Court Opinion

ID: 4202025
Source: CourtListenerOpinion
Date Created: 2017-09-08 13:13:54.801609+00
Date Added: 2024-06-11T14:40:47.169033
License: Public Domain

[Cite as Weckel v. Cole + Russell Architects, 2017-Ohio-7491.]
                      IN THE COURT OF APPEALS
                  FIRST APPELLATE DISTRICT OF OHIO
                       HAMILTON COUNTY, OHIO

FREDERIC C. WECKEL,                                :         APPEAL NO. C-160591
                                                             TRIAL NO. A-0407805
        Plaintiff-Appellant,                       :
                                                                   O P I N I O N.
  vs.                                              :

COLE + RUSSELL ARCHITECTS,                         :

    Defendant-Appellee.                            :

Civil Appeal From: Hamilton County Court of Common Pleas

Judgment Appealed From Is: Affirmed

Date of Judgment Entry on Appeal: Setember 8, 2017

Tobias, Torchia & Simon and David Torchia, for Plaintiff-Appellant,

Keating Muething & Klekamp PLL and Kasey L. Bond, for Defendant-Appellee.
                     OHIO FIRST DISTRICT COURT OF APPEALS

M OCK , Presiding Judge.

       {¶1}    Plaintiff-appellant Frederic C. Weckel appeals the decision of the

Hamilton County Court of Common Pleas denying his motion to enforce a settlement

agreement between him and defendant-appellee Cole + Russell Architects (“Cole +

Russell”). We find no merit in Weckel’s sole assignment of error, and we affirm the

trial court’s judgment.

                               I.   Facts and Procedure

                             A. A Settlement Agreement

       {¶2}    The record shows that Weckel had been a managing principal of Cole

+ Russell, a national architectural practice located in Cincinnati. In March 2004,

Cole + Russell terminated Weckel’s employment. Weckel brought suit against his

former employer for breach of fiduciary duty and wrongful termination. In January

2008, the parties entered into a settlement agreement.

       {¶3}    Under the terms of that agreement, Weckel was to sell his shares of

Cole + Russell stock to the firm’s employee stock ownership plan (“ESOP”), rather

than redeeming them as provided for in the shareholder agreement. In exchange,

Weckel agreed to end his lawsuit against Cole + Russell.

       {¶4}    The agreement further provided:     “The ESOP purchase of Weckel’s

stock is contingent on the professional opinion of an independent adviser who must

approve the ESOP’s purchase of Weckel’s shares.” The purpose of this provision was

to protect the ESOP trustee.    The trustee was David Arends, who was also the

president and chief executive officer of Cole + Russell. An independent adviser was

necessary because of the potential of a conflict of interest, although the parties did

not anticipate any problems obtaining approval.

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                     OHIO FIRST DISTRICT COURT OF APPEALS

                       B. Potts Appointed Independent Advisor

       {¶5}    Cole + Russell hired Thomas Potts to serve as the independent

advisor.   Potts then retained attorney Ben Wells to advise him in his role as

independent fiduciary. Arends had previously hired Wells to represent him in his

capacity as the ESOP trustee.      Potts also hired ComStock Valuation Advisers

(“ComStock”) to review the sale of Weckel’s stock to the ESOP and to determine the

value of that stock.   Cole + Russell cooperated with Potts and ComStock and

provided requested documents and information.

       {¶6}    ComStock sent Potts a “draft fairness opinion” in which it determined

that the “consideration to be paid by the ESOP” for Weckel’s shares of stock was

appropriate and that the transaction was “fair and reasonable to the ESOP from a

financial point of view.” The transaction appeared to be moving forward and the

parties exchanged various drafts and revisions of the settlement agreement. Potts

stated that most of his work was completed as of late April 2008.

       C. Cole + Russell Learns About Licensing Issues Related to the ESOP

       {¶7}    On April 17, 2008, Arends and Joe Stephens, Cole + Russell’s chief

financial officer, attended a conference about ESOPs. They were surprised to learn

that having an ESOP violated the licensing requirements for architects in some

states. Neither of them had been on the board of directors at the time the ESOP was

implemented. At that time, the board had only determined that the ESOP would not

violate Ohio law.

       {¶8}    Wells, who was the attorney for Cole + Russell’s ESOP, researched the

licensing issue. His research confirmed that the ESOP presented licensing issues in

some states for two reasons. First, several states did not permit an architectural firm

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                     OHIO FIRST DISTRICT COURT OF APPEALS

to be a general business corporation (as opposed to a professional corporation), and

Cole + Russell needed to be a general corporation to have an ESOP. Second, several

states required that a certain percentage of the shares of an architectural firm must

have been held by a licensed architect, and Cole + Russell’s ESOP held 40 percent of

its shares. Arends testified that as a result of the information he learned at the

conference, he became “a huge opponent” of ESOPs.

       {¶9}    Nevertheless, Cole + Russell continued its efforts to finalize the

settlement agreement with Weckel. The parties continued to exchange drafts of the

formal settlement agreement and the stock-purchase agreement. On May 7, 2008,

Cole + Russell transferred $50,000 into the ESOP, which was the first of several

transfers to ensure that the ESOP had enough money to purchase Weckel’s shares.

       {¶10}   On May 28, 2008, Cole + Russell’s board of directors had a special

meeting to address “urgent” issues. One concern was that when the ESOP purchased

Weckel’s shares, the ESOP would own 51 percent of the company. The board passed

a resolution to “investigate keeping the ESOP in a minority position with respect to

direct ownership.” At the meeting, the board noted that Weckel would “probably

object and reopen the claim against the company.” Subsequently, Stephens sent an

email to Wells about keeping the ESOP in a “minority ownership interest.”

       {¶11}   Potts had several telephone calls with Wells regarding the licensing

issue. On July 15, 2008, Potts had a conference call with Wells and an unknown

representative of Cole + Russell. Following the call, Potts did not think it would be in

the best interests of the ESOP participants to buy additional shares at that time. He

concluded that enough research existed to create doubt about the company’s ability

to work in some states.

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                     OHIO FIRST DISTRICT COURT OF APPEALS

       {¶12}   Potts understood that approximately 15 to 20 percent of Cole +

Russell’s revenue came from states where licensing issues existed. As a result, Potts

believed that the Department of Labor would have regarded the proposed

transaction as prohibited because it would jeopardize the company’s revenue stream.

                    D. Potts Does Not Approve of the Transaction

       {¶13}   On July 16, 2008, Potts wrote a letter to Cole + Russell’s board of

directors. He stated that the ESOP’s purchase of Weckel’s shares “may present

obstacles to the Company’s ability to do business in several states, including ones

from which it obtains significant revenues.” He also stated:

               I understand that the Company is exploring alternatives to

       resolve these issues. However, given the current state of uncertainty,

       and the importance to the Company of its ability to operate on a

       regional and national basis, it does not appear to be prudent at this

       time for the ESOP to increase its ownership of the Company beyond its

       current level of 40%.    Therefore, until the licensure issues can be

       satisfactorily resolved, I have determined, in my capacity as special

       fiduciary for the ESOP, that the ESOP will not be able to consummate

       the purchase of shares owned by Fred Weckel.

               However, if the Company is able to satisfactorily resolve these

       licensure issues, my determination regarding the ability of the ESOP to

       purchase additional shares of the Company could change.

       {¶14}   Cole + Russell provided Weckel with a copy of Potts’s letter.        It

informed Weckel that as a result of Potts’s opinion, a material condition precedent to

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                      OHIO FIRST DISTRICT COURT OF APPEALS

the settlement agreement had not been satisfied.         Therefore, it considered the

agreement to be “null and void.”

          E. The Licensing Issues Remained Unresolved for Several Years

       {¶15}    Weckel made several requests to meet with representatives of Cole +

Russell, but his attempts were fruitless. He also suggested several alternatives to

resolve Cole + Russell’s ownership issues and allow the settlement agreement to go

forward, which the company found to be unworkable for various reasons.

       {¶16}    Arends testified that Potts’s letter was a “huge disappointment”

because the company wanted the settlement to go forward. Nevertheless, Cole +

Russell did not take any action to resolve the licensing issues for several years. It did

continue to explore the available options to resolve the licensing issues in a way that

would not unduly harm the company. Wells sent a memo to Arends and Stephens

summarizing the options. One of the considerations was how each option would

impact the settlement agreement. Wells considered it an advantage if the option

would “facilitate the agreement” and a disadvantage if it would not.

       {¶17}    Cole + Russell ultimately decided that its best option to resolve the

licensing issues was to terminate the ESOP. It did not immediately implement that

option due to the uncertainty of the pending litigation with Weckel and cash-flow

issues due to an economic downturn. Eventually, through a multi-step process, Cole

+ Russell merged the ESOP into the company’s 401k plan, at substantial cost to the

company. It then had a single shareholder, which resolved its licensing issues.

               F.   Weckel Attempts to Enforce the Settlement Agreement

       {¶18}    In November 2008, Weckel moved to reopen discovery to depose

Potts and to explore the basis for his opinion. The trial court denied that motion. In

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                      OHIO FIRST DISTRICT COURT OF APPEALS

February 2009, Weckel filed a motion to enforce the settlement agreement. Cole +

Russell opposed the motion and reinstated a summary-judgment motion that it had

previously filed and had held in abeyance since late 2007. The trial court denied

Weckel’s motion to enforce the agreement and granted summary judgment to Cole +

Russell on Weckel’s breach-of-fiduciary-duty claim.

         {¶19}   Weckel’s claim for wrongful termination was tried to a jury. The jury

returned a verdict in favor of Cole + Russell. Weckel filed a motion for a new trial in

which he claimed that the verdict was against the manifest weight of the evidence.

The trial court overruled the motion.

         {¶20}   Weckel appealed that judgment to this court. We affirmed that part of

the trial court’s judgment denying his motion for a new trial. But we reversed the

trial court’s decision in part, holding that the trial court abused its discretion when it

refused to permit Weckel to reopen discovery to determine whether Potts’s opinion

was independent or whether it had been influenced by Cole + Russell as a pretext to

terminate the settlement agreement. We also vacated that part of the trial court’s

decision denying Weckel’s motion to enforce the settlement agreement, solely on the

grounds that the failure to reopen discovery denied Weckel the ability to present

evidence of bad faith by Cole + Russell. See Weckel v. Cole + Russell Architects,

2013-Ohio-2718, 994 N.E.2d 885, ¶ 5 (1st Dist.).

         {¶21}   On remand, the trial court permitted Weckel to conduct discovery and

held an evidentiary hearing on his motion to enforce the settlement agreement. It

found:

         [Cole + Russell] has proved beyond any doubt that the independent

         fiduciary came to his conclusion independently and not in collusion

         with [Cole + Russell].    There is no evidence the decision of the

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                      OHIO FIRST DISTRICT COURT OF APPEALS

       independent fiduciary was the result of an intent to injure or harm

       [Weckel].     The approval of Mr. Potts was a necessary condition

       precedent for the settlement to move forward.             Without it, the

       settlement was null and void.

Consequently, the court denied Weckel’s motion to enforce the settlement. This

appeal followed.

       {¶22}   In his sole assignment of error, Weckel contends that the trial court

erred in failing to enforce the 2008 settlement agreement. He argues that the alleged

failure of the condition precedent was due to issues within Cole + Russel’s exclusive

control, that it did not act in good faith, and that the reason for the alleged failure of

the condition precedent was pretextual. This assignment of error is not well taken.

               II.   Settlement Agreements Generally/Standard of Review

       {¶23} Settlement agreements are highly favored by the law. State ex rel.

Wright v. Weyandt 50 Ohio St. 2d 194, 197, 363 N.E.2d 1387 (1977); MJMT, Inc. v.

Geier, 1st Dist. Hamilton No. C-110378, 2012-Ohio-813, ¶ 9.           They are binding

contracts that courts will enforce. Cembex Care Solutions, LLC v. Gockerman, 1st

Dist. Hamilton No. C-150623, 2006-Ohio-3173, ¶ 6-7.

       {¶24} The standard of review to be applied to a ruling on a motion to enforce

a settlement agreement depends primarily on the nature of the question presented.

If the dispute under review is a question of law, such as the interpretation of the

contract or a determination of the sufficiency of the evidence to support a judgment,

an appellate court must review the decision de novo to determine whether the trial

court’s decision to enforce the settlement agreement was based on an erroneous

standard or a misconstruction of the law.         Continental W. Condominium Unit

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                     OHIO FIRST DISTRICT COURT OF APPEALS

Owners Assn. v. Howard E. Ferguson, Inc., 74 Ohio St. 3d 501, 502, 660 N.E.2d 431

(1996); Lehigh Gas-Ohio, LLC v. Cincy Oil Queen City, LLC, 1st Dist. Hamilton No.

C-130127, 2014-Ohio-2799, ¶ 43; Cembex Care Solutions at ¶ 8.

       {¶25} But where, as here, factual issues exist, we must determine if the trial

court’s judgment is against the manifest weight of the evidence. When addressing a

challenge to the manifest weight of the evidence, we must review the entire record,

weigh the evidence and all reasonable inferences, weigh the credibility of the

witnesses, and determine whether the finder of fact lost its way and created such a

manifest miscarriage of justice that we must reverse the judgment and order a new

trial. Eastley v. Volkman, 132 Ohio St. 3d 328, 2012-Ohio-2179, 972 N.E.2d 517, ¶

20; In re Nauth, 9th Dist. Medina No. 15CA0025-M, 2016-Ohio-5089, ¶ 7; LeHigh

Gas-Ohio at ¶ 44. In weighing the evidence, we must assume that the findings of the

trier of fact are correct, and if the evidence is susceptible of more than one

construction, we must give it the interpretation consistent with the finding or verdict.

Lehigh Gas-Ohio at ¶ 44.

                                III. Condition Precedent

       {¶26}   A condition precedent is an act or event that must occur before the

agreement can become effective.      Johnston v. Cochran, 10th Dist. Franklin No.

06AP-1065, 2007-Ohio-4408, ¶ 12; Serand Corp. v. Owning the Realty, Inc., 1st

Dist. Hamilton No. C-941010, 1995 WL 653846, *3 (Nov. 1, 1995). If a condition

precedent is not fulfilled, the parties are excused from performing under the

contract. Johnston at ¶ 12; Hamilton Cty. Bd. of Commrs. v. Arena Mgt. Holdings,

LLC, 1st Dist. Hamilton No. C-030339, 2004-Ohio-247, ¶ 20.

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                     OHIO FIRST DISTRICT COURT OF APPEALS

       {¶27} When one of the parties to a contract has direct influence over the

fulfillment of a condition precedent, that party bears the burden to show that it made

good faith efforts to satisfy the conditions that allegedly excuse its performance.

Johnston at ¶ 13; Weckel, 2013-Ohio-2718, 994 N.E.2d 885, at ¶ 21. A party cannot

take advantage of an unfulfilled condition precedent to excuse its performance

without first proving that it exercised good faith and diligence in trying to satisfy the

condition. Johnston at ¶ 13.

       {¶28} The settlement agreement provided that the ESOP’s purchase of

Weckel’s stock was “contingent upon the professional opinion of an independent

advisor who must approve the ESOP’s purchase of Weckel’s shares.” Potts was

appointed the advisor, and after considering a substantial amount of information, he

did not approve the transaction.        Potts owed a fiduciary duty to the ESOP

participants, not to the company or to Weckel. He had no involvement with the

settlement other than to fulfill his obligation to determine whether it was in the best

interest of the ESOP participants to purchase the shares. He determined that it was

not in their best interest based on the licensing problems in several states because of

the ESOPs ownership of over 40 percent the company’s shares. Thus, the evidence

showed that the conditional precedent was not fulfilled.

       {¶29} As we stated in our previous opinion, the only issue before the court

was whether Potts’s opinion was independent or whether it had been influenced by

Cole +Russell as a pretext to terminate the settlement. Weckel at ¶ 30. Cole + Russel

submitted evidence that his opinion was independent and not pretextual. Several

witnesses testified that the company wanted the settlement to be final and to have

the deal go forward. It made sure that the ESOP was sufficiently funded to buy

Weckel’s stock.

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                    OHIO FIRST DISTRICT COURT OF APPEALS

       {¶30} The issues regarding the ESOP’s ownership share in the company

came as a surprise, and the company sought to learn more about it. The issue was

thoroughly researched, and the company supplied the information to Potts. Though

Potts did rely on that information, the record also shows that he conducted his own

analysis based on his many years in the industry. As the trial court stated, while

Weckel presented evidence that Potts’s methodology was flawed, Cole + Russell’s

expert testified otherwise. Further, even if his methodology was flawed, it would not

necessarily mean that his opinion was not independent or that it was pretextual.

Therefore, we cannot hold that the trial court’s determination that Potts’s decision

was independent and not a pretext to terminate the settlement agreement was

against the manifest weight of the evidence.

                                    IV. Good Faith

       {¶31} Weckel also argues that Cole + Russell did not act in good faith.

Settlement agreements, like all contracts, contain an implied duty of good faith and

fair dealing. Weckel, 2013-Ohio-2718, 994 N.E.2d 885, at ¶ 21. That duty implies

“honesty and reasonableness in enforcement of a contract” and “faithfulness to an

agreed common purpose and consistency with the justified expectations of the other

party.” Stephen Business Ent., Inc. v. Lamar Outdoor Advertising Co., 1st Dist.

Hamilton No. C-070373, 2008-Ohio-954, ¶ 19. But the duty does not mean that a

party is not entitled to enforce the contract or that it must put the other party’s

interests above its own. Ed Schory & Sons, Inc. v. Francis, 75 Ohio St. 3d 433, 443,

662 N.E.2d 1074 (1996); Wells Fargo Bank, N.A. v. U.S. Bank Natl. Assn., 1st Dist.

Hamilton Nos. C-110209 and C-110215, 2011-Ohio-6555, ¶ 15. It also does not create

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                        OHIO FIRST DISTRICT COURT OF APPEALS

rights and duties not otherwise provided for in the contract. Andrews v. Nationwide

Mut. Ins. Co., 8th Dist. Cuyahoga No. 97891, 2012-Ohio-4935, ¶ 27.

       {¶32}    Weckel contends that Cole + Russell’s failure to resolve its licensing

issues for several years and to consider other options besides the termination of the

settlement agreement shows that it did not act in good faith. He argues that a party

to a contract should not be permitted to use its own illegal conduct to justify the

failure of a condition precedent. This argument is without merit.

       {¶33} The record does not demonstrate that Cole + Russell knew about the

licensing issues at the time it entered into the settlement agreement.         Once it

discovered those issues, it took steps to fix them, but those fixes took time. Once the

condition precedent was not fulfilled, it was not incumbent on the company to

immediately take the steps Weckel sets forth. The settlement agreement did not

provide for any contingency plan if the independent advisor did not approve the

stock sale to the ESOP. Further, the record shows that the licensing issues were

complicated, and valid business reasons existed not to take the steps Weckel claims

could have been taken. Ultimately, the company converted the ESOP to a 401k, but

it was not in a position to do so for a number of years due to the economic downturn.

       {¶34} It is true that a party cannot be excused from performance merely

because   performance       may   prove   difficult,   burdensome   or   economically

disadvantageous. Stand Energy Corp. v. Cinergy Serv., Inc., 144 Ohio App. 3d 410,

416, 760 N.E.2d 453, (1st Dist.2001). But, here the issue is not that performance was

burdensome. The condition precedent was not fulfilled, and this court cannot simply

rewrite the contract.

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                      OHIO FIRST DISTRICT COURT OF APPEALS

                                       V. Summary

        {¶35}   In sum, we cannot hold that the trier of fact lost is its way and created

such a manifest miscarriage of judgment that we must reverse the trial court’s

judgment and order a new hearing. Therefore the judgment was not against the

manifest weight of the evidence. See Eastley, 132 Ohio St. 3d 328, 2012-Ohio-2179,

972 N.E.2d 517, at ¶ 20; Nauth, 9th Dist. Medina No. 15CA0025-M, 2016-Ohio-

5089, at ¶ 7; Lehigh Gas-Ohio, 1st Dist. Hamilton No. C-130127, 2014-Ohio-2799, at

¶ 44.    We overrule Weckel’s assignment of error and affirm the trial court’s

judgment.

                                                                    Judgment affirmed.

Z AYAS and D ETERS , JJ., concur.

Please note:
        The court has recorded its own entry this date.

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