for a summary judgment, the court dismissed all of Villar’s claims except the breach of contract claim against Keman. A nonjury trial on Villar’s breach of contract claim was held in August 1996. The court concluded that there was an oral agreement between Villar and Kernan that prohibited Keman from receiving a salary from Ricetta’s. The court determined that unless 13-A M.R.S.A. § 618 (1981)1 precluded the enforcement of [1223]*1223an oral shareholder agreement, the agreement could be enforceable in equity despite the statute of frauds. Finding no controlling precedent in Maine regarding section 618 or the factors the court should consider when determining whether enforcement of an oral agreement within the statute of frauds is appropriate, the court certified the two questions. Our exercise of jurisdiction in this case is proper because there are no clear controlling precedents and our answer will, in one alternative, be determinative of the case. See Dasha v. Maine Medical Ctr., 665 A.2d 993, 995 (Me.1995). We answer the first question in the affirmative and, therefore, do not address the second question.

[¶ 6] When the language of a statute is clear and unambiguous, we will give the statute its plain meaning. Stanley v. Tilcon Maine, Inc., 541 A.2d 951, 952 (Me. 1988) (citation omitted). We also consider the ‘“whole statutory scheme of which the section at issue forms a part so that a harmonious result, presumably the intent of the Legislature, may be achieved.’” Jordan v. Sears, Roebuck & Co., 651 A.2d 358, 360 (Me.1994) (quoting Davis v. Scott Paper Co., 507 A.2d 581, 583 (Me.1986)). The fundamental rule in the interpretation of a statute is that the intent of the Legislature, as defined from the statute’s language, controls. State v. Butt, 656 A.2d 1225, 1227 (Me.1995) (citation omitted).

[¶ 7] Section 618 operates to validate agreements that would be unenforceable under traditional notions of acceptable corporate practice.2 In short, the statute provides that written agreements between shareholders are enforceable even if they (1) relate to a phase of affairs of the corporation, such as [1224]*1224the management of the corporation, payment of dividends, or employment of shareholders, (2) restrict director discretion, or (3) transfer management duties to shareholders, as long as such agreements satisfy certain conditions. 13-A M.R.S.A. § 618(1). Specifically, the agreement must be included in the articles of incorporation or expressly assented to by all shareholders, and after the agreement is made anyone who acquires shares must have notice or actual knowledge of the agreement. § 618(1)(A),(B). Even if those specific requirements are not met, however, the agreement may still be enforceable between the parties to the agreement if the rights of any third parties who intervene and object to the enforcement of the agreement are not prejudiced. § 618(2).

[¶ 8] Kernan contends that the language in the first sentence of section 618(1) implies that shareholder agreements validated by section 618 must be in writing. We agree. Because the language of subsection (1) refers to written agreements between shareholders, stating that “[n]o written agreement will be invalid ... ”, it is logical to conclude that the Legislature intended to validate only written agreements that meet the requirements of the statute. To conclude otherwise would nullify the word “written” in the opening sentence of that subsection.

[¶ 9] Villar argues that the parties’ agreement is simply an agreement between shareholders that does not affect the corporation and that it need not rely on section 618’s validation provision for its validity. We disagree. Their agreement affects the corporation’s affairs because it effectively prohibits the corporation from hiring Kernan as a consultant. We are not persuaded by Villar’s characterization of the agreement, asserted at oral argument, as one that would allow the corporation to hire Kernan but then require him to pay Villar half of the salary that he received from the corporation. Such an interpretation would effectively rewrite the parties’ agreement.

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1997 ME 132, 695 A.2d 1221, 1997 Me. LEXIS 133, Counsel Stack Legal Research, https://law.counselstack.com/opinion/villar-v-kernan-me-1997.