Fayette County Appeals Court Affirms Non-Competition Damages and Prevailing Party Attorney Fee Award

On Monday, a unanimous Fayette County Court of Appeals addressed the other half of the non-compete/tortious interference case between dental practices blogged about here last May.  In it, the Court affirmed the $125,000 jury verdict against the defendant dentist for breaching the non-competition clause in his sales agreement with the plaintiff dentist and the reduction of the successful dentist’s attorney fees award (pursuant to the loser pay provision in the contract) to $95,988 based on prevailing attorney fee rates in Fayette County of $250/hour.  Ginn v. Stonecreek Dental Care, 2015-Ohio-4452.  The Court found that the 30-mile non-compete restriction was clear on its face in a contract containing an integration clause and could not be clarified with extrinsic evidence to mean anything other than 30 straight-line miles.  Finally, the jury was entitled to base its damage award on the plaintiff’s testimony of lost revenue.

According to the Court’s opinion, the defendant dentist sold his Washington Court House practice to the plaintiff dentist in 2010 and, as part of that sale, agreed to work one day per week for the plaintiff dentist and not otherwise practice dentistry for 5 years within 30 miles of the plaintiff’s practice.  The contract also provided that the prevailing party would be entitled to attorneys’ fees in the event of litigation over a breach of the agreement. The defendant dentist resigned six months later and began working for StoneCreek Dental in Chillicothe.  StoneCreek’s office was less than 30 straight line miles from the plaintiff dentist’s office, but was more than 30 driving miles.  The plaintiff dentist brought suit and the jury awarded him $125K plus interest.  The trial court dismissed the claims against StoneCreek, but that dismissal was reversed in part on appeal in May.

First, the Court held that it was not an abuse of discretion to reduce the attorneys’ fees to $250/hour based on the prevailing rates in Fayette County instead of the actual rates of the Franklin County attorneys. The plaintiff’s attorneys had requested $143,595 plus expenses.  The trial court based its analysis on the factors listed in Professional Rule of Conduct 1.5.  In addition, the trial court properly excluded litigation expenses because the contract only required the payment of fees and not expenses.  Without a controlling contract or statute, the American Rule requires each party to pay their own fees and expenses. 

Second, the Court held that it was proper for the jury to base its award on the plaintiff’s testimony about the revenue he lost when the plaintiff resigned to work for a competitor.  Damages for breach of a non-competition clause is generally based on lost profits.   As the Court held last May, mathematical certainty is not required.  The plaintiff dentist testified about his past revenue and the increase in revenue he realized while the defendant worked for him for six months.  He doubled that amount to show how the revenue would have increased in a year.  Because his overhead did not change, the increased revenue constituted profit that he lost when the defendant began competing against him during the five-year non-competition period. “Whether the revenues actually represented lost profits as testified to by Dr. Ginn relates to Dr. Ginn's credibility and was for the jury to decide.”    

Finally, the Court rejected that defendant’s argument that the 30-mile territorial restriction was ambiguous where the parties each had different interpretations of the restriction.  It also refused to consider extrinsic evidence – i.e., evidence outside the four corners of the contract – to interpret the 30 mile restriction because it was plain on its face and unambiguous.   The contract contained an integration clause which precludes the parties from attempting to contradict its terms with other evidence about other side-agreements.  Further, Ohio courts have routinely interpreted similar restrictions to refer to straight-line miles instead of driving miles.

 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Franklin County Appeals Court: Incomplete Promises from Offer Letter Formed Binding Contract

Last week, the Franklin County Court of Appeals reversed a summary judgment previously entered on behalf of an employer on a breach of contract claim involving stock options promised in an offer letter. McGonagle v. Somerset Gas Transm. Co., L.L.C., 2011-Ohio-5768. The offer letter discussed the intent for the parties to enter into a later, more detailed employment agreement specifying the terms, but no such agreement was ever drafted, exchanged or signed. The trial court had found that the offer letter only constituted an agreement to later enter into a binding agreement, but the Court of Appeals disagreed.

According to the Court’s opinion, following negotiations, the plaintiff’s offer letter specified his salary, paid vacation, severance pay, eligibility for various bonuses and stock options, a portion of which would vest every six months within the next two years at a certain price and would immediately vest if he were fired without cause or if there were a change in control of the company. The offer letter provided that a more detailed employment agreement would later be provided specifying what could constitute termination “without cause,” or “with cause.” Both the employer and the plaintiff employee signed the offer letter. However, no detailed employment agreement was ever signed by the parties. The plaintiff was later provided with a management grant agreement concerning stock options in 2006, but he never signed it. He later resigned in 2007 and filed suit in 2008 for the stock options which he had been promised in 2002.

The employer argued that the offer letter was too vague to constitute an enforceable contract and left open a number of significant conditions, including the excise period and whether the plaintiff had ever vested in the options. The trial court concluded that the offer letter only constituted an offer to negotiate and later make a contract and, in the alternative, was too vague to be enforceable. The Court of Appeals reversed.

The Court found that the letter covered the essential terms of the parties’ agreement and could be enforced. "[I]f a term cannot be determined from the four corners of a contract, factual
determination of intent or reasonableness may be necessary to supply the missing term." The parties may rely on extrinsic evidence – such as the negotiations and later discussions -- to explain their intent. The introduction of such extrinsic evidence is permitted by the parol evidence rule, which only prohibits the admission of extrinsic evidence to explain the terms of an integrated (or complete) agreement after it has been reduced to writing. Where the parties have an incomplete agreement – or partially integrated agreement, extrinsic evidence is admissible to explain the missing terms.

A contract is partially integrated if the parties adopt it as a final expression of only one portion of a larger agreement, making the contract incomplete. Id. at ¶37. A party may introduce extrinsic evidence to supplement, but not vary or contradict, the written terms of a partially integrated contract. Id. at ¶38; Williams at ¶28, 30.

The fact that not all of the details (such as the affect of a resignation or duration of the options) had been explained in the offer letter does not mean that a contract was not formed.

The parties may have agreed that appellant's voluntary resignation would have no effect on his vested option to acquire stock or perhaps the parties did not reach an agreement on this issue because it was not contemplated by the parties. Similarly, the parties may have intended an option of unlimited duration or failed to contemplate a specified duration for the option. Regardless, we cannot conclude the letter lacks such enforceable clarity such that a factual determination of reasonableness or intent cannot be utilized to supply the relevant terms that are allegedly omitted from the letter.

In addition, it was not clear when the right to the options was triggered. “Thus, there is a genuine issue of material fact remaining as to whether or not the triggering event, equity financing, has occurred so as to entitle appellant to the stock option.” Therefore summary judgment was not appropriate for either party and the case was remanded “to the trial court for factual determinations of the relevant missing terms and, also, whether equity financing has occurred.”

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.