Lautermilch v. RHBA Acquisitions, LLC

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Timothy Lautermilch, Plaintiff, v. RHBA Acquisitions, LLC d/b/a Red Head Brass LLC, et al., Defendants.

No. 1:20-CV-2357

United States District Court, N.D. Ohio, Eastern Division

November 9, 2021

MEMORANDUM OF OPINION AND ORDER

PAMELA A. BARKER, U.S. DISTRICT JUDGE.

Currently pending is Defendant RHB Acquisition, LLC's Motion to Dismiss for Lack of Jurisdiction. (Doc. No. 21.) Plaintiff Timothy Lautermilch filed a Brief in Opposition on June 9 2021, to which Defendant replied on June 23, 2021. (Doc. Nos 23, 24.) For the following reasons, Defendant RHB Acquisition, LLC's Motion to Dismiss (Doc. No. 21) is GRANTED. In addition, the Court sua sponte remands Plaintiff's state law claims against Defendant RHBA Acquisitions, LLC to the Cuyahoga County Court of Common Pleas for further proceedings.

I. Background

a. Factual Allegations

Defendant RHB Acquisition, LLC (hereinafter “RHB”) was formed on October 23, 2015. (Doc. No. 16-4 at PageID# 339.) It is an Ohio limited liability company with its principal place of business in Shreve, Ohio. (Doc. No. 16 at ¶ 3.) Plaintiff Timothy Lautermilch has extensive knowledge and experience in business management. (Id. at ¶ 11.) He is an Ohio resident. (Id. at ¶ 1.)

On November 20, 2015, Plaintiff and RHB entered into the following agreements: (1) a “Limited Liability Company Operating Agreement” (hereinafter “Operating Agreement”); and (2) “Incentive Unit Award Agreement” (hereinafter “Incentive Agreement”). (Doc. Nos. 16-3, 16-4.) Pursuant to these Agreements, RHB issued 125 Common Units and 59.5238 Incentive Units to Lautermilch. (Doc. No. 16-3 at Section 1; Doc. No. 16 at ¶ 92.) As discussed in more detail infra, these Agreements contain certain provisions relating to RHB's “call rights” with respect to these Units in the event of Plaintiff's termination. See, e.g., Doc. No. 16-3 at Section 5; Doc. No. 16-4 at Sections 10.05 and 10.07.

On the same date that he entered into the Operating and Incentive Agreements, Plaintiff entered into an Employment Agreement with Defendant RHBA Acquisitions, LLC (hereinafter “RHBA”).^[1] (Doc. No. 16 at ¶ 12; Doc. No. 16-1.) RHBA is a Delaware limited liability company that manufactures high quality fittings and other firefighting equipment from its business location in Shreve, Ohio. (Doc. No. 16 at ¶ 2.) According to Plaintiff, RHBA is a wholly owned subsidiary of RHB. (Id. at ¶ 3.) Plaintiff further alleges that RHB and RHBA share the same address as well as the “same executive employments and same board of directors, who hold one single meeting for both companies at the exact same time.” (Id. at ¶ 4.)

Pursuant to the Employment Agreement, Plaintiff served as President of both RHBA and RHB, but was an employee of only RHBA. (Doc. No. 16-1 at Section 2.1.) Among other things, the Employment Agreement contained provisions relating to both termination for cause (Section 4.1) and termination without cause (Section 4.2). (Doc. No. 16-1.) The “termination for cause” provision provides, in relevant part, as follows:

4.1 Termination for Cause or by the Executive without Good Reason

(a) The Executive's employment hereunder may be terminated by the Company for Cause or by the Executive without Good Reason. If the Executive's employment is terminated by the Company for Cause or by the Executive without Good Reason, the Executive shall be entitled to receive:

(i) any accrued but unpaid Base Salary which shall be paid on the pay date immediately following the Termination Date (as defined below) in accordance with the Company's customary payroll procedures;

(ii) reimbursement for unreimbursed business expenses properly incurred by the Executive, which shall be subject to and paid in accordance with the Company's expense reimbursement policy; and

(iii) such employee benefits (including equity compensation), if any, to which the Executive may be entitled under the Company's employee benefit plans as of the Termination Date; provided that, in no event shall the Executive be entitled to any payments in the nature of severance or termination payments except as specifically provided herein.

(Doc. No. 16-1 at Section 4.1(a)). The term “cause” is defined, among other things, as: (i) “the Executive's failure to perform his duties;” (ii) “the Executive's engagement in dishonesty, illegal conduct or gross misconduct, which is, in each case, injurious to the Company Group;” or (iii) the Executive's material breach of any obligation under this Agreement or any other written agreement between the Executive and the Company, or any material failure by the Executive to comply with the Company's written policies or rules, provided that, if the breach or failure is curable, the Executive shall be entitled to written notice and a period of thirty (30) days to cure the alleged breach or failure. (Id. at Section 4.1(b)).

The Employment Agreement's termination without cause provision, by contrast, provides as follows:

4.2 Termination without Cause or with Good Reason. The Employment Term and the Executive's employment hereunder may be terminated by the Company without Cause or by the Employee for Good Reason, with not less than thirty (30) days written notice to the other party. In the event of such termination, the Executive shall be entitled to receive the Accrued Amounts, the Annual Bonus determined in accordance with the Equity Incentive Plan to the extent earned, and subject to the Executive's compliance with Section 5, Section 6 and Section 7 of this Agreement [regarding Confidential Information, Restrictive Covenants, and NonDisparagement] and his execution of a release of claims in favor of the members of the Company Group and their respective members, managers, officers and other representatives in a form provided by the Company (the "Release") and such Release becoming effective within twenty-one (21) days following the Termination Date, the Executive shall be entitled to receive continued Base Salary and health insurance benefits for eight (8) months following the Termination Date payable in equal installments in accordance with the Company's normal payroll practices, but no less frequently than monthly.

(Id. at Section 4.2) (emphasis added).^[2]

From November 20, 2015 through June 29, 2020, Plaintiff served as President and CEO of RHB and RHBA. (Doc. No. 16 at ¶ 15.) Plaintiff alleges that, during his employment, he “fully and faithfully performed his duties and responsibilities . . ., as set forth in the Employment Agreement.” (Id. at ¶ 16.) On June 29, 2020, however, RHBA (through John Broucek IV of D'Orazio Capital Partners, LLC) sent Plaintiff a “Notice of Termination for Cause” pursuant to Section 4.1 of the Employment Agreement. (Doc. No. 16-2.) This Notice provided the following reasons for Plaintiff's termination:

Performance and Gross Misconduct. You failed to perform your duties as President of the Company and exhibited gross misconduct. You failed to meet annual operating goals year over year, including without limitation, a failure to execute satisfactorily on the annual operating budget, annual business plan and sales performance plan. As a result, the Company has underperformed and has suffered decreasing EBITDA for the past several years. You failed to execute on the 2018/2019 inventory pre-purchase plan in coordination with the bank covenant amendments resulting in adverse consequences to the Company. You failed to provide sufficient oversight in the accounting department and to institute adequate accounting controls over accounting functions necessary to identify accounting irregularities and financial misrepresentations to the Company's lender for over a year to the detriment of the Company. You failed to adequately create a safe working environment at the Company as evidenced by the issuance of several OSHA violations resulting in over $37, 000 in fines incurred by the Company and, moreover, failed to make all the required fine payments. You exhibited gross misconduct when you allowed a new employee to start work and continue working after you had knowledge of such employee's failure to pass a pre-employment drug screen. Failing to abide by the Company's policies is a risk to the Company and to the other employees.

(Id. at p. 1.) The Notice indicated that Plaintiff's termination was effective on that date (i.e., June 29, 2020) and explained that (1) Plaintiff was entitled to his salary up until the termination date; (2) payment for Plaintiff's accrued and unused paid time off would be paid “in accordance with the Company's policy;” and (3) Plaintiff would receive a letter outlining the status of his benefits upon dismissal, including information about eligibility for COBRA benefits. (Id.)

Plaintiff claims that “RHBA purposefully manufactured certain false claims and accusations against [him], with actual malice and in an effort to improperly manufacture grounds [for] a termination ‘with cause,' while having actual knowledge that there was no possible legal or factual basis for such a termination.” (Doc. No. 16 at ¶ 22.) He further asserts that RHBA should have, but failed to, provide thirty day written notice of termination without cause, as required by Section 4.2 of the Employment Agreement. (Id. at ¶¶ 24-27.)

By the time of his termination, Plaintiff alleges that he had earned and received a total of 94.246075 Unrestricted Incentive Units that had fully vested, and an additional 4.960325 Restrictive Incentive Units. (Id. at ¶ 79.) Plaintiff claims that, by virtue of his receipt and ownership of the Restricted Units, he “became an owner and member of RHB and entitled to the rights set forth in the Operating Agreement.”^[3] (Id. at ¶ 80.)

On October 28, 2020, RHBA sent a written demand to Plaintiff to repurchase his Common and...