Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-07-03527/USCOURTS-ca8-07-03527-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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The Honorable James M. Rosenbaum, United States District Judge for the

District of Minnesota, sitting by designation. 

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 07-3527

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The Auto Club Group, as

successor-in-interest to North

Dakota Automobile Club,

Appellant,

v.

John B. Wimbush,

Appellee.

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Appeal from the United States

District Court for the

District of North Dakota.

[UNPUBLISHED]

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Submitted: June 11, 2008

 Filed: August 1, 2008

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Before SMITH and GRUENDER, Circuit Judges, and ROSENBAUM,1

 District

Judge.

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The Honorable Ralph R. Erickson, United States District Judge for the District

of North Dakota. 

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PER CURIAM.

The Auto Club Group (“ACG”) appeals the district court’s2

 judgment following

a bench trial in this declaratory judgment action to determine the amount owed to John

B. Wimbush pursuant to a deferred compensation agreement. We affirm. 

Wimbush was the Chairman, President, and CEO of the North Dakota

Automobile Club (“NDAC”), an affiliate member of the American Automobile

Association (“AAA National”). In 1981, Wimbush and NDAC’s board of directors

executed a deferred compensation agreement. On June 6, 2000, Wimbush and NDAC

amended this deferred compensation agreement to include Article II, Section 2.1,

which provided that NDAC would pay Wimbush, starting on October 1, 2005, a

“Monthly Amount” equal to the sum of a base amount and an additional payment.

The base amount was $10,337 per month and increased annually by four percent every

year beginning on June 1, 2001. The additional payment was defined by Section

2.1(B)(ii) as: 

An amount equal to the tax benefit from the payment of the base amount

including this additional payment, that would accrue to a for profit

corporation based on the current highest corporate tax bracket, including

both federal and North Dakota income taxes.

In 2001, ACG expressed an interest in acquiring NDAC. ACG and NDAC

executed a merger agreement that required ACG to honor NDAC’s employment

contracts, but the merger was contingent on AAA National’s approval. AAA National

refused to approve the merger because it was concerned that NDAC did not have the

financial ability to fund Wimbush’s compensation and benefits package, which

included the deferred compensation agreement. 

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A “one step gross up” method requires taking the monthly “base amount” and

multiplying by the rate of the “current highest corporate tax bracket” to arrive at the

additional payment. A “two step gross up” method requires taking the monthly “base

amount” and multiplying by the rate of the “current highest corporate tax bracket” to

arrive at an intermediate amount; this intermediate amount is then multiplied by the

value of the “current highest corporate tax bracket” to arrive at a second intermediate

amount. The additional payment is then the sum of the first and the second

intermediate amounts. 

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In response, Wimbush made several concessions to reduce the value of his

compensation and benefits package. On May 8, 2001, NDAC and Wimbush executed

an amended deferred compensation agreement, although the language in Section

2.1(B)(ii) remained unchanged. AAA National then approved the merger after these

concessions, all of which became effective on September 25, 2001. 

On October 1, 2005, NDAC made the first monthly payment to Wimbush in

the amount of $12,185.48. Wimbush returned the check claiming it was insufficient

under the deferred compensation agreement. ACG filed a diversity action in federal

district court seeking a declaratory judgment that it had correctly determined the

amount due to Wimbush under the deferred compensation agreement. The

disagreement centered on the calculation of the additional payment as defined in

Section 2.1(B)(ii). ACG argued that the term “current highest corporate tax bracket,

including both federal and North Dakota income taxes” in Section 2.1(B)(ii) was forty

percent, which was the highest effective corporate tax rate, a rate that accounts for the

fact that state income taxes are deductible from federal taxes. ACG also claimed that

the calculation of the tax benefit from the additional payment required the use of

either a “one step gross up” or a “two step gross up” method.3

 Wimbush argued that

the term “current highest corporate tax bracket, including both federal and North

Dakota income taxes” meant simply adding the highest federal corporate tax rate to

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An “algebraic gross up” method is a reverse circular equation that determines

the additional payment by dividing the monthly “base amount” by (1 - the sum of the

current highest federal and state corporate tax rates). 

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the highest North Dakota corporate tax rate for a total of forty-six percent, and that an

“algebraic gross up” method was required to calculate the additional payment.4

The district court agreed with Wimbush and held that the “current highest

corporate tax bracket, including both federal and North Dakota income taxes” meant

the sum of the highest federal and North Dakota corporate tax rates, forty-six percent,

and that the calculation of the additional payment required the use of an “algebraic

gross up” method. 

Upon careful review of the record on appeal, we find no basis for reversal.

None of the district court’s relevant findings of fact is clearly erroneous, and we find

no errors of law. See Eckert v. Titan Tire Corp., 514 F.3d 801, 804 (8th Cir. 2008)

(“When the district court conducts a bench trial[,] . . . we review the district court’s

fact finding[s] for clear error, and we review legal conclusions and mixed questions

of law and fact de novo.”); Consol. Elec. & Mechs., Inc. v. Biggs Gen. Contracting,

Inc., 167 F.3d 432, 434 (8th Cir. 1999) (stating that a finding is clear error if,

“although there is evidence to support it, the reviewing court on the entire evidence

is left with the definite and firm conviction that a mistake has been committed”)

(internal quotations omitted). 

Accordingly, we affirm for the reasons stated in the district court’s thorough

and well-reasoned opinion. See 8th Cir. R. 47B. 

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