Thomas Hubbard v. Phil's Bbq of Point Loma

MEMORANDUM

In April 2006, Thomas Hubbard, Phillip Pace, and Jeffrey Loya signed a shareholders agreement, formed Phil’s BBQ of Point Loma, Inc., and elected “S corporation” status. In such a corporation shareholders must pay personal income tax on corporate profits, even if no profits or other income is disbursed to the shareholders. To ensure that Pace, Loya, and Hubbard could meet this obligation, the shareholders agreement provided that Phil’s BBQ would issue dividends to shareholders equal to 25% of Phil’s BBQ’s quarterly profits.

The parties also entered into a consulting agreement, pursuant to which Hubbard would perform certain tasks related to the operation of the corporation in exchange for a specified monthly compensation. The agreement further provided for attorney’s fees to the “prevailing party” in the event of a dispute “arising under, or in connection with, the Agreement.”

Relations between the parties ultimately broke down. When Phil’s BBQ stopped paying Hubbard in accordance with the consulting agreement, he filed the instant complaint against Pace, Loya, and Phil’s BBQ. As subsequently amended, the com plaint sought damages for breach of the parties’…