Consolo v. MenterConsolo v. Menter
Per Curiam.
{¶1} Appellant, William Consolo, appeals the judgment of the Summit County Court of Common Pleas. This Court reverses.
I.
{¶2} Consolo and Rick Menter were business partners in a credit card processing venture. Menter acted as the operating member of the partnership, while Consolo purchased a membership interest and consulted in the operation of the business.
{¶3} Over time, Consolo became suspicious that Menter was engaging in fraudulent conduct and appropriating for himself hundreds of thousands of dollars rightfully payable to Consolo. On August 16, 2007, Consolo filed a complaint in the Summit County Court of Common Pleas against Menter, EMS Nationwide II, Ltd., and
{¶4} When Menter discontinued making periodic payments to Consolo pursuant to their agreement, Consolo filed the consent judgment on December 9, 2009. Menter filed two motions on February 1, 2010, both of which were captioned, “Emergency Motion to Enforce the Settlement Agreement and for Relief from Judgment Pursuant to
{¶5} In its judgment entry, which was journalized on April 16, 2010, the trial court made the following findings with respect to the dispute in this case. The problems
{¶6} The trial court found that Consolo had never agreed to a non-compete provision; and that Menter could not substantiate his suspicions to a degree that would justify his failing to make the $5,000 monthly payments to Consolo. By the end of the hearing, Menter agreed to turn over to Consolo all of the $5,000 monthly payments that had been set aside.
{¶7} Consolo considered Menter to be in breach of the terms of their agreement when Menter stopped making the monthly payments. Consolo therefore filed the consent judgment entry which had been previously executed by the parties as part of the settlement in this case. According to the consent judgment, Menter owed Consolo a total of $500,000. According to a document entitled “Mutual Release and Settlement Agreement,” $270,000 was the figure the parties agreed that Consolo would accept if payments were made according to the terms set therein.
{¶8} On April 16, 2010, the trial court issued a judgment entry in which it granted Menter‘s motion to enforce the settlement agreement, found the consent judgment to be void and unenforceable, vacated the consent journal entry that had been
{¶9} Consolo filed a notice of appeal on May 13, 2010. On appeal, Consolo raises two assignments of error. We consolidate those assignments of error to facilitate review.
II.
ASSIGNMENT OF ERROR I
“APPELLEE MENTER‘S ESCROWING OF PAYMENTS OWED TO APPELLANT CONSOLO WAS NOT MERELY ‘NONCOMPLIANT’ BUT ROSE TO THE LEVEL OF A BREACH OF THE SETTLEMENT AGREEMENT[.]”
ASSIGNMENT OF ERROR II
“THE TOTAL OF $500,000.00 OWED BY APPELLEES UPON THEIR BREACH OF THE AGREEMENT ARE NOT LIQUIDATED DAMAGES OR A PENALTY BUT THE AMOUNT OF THE SETTLEMENT AGREEMENT THAT BECAME DUE AND OWING UPON APPELLEE‘S BREACH[.]”
{¶10} In his first assignment of error, Consolo argues that the trial court erred in finding that Menter‘s decision to stop making the monthly payments did not rise to the level of a breach of the contract. In his second assignment of error, Consolo argues that the trial court erred in concluding that the total amount of the signed agreement was $270,000 and that the $500,000 consent judgment was void and unenforceable. As the two issues are closely related, we address them together.
Breach of the Settlement Agreement
{¶12} Consolo argues on appeal that Menter‘s decision to set aside the funds for the monthly payments constituted a clear breach of the contract. Menter counters that the evidence submitted and accepted by the trial court firmly established that Consolo failed to meet his burden to prove by a preponderance of the evidence the second and third elements of a breach of contract. Menter further contends that if there was a breach of the settlement agreement, it was not material.
{¶13} A review of the hearing transcript reveals that issues arose surrounding compliance with the signed agreement when Menter grew suspicious that Consolo was steering his former clients to a competing credit card processing company. In light of these suspicions, Menter began placing the monthly payments in a separate bank account
{¶14} In its judgment entry, the trial court concluded that while Menter was noncompliant with the settlement agreement, his conduct did not rise to the level of a breach. Specifically, the trial court stated:
“First, the Court finds that the Defendants did not breach the terms of the settlement agreement when they escrowed the $5000 monthly payments until they could look into their suspicions about the Plaintiff. The Defendants’ failure to make the payments was noncompliant with the terms of the settlement agreement. But, given the totality of the circumstances – including the Defendants’ escrowing and then returning the funds – the Court finds the noncompliance does not reach the level of breach that would excuse the Plaintiff from further performance of his duties under the settlement agreement.
“The Defendants are, however, liable for paying interest to the Plaintiff, at the statutory rate, for the period of time that money owed to the Plaintiff was escrowed and withheld from him.”
{¶16} Here, as set forth in the Release, after making two initial payments totaling $50,000, Menter was required to tender monthly payments to Consolo. When asked if Menter stopped making monthly payments due to his suspicion that Consolo was steering clients to competitors, counsel for Menter stated, “Correct. But instead we escrowed those payments and we have continued to escrow those [$5,000] payments every month[.]” At the hearing, a letter was submitted into evidence that Menter‘s counsel had sent to Consolo‘s counsel when Menter grew suspicious that Consolo was in breach of the agreement. In this letter dated September 28, 2009, Menter‘s attorney suggested that, in order to preserve the existing settlement, the monthly payments should be placed “into escrow” until the issues surrounding a possible breach by Consolo were resolved. A review of the settlement documents reveals that there was no provision that allowed for the payments to be withheld, or set aside, in the event of a possible dispute. When asked
{¶17} Menter argues in the alternative that even if refusing to make the monthly payments did constitute a breach of the settlement agreement, the judgment of the trial court should be upheld on the basis that the breach was not material. An appellate court will not consider an argument raised for the first time on appeal. Gannon v. Klockenga, 9th Dist. No. 22946, 2006-Ohio-2972, at ¶21. As noted above, the trial court in this case did not conduct an analysis of whether the breach was material. Instead, the trial court concluded that, based on the totality of the circumstances, Menter‘s “noncompliance” did not constitute a breach of the settlement agreement. At the hearing on this matter, Menter did not argue that his non-performance was not a material breach. Rather, Menter maintained that he was under no obligation to perform because Consolo had violated the
Amount of the Settlement
{¶18} The parties offer sharply contrasting views as to the total amount of the settlement. Consolo argues that the parties agreed that Menter owed him $500,000 as damages stemming from the allegations raised in the complaint as memorialized in the consent entry. Consolo asserts that Menter was permitted under the terms of the agreement to avoid full payment of the amount by making two initial payments totaling $50,000, and then subsequently making monthly payments of $5,000 per month until Consolo had received an aggregate sum of $270,000. The consent judgment, according to Consolo, reflected the total amount of the settlement and was to be filed only if Menter failed to meet the requirements necessary to avoid payment in full. Menter, on the other hand, argues that the parties settled the case for a total of $270,000 and that the $500,000 consent judgment constituted an unenforceable penalty.
{¶19} Courts generally presume that the intent of the parties can be found in the written terms of their contract. Shifrin v. Forest City Ent., Inc. (1992), 64 Ohio St.3d 635, 638. If a contract is unambiguous, the language of the contract controls and “[i]ntentions not expressed in the writing are deemed to have no existence and may not be shown by parole evidence.” Aultman Hosp. Assn. v. Community Mut. Ins. Co. (1989), 46 Ohio St.3d 51, 53. If, however, “a contract is ambiguous, parol evidence may be employed to resolve the ambiguity and ascertain the intention of the parties.” Illinois Controls, Inc. v. Langham (1994), 70 Ohio St.3d 512, 521. Terms in a contract are ambiguous if their meanings cannot be determined from reading the entire contract, or if they are reasonably susceptible to multiple interpretations. Butler v. Joshi (May 9, 2001), 9th Dist. No. 00CA0058. “The decision as to whether a contract is ambiguous and thus requires extrinsic evidence to ascertain its meaning is one of law.” Ohio Historical Soc. v. Gen. Maintenance & Eng. Co. (1989), 65 Ohio App.3d 139, 146.
{¶20} The February 16, 2010 hearing was primarily devoted to consideration of whether Menter had breached the agreement or alternatively whether the parties had agreed to a noncompetition provision. Notwithstanding that primary focus, the actual amount of the settlement also arose as an issue at the hearing. Consolo argued that he determined the case had a value of $500,000 and the parties agreed to settle the case for that amount. Thus, according to Consolo, the Release constituted an agreement to accept a discounted amount on the condition that the payments were tendered as agreed. Menter testified that the counsel for each party had negotiated a settlement amount of $270,000 but when he arrived at the courthouse to sign the agreement, he was informed by his attorney that, “They want to put a penalty on you if you miss a payment that it‘s going to – you‘re going to be penalized $500,000[.]” The trial court seemed to indicate that Menter‘s testimony on this point was not credible.
{¶21} While the amount of the settlement did arise as an issue at the hearing, the vast majority of the testimony at the hearing focused on whether the agreement had been
“[T]he Court finds – applying the tests of Lake Ridge Academy v. Carney (1993), 66 Ohio St.3d 376 and Samson Sales, Inc. v. Honeywell (1984), 12 Ohio St.3d 27 – that the $230,000 added payment in the [$500,000] Consent Judgment Entry to be an unenforceable penalty, not a legitimate liquidated damages amount. The Court therefore finds the Consent Judgment Entry void and unenforceable, and vacates the December 9, 2009 filing of the Consent [] Entry.
“The Court finds that computing actual damages for failure to make payments on the consent agreement is a simple matter; and that the $230,000 penalty is unconscionable.”
{¶22} The trial court relied on the precedent of two Ohio Supreme Court decisions in reaching its conclusion. In Lake Ridge Academy, the Supreme Court held that the freedom to contract is limited in situations where stipulated damages would constitute a penalty. Lake Ridge Academy, 66 Ohio St.3d at 381. In Samson Sales, the Supreme Court held that:
“[w]here the parties have agreed on the amount of damages, ascertained by estimation and adjustment, and have expressed this agreement in clear and unambiguous terms, the amount so fixed should be treated as liquidated damages and not as a penalty, if the damages would be (1) uncertain as to amount and difficult[y] of proof, and if (2) the contract as a whole is not so manifestly unconscionable, unreasonable, and disproportionate in amount as to justify the conclusion that it does not express the true intention of the parties; and if (3) the contract is consistent with the conclusion that it was the intension of the parties that damages in the amount stated should follow the breach thereof.” Samson Sales, 12 Ohio St.3d at 28, quoting Jones v. Stevens (1925), 112 Ohio St. 43, paragraph two of the syllabus.
“1.6 Counsel for Consolo shall hold in escrow the Consent Judgment Entry, a copy of which is attached hereto and incorporated herein as Exhibit 3, and the Promissory Note, a copy of which is attached hereto and incorporated herein as Exhibit 4, in accordance with the terms and conditions contained herein. Consolo‘s counsel may disburse said Promissory Note to Consolo and may file said Consent Judgment with the Summit County Clerk of Courts, if and only if, Menter, EMS I and EMS II default in payments as required by paragraph 2.2 herein.”
{¶24} The following paragraph, designated as Paragraph 1.7, states that counsel for Consolo would be required to return the original consent judgment to Menter when Menter had made all of the monthly payments. While Paragraph 1.6 indicated that Consolo could file the consent judgment if Menter defaulted on the monthly payments, there is no language indicating that the amount of the consent judgment represented the settlement amount.
{¶25} Under the portion of the agreement that outlines the release and covenants by Menter, the agreement contains the following language:
“2.2 Menter, EMS I and EMS II shall pay the total sum of two hundred and seventy thousand dollars ($270,000) by making the following payments to Consolo upon the following conditions:
“(a) Twenty Thousand Dollars ($20,000) upon delivery to Menter‘s counsel of an executed original of this Mutual Release and Settlement Agreement, Voluntary Dismissal with Prejudice (Exhibit 1) and Agreed Order of Dismissal (Exhibit 2); and
“(b) Thirty Thousand Dollars ($30,000) within thirty (30) days after the event delineated in subparagraph 2.2(a) has occurred; and
“(c) Beginning thirty (30) days after the event delineated in subparagraph 2.2(b) has occurred, and continuing on the same day of each month thereafter, the sum of Five Thousand Dollars ($5,000) a month, until the total sum of Two Hundred and Seventy Thousand Dollars ($270,000) as required by this paragraph 2.2 has been paid to Consolo;
***
“(h) The obligation to make aggregate payments of two hundred and seventy thousand dollars ($270,000) to Consolo may be pre-paid at any time without penalty.
“2.3 As security for the payments required by paragraph 2.2 above, Menter, EMS I and EMS II shall tender to Consolo‘s counsel a Promissory Note in the amount of $500,000.00, a copy of which is attached hereto as Exhibit 4. The original of this Promissory Note shall be held in escrow by Consolo‘s counsel and only distributed to Consolo in the event of a default in a payment required by paragraph 2.2 herein which is not timely cured. If all of the payments required by paragraph 2.2 herein are made, then Consolo‘s counsel shall return the original executed Promissory Note (Exhibit 4) to Menter, along with the original executed Acknowledgment of Payment in Full of Promissory Note (Exhibit 6). In the event of an uncured default in a payment required by paragraph 2.2 herein, then the original executed Promissory Note may be distributed by Consolo‘s counsel to Consolo; however, the balance due on said Promissory Note shall be reduced by the total amount of any payments made under paragraph 2.2 herein.
“2.4 As further security for the payments required by paragraph 2.2 herein, Menter, EMS I and EMS II shall tender to Consolo‘s counsel a Consent Judgment Entry in the amount of $500,000.00, a copy of which is attached hereto as Exhibit 3. The original executed Consent Judgment Entry shall be held in escrow by Consolo‘s counsel and only filed with the Summit County Common Pleas Clerk of Courts in the event of a default in a payment required by paragraph 2.2 herein which is not timely cured. If all of the payments required by paragraph 2.2 are made, then Consolo‘s counsel shall return the original executed Consent Judgment Entry to Menter, along with the original executed Satisfaction of Judgment (Exhibit 5). In the event of an uncured default in a payment required by paragraph 2.2 herein, then Consolo‘s counsel may file the original Consent Judgment Entry with the Summit County Common Pleas Court Clerk of Courts;
however, the balance due on said judgment shall be reduced by the total amount of any payments made under paragraph 2.2 herein.
“2.5 It is acknowledged and agreed by the parties hereto that the Promissory Note (Exhibit 4) and the Consent Judgment Entry (Exhibit 3) represent the same contingent obligation by Menter, EMS I and EMS II to Consolo; and in the event of an uncured default in a payment required by paragraph 2.2 herein, the maximum amount that Menter, EMS I and EMS II could be jointly liable to Consolo for is the sum of $500,000, less the total of any payments made to Consolo under paragraph 2.2 herein.”
{¶26} Paragraphs 2.3 and 2.4 reference the $500,000 amount in reference to both the consent decree and the promissory note. This fact could be construed as evidence that the $500,000 figure represented the parties’ evaluation as to the value of the settlement, and their decision to provide security as such, much in the nature of a cognovit note. Conversely the “promissory installment note” that is actually attached as Exhibit 4 to the Release is for the amount of $270,000, and not the amount of $500,000 as referenced in Paragraph 2.3 of the Release.
{¶27} The amount of the settlement in this case was not expressed in clear and unambiguous terms. The parties’ agreement does not contain a provision which explicitly identifies the amount of the settlement. It is clear that the consent judgment that could be filed upon Menter‘s nonpayment is for the amount of $500,000. It is also clear, however, that Menter could have satisfied his obligation to Consolo by making scheduled payments totaling an aggregate sum of $270,000. Unfortunately, the significance of the $270,000 settlement figure and the $500,000 figure in the consent judgment is unclear. Further complicating the issue is the fact that the amount of the promissory note as referenced in Paragraph 2.3 and the actual amount of the promissory
{¶28} To the extent that the trial court concluded that Menter did not breach the terms of the settlement agreement, Consolo‘s first assignment of error is sustained. To the extent that the trial court found as a matter of law that the consent judgment constituted an unenforceable penalty, it committed legal error and the second assignment of error is sustained. In light of Menter‘s breach, we remand for further proceedings in regard to the amount of the parties’ settlement. See Saari v. Saari, 9th Dist. No. 08CA009507, 2009-Ohio-4940.
III.
{¶29} Consolo‘s first and second assignments of error are sustained. The judgment of the Summit County Court of Common Pleas is reversed and remanded for further proceedings consistent with this decision.
Judgment reversed. and cause remanded.
We order that a special mandate issue out of this Court, directing the Court of Common Pleas, County of Summit, State of Ohio, to carry this judgment into execution. A certified copy of this journal entry shall constitute the mandate, pursuant to
Immediately upon the filing hereof, this document shall constitute the journal entry of judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the period for review shall begin to run.
Costs taxed to Appellees.
EVE V. BELFANCE
FOR THE COURT
BELFANCE, P. J.
MOORE, J.
CONCUR
CARR, J.
CONCURS IN PART, AND DISSENTS IN PART, SAYING:
{¶30} I concur in the majority opinion with respect to the first assignment of error. I respectfully dissent in regard to the majority‘s conclusion that the trial court erred in determining that the $500,000 consent judgment was an unenforceable penalty.
{¶31} Consolo argues on appeal that it is clear from the language of the agreement that the parties settled this case for $500,000. Consolo specifically argues that “Section I of the Settlement Agreement resolved the pending lawsuit.” In making reference to “Section I of the
APPEARANCES:
WILLIAM T. WHITAKER and ANDREA L. WHITAKER, Attorneys at Law, for Appellant.