JOHN CACHAT, ET AL., Plаintiffs-Appellants vs. IQS, INC., ET AL., Defendants-Appellees
No. 95501
Court of Appeals of Ohio, EIGHTH APPELLATE DISTRICT, COUNTY OF CUYAHOGA
June 23, 2011
2011-Ohio-3057
Blackmon, P.J., Celebrezze, J., and E. Gallagher, J.
Civil Appeal from the Cuyahoga County Common Pleas Court, Case Nos. CV-689839 and CV-727087
Robert P. DeMarco
30505 Bainbridge Road
Suite 225
Solon, Ohio 44139
ATTORNEYS FOR APPELLEES
John S. Kluznik
Weston Hurd LLP
The Tower at Erieview
1301 East Ninth Street, Suite 1900
Cleveland, Ohio 44114-1862
Andrew G. May
Robert Radasevich
Neal, Gerber & Eisenberg, LLP
Two North LaSalle Street
Suite 1700
Chicago, Illinois 60602
PATRICIA ANN BLACKMON, P.J.:
{¶ 1} Appellants John Cachat and the Cachat Family Limited Partnership (jointly referred to as “CFLP“) appeal the trial court‘s granting of summary judgment in favor of appellees IQS, Inc., Michael Rapaport, Wayne Bourlais, George Middleman, and Apex Investment Fund V, L.P. (jointly referred to as “IQS“) and assign the following three errors for our review:
“I. The trial court erred in finding that plaintiff was not entitled to non-competition payments pursuant to his amended and restated non-competition agreement.”
“II. The trial court erred in finding that plaintiff was not entitled to severance payments under Section 6.2 of his amended and restated employment agrеement.”
“III. The trial court erred in finding that plaintiff was bound by the general release.”
{¶ 2} Having reviewed the record and relevant law, we affirm the trial court‘s decision. The apposite facts follow.
Facts
{¶ 3} In 2003, Cachat entered into negotiations with Apex Investment Fund, V, L.P. (“Apex“) for the purpose of Apex infusing money into an Ohio Company founded by Cachat known as IQS, Inc. As a result of the negotiations, on Oсtober 1, 2003, a “Series A Convertible Preferred Stock Agreement” was entered into between Apex and IQS. Pursuant to this agreement, Apex invested $2 million dollars in equity into IQS in exchange for convertible participating preferred stock in IQS.1
Employment Agreements
{¶ 5} Despite Apex‘s initial infusion of $3 million, IQS was not profitable in subsequent years. By the fall of 2007, Apex had invested an additional $5 million dollars in the company in the form of loans, all of which were documented with promissory notes. Nine hundred thousand dollars in interest had accrued on the loans. Cachat and the company‘s president, Michael Rapaport, attempted to raise outside capital to no avail. Thus, the company wаs in need of additional cash from Apex in order to pay its bills and continue to operate.
{¶ 6} Apex agreed to provide additional funding, conditioned on the execution of new employment-related agreements by Cachat and Rapaport and the conversion of the outstanding principal balance of Apex‘s loans to preferred stock in the compаny. Accordingly, on October 2, 2007, Cachat entered into an amended executive employment agreement; non-solicitation;
{¶ 7} While the amended agreements were identical in some respects to the original agreements, they differed in significant ways. Among the changes were the automаtic renewal date of Cachat‘s employment agreement was shortened from two years to one year, and the notice of non-renewal was reduced from 90 days to 30 days. Under the amended non-competition agreement, IQS had the option to bind Cachat to a one-year non-competition period following his termination from IQS, provided that IQS paid him $500,000. This was different from the automatic payment of $375,000 and an automatic one-year non-competition agreement. The amended non-competition agreement emphasized that whether to pay Cachat the $500,000 to not compete was within the company‘s “sole discretion.”
{¶ 8} Each of the amended employment-related agreements also contained full integration clauses рursuant to which the parties agreed that the various agreements contained the full and complete expression of the parties’ agreements and that the agreements could not be modified or amended absent a written document signed by all the parties.
General Release
{¶ 9} Along with obtaining funding from Apex, IQS‘s primary lender was KeyBank. By the spring of 2008, the principal balance of the loans was
{¶ 10} IQS did not have the $350,000 to pay the lump sum and requested a loan from Apex to cover the amount. Apex agreed to loan IQS $350,000 to retire the KeyBank loans provided that Cachat and CFLP agreed to fully and completely release all of the defendants and their affiliates from any conceivable claims they may have had against them. On April 22, 2008, Cachat, both personally and on behalf of CFLP, agreed to the release.
Termination of Employment
{¶ 11} On August 26, 2008, at an IQS board meeting, Caсhat was hand-delivered a letter informing him that the company was not extending the term of his employment agreement beyond the expiration of the term,
{¶ 12} On April 10, 2009, Cachat filed a suit alleging nine counts against IQS, its president and board member, Michael Rapaport, and its two other board members, Wayne Boulais and George Middlemas. The counts asserted claims for breach of Cachat‘s original and amended employment agreements; declaratory judgment that the general release executed by Cachat was without consideration and unenforceable; declaratory judgment that Cachat‘s amended non-competition agreement was unenforceable; declaratory judgment that Cachat‘s оriginal non-competition agreement was enforceable; fraudulent inducement to enter into the amended employment and amended non-competition agreements; fraudulent inducement to enter into Cachat‘s commission agreement; breach of the commission agreement; declaratory judgment that Cachat was entitled to be paid certain commissions; and, breach of implied covenants of good faith and fair dealing in Cachat‘s amended employment and commission agreements. On December 22, 2009,
{¶ 13} The defendants filed a joint motion for summary judgment on all 11 counts; Cachat filed a brief in opposition. The only two counts that Cachat sought to defend in the motion in opposition was his severance claim and declaratory judgment that the general release was void for lack of consideration. He, however, also raised two additional сlaims that had not been raised in his complaint: one seeking damages under the amended non-competition agreement and one seeking damages for alleged breaches of fiduciary duties owed to Cachat.
{¶ 14} The trial court conducted a hearing on the motion for summary judgment. At the hearing, Cachat‘s attorney informed the court that Cachat and CFLP were abandoning all of the claims except for three: Cachat‘s claim for severance pay; for payment under the non-competition agreement, and the enforceability of the general release. After the hearing, the trial court issued a three page opinion in which it granted judgment in IQS‘s favor.
Standard of Review
{¶ 15} We review an appeal from summary judgment under a de novo standard of review. Baiko v. Mays (2000), 140 Ohio App.3d 1, 746 N.E.2d 618,
Non-competition Payments
{¶ 16} In his first assigned error, Cachat argues that summary judgment was not appropriate as to his claim for payment under the amended non-competition agreement, which required IQS to pay him $500,000. He argues there are material issues of fact in dispute regarding this issue.
{¶ 17} Cachat did not contend that he was entitled to the $500,000 pursuant to the amended non-competition agreement until he raised it in his response to IQS‘s motion for summary judgment. In fact, in his complaint Cachat argued that the prior non-competition agreement that required an automatic payment of $350,000 was enforceable, while the amended non-competition agreement was unenforceable. This argument is directly
{¶ 18} Nonetheless, even if we consider his argument, it has no merit. Art. I, Section 1.2 оf the amended non-competition agreement provides:
“Payment. Among other considerations received by the Founder for the covenant contained in Section 1.1, the Company and the Founder agree that Section 1.1 shall be effective if, and only if, the Company, in its sole discretion, determines, at the time that the Founder ceases to be employed or engaged by the Company, to pay to the Founder, for such non-cоmpetition, an aggregate amount of five hundred thousand dollars ($500,000.00), * * *. If the Company determines to make such payment, it shall notify the Founder of its decision within fifteen (15) business days from the date that the Founder ceased to be employed or engaged by the Company. * * *.” (Emphasis added.)
{¶ 19} Thus, pursuant to the above section, Cachat was prohibited from competing with IQS for one year following the termination of his employment only if IQS paid him $500,000. Cachat contends that his termination letter,
“Pursuant to Section 5.2 of the Employment Agreement, IQS hereby gives notice of its intention to not renew the Employment Agreement as of October 31, 2008 (the ‘Termination Date‘), which is the last day of the Initial Term of the Employment Agreement. * * *.
“Your employment will continue through November 1, 2008, at which time you will cease to be employed by IQS. * * * Please note that the nonrenewal of the Employment Agreement and the subsequent termination of your employment with IQS will not have any effect on the Amended and Restated Non-competition Agreement and the Amended and Rеstated Non-solicitation, Non-disclosure and Developments Agreement, each between IQS and you and each dated October 2, 2007, each of which shall continue in full force and effect until otherwise terminated or until each expires in accordance with its terms.”
{¶ 20} The letter does not state that IQS had decided to pay Cachat the $500,000 to not compete. Moreovеr, the company‘s decision whether to pay
{¶ 21} Additionally, the evidence shows that Cachat did not believe the termination letter activated the non-competition agreement. In a letter dated November 25, 2008, Cachat‘s attorney wrote a lettеr to IQS stating, “this letter serves to confirm that IQS has not exercised its right to enforce the non-competition covenant in the Amended and Restated Non-Competition Agreement between it and Mr. Cachat and that it has refused to provide Mr. Cachat with a written statement confirming its decision for some reason or other.” Further, on January 13, 2009, Cachat emailed a letter to a third party in which he stated, “IQS failed to exercise its rights to enforce a non-compete agreement and, therefore, I am not under a non-compete agreement with IQS. I believe that IQS has the same understanding.” These letters confirm that the August 2008 letter did not lead Cachat to believe that IQS was enforcing the non-competition agreement.
Severance Payments
{¶ 22} In his second assigned error, Cachat argues that the trial court erred by granting summary judgment regarding his claim for severance payments. He claims the contract language was ambiguous and created a question of law.
{¶ 24} Section 5.1 stated that the term of Cachat‘s employment was as follows:
“Initial and Renewal Terms. The term of this Agreement commenced on October 1, 2003 and will continue through October, 2008 (the ‘Initial Term‘) unless terminated earlier as provided in this Section 5. This Agreement shall thereafter be automatically renewed for successive one year periods (the ‘Renewal Terms‘) unless terminated earlier as provided in Sectiоn 5.”
{¶ 25} Cachat contends whether the contract was to end October 1 or October 31, 2008, was ambiguous and, therefore, created an issue of fact. If the end date is interpreted to be October 1, then he was not terminated prior to the renewal of his term of employment, which his termination letter stated was October 31, and he would, therefore, be entitled to severance pay under Section 6.2, which provides:
“If Executive‘s employment is terminated by the Company pursuant to Sections 5.3(a), (b), or (d), [death, disability, or without cause] the Company shall make severance payments to the Executive (or his legal representative in the case of death) equal to twelve (12) months of his
adjusted Base Compensation as of the Date of Termination (on the same pay dаtes) and, except for termination pursuant to Section 5.3(a), shall continue his employee benefit coverage and compensation on the same terms as prior to such termination for twelve (12) months from the effective date of termination. * * *”
{¶ 26} “Language is ambiguous if the words of a writing are susceptible to two or more reasonable interpretations.” Dorsey v. Contemporary Obstetrics & Gynecology (1996), 113 Ohio App.3d 75, 84, 680 N.E.2d 240. “Common words apрearing in a written instrument will be given their ordinary meaning unless manifest absurdity results, or unless some other meaning is clearly evidenced from the face or overall contents of the instrument.” Alexander v. Buckeye Pipe Line Co. (1978), 53 Ohio St.2d 241, 374 N.E.2d 146, at paragraph two of the syllabus.
{¶ 27} We do not agree that the phrase “through October 2008” is ambiguous. If the drafter intended October 1, 2008 to be the end of the term, the contract would have stated “until October” or “to October.” “Through” is commonly understood to mean the end of whatever the word precedes. Because the word is not ambiguous, we cannot consider the parol evidence Cachat relies upon to show that he was told he would receive severance pay. Only when the language of a contract is unclear or ambiguous, or when the circumstances surrounding the agreement invest the language of the cоntract with a special meaning will extrinsic evidence be considered in an effort to
{¶ 28} Cachat also argues that by extending his employment to November 1, even if the end of his term was October 31, he would be entitled to severance pay. However, the severance clause clearly is triggered based on termination prior to the end of a term. IQS clearly advised Cachat that his term, which ended October 31, 2008, would not be renewed. The extra day of employment did not constitute a renewal of the term given the written notice that the term was not being renewed, and it was clear that after the additional day, the employment terminated.
{¶ 29} Additionally, Cachat argued in the trial court that he did not understand the terms of the contract. However, the law in Ohio is that “parties to сontracts are presumed to have read and understood them and that a signatory is bound by a contract that he or she willingly signed.” Preferred Capital Inc. v. Power Eng. Group Inc., 112 Ohio St.3d 429, 432, 2007-Ohio-257, 860 N.E.2d 741. Accordingly, Cachat‘s second assigned error is overruled.
General Release
{¶ 30} In his third assigned error, Cachat argues that the trial court erred by concluding that the language in the 2008 General Release extinguished his claims. He argues the release only applied to pending claims, not future claims.
{¶ 31} The trial court‘s ruling regarding the general release has no impact on the claims at issue in this appeal. In its motion for summary judgment, IQS did not argue that Cachat‘s claim for severance benefits was extinguished by the release. IQS also did not argue that Cachat‘s claim under the amended non-competition agreement was extinguished by the general release, becausе this was not a claim raised in Cachat‘s complaint, but raised for the first time in the response brief. Moreover, the court did not rule that the general release extinguished any of the claims, but merely found that it was enforceable. Accordingly, Cachat‘s third assigned error is overruled.
Judgment affirmed.
It is ordered that appellees recover from appellants their costs herein taxed.
The court finds there were reasonable grounds for this appeal.
A certified copy of this entry shall constitute the mandate pursuant to
PATRICIA ANN BLACKMON, PRESIDING JUDGE
FRANK D. CELEBREZZE, JR., J., and
EILEEN A. GALLAGHER, J., CONCUR