Fordyce v. Hattan

141 N.E.3d 574

2019 Ohio 3199

Seth FORDYCE, et al., Plaintiffs-Appellants

v.Kenneth M. HATTAN, et al., Defendants-Appellees

No. 28342

Court of Appeals of Ohio, Second District, Montgomery County.

Rendered on August 9, 2019

BARRY W. MANCZ, Atty. Reg. No. 0011857, 2160 Kettering Tower, Dayton, Ohio 45423, Attorney for Plaintiffs-Appellants

STEPHEN E. KLEIN, Atty. Reg. No. 0014351 and PATRICK J. JANIS, Atty. Reg. No. 0012194, 124 W. Main Street, Troy, Ohio 45373, Attorneys for Defendants-Appellees

OPINION

HALL, J.

{¶ 1} The plaintiffs-appellants, Seth Fordyce and Fordyce Finishing Company, LLC, appeal the trial court's entry of summary judgment for the defendants-appellees, Kenneth Hattan and Acquisition Services, LLC, on the appellants' claims for misrepresentation. We conclude that there was no justifiable reliance and that the claims were barred by the applicable statute of limitations, and we affirm the trial court's judgment.

I. Facts and Procedural History

{¶ 2} This case involves the sale of a business and the seller's claim that his broker misrepresented to him the terms of the sale. The business was Fordyce Finishing Company, LLC, owned by Seth Fordyce. (We will refer to them collectively as "Fordyce.") Fordyce hired Kenneth Hattan and his company, Acquisition Services, LLC, to be his agent in the sale. (We will refer to them collectively as "Hattan.") Hattan found a buyer in Couch Business Development, Inc., and its owner David Couch. (We will refer to them collectively as "Couch.")

The negotiations

{¶ 3} On April 1, 2010, Hattan faxed Fordyce an exclusive right-to-sell agency agreement for Fordyce to sign. Two months later, on June 21, Couch sent Fordyce a letter of intent to purchase Fordyce's business for $1.9 million. The letter, which had been drafted by Couch's attorney, provided that Fordyce would agree to provide consulting services for six months after the closing—the first 280 hours at no cost to Couch and additional hours at $50 per hour. The letter further provided that Fordyce would agree to "take up to a 15% financial holdback position as required by the lending institution." Fordyce had his attorney, Michael Sandner, review the letter and then Fordyce signed it.

{¶ 4} Couch then used the letter of intent to apply for a loan from Huntington National Bank. Huntington at first rejected Couch's application, but later the bank sent Hattan and Couch an email telling them that the loan application would be reconsidered if, among other things, Fordyce agreed to finance $515,000 of the purchase price and to sign a full-term standby agreement that would preclude Fordyce from accepting payments from Couch until Huntington's loan was paid in full. There is no dispute that Hattan told Fordyce about the first requirement, but there is a dispute as to whether Hattan told him about the full-term standby agreement.

{¶ 5} In September, Huntington sent Couch a Commitment Letter agreeing to lend him $1,128,000 over 16 years. Fordyce signed a "Statement of Seller's Intent to Finance," stating that he was willing to finance up to $515,000 of the sale over a term of 10 years and that he was "willing to sign a ‘Stand-by Agreement’ in favor of bank financing provided." Fordyce did not have his attorney review the Statement of Intent.

{¶ 6} At the same time, Fordyce's attorney and Couch's attorney were drafting, reviewing, and revising several other agreements relating to the sale, including an Asset Purchase Agreement (APA) and a Consulting Agreement. Sometime after September 15, but before the closing, Fordyce and Couch signed the APA, which provided that $515,000 of the $1.9 million purchase price would be paid by a promissory note "payable upon such terms and conditions to comply with the Purchaser's banks' requirements." (Article 1.3(a)). The APA further provided that for six months after closing, Fordyce, under a Consulting Agreement attached to the APA, would provide 280 hours of consulting services at no cost and any additional hours at a rate of $35 per hour. (Article 9). The Consulting Agreement was not attached to the APA.

The closing and post-closing

{¶ 7} The closing occurred on November 19, 2010. Fordyce, Hattan, and Couch were present, but neither Fordyce's nor Couch's attorney was. Couch signed a promissory note to Huntington for $1,128,000. He also signed a promissory note to Fordyce (Seller Note) for $515,000, plus interest, which included this provision:

This Note shall be subordinate to the Promissory Note of the Huntington National Bank and shall be payable upon the Promissory Note to Huntington National Bank being paid in full, and the Maker shall make monthly installments of $10,000 of principal and interest which shall be paid on the 1st day of each month beginning thirty (30) days from the date that the Promissory Note to Huntington National Bank has been paid in full, and shall continue to be paid until the entire unpaid principal balance and accrued interest has been paid in full.

A draft of the Seller Note was reviewed by Fordyce's attorney, and Fordyce read the Seller Note at the closing. For his part, Fordyce signed a "Standby Creditor's Agreement," referred to in the Statement of Intent that he had signed earlier. In the Standby Agreement, Fordyce agreed, among other things:

1. To accept no further payments on the Standby Loan until Lender's Loan is satisfied[.]

* * *

3. To take no action to enforce claims against Standby Borrower on the Standby Loan until Lender's Loan is satisfied.

* * *

8. Additional Loans made by Standby Creditor will be subject to the terms of this Agreement, unless Lender agrees otherwise in writing[.]

{¶ 8} More than a week after the closing, Fordyce and Couch signed the Consulting Agreement referred to in the APA.¹ The agreement contained the same consulting terms as the APA but added a payment of $515,000:

(A) COUCH shall pay FORDYCE at the rate of Thirty Five Dollars and 00/100 ($35.00) per hour in excess of the Two Hundred (280) hours included in the Asset Purchase Agreement in Article 9.

(B) COUCH shall additionally pay Consultant Five Hundred Fifteen Thousand Dollars and 00/100 ($515,000.00), payable as follows:

(1) No payment shall be required due (sic) until the twenty fifth month from the date of this Agreement.

(2) The annual payment to FORDYCE shall not exceed 10% of gross sales of COUCH, unless at the sole discretion of COUCH.

(3) Notwithstanding, the entire balance of the consulting fee shall be paid with interest thereon at three and nine tenths percent (3.9%) per annum, paid on or before the 18th day of November, 2020.²

(4) The entire principal balance may be paid at any time without penalty.

According to Couch, the $515,000 payment in the Consulting Agreement was intended to replace the $515,000 promissory note. The agreement was created by the joint efforts of Fordyce's attorney (Sandner) and Couch's attorney. There were various drafts of this document reviewed and revised by Sandner on behalf of Fordyce. Fordyce believes that the Consulting Agreement was part of the sale, but he does not know why it was signed separately from the other sale documents. Hattan was not involved in drafting the Consulting Agreement. Hattan exchanged information between Fordyce and Couch but was not consulting with Fordyce, Couch, or their attorneys about the terms of the agreement.

{¶ 9} Couch understood the Consulting Agreement violated the bank's Standby Agreement. He said that the agreement was a "work-around" substitute for the $515,000 note in order to provide payment to Fordyce before the 16-year note to Huntington Bank was paid. Couch's attorney told him this was not unusual and that the agreement could be structured to comply with the bank agreement. According to Couch, he, Fordyce, and their attorneys all knew that the Consulting Agreement was a "work around" of the bank limitations. On October 18, 2010, Fordyce's attorney, Sandner, sent Fordyce an e-mail about the agreement in which he told Fordyce: "If it is a ten year agreement then paragraph 2 has a significant typo (It identifies it as a two year agreement). You don't get any money until after two years, and may not get much of anything at that time." Fordyce understood Sandner to mean that he was to begin receiving monthly payments after two years.

{¶ 10} The Seller Note was never cancelled, and the existence of the Consulting Agreement was not disclosed to Huntington.

{¶ 11} In the six months that followed the closing, Fordyce provided the 280 hours of consulting services required by the APA and Consulting Agreement. Two years after the closing, Couch began making payments to Fordyce under the Consulting Agreement. But the following year, Couch experienced financial difficulties and began making interest-only payments. These payments, totaling around $70,000, were reflected in financial documents provided to Huntington in 2014. When Huntington saw these payments, it immediately told Couch that the payments were in violation of the Standby Agreement and that if they were not stopped, Huntington would file suit. The next month, Couch stopped making the payments to Fordyce.

Fordyce sues

{¶ 12} On November 16, 2016, Fordyce filed suit against Hattan for negligent and fraudulent misrepresentation and for return of the commission that it had paid him. Hattan moved to join Couch and Huntington as necessary parties. The motion was unopposed and the parties were joined. Hattan filed a counterclaim and third-party claims against the newly-joined parties for declaratory relief as to the interpretation and effect of the Seller Note, Huntington Note, Standby Agreement, and Consulting Agreement.

{¶ 13} Huntington filed a motion for summary judgment on Hattan's claims for declaratory relief, and Hattan filed a motion for summary judgment on Fordyce's claims. Hattan argued that there was no genuine dispute that Fordyce's reliance on Hattan's alleged misrepresentations and concealments of fact was not justified. Hattan further argued that...