Opinion ID: 564824
Heading Depth: 2
Heading Rank: 2

Heading: Testimony of Michael Miglets

Text: 23 Duramed contends that the District Court erred in failing to strike certain testimony of Michael Miglets, an employee of the Ohio Division of Securities. Duramed's primary defense was that the Escrow Agreement terms prevented the release of the plaintiffs' shares. To that end, Duramed introduced the Agreement and called Michael Miglets to explain what an escrow agreement was and why it was required by the Division. During direct examination Miglets was asked about the Escrow Agreement's requirements for release of shares from escrow under paragraph 8.2. The following relevant colloquy occurred: 24 Q. [Duramed Counsel]. Mr. Miglets, under the terms of this escrow agreement in paragraph 8.2, when does the period referred to in that paragraph, the 12-month period, when does that begin to run? 25 (Witness reading.) 26 A. At the earliest, twelve months after the public offering. 27 Q. Twelve months after the date of the agreement? 28 A. Right. 29 (Emphasis added). 30 In response to those questions on direct examination, on cross-examination counsel for the plaintiffs asked Miglets a series of questions regarding the one year period of paragraph 8.2: 31 Q. [Pottis' Counsel]. Okay. And when we're talking about a year, we're talking about four quarters; aren't we? 32 A. Yes. 33 Q. And those four quarters would be September 30, '86; December 31st, '86; first quarter of '87; second quarter of '87, like that; wouldn't they? 34 A. I'm sorry, I lost you. 35 Q. The four quarters-- 36 A. Okay. 37 Q. --four quarters would have been actually the third quarter of '86, fourth quarter of '86, first quarter of '87, second quarter of '87; correct? 38 A. Yes, it would be after the public offering. The quarters would--you start counting quarters then. 39 Q. September 30, 1986? 40 A. Yes. 41 Q. December 31st, '86? 42 (Counsel for Potti writing on the chart.) 43 Q. I don't write so well at this time, but can you read those, Mr. Miglets? 44 A. Yes. 45 Q. Those are the quarters we're talking about; correct? 46 A. Right. The public offering would have been September 23rd, '86 and the first quarter following that would have been those four quarters. 47 (Emphasis added). 48 On redirect examination the question was raised again by counsel for Duramed and the District Court itself: 49 Q. And, Mr. Miglets, if you would look at paragraph 8.2. I'm a little confused. I want to go over this one more time. 50 . . . . . 51 Q. Mr. Miglets, that paragraph refers to one year and two years. When does one year from September of 1986 run? 52 . . . . . 53 A. Four consecutive quarters. 54 THE COURT: What was that?THE WITNESS: Four consecutive quarters. 55 THE COURT: Four consecutive quarters starting with what, the quarter ending September 30th which would be immediately following, or would it be the quarter ending December 31st, the first full quarter following? I think that is what the question is about. 56 (Witness reading.) 57 THE COURT: You say it's four consecutive quarters. And now the issue is, which quarters? 58 THE WITNESS: I'm not the examiner on file, but after paragraph 8.1 indicating the first two quarters of '86, I would assume it would be the last two quarters of '86 and the first two quarters of '87. 59 THE COURT: All right. 60 The day after Miglets testified Duramed moved to strike that portion of his testimony purporting to interpret the 1 year period for measuring earnings under paragraph 8.2. Duramed argued then, as it does before us, that the testimony was offered to contradict the clear and unambiguous terms of the Escrow Agreement and should not have been admitted. The District Court rejected this argument, finding that paragraph 8.2 of the Escrow Agreement is ambiguous and the jury could properly consider the evidence. 61 Under Ohio law, interpretation of written contract terms is a matter of law for initial determination by the court. See Uebelacker v. Cincom Sys., Inc., 48 Ohio App.3d 268, 549 N.E.2d 1210 (1988); Clarke v. Hartley, 7 Ohio App.3d 147, 454 N.E.2d 1322 (1982). It is only when the relevant contract language is ambiguous that the job of interpretation is turned over to the fact finder, see Bahamas Agric. Indus., Ltd. v. Riley Stoker Corp., 526 F.2d 1174, 1179 (6th Cir.1975), and the determination whether a contract is ambiguous is made as a matter of law by the court. D.L. Baker & Co. v. Acosta, 720 F.Supp. 615, 618 (N.D.Ohio 1989). We review the District Court's legal conclusion regarding ambiguity de novo. 62 Ambiguity exists only where a term cannot be determined from the four corners of the agreement or where contract language is susceptible to two or more reasonable interpretations. See, e.g., Wells v. American Elec. Power Co., 48 Ohio App.3d 95, 548 N.E.2d 995 (1988). We disagree with the District Court that the Escrow Agreement is ambiguous regarding the commencement of the one year period under paragraph 8.2. The Escrow Agreement says that [t]erms of this Agreement commence upon effectiveness of the registration application ... which is contemplated to take place in September 1986. The one year period of paragraph 8.2 is clearly a term of the Agreement, and, absent clear language to the contrary, it must therefore commence upon the effectiveness of the registration. It is beyond dispute that the registration was effective at the end of September 1986. While a simple reference to a one-year period might be considered susceptible to more than one reasonable interpretation, in this case the Escrow Agreement itself makes clear that the one year period of earnings required by paragraph 8.2 refers to one year's earnings subsequent to the public offering. This plain and unambiguous meaning of the Escrow Agreement is verified by the purpose of the escrow itself, which is to protect public shareholders by insuring that insiders may not withdraw their stock from the company until the company has reached and sustained a specified level of earnings after receiving funds from the public market. 63 Our conclusion that there is no ambiguity with respect to the critical language is not rebutted by the sometimes confused testimony of Michael Miglets regarding timing under the Escrow Agreement. Although the time requirements and earnings tests for releasing escrowed shares are mandated by the Ohio Division of Securities, Miglets was not a party to the Escrow Agreement nor was he involved in the drafting of the Agreement. Therefore, although he could testify as to what earnings requirements the Division might require or whether the Division could waive those requirements, Miglets could not testify as to the meaning of the Escrow Agreement itself. The District Court erred in failing to strike that portion of Miglets' testimony purporting to interpret the one year period under paragraph 8.2 upon timely objection by Duramed. This error was magnified rather than rectified by the District Court's decision to allow additional testimony on the question from Mark Holderman, Miglets' supervisor in the Ohio Division of Securities. 64 Because the Escrow Agreement is unambiguous regarding the commencement of the one year period under paragraph 8.2, the District Court erred by failing to state the proper construction to the jury as a matter of law. Scott v. Anchor Motor Freight, Inc., 496 F.2d 276, 280 n. 2 (6th Cir.), cert. denied, 419 U.S. 868, 95 S.Ct. 126, 42 L.Ed.2d 107 (1974). Although it was error to allow the jury to interpret the Escrow Agreement, we must still decide whether that error was nonetheless harmless. That inquiry involves an assessment of the likelihood that the error affected the outcome of the case. See Schrand v. Federal Pacific Elec. Co., 851 F.2d 152, 157 (6th Cir.1988). The error was harmless only if we can say with fair assurance that the jury's findings were not substantially swayed by an error in interpreting the Escrow Agreement. 65 In their Answers to Interrogatories, the jury determined that August 17, 1987 was the earliest date on which the Pottis' shares should have been released if Duramed had exercised its best efforts. From this it seems likely that the jury decided, contrary to the clear terms of the Escrow Agreement, that the Agreement would allow the one year earnings test to commence on July 1, 1986--almost three months before the public stock offering--and end on June 30, 1987. The evidence at trial showed that Duramed had filed its financial statement for the period ending on June 30, 1987, an unaudited Securities and Exchange Commission Form 10-Q, on Friday, August 14, 1987. The jury apparently concluded that the Ohio Division of Securities would have approved the release of plaintiffs' shares from escrow on the following Monday, August 17, 1987, if Duramed had exercised its best efforts. Because it is probable that the jury's decision was influenced by their erroneous interpretation of paragraph 8.2 of the Escrow Agreement, the District Court's error in failing to interpret the Escrow Agreement as a matter of law was not harmless. 3