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MONFARDINI v. QUINLAN

March 11, 2004.

PAUL MONFARDINI, Plaintiff,
v.
DWIGHT QUINLAN, ERIC SIECH, and VICO ASSOCIATES, INC., Defendants



The opinion of the court was delivered by: MARTIN ASHMAN, Magistrate Judge

MEMORANDUM OPINION AND ORDER

This case is before the Court on Defendant Vico. Associates, Inc.'s Motion to Compel Production of Documents Pursuant to Subpoenas from United Group, Inc., and from the Law Firm of Godfrey, Leibsle, Blackbourn & Howarth. For the following reasons, Vice's motion to compel is granted.

  I. Background

  Plaintiff Paul Monfardini is a former shareholder of Vico.*fn1 In January of 2000, Monfardini entered into a Stock Purchase Agreement with Defendants Dwight Quinlan and Eric Siech. Under the terms of the agreement, Monfardini agreed to sell seventy-five shares of Vico. stock each to Quinlan and Siech. Quinlan and Siech admit that they have not made any payments required by the agreement since January 2002. As a result of their non-payment, Page 2 Monfardini filed this action against Quinlan and Siech and later amended the complaint to add Vico. as a defendant.

  Quinlan and Siech answered and filed a counterclaim against Monfardini. They allege fraudulent conduct and breach of fiduciary duty in the sale of the stock. Their allegations stem from Vico. and Monfardini's relationship to United Group., Inc., of which Monfardini was President and Chief Operating Officer. Prior to the sale of the Vico. stock, Vico depended on United Group for a substantial portion of its business. After the sale of the stock, United terminated its business relationship with Vico, and the value of the stock that Monfardini had sold to Quinlan and Siech dropped. Quinlan and Siech allege that Monfardini knew that United was considering substantially altering or terminating its business relationship with Vico. prior to the sale of the stock. Vico. responded that Monfardini is acting in breach of his fiduciary duties to Vico.

 A. The Formation and Organization of United

  Vico's relationship to United stems back to 1988.*fn2 Monfardini helped form United at the request of a manufacturing company that provided a major source of income for Vico. Initially, United was owned entirely by the owner of the manufacturing company. United provided marketing services to the company and subcontracted field sales work to Vico. In 1991, United issued stock to Monfardini, and he became a 50% shareholder in United as well as its President. Subsequently, the other owner was bought out, and Monfardini became the sole shareholder of Page 3 United which then provided marketing, sales, and distribution services for its new clients. Field sales services were outsourced to Vico.

  At some date undisclosed to the Court, Monfardini gifted United stock to other individuals. Several of those individuals also owned Vico. stock, but Vico. as a corporation was never a shareholder of United. By November 1999, the stock ownership of United was as follows: Brad Dickinson 25%; Tom Noser 15%; Monfardini 25%; Fred Edmonds 25%; and Scott Radtke 15%. Dickinson, Noser, and Monfardini (owning a combined total of 65% of United stock) were also shareholders of Vico. stock and Dickinson was a director of Vico.

  On May 11, 2000, the United shareholders held a meeting at which a court reporter and attorney Robyn Fuller from the Godfrey, Leibsle firm were present. Monfardini stated at the meeting that Ms. Fuller represented United, and not any individual shareholder. At the meeting, the issuance of an additional 760 shares of United stock was authorized with 460 shares to go to Edmonds, and 300 to go to Radtke. Noser and Dickinson voted against the issuance of the additional shares but were outvoted by the other three shareholders. Thus, the stock ownership of United became: Dickinson 14.2%; Noser 8.5%; Monfardini 14.2%; Edmonds 40.3%; and Radtke 22.8%. Edmonds and Radtke, who did not own stock in Vico, together owned 63.1%. When Monfardini's shares were added in, the three together owned 77.3% of the United stock.

 B. Vice's Assignment of Monfardini to United

  Seven years prior to these events, in 1993, the stockholders of Vico, which included Monfardini, had entered into an agreement assigning Monfardini as an employee of Vico. to Page 4 United in the capacity of President and Operations Manager of United.*fn3 According to the agreement, the stockholders felt "that since Vico. represents and receives income from the United Group, it is in Vice's best interest that Paul Monfardini's day to day activities be spent managing the United Group, Inc." Vico. was to pay Monfardini's salary, and United would reimburse Vico. for the full amount. Also in 1993, the Vico. shareholders entered into a contemporaneously dated "Stockholders Buy-Sell Agreement" under which Vico. was given the option of purchasing the stock of a shareholder who ceased to be a full-time employee of Vico. (Vico. Ex. to Reply ¶ 4.1.) An exception to the option to repurchase stock was allowed for a former employee who became employed by "an affiliate or subsidiary of [Vico], at the written request of [Vico]." (Vico. Ex. to Reply ¶ 4.5(c).)*fn4

  In July 1999, the assignment agreement was amended. The new agreement reflected a pay increase for Monfardini, to be paid by Vico, which would still be fully reimbursed by United. Monfardini was to continue to hold the position of President of United, and would additionally become its Chief Operating Officer. The agreement was also modified to state that it was in Vice's best interest that Monfardini's day to day activities "be spent managing and growing" United, as opposed to merely "managing" it.*fn5 Page 5

  Turning to the issue at hand, Vico. has requested identical documents from United and from Godfrey, Leibsle seeking communications between United and its attorneys. Vico. seeks these documents to prove that Monfardini engaged in an ongoing plan to dilute the United stock and put the majority power in the hands of Monfardini and his allies before terminating United's relationship with Vico. Vico. alleges that Monfardini had been planning to defraud Quinlan and Siech as well as breach his fiduciary duty to Vico. well in advance of the May 11, 2000 United shareholders meeting. United and Godfrey, Leibsle respond that the documents, while they relate to the issuance of ...


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