Court Opinion

ID: 2978246
Source: CourtListenerOpinion
Date Created: 2015-09-22 18:22:08.037066+00
Date Added: 2024-06-11T13:16:44.538870
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 09a0637n.06

                                     Nos. 08-6142, 08-6543                            FILED
                                                                                  Sep 10, 2009
                          UNITED STATES COURT OF APPEALS
                                                                             LEONARD GREEN, Clerk
                               FOR THE SIXTH CIRCUIT

KEN HODAK,                                              )
                                                        )        ON APPEAL FROM THE
       Plaintiff-Appellant,                             )        UNITED STATES DISTRICT
                                                        )        COURT FOR THE EASTERN
v.                                                      )        DISTRICT OF KENTUCKY
                                                        )
MADISON CAPITAL MANAGEMENT, LLC,                        )                 OPINION
et al.,                                                 )
                                                        )
       Defendants-Appellees.

BEFORE:        GILMAN and McKEAGUE, Circuit Judges; and SARGUS, District Judge.*

       McKEAGUE, Circuit Judge. Ken Hodak was hired as CEO of United American Resources

GP Services, LLC, in May 2006. In his first four months, Hodak’s performance was less than

satisfactory. After management came to suspect that Hodak had breached his Confidentiality

Agreement by improperly disclosing to third parties UAR’s pending negotiations to acquire other

companies, Hodak was terminated for cause without prior notice in September 2006. Hodak

commenced this action, asserting breach of contract, fraud and other claims against his former

employer. UAR responded by filing counterclaims against Hodak for breach of contract and breach

of fiduciary duties.

_________________________

       *Honorable Edmund A. Sargus, Jr., United States District Judge for the Southern District of
Ohio, sitting by designation.
Nos. 08-6142, 08-6543
Hodak v. Madison Capital Management, et al.

        The district court granted UAR’s motion for summary judgment on Hodak’s claims, awarded

UAR attorneys’ fees as prevailing party on these claims, granted UAR’s motion to voluntarily

dismiss its counterclaims without prejudice, and denied Hodak’s motion for attorneys’ fees on the

counterclaims. Hodak now appeals all of these rulings.

        This litigation stems fundamentally from Hodak’s claim that the manner in which UAR

discharged him, i.e., for cause and without notice, was in breach of the Employment Agreement.

The district court concluded that the asserted confidentiality breaches were “material” and therefore

represented valid justification for discharge for cause. Yet, irrespective of whether the asserted

confidentiality breaches represented valid justification for discharge for cause, we find insufficient

record support for the district court’s implicit determination that UAR treated the confidentiality

breaches as material and relied on them as the actual reason for Hodak’s discharge. In our opinion,

the record evidence poses triable fact issues as to whether the now asserted confidentiality breaches

were the actual reason for Hodak’s firing, as opposed to a pretext for other reasons that did not

amount to grounds for termination for cause. We therefore vacate the district court’s summary

judgment ruling on Hodak’s breach of contract claim and vacate the district court’s award of

attorneys’ fees and costs to UAR as prevailing party. In all other respects, the district court’s rulings

are affirmed.

                                         I. BACKGROUND

        In the Spring of 2006, United American Resources GP Services, LLC (“UAR”), recruited

appellant Ken Hodak initially to serve as its Chief Operating Officer and subsequently, when the

position became open, as Chief Executive Officer. UAR is one of several entities whose business

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Hodak v. Madison Capital Management, et al.

plan was to create a master limited partnership of privately-owned coal companies that would

eventually go public.1    Management services were provided to UAR by Madison Capital

Management, LLC, and Madison Investment Partners 24, LLC, which are also named defendants

in this action. Based on representations made by UAR, Hodak left his job with National Coal

Corporation, accepted the UAR CEO position, and entered into an Employment Agreement with

UAR on May 12, 2006. On the same day, in a separate document, Hodak and UAR entered into a

Confidentiality Agreement that prohibited Hodak from disclosing, among other things, UAR

transactions and acquisitions to those not involved in those transactions.

       During his first four months on the job, Hodak failed to perform up to expectations.

According to Bryan Gordon, Managing Director of Madison Capital Management, LLC, and of

UAR, Hodak “had overpromised and underdelivered in terms of his capabilities.” Gordon explained

his dissatisfaction with Hodak as follows:

       He was fired because he was completely and utterly inadequate with respect to the
       job he had been hired to perform. He did not achieve any of the goals or objectives
       or milestones which had been agreed upon over time that he would achieve. It was
       my feeling that his leadership skills were lacking at best, his industry instincts were
       unimpressive, his presence both internally and externally were appalling, his
       preparedness and his ability to answer questions was absolutely substandard, and I
       felt his judgment was poor, and he had completely and utterly lost the confidence of
       the people who were closest to the project on a day-to-day basis and whose counsel
       I respected greatly, and had no results to speak of after being teed up with a great deal
       of opportunity and resources, and I felt that, you know — to use an expression, I felt

       1
        The several related companies are also named defendants in this action. These companies
are United American Resources, LP; UAR GP Holdco, LLC; UAR MLP, LP; and UAR GP, LLC.
The inter-relationship of these defendants is not significant in evaluating the dispositive issues
presented in these consolidated appeals. Hence, the various “UAR defendants” are referred to herein
simply as “UAR,” the company that actually employed and terminated Hodak.

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Hodak v. Madison Capital Management, et al.

       that he had overpromised and underdelivered in terms of his capabilities, and he was
       essentially an empty suit.

Gordon dep. pp. 100-01, ROA 1322-23. Gordon alluded to the existence of other reasons for the

discharge decision, but refused to disclose them. Gordon identified these other reasons as having

been the subject of discussions with counsel and therefore protected by the attorney-client privilege.

       UAR Chairman of the Board Chauncey Curtz had the impression that Hodak was

overwhelmed by the job. He identified two specific examples of Hodak’s shortcomings. First,

Hodak was unfamiliar with the due diligence review procedures he was charged with implementing.

Second, Hodak over-valued reserves available to UAR for a proposed acquisition. While Gordon

and Curtz had discussed their concerns with Hodak, both acknowledged they had not advised him

that his job was in jeopardy prior to his discharge.

       In August and September 2006, Hodak met with representatives of two heavy equipment

dealers in Birmingham, Alabama. One meeting was initiated by a Komatsu equipment dealer,

Tractor & Equipment Company, in relation to the status of an equipment lease it had with

Tuscaloosa Resources (“TRI”) and whether the lease could be assigned to UAR, which was then

negotiating to acquire TRI. During the meeting, the representative of the equipment dealer asked

Hodak whether UAR was also engaged in negotiations with another company, Mann Steel Products.

Hodak acknowledged that UAR probably was.

       The second meeting was initiated by Thompson Tractor, a Caterpillar equipment dealer that

had leased equipment to Mann Steel. The Caterpillar dealer was interested in doing business with

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Hodak v. Madison Capital Management, et al.

TRI. During this meeting, Hodak confirmed that UAR was engaged in negotiations to acquire TRI,

although he did not disclose any details of the negotiations.

       Curtz became aware of these disclosures by Hodak shortly after they occurred. He learned

about the disclosure made to the Komatsu dealer from Sam Johnson, who was also present at the

meeting. Curtz learned about the disclosure made to the Caterpillar dealer in an e-mail message

from Hodak himself. Curtz had continually reminded Hodak about the necessity for

confidentiality—both before and after the meetings with the equipment dealers. Yet, again, Curtz

did not advise Hodak that the disclosures could be considered breaches of confidentiality sufficiently

serious to warrant discharge.

       Curtz considered it likely that he discussed the disclosures, along with other concerns about

Hodak’s performance, with Gordon. It was Gordon who made the decision to discharge Hodak. The

decision was communicated to Hodak by telephone by attorney Jonathan Baum on September 29,

2006. Baum advised Hodak that UAR believed it had cause for termination, as defined in the

Employment Agreement, but he did not explain what this “cause” consisted of. Baum further

advised that Hodak would be granted a severance allowance if he opted to resign, an offer Hodak

rejected.

       Shortly thereafter, Hodak was fortunate enough to be offered a position with his former

employer National Coal Corporation, which he accepted on March 1, 2007. In the meantime, Hodak

had filed this action in the Eastern District of Kentucky on January 10, 2007. In relevant part, the

complaint asserts claims for breach of contract (for discharging Hodak without cause and without

prior notice); fraud (making misrepresentations to induce him to leave National Coal and accept

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Hodak v. Madison Capital Management, et al.

employment with UAR); declaratory judgment (to the effect that the covenant not to compete

included in the Employment Agreement is unenforceable because contrary to public policy), and

tortious interference with contractual relations (that Gordon, in managing UAR on behalf of the

Madison defendants, interfered with Hodak’s employment relationship with UAR). Federal

jurisdiction is premised on the parties’ diversity of citizenship. UAR filed counterclaims for breach

of contract and breach of fiduciary duties.

       After completion of discovery, the parties filed cross-motions for summary judgment. The

district court awarded summary judgment to UAR on all of Hodak’s claims on August 19, 2008.

The district court then granted UAR’s motion to voluntarily dismiss its counterclaims without

prejudice, and awarded UAR $198,026.75 in attorneys’ fees and costs expended in defending against

Hodak’s claims. Finally, on December 18, 2008, the district court denied Hodak’s motion for

attorneys’ fees relating to UAR’s dismissed counterclaims. This appeal followed.

                                         II. ANALYSIS
       A. Breach of Contract

       In his most important claim, Hodak alleges that UAR breached the Employment Agreement

when it terminated him without cause and without the required prior notice. If UAR had “cause”

to discharge as defined in the Employment Agreement, then prior notice was not required. If UAR

wished to discharge Hodak for some other reason not rising to the level of “cause,” then it was

obliged to first give him notice and opportunity to cure the deficiency. If UAR terminated Hodak

without cause and without notice, then under the terms of the Agreement, it was obliged to grant

Hodak severance pay, benefits, and forgiveness of a loan that UAR had made to him. Because UAR

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Hodak v. Madison Capital Management, et al.

allegedly discharged him without cause and without notice but did not grant him any of these

benefits, Hodak claims that UAR breached the Employment Agreement. The district court awarded

summary judgment to UAR on this claim, concluding as a matter of law that UAR had justification

to discharge Hodak for cause and was therefore not required to give Hodak prior notice or the

severance pay, benefits, and loan forgiveness.

       We review de novo an order granting summary judgment. White v. Baxter Healthcare Corp.,

533 F.3d 381, 389 (6th Cir. 2008). Summary judgment “should be rendered if the pleadings, the

discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as

to any material fact and that the movant is entitled to a judgment as a matter of law.” Fed. R. Civ.

P. 56(c). We must view the evidence in the light most favorable to the non-moving party and draw

all reasonable inferences in his favor. White, 533 F.3d at 390. Not just any alleged factual dispute

between the parties will defeat an otherwise properly supported motion for summary judgment; the

dispute must present a genuine issue of material fact. Id. A dispute is “genuine” only if based on

evidence upon which a reasonable jury could return a verdict in favor of the non-moving party.

Niemi v. NHK Spring Co., Ltd., 543 F.3d 294, 298 (6th Cir. 2008). A factual dispute concerns a

“material” fact only if its resolution might affect the outcome of the suit under the governing

substantive law. Id. at 298-99.

       Under the Employment Agreement, UAR was entitled to terminate Hodak immediately for

any reason coming within the terms of Paragraph 9(a) defining “cause.” The district court

determined that the evidence established cause for discharge under ¶ 9(a)(2)(v), which provides:

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Hodak v. Madison Capital Management, et al.

               The Company may terminate Executive’s employment under this Agreement
       at any time as follows:

       ....

       (2) immediately upon the showing of Cause. For purposes of this Agreement,
       “Cause” shall mean:

       ....

       (v) a material breach of this Agreement, which breach is not cured by Executive
       within 10 calendar days of receiving notice from the Company of such breach, or the
       Confidentiality Agreement executed by Executive; . . . .

Employment Agreement pp. 8-9, ¶ 9(a), ROA 91-92 (emphasis added).

       Under ¶ 9(a), certain “cause” provisions require prior notice of termination and others do not.

While the record contains evidence of various performance deficiencies, which may or may not have

amounted to cause for discharge requiring prior notice, the district court held UAR’s immediate

termination of Hodak for cause was justified based on ¶ 9(a)(2)(v), because Hodak committed “a

material breach of . . . the Confidentiality Agreement executed by the Executive.”

       The so-called Confidentiality Agreement is part of a six-page document entitled “Non-

Competition, Confidential Information and Invention Agreement,” executed by the parties in

conjunction with the Employment Agreement on May 12, 2006. In relevant part, it states that “the

Employee will not at any time. . . disclose to anyone any ‘Confidential Information,’ or utilize any

‘Confidential Information’ for the Employee’s own benefit, or for the benefit of any third party other

than in connection with the performance of the Employee’s authorized activities for the Company.”

Confidentiality Agreement p. 2, ¶ 2, ROA 98. In relevant part, “Confidential Information” includes:

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Hodak v. Madison Capital Management, et al.

       all plans, manuals, programs, procedures, techniques, processes, and other
       information concerning: . . . plans of any kind, including, without limitation,
       strategic, short-term, litigation related, marketing and transaction related plans; . . .
       persons who have or have had relations with the Company, including past, existing
       or prospective business contacts with the Company . . . ; identification of the type,
       amount, terms or any characteristic of any investment that is or has been under
       consideration by the Company. . . , including any and all information regarding the
       underwriting, valuation, holding periods, pricing, acquisition, disposition or
       management of such investment.

Id. at pp. 2-3, ¶ 3, ROA 98-99.

       Applying a standard which both sides have accepted, the district court observed that a

material breach exists where a party “fails to perform a substantial part of the contract or one or more

of its essential terms or conditions, the breach substantially defeats the contract’s purpose, or the

breach is such that upon a reasonable interpretation of the contract, the parties considered the breach

as vital to the existence of the contract,” citing 23 Williston on Contracts § 63.3 (4th ed.).

Memorandum Opinion p. 12 n.2, ROA 1913. The determination whether a material breach has

occurred is generally a question of fact answered by weighing the consequences of the breach in light

of the customs of performance attendant to similar contracts. Williston at § 63.3. Yet, the district

court held, based on what it termed “the undisputed evidence presented by the parties,” that Hodak

materially breached the Confidentiality Agreement at least twice, by disclosing transaction-related

plans under consideration by UAR in conversations with the Birmingham equipment dealers, thereby

“providing more than enough ‘cause’ for his immediate termination.” Memorandum Opinion pp.

11-12, ROA 1912-13.

       Hodak contends that he did not breach confidentiality at the meetings with the Birmingham

equipment dealers. He maintains that when the dealers asked him about negotiations, he did not

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Hodak v. Madison Capital Management, et al.

reveal anything private or confidential about what UAR was doing. Hodak argues that his

disclosures of the mere fact of UAR’s ongoing negotiations with acquisition targets, without

disclosing their details or status, hardly amounts to a material breach. He contends that the mere fact

of negotiations was information available in the “public domain” that is excluded from the definition

of confidential information in the first place. Hodak’s only factual support for this argument,

however, is vague testimony of Tab Hudson to the effect that people involved in the family-owned

Alabama coal industry “know everything that goes on.” This is clearly insufficient to create a

genuine fact issue regarding the applicability of the public-domain exception.

       Second, Hodak contends the disclosures were not material breaches of confidentiality

because there is no evidence that they adversely affected UAR’s efforts to acquire TRI or Mann

Steel. Indeed, in determining the materiality of the breaches, we may consider the extent to which

the injured party, UAR, was deprived of the benefit it reasonably expected. Williston at § 63.3.

UAR has not presented evidence of any injury, but argues it does not matter. UAR maintains that

irrespective of the limited amount of information disclosed, it is sufficient to show that Hodak did

disclose information relating to UAR’s acquisition negotiations with TRI and Mann Steel to third

parties, in violation of the Confidentiality Agreement.

       To be sure, UAR cannot be deemed impotent to discipline an employee for a breach of

confidentiality unless and until the breach results in substantial harm. Hodak did what he was

prohibited from doing under the Confidentiality Agreement: he disclosed confidential information.

By failing to maintain confidentiality on two occasions, Hodak arguably failed to perform a

substantial part of the contract. Yet, determining whether the breaches justified termination, rather

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Hodak v. Madison Capital Management, et al.

than some lesser discipline, under the terms of the Employment Agreement, requires a finding that

the breaches were or were not material. And this determination would ordinarily entail some inquiry

into the significance or impact of the breaches. UAR’s argument that any confidentiality breach, no

matter how trivial or insignificant, warrants discharge for cause impermissibly reads the “material

breach” requirement right out of ¶ 9(a)(2)(v).

       Viewing the record in the light most favorable to Hodak leads us to conclude that genuine

issues of material fact remain. The parties have devoted most of their energies to arguments over

the question whether the two identified disclosures were material breaches. Yet, even assuming

Hodak’s apparently innocuous disclosures could be considered material breaches, a triable fact

question clearly remains as to whether UAR actually discharged Hodak because of the confidentiality

breaches.   In this specific regard, testimony from both of UAR’s lead decision makers is

conspicuously devoid of evidence that they believed the confidentiality breaches were either material

or grounds for discharge for cause.

       First, although Chauncey Curtz had ongoing discussions with Hodak about his performance

as CEO and had repeatedly cautioned him about the need to maintain confidentiality, he was not

alarmed or overly concerned when he learned of the disclosures Hodak made to the equipment

dealers. Curtz did not remember specifically speaking to Hodak about the disclosures as breaches

of confidentiality, much less as dischargeable offenses.

       Second, when Managing Director Bryan Gordon was asked to explain the reasons behind his

decision to discharge Hodak, he did not even mention the asserted confidentiality breaches. He was

quick and definite in reciting a list of other reasons for firing Hodak, but assiduously avoided any

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Hodak v. Madison Capital Management, et al.

mention of the confidentiality breaches, claiming attorney-client privilege. Any other unmentioned,

unidentified reason for Hodak’s discharge, he ascribed to attorney Jonathan Baum. Baum’s

deposition testimony, in turn, reveals nothing about the confidentiality breaches as a reason for

Hodak’s discharge. Baum said the discharge decision was made by Gordon and Curtz.

       In other words, there is no factual support for a finding that the confidentiality breaches,

whether material or not, were the actual reason for Hodak’s discharge for cause. On the present

record, we conclude that there are genuine issues of fact as to whether Hodak’s apparently innocuous

disclosures to the equipment dealers were material and were the actual grounds for immediate

termination for cause. UAR contends that Hodak’s confidentiality breaches were material, and

material breaches justify termination for cause. But UAR makes this argument (a) without

presenting any evidence to support the finding that the breaches were material enough in the minds

of its decision makers to actually motivate the discharge decision; and (b) in the face of evidence

from its own representatives that other reasons actually motivated the discharge decision.

       Unless UAR had a bona fide reason for terminating for cause, it was obliged to give Hodak

notice and opportunity to cure prior to discharging him. Because UAR clearly did not give Hodak

such prior notice, and because the record evidence gives rise to questions of fact as to whether UAR

discharged Hodak because of the two cited confidentiality breaches (i.e., for a reason amounting to

cause), the award of summary judgment to UAR on Hodak’s breach of contract claim must be

vacated.2

       2
         UAR might have attempted to justify its decision to discharge Hodak by relying on the
“after acquired evidence doctrine.” That is, UAR might have argued that, even though it did not

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Hodak v. Madison Capital Management, et al.

       B. Fraud

       Hodak’s fraud claim is based on the theory that he was induced to leave his employment with

National Coal Corporation because of fraudulent misrepresentations by Bryan Gordon. Hodak relies

on three assurances made to him by Gordon: (1) that “we’re here to stay in the coal business;” (2)

that “we’ve got money to back up the deals;” and (3) that if UAR did not succeed, Madison would

continue to employ Hodak in another capacity. The district court granted UAR’s motion for

summary judgment on this claim because Hodak could not satisfy all essential elements of the fraud

claim. Particularly, Hodak was deemed not to have produced any evidence that the statements

Gordon made were representations of fact known by Gordon to be false when made.

       The parties do not dispute the correctness of the legal standard employed by the district court:

       At common law in Kentucky, a plaintiff may demonstrate fraud by showing, with
       clear and convincing evidence, that a defendant “a) made a material
       misrepresentation, b) which was false; c) which was known to be false or made
       recklessly; d) which was made with inducement to be acted upon; e) which plaintiff
       acted in reliance upon; and f) which caused plaintiff injury.” Rivermont Inn, Inc. v.
       Bass Hotels & Resorts, Inc., 113 S.W.3d 636, 640 (Ky. Ct. App. 2003).

actually rely on the confidentiality breaches as grounds for discharge at the time of discharge, it
could have done so and is entitled to rely on them now in defense of Hodak’s breach of contract
claim. To properly invoke the defense, however, UAR would have to show that it discovered the
confidentiality breaches only after Hodak was discharged, and that the confidentiality breaches were
of such seriousness that they would in fact have led to Hodak’s termination. See Brooks v.
Lexington-Fayette Urban County Housing Auth., 134 S.W.3d 790, 806 (Ky. 2004). Neither of these
elements is made out in the present record. The record is clear that both Curtz and Gordon were
aware of the confidentiality breaches prior to Hodak’s discharge and there is no evidence that either
of them deemed the confidentiality breaches to be serious enough to warrant discharge. Hence, the
after acquired evidence doctrine, if asserted, would have been unavailing.

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Memorandum Opinion at 15-16, ROA 1916-17.               The district court construed the asserted

representations by Gordon as mere opinions or predictions of future events, which are not actionable

as fraud. See Radioshack Corp. v. ComSmart, Inc., 222 S.W.3d 256, 262 (Ky. Ct. App. 2008).

Although Hodak quarrels with the district court’s characterization of the representations made by

Gordon, he has yet to identify any evidence, much less clear and convincing evidence, substantiating

Gordon’s alleged knowledge that the statements were false when made. Absent such evidence, he

clearly cannot sustain the fraud claim.

         Accordingly, we affirm the district court’s award of summary judgment to UAR on the fraud

claim.

         C. Non-Competition Agreement

         The document heretofore referred to as the Confidentiality Agreement also includes a Non-

Competition Agreement, whereby Hodak agreed not to be employed by any competing entity in the

coal industry for at least twelve months following his separation from UAR. In Count III of his

complaint, Hodak prays for a declaratory judgment to the effect that this part of the agreement is

overly broad and unenforceable because it is contrary to Kentucky public policy.

         When the complaint was filed on January 10, 2007, within months after Hodak was

discharged, the Non-Competition Agreement was undoubtedly of real concern to Hodak—especially

as he contemplated the possibility of returning to work with National Coal. By January 29, 2007,

however, UAR had agreed to waive enforcement of the Non-Competition Agreement so that Hodak

could return to work with National Coal, effective March 1, 2007. Hence, the district court granted

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summary judgment to UAR for lack of evidence that enforcement of the Non-Competition

Agreement caused any injury to Hodak.

       In challenging this ruling on appeal, Hodak argues perfunctorily that he was “clearly injured”

by the wrongful discharge. Appellate review of such an undeveloped argument, adverted to only in

a perfunctory manner, is properly deemed forfeited. United States v. Hall, 549 F.3d 1033, 1042 (6th

Cir. 2008). Moreover, the “clear injury” claimed by Hodak stems from UAR’s actions in discharging

him in alleged breach of the Employment Agreement, not enforcement of the Non-Competition

Agreement. Accordingly, we find no error in the district court’s summary judgment ruling on this

claim, which is also affirmed.

       D. Tortious Interference with Contractual Relations

       Count V of Hodak’s complaint sets forth an alternative theory of relief against defendants

Madison Capital Management and Madison Investment Partners 24. To the extent the Madison

defendants might be deemed not liable for Hodak’s wrongful discharge under the breach of contract

theory because they were not Hodak’s employer and not parties to the Employment Agreement,

Hodak alleges the Madison defendants are liable for the injuries stemming from his wrongful

discharge because of Gordon’s tortious interference with Hodak’s employment relationship with

UAR. The district court gave this claim short shrift, concluding that because UAR was awarded

summary judgment on the breach of contract claim, there was no breach of contract for which the

Madison defendants could be held liable in tort.

       Insofar as we vacate summary judgment in favor of defendants on Hodak’s breach of contract

claim, we also undermine the rationale for the district court’s disposition of his tortious interference

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claim. Yet, even though the breach of contract claim survives, we remain unpersuaded that Hodak’s

tortious interference claim should. Despite the insufficiency of the district court’s rationale, we find

the record to be sufficiently well developed to allow us to rule as a matter of law that Hodak cannot

prevail on his tortious interference claim.

        There is no dispute that Gordon made the decision to fire Hodak. Hodak is concerned that

the capacity in which Gordon acted, whether on behalf of UAR or Madison Capital Management,

is unclear. It does appear that Gordon acted on behalf of both companies in different respects. Yet,

Hodak concedes that even if UAR were to somehow escape liability for the alleged breach of

contract because Gordon’s actions were taken in his capacity as an employee of Madison Capital

Management rather than UAR, the Madison defendants can be held liable for Gordon’s actions under

the tortious interference theory only if Gordon’s interference was “malicious or without justification,

or [was] accomplished by some unlawful means such as fraud, deceit, or coercion.” Steelvest, Inc.

v. Scansteel Service Center, Inc., 807 S.W.2d 476, 487 (Ky. 1991). Hodak has failed to adduce

evidence, however, to support his argument that Gordon’s interference was marked by fraud, deceit

or coercion.

        Whether he believed he was acting on behalf of UAR or Madison, Gordon clearly and

forthrightly acted as though he had the authority to fire Hodak, and Chauncey Curtz appears not to

have questioned either Gordon’s authority or his decision. Although, as discussed above, Gordon

may have erred in his determination that Hodak’s deficiencies made out cause for termination, the

record hardly substantiates the charge that Gordon acted maliciously, fraudulently, deceitfully or

coercively. Yes, Gordon may ultimately be found to have acted without contractual justification,

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warranting relief for breach of contract. That is hardly, however, the kind of unjustified conduct

required to make out a claim for tortious interference under Kentucky law. Nor is there any evidence

that Gordon, whether nominally acting on behalf of UAR or Madison, actually interfered with his

principal’s affairs strictly as a rogue individual motivated by personal gain or animus.

       In sum, the factual support for the tortious interference claim, though hardly addressed by

the district court, is patently thin—no more than a mere scintilla. We therefore exercise our

prerogative to affirm the district court’s summary judgment ruling on this claim on alternative

grounds, as both sides have had ample opportunity to brief the issue. See Purisch v. Tennessee Tech.

Univ., 76 F.3d 1414, 1422-23 (6th Cir. 1996).

       E. Piercing the Corporate Veil

       Hodak’s complaint also alleges that UAR operated as the alter ego or instrumentality of the

Madison defendants, and that UAR and the Madison defendants disregarded the formalities of

corporate existence in their joint venture relationship and in their employment relationship with

Hodak. Accordingly, Hodak asks the court to pierce UAR’s corporate veil and declare the Madison

defendants liable for UAR’s wrongs. The district court side-stepped the question after it disposed

of the breach of contract claim as meritless. Inasmuch as we hereby reinstate the breach of contract

claim for further proceedings, the question of piercing the corporate veil warrants fresh

consideration. And again, although the district court did not reach the merits of the theory, we find

the record and the parties’ arguments sufficiently developed to enable us to rule as a matter of law.

       Under Kentucky law, “the doctrine of piercing the corporate veil is recognized as being an

equitable remedy, not a cause of action unto itself, which is used as a means of imposing liability.”

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Daniels v. CDB Bell, LLC, — S.W.3d —, 2009 WL 2059079 at *4 (Ky. Ct. App. July 17, 2009).

Ordinarily, a corporation is looked upon as a separate legal entity, for whose actions its shareholders,

officers and directors cannot be subjected to personal liability. “But when the idea of a separate legal

identity is used to justify wrong, protect fraud, or defend crime, the law will regard the corporation

as an association of persons.” Id. at *5. In ascertaining whether the corporate form should be

disregarded and liability imposed on the corporation’s owners and officers, “courts weigh various

factors, including whether the corporate form was abused and whether the form was used to

perpetrate a fraud.” Id. at *6.

        Kentucky courts are “generally reluctant to disregard the corporate entity.” Sudamax

Industria e Comercio de Cigarros, LTDA v. Buttes & Ashes, Inc., 516 F. Supp. 2d 841, 847 (W.D. Ky.

2007). “The corporate veil should not be pierced unless there is (1) ‘such a unity of ownership and

interest’ that the separate personalities of the corporation and its owner cease to exist, and (2) ‘the

facts are such that an adherence to the normal attributes . . . of separate corporate existence would

sanction a fraud or promote injustice.’” Id. (quoting White v. Winchester Land Development Corp.,

584 S.W.2d 56, 61-62 (Ky. Ct. App. 1979)).

        In furtherance of his request for equitable veil-piercing relief, Hodak alleges in ¶ 7 of his

complaint that UAR is wholly owned and managed by the Madison defendants and that Gordon

acted with actual and apparent authority both for UAR and for the Madison defendants. In ¶ 11, he

alleges that UAR and the Madison defendants “are alter egos, disregarded any separation of

corporate existence, shared in a joint venture relationship with regard to the employment of Plaintiff

and otherwise mutually shared in the benefits and expenses of the employment relationship.”

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Nos. 08-6142, 08-6543
Hodak v. Madison Capital Management, et al.

Consistent with these allegations, Hodak has pointed to various proofs that he says demonstrate a

blurring of the lines of separate corporate existence between UAR and the Madison defendants.

Defendants, in addition to vigorously defending the charge that they disregarded any formalities of

corporate existence, maintain that, in any event, Hodak has not shown any abuse of the corporate

form whereby he was defrauded or otherwise suffered injustice.

        Indeed, the complaint is devoid of any allegation identifying how defendants’ alleged abuse

of the corporate form resulted in cognizable injury to Hodak.3 The complaint includes claims for

breach of contract, fraud and tortious interference, but the requisite factual support for the fraud and

tortious interference claims has already been found wanting. Hence, Hodak is left to argue that it

would be inequitable not to hold the Madison defendants liable for damages caused by UAR’s

breach of contract in wrongfully discharging him because UAR, no longer a going concern, may not

be collectable. Yet, this injury proceeded directly from Hodak’s contractual relationship with his

employer, UAR. It has not been shown to be attributable to any use of UAR’s separate legal identity

by the Madison defendants to “justify wrong, protect fraud, or defend crime.” Daniels, 2009 WL
2059079 at *5.     Hodak himself, a lawyer, admitted that he is unaware of any way in which the

defendants’ corporate structural formation harmed him. Hodak dep. p.245, Dist. ct. dkt. no. 89, ex.

25.

       3
        The complaint does not expressly plead a distinct claim or theory of liability for piercing
UAR’s corporate veil. Under Kentucky law, this pleading failure could be deemed fatal. See
Sudamax, 516 F. Supp. 2d at 847. Yet, because the parties and the lower court have proceeded as
though the claim was properly presented, we proceed to evaluate the factual support for the claim.

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Nos. 08-6142, 08-6543
Hodak v. Madison Capital Management, et al.

       Absent evidence of some fraud or injustice resulting directly from the abuse of the corporate

form, “the specific, unusual circumstances” necessary to justify piercing the corporate veil are

lacking. White, 584 S.W.2d at 61; Daniels, 2009 WL 2059079 at *5. The corporate veil may not

be pierced without a showing of injury caused by fraud or injustice separate and apart from the

defendant corporation’s inability to pay its debt. Sudamax, 516 F. Supp. 2d at 849. Because the

instant record is devoid of evidence supporting this essential element of Hodak’s veil-piercing

theory, we conclude there is no genuine issue of material fact. We therefore uphold the district

court’s award of summary judgment in this respect, albeit on different reasoning.

       F. Award of Attorneys’ Fees to UAR as Prevailing Party

       The Confidentiality Agreement between Hodak and UAR includes provision for mandatory

recovery of actual and reasonable attorneys’ fees and costs by the prevailing party in “any litigation

or proceeding concerning any provision of the Agreement.” After the summary judgment ruling

below, UAR moved for enforcement of this provision and was awarded attorneys’ fees and costs in

the total amount of $198,026.75. The district court held that two of Hodak’s claims, the Count II

breach of contract claim and the Count III claim for declaratory judgment, concerned provisions of

the Confidentiality Agreement. Because UAR obtained summary judgment on those claims, UAR

was deemed entitled to recover its attorneys’ fees and costs reasonably expended in defending

against those two claims.

       Hodak now challenges this ruling. First, he contends that his breach of contract claim

involved the Employment Agreement, which does not include a fee-shifting provision, not the

Confidentiality Agreement. Second, Hodak argues that UAR cannot be the prevailing party on the

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Nos. 08-6142, 08-6543
Hodak v. Madison Capital Management, et al.

claim for declaratory judgment that the Non-Competition Agreement is unenforceable because the

district court made no finding that Hodak ever breached the Non-Competition Agreement.

       The language of the fee-shifting provision is broad. The Count III claim for declaratory

judgment directly challenged the enforceability of the Non-Competition Agreement and clearly

implicates the fee-shifting provision. Additionally, UAR’s primary defense in response to the Count

II breach of contract claim, as adjudicated by the district court, was based on the Confidentiality

Agreement. It is thus apparent that both claims concerned interpretation and enforcement of

provisions of the Non-Competition, Confidential Information and Invention Agreement, which

contains the mandatory fee-shifting provision. To this extent, both claims come within the scope

of “any litigation or proceeding concerning any provision of this Agreement” and implicate recovery

of attorneys’ fees by the prevailing party.

       However, because we have decided to vacate the summary judgment ruling on the breach of

contract claim, UAR ceases to be the prevailing party on what the district court appropriately called

the “central claim in this case.” It follows that the order awarding attorneys’ fees must be vacated

as well and the matter of attorneys’ fees deferred until after completion of proceedings on all pending

claims in the district court, when the court can, in the exercise of its discretion, re-evaluate

“prevailing party” status on a complete record.

       G. Dismissal of UAR’s Counterclaims

       At the conclusion of its summary judgment opinion, the district court noted that UAR’s

counterclaims, the only remaining claims, appeared to suffer from some infirmities. In the interest

of concluding the case, the court ordered UAR to show cause within ten days why the claims should

                                                - 21 -
Nos. 08-6142, 08-6543
Hodak v. Madison Capital Management, et al.

not be dismissed with prejudice. UAR responded by moving for voluntary dismissal without

prejudice, which motion the court granted over Hodak’s objection. The district court properly

recognized that the question of dismissal with or without prejudice was committed to its sound

discretion, citing Grover by Grover v. Eli Lilly and Co., 33 F.3d 716, 718 (6th Cir. 1988). Hodak

now contends the district court abused its discretion when it declined to dismiss the counterclaims

with prejudice. In reviewing for abuse of discretion, we must uphold the district court’s ruling unless

we have a definite and firm conviction that it committed a clear error of judgment. Harlamert v.

World Finer Foods, Inc., 489 F.3d 767, 773 (6th Cir. 2007).

        The district court’s reasoning is clearly spelled out in its opinion. Citing the relevant factors

discussed in Grover, the court noted that voluntary dismissal without prejudice is generally

appropriate unless the opposing party would suffer “plain legal prejudice”—as opposed to facing the

mere prospect of a second suit. See Grover, 33 F.3d at 718. In determining that Hodak would not

suffer plain legal prejudice, the court acknowledged that Hodak had incurred expenses in defending

against the counterclaims. Yet, the court recognized that UAR had filed the claims only in reaction

to Hodak’s suit against UAR. The court recognized that UAR had not in any way protracted

proceedings on the counterclaims, but reasonably moved to dismiss them as soon as judgment was

rendered on Hodak’s claims. Further, the court resisted Hodak’s invitation to scrutinize the merits

of the counterclaims, observing that Hodak had forfeited his opportunity to timely move for

summary judgment on the counterclaims and that assertion of such arguments in this context was

“too little too late.”

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Nos. 08-6142, 08-6543
Hodak v. Madison Capital Management, et al.

        Hodak’s appellate arguments are no different than those raised below and are adequately

addressed in the district court’s opinion. His arguments are not patently meritless; the district court,

in the exercise of its discretion, could have elected to consider the merits of the counterclaims and

potentially dismissed them with prejudice. Yet, because the district court was within its discretion

in refusing to pass on the merits of the counterclaims, its refusal to dismiss them with prejudice was

entirely appropriate. See Warfield v. AlliedSignal TBS Holdings, Inc., 267 F.3d 538, 542 (6th Cir.

2001) (recognizing that voluntary dismissal with prejudice is equivalent to final adjudication on the

merits). Moreover, the appropriateness of the district court’s decision is magnified, considering that

we are, by vacating the district court’s award of summary judgment to defendants on Hodak’s

“central claim,” partially nullifying the very action that triggered defendants’ voluntary dismissal of

the counterclaims in the first place. In sum, Hodak’s arguments fall far short of persuading us that

dismissal without prejudice results in unfair treatment amounting to “plain legal prejudice” or

otherwise represents an abuse of discretion. The district court’s ruling must therefore be affirmed.

        H. Denial of Attorneys’ Fees on Counterclaims

        Notwithstanding the dismissal of the counterclaims without prejudice, Hodak insists he is

the “prevailing party” on those claims and therefore entitled to recovery of attorneys’ fees under the

fee-shifting provision in the Confidentiality Agreement. Applying the ordinary meaning of

“prevailing party,” the district court denied Hodak’s motion for attorneys’ fees because the dismissal

without prejudice did not effect a “judicially sanctioned change in the legal relationship of the

parties.” Memorandum Opinion pp. 3-6, dist. ct. dkt. no. 149 (citing Buckhannon Bd. & Care Home,

Inc. v. W. Va. Dep’t of Health & Human Res., 532 U.S. 598, 605 (2001)).

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Nos. 08-6142, 08-6543
Hodak v. Madison Capital Management, et al.

       Hodak does not directly challenge the district court’s enforcement of the ordinary meaning

of “prevailing party,” but cites case law recognizing the court’s discretion to award attorneys’ fees

to the defendant as a condition of granting a motion for voluntary dismissal without prejudice.

Again, the district court had discretion to award attorneys’ fees in conjunction with the voluntary

dismissal, but its refusal to do so has not been shown to be an abuse of discretion. The order denying

Hodak attorneys’ fees on the counterclaims is affirmed.

                                       III. CONCLUSION

       For the reasons set forth above, we find that the record evidence poses triable fact issues on

Hodak’s breach of contract claim. Accordingly we VACATE the district court’s summary judgment

ruling on the breach of contract claim and VACATE the district court’s award of attorneys’ fees and

costs to UAR as prevailing party. In all other respects, the district court’s rulings are AFFIRMED.

The case is REMANDED for further proceedings not inconsistent with this opinion.

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