[Cite as Heskett Ins. Agency, Inc. v. Braunlin, 2011-Ohio-6100.]
IN THE COURT OF APPEALS OF OHIO FOURTH APPELLATE DISTRICT ROSS COUNTY
HESKETT INSURANCE AGENCY, INC., : Case No. 11CA3234 : and : : DECISION AND HESKETT INSURANCE AGENCY, INC. : JUDGMENT ENTRY d/b/a WEISENBERGER INSURANCE : SERVICE, : : Plaintiffs-Appellees : : v. : RELEASED 11/16/11 : ERIC BRAUNLIN, : : and : : FIRST CAPITAL INSURANCE : SERVICES, INC., : : Defendants-Appellants. : ______________________________________________________________________ APPEARANCES:
Thomas M. Spetnagel and Paige J. McMahon, SPETNAGEL & McMAHON LAW OFFICE, Chillicothe, Ohio, for appellants.
Thomas W. Breidenstein, THE LAW OFFICES OF THOMAS W. BOSSE, PLLC, Crestview Hills, Kentucky, for appellees. ______________________________________________________________________ Harsha, P.J.
{¶1} Eric Braunlin appeals the trial court’s enforcement of a settlement
agreement he entered into with Heskett Insurance Agency, Inc. and Heskett Insurance
Agency, Inc., d.b.a. Weisenberger Insurance Service (collectively “Heskett”). The trial
court found that Braunlin breached the agreement by making four late payments and
awarded Heskett liquidated damages. Braunlin contends that three of these payments
were timely because he “delivered,” i.e. mailed, them prior to the dates specified in the Ross App. No. 11CA3234 2
agreement. However, the agreement clearly states that Braunlin must “timely pay”
Heskett “on or before” certain dates – terminology that necessarily requires both
delivery and receipt of payments by those dates. Thus, the trial court did not err in
finding that Braunlin breached by making these payments late.
{¶2} Next, Braunlin argues that Heskett cannot enforce the liquidated damages
clause in the settlement agreement on the fourth payment Heskett claims was late due
to Heskett’s “unclean hands,” i.e. it acted in bad faith by trying to penalize Braunlin for
using the mail which was a timely method of payment. However, the “clean hands”
doctrine does not apply because Heskett never invoked the trial court’s equitable
jurisdiction. Furthermore, we have already determined that Braunlin made these
payments late because the mailbox rule did not apply. Because Heskett merely sought
to enforce its right to damages under the provisions of the settlement agreement, the
trial court did not abuse its discretion when it did not apply the unclean hands doctrine.
{¶3} Braunlin also contends that the trial court improperly enforced the
“liquidated damages” clause in the settlement agreement because the damages
constitute a penalty. Heskett’s loss from Braunlin’s failure to make timely payments can
easily be calculated with reference to the legal rate of interest and the period of default.
Thus damages were not uncertain in amount or difficult to prove. The “liquidated
damages” clause, which doubles late payments, is an unenforceable penalty. We
therefore reverse the trial court’s award of liquidated damages. And because that
decision renders moot Braunlin’s contention that the trial court erred in finding that these
damages were non-dischargeable in bankruptcy, we need not address it.
I. Facts Ross App. No. 11CA3234 3
{¶4} Heskett filed suit against Braunlin, one of its former insurance agents, and
First Capital Insurance Services, Inc. (“First Capital”), a corporation formed by Braunlin.
As part of its employment arrangement with Braunlin, Heskett was to receive 50% of
Braunlin’s commissions on the sale of insurance products. Heskett alleged that
Braunlin used his position to sell insurance products to its new and existing customers
through First Capital and other brokers, misappropriating Heskett’s share of the
commissions. Braunlin filed a counterclaim, alleging that Heskett breached its
obligations under the parties’ arrangement.
{¶5} Prior to trial, the parties orally entered into a settlement agreement. The
parties later reduced their agreement to a writing the trial judge and parties signed.
Braunlin agreed to “timely pay to [Heskett] the sum of $25,000.00” in a series of eight
payments of varying amounts. The agreement further outlined the form of payment and
location for delivery. The parties agreed that Braunlin would pay liquidated damages on
each late payment in an amount equal to the amount of the late payment. Furthermore,
the parties agreed that the settlement was “of a debt which is not subject to discharge in
bankruptcy under Section 11 USC Section 523 (a)(2) and 523 (a)(4)[.]” The parties also
agreed to file an “entry of dismissal with prejudice and satisfaction of judgment” after
Braunlin paid all money owed under the settlement agreement. The trial court issued
an “Entry of Settlement” in which the court recognized that the parties entered into a
settlement agreement resolving all issues and retained jurisdiction to enforce the terms
of the agreement until the parties filed a dismissal entry.
{¶6} In January 2008, Heskett filed a motion for a judgment enforcing the
agreement. Heskett alleged that Braunlin made several late payments: Ross App. No. 11CA3234 4
(1) he failed to pay $1,500 on or before June 30, 2006; instead, payment was received a day or two late; (2) he failed to pay $2,000 on or before December 31, 2006; payment was received January 3, 2007; (3) he failed to pay $2,500 on or before September 30, 2007; payment was received October 1, 2007; and (4) he has yet to pay the final payment of $5,000, which was due on or before December 31, 2007.
Heskett asked the trial court to award it $16,000 – $5,000 for the December 31, 2007
payment and $11,000 in liquidated damages (i.e. $1,500 + $2,000 + $2,500 + $5,000).
In addition, Heskett requested attorney’s fees and expenses for filing its motion.
Subsequently, Braunlin sent the $5,000 payment, and Heskett reduced its request for
relief by this amount.
{¶7} Braunlin filed a cross-motion for a judgment enforcing the settlement
agreement, requesting an entry of dismissal with prejudice and satisfaction of judgment
on the grounds that Heskett received full payment of the $25,000. Braunlin argued that
three of the four payments at issue were not late because they were “delivered,” i.e.
mailed, before the dates outlined in the settlement agreement. While Braunlin
conceded that the final payment of $5,000 was late, he contended that Heskett’s
unclean hands prohibited its recovery of liquidated damages for that payment. Braunlin
also argued that the liquidated damages clause constituted an unenforceable penalty.
{¶8} After holding an evidentiary hearing, the trial court issued its Final
Judgment Entry Enforcing the Settlement Agreement, which sustained Heskett’s motion
in part and overruled Braunlin’s cross-motion. The court found that the mailbox rule did
not apply to the payment schedule and that payments under the agreement “were due
in the hands of [Heskett] on or before the due dates listed in the Agreement.” In
addition, the court found that the “agreed-upon and Court-approved liquidated damages
[were] proper damages under the terms of the Settlement Agreement, and [did] not Ross App. No. 11CA3234 5
constitute unenforceable penalties.” The court found that Braunlin made the four
payments at issue late and ordered him to pay Heskett $11,000 in liquidated damages.
In addition, the court found that this amount was not subject to discharge in bankruptcy
under the terms of the settlement agreement. The court denied Heskett’s request for
attorney fees and expenses as “premature.” Braunlin appealed. However, because
Heskett’s request for attorney’s fees and expenses remained undecided, we dismissed
for lack of a final order. Heskett Ins. Agency Inc. v. Braunlin, Ross App. No. 08CA3069,
2009-Ohio-1400. Subsequently, the trial court denied Heskett’s request, and this
appeal followed.
II. Assignments of Error
{¶9} Braunlin assigns the following errors for our review:
THE TRIAL COURT ERRED AS A MATTER OF LAW IN SUSTAINING PLAINTIFFS-APPELLEES’ MOTION FOR JUDGMENT ENFORCING THE SETTLEMENT AGREEMENT IN PART AND OVERRULING DEFENDANT-APPELLANT’S CROSS-MOTION FOR JUDGMENT ENFORCING THE SETTLEMENT AGREEMENT.
THE TRIAL COURT ERRED AS A MATTER OF LAW IN FINDING THAT THE PENALTY IMPOSED BY THE LIQUIDATED DAMAGES CLAUSE WAS NON-DISCHARGEABLE IN BANKRTUPCY UNDER 11 U.S.C. 523(A)(2) AND (A)(4).
III. Motion to Enforce Settlement Agreement
{¶10} In his first and second assignments of error, Braunlin contends that the
trial court erred in various ways when it ruled on the motion and cross-motion to enforce
the settlement agreement. The parties disagree about the standard of review we should
apply to these arguments. Heskett contends that we should apply an abuse of
discretion standard because the settlement agreement constitutes the trial court’s own
order and courts have discretion to interpret and clarify their own orders. (Appellees’ Br. Ross App. No. 11CA3234 6
7).
{¶11} However, a settlement agreement is a contract designed to prevent or end
litigation. Continental W. Condominium Unit Owners Assn. v. Howard E. Ferguson,
Inc., 74 Ohio St.3d 501, 502, 1996-Ohio-158, 660 N.E.2d 431. Thus, when interpreting
a judgment that adopts a settlement agreement, courts must apply general rules of
contract interpretation. See Martin v. Howard, Lawrence App. No. 07CA27, 2009-Ohio-
67, at ¶7, citing Pierron v. Pierron, Scioto App. Nos. 07CA3153 & 07CA3159, 2008-
Ohio-1286, at ¶7. And “[t]he standard of review applicable to a ruling on a motion to
enforce a settlement agreement depends upon the issues disputed * * *.” Barstow v.
O.U. Real Estate, III, Inc., Athens App. No. 01CA49, 2002-Ohio-4989, at ¶36. Below,
we set forth the appropriate standard of review for each issue raised in Braunlin’s
appeal.
A. Time for Payment
{¶12} Braunlin contends that the trial court misinterpreted the clear terms of the
settlement agreement regarding the time for payment. The issue of whether a contract
is ambiguous presents a question of law we review de novo. Martin at ¶8. If the
contract is clear and unambiguous, both the trial court and this court must apply it as
written, i.e. as a matter of law. See Latina v. Woodpath Development Co. (1991), 57
Ohio St.3d 212, 214, 567 N.E.2d 262; Martin at ¶8. But should we determine an
ambiguity exists, we afford the trial court discretion to clarify the ambiguity. Martin at ¶8.
{¶13} In construing a written instrument, the primary and paramount objective is
to ascertain the intent of the parties so as to give effect to that intent. Aultman Hosp.
Assn. v. Community Mut. Ins. Co. (1989), 46 Ohio St.3d 51, 53, 544 N.E.2d 920. Ross App. No. 11CA3234 7
Common words must be given their ordinary meaning unless manifest absurdity would
result or some other meaning is clearly evidenced from the face or overall contents of
the written instrument. Alexander v. Buckeye Pipe Line Co. (1978), 53 Ohio St.2d 241,
374 N.E.2d. 146, at paragraph two of the syllabus.
{¶14} Braunlin contends that under the terms of the settlement agreement, he
was obligated to “deliver,” i.e. mail, payments to Heskett on or before the dates
specified in the agreement. Heskett argues that under the agreement, any payment is
late unless Heskett received it on or before the specified dates. Neither party appears
to dispute that (1) Heskett received all four payments at issue after the dates listed in
the agreement, and (2) Braunlin mailed three of the four payments at issue before the
dates specified in the agreement. Thus, if we accept Braunlin’s interpretation of the
contract, he made one late payment. If we accept Heskett’s interpretation of the
contract, Braunlin made four late payments.
{¶15} The settlement agreement provides:
Defendant, Eric Braunlin shall timely pay to [Heskett] the sum of $25,000.00 in accordance with the following schedule:
I. 2006
a. The sum of $7,500.00 on or before May 15, 2006. b. The sum of $1,500.00 on or before June 30, 2006. c. The sum of $1,500.00 on or before September 30, 2006. d. The sum of $2,000.00 on or before December 31, 2006.
II. 2007
a. The sum of $2,500.00 on or before March 30, 2007. b. The sum of $2,500.00 on or before June 30, 2007. c. The sum of $2,500.00 on or before September 30, 2007. d. The sum of $5,000.00 on or before December 31, 2007.
The agreement further provides that: Ross App. No. 11CA3234 8
All payments set forth above shall be made by certified check payable to Heskett Insurance Agency, Inc. The first such payment shall be delivered to M. Michele Fleming, attorney for Heskett * * *, 105 E. Fourth Street, Cincinnati, Ohio 45202. All subsequent payments shall be payable to Heskett Insurance Agency, Inc. and delivered to the offices of [Heskett] located at 110 E. Main Street, Hillsboro, Ohio 45133.
{¶16} In interpreting these provisions, Braunlin emphasizes the agreement’s use
of the term “delivered.” He contends that delivery is a transfer of possession that
requires intent to deliver coupled with an act of relinquishment of custody and control.
According to Braunlin, his act of placing the payments to Heskett in the mail qualifies as
delivery. Braunlin contends that the common law mailbox rule applies so that his
payments were effective upon sending.
{¶17} However, in the settlement agreement the term “delivered” is used only in
reference to the physical location where Braunlin was to make the payments. The plain
language of the agreement provides that Braunlin “shall timely pay * * * [a specified sum
of money] on or before [a specified date].” (Emphasis added). The term “pay” means:
“To discharge a debt by tender of payment due; to deliver to a creditor the value of a
debt, either in money or in goods, for his acceptance. To compensate for goods
services or labor.” Black’s Law Dictionary (Abridged 6th Ed. 1992) (internal citation
omitted). By this definition, the term “pay” necessarily involves both delivery and
receipt. See generally Estate of Hart v. Hart, Franklin App. No. 07AP-504, 2007-Ohio-
6861, at ¶14. Therefore, the trial court did not err in finding that under the clear and
unambiguous terms of the settlement agreement, Braunlin’s payments were late unless
Heskett received them on or before the specified dates. Because Heskett received the
four payments at issue after the specified dates, the trial court correctly determined that Ross App. No. 11CA3234 9
Braunlin breached the settlement agreement on those occasions.
B. Clean Hands
{¶18} Although Braunlin admits he made the final payment under the settlement
agreement late, he contends that Heskett’s “unclean hands” prohibit it from pursuing
liquidated damages for that payment. The equitable “clean hands” doctrine provides
that a party cannot come to court seeking equity where that party engaged in
“reprehensible conduct with respect to the subject-matter of his suit.” Kinner v. Lake
Shore & M. S. Ry. Co. (1904), 69 Ohio St. 339, 69 N.E. 614, at paragraph one of the
syllabus. Generally, actions for monetary relief are legal, not equitable. O’Brien v. Ohio
State Univ., 139 Ohio Misc.2d 36, 2006-Ohio-4346, 859 N.E.2d 607, at ¶58, fn. 3, citing
Feltner v. Columbia Pictures Television, Inc. (1998), 523 U.S. 340, 352, 118 S.Ct. 1279,
140 L.E.2d 438 and City of Monterey v. Del Monte Dunes at Monterey, Ltd. (1999), 526
U.S. 687, 710-711, 119 S.Ct. 1624, 143 L.E.2d 882.
{¶19} We review a trial court’s decision on whether a party has clean hands for
an abuse of discretion. Muskingum Valley Bancshares, Inc. v. Tonti (Mar. 23, 1997),
Washington App. No. 95 CA 31, 1997 WL 214798, at *15. The phrase “abuse of
discretion” implies that the court’s attitude was unreasonable, arbitrary, or
unconscionable. State v. Adams (1980), 62 Ohio St.2d 151, 157, 404 N.E.2d 144.
{¶20} Braunlin’s “unclean hands” argument is premised on his contention that he
timely made payments under the settlement agreement except for the last payment.
Each time Heskett received a payment it deemed late, it sent Braunlin a letter informing
him of that fact. After Heskett received a third payment it deemed late, it informed
Braunlin that it would assess liquidated damages for his breach. As noted above, Ross App. No. 11CA3234 10
Braunlin contends that these three payments were not late because he mailed them
prior to the dates specified in the settlement agreement. Braunlin argues that Heskett
acted in bad faith by trying to “penalize him for using the mail” in making these
payments. (Appellant’s Br. 10). Therefore, Braunlin argues that even though he made
the final payment late, Heskett’s unclean hands prevent it from pursuing liquidated
damages for that payment under the settlement agreement.
{¶21} However, Heskett sought and received monetary damages for Braunlin’s
breach of the settlement agreement – a legal remedy, not an equitable remedy.
Because the trial court’s equitable jurisdiction was not invoked, Braunlin’s reliance on
the equitable “clean hands” doctrine is misplaced. O’Brien, supra, at ¶58, fn. 3, citing
Civil Serv. Personnel Assn., Inc. v. City of Akron (1976), 48 Ohio St.2d 25, 356 N.E.2d
300. Even if the “clean hands” doctrine was applicable, we have already concluded that
Braunlin was late in making the payments at issue. Heskett’s assertion of its right under
the terms of the settlement agreement to damages for Braunlin’s breach can hardly be
deemed “reprehensible conduct.” Therefore, the trial court did not act unreasonably,
arbitrarily, or unconscionably when it failed to apply the unclean hands doctrine.
C. Liquidated Damages
{¶22} Braunlin contends that the “liquidated damages” clause in the settlement
agreement actually constitutes an unenforceable penalty. Penalty provisions in
contracts are “invalid on public policy grounds because a penalty attempts to coerce
compliance with the contract rather than represent damages which may actually result
from the failure to perform.” Satterfield v. Adams Cty./Ohio Valley School Dist. (Nov. 6,
1996), Adams App. No. 95CA611, 1996 WL 655789, at *7, citing Lake Ridge Academy Ross App. No. 11CA3234 11
v. Carney (1993), 66 Ohio St.3d 376, 381, 613 N.E.2d 183. The issue of whether a
contract clause provides for liquidated damages or an unenforceable penalty presents a
question of law that we review de novo. Lake Ridge Academy at 380.
{¶23} “Whether a particular sum specified in a contract is intended as a penalty
or as liquidated damages depends upon the operative facts and circumstances
surrounding each particular case[.]” Samson Sales, Inc. v. Honeywell, Inc. (1984), 12
Ohio St.3d 27, 28-29, 465 N.E.2d 392. If a party challenges a stipulated damages
provision, “the court must step back and examine it in light of what the parties knew at
the time the contract was formed and in light of an estimate of the actual damages
caused by the breach.” Lake Ridge Academy at 382. “If the provision was reasonable
at the time of formation and it bears a reasonable (not necessarily exact) relation to
actual damages, the provision will be enforced.” Id., citing 3 Restatement of the Law
2d, Contracts (1981) 157, Section 356(1).
{¶24} The Supreme Court of Ohio has devised the following test for courts to
evaluate a stipulated damages clause:
Where 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 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 intention of the parties that damages in the amount stated should follow the breach thereof.
Jones v. Stevens (1925), 112 Ohio St. 43, 146 N.E. 894, at syllabus.
{¶25} Here the settlement agreement provides that if Braunlin “fail[s] to meet any
of the payments according to the schedule * * * then liquidated damages in an amount Ross App. No. 11CA3234 12
equal to the amount owed on the due date of the payment shall be immediately
assessed without further court action and shall be owed fully by [Braunlin].” In other
words, each late payment is doubled. Braunlin contends that this clause violates the
first prong of Jones because Heskett’s damages could easily be determined by
calculating the legal rate of interest for any period Braunlin was in default.
{¶26} Heskett implies that damages in this case are uncertain because we
cannot know what amount a jury would have awarded had the case proceeded to trial
(though Heskett speculates it would have been significantly greater than the settlement
amount). Heskett misinterprets this prong of the Jones test. Under Heskett’s
interpretation, damages would always be uncertain in the case of settlement
agreements because we cannot predict the outcome of a trial. However, under Jones
we must ask what harm the stipulated damages were intended to rectify and whether
damages from that harm were uncertain in amount and difficult to prove.
{¶27} In this case, the stipulated damages were intended to compensate
Heskett for harm it would suffer if Braunlin made late payments. These damages are
neither uncertain in amount nor difficult to prove. Braunlin’s failure to make a payment
when due would simply entitle Heskett to interest at the legal rate for the default period.
Furthermore, a double payment assessed regardless of whether payment was a day
late, or alternatively, years late, bears no relationship to the actual damages caused by
Braunlin’s failure to timely make a payment.
{¶28} Because damages in this case are certain and easy to prove, i.e. they can
easily be calculated by applying the legal rate of interest to periods of default, the
“liquidated damages” clause in the settlement agreement constitutes an unenforceable Ross App. No. 11CA3234 13
penalty. Therefore, the trial court erred when it enforced the clause and ordered
Braunlin to pay Heskett $11,000 in liquidated damages. However, Heskett may still
prove compensatory damages, i.e. actual damages, for Braunlin’s breach of the
settlement agreement. Sheffield-King Milling Co. v. Domestic Science Baking Co.
(1917), 95 Ohio St. 180, 115 N.E. 1014, at syllabus.
{¶29} Given our finding that the stipulated damages provision fails the first prong
of the Jones test, we need not address Braunlin’s claim that the provision also fails the
second prong of the Jones test. Furthermore, our disposition of this assignment of error
renders Braunlin’s second assignment of error moot, so we need not address it. See
App.R. 12(A)(1)(c).
{¶30} Accordingly, we affirm the trial court’s judgment to the extent that it finds
that Braunlin breached the settlement agreement by making untimely payments and to
the extent that it did not apply the “unclean hands” doctrine. However, we reverse the
trial court’s judgment to the extent that it awards Heskett $11,000 in liquidated damages
and remand the matter to the trial court to determine the amount of actual damages
resulting from Braunlin’s breach.
JUDGMENT AFFIRMED IN PART, REVERSED IN PART, AND CAUSE REMANDED. Ross App. No. 11CA3234 14
JUDGMENT ENTRY
It is ordered that the JUDGMENT IS AFFIRMED IN PART AND REVERSED IN PART and that the CAUSE IS REMANDED. Appellants and Appellees shall split the costs.
The Court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this Court directing the Ross County Common Pleas Court to carry this judgment into execution.
Any stay previously granted by this Court is hereby terminated as of the date of this entry.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure. Exceptions.
Abele, J.: Concurs in Judgment and Opinion. McFarland, J.: Concurs in Judgment Only.
For the Court
BY: ________________________________ William H. Harsha, Presiding Judge
NOTICE TO COUNSEL
Pursuant to Local Rule No. 14, this document constitutes a final judgment entry and the time period for further appeal commences from the date of filing with the clerk.