Opinion
A1108593
09-19-2012
HERBERT T. WALKER, HI, et al., Plaintiffs v. WARREN FAMILY FUNERAL HOMES, INC., d/b/a Newcomer Funeral Homes, et al. Defendants
DECISION
This case is before the Court on Plaintiffs Motion for Summary Judgment. For the reasons discussed below, the Motion is granted in part and denied in part,
STANDARD
Summary judgment is appropriate when there are no genuine issues of material fact that remain to be litigated and the moving party is entitled to judgment as a matter of law. Civ. R. 56(C); Cehtex Corp. v, Catrett, 477 U.S, 317 (1986), Summary judgment should be granted if the pleadings, depositions, answers to interrogatories, written admissions, affidavits, transcripts of evidence in the pending case, if any, timely filed in the action and construed most strongly in favor of the non-moving party, show that there is no genuine issue as to any material fact. Civ, R. 56(C). The burden of establishing that the material facts are not in dispute, and that no genuine issue of fact exists, is on the party moving for summary judgment. Vahila v. Hall, 77 Ohio St.3d 421, 674 N.E.2d 1164 (1997). If the moving party asserts that there is an absence of evidence to establish an essential element of the non-moving party's claim, the moving party cannot discharge this burden with a conclusory allegation, but must specifically point to some part of the record which affirmatively demonstrates this absence of evidence. Dresher v. Burt, 75 Ohio St.3d 280, 662 N.E.2d 264 (1996).
The Ohio Supreme Court has established three factors to be considered upon a motion for summary judgment. These three factors are:
(1) That there is no genuine issue as to any material fact; (2) that the moving party is entitled to judgment as a matter of law; and (3) that reasonable minds can come to but one conclusion, and that the conclusion is adverse to the party against whom the motion for summary judgment is made, who is entitled to have the evidence construed most strongly in his favor.Bostic v. Connor, 37 Ohio St.3d 144, 146 N.E.2d 881 (1988) (quoting Harless v. Willis Day Warehousing Co., 54 Ohio St.2d 64, 375 N.E.2d 46 (1978)).
Once a motion for summary judgment has been made and supported as provided in Civ. R. 56(C), the nonmoving party then has a reciprocal burden to set forth specific evidentiary facts showing the existence of a genuine issue for trial and cannot rest on the allegations or denials in the pleadings. Wing v. Anchor Media, Ltd. Of Texas, 59 Ohio St.3d 108, 111, 570 N.E.2d 1095 (1991).
DISCUSSION
Plaintiff sold the assets of his business to Defendants. Three agreements were executed: an Asset Purchase Agreement ("APA"), a Non-Compete Agreement, and a Consulting Contract. There is no dispute that under the Non-Compete Defendants are to pay Plaintiff Walker $2, 083.33 per month for 10 years. There is no dispute that under the Consulting Contract they are to pay him $4, 166.66 per month for 5 years. Defendants stopped paying Walker under these two agreements, and he brought this action to collect. Defendants allege Walker breached the agreements and have counterclaimed against him.
1. Consulting Agreement
The Consulting Agreement provides:
3. Services. On request, Walker shall review and inspect the business operations of Warren and advise Warren on its business operations. Walker shall expend such time and such services as the parties, in their sole discretion, deem reasonably necessary.
The undisputed evidence establishes that Walker performed each time requested by Defendants. There is no evidence that Walker breached the Consulting Agreement. Therefore, he is entitled to judgment as a matter of law on this claim.
2. Non-Compete
The Non-Compete provides:
1. Nature. Upon the terms and for the consideration recited hereinafter, Walker agrees that, from and after the execution of this Agreement and for a period often years thereafter, he will not, directly or indirectly, engage in or have any interest in any person, firm, corporation or business, whether as an employee, officer, director, agent, security holder, creditor, guarantor, consultant or otherwise, that engages in any activity within 50 miles of Cincinnati, Ohio, which activity is the same as, or similar to, or competitive with any principal activity in a funeral related or cemetery business engaged in by Warren in such area for the term of this covenant.
Construing the evidence most strongly in favor of Defendants, there is some evidence from which a trier of fact could infer Walker is affiliated with a competing business, for example, Walker Funeral Stores. Thus, summary judgment is denied on this claim.
3. Defendants' Counterclaims
Walker seeks judgment on all Defendants' Counterclaims against him: 1) breach of contract - Asset Purchase Agreement; 2) declaratory judgment - breach of APA, Consulting Agreement and non-compete; 3) breach of duty of loyalty; 4) accounting; 5) fraud; 6) conversion; 7) alter ego; 8) civil conspiracy; and 9) cyber piracy.
a. Contract Claims
As to the contract claims, for the reasons discussed previously, Walker is entitled to judgment on Defendants' claim that he breached the Consulting Agreement. Defendants have presented no evidence to support this claim. For the reasons discussed, questions of fact exist as to whether Walker breached the non-compete. Therefore he is not entitled to judgment on this claim.
Defendants also claim Walker breached the APA. Specifically, they claim he failed to transfer certain assets that he was required to transfer. In addition to real property, Walker was to transfer:
(b) Assets of Walker. All inventories for resale, supplies, prepaid expenses, furniture and equipment, vehicles, the name "Herb Walker Funeral Homes" and all variations and subdivisions of such names, website content, domain names and identifying logos, symbols or marks used exclusively in connection with the Business, and all other tangible and intangible property used or usable by said Business in the pursuit of funeral homes business, including but not by way of limitation, books and records (books and records do not include any corporate books and records of Sellers, but rather refer to those books and records relating to general business records of Walker Funeral Home, such as past funeral records), customer lists, all goodwill associated with the Business, telephone numbers and listings, contracts; all funds received for preneed agreements, preneed trust earnings and endowment care fund earnings that are not required by state law to be held in trust, but not cash or cash equivalents, or any accounts receivable related to any funeral contracts that have been fully serviced by the Business prior to the Closing.
There is some evidence from which a trier of fact could conclude Walker violated this provision. Thus, his motion for summary judgment is denied.
As for the claimed breach of duty of loyalty, Defendants seem to be alleging a breach of good faith and fair dealing. Under Ohio law a duty of good faith and fair dealing is implied in every contract. Littlejohn v. Parrish, 163 Ohio App.3d 456 (1 Dist. 2005). This duty, however, does not create a separate cause of action; rather it is part of a contract claim. Joe Ann Tabor Revocable Trust v. WDR Properties, Inc. (11 Dist. 2010) 2010 Ohio App. LEXIS 1688. Walker's motion is granted as to this claim.
Dist. 2009), 186 Ohio App.3d 465, 476:
Dist. 2007), 2007 Ohio 6640, stated it this way:
As for the claim for an accounting, this is a remedy and not a separate cause of action. Walker's motion is granted as to this claim.
b. Tort Claims
As for the tort claims, the Court finds that Defendants have presented some evidence to support their claims. Since questions of fact exist, Walker's motion is denied as to these.
4. Setoff
Defendants argue that even if Walker is entitled to recover, any amount they owe him under the Consulting Agreement (or other Agreements) should be setoff against what Plaintiffs owe Walker. The Non-Compete contains a setoff clause:
8. Setoff. Warren shall have the right to setoff against any payments due hereunder any and all amounts which may be due to Warren by reasons of the breach of any duty, warranty, or representation made by or required of either Walker or Herb Walker Funeral Home, Inc. made under the terms of the Agreement between those parties and Warren of even date herewith.
The Court finds this gives Defendants the right to setoff any amounts due Defendants if Walker is found to have breached the APA.
The Court rejects Walker's argument that because the date of the APA is different than the non-compete, it is not included. The Court finds this clause to be clear and unambiguous and refers to the APA and the other agreements between the parties - all of which were part of the same transaction and closing.
The Consulting Agreement, however, contains no such setoff provision. The question then becomes whether Defendants are entitled to recoupment if they prove Walker breached the APA. Ohio law recognizes am distinction between "setoff and "recoupment".
As stated by the Court in Tejeda v. Toledo Heart Surgeons, Inc. (6
The Ohio Supreme Court defined setoff as, "that which exists between two parties, each of whom under an independent contract owes a definite amount to the other, to set off their respective debts by way of mutual deduction." Witham v. South Side Bldg. & Loan Ass'n of Lima (1938), 133 Ohio St. 560, 562, 15 N.E, 2d 149. The right to setoff exists both at law and in equity. Walter v. Nat'l City Bank of Cleveland (1975), 42 Ohio St.2d 524, 525, 330 N.E.2d 425. Recoupment, on the other hand, is, "a demand arising from the same transaction as the plaintiffs claim." Akron Nat'l Bank & Trust Co. v. Roundtree (1978), 60 Ohio App.3d 13, 18, 395 N.E.2d 525. Recoupment is an affirmative defense and, therefore, must be raised during the pleadings or it is waived. Haddad v. English (2001), 145 Ohio App.3d 598, 602, 763 N.E.2d 1199.
"[Recoupment] does not confess the indebtedness alleged in the complaint, as is understood by a setoff, but its proposition is that the plaintiffs claim is based on a particular contract or transaction and that to entitle the plaintiff to the sum claimed, he must prove compliance with certain obligations of the contract; that he failed to do so; and therefore that the defendant has been so damaged in the transaction that the plaintiff is not entitled to recover." Cauffiel Mach. Co, v. E. Steel & Metal Co. (1978), 59 Ohio App.2d 1, 6, 391 N.E.2d 743, quoting 20 American Jurisprudence 2d 235, Counterclaim, Recoupment and Setoff, Section 11.
For recoupment to apply, the amount to be reduced must arise out of the same transaction as the original obligation. In Re, Laureen Reeves (N.D. Ohio B.R. 2001), 265 B.R. 766. Some counts hold that the test is satisfied if it arises out of a single integrated transaction. Id. Some courts take a restrictive view of "transaction" and require a single contract or even a single transaction under a contract. In Re, Scott Dunning (N.D. Ohio B.R. 2001), 269 B.R. 357. Others apply a more liberal test. The Court in Columbus Steel Casing Company v. Transportation & Transit Associates, LLC. (10
"[T]he key question in most recoupment cases is whether the relevant obligations constitute part of the 'same transaction.' Courts have avoided setting out a precise definition of the 'same transaction' requirements, preferring instead to focus on the particular facts of each case." Collier on Bankruptcy (15 Ed.2007), 553-101, P553.10[l] (Footnote omitted.)
Here, under either test Defendants may be entitled to recoupment if they show Walker violated the APA. Therefore, while Walker is entitled to judgment under the Consulting Agreement, Defendants may be able to assert a defense of recoupment.
CONCLUSION
Walker is granted summary judgment on the issue of liability under the Consulting Agreement. His motion is denied as to his other affirmative claims.
As to Defendants' counterclaims, Walker's motion is granted as to the declaratory judgment claim regarding breach of the Consulting Agreement. It is also granted as to Count 3 (breach of duty of loyalty) and Count 4 (accounting). It is denied as to all others. The parties are referred to Local Rule 17 for the preparation of an entry.