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Filing # 76893405 E-Filed 08/23/2018 02:07:00 PM
IN THE CIRCUIT COURT OF THE 19™ JUDICIAL CIRCUIT
IN AND FOR ST. LUCIE COUNTY, FLORIDA
MADELINE AND WILLIAM MCCONNELL,
Plaintiffs,
vs. CASE NO.: 562017CA1650AXXXHC
P.D.K., INC., a Florida corporation
Defendant.
/
DEFENDANT’S MEMORANDUM IN RESPONSE TO COURT’S INQUIRY ON
TERMINATION OF AGREEMENT NOT IN WRITING AND WHETHER “NEW,
SHAREHOLDERS” ARE A JOINT VENTURE AND IN OPPOSITION TO
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT.
Defendant P.D.K., Inc. (“PDK”) hereby files this Memorandum, and states:
ISSUES AND ARGUMENT
At the hearing held August 16, 2018 on Plaintiffs’ motion for summary judgment, the
court found that, under 6 of the Shareholder’s Agreement, that any termination, modification or
amendment to that agreement had to be in writing signed by all of the parties to the agreement.
PDK contends that Plaintiffs agreed to termination of the agreement (and the shares) and acted
upon this cancelation; and that Plaintiffs, under theories of estoppel, acceptance of benefits and
detrimental reliance, could not contest the cancelation of the agreement and the shares of
Plaintiffs, even if not done in writing. The court expressed the opinion that a provision requiring
modification/cancelation in writing was essentially mandatory, and could not be waived or
excused under any circumstance. Therefore, the court believes that these defenses presented by
PDK cannot apply. | However, the court requested a memorandum on this issue.
Below, PDK will show both: 1) generally, there is an exception to such a provision
requiring that a modification/termination of an agreement must be in writing where, as here, theoral modification/termination “has been accepted and acted upon by the parties in such a manner
as would work a fraud on either party to refuse to enforce it.” Professional Insurance
Corporation v. Cahill, 90 So. 2d 916 (Fla. 1956); See also WSOS-I'M, Inc. v. Hadden, 951 So.
2d 61 (Fla. 5™ DCA), if trial court found that contract, requiring modification or termination in
writing, could not be modified orally, that was a “mistaken belief.”; and 2) specifically, as here,
as to an oral cancelation of a shareholder_agreement_acted_upon by the parties, an “oral
agreement to dissolve a professional association was enforceable, as to not enforce oral
modification of the underlying shareholder’s agreement would work a fraud on the parties
seeking to enforce modification, where the agreement had already been partially acted upon
by the parties.” Wald v. Shenkman, 664 So. 2d 10 (Fla. 3d DCA 1995).
Wald is directly on point as to the question the court posed. First, there is no reason why
the principles set forth by the Florida Supreme Court in Cahill would not or could not apply to a
shareholder’s agreement. But, if there was any doubt, the court in Wald answered that question,
and held that these same principles apply to termination of a shareholders agreement agreed to
and acted upon by the parties — even though not done in writing as required under the agreement.
Further, PDK contests that under the Shareholder’s Agreement, the “NEW
SHAREHOLDERS,” William, Daniel and Madeline McConnell, jointly owning an
unapportioned percentage of shares in PDK, constitute a “joint venture” requiring the joinder of
Daniel McConnell as an indispensible party, as a matter of law. The court has expressed the
belief that each of the McConnells (either William, Daniel and/or Madeline) are shareholders,
individually. However, the court requested a memorandum on this issue, as well.
Below, PDK will show that: 1) generally, the joint purchase of the shares of PDK by the
three McConnells, as described in William McConnell’s affidavit, constitute a joint venture(Florida Tomato Packers, Inc. v. Wilson, 296 So. 2d 536 (Fla. 3d DCA 536), combination of two
or more persons in some specific venture, as here, “seeking profits jointly” is a joint venture);
and, as such, all joint venturers are indispensible parties (C.F. Antilles, N.V., Inc. v. Intal Corp,
506 So. 2d 38 (Fla. 3d DCA 1987), joint venturers are indispensible parties, and evidentiary
hearing was required to determine whether a joint venture existed) ; and 2) specifically,
when two or more persons, as here, decide to collectively invest in a business opportunity and
collectively purchase a single interest in shares of a business, they (the McConnells/the NEW
SHAREHOLDERS) are, in fact and law, a joint venturers. Willis v. Fowler, 102 Fla. 35 (Fla.
1931).
In Willis, the Court considered a situation where Fowler and Willis would each purchase
equal 1/10 shares in a business, this would make them “joint adventurers with several parties in
the already existing joint adventure.” However, and _this_is key, this proposal by Willis to
Fowler to each purchase equal shares in the business did not create a joint venture between
Willis and Fowler, because: “there would have been no right upon Mrs. Fowler’s part to
share in Willis’s profits or duty to share his losses arising from his purchase of a_1/10
interest, or vice-versa, in the absence of an agreement between them to that effect, and no
such agreement is alleged.” See Willis at 365. The Court then stated, as to this proposal to
each purchase separate, but equal, interests in the business that this proposition was “not itself a
joint venture...” Willis at 366.
This is clearly distinguishable from the McConnell’s joint purchase of one indivisible
interest in PDK. According to Plaintiffs, the NEW SHAREHOLDERS (the McConnells) jointly
purchased an undivided 12% interest in PDK. Under Willis, this makes them joint venturers, as
a matter of law. In Wald, each party purchased separate, but equal, interests in a business. Here,the McConnells, together, purchased one single, but undivided, interest. As William McConnell
explains in his Affidavit at {7 on page 2: “I discussed with my family the possibility of investing
in PDK. . . After some discussion, we determined that we would invest, but as shareholders in
PDK...”
While in Willis, the two parties purchasing equal shares in a business were not, between
the two of them, involved in a joint venture; the McConnells, purchasing one undivided interest
of shares in PDK are involved in a joint venture, as a matter of law.
On these bases, summary judgment must be denied. First, Plaintiffs’ case brought only
by William and Madeline is fatally flawed without the inclusion of Daniel, an indispensible
party. The NEW SHAREHOLDERS’ purported shares do not exist without Daniel, and either
William alone, Madeline alone, or just William and Madeline are not shareholders of anything.
Second, even if Plaintiffs William and Madeline could sue, the shares of the NEW
SHAREHOLDERS were forfeited and all obligations and rights under the Shareholder’s
Agreement were effectively terminated in May, 2011. Even though the termination is not in
writing signed by all the parties, there is evidence presented that the cancelation of the shares and
termination of the agreement was agreed and acted upon by the parties, and to refuse to enforce
that termination would work as a fraud against PDK who, after May, 2011, did not, in
detrimental reliance of the McConnells’ agreement to not be shareholders anymore and to
terminate the obligations under the Shareholder’s Agreement: 1) request that the McConnells
share in the losses incurred (and had failed to do so previously); 2) request any financing or
funds that the McConnells were obligated to provide (and had failed to provide repeatedly); and
3) sue or threaten to sue the McConnells for obvious breaches of the agreement. Further, but forthis verbal agreement acted upon, PDK would not have been able to find a new investor and
shareholder to bear losses that incurred.
Under these circumstances, a trial is required. The fact that the Shareholder’s Agreement
was not terminated or modified in writing, signed by all parties,’ is not dispositive of the issue.
Ample evidence has been presented to show that the modification and termination of the
Shareholder’s Agreement and relinquishment of the shares was agreed to and acted upon, and to
not enforce this (even though not done in writing) would work as a fraud against PDK —
especially where Plaintiffs have waited “in the weeds” for over 6 years, after_a new investor
and shareholder was brought in (with written notice to the McConnells), until PDK was no
longer_in bad financial condition. In May, 2011, had the property been sold or lost in a
foreclosure, a great loss would have been sustained, and the McConnells would have been
required to share in that loss.
Again, the issue is not whether PDK will ultimately prevail (which they should), but
whether the court can issue summary judgment where proper defenses have been alleged and
issues of fact remain. The court’s conclusion that no issue of fact remains, solely because the
Shareholder’s Agreement was not terminated or modified in writing is, respectfully, incorrect,
as a matter of law. The affirmative defenses raised by PDK are valid, and cannot be summarily
disposed of by summary judgment on the basis that the Shareholder’s Agreement was not
modified or terminated in writing. The law is clear on this point.
CONCLUSION
While the McConnells are surely entitled to their day in court on this matter, the
Katchmere family, too, is entitled to their day in court, as well, as a matter of fairness and justice.
* Curiously, the court would require Daniel, the missing party, to sign a termination or
modification, but not require him to be a party to the lawsuit.
5It would be prejudicial error to dispose of the issues presented here on summary judgment,
without a trial, especially on a mistaken view that the Shareholder Agreement could only be
modified or terminated in writing (because that is what the agreement says). The law is clear
that an exception to this rule exists, and PDK has alleged the exception and submitted ample
evidence to support the exception. The matter must be determined at a trial.
WHEREFORE the Plaintiffs’ motion for summary judgment must be denied based upon
the authorities cited herein.
I HEREBY CERTIFY that a true and correct copy of the above and foregoing was
delivered to Emily C. Komlossy, 4700 Sheridan Street, Suite J, Hollywood, FL 33021 by email
to eck@komlossylaw.com on this 234 day of August, 2018.
/s/ Louis Arslanian
LOUIS C. ARSLANIAN
5800 Sheridan Street
Hollywood, Florida 33021
(954) 922-2926 Tel.
arsgabriela@comcast.net
FBN 801925
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Filing # 76893405 E-Filed 08/23/2018 02:07:00 PM IN THE CIRCUIT COURT OF THE 19™ JUDICIAL CIRCUIT IN AND FOR ST. LUCIE COUNTY, FLORIDA MADELINE AND WILLIAM MCCONNELL, Plaintiffs, vs. CASE NO.: 562017CA1650AXXXHC P.D.K., INC., a Florida corporation Defendant. / DEFENDANT’S MEMORANDUM IN RESPONSE TO COURT’S INQUIRY ON TERMINATION OF AGREEMENT NOT IN WRITING AND WHETHER “NEW, SHAREHOLDERS” ARE A JOINT VENTURE AND IN OPPOSITION TO PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT. Defendant P.D.K., Inc. (“PDK”) hereby files this Memorandum, and states: ISSUES AND ARGUMENT At the hearing held August 16, 2018 on Plaintiffs’ motion for summary judgment, the court found that, under 6 of the Shareholder’s Agreement, that any termination, modification or amendment to that agreement had to be in writing signed by all of the parties to the agreement. PDK contends that Plaintiffs agreed to termination of the agreement (and the shares) and acted upon this cancelation; and that Plaintiffs, under theories of estoppel, acceptance of benefits and detrimental reliance, could not contest the cancelation of the agreement and the shares of Plaintiffs, even if not done in writing. The court expressed the opinion that a provision requiring modification/cancelation in writing was essentially mandatory, and could not be waived or excused under any circumstance. Therefore, the court believes that these defenses presented by PDK cannot apply. | However, the court requested a memorandum on this issue. Below, PDK will show both: 1) generally, there is an exception to such a provision requiring that a modification/termination of an agreement must be in writing where, as here, theoral modification/termination “has been accepted and acted upon by the parties in such a manner as would work a fraud on either party to refuse to enforce it.” Professional Insurance Corporation v. Cahill, 90 So. 2d 916 (Fla. 1956); See also WSOS-I'M, Inc. v. Hadden, 951 So. 2d 61 (Fla. 5™ DCA), if trial court found that contract, requiring modification or termination in writing, could not be modified orally, that was a “mistaken belief.”; and 2) specifically, as here, as to an oral cancelation of a shareholder_agreement_acted_upon by the parties, an “oral agreement to dissolve a professional association was enforceable, as to not enforce oral modification of the underlying shareholder’s agreement would work a fraud on the parties seeking to enforce modification, where the agreement had already been partially acted upon by the parties.” Wald v. Shenkman, 664 So. 2d 10 (Fla. 3d DCA 1995). Wald is directly on point as to the question the court posed. First, there is no reason why the principles set forth by the Florida Supreme Court in Cahill would not or could not apply to a shareholder’s agreement. But, if there was any doubt, the court in Wald answered that question, and held that these same principles apply to termination of a shareholders agreement agreed to and acted upon by the parties — even though not done in writing as required under the agreement. Further, PDK contests that under the Shareholder’s Agreement, the “NEW SHAREHOLDERS,” William, Daniel and Madeline McConnell, jointly owning an unapportioned percentage of shares in PDK, constitute a “joint venture” requiring the joinder of Daniel McConnell as an indispensible party, as a matter of law. The court has expressed the belief that each of the McConnells (either William, Daniel and/or Madeline) are shareholders, individually. However, the court requested a memorandum on this issue, as well. Below, PDK will show that: 1) generally, the joint purchase of the shares of PDK by the three McConnells, as described in William McConnell’s affidavit, constitute a joint venture(Florida Tomato Packers, Inc. v. Wilson, 296 So. 2d 536 (Fla. 3d DCA 536), combination of two or more persons in some specific venture, as here, “seeking profits jointly” is a joint venture); and, as such, all joint venturers are indispensible parties (C.F. Antilles, N.V., Inc. v. Intal Corp, 506 So. 2d 38 (Fla. 3d DCA 1987), joint venturers are indispensible parties, and evidentiary hearing was required to determine whether a joint venture existed) ; and 2) specifically, when two or more persons, as here, decide to collectively invest in a business opportunity and collectively purchase a single interest in shares of a business, they (the McConnells/the NEW SHAREHOLDERS) are, in fact and law, a joint venturers. Willis v. Fowler, 102 Fla. 35 (Fla. 1931). In Willis, the Court considered a situation where Fowler and Willis would each purchase equal 1/10 shares in a business, this would make them “joint adventurers with several parties in the already existing joint adventure.” However, and _this_is key, this proposal by Willis to Fowler to each purchase equal shares in the business did not create a joint venture between Willis and Fowler, because: “there would have been no right upon Mrs. Fowler’s part to share in Willis’s profits or duty to share his losses arising from his purchase of a_1/10 interest, or vice-versa, in the absence of an agreement between them to that effect, and no such agreement is alleged.” See Willis at 365. The Court then stated, as to this proposal to each purchase separate, but equal, interests in the business that this proposition was “not itself a joint venture...” Willis at 366. This is clearly distinguishable from the McConnell’s joint purchase of one indivisible interest in PDK. According to Plaintiffs, the NEW SHAREHOLDERS (the McConnells) jointly purchased an undivided 12% interest in PDK. Under Willis, this makes them joint venturers, as a matter of law. In Wald, each party purchased separate, but equal, interests in a business. Here,the McConnells, together, purchased one single, but undivided, interest. As William McConnell explains in his Affidavit at {7 on page 2: “I discussed with my family the possibility of investing in PDK. . . After some discussion, we determined that we would invest, but as shareholders in PDK...” While in Willis, the two parties purchasing equal shares in a business were not, between the two of them, involved in a joint venture; the McConnells, purchasing one undivided interest of shares in PDK are involved in a joint venture, as a matter of law. On these bases, summary judgment must be denied. First, Plaintiffs’ case brought only by William and Madeline is fatally flawed without the inclusion of Daniel, an indispensible party. The NEW SHAREHOLDERS’ purported shares do not exist without Daniel, and either William alone, Madeline alone, or just William and Madeline are not shareholders of anything. Second, even if Plaintiffs William and Madeline could sue, the shares of the NEW SHAREHOLDERS were forfeited and all obligations and rights under the Shareholder’s Agreement were effectively terminated in May, 2011. Even though the termination is not in writing signed by all the parties, there is evidence presented that the cancelation of the shares and termination of the agreement was agreed and acted upon by the parties, and to refuse to enforce that termination would work as a fraud against PDK who, after May, 2011, did not, in detrimental reliance of the McConnells’ agreement to not be shareholders anymore and to terminate the obligations under the Shareholder’s Agreement: 1) request that the McConnells share in the losses incurred (and had failed to do so previously); 2) request any financing or funds that the McConnells were obligated to provide (and had failed to provide repeatedly); and 3) sue or threaten to sue the McConnells for obvious breaches of the agreement. Further, but forthis verbal agreement acted upon, PDK would not have been able to find a new investor and shareholder to bear losses that incurred. Under these circumstances, a trial is required. The fact that the Shareholder’s Agreement was not terminated or modified in writing, signed by all parties,’ is not dispositive of the issue. Ample evidence has been presented to show that the modification and termination of the Shareholder’s Agreement and relinquishment of the shares was agreed to and acted upon, and to not enforce this (even though not done in writing) would work as a fraud against PDK — especially where Plaintiffs have waited “in the weeds” for over 6 years, after_a new investor and shareholder was brought in (with written notice to the McConnells), until PDK was no longer_in bad financial condition. In May, 2011, had the property been sold or lost in a foreclosure, a great loss would have been sustained, and the McConnells would have been required to share in that loss. Again, the issue is not whether PDK will ultimately prevail (which they should), but whether the court can issue summary judgment where proper defenses have been alleged and issues of fact remain. The court’s conclusion that no issue of fact remains, solely because the Shareholder’s Agreement was not terminated or modified in writing is, respectfully, incorrect, as a matter of law. The affirmative defenses raised by PDK are valid, and cannot be summarily disposed of by summary judgment on the basis that the Shareholder’s Agreement was not modified or terminated in writing. The law is clear on this point. CONCLUSION While the McConnells are surely entitled to their day in court on this matter, the Katchmere family, too, is entitled to their day in court, as well, as a matter of fairness and justice. * Curiously, the court would require Daniel, the missing party, to sign a termination or modification, but not require him to be a party to the lawsuit. 5It would be prejudicial error to dispose of the issues presented here on summary judgment, without a trial, especially on a mistaken view that the Shareholder Agreement could only be modified or terminated in writing (because that is what the agreement says). The law is clear that an exception to this rule exists, and PDK has alleged the exception and submitted ample evidence to support the exception. The matter must be determined at a trial. WHEREFORE the Plaintiffs’ motion for summary judgment must be denied based upon the authorities cited herein. I HEREBY CERTIFY that a true and correct copy of the above and foregoing was delivered to Emily C. Komlossy, 4700 Sheridan Street, Suite J, Hollywood, FL 33021 by email to eck@komlossylaw.com on this 234 day of August, 2018. /s/ Louis Arslanian LOUIS C. ARSLANIAN 5800 Sheridan Street Hollywood, Florida 33021 (954) 922-2926 Tel. arsgabriela@comcast.net FBN 801925