Ballard F. Smith v. George E. Karetas, et al.
Published: Jan. 18, 1997 | Result Date: Aug. 2, 1996 | Filing Date: Jan. 1, 1900 |Case number: 689847 – $4,280,330
Judge
Court
San Diego Superior
Attorneys
Plaintiff
Defendant
Stephen L. Schreiner
(Solomon, Ward, Seidenwurm & Smith LLP)
Experts
Plaintiff
Michael D. Stewart
(Sheppard Mullin Richter & Hampton LLP)
(technical)
Defendant
Douglas R. Anderson
(technical)
Facts
Defendants/cross-complainants Premier Food Services, Inc. and Premier Food Services Management Group, Inc., (collectively Premier) are related San Diego-based corporations engaged in the food service business. Premier had operated dining facilities for various businesses and had provided food and beverage concessions at other venues, including the Del Mar Fairgrounds, San Diego Convention Center and San Diego Sports Arena. Premier has also operated a catering service. Premier started in 1985 when defendant/cross-complainant George E. Karetas and plaintiff/cross-defendant Ballard F. Smith joined forces. With experience in the food service industry, Karetas provided the operational background and day-to-day management of the company. Smith, then president of the San Diego Padres Baseball Club, provided financial backing by guaranteeing bank loans. Karetas and his wife, cross-complainant Patricia Karetas, who also worked in the business, owned 65 percent of Premier's stock. Smith owned the other 35 percent, as trustee of a separate property trust. The Karetases and Smith were directors and officers of Premier. Premier prospered until late 1992 when it lost a bid to maintain its contract to provide food concession services at the San Diego Convention Center. This left as Premier's largest contract a food and beverage concession contract that Premier held at the San Diego Sports Arena. The Sports Arena contract gave Premier the exclusive right to provide concession services at the Arena, but was due to expire on April 30, 1996. Premier contended that the problems among Premier and the Karetases, on the one hand, and Smith, on the other hand, developed as follows: On or about Nov. 12, 1992, Smith, Premier and Karetas made an agreement under which Premier would invest an additional $1 million in a new partnership one of Smith's friends was forming to acquire the Sports Arena. In return for the $1 million, and $285,000, that Premier already had invested or committed to invest, Premier would receive a 10-year extension (from May 1, 1996 through April 30, 2006) of its exclusive right to provide concession services at the Sports Arena, and a right of first refusal to provide concession services at any new sports arena that the partnership might build in San Diego. Smith informed Karetas that, in addition to the contractual benefits Premier would receive, Smith and Karetas could obtain, personally, interests in the Sports Arena partnership. Smith, an attorney by training, but who had not practiced law for many years, drafted, signed and sent to Premier's outside counsel a one-page memorandum outlining an agreement which Smith and Karetas had allegedly reached concerning the $1 million investment. Smith's memorandum recited in part that Smith personally would obtain a $1 million bank loan, and Premier would make monthly payments. In exchange, Premier would recieve a 10-year extension of the Sports Arena contract and the right of first refusal, and Smith would get 60 percent, and Karetas 40 percent, of the interest in the new Sports Arena partnership. The Smith memorandum, however, also stated that two "open issues" remained: (1) identity of security from Premier for the loan; and (2) what would happen if a loan payment were missed. Over the next two and one-half years (late 1992 -- mid 1995) Premier delivered to Smith principal and interest payments aggregating more than $400,000 which were used to service the $1 million bank loan. In the meantime, however, within only a few weeks after the Nov. 12, 1992 agreement, Smith demanded that Premier arrange the transaction in such a way that Smith would have no income tax consequences. For the same two and one-half years the parties negotiated, but could not reach resolution, Smith contending that the no-income-tax term was part of the parties' original agreement and Karetas denying it. **********
Settlement Discussions
The cross-complainant made a settlement demand for $1 million for Smith to relinquish his stock in Premier. The settlement made an offer of $500,000 and for Mr. Smith to relinguish his stock in Premier.
Damages
The cross-complainant claimed $2,786.329 in compensatory damages.
Result
********** CONTINUATION OF FACTS: During this period, Smith arranged with the Sports Arena partnership to admit him as a partner, and took in his name 100 percent of the partnership interest. In addition, Smith became a member of the partnership's policy committee. Thus, Smith was a shareholder and a director of Premier as well as a partner and a member of the policy committee of the partnership that controlled the Sports Arena. Premier remained the Sports Arena's food and beverage concessionare under Premier's existing contract with an April 30, 1996 expiration date. In September 1993, Smith acquired from the Sports Arena partnership, in his own name, the 10-year extension (May 1, 1996 to April 30, 2006) of the Sports Arena concession contract and the right of first refusal May 1, 1996. Smith later said he would turn those rights over the Premier, before the effective date of the extension, if Premier would go along with his demand that the parties' agreement be structured to eliminate personal income taxes for him on the transaction and provide him with what he termed adequate security. In the alternative, Smith suggested he would give Premier its money back and keep the contract rights and and partnership interest for himself. In May 1995, Premier demanded that Smith deliver the Sports Arena contract extension rights to Premier, and Premier threatened to sue Smith if he failed to do so. At about that time, Premier also ceased making monthly payments to Smith on the unpaid balance of the $1 million bank loan which Smith had taken out in his name and had collateralized with his personal assets. Smith then continued making the loan payments himself but without reimbursement from Premier. (Earlier, in mid -1994, Premier had stopped paying a $10,000 per month salary to Smith.) Smith allegedly asked Premier not to sue him, saying he thought the issues still could be resolved; however Smith then sued Premier and Karetas, claiming that they had breached the agreement by failing to reimburse Smith for all payments under the bank loan, failing to provide adequate security for Premier's obligations to Smith and failing to ensure that Smith could retain the partnership interest with no adverse tax consequences to Smith. Smith also complained that Premier had failed to pay him his $10,000 per month salary. Smith added causes of action alleging the Karetases had received excessive compensation and had been unfair to Smith and Premier. Smith sought involuntary dissolution of Premier. Premier cross-complained against Smith for breach of contract and breach of fiduciary duty arising out of Smith's having taken the 10-year extension and right of refusal in his name instead of in Premier's name. Karetas also cross-complained against Smith for failing to deliver to Karetas 40 percent of the interest in the Sports Arena partnership then held entirely in Smith's name. In the course of the litigation, the Sports Arena partnership allegedly insisted that Premier vacate the Sports Arena on April 30, 1996. On May 1, 1996, at the inception of the 10-year extension, a corporation owned in part Smith took over operations of the Sports Arena concession services. Accordingly, at the time of trial, Smith, who remained a shareholder and director of Premier, had the Sports Arena contract that previously had been Premier's, had the right of first refusal and held that they the entire Sports Arena partnership interest in his name.
Other Information
The verdict was reached approximately one year and two months after the case was filed. Two mediation conferences were held, one in 1995 and one in 1996, before before Judge Gerald Lewis, retired, of San Diego Superior Court. They did not resolve the matter. A settlement conference was held in 1996 before Judge James A. McIntyre of San Diego Superior Court. No settlement was achieved. Smith has posted a surety bond and is appealing the judgment. Smith's involuntary dissolution-of-corporation claim was heard by the trial court sitting without a jury. After presentation of evidence but before the court decided the issue, Premier elected under Corporations Code º2000 to purchase Smith's 35 percent interest in Premier, automatically staying the involuntary dissolution action. The court appointed appraisers to assess the value of the 35 percent interest. Smith then sought to terminate Premier's purchase of his shares by requesting a dismissal with prejudice of his involuntary dissolution cause of action. Premier contended that Smith became incapable of terminating the share purchase once the court had made its order appointing the appraisers. Whether Smith may do so remains an issue under submission to the Superior Court. Whatever the court's decision, the unsuccessful party on that issue is likely to appeal.
Deliberation
1 day
Poll
varied
Length
11 days
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