Cachat v. IQS, Inc.

2011 Ohio 3057

• Court: Ohio Court of Appeals
• Decided: June 23, 2011
• Docket: 95501
• Status: Published

Opinion

[Cite as Cachat v. IQS, Inc., 2011-Ohio-3057.]

Court of Appeals of Ohio EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA

JOURNAL ENTRY AND OPINION No. 95501

JOHN CACHAT, ET AL. PLAINTIFFS-APPELLANTS

vs.

IQS, INC., ET AL. DEFENDANTS-APPELLEES

JUDGMENT: AFFIRMED

Civil Appeal from the Cuyahoga County Common Pleas Court Case Nos. CV-689839 and CV-727087

BEFORE: Blackmon, P.J., Celebrezze, J., and E. Gallagher, J.

RELEASED AND JOURNALIZED: June 23, 2011 ATTORNEY FOR APPELLANTS

Robert P. DeMarco DeMarco & Triscaro, Ltd. 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 agreement.”

“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 October 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

1 On March 19, 2004, Apex and IQS amended the agreement, pursuant to which Apex invested an additional $1 million dollars of equity in IQS in exchange for additional convertible participating preferred stock in IQS. {¶ 4} As a condition to Apex’s investment, Cachat was required to enter

into various employment-related agreements with IQS. The primary

agreement was an Executive Employment Agreement in which Cachat agreed

to be employed as the Chief Vision Officer of IQS and act as the chairman of

IQS’s board of directors. Cachat also entered into a non-competition

agreement agreeing not to compete with IQS for a year following the

termination of his employment in exchange for $375,000.

{¶ 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 was 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 company. Accordingly, on October 2, 2007, Cachat

entered into an amended executive employment agreement; non-solicitation; non-disclosure, and developments agreement; and non-competition

agreement.

{¶ 7} While the amended agreements were identical in some respects to

the original agreements, they differed in significant ways. Among the

changes were the automatic 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 pursuant 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 $630,000. Cachat and CFLP had personally guaranteed the KeyBank loans

and used their two commercial properties as collateral. At a meeting

conducted in March 2008, IQS’s board, including Cachat, discussed and

unanimously passed a resolution authorizing Rapaport to negotiate with

KeyBank to obtain a discount of the outstanding balance on the KeyBank

loans in exchange for an immediate lump sum payment. On April 4, 2008,

KeyBank agreed to accept IQS’s offer to pay the lump sum payment of

$350,000 in complete satisfaction of the KeyBank loans. On April 11, 2008,

KeyBank sent a proposed settlement and release agreement memorializing

the transaction, which was to be executed by KeyBank, IQS, Cachat, and

CFLP.

{¶ 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, Cachat 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, which ran “through October 2008.” The letter informed Cachat that his

employment pursuant to the employment agreement would cease as of

October 31, 2008 and that his employment as the company’s Chief Vision

Officer would end on November 1, 2008. Cachat continued as chairman of

the board and remained a shareholder of the company. On November 25,

2008, Cachat sent an email tendering his resignation as director and from all

officer positions with IQS.

{¶ 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 original 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, Cachat filed an amended complaint adding CFLP as a plaintiff and Apex as a

defendant. Cachat also added two more counts alleging IQS breached a lease

agreement and that Apex fraudulently induced Cachat and CFLP to enter

into a general release.

{¶ 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 claims 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, citing Smiddy v. The Wedding Party, Inc. (1987), 30 Ohio St.3d 35, 506

N.E.2d 212; N.E. Ohio Apt. Assn. v. Cuyahoga Cty. Bd. of Commrs. (1997),

121 Ohio App.3d 188, 699 N.E.2d 534. Accordingly, we afford no deference to

the trial court’s decision and independently review the record to determine

whether summary judgment is appropriate. Civ.R. 56 summary judgment is

appropriate when: (1) no genuine issue as to any material fact exists, (2) the

party moving for summary judgment is entitled to judgment as a matter of

law, and (3) viewing the evidence most strongly in favor of the non-moving

party, reasonable minds can reach only one conclusion that is adverse to the

non-moving party.

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 contrary to his argument that he is entitled to the $500,000 under the

amended agreement. Because Cachat did not seek payment under the

amended non-competition agreement in his complaint, the trial court

properly declined to find merit to his argument because a claim cannot be

asserted for the first time in an opposition brief. Saikus v. Ford Motor Co.

(Apr. 12, 2001), Cuyahoga App. No. 77802; Akron Hydroelectric Co. v.

Cuyahoga Falls (1998), 128 Ohio App.3d 754, 716 N.E.2d 780; Williams v.

Time Warner Cable (June 24, 1998), 9th Dist. No. 18663. Accordingly,

Cachat’s first assigned error is overruled.

{¶ 18} Nonetheless, even if we consider his argument, it has no merit.

Art. I, Section 1.2 of 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-competition, 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, delivered on August 26, 2008, activated IQS’s duty to pay him the $500,000 to

not compete. The letter, written by IQS President Michael Rapaport, stated in

pertinent part:

“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 Restated 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. Moreover, the company’s decision whether to pay the amount was not required to be made until 15 days after the termination.

The letter was written two months prior to Cachat’s termination date.

{¶ 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 letter 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. {¶ 23} We note that Cachat failed to argue in the trial court that the

language regarding what constitutes the end of his term was ambiguous.

Thus, we are not required to address it. Ingram v. Adena Health Sys., 149

Ohio App.3d 447, 452, 2002-Ohio-4878, 777 N.E.2d 901; RBS Citizens, N.A.

v. Zigdon, Cuyahoga App. No. 93945, 2010-Ohio-3511. However, even if the

argument was raised below, it has no merit.

{¶ 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 Section 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 dates) 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 appearing 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 contract

with a special meaning will extrinsic evidence be considered in an effort to give effect to the parties’ intentions. Kelly v. Med. Life Ins. Co. (1987), 31

Ohio St.3d 130, 132, 509 N.E.2d 411. When the terms in a contract are

unambiguous, courts will not in effect create a new contract by finding an

intent not expressed in the clear language employed by the parties.

Alexander, at 246, 374 N.E.2d 146. We conclude the agreement is clear and

unambiguous. Cachat was not entitled to severance pay if the contract is not

extended and expires on its own terms, which is what occurred here.

{¶ 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 contracts 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.

{¶ 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, because 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. It is ordered that a special mandate be sent to said court to carry this

judgment into execution.

A certified copy of this entry shall constitute the mandate pursuant to

Rule 27 of the Rules of Appellate Procedure.

PATRICIA ANN BLACKMON, PRESIDING JUDGE

FRANK D. CELEBREZZE, JR., J., and EILEEN A. GALLAGHER, J., CONCUR