Hymes v. American Industrial Bolting, Inc., 103113 OHCP, CV 11 745933

Docket Nº:CV 11 745933
Opinion Judge:John P. O'Donnell, J.
Party Name:GREGORY HYMES, Plaintiff, v. AMERICAN INDUSTRIAL BOLTING, INC., et al., Defendants/third-party plaintiffs v. GMH TECHNOLOGIES, INC., Third-party defendant
Case Date:October 31, 2013
Court:Court of Common Pleas of Ohio
 
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GREGORY HYMES, Plaintiff,

v.

AMERICAN INDUSTRIAL BOLTING, INC., et al., Defendants/third-party plaintiffs

v.

GMH TECHNOLOGIES, INC., Third-party defendant

No. CV 11 745933

Court of Common Pleas of Ohio, Cuyahoga

October 31, 2013

JUDGMENT ENTRY WITH FINDINGS OF FACT AND CONCLUSIONS OF LAW

John P. O'Donnell, J.

STATEMENT OF THE CASE

This is a lawsuit by Gregory Hymes against his two former business partners, Richard D. Wanchisn and Gerald E. Taafe, to recover his share of the money from the sale of their company, American Industrial Bolting, Inc. For their part, the defendants filed a counterclaim alleging various business torts by Hymes. A bench trial of all of the claims in the lawsuit was held from June 4 through June 6, 2012. The parties submitted closing arguments in writing on July 13, 2012, and this entry follows.

Hymes's causes of action

Hymes, Wanchisn and Taafe were equal shareholders in defendant American Industrial Bolting, Inc. AIB was sued by a competitor, Superbolt. The Superbolt lawsuit was eventually settled by Superbolt's purchase of AIB's assets in exchange for covenants not to compete from Hymes, Wanchisn, Taafe and Extreme Engineered Solutions, Inc. and Extreme Machine and Fabricating, Inc., two companies owned by Wanchisn and Taafe.1 The settlement proceeds were paid into an escrow account at the McDonald Hopkins law firm. Hymes alleges that each owner was supposed to receive one-third of the settlement (after certain designated payments were deducted) and that he has received nothing to date.

Hymes's complaint also alleges that he worked for defendant Engineered Solutions until November 19, 2009, and, when he left, the corporate defendant did not pay him for unused vacation time and did not reimburse him for business travel expense.

The first cause of action is for breach of contract, i.e., the settlement agreement. The defendants on that claim are Wanchisn, Taafe and AIB. The second and third causes of action are for breach of contract and quantum meruit against Engineered Solutions.

At trial, the complaint was amended pursuant to Crosby v. Beam , 47 Ohio St.3d 105, 548 N.E.2d 217 (1989), to include a claim that the majority shareholders Wanchisn and Taafe breached the duty of utmost good faith owed to Hymes as a minority shareholder by declaring almost $175, 000 of the settlement to be debts of AIB owed to their other companies.2

The counterclaims and third-party complaint

Wanchisn, Taafe, AIB and Engineered Solutions responded to the complaint with a counterclaim asserting fifteen causes of action: breach of fiduciary duty, conversion, usurpation of corporate opportunity, breach of employee's duty of loyalty, unfair competition, and tortious interference with business relationships, all on behalf of Engineered Solutions; two claims of fraud, one by AIB and Engineered Solutions and the other by Wanchisn and Taafe; two claims of misrepresentation, one by AIB and the other by Wanchisn and Taafe; conversion and breach of fiduciary duty by AIB; two claims for indemnification under separate warranty agreements, one by AIB and the other by Engineered Solutions; and a claim by Wanchisn, Taafe, AIB and Engineered Solutions for a declaratory judgment requiring Hymes to indemnify them for any claims made by Superbolt alleging breach of the confidentiality provision of the settlement agreement.

All four defendants are also parties to a third-party complaint against GMH Technologies, Inc. GMH is a corporation formed by Hymes. The third-party complaint alleges that Hymes, through GMH, used Engineered Solutions's customer list to unfairly compete. The causes of action include improper competition, tortious interference with business relationships, conversion of intellectual property, and usurpation of corporate opportunity.

STATEMENT OF THE FACTS

The Superbolt lawsuit and settlement

Gregory Hymes is a mechanical engineer. He went to work for Extreme Machine and Fabricating, Inc. in 2003. Machine and Fabricating is owned by Richard Wanchisn and Gerald Taafe. Taafe described Machine and Fabricating as a " job shop" that manufactures chocks. Machine and Fabricating has about 78 employees.

In early 2004, Wanchisn and Taafe incorporated Engineered Solutions. The company was formed to provide engineering and design services for the products manufactured by Machine and Fabricating. Hymes became an employee of Engineered Solutions and remained there until he was fired on November 17, 2009; he was never an employee of AIB.

AIB was formed in 2007. The purpose of the company was to sell products designed by Engineered Solutions and made by Machine and Fabricating, but both of those companies continued to conduct other business not involving AIB. Hymes, Wanchisn and Taafe each own one-third of AIB's shares. AIB employed only a salesman who would solicit orders from customers. The design of those orders -- whether standard or custom -- was subcontracted to Engineered Solutions and the manufacture of the items was subcontracted to Machine and Fabricating. Upon rendering their services, the two subcontractors would bill AIB and ultimately get paid once the customer paid AIB's invoice.

On August 15, 2008, AIB and Machine and Fabricating were sued in the United States District Court for the Western District of Pennsylvania by Superbolt, Inc. Engineered Solutions was made a defendant by an amended complaint in January, 2009. The gist of the Superbolt lawsuit was that AIB misappropriated its trade secrets and infringed its copyright by passing off substantial parts of the Superbolt catalog as AIB's own. Machine and Fabricating and Engineered Solutions were alleged to have aided and abetted AIB's unlawful conduct. AIB filed a counterclaim alleging that the patents that Superbolt based its trade secret claims on had expired and were in the public domain. Attorney David Movius of the McDonald Hopkins law firm represented AIB, Machine and Fabricating and Engineered Solutions in the federal lawsuit.

The federal case was settled in late 2009. The exact terms of the settlement remain confidential. Suffice to say that the net result was Superbolt agreed to purchase AIB's assets and Hymes, Wanchisn, Taafe and the three corporations executed covenants not to compete in favor of Superbolt. Settlement payments made by Superbolt went to the client trust account at McDonald Hopkins. From there, the distribution of the settlement proceeds was to be made under an escrow agreement between AIB and McDonald Hopkins. That contract calls first for the payment of legal fees and then payment of AIB's " remaining debts and obligations." 3 Any money remaining after that is to be distributed in equal shares to the three owners.

Although it was never explicitly framed this way by the parties, the core issue in this case is the question of what are AIB's " remaining debts and obligations."

Movius testified at trial that his law firm has unpaid invoices to AIB totaling $30, 207. However, the work done to justify those invoices was undertaken to represent AIB and Engineered Solutions in the defense of this lawsuit as well as to assist Wanchisn and Taafe personally in the defense of this lawsuit. None of those invoices are for work on the Superbolt litigation or settlement.

All of the Superbolt litigation legal expense has been paid from the settlement proceeds. Additionally, AIB received a distribution from the settlement proceeds to cover its remaining debts and obligations with the exception of the warranty claims described in the following paragraphs.

The warranty claims

Wanchisn and Taafe claim that the primary " remaining debts and obligations" of AIB that must be paid before the settlement is split among the owners are two warranty claims. The first claim arises from the allegedly faulty design of a thrust collar incorporated into a chock assembly sold to Sterling Steel. The assembly is used in a conveyer belt at a steel mill. It failed shortly after installation at the mill, possibly because of inadequate lubrication. According to the defendants, the defective design was done by Hymes as an AIB employee -- this despite the lack of evidence that Hymes was never...

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