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Heflin v. Sprout Tiny Homes, LLC

United States District Court, W.D. Texas, Austin Division

June 20, 2019




         Before the court in the above-styled and numbered cause are Defendant's Motion for Partial Summary Judgment filed April 1, 2019 (Dkt. No. 16), Plaintiffs Response in Opposition to Motion filed April 15, 2019 (Dkt. No. 18), and Defendant's Reply in Response to Motion filed April 24, 2019 (Dkt. No. 20). Having reviewed and considered the motion, response, reply, and applicable law, the court denies the motion for the reasons that follow.

         I. BACKGROUND

         On March 19, 2018, Plaintiff Michael Heflin filed this lawsuit against Defendant Sprout Tiny Homes, LLC ("Sprout"), his former employer, in the 201st Judicial District Court of Travis County, Texas. On April 16, 2018, Sprout removed this suit to federal court based on diversity jurisdiction. See 28 U.S.C. §§ 1332, 1441, 1446. The complaint alleges that Sprout breached Heflin's employment agreement (the "Agreement") when Sprout terminated his employment.

         Heflin entered into the Agreement with Sprout for a term of two years beginning on July 1, 2017. Under the Agreement, Heflin served as the chief operating officer and a member of a two-person board of directors of Sprout Tiny Homes, Inc., the parent company of Sprout. The only other member of the board was Rod Stambaugh, the president and chief executive officer ("CEO") of Sprout.

         The Agreement allows for early termination of Heflin's employment for two reasons: (1) just cause, or (2) by majority vote of the board of directors of Sprout Tiny Homes, Inc. The Agreement requires Sprout to provide 15-days' written notice in advance of early termination. The Agreement contains no express provision regarding the procedure for removal of a board member. The Agreement provides for enforcement under Colorado law.

         Sprout is a Colorado-based company that manufactures tiny homes. Heflin's initial duties under the Agreement included "all functional areas under the CEO except finance" as well as serving on the board. Heflin reported to the CEO, and the Agreement provided for the possibility that Heflin could be delegated with additional duties. One of Heflin's primary responsibilities was the fulfillment of a contract for the purchase of 275 tiny homes in Austin, Texas. When Sprout delivered the first prototype of a tiny home, the client was unhappy and terminated the contract. Stambaugh attributed the failure of the project and resulting loss of the contract to Heflin. As a result, Stambaugh sought to terminate Heflin. Stambaugh did not terminate Heflin under the "just cause" provision of the Agreement. Instead, Stambaugh removed Heflin from the board in March 2018 and then terminated Heflin by email effective immediately. Neither the board nor the shareholders met or conducted a vote regarding Heflin's employment before or after Heflin's termination. In addition, no notice was given to schedule a meeting to terminate Heflin.

         More than 10 months later, Stambaugh unilaterally executed two documents purporting to consent to these actions. In one document, acting as the majority stockholder, Stambaugh ratified Heflin's prior removal from the board. In the other document, acting as the sole board member, Stambaugh consented to prior termination of Heflin's employment.


         Summary judgment is appropriate if the record shows "that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A fact is material if it concerns an essential element of the movant's case. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The court must draw any inferences in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986); Washburn v. Harvey, 504 F.3d 505, 508 (5th Cir. 2007). If a reasonable jury could return a verdict for the non-moving party, then the dispute is genuine, and summary judgment is not appropriate. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         The parties agree that Colorado law controls the interpretation of the Agreement. In order to give effect to the intent of the parties, a written contract will be enforced according to its plain language if it is complete and unambiguous. Ad Two, Inc. v. City & Cty. of Denver, 9 P.3d 373, 376 (Colo. 2000). To prevail for breach of contract under Colorado law, a plaintiff must prove four elements: "(1) the existence of a contract, (2) performance by the plaintiff or some justification for nonperformance, (3) failure to perform the contract by the defendant, and (4) resulting damages to the plaintiff." Western Distrib. Co. v. Diodosio, 841 P.2d 1053, 1058 (Colo. 1992) (en banc) (internal citations omitted). The performance element may be satisfied by "substantial performance," in which a party has deviated from literal performance in "trifling particulars" without materially reducing the benefit the other party expected to receive. Id. "Whether performance is complete, substantial, or less than substantial involves a factual determination for the trier of facts." Little Thompson Water Ass 'n v. Strawn, 466 P.2d 915, 917 (Colo. 1970).

         Colorado law governs removal of a corporate board member and procedures for board actions:

(1) Unless the articles of incorporation require that such action be taken at a shareholders' meeting, any action required or permitted by . . . this title to be taken at a ...

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