Arguably, all small businesses with more than one owner should have buy-sell agreements regardless of whether they are organized as a corporation, limited liability company, or partnership. The purpose and functions remain the same though the form and structure may vary.
Contracts
First District upholds contempt sanctions for violation of non-compete agreement
Thursday, May 6th, 2010In yesterday’s decision in Mitchell’s Salon & Day Spa v. Bustle, 2010-Ohio-1880 [PDF], the First District affirmed a trial court’s imposition of sanctions for violation of a non-compete clause and a court order which essentially incorporated that non-compete. Interstingly, a majority of the panel approved both a disgorgement of profits and an extension of the non-compete term.
When Michael Bustle started working as a hairstylist at Michael’s in 1995, he signed an agreement which included a one-year non-compete clause. He left in August 2007 and rented a booth at a competing salon. Michaels sued Bustle several months later, after noticing that his clients did not return. The parties agreed to a settlement under which Bustle would not provide any hair styling or hair care treatment for one year — that is, Bustle essentially agreed to abide by his non-compete clause — and the trial court journalized an entry incorporating their agreement.
After Bustle’s customers still did not return, Michaels hired a private investigator to determine whether Bustle was violating the court’s order. After a seven-month investigation the PI determined that Bustle was still providing the prohibited services, and Michaels filed a motion for contempt.
At the contempt hearing, Bustle admitted to providing prohibited services to 180 former Michaels clients and had profited over $37,000 in nine months of doing so. Testimony from Michaels revealted that its lost profits for the same work would have been about twice as much, and that it had incurred about $15,000 in attorney’s fees and about $52,000 in PI fees. The trial court found Bustle in contempt, awarded damages and costs totaling about $140,000 to Michaels, and enjoined Bustle from competing for an additional 11 months.
On appeal, the First District rejected Bustle’s arguments that the agreed order did not comply with Rule 65 (because Bustle agreed to it, he had no cause to complain — somewhat similar to invited error, if any error) and that Michaels waited too long to pursue its contempt motion (the court found the time to be reasonable due to the necessary investigation).
On the issue of whether Michaels was awarded a double recovery by virtue of a disgorgement of profits and an extended non-compete term, the court explained that in a contempt case, the court has power to both coerce compliance with the court’s order, and to compensate the the party injured by the contempt. By disgorging the profits and awarding the costs to Michaels in addition to extending the non-compete term, the First District said, the parties were merely put back in the position that they would have been in if there had been no contempt. As a result, there was no double recovery.
Judge Hendon disagreed on the double recovery issue. Because the non-compete period has now expired, however, and cannot be undone, she concurred in the judgment.
Supreme Court clarifies accrual of interest
Thursday, December 3rd, 2009R.C. 1343.02 provides that when a written instrument calls for the payment of interest, the interest accrues until the instrument is paid. In Mayer v. Medancic, 2009-Ohio-6190 [PDF], the Supreme Court was called upon to determine whether that statute permits compound interest, or only simple interest.
The Court held that the statute does not provide for compound interest, and that therefore only simple interest is available — unless the written instrument or some more specific statute provides otherwise. But the Court also held that interest accrues after default on all sums which were due and payable before the default; if the written agreement called for interest to be paid before the default, then R.C. 1343.02 allows interest to accrue on that prior interest (in addition to any principal, of course).
Sixth Circuit on quasi-estoppel
Monday, November 30th, 2009In Bonner Farms v. Fritz [PDF] the Sixth Circuit, applying Ohio law, ruled that quasi-estoppel operates to bar a claim or defense only when a party’s actions are “inconsistent” with its litigation position. As applied here, that means that the plaintiff’s decision to negotiate “royalty” checks did not bar its litiation position that the oil and gas lease on their property had been terminated; negotiating the checks was equally consistent with termination of the lease (in which case the checks constituted only partial payment for the gas withdrawn by the defendants) as with continuation of the lease (in which case the checks constituted full payment).
Twelfth District on oral modifications and waiver
Wednesday, November 11th, 2009The Twelfth District has just released a thorough and well-reasoned opinion on “no-oral-modifications” clauses and whether such clauses can be waived. The court addresses both UCC 2-209 and the fundamental principles underlying contract law. The verdict? Where a contract has a no-oral-modifications clause, that clause can be waived–and an oral modification can therefore be enforced–only if (1) the parties’ course of performance reflects the fact that a modification was made, and (2) the promisee detrimentally relied on the modification.
The case is Fields Excavating, Inc. v. McWane, Inc., 2009-Ohio-5925 [PDF].
