The Auto Club Group, as successor-in-interest to North Dakota Automobile Club v. John B. Wimbush

1 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
________________
No. 07-3527
________________
The Auto Club Group, as
successor-in-interest to North
Dakota Automobile Club,
Appellant,
v.
John B. Wimbush,
Appellee.
*
*
*
*
*
*
*
*
*
*
*
Appeal from the United States
District Court for the
District of North Dakota.
[UNPUBLISHED]
________________
Submitted: June 11, 2008
Filed: August 1, 2008
________________
Before SMITH and GRUENDER, Circuit Judges, and ROSENBAUM,1 District
Judge.
________________

-- 1 of 4 --

2The Honorable Ralph R. Erickson, United States District Judge for the District
of North Dakota.
-2-
PER CURIAM.
The Auto Club Group (“ACG”) appeals the district court’s 2 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.

-- 2 of 4 --

3A “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.
-3-
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

-- 3 of 4 --

4An “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).
-4-
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.
______________________________

-- 4 of 4 --