Tagnetics, Inc. v. Kenneth Kayser ( 2021 )

NOT RECOMMENDED FOR PUBLICATION
File Name: 21a0033n.06
No. 20-3556
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT FILED
Jan 14, 2021
TAGNETICS, INC., ) DEBORAH S. HUNT, Clerk
)
Plaintiff-Appellee,
)
) ON APPEAL FROM THE
v.
) UNITED STATES DISTRICT
) COURT FOR THE
KENNETH KAYSER, et al,
) SOUTHERN DISTRICT OF
Defendant-Appellant. ) OHIO
)
BEFORE: BATCHELDER, WHITE, and BUSH, Circuit Judges.
ALICE M. BATCHELDER, Circuit Judge. The Appellees, Kenneth Kayser, Ronald
Early, and Jonathan Hager (the “Creditors”), filed an involuntary bankruptcy petition against the
Appellant, Tagnetics, Inc., for unpaid wages and salary related to their employment with
Tagnetics. The parties negotiated a settlement. Before they drafted a formal settlement agreement,
however, they agreed to key terms by email, which included, in part, a “full mutual releases (no
carve outs)” clause. Finding a valid agreement, the bankruptcy court concluded that the release
clause applied to the parties but not their related individuals and entities. Tagnetics appeals the
bankruptcy court’s interpretation. We AFFIRM.
I.
In March 2019, the Creditors filed an involuntary bankruptcy petition against Tagnetics to
recover unpaid wages and salaries related to their employment. In mid-July, the parties started
settlement negotiations, which focused primarily on the Creditors’ payment schedule. On July 25,
No. 20-3556, Tagnetics, Inc. v. Kayser, et al.
the Creditors proposed a payment schedule, which Tagnetics initially rejected. And on July 26,
the parties agreed over the phone to an amended payment schedule with additional terms.
Tagnetics memorialized the agreement by an email that set out the specific terms for Tagnetics’s
payment to the Creditors:
Payment of $90,000 total ($30,000 each) within three days of a fully executed
agreement.
The remaining schedule of payments as you proposed below, except in 12 and
18 months instead of 6 and 12 months.
Full mutual releases (no carve outs)[.]
Dismissal/withdrawal of claims by each of you to be filed within one day of
receiving payment[.]
The Creditors accepted, and the parties subsequently informed the bankruptcy court that they had
reached a settlement agreement.
Nineteen days later, Tagnetics drafted a formal settlement agreement and sent it to the
Creditors. The draft, among other things, contained language warranting that each of the Creditors
released Tagnetics and its related individuals and entities—specifically Tagnetics’s entity,
Compass Marketing—from all future claims:1
In exchange for the consideration described herein, [the Creditors], on [their]
own behalf and on behalf [of their] heirs, successors, and assigns, as well as all
corporate and operating affiliates and related entities in which [the Creditors
have] a controlling interest, hereby release[] and discharge[] Tagnetics, as well
as its current and former parent companies, corporate and operating affiliates,
subsidiaries, and related entities (including specifically Compass Marketing,
Inc.), as well as each of their current and former directors, officers, shareholders
or other equity holders, agents, employees, accountants, attorneys, and insurers
. . . from any and all causes of action, claims, debts, costs, liabilities, and
demands arising from the beginning of time until the date of this agreement. . .
[The Creditors] understand[] that this is a GENERAL RELEASE.
Two days later, the Creditors responded to Tagnetics, objecting, in part, to the release provision:
The release items . . . have some points in them that are not agreeable to all
parties. This agreement is between Tagnetics and Kayser, Hager, Earley and
1
The draft agreement contained three separate but identical releases for Kayser, Early, and Hager, respectively.
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does not need to specifically include Compass Marketing. If Compass is not an
operating affiliate then they are not party to this settlement. Ken Kayser is not
in agreement to include specific language in these releases including the
Tagnetics release. This agreement was to resolve the dispute about our unpaid
salaries as described in our employment agreements. These releases are taking
very broad strokes that step outside these agreements trying to affect other
agreements, loans, shareholders rights etc that are part of other Independent
agreements executed between Tagnetics and Kayser, Earley.
After some back and forth about the inconsistencies between the negotiations and the draft
agreement, Tagnetics moved the bankruptcy court to enforce the draft settlement agreement. The
parties disputed the agreement’s scope, and at issue here, whether the release provisions in the
draft agreement accurately represented the July 26 agreement’s “full mutual releases (no
carveouts)” provision.
After holding an evidentiary hearing on Tagnetics’s motion, the bankruptcy court held that
the parties created an enforceable contract in the July 26 email and deemed all other offers and
counteroffers unenforceable. It also held that the “[f]ull mutual releases (no carveouts)” provision
applied to both the Creditors and Tagnetics but not their “affiliates, parent corporations, officers,
directors or other undisclosed third parties.”
Tagnetics appealed to the United States District Court for Southern District of Ohio,
arguing that: (1) the release provision extended to Tagnetics’s related third parties, and (2) if the
provision did not extend to related third parties, there was no meeting of the minds, and therefore,
no valid contract. The district court, in lockstep with the bankruptcy court’s reasoning, affirmed.
Tagnetics, Inc. v. Kenneth Kayser, et al, No. 3:19-cv-00363, 2020 WL 1987948, at *10 (S.D. Ohio
Apr. 27, 2020).
The district court held that under Ohio law, the “full mutual releases (no carve out)”
provision is clear and unambiguous. Id. at *8. It assessed the plain and ordinary meaning of each
of the provisions’ terms and determined that the bankruptcy court correctly limited mutual release
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to the parties. Id. at *6. Next, the district court, looking at the parties’ objective acts, concluded
that the parties mutually assented to the terms of the July 26 agreement as they would ordinarily
be understood. Id. at *10.
Tagnetics timely appeals.
II.
“In appeals from the decision of a district court on appeal from the bankruptcy court, the
court of appeals independently reviews the bankruptcy court’s decision, applying the clearly
erroneous standard to findings of fact and de novo review to conclusions of law.” Bank of
Montreal v. Official Comm. of Unsecured Creditors, 420 F.3d 559, 563 (6th Cir. 2005) (citation
and quotation marks omitted).
“A settlement agreement is a type of contract and is governed by reference to state
substantive law governing contracts generally.” Cogent Sols. Grp., LLC v. Hyalogic, LLC, 712
F.3d 305, 309 (6th Cir. 2013) (internal quotation marks and citation omitted). Because Ohio
residents formed the agreement in question in Ohio, Ohio law applies. Under Ohio law, the
interpretation of a contract “is a matter of law subject to a de novo standard of review.” Kilko v.
Lockhart, No. 2012-L-003, 2012 WL 5328411, at *5 (Ohio Ct. App. Oct. 29, 2012).
A.
We start with whether the parties created an enforceable contract on July 26.
Under Ohio law, “[e]ssential elements of a contract include an offer, acceptance,
contractual capacity, consideration (the bargained for legal benefit and/or detriment), a
manifestation of mutual assent and legality of object and of consideration.” Williams v. Ormsby,
966 N.E.2d 255, 258 (Ohio 2012) (citation omitted). A contract containing those essential
elements is enforceable so long as there was “a meeting of the minds of both parties . . . and the
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contract [is] definite and certain.” Episcopal Ret. Homes v. Ohio Dep’t of Indus. Rels., 575 N.E.2d
134, 137 (Ohio 1991). Note, however, that “all agreements have some degree of indefiniteness
and some degree of uncertainty.” Kostelnik v. Helper, 770 N.E.2d 58, 61 (Ohio 2002) (citation
and quotation marks omitted).
“Ohio law does not require contracting parties to share a subjective meeting of the minds
to establish a valid contract; otherwise, no matter how clearly the parties wrote their contract, one
party could escape its requirements simply by contending that it did not understand them at the
time.” 216 Jamaica Ave., LLC v. S&R Playhouse Realty Co., 540 F.3d 433, 440 (6th Cir. 2008).
“What it does require is that the terms of the agreement establish an objective meeting of the minds,
which is to say that the contract was clear and unambiguous.” Id. Expressions of assent are
generally sufficient to show a meeting of the minds. See Ford v. Tandy Transp., Inc., 620 N.E.2d
996, 1007 n.2 (Ohio Ct. App. 1993).
Here, Tagnetics concedes that the July 26 email exchange contains the key terms of the
parties’ agreement. And those terms were indeed definite. The email outlined the key payments,
dates, and non-monetary terms of their settlement. The parties then mutually assented to those key
terms—Tagnetics by offer via email and the Creditors by acceptance via their response email. See
Turoczy Bonding Co. v. Mitchell, 118 N.E.3d 439, 444–45 (Ohio Ct. App. 2018) (explaining that
although the parties contemplated a future memorialized agreement, their email communications
unconditionally established a valid settlement agreement). Therefore, there was an objective
meeting of the minds regarding the key terms included in the July 26 email exchange.
The July 26 agreement is enforceable.
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B.
Next, we must interpret the full-mutual-release provision and determine whether it also
releases Tagnetics’s related third parties.
Under Ohio law, “[t]he purpose of contract construction is to effectuate the intent of the
parties.” Kelly v. Med. Life Ins. Co., 509 N.E.2d 411, 413 (Ohio 1987). “The intent of the parties
to a contract is presumed to reside in the language they chose to employ in the agreement.” Id.“The fact that the parties fail to specifically define a term within the contract does not make the
term ambiguous.” State ex rel. Petro v. R.J. Reynolds Tobacco Co., 820 N.E.2d 910, 915 (Ohio
2004). Instead, common undefined words “will be given their ordinary meaning unless manifest
absurdity results, or some other meaning is clearly evidenced from the face or overall contents of
the instrument.” Id.“[W]here the terms of a contract are clear and unambiguous, extrinsic evidence may not be
used as an aid in interpretation.” Whitley v. Canton City Sch. Dist. Bd. of Educ., 528 N.E.2d 167,
168 (Ohio 1988); Transtar Elec. v. A.E.M. Elec. Servs. Corp., 16 N.E.3d 645, 648 (Ohio 2014)
(“When the language of a written contract is clear, a court may look no further than the writing
itself to find the intent of the parties.” (internal quotation and citation omitted)). “Contract
language is ambiguous if it is susceptible to two or more reasonable interpretations.” Willoughby
Supply Co. v. Villhauer, 113 N.E.3d 973, 977 (Ohio Ct. App. 2018) (internal quotation and citation
omitted). If, however, the terms are clear, a court “cannot in effect create a new contract by finding
an intent not expressed in the clear language employed by the parties.” Alexander v. Buckeye Pipe
Line Co., 374 N.E.2d 146, 150 (Ohio 1978).
We look, then, to the ordinary meaning of each of the words in the phrase “full mutual
releases (no carveouts).” Tagnetics acknowledges that courts in Ohio have defined “mutual” to
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mean “[c]ommon to both parties” or “reciprocal.” Black’s Law Dictionary defines “mutual
release” as “[a] simultaneous exchange of releases of legal claims held by two or more parties
against each other.” Black’s Law Dictionary (11th Ed. 2019) (defining “mutual release” under the
definition of “release”). The words “full” and “(no carve outs)” modify “mutual releases”; the
phrase therefore means that all claims without exception are subject to the mutual releases. See
Alexander, 374 N.E.2d at 150 (explaining that when a court interprets a contact, it reads terms in
conjunction with their surrounding terms).
Tagnetics argues that “full” modifies “mutual releases,” so that the phrase encompasses
release of all of Tagnetics’s unspecified “related third parties, such as parent companies,
subsidiaries, affiliates, officers, directors, heirs, and personal representatives.” But Tagnetics’s
interpretation of “full” is not reasonable in the context of the July 26 agreement, which was
between Tagnetics and the Creditors, without any reference to any third party. See Willoughby,
113 N.E.3d at 977. If the parties had intended to include third parties in the mutual-release
provision, “they could have easily so stated,” but they did not. Alexander, 374 N.E.2d at 150. The
release provision, therefore, does not apply to Tagnetics’s related third parties.
Tagnetics also argues that interpreting “full” as having the same meaning as “no carve
outs” would violate the canon against surplusage. But Tagnetics misapprehends that canon. It is
“not a tool for creating an ambiguity in the first place.” TMW Enters., Inc. v. Fed. Ins. Co.,
619 F.3d 574, 578 (6th Cir. 2010). As we have already explained, “full,” in the first instance, is
unambiguous; it becomes ambiguous only if we apply the rule against surplusage. See id. (“Where
there are two ways to read the text—and the one that avoids surplusage makes the text
ambiguous—applying the rule against surplusage is, absent other indications, inappropriate.”
(quotations and citation omitted)).
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Next, Tagnetics attempts to analogize this case to several out-of-state cases that deal with
the question of general releases. Each case cited concerned a general release provision that
expressly included third parties. But each case is distinguishable for the same reason: the
agreements contained a general release provision before the parties’ mutual assent. That is not so
here.
Finally, Tagnetics presents arguments that rely on extrinsic evidence. But because the July
26 agreement is clear and unambiguous, those arguments are unavailing. The bankruptcy court
correctly limited the release provision to the Creditors and Tagnetics.
III.
For the foregoing reasons, we AFFIRM the bankruptcy court’s judgment.
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WHITE, Circuit Judge, concurring. I join in the affirmance. I write separately to note that
although the release does not by its terms expressly include the affiliated persons and entities at
issue here, it may nevertheless operate to release some related parties in a future lawsuit depending
on the asserted bases for liability, the parties’ relationship to Tagnetics, and the applicable law
regarding corporate liability, agency, and releases.
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