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Coca-Cola Beverages Florida Holdings, LLC v. Goins

Court of Chancery of Delaware

June 4, 2019

COCA-COLA BEVERAGES FLORIDA HOLDINGS, LLC; COCA-COLA BEVERAGES FLORIDA, LLC CARDINAL SYSTEM HOLDINGS, LLC f/k/a Cardinal System Holding Company, LLC; and TROY D. TAYLOR, Plaintiffs,
v.
REGINALD GOINS, Defendant/ Counterclaimant,
v.
COCA-COLA BEVERAGES FLORIDA HOLDINGS, LLC; COCA-COLA BEVERAGES FLORIDA, LLC: CARDINAL SYSTEM HOLDINGS, LLC f/k/a Cardinal System Holding Company, LLC; and TROY D. TAYLOR, Counterclaim Defendants, HOLDINGS' POSITION (Total =245 units) Year Base Sales Gross Profit EBITDA North Florida South Florida Date GOINS' POSITION (Total =568.6 units) Year Base Sales Gross Profit EBITDA North Florida South Florida Date

          ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION TO DISMISS DEFENDANT'S COUNTERCLAIMS

         WHEREAS:[1]

         A. Reginald Goins is a former employee of The Coca-Cola Company, where he held management positions in sales, marketing, operations, and finance from 1998 through July 2014. Troy Taylor wanted to own a Coca-Cola bottling franchise but "for more than 10 years his efforts had been fruitless," allegedly due to his lack of operational bottling experience.[2]

         B. In late 2011 or early 2012, after Taylor reached out to Goins, the two of them petitioned The Coca-Cola Company to acquire a bottling franchise. The plan was for Taylor to be in charge of raising funds for the acquisition and Goins to be in charge of the operational side of the business.

         C. On October 15, 2013, after Goins and Taylor made multiple presentations to executives of The Coca-Cola Company, it signed a letter of intent to sell a franchise for a territory in Central Florida. Goins was not named in the purchase agreement because he was still employed with The Coca-Cola Company, which "did not want to appear to give an 'insider' an advantage in petitioning for franchises," "but it was understood that The Coca-Cola Company expected Goins to be an owner."[3] In July 2014, Goins moved from Ohio to Florida to work full-time on "standing up" the new business.

         D. On January 15, 2015, Taylor formed Coca-Cola Bottling Company of Central Florida, LLC, now named Cardinal System Holding Company, LLC ("Cardinal"), to serve as a holding company for the Central Florida franchise. On January 26, 2015, Taylor formed Coca-Cola Beverages Florida, LLC ("Beverages") to conduct the operations of the Central Florida franchise. Since approximately January 2015, Goins continuously asked Taylor to document their equity agreement but "Taylor continually delayed and gave excuses for his failure to provide the documents to Goins."[4]

         E. In May 2015, The Coca-Cola Company closed on the sale of the Central Florida franchise. Goins officially became an employee of Beverages that month and executed an Employment Agreement with Beverages on November 16, 2015.

         F. On October 21, 2015, Beverages entered into a letter of intent with The Coca-Cola Company to expand its territory into North Florida, which closed in October 2016. On December 9, 2015, Beverages entered into a letter of intent to expand its territory into South Florida, which closed in March 2017.

         G. On July 8, 2016, Taylor formed Coca-Cola Beverages Florida Holdings, LLC ("Holdings"), which owns all of the equity of Beverages. Goins was not consulted with respect to the formation of Holdings nor allowed to negotiate the terms of its operating agreement (the "LLC Agreement").[5] Taylor is named as the Manager of Holdings under the LLC Agreement, which provides that the Manager shall not have any fiduciary duties to the fullest extent permitted by law.[6]

         H. On August 24, 2016, Taylor and his attorney provided Goins with a Restricted Unit Agreement ("RUA"), which Goins executed the next day, a deadline that Taylor imposed on Goins.[7] The RUA grants 1, 235 Class B Common Units of Holdings to Goins, representing approximately 11% of the total equity of Holdings, subject to a vesting schedule (described below) for the units that is subdivided into six components: (1) base amount (225 units); (2) sales (262 units); (3) gross profit (262 units); (4) EBITDA (262 units); (5) North Florida expansion (112 units); and (6) South Florida expansion (112 units).[8]

         I. Units for the base component are tied to achieving annual sales volume targets of cases sold for each calendar year between 2015 and 2019, and vest on May 31 of the following year. Units for the sales (measured in revenues), gross profit, and EBITDA components are tied to achieving certain financial thresholds for each calendar year between 2015 and 2024, and vest on the date that Taylor, as the manager of Holdings, determines whether or not these metrics have been met. Units for the North and South Florida components are tied to Holdings' expansion into those territories, and vest over two years: 50% on the first anniversary of each closing and the remaining 50% on the second anniversary of each closing.

         J. In December 2016, Taylor told Goins that Goins should set an example as an equity owner and waive his 2016 bonus of $150, 000 (half of his salary) because Beverages was not hitting all of its targets. Goins agreed to do so.

         K. In October 2017, "Taylor unilaterally changed all of the vesting targets in Goins' RUA starting with 2017."[9] Around November 10, 2017, Taylor notified Goins of Taylor's intention to terminate Goins' employment with Beverages. On December 11, 2017, Taylor provided Goins a revised draft of a separation agreement, which indicated that Goins' employment was expected to end on or about May 10, 2018, that the fair market value of Goins' vested units was $0, and that his unvested units would be forfeited for no consideration.[10] On that same date, Taylor provided Goins a copy of Beverages' audited financial statements for 2015 and 2016 that were prepared by Ernst & Young.

         L. On March 6, 2018, Goins was terminated by Beverages.[11] On March 7, 2018, Goins received a notice from Holdings that it was exercising its right to repurchase 133 vested units valued at $0 per unit and that Goins retained 112 vested units that were not being repurchased but that Holdings reserved the right to repurchase at a later date.[12] The 112 vested units that were not repurchased in March 2018 were repurchased later in the year, in July (56 units) and November (56 units), for $0 per unit.[13] The notice Goins received in March also stated that 990 of the units were unvested and automatically forfeited by Goins to Holdings.

         M. On March 12, 2018, Goins filed a lawsuit in Florida state court asserting a variety of claims against Taylor, Beverages, Holdings, and Cardinal (collectively, the "Taylor Parties"). On April 3, 2018, the Taylor Parties filed this action. Later, after this court expedited consideration of a motion to enjoin Goins from pursuing his claims in the Florida action in light of a Delaware forum selection clause, Goins agreed to stay the Florida action pending a resolution of this case.[14]

         N. On June 29, 2018, Goins filed his answer and counterclaims, which he amended on October 3, 2018. The Amended Counterclaims assert six claims. On November 21, 2018, the Taylor Parties moved to dismiss the Amended Counterclaims in their entirety under Court of Chancery Rules 9(b) and 12(b)(6).

         NOW THEREFORE, the court having considered the parties' submissions, IT IS HEREBY ORDERED, this 4th day of June, 2019, as follows:

         1. The standards governing a motion to dismiss for failure to state a claim for relief under Court of Chancery Rule 12(b)(6) are well-settled:

(i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are "well-pleaded" if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the non-moving party; and ([iv]) dismissal is inappropriate unless the "plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof."[15]

         To plead a claim for fraud, Court of Chancery Rule 9(b) requires that "the circumstances constituting fraud or mistake shall be stated with particularity."[16] This includes alleging "the time, place, and contents of the false representation."[17]

         2. Count I. This claim asserts that Holdings and Taylor breached the RUA and the LLC Agreement in essentially two respects: first, by acting in bad faith in determining the value of the 245 units that Holdings purported to repurchase from Goins and, second, by failing to accurately determine the number of vested units that Goins was entitled to receive.[18] The motion to dismiss Count I is DENIED in part and GRANTED in part.

         3. Count I fails to state a claim for relief under the LLC Agreement because the Amended Counterclaims do not identify any provision of that contract that allegedly was breached.[19] Count I also fails to state a claim for relief under the RUA with respect to determining the number of vested units that Goins was entitled to receive. As Goins acknowledges, that issue is the basis of an implied covenant claim under the RUA, but is not covered by an express provision of the RUA.[20]

         4. With respect to determining the value of the 245 units that Holdings purported to repurchase from Goins, the Amended Counterclaims state a claim for relief against Holdings. The RUA affords Holdings the right to repurchase vested units from Goins after the termination of his employment at their "Fair Market Value," but exercise of that right is subject to the obligation of the Manager of Holdings (i.e., Taylor) to determine the Fair Market Value of the units "in good faith."[21] The Amended Counterclaims allege facts from which it is reasonably conceivable that Goins would be entitled to obtain a recovery from Holdings for acting in bad faith to purchase 245 concededly vested units for $0.

         5. For a contractual bad faith claim to survive a motion to dismiss, one must only allege "facts related to the alleged act taken in bad faith, and a plausible motivation for it."[22] At the pleadings stage, allegations of bad faith conduct should not be considered piecemeal, but instead should be considered in their totality.[23]

         6. The alleged facts and circumstances here, viewed in their totality, give rise to a reasonable inference of bad faith in valuing Goins' units under the RUA to support a claim for relief. They include that: (i) Taylor, who with his family beneficially owned all of the other units of Holdings, had a blatant conflict of interest in determining the value of Goins' units for the purpose of eliminating his interest in Holdings;[24] (ii) based on a 6x multiple of Holdings' 2017 EBITDA, which was the multiple used to purchase the franchise territories from The Coca-Cola Company and which is a multiple permitted under the RUA (albeit the upper limit), the units allegedly were worth $26, 124 per unit;[25] (iii) Taylor repeatedly reassured Goins about the value of his equity in Holdings;[26] (iv) Taylor needed Goins to obtain the Florida franchises because of his operational experience and opportunistically timed his termination to occur soon after Holdings had acquired and established its operations in all three territories;[27] and (v) Holdings failed to provide Goins with any documentation or analysis to support a $0 valuation for his units.[28]

         7. Finally, Count I fails to state a claim against Taylor for breach of the RUA. Taylor is not named as a party to the RUA, which was "made and entered into ... by and between" Holdings and Goins, and which Taylor signed on behalf of Holdings only in his capacity as its Manager.[29] Although Taylor was responsible under the RUA as Holdings' Manager at the time to determine the value at which Holdings could repurchase Goins' units, that designation does not make him personally liable for breaches of the RUA because Taylor was not made a party to the RUA.[30]

         8. Count II. This claim asserts that Holdings and Taylor breached the implied covenant of good faith and fair dealing in the RUA by failing to accurately determine the number of vested units that Goins was entitled to receive.[31] The motion to dismiss Count II is DENIED in part and GRANTED in part.

         9. According to Holdings, Goins was vested before his termination in only 245 of the 1, 235 units that were granted to him under the RUA. Goins contends that he was entitled to be vested in 568.6 units.[32] To frame the analysis, two charts depicted below illustrate the parties' disagreements on the number of vested units, by time period and the relevant component:

HOLDINGS' POSITION (Total = 245 units)
Year
Base
Sales
Gross Profit
EBITDA
North Florida
South Florida
Date
2015
45
13.1
26.2
0
-
-
Closing
2016
22.5
13.1
13.1
0
56
56
1st Anniv.
2017
0
0
0
0
0
0
2nd Anniv.
GOINS' POSITION (Total = 568.6 units)
Year
Base
Sales
Gross Profit
EBITDA
North Florida
South Florida
Date
2015
45
26.2
26.2
0
-
-
Closing
2016
45
26.2
26.2
26.2
56
56
1st Anniv.
2017
45
26.2
26.2
26.2
56
56
2nd Anniv.

         10. Taylor, as the Manager of Holdings, had "full discretionary authority and power to construe [Holdings'] rights and obligations under [the RUA]," including to determine whether the various targets for the vesting of Goins' units were met.[33] This discretion, however, must be exercised in good faith.[34]

         11. 2015 Sales Component.

         Goins concedes that 2015 sales were lower than the "annual" target set by the RUA, but argues that Holdings acted in bad faith by failing to prorate the 2015 sales target given that Beverages was operational for only seven months in 2015 and that the sales target would have been met if it had been prorated.[35] For support, Goins contends that the 2015 target for another component (gross profit) was prorated.[36] The facial logic of applying proration under the circumstances and the alleged proration to at least one other component for 2015 makes ...


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