Deffren v. Johnson , 2021 Ohio 817 ( 2021 )

[Cite as Deffren v. Johnson, 2021-Ohio-817.]
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
RICHARD DEFFREN, : APPEAL NOS. C-200176
C-200183
and : TRIAL NO. A-1800227
DEFFREN MACHINE TOOL SERVICE, : O P I N I O N.
INC.
:
Plaintiffs-Appellees/Cross-
Appellants, :
:
VS.
:
DONNA JOHNSON, :
KATHY POPP, :
and :
BRIAN JOHNSON, :
Defendants-Appellants/Cross- :
Appellees.
Civil Appeals From: Hamilton County Court of Common Pleas
Judgment Appealed From Is: Reversed and Cause Remanded
Date of Judgment Entry on Appeal: March 17, 2021
Jeffrey A. Burd, for Plaintiffs-Appellees/Cross-Appellants,
Robin D. Miller, Ulmer & Berne LLP, for Defendants-Appellants/Cross-Appellees.
OHIO FIRST DISTRICT COURT OF APPEALS
BERGERON, Presiding Judge.
{¶1} An asset purchase agreement to sell the assets of a family-run business
forms the centerpiece of this appeal. Long after the transaction (and the buyer’s
hiring some of the seller’s family), the parties’ relationship soured, with the buyer
alleging a pilfering of assets. The seller (the sole shareholder of the business),
however, had passed away by this point, and he was the only signatory to the
agreement. Confronted with this obstacle, the buyer accordingly tried to hold both
the seller’s wife liable for unjust enrichment and her son and daughter liable for
breaching their employment agreements. After a bench trial, the court sided with the
buyer, but we are compelled to reverse. The purchase agreement governed the sale
of the assets, and the buyer cannot skirt that agreement and hold the seller’s wife
accountable on an unjust enrichment theory on these facts because the buyer never
conferred a benefit upon her. Nor did he establish a breach of any employment
agreement. We accordingly sustain the relevant assignments of error.
I.
{¶2} In 2012, plaintiff-appellee Richard Deffren purchased the assets of
Akro Tool Company (a family-run business), from its sole owner, Kenneth Johnson.
Kenneth’s wife, Donna1, worked as the company’s office manager, responsible for
keeping the books, processing customer payments, and managing payroll. Their two
children—Kathy and Bryan—were also involved in varying roles. Consequently, as
part of the sale, Mr. Deffren hired Kathy and Bryan to continue working in the
business—Kathy as the new office manager and Bryan in an unspecified capacity.
Mr. Deffren also briefly hired Donna to show Kathy the ropes on how to run the basic
1 We will use first names to avoid confusion.
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OHIO FIRST DISTRICT COURT OF APPEALS
accounting functions. Kathy and Bryan worked for Mr. Deffren for five years or so
until conflict developed between the parties. In 2018, Mr. Deffren sued all four
family members, alleging a misappropriation of company funds. More specifically,
Mr. Deffren targeted Kenneth and Donna with respect to accounts receivables that
he believed should have been transferred pursuant to the Asset Purchase Agreement
(the “Agreement”), and he sued Kathy and Bryan to recover overpayment of Bryan’s
wages.
{¶3} Mr. Deffren’s claims against Kenneth and Donna focused on accounts
receivables that came in immediately after closing. Donna deposited $43,631.61 in
customer payments, for work done prior to closing, into Akro’s account instead of
turning those amounts over to Mr. Deffren (this includes a late-arriving rebate check
from Duke Energy). After Akro’s dissolution, those funds were transferred from
Akro’s bank account into a joint account owned by Kenneth and Donna, because
Kenneth, as sole shareholder, had the rights to any assets not transferred to Mr.
Deffren. Donna recalled that the parties had discussed this arrangement at the time
of the transaction and had agreed that these accounts receivables belonged to Akro.
But Mr. Deffren begged to differ, insisting that the Agreement dictated that all of
Akro’s accounts receivables belonged to him.
{¶4} Soon after Mr. Deffren filed this suit, however, Kenneth passed away.
And the trial court ultimately dismissed all claims against Kenneth (and his estate)
because Mr. Deffren failed to properly present an estate claim pursuant to R.C.
2117.06. That statutory provision requires that any creditor of an estate must
present its claims within six months (with certain exceptions not relevant here),
otherwise the claims will be time-barred both against the estate and any beneficiaries
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OHIO FIRST DISTRICT COURT OF APPEALS
of the estate. Mr. Deffren does not appeal that ruling, so we have no occasion to
reconsider any claims against Kenneth.
{¶5} With Kenneth out of the litigation picture, Mr. Deffren continued the
suit against Donna, seeking recovery under several theories, including breach of the
Agreement, breach of an employment contract, unjust enrichment, theft, fraud, and
conspiracy. After a bench trial, the court entered judgment in Donna’s favor on all
counts except one—the unjust enrichment claim. The trial court held that Mr.
Deffren could not recover for breach of the Agreement because Donna was not a
party to that agreement, nor did she have any ownership stake in Akro. It also
refused to apply any type of “piercing the corporate veil” theory that might have
collapsed Akro’s corporate form. Nevertheless, the trial court concluded that the
Agreement dictated that Akro’s accounts receivables belonged to Mr. Deffren and
that it would therefore be unjust for Donna to now retain those funds. Mr. Deffren
cross-appealed only two of the adverse decisions regarding Donna, and therefore, the
appeal with respect to her is confined to theories of unjust enrichment and breach of
an employment contract.
{¶6} As to the claims against the children, Mr. Deffren sought to recover
overpayments of Bryan’s wages that occurred in 2015 and 2017. In 2015, Kathy
overpaid Bryan $4,032 for vacation time, 192 hours more than allotted. And in 2017,
she overpaid Bryan $2,000 in carry-over vacation time and another $2,000 due to
an inadvertent clerical error. Mr. Deffren presented nearly all the same theories of
recovery against Kathy and Bryan as he framed against Donna. And again, the trial
court similarly dismissed all of the claims except one—breach of an employment
contract. Although no written contract existed, the court deemed Kathy and Bryan
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OHIO FIRST DISTRICT COURT OF APPEALS
subject to implied employment contracts and characterized the overpayments as a
bad-faith derogation of that implied agreement.
{¶7} Donna, Kathy, and Bryan (the “Johnson Family”) bring three
assignments of error in their appeal: (1) that Mr. Deffren’s claim against Donna was
time-barred; (2) that Mr. Deffren never purchased Akro’s accounts receivables; and
(3) that Kathy and Bryan were never subject to implied employment contracts. Mr.
Deffren also offers three assignments of error in his cross-appeal, claiming: (1) that
the court should have awarded prejudgment interest; (2) that Donna was also subject
to an employment contract; and (3) that the court miscalculated Kathy’s damages.
Ultimately, we conclude that the trial court erred in entering judgments against the
Johnson Family and reverse. We accordingly sustain the Johnson Family’s first and
third assignments of error, while dismissing their second as moot. We also overrule
Mr. Deffren’s three cross-assignments of error.
II.
{¶8} Although the trial court made various factual findings after the trial,
the parties don’t meaningfully challenge any of them. Instead, they frame legal
challenges to the given set of facts in this appeal, which implicates de novo review.
See Bowling v. Stafford & Stafford Co., L.P.A., 1st Dist. Hamilton No. C-090565,
2010-Ohio-2769, ¶ 8 (“For purely legal questions, the appellate court applies a de
novo standard of review.”).
{¶9} In the Johnson Family’s first assignment of error, Donna characterizes
Mr. Deffren’s claim as essentially a claim against Kenneth (really, his estate), which
should be time-barred at this point, and more broadly attacks the viability of any
unjust enrichment claim. Pointing to the language of R.C. 2117.06(C), she insists
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OHIO FIRST DISTRICT COURT OF APPEALS
that the six month time bar should resolve this case: “a claim that is not presented
within six months after the death of the decedent shall be forever barred as to all
parties * * * .” We would be inclined to agree with Donna if Mr. Deffren were
pursuing Kenneth, but he has (at this point) abandoned any such theories. The
unjust enrichment claim is not against Kenneth or his estate, it is against her. Thus,
the legitimacy of this claim must rise or fall on its own, regardless of the time bar of
R.C. 2117.06(C).
{¶10} Nevertheless, we agree with Donna’s related argument that Mr.
Deffren’s unjust enrichment theory is fatally flawed. The doctrine of unjust
enrichment provides that “a party may recover the reasonable value of services
rendered in the absence of an express contract if denying such recovery would
unjustly enrich the opposing party.” In re Estate of Popov, 4th Dist. Lawrence No.
02CA26, 2003-Ohio-4556, ¶ 26; see Estate of Neal v. White, 1st Dist. Hamilton No.
C-180579, 2019-Ohio-4280, ¶ 9 (“The elements of a quasi-contract are (1) a benefit
conferred by a plaintiff upon a defendant, (2) knowledge by the defendant of the
benefit, and (3) retention of a benefit by the defendant under circumstances where it
would be unjust to do so without payment of its value.”). Unjust enrichment, of
course, sounds in equity, and it is generally only available in the absence of an
enforceable contract. See Ryan v. Rival Mfg. Co., 1st Dist. Hamilton No. C-810032,
1981 WL 10160, *1 (Dec. 16, 1981) (“It is clearly the law in Ohio that an equitable
action in quasi-contract for unjust enrichment will not lie when the subject matter of
that claim is covered by an express contract or a contract implied in fact.”).
Furthermore, “[a]s a general rule, when services are performed under an express
contract, legal action is confined to the parties to the contract.” Nationwide Heating
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OHIO FIRST DISTRICT COURT OF APPEALS
& Cooling, Inc. v. K & C Const., Inc., 10th Dist. Franklin No. 87AP-129, 1987 WL
16802, *2 (Sept. 10, 1987). “Consequently, third-persons, even if benefitted by the
work, cannot be sued * * * on unjust enrichment to pay for the benefit, because an
implied contract does not arise against the one benefitted by virtue of a special
contract with other persons.” Id.{¶11} That is not to say that a claim for unjust enrichment can never be
brought against a third party to a contract. “Circumstances may exist to support an
unjust enrichment claim against a noncontracting third-party who benefits from the
uncompensated work of one of the parties to the contract.” Grdn. Technology, Inc.
v. Chelm Properties, Inc., 8th Dist. Cuyahoga No. 80166, 2002-Ohio-4893, ¶ 10,
quoting Nationwide Heating at *2. But such circumstances are limited, typically
arising where a subcontractor sues a property owner for payment not received from a
general contractor. See Steel Quest, Inc. v. City Mark Const. Services, Inc., 1st Dist.
Hamilton No. C-960994, 1997 WL 674614, *1 (Oct. 31, 1997) (“[T]his court has held
that a subcontractor may pursue a claim of unjust enrichment against a property
owner * * *,” provided the owner has not paid the contractor in full); Reisenfeld &
Co. v. Network Group, Inc., 277 F.3d 856, 861 (6th Cir.2002) (holding that sub-
agent could recover unpaid leasing commissions from landowner because landowner
had not paid the primary agent).
{¶12} We find, as a matter of law, that an unjust enrichment claim is not
cognizable against Donna on the facts of this case. As a threshold matter, she was a
stranger to the contractual relationship between Kenneth and Mr. Deffren embodied
in the Agreement. The Agreement imposed no duties or obligations upon her. If
Kenneth breached the Agreement by capturing the receivables at issue (and we
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OHIO FIRST DISTRICT COURT OF APPEALS
assume, for sake of argument, that he did), Mr. Deffren’s remedy lies against
Kenneth, or now his estate. Mr. Deffren cannot simply resort to unjust enrichment
against Donna after failing to successfully bring his contract claim against Kenneth.
See, e.g., Donald Harris Law Firm v. Dwight-Killian, 166 Ohio App.3d 786, 2006-
Ohio-2347, 853 N.E.2d 364, ¶ 14 (6th Dist.) (“Absent fraud or illegality, a party to an
express agreement may not bring a claim for unjust enrichment.”). Of course, we can
imagine various theories by which Mr. Deffren could reach Donna here (such as
fraud, theft, or conspiracy), but the facts did not validate any of those, as the trial
court recognized.
{¶13} Moreover, when we consider the elements of unjust enrichment, we
fail to see how Mr. Deffren can even get past the first element: “a benefit conferred
by a plaintiff upon a defendant.” Estate of Neal, 1st Dist. Hamilton No. C-180579,
2019-Ohio-4280, at ¶ 9. Mr. Deffren conferred no benefit on Donna at all. To the
contrary, with respect to the receivables at issue here, several Akro customers
tendered payment to Akro. Neither Mr. Deffren nor Donna sit on either side of that
equation. True, Akro eventually dissolved and turned those funds over to Kenneth
(as sole shareholder), and those funds were eventually placed in a joint bank account
with Donna, but such facts are too slender a reed on which to construct an unjust
enrichment claim. By that logic, any downstream recipient of funds would risk
liability for unjust enrichment. We are aware of no caselaw, and Mr. Deffren has
pointed us to none, that would enable an unjust enrichment claim to succeed under
such circumstances. As we emphasized above, that does not mean that a party in Mr.
Deffren’s situation is foreclosed from all remedies—but he simply failed to
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OHIO FIRST DISTRICT COURT OF APPEALS
substantiate any of those alternative theories on this record (nor does he question
them in this appeal).
{¶14} At the end of the day, Mr. Deffren’s unjust enrichment claim against
Donna is akin to the proverbial square peg in a round hole—it simply doesn’t fit. We
thus sustain the first assignment of error as modified to reflect the failure of the
unjust enrichment claim as a matter of law.
III.
{¶15} The Johnson Family’s third assignment of error and Mr. Deffren’s
second cross-assignment of error both relate to whether the Johnson Family
breached any employment contracts. While the trial court concluded that Donna did
not have an employment contract, it ruled that Kathy and Bryan were subject to
implied employment agreements and that they ran afoul of those contracts’
corresponding duties of good faith. Kathy and Bryan portray the trial court’s good-
faith analysis as fundamentally flawed because an employment contract never
existed in the first place. Mr. Deffren, for his part, maintains that the trial court did
not go far enough and should have found Donna subject to an employment
agreement.
{¶16} “ ‘A contract is generally defined as a promise, or a set of promises,
actionable upon breach.’ ” Kostelnik v. Helper, 96 Ohio St.3d 1, 2002-Ohio-2985,
770 N.E.2d 58, ¶ 16, quoting Perlmuter Printing Co. v. Strome, Inc., 436 F.Supp.
409, 414 (N.D.Ohio 1976). And the “ ‘[e]ssential elements of a contract include an
offer, acceptance, contractual capacity, consideration * * *, a manifestation of mutual
assent and legality of object and of consideration.’ ” Kostelnik at ¶ 16, quoting
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OHIO FIRST DISTRICT COURT OF APPEALS
Perlmuter Printing Co. at 414. “A meeting of the minds as to the essential terms of
the contract is a requirement to enforcing the contract.” Id.{¶17} “Ohio recognizes three types of contracts: express, implied in fact, and
implied in law (or quasi-contract).” Linder v. Am. Natl. Ins. Co., 155 Ohio App.3d
30, 2003-Ohio-5394, 798 N.E.2d 1190, ¶ 18 (1st Dist.). Here, the trial court found
that Kathy and Bryan were subject to agreements implied in fact. As the name
suggests, an implied-in-fact contract contains no express provision defining its
terms. Instead, “the court must construe the facts and circumstances surrounding
the offer and acceptance to determine the terms of the agreement.” Id.{¶18} While “[t]he presumption is that all employment is at will,” Reasoner
v. Bill Woeste Chevrolet, Inc., 134 Ohio App.3d 196, 198, 730 N.E.2d 992 (1st
Dist.1999), that presumption can be overcome by the existence of an express or
implied contract. Id. at 200; see Lunsford v. Sterilite of Ohio, L.L.C., Slip Opinion
No. 2020-Ohio-4193, ¶ 26 (noting that “this court has recognized other exceptions to
the at-will-employment doctrine, including * * * breach of an implied contract.”).
Thus, “[i]n certain contexts, evidence of customs, company policies, employee
handbooks, and oral representations may be used to establish the existence of an
implied employment contract or an implied term of that contract.” Fennessey v. Mt.
Carmel Health Sys., Inc., 10th Dist. Franklin No. 08AP-983, 2009-Ohio-3750, ¶ 8,
citing Mers v. Dispatch Printing Co., 19 Ohio St.3d 100, 101, 483 N.E.2d 150 (1985),
paragraph two of the syllabus; see Alexander v. Columbus State Community College,
2015-Ohio-2170, 35 N.E.3d 949, ¶ 19 (10th Dist.) (“Employer policies and oral
representations can constitute evidence of an implied employment contract
removing a plaintiff from a set of at-will employees.”).
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶19} “There is, however, a heavy burden on the party relying on an implied
contract to ‘demonstrate the existence of each element necessary to the formation of
a contract including, inter alia, the exchange of bilateral promises, consideration and
mutual assent.’ ” Sagonowsky v. The Andersons, Inc., 6th Dist. Lucas No. L-03-
1168, 2005-Ohio-326, ¶ 14, quoting Bowes v. Toledo Collision—Toledo Mechanical,
Inc., 6th Dist. Lucas No. L-00-1017, 2000 WL 1161695 (Aug. 18, 2000). For
example, an employee handbook cannot form the basis of an implied contract unless
“both parties [] intended for the language in handbooks or manuals to be legally
binding.” Smiddy v. Kinko’s, Inc., 1st Dist. Hamilton No. C-020222, 2003-Ohio-
446, ¶ 20. “As in all contracts, express or implied, both parties must intend to be
bound.” Id.{¶20} Here, the trial court concluded that the employment handbook did not
create any contractual obligations. And we agree. Indeed, the handbook expressly
disavowed any binding force: “The provisions of this Employee Handbook are not
intended to create contractual obligations * * * .” Beyond that, the handbook
clarified that Mr. Deffren could change it on a whim, reserving the right to modify it
“at any time without further notice.” Moreover, the handbook specified that all
employees were at-will. And where the “employee handbook specifically provided
that [its employees] [were] at-will * * * * we must look to sources other than the
handbook to determine if an implied contract existed.” Reasoner at 200–01. To be
sure, the handbook here contained various restrictions on vacation time and pay that
Kathy and Bryan ran afoul of, but Mr. Deffren needed to find some other basis
beyond the handbook to hold them accountable.
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶21} Despite finding that the handbook was not contractual, the trial court
nonetheless found: (1) that Kathy and Bryan were subject to implied-in-fact
employment agreements; and (2) that they violated their duties of good faith and
loyalty by falling short of Mr. Deffren’s expectation as outlined in the handbook. It
must be noted that the trial court did not specify the terms of the implied-in-fact
agreement, nor did it find that Kathy or Bryan breached any of those terms. Rather,
the trial court pivoted to—and solely based its finding of liability upon—the duty of
good faith and loyalty.
{¶22} Based on Mr. Deffren’s arguments on appeal that focus on this duty of
good faith and loyalty, we need not decide whether an implied-in-fact contract
existed. This is because we have recognized that “[a]n employee’s duty of good faith
and loyalty exists regardless of whether an employment agreement exists.” See
Retirement Corp. of Am. v. Henning, 1st Dist. Hamilton No. C-180643, 2019-Ohio-
4589, ¶ 36. The common-law duty of good faith and loyalty is not, however, meant
to conjure up contractual terms that the parties failed to negotiate or memorialize—it
generally applies in limited contexts, such when an employee actively competes with
the employer. See id. (“This common-law duty [of good faith and loyalty] is breached
when an employee engages in competition with the employee’s present employer
while still employed.”); Berge v. Columbus Community Cable Access, 136 Ohio
App.3d 281, 326, 736 N.E.2d 517 (10th Dist.1999) (“[O]rdinarily employees are
considered to be in breach of their duty of loyalty if they compete with their
employer.”); Staffilino Chevrolet, Inc. v. Balk, 158 Ohio App.3d 1, 2004-Ohio-3633,
813 N.E.2d 940, ¶ 45 (7th Dist.) (“Another example of a breach [of the duty of good
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OHIO FIRST DISTRICT COURT OF APPEALS
faith and loyalty] is where an employee gives away company property, uses company
funds as his own, and takes kickbacks.”).
{¶23} Mr. Deffren essentially attempts to wield the common law duty of good
faith and loyalty to transform nonbinding handbook terms into binding ones. This
reasoning is circular and risks eviscerating the extant case law about employee
handbooks. Mr. Deffren can’t have it both ways—he can’t disavow the existence of a
contract by telling employees that the handbook is unenforceable, and then try to
render the handbook enforceable (under the auspices of “good faith”) when it suits
him. He must point to facts outside of the handbook to substantiate the terms of an
implied contract or he must independently establish a breach of the duty of good
faith and loyalty. And we can search the record in vain for evidence of a violation of
the duty of good faith and loyalty consistent with how Ohio courts apply that
concept.
{¶24} Further bolstering this conclusion is the trial court’s assessment of the
evidence, where it specifically found that the “evidence demonstrate[s] that the
overpayments were accidental or inadvertent and were not done with an intent to
deprive the rightful owner of the property.” An inadvertent violation of nonbinding
terms of an employment handbook does not rise to the level of the purposeful
behavior required to breach an employee’s duty of good faith and loyalty. See, e.g.,
MNM & MAK Ent., LLC v. HIIT Fit Club, LLC, 2019-Ohio-4017, 134 N.E.3d 242, ¶ 31
(10th Dist.) (holding that intentional misappropriation of trade secrets constituted a
breach of the duty of good faith and loyalty). If innocent mistakes by employees can
constitute violations of the duty of good faith and loyalty, our court system would be
flooded with such litigation. Much like the claims against Donna, Mr. Deffren
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OHIO FIRST DISTRICT COURT OF APPEALS
potentially had other, more legally-appropriate paths to pursue these alleged
transgressions against Kathy and Bryan, but the trial court ruled against him on
those grounds and he has not appealed.
{¶25} As a result, we find that the trial court erred as a matter of law in
holding that Kathy and Bryan violated some duty of good faith and loyalty. And, for
much the same reasons, we accordingly agree with the trial court that Donna was not
subject to an employment contract. We therefore sustain the Johnson Family’s third
assignment of error and overrule Mr. Deffren’s second assignment of error.
IV.
{¶26} Mr. Deffren presents two additional assignments of error in his cross-
appeal. First, Mr. Deffren argues that the trial court erred by not awarding
prejudgment interest on his judgments against the Johnson Family. Because we
reverse those judgments, we overrule this assignment of error since he is not entitled
to damages. Relatedly, Mr. Deffren maintains in his third assignment of error that
the trial court miscalculated damages for Kathy’s breach of her employment contract.
Because we have concluded that no employment contract existed, we also overrule
this assignment of error.
* * *
{¶27} In light of the foregoing analysis, we sustain the Johnson Family’s first
assignment of error as modified and their third assignments of error, and find their
second assignment of error moot. We also overrule Mr. Deffren’s three assignments
of error on his cross-appeal. We therefore reverse the trial court’s judgment in part,
affirm in part, and remand with instructions to enter judgment in favor of the
Johnson Family.
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OHIO FIRST DISTRICT COURT OF APPEALS
Judgment reversed in part, affirmed in part, and cause remanded.
CROUSE and WINKLER, JJ., concur.
Please note:
The court has recorded its entry on the date of the release of this opinion
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