Symons v. Fish

158 N.E.3d 352

Terri SYMONS, John Nauyokas, Jennifer Reynolds, and David Dennison, Appellants-Defendants/Counterclaim Plaintiffs,

v.Gary FISH and Jeremey Fish, Appellees-Plaintiffs/Counterclaim Defendants.

Court of Appeals Case No. 20A-PL-395

Court of Appeals of Indiana.

FILED September 29, 2020

Attorneys for Appellants: Jonathan D. Mattingly, Sean P. Burke, Hamish S. Cohen, Jeffery Furminger, Mattingly Burke Cohen & Biederman LLP, Indianapolis, Indiana

Attorneys for Appellees: Bryan S. Redding, Caitlin R. Jared, Redding Law, LLC, Carmel, Indiana

Najam, Judge.

Statement of the Case

[1] Terri Symons appeals the trial court's judgment for Gary Fish and Jeremey Fish ("the Sellers") following a jury trial on the Sellers' complaint for breach of contract arising from the sale of a business. Symons presents seven issues for our review, which we restate as the following four issues:

1. Whether a contract clause providing for treble damages is an unenforceable penalty.

2. Whether the Sellers' complaint is time barred by an eighteen-month contractual limitations period.

3. Whether the evidence or the parties' indemnification clause supports an award of damages greater than $250,000.

4. Whether Symons has met her burden on appeal to show that the trial court abused its discretion in the award of attorneys' fees and costs to the Sellers.

[2] We affirm in part, reverse in part, and remand with instructions.

Facts and Procedural History

[3] On June 3, 2011, Symons, John Nauyokas, Jennifer Reynolds, and David Dennison (collectively, "the Buyers")¹ purchased Breath of Life Home Medical Equipment and Respiratory Services, Inc. ("the Company") from the Sellers and other shareholders. The parties' stock purchase agreement ("the contract") provided in relevant part as follows:

5.2 Personal Guaranties. Within sixty (60) days of Closing ... Buyer[s] will obtain the release or suitable replacement of any personal guaranties in the name or names of any of the selling [S]hareholders in association with Company business. In the event Buyer[s are] unable or unwilling to release or replace the personal guaranties of all the Shareholders then Buyer[s], jointly and severally[,] will indemnify and hold harmless any Shareholder and will reimburse the Shareholder three (3) times the amount of any loss, liability, claim, damage, expense (including reasonable costs and of investigation and defense and reasonable attorneys' fees and expenses) (collectively, "Damages")[ ] arising from or in connection with any personal guaranties of any named Shareholders. At closing, Buyer[ ] John Nauyokas, current CEO of Company, will provide to Shareholders a written listing of all vendors, suppliers[,] or other third[ ]parties associated with or doing business with the Company that could have a personal guaranty from the Shareholders[,] including contact information with a minimum of an address and phone number. Within thirty (30) days following Closing, Shareholders will provide Buyer[ ] John Nauyokas[ ] a list of vendors or suppliers subject to this provision. Any vendor, supplier[,] or other party not disclosed by Buyer[ ] John Nauyokas[ ] at closing will automatically be subject to this provision.

Appellant's App. Vol. II at 19 ("Section 5.2") (emphasis added). The contract further provided in relevant part:

7.1 Survival. Unless otherwise provided herein, all representations, warranties, covenants, and obligations in this Agreement ... shall survive the Closing for a period of eighteen (18) months following the Closing Date.

Id. at 21 ("Section 7.1").

[4] Subsequent to their purchase of the Company, the Buyers did not obtain the release or replacement of the personal guaranties of the Sellers and other shareholders to Integrated Medical Systems, Inc. ("IMS"), a vendor of medical equipment for the Company. The Company then defaulted on more than $800,000 in liabilities owed to IMS, and, in November of 2014, IMS brought suit in Illinois against the Sellers to recover on their personal guaranties.

[5] The Sellers entered into a stipulated judgment with IMS, which included a settlement agreement, ("the stipulated judgment"), in relevant part as follows:

1. Judgment ... is hereby entered in favor of [IMS] and against [the Sellers] ... in the amount of [$831,222] ....

2. ... [E]nforcement of the Judgment is stayed on the conditions that [the Sellers] pay IMS [$250,000] in the following monthly installments ....

3. [The Sellers] shall use their best efforts to prosecute [a] lawsuit [against the Buyers] ....

4. [The Sellers] will promptly provide IMS with any settlement documents or Court order related to any recovery [from the Buyers], and any such recovery ... shall be paid [by the Sellers to IMS] as follows:

a. First to the payment of the reasonable attorney fees and costs incurred by [the Sellers] in the [suit against the Buyers];

b. Second to the payment to IMS for any attorney fees and Court costs incurred by IMS in the [Sellers' suit against the Buyers];

c. Third to IMS to satisfy any amounts remaining due and owing to IMS pursuant to Paragraph 2 above; and

d. After payments (a) – (c) are made from the Settlement Proceeds, the remaining amount of [any such r]ecovery shall be split 50/50 between IMS ... and [the Sellers] ....

* * *

6. If [the Sellers] make all of the payments to IMS specified in this Stipulated Judgment, comply with all of the terms of this Stipulated Judgment[,] and if IMS incurs no liability in the [Sellers' suit against the Buyers] other than the payment of its reasonable attorney fees and costs, IMS will provide [the Sellers] with a release and satisfaction of this Stipulated Judgment .

7. If [the Sellers] fail to timely pay any of the payments required by this Stipulated Judgment or otherwise fail to comply with the terms of the Stipulated Judgment, IMS may immediately proceed to enforce the Stipulated Judgment in the amount of the Judgement [sic], less any payments made ....

Id. at 120-22 (emphases added).

[6] In August of 2015, the Sellers filed the instant suit against the Buyers for breach of contract for failure to obtain the release or replacement of the Sellers' personal guaranties under Section 5.2 of the contract. The Sellers sought a judgment for three times the amount of the alleged damages, including three times the attorneys' fees and costs. The Buyers repeatedly moved for judgment on the ground that, under Section 7.1, the Sellers' suit was time barred because it was not filed within eighteen months of the closing. In particular, the Buyers moved for judgment on the pleadings, summary judgment, and judgment on the evidence, and they filed a motion to correct error, on that theory. The trial court denied all of those requests. Following a jury trial, the jury found for the Sellers in the amount of $831,222. The court further awarded the Sellers their reasonable costs and attorneys' fees, and then tripled the award under Section 5.2 and entered judgment against the Buyers in the amount of $3,459,670.74.² This appeal ensued.³

Discussion and Decision

Issue One: Whether the Treble-Damages Clause in Section 5.2 is an Unenforceable Penalty

[7] On appeal, Symons first asserts that the treble-damages clause in Section 5.2 is not a proper liquidated damages clause but, rather, is an unenforceable penalty. We addressed liquidated damages in Gershin v. Demming , 685 N.E.2d 1125, 1127-28 (Ind. Ct. App. 1997) :

A typical liquidated damages provision provides for the forfeiture of a stated sum of money upon breach without proof of damages. Liquidated damages provisions are generally enforceable where the nature of the agreement is such that when a breach occurs the resulting damages would be uncertain and difficult to ascertain. However, the stipulated sum will not be allowed as liquidated damages unless it may fairly be allowed as compensation for the breach.

We are tolerant of provisions within contracts which provide for liquidated damages. Where the sum stipulated in the agreement is not greatly disproportionate to the loss likely to occur, the provision will be accepted as a liquidated damages clause and not as a penalty, but where the sum sought to be fixed as liquidated damages is grossly disproportionate to the loss which may result from the breach, the courts will treat the sum as a penalty rather than as liquidated damages . In determining whether a stipulated sum payable on a breach of contract constitutes liquidated damages or a penalty, the facts, the intention of the parties and the reasonableness of the stipulation under the circumstances of the case are all to be considered. The distinction between a penalty provision and one for liquidated damages is that a penalty is imposed to secure performance of the contract and liquidated damages are to be paid in lieu of performance . Notwithstanding a plethora of abstract tests and criteria for the determination of whether a provision is one for a penalty or liquidated damages, there are no hard and fast guidelines to follow. The question whether a liquidated damages clause is valid, or whether it constitutes a penalty, is a pure question of law for the court.

(Emphases added.) This Court has repeatedly recognized that damages clauses that contain multipliers of two and three times a stipulated sum are unenforceable penalties. E.g. , Coffman v. Olson & Co., P.C. , 906 N.E.2d 201, 209-10 (Ind. Ct. App. 2009) (concluding that multipliers of two and three times a stated sum were unenforceable penalties), trans. denied ; Hahn v. Drees, Perugini & Co. , 581 N.E.2d 457, 463 (Ind. Ct. App. 1991) (voiding a treble-damages clause); Seach v. Richards, Dieterle & Co. , 439 N.E.2d 208, 215-16 (Ind. Ct. App. 1982) (voiding a treble-damages clause).

[8] Section 5.2 states in relevant part that, should the Buyers be

unable or unwilling to release or replace the personal guaranties of all the Shareholders[,] then Buyer[s], jointly and severally[,] will indemnify and hold harmless any Shareholder and will reimburse the

...