In re Andress, Case No. 05-11919-M (Bankr. N.D.Okla. 8/17/2007)
| Decision Date | 17 August 2007 |
| Docket Number | Adv. No. 05-01088-M.,Case No. 05-11919-M. |
| Parties | IN RE: THEODORE R. ANDRESS, JR., aka Ted Andress, aka Kite Mechanical Service Inc., aka Kite Service Company, Chapter 7, Debtor. CUSTOM HEATING & AIR, INC., an Oklahoma corporation, Plaintiff, v. TED ANDRESS, an individual, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Oklahoma |
Upon remand from the United States District Court for the Northern District of Oklahoma (the "District Court"), this Court has been charged with the task of determining what amount, if any, of additional damages should be awarded to Custom Heating & Air, Inc. ("Custom"), the Plaintiff herein. The Court has conducted a thorough reexamination of the record in this case and the law presented to it by the District Court and the parties. After applying the mandate of the District Court, the judgment of this Court remains unchanged. Of the amounts owed to Custom by Ted Andress ("Andress"), the total sum of $5,000 should not be discharged. The following findings of fact and conclusions of law are made pursuant to Federal Rule of Bankruptcy Procedure 7052.
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b),1 and its reference to this Court is proper pursuant to 28 U.S.C. § 157(a). Issues of non-dischargeability of debt are core proceedings under the terms of 28 U.S.C. § 157(b)(2)(I). The Court thus has authority to issue its findings of fact, conclusions of law, and judgment.
The burden of proof remains upon Custom to prove the elements of its case, including damages, by a preponderance of the evidence.2 Exceptions to discharge are to be narrowly construed in favor of the debtor.3
In its Memorandum Opinion entered in this adversary proceeding on June 28, 2006,4 the Court made detailed findings of fact. None of those factual findings were disturbed on appeal. They are incorporated herein by this reference.
It bears restating that under the APA, the purchase price for Kite was $100,000, which the parties allocated as follows:
Townsend, the president and chief operating officer of Custom ("Townsend"), confirmed the purchase price of $100,000 in his direct testimony.5 Under the APA, the intangible assets of Kite to be purchased included the name Kite Mechanical Services, Inc., all of Kite's business telephone numbers, all of Kite's customer lists, its computer files, and all of its customer service records for the three-year period prior to the purchase. Custom offered no evidence to show that it did not receive all of the intangible assets of Kite.
As noted in the Memorandum Opinion, the only evidence regarding Andress's breach of his covenant not to compete related to residential service with three individuals (Jackson, Allen, and Reish), and Townsend's speculation that Andress had contracted for other business in violation of the APA and the Employment Agreement.6 With respect to these three individuals, the Court received no evidence as to the amount of profit Custom expected to receive from any of these jobs. To the extent Townsend speculated that Andress had engaged in other jobs, whether commercial or residential, Custom offered no evidence as to the profit to be derived from any of these jobs. The only evidence of lost profits offered by Custom was Townsend's testimony regarding the total amount of profit he expected to derive from the acquisition of Kite. As noted in the original Memorandum Opinion, "[a]t best, Townsend's testimony was general in nature, and went to the entire failure of the Kite purchase, not just to damages caused by Andress's breach of the covenant not to compete."7 Neither Townsend nor any other individual who testified on behalf of Custom offered any specific opinion as to the value of goodwill allegedly lost as a result of Andress's breach of the covenant not to compete.
Under the terms of the Employment Agreement, Custom advanced the sum of $120,000 to Andress. These monies were placed in escrow and ultimately used to satisfy certain tax liabilities owed by Andress. Notwithstanding the fact that Custom terminated the employment of Andress before these monies were fully earned, they have not been repaid.
Given the present focus on the issue of goodwill, the Court further finds that residential purchasers of a heating and air conditioning system rarely purchase a second system. This factual finding is based upon Townsend's uncontroverted testimony that the average residential customer purchases only 1.7 air conditioning systems "in their lifetime."8
This adversary proceeding was originally tried to this Court on April 26, 2006. Prior to that trial, Custom obtained the Judgment against Andress in the District Court in and for Tulsa County, Oklahoma. The Judgment was in the amount of $ 185,000, plus fees and costs. The Judgment arose out of the sale of Kite to Custom, all as more fully detailed in the original Memorandum Opinion.
After entry of the Judgment, Andress filed a Chapter 7 bankruptcy case seeking to discharge, among other debts, the amount represented by the Judgment. Custom filed this adversary proceeding, seeking a determination that the Judgment was nondischargeable. At trial, Custom took the position that the Judgment was nondischargeable in its entirety, relying upon the principle of collateral estoppel as well as the Rooker-Feldman doctrine. No effort was made to ascribe all or any portion of the Judgment to any particular manner of damage, such as loss of goodwill or lost profits.
After review of the evidence and argument, the Court rejected the position advanced by Custom regarding the preclusive nature of the Judgment. Based upon its own review of the evidence, the Court concluded that Andress had willfully and maliciously breached his covenant not to compete with Custom. The Court further determined that the proper measure of damages for breach of the covenant not to compete was the value ascribed to it by the parties in the APA ($5,000), and that Custom was entitled to a judgment of nondischargeability in that amount. Custom appealed the decision to the District Court. In its designation of issues on appeal, Custom alleged that this Court "erred in calculating the Plaintiff's [Custom's] damages."9
On April 20, 2007, a report and recommendation was issued to the District Court by the Honorable Paul J. Cleary, United States Magistrate Judge. The report recommended that many of the determinations made by this Court should be affirmed. In addition, the recommendation was made that the adversary be remanded to this Court "for consideration of Custom's damages, if any, from the loss of goodwill resulting from Andress'[s] breach of his non-compete agreement with Custom."10 The report and recommendation was approved by order of the District Court entered on May 9, 2007.11
The issue of loss of goodwill as an element of Custom's damages was raised for the first time in the appeal to the District Court. There is no mention of the concept of goodwill in the joint pre-trial order submitted by the parties.12 In the post-trial brief submitted by Custom in lieu of closing argument, aside from a single reference in a quoted section from the Judgment, the term "goodwill" does not appear.13 Indeed, in 244 pages of trial transcript, the term "goodwill" is not to be found.14 As a result, this Court has been placed in the unusual position of considering an issue for the first time upon remand.
On remand, Custom argues that it has suffered damages to its goodwill in the amount of $180,000, based upon: (1) damages for Andress's breach of the covenant not to compete, valued in the APA at $5,000; (2) damages to the intangible assets of Kite purchased by Custom, valued in the APA at $55,000; and (3) the $120,000 paid to Andress in advance under the terms of the Employment Agreement which Custom now alleges "represented additional goodwill in return for Andress's promise to promote and deliver to Custom the goodwill of Kite Mechanical as part of its sale."15 On remand, the Court will confine itself to the measure of damages advanced by Custom.16
According to the Oklahoma Supreme Court,
"Good Will" has been defined as the custom or patronage of any established trade or business; the benefit or advantage of having established a business and secured its patronage by the public. See Black's Law Dictionary, Third Edition. The "good will" value of any business is the value that results from the probability that old customers will continue to trade with an established concern.17
The goodwill of a business is an asset which can be bought or sold.18 Like any other asset, goodwill can also be damaged.19
This Court has been instructed to reassess the damages, if any, attributable to loss of goodwill by Custom as a result of the previously identified willful and malicious conduct of Andress. Under Oklahoma law,
The general rule of damages is that damages for the breach of a contract cannot be recovered unless they are clearly ascertainable, both in their nature and origin, and unless it is established they are the natural and proximate consequences of the breach and are not contingent or speculative. This is also the rule in Oklahoma.
It is also well settled that the amount of damages resulting from such a breach must be ascertainable with some degree of certainty and may not be based on mere speculation and conjecture alone. But when a breach of a contractual obligation with resulting damage has once been established, the mere uncertainty as to the exact amount of damages will not preclude the right to a recovery. In such cases it will be enough if the evidence shows the extent of the damages as a...
To continue reading
Request your trial