First Nat'l Bank of Omaha v. Ibeam Solutions, LLC, 13AP–850.
| Decision Date | 22 March 2016 |
| Docket Number | No. 13AP–850.,13AP–850. |
| Citation | 61 N.E.3d 740 |
| Parties | FIRST NATIONAL BANK OF OMAHA, Plaintiff–Appellee, v. iBEAM SOLUTIONS, LLC, et al., Defendants–Appellees, (Edward Panos and Panos Industries, LLC, Defendants–Appellants). |
| Court | Ohio Court of Appeals |
Cooper & Elliott, LLC, and Barton R. Keyes (argued), for appellees.
McDonald Hopkins LLC, Christopher T. O'Shaughnessy (argued), O. Judson Scheaf, III and Jason R. Harley, for appellants.
{¶ 1} This matter began in the Franklin County Municipal Court as a collection action by the First National Bank of Omaha for $13,531.36 in credit card debt against iBeam Solutions, LLC (“iBeam”) and appellee Eric Schmidt (“Schmidt”) as guarantor. A third-party complaint was filed by Schmidt, and also by his wife, appellee Brenda Schmidt, and appellee Paul Bursey (“Bursey”), against appellants Edward Panos (“Panos”), Panos Industries, LLC (“Panos Industries”), and iB3 Networks, Inc. (“iB3”), previously known as Language Access Network, Inc. (“LAN”). Default judgment was entered against iBeam, and in view of the amounts demanded in the third-party complaint, the matter was transferred to the court of common pleas. Following trial, a jury returned verdicts in favor of appellees. After the trial court denied appellants' motions for a new trial and for a directed verdict or judgment notwithstanding the verdict, judgment was entered in the total amount of $2,713,258, including compensatory damages for all three appellees, attorneys' fees, prejudgment interest, and a $500,000 award of punitive damages for Schmidt against Panos individually.
{¶ 2} In 2001 the Schmidts and Bursey founded iBeam as a web development company. It soon became a full-service technology firm. The company's revenues grew to $1.6 million in 2006 and $3 million in 2007. However, iBeam had accumulated significant debt, much of which appellees had personally guaranteed. Due to cash flow issues, the principals began looking to sell the company beginning in late 2004.
{¶ 3} One of iBeam's clients was LAN, a public company. LAN's primary business was to provide remote foreign and sign language interpretation by audio and video for medical treatment providers. Panos was a shareholder of LAN and at all relevant times was involved directly and actively in company business. He began his career with Reynolds & Reynolds in Seattle, working in sales for the Microsoft Carpoint online car buying system marketed to used car dealers. He later started an online gaming site in Vancouver, learned venture capital and moved to Las Vegas where he took a company named Common Horizons public and sold it, though it did not succeed. He became involved in gold investment. In Ohio, his brother Andrew was part of a company called Preciss, which became LAN. Panos bought into his brother's company for $50,000. Before he took LAN public, Panos had acquired 98% the company. Then he gave half of his shares to Andrew, who already had 1% and had been handling the operations.
{¶ 4} LAN was pleased with iBeam's work as a contractor, and in July and August 2006 LAN approached Schmidt about a merger of the two companies. Panos offered a plan to buy iBeam and dedicate its technology services and expertise to LAN's interpretation business. It was clear to Schmidt that Panos was the money behind the company and was “calling the shots.” (Tr. Vol. II, 59.) At a lunch meeting Panos said he had sold his on-line gambling business for millions, and that he had 15 to 20 million dollars in the bank. Panos further disclosed to Schmidt a valuation indicating private equity commitments and projecting LAN's worth at $144 million with a projected price per share of $6.85 in 5 years.
{¶ 5} A letter of intent between the two companies was signed in December 2006. In early 2007, Panos told Schmidt that he had obtained a valuation of iBeam at $1.7 million, and then offered to pay $1 million for the company. The price was to be reduced by the amount of debt LAN was acquiring, with the balance paid to appellees in the form of shares in the surviving company after the merger. Appellees maintain that Panos personally assured them that their debts (including the personal debts the principals incurred on behalf of the business) would be paid. The debts were to be paid within 90 days, and Panos further advised Schmidt that he had millions of dollars coming in from investment houses.
{¶ 6} Schmidt expressed concern to Panos over how to afford the $18,000–per–month payroll tax payment iBeam had negotiated with the Internal Revenue Service (“IRS”). Panos said, “If I have to after the merger I'll submit a check for you.” (Tr. Vol. II, 76.) Before the acquisition, Panos wrote a check to cover one of the monthly tax payments. The merger closed on August 1, 2007.
{¶ 7} The agreement merged a new company created for the purposes of the merger, iBS Merger Sub, LLC, into iBeam as the surviving company. As specified by the merger agreement, iBeam then became a wholly owned subsidiary of LAN. Panos' name appears nowhere in the merger documents. After the merger closed, Schmidt and Bursey each owned 40% of iBeam, and Brenda Schmidt owned 2%, with others holding the remainder. In addition, Schmidt signed an employment agreement with a base salary of $100,000 per year.
{¶ 8} However, appellees' debts, listed in the merger agreement at a total of $726,246.43, approximately $726,000, were not paid within 90 days after the acquisition. Neither was appellees' technology services put to work for the interpretation business, though they had been told by Panos that this was the business reason for the merger. More than 4 months after the closing on the merger, in December 2007, Panos told Schmidt that Panos' brother, Andrew, had “blown his money” and that the medical interpretation business, LAN's original business activity, would be spun off. (Tr. Vol. II, 82.)
{¶ 9} LAN's spinoff was achieved via a January 16, 2008 acquisition agreement: LAN sold its 100% interest in Language Access Network, LLC (“T–LAN”) to Interim Support, LLC, (“Interim Support”) expressly excluding LAN's interest in iBeam. The software and systems developed by iBeam for T–LAN was to remain property of T–LAN. Interim Support's membership consisted of LAN's directors, former director James Schilling (“Schilling”) and CEO Michael Guirlinger (“Guirlinger”).
{¶ 10} Panos told appellees that they did not have a choice: Schmidt was to take over as CEO of the remaining business, later renamed iB3. iB3 essentially was iBeam remade into a public company, still with revenues only of a regional IT company, and still saddled with debt to its original principals and others. Otherwise, Panos would “shut it all down” and bankrupt the company. (Tr. Vol. II, 86.) Panos persuaded Schmidt that if Schmidt agreed, Panos would secure the necessary funding to pay off iB3's debt, and thereby, appellees' debt, as with the unfulfilled promise related to the merger, within 90 days. Panos represented that he would make the company successful, all at which time Schmidt could step down as CEO. Panos told him not to go to LAN's CEO Guirlinger or its board of directors; Panos would deal with them. Schmidt nevertheless approached Guirlinger, who said he could not talk about the spin off, and that there was a fight between the brothers.
{¶ 11} At a board meeting on December 21, 2007, Panos presented his plan to spin off the medical interpretation business into a separate company. According to the minutes, Panos represented to the board that he personally would assume some company debts and indemnify the board of directors against any personal liability. At trial, Panos tried to disclaim any such undertaking on his part: “I meant the parent company would take on some of the debt and the spinoff would take the majority of the debt.” (Tr. Vol. IV, 334.) The only debt he would assume, in retrospect, was the debt owed to him. Likewise, Panos maintained that only LAN/iB3 would be responsible for iBeam's debts, despite his prior representations to the Schmidts. Though he acknowledged his conversations with the Schmidts and their overwhelming concerns with iBeam's debt, which had motivated them to seek a buyer and ultimately agree to the merger with LAN, Panos stated at trial that he did not know the details of iBeam's debt until he saw the merger agreement.
{¶ 12} At the same December 21, 2007 meeting, the chairman of LAN's board of directors announced that one or more shareholders were selling off 200,000 to 300,000 shares of LAN stock, driving the stock price down to $0.13 per share. Panos had not disclosed that he was directly involved in dumping the stock and the resultant driving down of the price per share. From June 1, 2007 to November 23, 2007, during and including the period of merger negotiation and closing, Panos had entered into four stock sale agreements with another entity, Golden Gate Investors (“Golden Gate”): Panos would sell to Golden Gate a total of 1,625,000 shares of LAN stock over that period of time, for approximately $750,000. Later, it emerged that Golden Gate had sold 100,000 shares of LAN stock around the time of the December 21, 2007 meeting, at $.13 per share. According to Schmidt, if Panos had disclosed any of this information, appellees would not have agreed to the plan.
{¶ 13} On January 22, 2008 Panos asked the board of directors to put Schmidt in charge, for LAN's medical interpretation business to be spun off, and for the board members to resign. They complied. LAN's business, through T–LAN, was spun off to Interim Support consisting of LAN's directors, former director Schilling and CEO Guirlinger, leaving only iBeam's business with LAN. For LAN post-spinoff, Panos brought in only a small investment in the 90 days following the spinoff. Post-spinoff, Panos controlled all of the money and made all of the contacts for potential funding and acquisitions for iB3. Schmidt told Panos several...
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