NOT RECOMMENDED FOR PUBLICATION File Name: 21a0190n.06
No. 19

- 4004
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

INFINITY CAPITAL LLC; JOHN PAUL GOLINO,
Plaintiffs

- Appellees ,

v. FRANCIS DAVID CORPORATION, d ba E lectronic Merchant Systems,
Defendant

- Appellant

. ) ) ) ) ) ) ) ) ) ) ) ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO

BEFORE: BATCHELDER , STRANCH , and MURPHY, Circuit Judges. MURPHY, Circuit Judge

. Contracts in many industries regularly grant a stream of income
to a part y but make clear that th e party will forfeit th is income if it starts c ompet ing with the other side

. C ourts have generally enforce d these forfeiture clauses because they do not absolutely ba r competit ion and instead give the party a choice : compete (and forgo the benefits) or refrain (and accept the benefits). See Carl Ralston Ins. Agency, Inc. v. Nationwide Mut

. Ins. Co

. , 2007 WL 397313, at * 2

– 3 (Ohio Ct. App. Feb. 7, 2007) ; Schlumberger Tech. Corp. v. Blaker , 859 F.2d 512, 516 (7th Cir. 1988). We must decide whether this case’s forfeiture clause fits th e same mold. Entities i n the credit

- card industry known as “ i ndependent s ales o rganizations ” recruit retail merchants to accept credit cards

. The se organizations receive a portion of the fee charged merchant s for each credit

- card swipe. They often use independent “agents” to sign up merchantsNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

2 and split the merchant’s fee with the se agents

. The part of the fee that an agent receive s is known

as the agent’s “residual” income because the agent typically continues to receive th is income even after it leaves the organization. Here, Electronic Merchant Services (EMS), a n independent sales organization, signed a contract with a n agent, Choice Merchant Services , to recruit merchants

. EMS later concluded that Choice had recruit ed merchants for Choice’s own services in violat ion of a noncompete provision

. A separate clause in th e contract stated that Choice would forfeit its resid ual income if it violated th is noncompete provision, so EMS stopped paying the income

. T he district court held that th is forfeiture clause w a s an unenforceable penalty under Ohio contract law

. Given how EMS has treated th e forfeiture clause in this case , w e agree that Ohio courts would not enforce it

. Unlike the forfeiture clauses that courts have upheld , see C arl Ralston , 2007 WL 397313, at * 3 , EMS did not read th e contract as offering Choice the option to either solicit merchants (and forfeit its residual income) or avoid that competition (and receiv e the income). Rather , it sued Choice for breaching the noncompete provision and collected damages for th at breach. EMS thus treated the noncompete provision as a n a bsolute ban on competition and the forfeiture clause as a nother remedy for breac h

. Because EMS has treated th e clause as a remedy , the clause triggers Ohio’s distinction between unenforceable penalt ies and e nforceable liquidated damages. And Ohio courts would view the clause a s a penalty. Nevertheless, the district court erred when it calculat ed Choice’s damages from its lost residual income

. We thus affirm the district court’s decision on the parties’ liabilities but re verse its damages awa rd to Choice

. I
A A typical e lectronic financial transaction involve s many actors , not just the consumer that buys a product , the merchant that sells it , and the credit

- c ard compan y that facilitat es the deal

. T heNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

3 transaction often involve s an “ issu ing” bank (which provide s a line of credit and a credit card to the consumer ) and an “acquiring” bank (which sign s up the merchant to accept the card and ensure s that t he merchant get s pa id ). See United States v. Visa U.S.A., Inc. , 344 F.3d 229, 235 (2d Cir. 2003). It also involves “payment processor s, ” which make the physical “terminal” for card swiping at brick

- and

- mortar stores or the digital “gateway” for purchas es through online merchant s . This case concerns the merchant side of credit

- card transaction s . T o recruit merchants , many banks rely on “ independent sales organizations ” ( or “ISOs” in the industry’s language )

. Independent sales organization s sign up merchants to accept electronic payment s and offer
customer support t o the m . The se organizations also monitor their merchant s ’ credit

- card sales because they bear the risk of loss for “chargeback s ” in which a retail consumer refuses to pay for a credit

- card transaction (because of fraud , for example )

. Given the concerns with nonpayment , independent sales organization s frequently do not permit merchant s (especially riskier online merchants) to process unlimited amounts of transactions with their services

. They instead c ap the total monthly dollar volume that merchant s may process . These volume caps require m any

m erchant s to contract with additional independent sales organizations for “secondary ” processing depending on the amount of card

- based business that the merchants anticipate

. Many i ndependent sales organizations , in turn, delegate much of their work to independent “a gents ” ( in some respects analogous to insur ance companies using independent agent s to sign up
customers )

. Agents might have an “exclusive” contract to recruit for just o ne independent sales organization or they might recruit for several different ones . These agent s will , in the words of one witness, “pound on the doors” of merchants and recruit them to use the independent sales organization. They will also handle customer service for successfully recruited merchant s , act ingNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

4 as a go - between for the merchant and the organization. An a gent might , for example, ask the organization to increase a merchant’s monthly volume cap if the merchant makes such a request

. M erchants pay a fee f o r every retail transaction that uses an independent sales organization’s payment processing . I ndependent sales organization s and their agent s contract over how to divvy up th is fee. The portion of the fee that an agent receive s is known a s the agent’s “residual” income because t he contract often will allow an agent to receiv e the fee as long as the merchant continues to us e the independent sales organization

. A n agent’s total monthly residual income for every merchant that the agent has recruited for an independent sales organization is known as the agent’s “portfolio” with th at organization. Agents can sell the se portfoli os based on the revenue stream’s expected value

. B EMS has been an independent sales organization for 30 years

. It has over 19,000 merchant customers (out of the millions of potential merchant s ). EMS uses its own sales force to recruit and

serve some merchants. To recruit many others, i t relies on independent agents like the one involved in this case : Infinity Capital

. O wned by John Paul Golino , Infinity Capital do es business as Choice Merchant Services

. Choice recrui t ed merchants for EMS and w as the customer

- service
contact for the EMS merchants that it signed up

. In 2010, EMS entered into a contract with Choice. Th is agreement made Choice an exclusive EMS agent: It gave EMS a “right of first refusal” that barred Choice from recruit ing merchant s for other organizations without giving EMS the right to sign up the merchant

. Th e

a greement also contained a nonsolicitation provision that barred Choice from soliciting EMS merchants for un approved purposes

. ( These types of provisions are common in the industry.) According to Golino , Choice’s owner , Choice quickly became EMS’s top agent.No. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

5 In late 2015, Golino sought to expand Choice’s b usiness

. H e wanted Choice to become its

own independent sales organization rather than just be an exclusive agent for EMS

. Golino also wanted to become more i nvolved in the market for riskier online merchants. He approached EMS
to amend the parties’ 2010 a greement

. EMS expressed a willingness to adopt a nonexclusive relationship as long as Choice paid off a substantial debt owed to EMS

. In February 2016, EMS and Choice executed an A mended and Restated Agent Processing Agreement ( “ Amended Agreement ” ). Th e Amended A greement removed the clause giving EMS the right of first refusal for Choice

- recruited merchants. It contained t wo other relevant provisions.
T he ag reement retained a modified “ N onsolicitation P ro vision

. ” This provision stated that Choice “agrees not to knowingly directly or indirectly” “ [s] olici t any EMS M erchants for any purpose other than training and support for EMS Merchant Processing Services” or “[s]olic it or attempt to solicit any EMS M erchants to reduce or discontinue their Merchant Processing Services relationship with EMS.” Th is N onsolicitation P rovision applied during the term of the agreement and during a “Post Termination Tail” (a phrase covering the two

- year period starting from the later of the agreement’s termination date or the last da y that Choice received residual income ). In addition, a “ Forfeiture C lause” allowed EMS to stop pay ing Choice residual income if Choice breached , among other provisions, th e N onsolicitation P rovision

. The parties did not share the same underst anding of th es e changes

. Golino believed that the changes allowed Choice to solicit existing EMS merchants for “secondary” processing when, for example, the merchants needed more monthly volume amounts than the amounts that EMS allowed . EMS, by contrast, believed that the changes had a more limited effect

— namel y, that Choice could now solicit non - EMS merchant s for Choice’s own processing services

.No. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

6 Things came to a head in 2018 when Choice attempted to sell its portfolio of EMS residual income to a b ank. While undertaking due diligence for this sale , the b ank became concerned about the risk to Choice’s residual

- income stream from the Forfeiture Clause , which permit ted EMS to stop the payments if C hoice breached the N onsolicitation P rovision. Choice asked EM S to add a

“ cure ” provision that would allow Choice to fix a ny breach before EMS could stop paying the income

. EMS rejected the proposal

. The b ank backed out of the deal. Around this time , EMS learned that Choice had signed up an existing EMS merchant ( Alumni Health Center ) for processing with Choice

. EMS confronted Choice, asserting that this action violated the N onsolicitation P rovision

. Choice countered that it had solicited Alumni only because EMS capped its volume and Alumni needed “secondary” pro c essing to “ make sales on an uninterrupted basis.” EMS nevertheless came to conclude that Choice had solicited dozens of other EMS merchants that had been below their volume cap s . EMS demanded that Choice stop sig n ing up EMS merchants for its own processing

. A fter Choice asserted that its soliciting of EMS merchants had not violate d the N onsolicitation P rovision, EMS terminated Choice as an agent and ended Choice’s residual

- income payments

. C
EMS brought a breach

- of

- contract suit against Choice a nd Golino in state court , alleging that Choice’s solicitation of EMS merchants breach ed the Nonsolicitation Provision. Choice and Golino removed the suit to federal court on the basis of diversity jurisdiction

. They also countered with a federal breach

- of

- contract suit of their own , one that object ed to EMS’ s termination of Choice’s residual income

. The district court consolidated the cases . A fter a bench trial, the court issued a mixed ruling

. See Infinity Cap. LLC v. Francis David Corp

. , 2019 WL 2336579 , at *1 ( N .D. Ohio June 3, 2019). The court first addressed the meaningNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

7 of the N onsolicitation P rovision. Id. at *4

– 7. It found th is provision ambiguous as to whether it barred Choice from soliciting EMS merchants in any manner or whether it barred Choice from soliciting EMS merchants only to reduce their EMS business. Id. at *4. Looking to outside

- the

contract evidence, the court adopted the latter vie w: It read the provision as allow ing Choice to solicit EMS merchants a s long as Choice’s conduct did not reduce the merchants’ EMS volume

. Id. at *4

– 6. But t he court also concluded that Choice had still breached the Nonsolicitation
P rovision even under t his narrow reading because many of Choice’s solicitations had led EMS merchants to reduce their EMS business

. Id. at *6

– 7. It calculated EMS ’s damages as $57,859.54, rejecting EMS’s claim to damages of about a million dollars

. Id. at *7. The court next considered the Amended Agreement’s Forfeiture Clause, which allow ed EMS to stop its residual payments if Choice violated the N onsolicitation P rovision. Id. at *7

– 9. Relying on Ohio contract law, t he court held that this clause amounted to an “unenforceable penalty” for a contract breach. Id. at *7

– 8. Choice valued its residual stream at $5 million , the court reasoned , but this provision would allow EMS to “erase” that asset for any violation, no
matter how trivial

. Id. at *9. The court estimated the present

- day value of Choice’s residual stream as $5,527,791.29. Id. at *9 & n.80. After granting Choice prejudgment inter est and subtracting the amounts that Choice owed to EMS for its breach of contract and for a separate unjust

enrichment claim, the court awarded Choice $5,423,541.01 plus attorney’s fees

. Id. at *10 & n.90

. In a motion for relief from th is judgment, EMS disputed the court’s damages calculations for Choice’s residual income

. See Infinity Cap. LLC v. Francis David Corp

. , 2019 WL 4674033,
at *1

– 2 ( N .D. Ohio Sept. 25, 2019). The court denied its motion

. Id. at *2.No. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

8 I I EMS raises three arguments on appeal

. It challenges the district court’s refusal to enforce
the Forfeiture Clause , the court’s reading of the Nonsolicitation Provision , and the court’s damages
calculations. We reject the first two arguments but agree with a part of the third.
A EMS initially asserts that the district court wrongly refus ed to enforce the Forfeiture Clause. Th is clause allowed EMS to stop paying Choice its residual income fo r the EMS merchants that Choice recruited if EMS violated the Nonsolicita tion Provision: Continuation of Residual Income After Termination. EMS will continue to have the Responsibility to pay Agent Residual Income after the termination of this Agreement, but not if this Agreement was terminated by EMS due to fraud committed b y Agent, or with Agent’s prior knowledge, or due to a Breach of the Confidentiality Covenant, the Non Solicitation Covenant, or the Assignment/Change of Ownership Covenant. But, even if EMS is Responsible to pay Agent Residual Income after termination, EM S still has the right to later discontinue paying Agent if there is a Breach of the Non

- Solicitation or Confidentiality Covenants. These rights to discontinue payment of Residual Income are in addition to and without prejudice to any other rights EMS may have at law or in equity. Appellant’s App’x , Dkt. 31, at 630. The parties do not now dispute that Choice violated the Nonsolicitation Provision (even under the district court’s narrow view of it ). They also do not dispute that the Forfeiture Clause allowed EMS to stop paying residual income after such a violation

. And they do not dispute that Ohio contract law governs the validity of the Forfeiture Clause because the Amended Agreement’s choice

- of

- law provision incorporates Ohio law

. See
Mas co Corp

. v. Wojcik , 795 F. App’x 424 , 427 (6th Cir. 2019)

. The parties instead dispute only whether Ohio contract law permit s courts to enforce th is c lause. Thi s dispute raises a legal question that we review de novo. See Boone Coleman Constr., Inc. v. Piketon , 50 N.E.3d 502, 508No. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

9 (Ohio 2016) ; see also Demczyk v. Mut. Life Ins. Co. of N.Y. ( In re Graham Square, Inc. ), 126 F.3d 823, 827 (6th Cir. 1997). At bottom, t h e parties’ debate turns on a basic question of identification : What kind of
contract ual provision is th is Forfeiture Clause? We see two possible options

. 1. Option One

. Choice views t he Forfeiture C lause as a damages provision designed to identify EMS ’s remedy in the event of Choice’s breach of the Nonsolicitation Provision

. If viewed in this light, the c lause would implicate the well

- known distinction between an enforceable liquidated

- damages provision and an unenforceable penalty provision under Ohio contract law (and the common law of contracts ). See Boone , 50 N.E.3d at 508; Lake Ridge Acad. v. Carney , 613 N.E.2d 183, 187

– 8 9 (Ohio 1993) ; see generally Restatement (Second) of Contracts § 356(1) (Am. L aw Inst. 1981) ; Lake River Corp. v. Carborundum Co. , 769 F.2d 1284, 1289

– 90 (7th Cir. 1985). A valid liquidate d

- damages clause seeks to estimate a party’s future loss in the event that the other party breach es t he contract

. See Boone , 50 N.E.3d at 508

. An invalid penalty clause seeks to punish the breac hing party by requiring it to pay a “penalty” for a breach that has no connection to the other party’s expecte d los s . See Lake Ridge Acad. , 613 N.E.2d at 187

– 88. Courts have regularly followed this distinction when de cid ing the validity of a remedy in a noncompete agreement that gets triggered if one party compet es against the other party in violation of the agreement

. See, e.g. , USS Great Lakes Fleet, Inc. v. Spitzer Great Lakes, Ltd. , 621 N.E.2d 461,
463

– 64 (Ohio Ct. App. 1993); see also R.L.M. , Annotation, Stipulation as to Amount Recoverable for Breach of Contract against Entering Certain Business or Employment as a Provision for Liquidated Damages or for a Penalty , 59 A.L.R. 1135 , Westlaw ( database updated 2020 ).
I f th is distinction provides the proper frame of reference, EMS has itself likely forfeited the argument that the Forfeiture Clause is anything but an unenforceable penalty . It s opening briefNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

10 made only a cursory claim (and only i n a footnote ) that the clause might qualif y as a valid liquidated

- damages provision

. See Nat’l Cont ’l Ins. Co. v. Aiazbekov , 818 F. App’x 468 , 471 (6th Cir. 2020). Perhaps for good reason. F or starters , a valid liquidated

- damages clause under Ohio law typically permits a party to seek the contractually specified amount

— and no more . Boone , 50 N.E.3d at 508. That means that EMS could seek Choice’s residual income as its damages

. But EMS did not do so

. Apart from Choice’s forfeiture of its residual income, EMS told the district
court that it was entitled to $981,500 in damages due to Choice’s solicitations of EMS merchants

. A nd the district court ultimately awarded it $57,859.54 for the se solicitations

. Infinity Cap. , 201 9
WL 2336579 , at *7. So Choice’s forfeiture of residual income was separate from EMS’s losses , not a measure of th ose losses . The Forfeiture Clause made this clear: “ These rights to discontinue payment of Residual Income are in addition to and without prejudice to any other rights EMS may have at law or in equity. ” Dkt. 31 at 630. In addition, “ [t] he element common to most liquidated damages clauses that get struck down as penalty clauses is that they specify the same damages regardless of th e severity of the breach. ” XCO Int’l Inc. v. Pac. Sci. Co. , 369 F.3d 998, 100 4 (7th Cir. 2004)

. It is hard to see how

a clause seeks to estimate the amount of loss from a breach if it grants the same lump

- sum payment for major and m inor breaches alike

. See, e.g. , Samson Sales, Inc. v. Honeywell, Inc. , 465 N.E.2d 392, 394 (Ohio 1984). This case proves the point. The Forfeiture Clause does not compel Choice to forfeit its specific residual income only for the EMS merchants that it solic its. Rather , it grants EMS all of Choice’s residual income regardless of whether Choice solicited one tiny merchant (damaging EMS in a nonexistent way) or most of EMS ’s merchants (driving it out of business). How could the full value of Choice’s residual income be an accurate calculat ion of the loss forNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

11 both types of breaches simultaneously ? EMS does not give an answer. If the Forfeiture Clause is viewed in this light , then , Ohio courts would likely treat it as an unenforceable penalty.
2. Option Two

. According to EMS, t his damages

- for

- breach view of the Forfeiture Clause is n o t the right way to look at it

. Instead, EMS claims that the clause qualifies as a “condition subsequent”

— a contract

- law term meani ng a condition that relieves a party of a contractual duty.
See Carl Ralston Ins. Agency, Inc. v. Nationwide Mut

. Ins. Co

. , 2007 WL 397313, at *3 (Ohio Ct. App. Feb. 7, 2007)

. Unlike a typical liquidated

- damages provision, t he clause does not compel the breaching party (Choice) to pay a n identified sum to the nonbreaching party (EMS) for a breach

. Rather, t he clause relieves the nonbreaching party (EMS) of a contractual duty ( to pay residual income ) if a certain condition arises (Choice solicits EMS merchants)

. Cf. Restatement (Second) of Contracts § 230 (1) & cmt. a. In other context s , Ohio c ourts have enforced similar clauses tied to similar noncompetition conditions without treating them as “penalties.”
T he insurance industry provides the best example

. Insurers often use independent “agents” to sell polic i es to consumers. Even after an agent stop s working with an insurer , the parties’

contract may entitle the agent to continued commissions for the agent’s customers who renew their policies. See, e.g. , 43 Robert E. Anderson et al., Am. Jur. 2d Ins. § 163, Westlaw ( database updated Feb. 2021); 4 Steven Plitt et al., Couch on Ins urance § 57:43 (3d ed.), Westlaw ( database updated Dec. 2020)

. But t he contract may relieve the insurer of the duty to pay these commissions if the agent goes to work for a compet itor

. Ohio courts have regularly enforc e d these forfeiture clauses. Take Kezdi v. Nationwide Ins urance Co. , 1977 WL 201250 (Ohio Ct. App. Aug. 11, 1977)

. There, a contract indicated that an insurance agent would forfeit any post

- relationship commissions from the insurer if the agent attempted to soli cit business from the insurer’s customers or signed a contract with a competi ng insurer

. Id. at *5. After the agent contracted with a competitor andNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

12 solicited the prior insurer’s customers , the insurer stop ped paying commissions. Id. The Ohio appellate court upheld the forfeiture clause

. Id. It reasoned that the clause was “not a penalty because the agent forfeits th e se commissions only when he” “ accepts employment with another
company ” or “attempts to take business away from the original com pany [.] ” Id. at *6. It added that “t he provisions of this contract terminating the renewal commissions are not illegally in restraint of trade because the [agent] is free to leave the [insurer] and become an agent for another
company. ” Id. ; see also, e.g. , Carl Ralston , 2007 WL 397313, at *3 ; Plazzo v. Nationwide Mut.
Ins. Co. , 1996 WL 62110, at *2

– 6 (Ohio Ct. App. Feb. 14, 1996); James H. Washington Ins. Agency v. Nationwide Mut. Ins. Co. , 643 N.E.2d 143, 150

– 51 (Ohio Ct. App. 1993); cf. Hamilto n Ins. Serv s . Inc. v. Nationwide Ins. Cos. , 714 N.E.2d 898, 901

– 02 (Ohio 1999). Why do Ohio courts treat these forfeiture clauses differently from penalty clauses (whether or not the amount of forfeited benefits accurately estimates the “loss” from competition)? They appear to be following the distinction recognized by other courts: A penalty provision enforces an absolute noncompetition ban that “ prevent [s] an [agent] from working for a competitor , ” whereas a forfeiture clause imposes an optional noncompetition restriction t hat only “ call [s] for a forfeiture of certain benefits should he do so. ” Tatom v. Ameritech Corp. , 305 F.3d 737, 744 (7th Cir. 2002). In other words, unlike an unconditional ban, a conditional restriction gives insurance agen ts the freedom to choose . They may decide to compete (and earn the money from that competition) or not compete (and retain the agreed

- upon benefits). A forfeiture clause thus is not a “penalty” for a breach because the decision to compete does not “breac h” the agreement. The agreement allows the agent to exercise this option and simply mandates the forfeiture as the consequence of exercising the right to compete. The se clause s also do not threaten agents with a total “loss ofNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

13 livelihood,” one of the pri mary rationales that courts give when rejecting complete competition bans. Schlumberger Tech. Corp. v. Blaker , 859 F.2d 512, 516 (7th Cir. 1988). On its face, this Ohio caselaw bode s well for EMS. If we interpret the combined effect of the Nonsolicitatio n Provision and the Forfeiture Clause as giving Choice the option not to compete (and retain the residual income ) or to compete (and forfeit it ), th es e contractual provisions might be no different from the forfeiture clauses upheld in these Ohio cases . Yet EMS’s argument fail s for a case

- specific reason. EMS’s actions in this suit show that it ha s never read the Nonsolicitation Provision as giving Choice the option to compete by forfeiting its residual income

. To the contrary, EMS sued Choice for breaching the Nonsolicitation Provision and obtained damages for th e breach. Infinity Cap. , 2019 WL 2336579 , at *7. T he Forfeiture Clause itself says it applies on a “ Breach of

. . . the Non Solicitation Covenant , ” and the Amended Agreem ent authorizes injunctive relief for this breach on top of any forfeiture remedy. Dkt. 31 at 630. EMS thus read s the Nonsolicitation Provision as imposing a n absolute ban on competition apart from the forfeiture of residual income. In the insurance cases on which EMS relies, by contrast, the insurer “ could not sustain a breach of contract claim against ” a n agent that competed against the insurer because the ir contract did not bar th e competition. Carl Ralston , 2007 WL 397313, at *3

. The contract merely identified the forfeiture of commissions as a consequence of the agent’s choice to compete

. See id. Perhaps, under general contract

- law principles, the N onsoli c i t ation P rovision could be seen

as both a standalone duty subjecting Choice to damages and a condition on EMS’s reciprocal duty to pay residual income

. See Restatement (Second) of Contracts § 225(3) & cmt s . c

– d

. But EMS
i denti fie s no case that has allowed a party to treat a noncompetition clause simultaneously as both an absolute ban triggering a right to an injunction and damages if a party competes and a mereNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

14 condition triggering a forfeiture of benefits for the exact same conduct

. And the cases uph o ld ing forfeiture clauses have relied on the fact that the contracts gave the agents the option to accept the benefits or compete. See, e.g. , Kezdi , 1977 WL 201250 , at *6. R egardless, EMS has never attempted to ground its seeming inconsistency in any general rule of contract law . S o we need not consider whether Ohio courts would enforce a forfeiture clause tied to a noncompete provision that imposed both an absolute limit on competition and a condition on benefits. In sho rt, EMS ’s litigating position i n this case has treated the Forfeiture Clause as a remedy for breach , not as a condition on residual income . T he clause thus triggers the distinction between a n unenforceable liquidated

- damages provision and a n enforceable penalty provision under Ohio law

. And Ohio courts would treat th is forfeiture remedy as a n unenforceable penalty. In response, EMS (backed by an amicus) claims that a refusal to enforce th e Forfeiture Claus e will affect a sea change in the payment

- process ing industry as well as th e other industries that regularly place forfeiture clauses in their contracts

. Not so . Our ruling is narrow. We take no position on whether Ohio courts would enforce forfeiture c lauses (like the clause at issue in Kezdi and the c ases discussed above) that give agents an option to compete with their former organizations by forfeit ing residual income

. Under EMS’s own view of the Amended Agreement , that type of clause is not before us. Rather, EMS ha s treated this clause as a penalty for breach

. B EMS next challenges the district court’s interpretation of the N on s olicitation P rovision

. This provision provide d in relevant part : 4.1 . Non

- Solicitation. During the Term of this Agreement, and during the Post Termination Tail, Agent agrees not to knowingly directly or indirectly (i) Solicit any EMS Merchants for any purpose other than training and support for EMS Merchant Processing Se rvices, [or] (ii) Solicit or attempt to Solicit any EMS Merchants to reduce or discontinue their Merchant Processing Services relationship with EMS [

. ]No. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

15 Dkt. 31 at 629. The Amended Agreement define d “ solicit ” to mean “make contact with a Merchant or otherwise assist or enable a Merchant in the prohibited activity (even if the Merchant initiated the contact). ” Id. at 640. The district court found that this Nonsolicitation P rovision had an ambiguous scope . Infinity Cap. , 2019 WL 2336579 , at * 4

– 5

. It thus relied on outside

- the

- contract evidence to hold that the provision barred only Choice solicitations that led EMS merchants to reduce their EMS business. Id. EMS challenges both aspects of the dis trict court’s decision.
1

. Is the Nonsolicitation Provision un ambiguous? EMS argue s that the first part of the Nonsolicitation Provision (Subsection 4.1(i)) unambiguously barred Choice from soliciting EMS merchants to use Choice’s processing under any circumstances. That is true, EMS says, even if th is solicitation did not cause the merchants to reduce their EMS business (because , for example, the merchants had reached their EMS volume caps and needed “secondary” processing )

. EMS is
correct that, “[u]nder Ohio law, ‘ [i]f a contract is clear and unambiguous, then its interpretation is a matter of law and there is no issue of fact to be determined. ’” Masco , 795 F. App’x at 427 (quoting Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm , 652 N. E.2d 684, 685 ( Ohio 1995) ).
It is also correct that whether a contract is clear or ambiguous raises a legal issue that we review de novo. See Cal. Fitness I, Inc. v. Lifestyle Fam

. Fitness, Inc. , 433 F. App’x 329, 337 (6th Cir. 2011); Potti v. Duramed Pharms., Inc. , 938 F.2d 641, 647 (6th Cir. 1991). And it is correct that if the contract is unambiguous, we may not consider extrinsic evidence to interpret it. See Masco , 795 F. App’x at 42 8

. But EMS is incorrect that this Nonsolicitation Provis ion is unambiguous. To be sure, Subsection 4.1(i) could be read broadly to allow Choice to make contact with EMS merchants only for “training ” and “ support ” for EMS’s payment

- processing services and for no other purpose (whether or not the contact relate s to those EMS payment

- processing services). T his view wouldNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

16 read th is subsection to bar Choice from signing up EMS merchants for its own payment

- processing services even if it woul d no t affect E MS’s business. Yet this broad reading creates a problem. W e must read th e Nonsolicitation Provision “as a whole” and attempt to “avoid any interpretation of one part which will annul another part.” Foster Wheeler Enviresponse, Inc. v. Franklin C n ty. Conv ention Facs. Auth. , 678 N.E.2d 519, 52 7 ( Ohio 1997) ; see also Transtar Elec., Inc. v. A.E.M. Elec. Servs. Corp. , 16 N.E.3d 645, 651

– 52 (Ohio 2014). And EMS’s reading of Subsection 4.1(i) would render Subsection 4.1(ii) ’s ban on Choice ’s contacting EMS merchants to reduce their EMS business “meaningless,” which is “neither acceptable nor desirable under the normal rules of contract construction

. ” Hybud Equip. Corp. v. Sphere Drake Ins. Co. , 597 N.E.2d 1096, 1103 (Ohio 1992). Might Subse ction 4.1(i) be read more narrowly to better reconcile the two clauses ? Perhaps i t could be read to regulate only Choice’s contacts with EMS merchants when acting in its capacity as an EMS agent : Choice may contact EMS merchants for the purpose of “training” and “support” for “ EMS Merchant Processing Services ,” but not for other “ purposes ” related to those s ervices

. Put another way, the first clause might govern Choice’s contacts with EMS mercha nts when wearing its EMS hat ( it permits only contact for training and support) and the second clause might govern Choice’s contacts with EMS merchants when wearing its own ( it permits only contact that do es not harm EMS’s business)

. At the least, we thin k the provision is ambiguous on the point

. A broader view of the entire Amended Agreement c onfirm s th e ambiguity . T he a greement required Choice to sign a “Rep Agreement” with each of its “Representatives who are involved
with EMS Merchants [.] ” Dkt. 31 at 630. (The agreement defined “Representative” to include Choice’s officers, employees, and independent contractors. Id. at 640.) Yet “ Rep Agreement ” was defined to mean a written agreement that barred Choice’s R epresentatives from solicitingNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

17 E MS merchants only “ to reduce or discontinue ” their EMS business

. Id. at 639. By implication, therefore, t h is “Rep Agreement” definition permitted Choice ’s R epresentatives to solicit EMS merchants for Choice ’s payment processing as long as that solicitation did not reduce EMS’s business . If, however, the Nonsolicitation Provision barred that conduct, Choice could be found liable for violating the Nonsolicitation Provision when its Representatives engaged in conduct permitted by their Rep Agreeme nt s . This tension suffices to trigger the Ohio rule that “conflicting provisions in a contract cannot be interpreted as a matter of law.” Cal. Fitness , 433 F. App’x at 337 (quoting N. Frozen Foods, Inc. v. Picciotti , 2011 WL 1935816, at *2 (Ohio Ct. App. May 19, 2011)). In response, EMS relies on its employee’s testimony about the purpose of the two subsections to argue that its reading does not render Subsection 4.1(ii) superfluous. This employee claimed that Subsection 4.1(i) could be read to allow Choice to ridicule EMS’s services (and so effectively solicit EMS merchants for its own) when Choice engaged in EMS training and support

. EMS added Subsection 4.1(ii) , the employee claime d, to clarify that Choice could not do so . This argument has two problem s . The first: I t overlooks Ohio law. We must decide whether a contract is clear by examining its language, not extrinsic evidence about its purpose. See Masco , 795
F. App’x at 428 . That type of evidence gets triggered only once we find the contract ambiguous. See, e.g. , Westfield Ins. Co. v. Galatis , 797 N.E.2d 1256, 1261 (Ohio 2003). At this initial interpretive stage , “ [i] ntentions not expressed in the writing are deemed to have no existence and may not be shown by parol evidence. ” Aultman Hosp. Ass’n v. Cmty. Mut. Ins. Co. , 544 N.E.2d 920, 923 (Ohio 1989). The second: this testimony all but admits that Subsection 4.1(i) is ambiguous. EMS’s theory f o r avoid ing superfluity rests on the notion that Subsection 4.1(i) mightNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

18 permit Choice to solicit EMS merchants for Choice services when engaged in training or support

. That theory contradicts EMS’s claims that Subsection 4.1(i) categorically bars such solicitations

. Even if the two subsections are redundant, EMS next argues , we should accept the redundancy because it arises from a common “belt

- and

- suspenders” approach to contract drafting. We agree that “[n]othing prevents the parties from using a belt and suspender s approach in drafting ” a contract “ to be doubly sure” that general language cover s a specific situation

. TMW Enters., Inc. v. Fed. Ins. Co. , 619 F.3d 574, 577 (6th Cir. 2010) (quoting In re SRC Holding Corp. , 545 F.3d 661, 670 (8th Cir. 200 8 ))

. W hen the contract as a whole suggests that the parties have done so , courts should respect the ir choice. See id. at 577

– 78. Here, for example, if Subsection 4.1(ii) had absolutely barred Choice from soliciting EMS merchants to use Choice’s services, a

cou rt would have to enforce that broad ban whether or not it overlap ped with Subsection 4.1(i).
But Subsection 4.1(ii) does not do so. Rather, it prohibit s only those solicitations that reduce an EMS merchant’s business with EMS . It thus carries the implication that Choice may otherwise solicit those merchants. That implication is reinforced by the definition of “Rep Agreement,” which likewise permits Choice Representatives to solicit EMS mercha nts for Choice services as long as any solicitation does not reduce EMS’s business. And t he scope of Subsection 4.1(i)’s general ban is not sufficiently clear to eliminate this implication in Subsection 4.1(ii)

. In the specific context of this agreement , then, we do not find it unambiguous that Subsection 4.1(ii) represents merely redundant contract drafting.
2. Does the Nonsolicitation Provision bar all solicitations? EMS next argues that the outside

- the

- contract record shows that the parties intended to categorically bar Choice from soliciting EMS merchant s for Choice services . Under Ohio contract law, however, once a n appellate court find s a contract ambiguous, the court must leave it t o the finder of fact (here, theNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

19 distri ct court) to determine what the parties intended in the language that they used. See Cal.
Fitness , 433 F. App’x at 337

. And w e will overturn the district court’s finding s of fact on th is issue only if they are clearly erroneous. See Campbell v. Potash C orp. of Saskatchewan, Inc. , 238 F.3d 792, 797 (6th Cir. 2001). EMS’s challenge thus must fail as long as the court’ s findings “reflect [] a ‘plausible’ and ‘permissible view [] of the evidence.’” Detroit Pub

. Schs. Program Mgmt. Team v. Valley Forge Ins. Co. , 483 F. App’x 150, 152 (6th Cir. 2012) (quoting Anderson v. Bessemer City , 470 U.S. 564, 574 (1985) )

. The district court’s findings meet that low bar. Treating the parties’ precontract negotiation s as inc onclusive, t he court relied primarily on their “course of dealing” under the Amended Agreement. Infinity Cap. , 2019 WL 2336579 , at *5; see, e.g. , Pertoria, Inc. v. Bowling
Green State Univ. , 2014 WL 4291637, at *9 (Ohio Ct. App. Sept. 2, 2014). Through Golino, Choice repeatedly informed EMS that it was recruiting volume

- capped EMS merchants for “secondary” processing with Choice . Choice also asked EMS to provide guidance about whether the Nonsolicitation Provision would cover specific “scenarios” involving Choice’s recruitment of
EMS merchants . Yet, as the district court explained, “ Choice ’ s repeated attempts at clarification were met with responses ranging from the non

- existent, to the un helpful, to the outright misleading. ” Infinity Cap. , 2019 WL 2336579, at *6. EMS either failed to respond to Choice’s inquiries , acknowledged that Choice was signing up EMS merchants for secondary processing (“go ahead”) , or reiterated only that Choice could not solicit merchants to “ reduce or discontinue their Merchant Processing Services relationship with EMS .” Id. at *5 (quoting emails). If EMS read the Nonsolicitation Provision in the broad manner that it now claims , these responses wo uld have made no sense. Any solicitation would have been barred , and EMS w ould have responded in that clear fashion . But it did not. This evidence at least made it “plausible” for the district courtNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

20 to conclude that EMS and Choice both believed that the Nonsolicitation Provision allowed Choice to solicit EMS merchants as long as its efforts did not reduce their business with EMS. Detroit Pub

. Schs. , 483 F. App’x at 152 (quoting Anderson , 470 U.S. at 574)

. C EMS lastly challenges the district court’s damage awards

. EMS has forfeited any claim against the court’s calculation of its own award, but the court did e rr when calculating Choice’s.
1. EMS ’s Damages

. Although EMS requested close to a million dollars in damages for Choice’s breach of the Nonsolicitation Provision, t he district court ultimately awarded it only $57,859.54

. Infinity Cap. , 2019 WL 2336579 , at *7. On appeal, EMS suggests that the district
court should have awarded the full amount requested . But we find its argument forfeited. EMS ’s opening brief offered only a conclusory footnote as to why the district court err ed in calculating this award. That type of half

- hearted argument does not suffice to raise an issue on appeal. See United State s v. Johnson , 440 F.3d 832, 845

– 46 (6th Cir. 2006). And while EMS ’s reply brief provided a more fulsome discussion , those arguments came too late

. See Sanborn v. Parker , 629 F.3d 554, 579 (6th Cir. 2010)

. 2. Choice’s Damages

. The district court awarded Choice over $5 million in damages for EMS’s decision to terminate its residual income in August 2018

. Infinity Cap. , 2019 WL 2336579 , at *9. The court found that Choice receiv ed $133,000 in monthly residual income at that time

. Id.
It next estimated a 2% merchant

- attrition rate per month

. Id. That is, it estimated that Choice’s
residual income would decline by 2% each month as Choice

- recruited merchants gradually stopp ed using EMS ’s processing

. Id. These two estimates led the court to calculate a total stream of monthly payments of $6,061,223 lasting over ten years

. Id. at *9 & n.7 9

. It concluded that the present value of this revenue st ream was $5,527,791.29. Id. at *9 & n.80. We review this type ofNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

21 bench

- trial damages award for an abuse of discretion. Max Trucking, LLC v. Liberty Mut. Ins. Corp. , 802 F.3d 793, 808 (6th Cir. 2015). And “ [a] court abuses its discretion when it relies on clearly erroneous findings of fact, or when it improperly applies the law or uses an erroneous legal standard.” Hance v. Norfolk S. Ry. Co. , 571 F.3d 511, 517 (6th Cir. 2009) (quoting United States v. City of Warren , 138 F.3d 1083, 1096 (6th Cir. 1998))

. B oth a legal error and a factual error undergird th is damages award

. Start with the factual

error . The court found that Choice received $133,000 in monthly income “[a]t termination.” Infinity Cap. , 2019 WL 2336579 , at *9. The court made that finding based on Golino’s testimony :

“ This is my life ’ s work that you ’ re taking away from me here, $133,000 a month. ” Tr., R.52, PageID#1384 . Yet Golino made th at statement in passing . And he was not discussing damages ; he was explaining an email that was attempt ing to broker a compromise with EMS

. As he later indicated , EMS’s last residual payment in August 2018 w as for only $127,896.62

. Id. , PageID#1422. Choice’s monthly residual report confirms this amount , as does Choice’s posttrial
brief. In a Rule 60(b) motion, EMS claimed that the final payment was actually $12 7,977.82. Either way, w e are “left with the definite and firm conviction” that the district court started its calculations with the wrong number

. Hance , 571 F.3d at 517 ( citation omitted ). Now turn to the legal error. “ [T] he sole purpose of contract damages is to compensate the nonbreaching party for losses suffered as a result of a breach [

. ] ” Lake Ridge Acad. , 613 N.E.2d at 187. A c ontract damage calculation thus must be based on a methodology that places the entities in the position that they would have been in had a breach never occurred. See Blain’s Folding Serv., Inc. v. Cincinnati Ins. Co. , 109 N.E.3d 177, 181 (Ohio Ct. App. 2018). This calculation of “expectation” damages generally has two components. See Restatement (Second) of Co ntracts § 347. I t initially seeks to measure the gains that the injured party would have obtained had theNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

22 breaching party performed on the contract o r, stated conversely, the losses that th e party suffered as a result of the breach. See, e.g. , Top Notch Excavating, LLC v. Peterman , 2012 WL 5508291 , at *3 n.2 (Ohio Ct. App. Nov. 9, 2012) ; Rasnick v. Tubbs , 710 N.E.2d 750, 754 ( Ohio Ct. App. 1998). At the same time, expectation damages are not designed to make the injured party better off than it wou ld have been had the contract been performed. See Miller Med. Sales, Inc. v. Worstell , 1993 WL 538300, at *2 (Ohio Ct. App. Dec. 21, 1993). So a proper damages calculation must reduce these expected gains by the expected “cost or other loss” that the party would have incur red through performance. Restatement (Second) of Contracts § 347 (c)

. And “ [w] hen a contract is repudiated at a time when the injured party has not yet perfor med, ordinarily a savings to the injured party occurs by reason of not having to perform his promise. ” F. Enters. , Inc. v. Ky. Fried Chicken Corp. , 351 N.E.2d 121, 125 ( Ohio 1976)

. T he burden rests on the injured party to prove both the expected gains an d the expected costs (or lack thereof) from performance. See MNM & MAK Enters., LLC v. HIIT Fit Club, LLC , 134 N.E.3d 242, 252 (Ohio Ct. App. 2019). Here, t he district court committed legal error because it overlooked the cost s side of th e damages equation. When calculating Choice’s estimated revenue stream , it “ never considered or discussed whether and how to reduce this proposed gross revenue figure by [Choice’s] expenses to try to reach an amount representing [Choice’s] net profits. ” Id

. I t is not at all clear that this revenue stream was costless to Choice, which bore the burden t o pro ve its ( lack of ) expenses . See
i d. To give one example, t he district court’s estimation of a 2% merchant

- attrition rate came from Golino’s testimony ab out Choice’s average attrition rate . Tr., R.52, PageID#1425. Elsewhere, however, Golino made quite clear that a low attrition rate is not cost

- free : “ A good agent will retain and reduce the attrition on the merchants. An agent that signs up a merchant and just disappears and leaves it to the [independent sales organization] to do the customer service, those deals tendNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

23 to cancel a lot sooner. ” Id. , PageID#1253

– 54. And Choice’s counsel likewise conceded that “there’s definitely maintenance with respect to keeping” merchants. Id. , PageID#1211. The district court’s opinion rejecting EMS’s Rule 60(b) motion confirms this error. In the year following EMS’s last residual payment, EMS’s evidence suggests that the actual attrition rate of the residu al portfolio was 5.27%, over two and a half times the district court ’s estimate. When rejecting this evidence, the court reasoned that “ Choice would have presumably continued to manage its portfolio ” without EMS’s breach and so would have obtained a lower attrition rate. See Infinity Cap. , 2019 WL 4674033, at *2. Yet the court ’s initial calculation did not consider how Choice’s maintenance “costs” should go into the damages calculation. See Restat ement (Second) of Contracts § 347 (c)

. There may (or may not) have been other costs as well. As EMS notes, for example, the Nonsolicitation Provision barred Choice from soliciting EMS merchants to reduce their EMS business for two years after its resid ual

- income payments stopped. It is not clear on this record whether Choice adhered to this contract requirement (another potential “cost”)

. But we can pretermit this discussion. By failing even to consider the costs side of the equation , the district

co urt “ use [d] an erroneous legal standard.” Hance , 571 F.3d at 517 (citation omitted)

. We thus vacate and remand for additional proceedings on damages at which Choice can meet its burden “regarding the issue of expenses.” Miller Med. Sales , 1993 WL 538300, at *2; s ee Rasnick , 710 N.E.2d at 754

. The district court should recalculate Choice’s damages in light of any new evidence presented by the parties under the proper legal standards

. Choice’s responses lack merit. On the district court’s factual error, Choice claims that no evidence in the record conflicted with Golino’s passing reference to $133,000 as the monthly
residual stream at termination. To the contrary, Golino’s later testimony of the final amount atNo. 19

- 4004, Infinity Cap. , et al

. v. Francis David Corp.

24 termination (not to mention Choice’s posttrial brief) both contradicted this number . Choice also claims that the district court ’s $133,000 calculation was simply an averag e of the last several months of Choice’s residual

- income payments . But the court did not indicate that it was undertaking that average. Nor does Choice provide a fac tual basis for it

. On the district court’s legal error, Choice argues that the costs of maintaining this revenue

stream were “negligible.” But Choice presented no evidence to support this claim. And it bore the burden of proof. See Miller Med. Sales , 1993 WL 538300, at *2

. All told , we affirm the district court’s judgment on all liability issues. But we reverse its calculation of Choice’s damages and remand for proceedings consistent with this opinion.