894 N.E.2d 377 | Ohio Ct. App. | 2008
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{¶ 3} Blair and McDonagh decided to" open a series of Irish-pub-themed restaurants in the midwestern United States. In 2001, they signed the operating agreement for Claddagh Employee Leasing. They later changed the name of the company to Claddagh Development Group, L.L.C.
{¶ 6} From 1999 to 2004, McDonagh advanced approximately $20 million to Claddagh. McDonagh contended that those advances were loans to the company. Blair contended that they were capital contributions. Part of the money came from personal loans that McDonagh had taken out in his own name. McDonagh asked Blair for information about Claddagh's financial condition. Blair was not forthcoming with that information. At the end of 2004, because Blair had not sent payments on the loans in some time, McDonagh told Blair that he would not be advancing any more funds. He also told Blair that if he could get money elsewhere, he should "feel free to do so."
{¶ 7} Blair attempted to obtain a line of credit from Fifth Third Bank that was to be secured by Claddagh's assets. McDonagh refused to sign the loan documentation. According to McDonagh, Blair attempted to hide the loan terms. Blair sent him only two pages of the entire loan agreement, and McDonagh would not sign without seeing the entire agreement. Further, the bank loan would have subordinated McDonagh's loans to the bank's security interest. Because McDonagh would not sign the loan documentation, the bank refused to loan money to Blair.
{¶ 9} Then a member could invoke the "Impasse Buy-Sell" provision. The "initiating member" would set a value on the company. The "receiving member" would have 60 days to decide whether to purchase the initiating member's shares or to sell his shares to the initiating member based on the valuation. The agreement stated that "[e]lection by the Receiving Member shall be mandatory, and a failure by the Receiving Member to make an election with the sixty-day period shall conclusively mean that the Receiving Member has elected to sell at the price stated."
{¶ 10} Without declaring that a dispute over a management matter existed or asking that the dispute be submitted to mediation, Blair sent McDonagh a letter invoking the "Impasse Buy-Sell" provision. He set the Value of the company at $42 million. Because McDonagh had advanced $20 million to the company, the remaining interest would be $22 million. Thus, each member's interest in the company would be approximately $11 million. Blair knew that if McDonagh chose to sell, Blair would have to pay $31 million to cover McDonagh's advances *271 and his interest in the company. If McDonagh chose to buy, he would pay Blair $11 million.
{¶ 11} Blair admitted that he never had $31 million or a financial backer willing to give him that amount of money. He contended that the dispute between him, and McDonagh had scared off all potential investors. McDonagh contended that no dispute over a management matter existed and that Blair had not followed the terms, of the operating agreement.
{¶ 13} McDonagh filed a counterclaim against Blair in which he alleged causes of action for breach of contract, breach of a duty of good faith and fair dealing, and breach of fiduciary duty. He sought an accounting, dissolution of the company, and a declaratory judgment declaring the rights and obligations of the parties under the operating agreement and that the $20 million he had advanced to Claddagh represented loans and not capital contributions. He also sought compensatory and punitive damages.
{¶ 14} McDonagh filed cross-claims against Claddagh asking for repayment of loans, an accounting, the appointment of a receiver, and dissolution of the company. Claddagh, in turn, filed various cross-claims against McDonagh, including a request for a declaratory judgment that all of McDonagh's advances to the company were capital contributions, not loans.
{¶ 15} The trial court eventually ordered the parties to mediate their dispute as required by the operating agreement. It also ordered Blair to provide McDonagh with access to Claddagh's books and records.
{¶ 16} After the mediator declared ah impasse, Blair presented McDonagh with a letter invoking the Impasse Buy-Sell provision and setting the value of the members' interests at $25 million, exclusive of McDonagh's advances. But Blair again did not have the money or financial backing to purchase McDonagh's interest. *272
{¶ 18} The accountants discovered that Blair had used Claddagh funds for his personal expenses. Blair contended that he had used Claddagh's credit cards for convenience but that he had always marked the expenses "personal" and had made sure that they went into an account marked "Kevin Blair Receivables" as a debt to the company. But BBP accountants identified $32,000 in personal expenses, only $10,000 of which appeared on Claddagh's books and none of which was ever repaid.
{¶ 19} The accountants also identified an additional $140,000 in credit-card charges by Blair that were likely personal. But they could not definitively state that those charges were personal, because Blair had never provided the necessary information that they had requested. The charges included purchases of groceries, clothing, sunglasses, and a trip to the Caribbean.
{¶ 20} In July 2003, Blair used $67,000 in Claddagh funds for a down payment on a $500,000 home. In December of that same year, he made a distribution of $80,000 to each member at a time when Claddagh had no distributable cash flow and had "repaid" the down payment on Claddagh's books.
{¶ 21} Blair also used Claddagh funds to start the "Kevin and Stacey Blah-Family Athletic Scholarship" for hockey players at Ohio State University. He contended that Supermac's had often sponsored and supported athletic teams in Ireland, but those donations were made in the name of the company. Blair contended that the use of his name on the scholarship instead of Claddagh's was a mistake.
{¶ 22} Blair had Claddagh's corporate law firm reserve trademarks for other potential restaurant concepts and paid for those services with Claddagh funds. The trademarks were assigned to Blair personally and not to Claddagh. He also used Claddagh funds to pay his lawyers and expert witnesses to carry on his litigation against McDonagh. Blair's counsel received $40,000 from Claddagh for the purpose of suing McDonagh.
{¶ 25} The trial court overruled Blair's motion for JNOV, for a new trial, and for remittitur. In this appeal, Blair presents six assignments of error for review. Claddagh, which is now in bankruptcy and represented by a bankruptcy trustee, has not appealed.
{¶ 28} The trial court has broad discretion in the admission of evidence, including expert testimony. "We will not reverse the trial court's decision absent an abuse of discretion.4
{¶ 29} Blair's contention that Brlas's testimony regarding the questionable expenses was not reliable is misplaced. Brlas was well qualified to testify as an expert in forensic accounting. His testimony concerned matters within his knowledge and expertise as a certified public and forensic accountant. In general, no dispute existed that his methods were reliable. He and his subordinates had spent months reviewing Claddagh's general ledger and other available documents.
{¶ 30} In discussing the questionable expenses, Brlas was simply reporting what he had found. He was not asserting an opinion. He said that he could not offer an opinion because Blair had provided insufficient documentation regarding those expenses. Brlas essentially refused to speculate about the expenses absent further information. Under the circumstances, we cannot hold that the trial court's decision to allow his testimony into evidence was so arbitrary, unreasonable, or unconscionable as to connote an abuse of discretion.5
{¶ 32} Closing arguments present counsel with, the opportunity to comment on the evidence and the reasonable inferences to be drawn from the evidence.6 Counsel has wide latitude in closing argument, but arguments that are not supported by the evidence are improper.7 *275
{¶ 33} In closing argument, McDonagh's counsel began discussing Brlas's testimony. Blair's counsel objected. The trial court overruled the objection, stating, "Go ahead, sir, of what's in evidence." Counsel discussed Brlas's testimony some more and then stated, "You'll have to make up your own judgment whether an additional $140,000 should be included [in damages for breach of fiduciary duty] or not." Blair's counsel did not object to that portion of the argument.
{¶ 34} Generally, a party must show damages with reasonable certainty and cannot leave them to conjecture or speculation.8 Brlas's testimony showed that the $140,000 of expenses was speculative, and, therefore, those expenses could not be part of a damages award. Counsel could certainly have discussed Brlas's testimony about the expenses as it related to credibility, for example. But counsel's argument that the jury could include the expenses in a damages award was improper.
{¶ 35} Nevertheless, counsel's remarks did not rise to the level of plain error, as they did not affect the basic fairness and integrity of the proceedings.9 They certainly did not rise to the level of the sort of gross and abusive tactics that we have found to be plain error in our recent cases.10
{¶ 36} Blair contends that the jury necessarily included the $140,000 in its damages award. But McDonagh presented substantial evidence of damages, unrelated to the $140,000 in questionable expenses, that would have allowed the jury to award $228,000. Without more specific jury interrogatories that explained the basis of the jury's damages award, we cannot hold that counsel's argument was prejudicial.11 Consequently, we overrule Blair's first assignment of error.
{¶ 39} Further, Blair raised his own claim of breach of fiduciary duty. Under his logic, he, too, should have brought it in the name of the company. Instead, he named Claddagh as a defendant. He did not object to the instructions on breach of fiduciary duty and the related damages instructions to the jury. To the contrary, he requested them and argued his case on that basis. Consequently, any error was invited error. Under the invited-error doctrine, a party may not take advantage of an error that the party invited or induced the trial court to make.15
{¶ 40} The record is clear that Blair followed a specific trial strategy. Only when that strategy backfired and the jury found against him did he raise numerous issues. "A court of appeals should be especially cautious to find plain error when a party may have made a strategic decision that it subsequently regrets."16 Consequently, we overrule Blair's second assignment of error. *277
{¶ 42} A limited-liability company, like a partnership, involves a fiduciary relationship.17 That relationship imposes on the members a duty to exercise the utmost good faith and honesty in all dealings and transactions related to the company.18
{¶ 43} Similarly, the parties to a contract owe each other a duty of good faith and fair dealing.19 "Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency "with the justified expectations of the other party." Bad faith may be "the abuse of a power to specify terms, [or] interference with or a failure to cooperate in the other party's performance."20
{¶ 44} We review the decision to grant or deny a motion for JNOV de novo. A JNOV is proper if, upon viewing the evidence in a light most favorable to the nonmoving party, reasonable minds could come to but one conclusion in favor of the moving party.21 But where substantial evidence exists to support the nonmoving party's side of the case, upon which reasonable minds could reach different conclusions, the court must deny the motion.22 We review a ruling on a motion for a new trial under an abuse-of-discretion standard.23 *278
{¶ 45} McDonagh presented substantial evidence showing that he had acted in good faith and that he had not breached his fiduciary duty. The evidence showed that McDonagh had withheld his consent for the loan for legitimate reasons, the most important of which was that Blair had refused to provide necessary financial information to evaluate the business and the necessity for the loan. Further, the Fifth Third loan would have subordinated McDonagh's loans. Under the circumstances, he was not acting in bad faith when he failed to consent to the loan.
{¶ 46} Blair is simply arguing that his version of events was more credible. But in considering a motion for JNOV, a court does not weigh the evidence or test the credibility of the witnesses.24 Consequently, we cannot hold that the trial court erred in overruling Blair's motion for JNOV or that the court abused its discretion in overruling his motion for a new trial. We overrule Blair's sixth assignment of error.
{¶ 49} In the construction of a written instrument, a court's primary objective is to give effect to the parties' intent, which can be found in the *279 language they chose to employ. The court should read the contract as a whole and gather the intent of each part from the whole.27
{¶ 50} Section 2 of the operating agreement is entitled "Capital Contributions." Section 2(b) states that "[t]he Members contemplate that the additional requirements of the Company shall be met through a bank loan and/or capital contribution by McDonagh. The Company is hereby authorized and directed to accept additional capital contributions from McDonagh in such amount as the Members deem necessary or appropriate, in consideration for which the Company is authorized and directed to issue to McDonagh Preferred Units, the price of which shall be $1,000 per Unit."
{¶ 51} Under Section 3(g) of the agreement, the distributable cash flow of the company would be calculated at least annually at the end of each year and distributed to the members within 90 days. If the company made a distribution to the members, a holder of preferred units would be paid in full before the holders of the common units.
{¶ 52} Blair contends that these provisions showed that the parties contemplated that any advances by McDonagh would be treated as capital contributions rather than loans, and that if a loan was required, both members had to agree to its terms. We disagree.
{¶ 53} Section 2(d) provided that "[n]otwithstanding anything contained herein, no Member shall be required to make any capital contribution or loan to the Company after the date hereof. If the General Manager determines that the Company requires additional funds, subject to Section 6 of this Agreement, any Member may, but shall not be obligated to, advance such funds." Under the plain language of this section, McDonagh did not have to provide loans or capital, but could provide either if he so chose. Consequently, the operating agreement did not show that McDonagh's advances were necessarily capital contributions.
{¶ 55} A meeting of the minds is an essential prerequisite to the enforcement of an oral contract.28 The terms of a contract may be determined *280 from the "words, deeds, acts, and silence of the parties."29
{¶ 56} R.C.
{¶ 57} The evidence showed that Blair had treated the advances as loans on Claddagh's tax returns. He had also taken interest deductions on his personal income taxes based on Claddagh's net operating losses, which were due, in part, to the amounts owed on McDonagh's advances. McDonagh and Supermac's paid Irish taxes on the accrued interest owed on the loans, even after Blair had stopped making payments, because McDonagh expected the loans and interest to be repaid and had to report the expected interest income.
{¶ 58} Blair made payments to McDonagh from 2000 to 2004. He wrote "loan" or "loan repayment" or similar language on the memo line of the checks. Blair wrote in a February 2004 letter that "Pat and I each own one-half or fifty percent of each of the companies. The financing provided by Pat to the companies was in a series of loans." Claddagh's financial statements and general ledger consistently recorded McDonagh's payments as loans to the company.
{¶ 59} Further, one of Blair's accountants specifically testified that McDonagh's advances were properly characterized as loans. After the litigation commenced, Blair's counsel tried to get the accountant to characterize the loans as capital contributions on the financial statements. The accountant refused.
{¶ 60} Because competent, credible evidence supported the trial court's determination that the parties had agreed that the advances were loans, this court will not reverse the court's decision. Consequently, we overrule Blair's fifth assignment of error. *281
{¶ 62} The record shows that Blair failed to object to the arguments he now contends were improper. Even when a party fails to object, the trial court must act to correct any prejudicial effect when gross and abusive misconduct occurs.33 But a trial court's duty to intervene does not apply when counsel's arguments are based on the evidence.34
{¶ 63} Our review of the record shows that, for the most part, McDonagh's arguments were fair comments on the evidence. Blair's credibility was at issue because of evidence showing that he had treated the advances as loans, although he repeatedly asserted at trial that they were capital contributions. Counsel mentioned the court's ruling only once in connection with Blair's credibility. Under the circumstances, we cannot hold that the argument was the sort of gross and abusive misconduct that required the court to intervene. The trial court did not abuse its discretion in allowing the argument or in overruling his motion for a new trial.35 We overrule Blair's third assignment of error.
{¶ 66} In this case, the evidence showed that Blair had used corporate funds for his own purposes and that he had deliberately withheld documents to cover up his conduct. We hold that McDonagh presented evidence from which the jury could have reasonably found by clear and convincing evidence that Blair's actions had showed a conscious disregard for McDonagh's rights that had a great probability of causing substantial harm. Therefore, the evidence supported the jury's finding of malice.38
{¶ 68} In this case, the claims warranting punitive damages arose well before the statute's effective date, starting in 2001 and continuing until after the lawsuit was filed in September 2005.41 Therefore, the current version of R.C.
{¶ 69} The versions of the statute in effect during the time when the claims herein accrued had been enacted in response to an Ohio Supreme Court decision declaring a 1997 version unconstitutional in toto.42 Those versions, which became effective on July 6, 2001, and November 7, 2002, contained no cap on punitive damages. Consequently, no cap applied in this case.
{¶ 71} While this case was pending, the Ohio Supreme Court decided Barnes v. Univ. Hosps., ofCleveland43 in which it specifically applied recent United States Supreme Court cases on the issue.44 InBarnes, the court set out three factors that must be considered in determining whether an award of punitive damages is excessive: "(1) the degree of reprehensibility of the party's conduct, (2) the relation of the punitive damages to the actual harm inflicted by the party, and (3) sanctions for comparable conduct."
{¶ 72} Since the trial court could not have considered these factors, we sustain Blair's fourth assignment of error in part. We reverse the award of punitive damages and remand the case to the trial court for the parties to present* evidence on the three factors and for the trial court to determine if the punitive-damages award was excessive based on those factors.
Judgment affirmed in part and reversed in part, and cause remanded.
HILDEBRANDT, P.J., and PAINTER, J., concur.
