1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 ORDER – 1

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WASHINGTON

AT SEATTLE

WALTER DEMAREE,

Plaintiff,

v.

BABCOCK & BROWN HOLDINGS, INC.,

et al.,

Defendants.

 CASE NO. C05-1849JLR 

 ORDER

 

I. INTRODUCTION

This matter comes before the court on a motion for summary judgment from

Defendants Babcock & Brown Holdings, Inc. and Babcock & Brown Associates, LLC

(collectively, “Babcock & Brown”) (Dkt. # 48). The court has considered the papers filed in

connection with the motion and finds the matter appropriate for disposition without oral

argument. For the reasons stated below, the court DENIES Babcock & Brown’s motion. 

Case 2:05-cv-01849-JLR Document 75 Filed 08/28/07 Page 1 of 9
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

1

The parties’ briefs provide a careful and thorough discussion of the background leading to the

current dispute. The court appreciates this context, but discusses only those facts, taken in the light

most favorable to the non-moving party, necessary to resolve the instant motion.

ORDER – 2

II. BACKGROUND1

Babcock & Brown is a global investment and advisory firm. Plaintiff Walter Demaree

worked for Babcock & Brown for nearly seventeen years, during which time he invested

heavily in the company. According to Mr. Demaree, Babcock & Brown “departnered” him in

October 2003, and reduced his percentage of company holdings. Demaree Decl. (Dkt. # 56)

¶ 3. At the time, Mr. Demaree asked Chief Executive Officer Jim Babcock to consider him in

the event that the company underwent a restructuring. Id. Mr. Demaree attests that he

received assurances from Mr. Babcock that the company would “take care” of him. Id.

Dissatisfied with his “departnered” status, Mr. Demaree ultimately decided to resign,

effective December 2003. Id. His departure triggered redemption of his equity interests in

Babcock & Brown, calculated at an adjusted book value (“ABV”) for a total of $5,869,727

(before interest).

Around the time of Mr. Demaree’s resignation, Babcock & Brown terminated five

other shareholders: Steven Cohn, Sue Sparks, Linda Byberg, Dennis Moritz, and Will

Robinson (collectively, the “Former Shareholders”). As in Mr. Demaree’s case, the company

redeemed the Former Shareholders’ equity interests in the company at the ABV. Jaworski

Decl. (Dkt. # 52) ¶ 10. 

In June 2004, Mr. Demaree negotiated a separation agreement with Babcock & Brown. 

Compl., Ex. A (“Agreement”). At this point in time, Mr. Demaree knew that the company

had plans to go public. Demaree Decl. ¶ 5. Concerned that Babcock & Brown was “cutting

[him] out of the opportunity to realize the gains from [his] long-term investment in the

company,” Mr. Demaree again requested assurances from Mr. Babcock that he would have a

Case 2:05-cv-01849-JLR Document 75 Filed 08/28/07 Page 2 of 9
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 ORDER – 3

future with the company. Id. This time, Mr. Demaree contends, his request went unheeded. 

Id. In any event, Mr. Demaree negotiated a “most favored nations” provision in his

separation agreement in an attempt to ensure that, at the very least, he would receive the same

treatment as other shareholder-employees leaving the company. Id. at ¶ 6. The provision

provides:

We represent and warrant to you that the per share/unit

consideration received by you for your Stock, your [Babcock &

Brown] Units and your Phantom Units . . . will be at least as much

as that paid to any other Stockholder/Unitholder whose Stock,

[Babcock & Brown] Units or Phantom Units were redeemed during

the fourth quarter of 2003 or the first quarter of 2004. In the event

that, for any reason, we make any additional payment to any

Stockholder or Unitholder whose Stock, [Babcock & Brown] Units

or Phantom Units were redeemed by us in the fourth quarter of 2003

or the first quarter of 2004, with respect to their Stock, [Babcock &

Brown] Units or Phantom Units, we agree to promptly inform you

of such fact and to pay to you an amount sufficient to ensure that the

total consideration received by you, calculated on a per share or per

Unit basis, is at least as much as the total consideration received by

such other Stockholder or Unitholder on a per share or per Unit

basis. 

Agreement at ¶ 7.

Like Mr. Demaree, the Former Shareholders had concerns that, based on the timing of

their forced departure, they would lose out on any investment gains resulting from a

restructuring event. For example, Mr. Cohn, wrote an email to Mr. Babcock in which he

explains: 

[T]he consequence of this [termination] is that my long-term

investment in the company is being redeemed at termination value

and I have to give up on any residual that may be realized. That is

not right . . . . Bottom line, my severance does not compensate me

for my lost upside.

 

Chyz Decl. (Dkt. # 57), Ex. B. Ms. Byberg made a similar plea, just days prior to the

company’s Initial Public Offering (“IPO”): “I’m sure you will do what is fair and pay me my

share of the upside which is considerable.” Id. at Ex. D. 

Case 2:05-cv-01849-JLR Document 75 Filed 08/28/07 Page 3 of 9
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

2

The court uses “AUS $” to represent amounts expressed in Australian currency. 

ORDER – 4

As predicted, Babcock & Brown had a successful IPO in October 2004. Major

shareholders enjoyed significant gains, while departed employees like Mr. Demaree and the

Former Shareholders realized nothing. Shortly thereafter, the company offered “thank you,”

or bonus, payments in the amount of $75,000 to some of the Former Shareholders - Mr.

Cohn, Ms. Byberg, and Ms. Sparks. Ms. Sparks and Mr. Cohn complained that the

remuneration was paltry in comparison to what they would have earned had they stayed with

Babcock & Brown through the IPO. Id. at Exs. Q, R. In particular, Ms. Sparks highlighted

the fact that she “lost out on the difference between a mere accounting construct (ABV) and

the true value of the stock, as reflected in its actual market value (set at the IPO).” Id. at Ex.

R. She urged Babcock & Brown to consider how she could recapture some of the “foregone

market value” of her equity interest in the company. Id. In turn, Babcock & Brown increased

the offer to $100,000. 

In January 2005, Mr. Cohn, Ms. Byberg, and Ms. Sparks signed and returned waiver

letters, accepting $100,000 bonus payments from the company. Hall Decl. (Dkt. # 51), Exs.

K-M. Nevertheless, Mr. Cohn continued to express his dissatisfaction with the amount. He

wrote an email to Babcock & Brown’s Human Resources Manager Ruthann Cambra that

summarized the history behind the bonus payment, and again cited the differential between

the paid-out ABV value and the IPO value: “we bitched and moaned and reminded the

company that [the $75,000 concession] is about 3 cents on the dollar vs. what our compatriots

own in Babcock & Brown stock but to little avail.” Chyz Decl. at Ex. Y. Ms. Cambra

replied to Mr. Cohn’s email, relaying the status of his request under the heading “B&B

Stock.” Id. at Ex. Y. Subsequent to Mr. Cohn’s request, Mr. Babcock obtained approval

from the Babcock & Brown board for an additional AUS $12

 million pool of funds for

Case 2:05-cv-01849-JLR Document 75 Filed 08/28/07 Page 4 of 9
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 ORDER – 5

distribution among the Former Shareholders. Id. at Exs. CC, EE, JJ, KK. In April 2005, the

company distributed the monies to Mr. Cohn, Ms. Byberg, and Ms. Sparks in the amount of

AUS$150,000, and to Mr. Moritz and Mr. Robinson in the amount of AUS$500,000 and

AUS$50,000, respectively. At no time did Babcock & Brown mention to Mr. Demaree the

January or April 2005 payments made to the Former Shareholders. Demaree Decl. ¶ 10. 

In March 2005, and again in September 2005, Mr. Demaree’s counsel sent letters to

Babcock & Brown to inquire whether the company had made any payments to other

shareholders, triggering the most favored nations provision of his separation agreement. Chyz

Decl., Exs. OO, PP. In response to the first letter, Babcock & Brown’s general counsel

telephoned Mr. Demaree’s attorney and simply stated that it had made its representation to

Mr. Demaree in the severance agreement. Chyz Decl. ¶ 43. In a letter dated October 3, 2005,

Babcock & Brown’s general counsel denied that the bonus payments to Former Shareholders

triggered the most favored nations provision. Id. at Ex. QQ. 

Mr. Demaree filed suit in state court against Babcock & Brown for alleged breach of

the separation agreement’s most favored nations provision. The company removed to this

court on the basis of diversity jurisdiction. Babcock & Brown now moves for summary

judgment on grounds that the most favored nations provision does not apply as a matter of

law because the bonus payments were (a) gratuitous, and (b) not issued as consideration with

respect to stock. Mot. at 1. Mr. Demaree contends that whether the most favored nations

provision applies involves a question of fact that the court cannot resolve at the summary

judgment stage. 

III. DISCUSSION

Summary judgment is appropriate if the evidence, when viewed in the light most

favorable to the non-moving party, demonstrates there is no genuine issue of material fact. 

Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Galen v. County of

Case 2:05-cv-01849-JLR Document 75 Filed 08/28/07 Page 5 of 9
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

3

Sitting in diversity, the court applies the substantive law of Washington to the parties’ dispute. 

Ins. Co. N. Am. v. Federal Express Corp., 189 F.3d 914, 919 (9th Cir. 1999).

ORDER – 6

Los Angeles, 477 F.3d 652, 658 (9th Cir. 2007). The moving party bears the initial burden of

showing there is no material factual dispute and he or she is entitled to prevail as a matter of

law. Celotex, 477 U.S. at 323. The moving party can satisfy this burden in two ways: (1) by

producing evidence that negates an essential element of the non-moving party’s case, or (2)

after suitable discovery, by showing that the non-moving party does not have enough

evidence of an essential element to carry its burden of persuasion at trial. Id. at 322-23; see

also Nissan Fire & Marine Ins. Co., Ltd., v. Fritz Cos., Inc., 210 F.3d 1099, 1106 (9th Cir.

2000). If the moving party meets its burden, the opposing party must present evidence to

support its claim or defense. Cline v. Indust. Maint. Eng’g. & Contracting Co., 200 F.3d

1223, 1229 (9th Cir. 2000). For purely legal questions, summary judgment is appropriate

without deference to the non-moving party.

In Washington,3

 contract interpretation is a question of law when (a) the interpretation

does not depend on the use of extrinsic evidence, and (b) the extrinsic evidence does not

admit more than one reasonable inference. Tanner Elec. Coop. v. Puget Sound Power &

Light, 911 P.2d 1301, 1310 (Wash. 1996). These limitations, which arose from the decision

in Berg v. Hudesman, 801 P.2d 222 (Wash. 1990), have engendered “much confusion” over a

court’s role in contract interpretation. Hearst Comms., Inc. v. Seattle Times Co., 115 P.3d

262, 266 (Wash. 2005). In Hearst, the Washington Supreme Court clarified that extrinsic

evidence applies only “‘to determine the meaning of specific words and terms used’ and not

to ‘show an intention independent of the instrument’ or to ‘vary, contradict, or modify the

written word.’” Id. at 267 (quoting Hollis v. Garwall, Inc., 974 P.2d 836, 843 (Wash. 1999))

(emphasis in Hearst). Absent extrinsic evidence pertaining to a specific term, the court must

“give words in a contract their ordinary, usual, and popular meaning unless the entirety of the

Case 2:05-cv-01849-JLR Document 75 Filed 08/28/07 Page 6 of 9
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 ORDER – 7

agreement clearly demonstrates a contrary intent.” Id. (directing courts to interpret “what was

written” rather than “what was intended to be written”). 

Babcock & Brown argues that the most favored nations provision does not apply as a

matter of law because the bonus payments did not constitute “consideration” in exchange for

the Former Shareholders’ stock. The court disagrees that the provision applies only when

some form of legal consideration changes hands. The use of the term “consideration” in the

first sentence of the provision refers to what Mr. Demaree received from the company. 

Agreement at ¶ 7 (“We [Babcock & Brown] represent and warrant to you that the per

share/unit consideration received by you for your Stock . . . will be at least as much as that

paid to any other Stockholder . . . .”). The second sentence employs different and broader

terminology to describe a different transaction altogether – i.e., what other shareholders might

receive from the company (“any additional payment”) and on what condition they might

receive it (“for any reason”). Agreement at ¶ 7 (“In the event that, for any reason, we make

any additional payment to any Stockholder . . . .). Where the language is plain on its face, the

court declines to borrow a term from one sentence and substitute it for the parties’ selection

of a different term in another sentence. Such a re-writing not only ignores basic principles of

contract interpretation, but is inconsistent with the parties’ use of the expansive phrase “for

any reason,” to describe the conditions under which the company might make such payments. 

Notably, even if the court accepted Babcock & Brown’s proffered construction, the

court would conclude that the bonus payments issued to the Former Shareholders constitute

consideration, and not gifts. In exchange for the payments, the Former Shareholders made

promises to the company to keep the payments confidential, and agreed to release any future

claims against Babcock & Brown. Hall Decl., Exs. K-M. Under Washington law, such a

bargained-for exchange suffices as consideration. See State v. Brown, 965 P.2d 1102, 1107

Case 2:05-cv-01849-JLR Document 75 Filed 08/28/07 Page 7 of 9
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 ORDER – 8

(Wash. 1998) (recognizing that “forbearance to prosecute a valid claim or assert a legal right

constitutes sufficient consideration for a contract”). 

Although a somewhat closer question, Babcock & Brown’s second basis for awarding

summary judgment also fails. The company contends that because the bonus payments did

not amount to “some right associated with stock ownership, such as . . . distributed earnings,

dividends, or redemption payments,” Reply at 6, they cannot constitute “payment . . . with

respect to stock.” In essence, Babcock & Brown urges the court to construe “payment . . .

with respect to stock” to mean “payment for stock,” or “payment in exchange for stock.” The

court declines to import such a limitation into the phrase “with respect to.” On its face, the

language “payment . . . with respect to stock” is not confined to a direct redemption of stock

or the like; rather, “with respect to” encompasses any payment that bears some relationship to

stock. 

Whether the company made the bonus payments “with respect to” the Former

Shareholders’ equity interests in the company is a question for the jury. In opposing Babcock

& Brown’s motion, Mr. Demaree provides sufficient evidence from which a jury could

reasonably conclude that the company issued bonus checks precisely because a select group

of shareholders complained about their lost opportunity to realize IPO-related gains – i.e., that

the bonus payments related to the employees’ stock. To be sure, a reasonable jury could also

conclude that the payments were not made with respect to stock, for example, based on

evidence that the round-dollar amount of each Former Shareholder’s bonus was not in relative

proportion to the number of shares held by that employee at the time of termination. Still,

whether the bonus payments bore some relationship to stock is a question for the jury. 

Accordingly, the court denies summary judgment. 

 

Case 2:05-cv-01849-JLR Document 75 Filed 08/28/07 Page 8 of 9
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 ORDER – 9

IV. CONCLUSION

For the reasons stated above, the court DENIES Babcock & Brown’s motion for

summary judgment (Dkt. # 48). 

Dated this 28th day of August, 2007.

A JAMES L. ROBART

United States District Judge

Case 2:05-cv-01849-JLR Document 75 Filed 08/28/07 Page 9 of 9