Rhodes v. Rhodes Indus., Inc.

• Court: Ohio Court of Appeals
• Writing for the Court: FRANCIS E. SWEENEY
• Citation: Rhodes v. Rhodes Indus., Inc., 71 Ohio App.3d 797, 595 N.E.2d 441 (Ohio App. 1991)
• Decision Date: 08 April 1991
• Docket Number: No. 58359,58359
• Parties: RHODES, Appellant, v. RHODES INDUSTRIES, INC. et al., Appellees.

Page 797

71 Ohio App.3d 797

595 N.E.2d 441

RHODES, Appellant, v. RHODES INDUSTRIES, INC. et al., Appellees.

No. 58359.

Court of Appeals of Ohio, Eighth District, Cuyahoga County.

Decided April 8, 1991.

[595 N.E.2d 442] James R. Gallagher, Fairview Park, for appellant.

Andrew Steven Dever, Lakewood, for appellee.

FRANCIS E. SWEENEY, Judge.

Plaintiff-appellant, Dennis C. Rhodes, appeals from the judgment of the Cuyahoga County Court of Common Pleas, which rendered judgment for defendant-appellee, Rhodes Industries, Inc., and against appellant and awarded appellee fifty thousand dollars in damages against appellant on appellee's counterclaim.

Appellant filed a complaint against appellee Rhodes Industries, Inc. and defendants Douglas Albers, Michelle Albers, Daniel Margulies, and Diane Margulies, alleging breach of contract based upon a consulting agreement, and requested damages in the amount of forty-four thousand six hundred dollars.

Appellee and defendants Douglas and Michelle Albers filed an answer and counterclaim against appellant, which requested compensatory damages on the basis that appellant had breached the consulting agreement.

After a bench trial, the court granted defendants' motion to dismiss appellant's complaint as against Douglas and Michelle Albers and Daniel and Diane Margulies.

The court found for appellee Rhodes Industries, Inc. and against appellant on his complaint and awarded appellee fifty thousand dollars in damages against appellant on appellee's counterclaim.

Appellant timely appeals the decision of the trial court. For the reasons set forth below, we affirm in part and reverse in part, remanding the case for trial on the issue of damages.

The testimony at trial and the relevant exhibits introduced at trial establish the following pertinent facts.

In June 1985, defendants Douglas Albers and Daniel Margulies formed a corporation named Rhodes Industries, Inc. (appellee). On August 17, 1985, appellee purchased a business from appellant Dennis C. Rhodes known as Rhodes Cabinets and Dennis Rhodes Builders. The purchase agreement specified for the sale of the contents of a cabinet fabricating shop. The purchase agreement further provided that appellant would continue to use the name Dennis Rhodes Builders.

At the time of sale, appellant became employed as a consultant to appellee by way of a consulting agreement by and between appellee and Dennis C. Rhodes. It is the consulting agreement upon which this action is based.

The consulting agreement required appellee to pay appellant an annual retainer of twenty-five thousand dollars for five years and twenty dollars per hour for all consulting time actually performed by appellant. The twenty-five thousand dollar retainer was to be paid even if appellant died or was unable to perform.

The consulting agreement required appellant to "provide consulting services to the Employer when reasonably requested to do so by the Employer and * * * work at such place or places as may be directed by the Employer." The agreement further provided, in pertinent part:

" * * * Consultant shall devote his best efforts to the business affairs of the Employer and shall not, during the term of this Agreement, be engaged in any other business activity pursued for gain, profit, or pecuniary advantage which shall directly impact on Employer's business or be in competition therewith."

The agreement also contained a covenant not to compete, "as a significant condition and term of his employment," restricting appellant from:

" * * * entering into competition with the Employer (which) shall relate to direct or indirect employment or engaging in any partnership, corporation, or other entity whatsoever which is in competition with the business of the Employer or any other activity which is intended to, or is likely to, result in any material diminution in the value of the Employer's business by reason of such activity tending to deprive the Employer of a portion of the market for the services and/or products of the Employer business as such market exists on the date hereof."

The covenant not to compete continued by noting:

"During said five (5) year period, Consultant, either alone or in conjunction with another or others, directly or indirectly, shall not hire, solicit, or attempt to hire any person or independent contractor who was an employee or engaged by Employer on or after the date of this Agreement, without first obtaining the consent of the Employer, and, furthermore, shall not solicit any customer or client of the Employer during said period.

"The Consultant acknowledges that any such competition in a manner prohibited by this Agreement, would cause grievous injury to the business and business prospects of the Employer. * * * " The consulting agreement was signed by Douglas K. Albers, President of Rhodes Industries, Inc., Michelle L. Albers, Daniel E. Margulies, Diane E. Margulies, and Dennis C. Rhodes, Consultant. All signatures were witnessed by the parties' attorneys.

The testimony at trial of appellant establishes that at the time of sale, it was known to appellant that defendants were newcomers to the field of custom cabinet and finished carpentry work. Contrary thereto, appellant had much experience in the above-mentioned field. Furthermore, appellant, after the sale of the business to appellee, continued his general contracting/carpentry business known as Dennis Rhodes Builders.

Prior to the time of sale of Rhodes Industries, Inc., defendants were provided a list of the existing core clients of appellant's business. Defendants were aware that appellant had developed business relations with those men who were responsible for awarding subcontract work in the finished carpentry and cabinet business. These core clients were to become appellee's core clients.

Between August and December 1985, appellant did perform and was paid in accordance with the consulting agreement.

On December 15, 1985, Daniel and Diane Margulies sold their interest in Rhodes Industries, Inc. to Dr. Donald Albers for seventy thousand dollars.

In February 1986, Thomas Rhodes, appellant's son, quit his job at Rhodes Industries, Inc., and started his own business known as Thomas Rhodes Cabinets and Displays. Thereafter, Thomas Rhodes solicited clients of Rhodes Industries, Inc. by way of a letter dated February 2, 1986. Thomas Rhodes Cabinets and Displays was in direct competition with Rhodes Industries, Inc.

The testimony of Douglas Albers indicates his concern over the loss of various core clients, which he attributed to the solicitation of said clients by Thomas Rhodes. Therefore, Douglas Albers approached appellant, on a number of occasions, and requested him to contact certain core clients to dispel what Douglas believed to be false and misleading information communicated to these clients by Thomas Rhodes. However, appellant admitted that he did not contact any of these clients.

The testimony of appellant also establishes that he engaged in business relations with his son, Thomas Rhodes, a direct competitor of appellee. Appellant hauled several loads of cabinets to various job sites. Appellant also worked as a subcontractor with his son at a Peabody Card Shop in the spring of 1986. The Peabody's job was also bid on by appellee, the total value for the job being $16,947.

The evidence also establishes that in the spring and summer of 1986, appellant employed a number of appellee's former employees to construct a building and a house.

The evidence establishes that in May 1986, William Linton, a former employee of appellee, established his own cabinet shop known as Flying Chips. Furthermore, appellant assisted William Linton in purchasing equipment, accompanying him to job sites and providing him work.

It was also established that appellant constructed a new facility for Creative Kitchens, Inc., a direct competitor of appellee. Appellant was paid fourteen thousand dollars for his assistance to Creative Kitchens.

Douglas Albers testified that appellant's activities in employing appellee's present and former employees contradicted the authority of the company.

Douglas Albers further testified that calculations were performed for the years 1985, 1986, 1987 and 1988 concerning business with a number of core clients of Rhodes Industries. Those calculations revealed that these core clients were now doing business with Thomas Rhodes. Thomas Rhodes provided his business records with core clients for the years 1986, 1987 and 1988.

Concerning business done with various core clients, it was Douglas Albers' testimony that appellee lost numerous clients during the first two months of 1986. It was his testimony that Thomas Rhodes began doing business with these clients and, as a result, appellee lost substantial business. He further testified that "on average," appellee lost two hundred thousand dollars per year, with a probable twenty-five percent profit margin.

Douglas Albers further testified that he formerly notified appellant that he was in breach of the consulting agreement on May 11, 1987. Susan Albers testified as to the financial records of Rhodes Industries, Inc. She testified that appellant received $29,013.73 in payment under the consulting agreement. The last payment being made on May 6, 1987.

Testimony was also elicited from Douglas Albers that he had to raise prices. There was also extensive testimony by Douglas Albers, appellant and Thomas Rhodes concerning a letter sent to Kopf Construction threatening a lawsuit. The evidence shows that Kopf did no more business with Rhodes Industries, Inc. after receiving the letter.

Appellant testified that he had received $29,013.73 in payment under the consulting agreement. Appellant further testified that from the time period of August 1985 through December 7, 1987, the amount owed to him under the consulting agreement was $39,719.34.

Based upon the above evidence, the court found for appellee and against ...