Amdee, Inc. v. Joseph J. Jacobson
| Decision Date | 01 October 1987 |
| Docket Number | 52800,87-LW-3592 |
| Parties | AMDEE, INC., Plaintiff-Appellant, v. Joseph J. JACOBSON, et al., Defendant-Appellees. |
| Court | Ohio Court of Appeals |
Civil Appeal from Common Pleas Court, Case No. 067,298.
Bill J Gagliano, Susan H. Abramson, Rosenzweig, Schulz & Gillombardo Co., L.P.A., Cleveland, for plaintiff-appellant.
Marvin L. Karp, Ulmer, Berne, Laronge, Glickman & Curtis, Cleveland for defendant-appellees.
JOURNAL ENTRY AND OPINION
The Jacobson family owns and operates a closely held corporation that manufactures aluminum doors and windows. The Mintz family owns and operates a closely held corporation that manufactures vinyl windows. Those two families executed contracts which granted the plaintiff-corporation options to buy their respective businesses for approximately forty months. The purchase contends that the sellers breached those contracts by obtaining unauthorized loan repayments from their companies during the option period.
At the conclusion of the evidence at the jury trial on the purchaser's action, the court directed a verdict for the defendant-sellers. It dismissed the purchaser's case on the grounds that the purchaser failed to prove (a) a breach of the option contracts or (b) any compensable damages. The purchaser appeals, challenging both of the trial court's reasons. We agree with the trial court's analysis and affirm its judgment.
After a year's negotiations, the parties executed eight contracts as part of a single transaction. Those contracts established (1) an option by which the purchaser could buy all the Jacobson shares for $2,116,900, and (2) a similar option by which the purchaser could buy all the Mintz shares for $1,433,419. Both option agreements extended for approximately forty months. Before the parties made these agreements, Joseph Jacobson and Ronald Mintz operated their respective family businesses. The agreements provided that they would continue to operate them during the option period.
The parties agreed that the total consideration for each option would be 11% of the purchase price for that business, for each year of the option's duration. For tax reasons, the purchaser would pay part of the total option consideration to each family by monthly option payments and part by monthly consulting fees. Thus, the parties executed (3) a consulting agreement by which the purchaser retained Joseph Jacobson, and (4) a similar consulting agreement by which the purchaser retained Ronald Mintz.
The package of contracts also established: (5) an employment agreement by which the Jacobson company retained Joseph Jacobson, for stated compensation during the option period, (6) a similar employment agreement by which the Mintz company retained Ronald Mintz, (7) an agreement by which a national aluminum siding business, controlled by the purchaser's principal shareholder, would purchase its requirements for aluminum windows from the Jacobson company during that period, and (8) a similar contract by which the same aluminum siding business would purchase its requirements for vinyl windows from the Mintz company.
After designating Joseph Jaocbson's salary for each year during the option period, his employment contract with the Jacbson company provided:
"In any such year, however, the maximum amount payable to [Joseph Jacobson] shall be reduced by an amount equal to the sum paid to any of [the Jacobson family] in repayment of any loan indebtedness owed by Company to any of them (provided that not more than Thirty-Three Thousand Dollars ($33,000.00) shall be repaid in any year).'
Likewise, the Ronald Mintz employment contract reduced his stated salary by any repayment of a loan that the Mintz company owed the Mintz family. However, Mintz's employment contract provided that "not more than Eight Thousand Dollars ($8,000.00) shall be repaid in any year.'
Both the Jacobson option contract and the Mintz option contract provided:
". . . if at the Closing [the family company] is indebted to [any of its family members] by reason of any loan obligations, Buyer shall purchase such loan indebtedness for the principal amount thereof, and the purchase price for the [family company] shares shall be reduced by the amount paid for such loan indebtedness.'
Each option agreement also provided:
"At the Closing, Buyer shall deliver to Sellers the purchase price . . ., provided, however, that the portion, if any, of such purchase price equal to the amount of the principal of the [family] Company loan indebtedness [to the family members] . . . shall, at the Closing, be delivered by Buyer to the creditors thereof.'
When the parties executed their contracts, they made the employment and consulting contracts effective at the beginning of a fiscal year eight months earlier. Therefore, the purchaser immediately paid the consultation fees accumulated for those eight months, together with eight months of accumulated option payments.
In effect, the package of contracts extended four fiscal years from an effective date eight months before their execution. The purchaser made all monthly payments for the first forty months of that interval, but failed to make them for the last eight months. More than four months after the purchaser made its last payments, the sellers complained that the purchaser had defaulted on its obligations.
One month later, the purchaser asked to review the sellers' business records to assist its preparation of final accounting data. In response, the sellers advised that they were terminating the option agreements because of the purchaser's default. Two weeks thereafter, the purchaser filed this action, seeking various forms of relief including restitution of all payments it had made for the option transaction.
During their previous operations of these two family companies Joseph Jacobson and Ronald Mintz periodically made interest free loans of working capital to their respective companies. They later withdrew money to repay themselves, or as advances from their company loan accounts, when funds were available. They continued that practice during the negotiations for these option agreements and during the subsequent option period. Throughout the option period both Jacobson and Mintz supplied the purchaser with monthly and annual financial statements for their respective companies.
On the effective date for the employment agreement, eight months before its execution, the Jacobson company owed Joseph Jacobson $208,105.65, which he had loaned the company a few months earlier. During the next eight months, he withdrew $274,500 from the loan account, with the knowledge and apparent concurrence of the purchaser's principal shareholder. Thus, he owed the company $66,394.35 when the parties executed the contracts. For the remainder of the first fiscal year, he loaned the company another $78,296.11 and withdrew another $16,275.71. During the second fiscal year, he loaned the company $74,275.71 and withdrew $88,860.17. During the third fiscal year, he loaned the company $167,505.20 and withdrew $181,313.40.
During the fourth fiscal year, before the purchaser stopped making the prescribed monthly payments, Jacobson withdrew $59,000.00 without loaning the company any additional funds. However, before he complained about the purchaser's default, he had loaned the company another $173,113.45 and withdrawn another $122,500.00. Thus, for the part of the fourth fiscal year before he asserted the purchaser's default, Jacobson loaned the company $173,113.45 and withdrew $181,500.00. For the entire fourth fiscal year, he loaned the company $355,113.45 and withdrew $366,341.20.
From the execution of the contracts to his complaint about the purchaser's default forty months later, Jacobson loaned his company $493,190.47 and withdrew $467,949.28. In none of those years had he withdrawn as much as $15,000.00 over his loans that year. In each of those same four fiscal years, Jacobson withdrew less salary than his contract allowed. For those four fiscal years his total undrawn salary aggregated $60,480.00.
During the same interval, Ronald Mintz made less substantial loans and withdrawals. The record does not show the amount his company owed him or any transactions in his loan account before the parties executed these agreements. When they signed the agreements, the company owed him $23,409.00. During the balance of the first fiscal year, he loaned the company another $15,995.00 and withdrew $26,427.00.
During the second fiscal year he loaned the company $102,259.00 and withdrew $67,254.00. During the third fiscal year, he loaned the company $53,697.00 and withdrew $60,906.00. During the fourth fiscal year, to the purchaser's last payments, he loaned the company $9,797.00 and withdrew $35,557.00. For the part of the fourth fiscal year until he complained about the purchaser's default, he loaned the company $21,297.00 and withdrew $56,893.00. For the entire fourth fiscal year, he loaned his company $25,969.00 and withdrew $59,438.00.
From the execution of the contracts to his complaint about the purchaser's default forty months later, Mintz loaned his company $193,248 and withdrew $211,481. Though he withdrew more than $8,000 above his loans in the first and last fiscal years, he averaged considerably less than that differential. For each of those four fiscal years, Mintz withdrew less salary than his contract allowed. For those four fiscal years, his total undrawn salaries...
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