Grigoryan v. MaxOut Sports, L.L.C. , 94 N.E.3d 1214 ( 2017 )

[Cite as Grigoryan v. MaxOut Sports, L.L.C., 2017-Ohio-6982.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 105251
GHAZAROS GRIGORYAN
PLAINTIFF-APPELLEE
vs.
MAXOUT SPORTS, L.L.C.
DEFENDANT-APPELLANT
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-16-859746
BEFORE: Celebrezze, J., E.T. Gallagher, P.J., and Blackmon, J.
RELEASED AND JOURNALIZED: July 27, 2017
ATTORNEY FOR APPELLANT
Kenneth L. Gibson
Gibson & Moran, L.L.C.
234 Portage Trail
P.O. Box 535
Cuyahoga Falls, Ohio 44221
ATTORNEYS FOR APPELLEE
Samuel J. Lauricia, III
Matthew Miller
Timothy R. Obringer
Scott J. Orille
Weston Hurd, L.L.P.
Tower at Erieview
1301 East 9th Street, Suite 1900
Cleveland, Ohio 44114
FRANK D. CELEBREZZE, JR., J.:
{¶1} Defendant-appellant, MaxOut Sports, L.L.C. (“MaxOut”), brings this appeal
challenging the trial court’s order granting summary judgment in favor of
plaintiff-appellee, Ghazaros Grigoryan (“appellee”), on appellee’s claim for declaratory
judgment. Specifically, MaxOut argues that the trial court erred by determining that a
valid and enforceable contract existed permitting appellee to compete against MaxOut
and by denying its motion for a preliminary injunction. After a thorough review of the
record and law, this court affirms.
I. Factual and Procedural History
{¶2} The instant matter arose from a dispute between appellee and MaxOut
regarding the noncompete provision in MaxOut’s operating agreement. MaxOut is a
martial arts training and fitness center in Bedford Heights, Ohio. Appellee was a former
manager and director of training with MaxOut.
{¶3} MaxOut’s managers executed an operating agreement in December 2012.
The operating agreement identified the company’s members, managers, and officers, set
forth the members’ ownership of the company, and set forth various policies pertaining to
the company’s operation. The operating agreement also contained a noncompete
provision that, among other things, prohibited any manager from conducting the same or
similar business activities within a 50-mile radius of MaxOut.
{¶4} The operating agreement identified the following four managers and provided
that these managers were responsible for managing the company: (1) Shane Hudson
(“Hudson”), (2) Corneliu Mihalca (“Mihalca”), (3) Alexander Bagne (“Bagne”), and (4)
appellee. In or around January 2016, appellee expressed an interest in withdrawing from
MaxOut and opening his own martial arts training facility.
{¶5} On January 19, 2016, appellee and Hudson executed a withdrawal
agreement. 1 Pursuant to the withdrawal agreement, appellee would surrender his
ownership share in the company to Hudson in exchange for being relieved from the
noncompete provision’s prohibition against conducting the same or similar business
activities within a 50-mile radius of MaxOut.
{¶6} After entering into the withdrawal agreement, appellee opened a martial arts
training facility in Mayfield Village, Ohio, on January 30, 2016. On February 5, 2016,
an attorney acting on behalf of MaxOut sent a cease and desist letter to appellee, asserting
that he was still subject to the operating agreement’s noncompete provision.
{¶7} On March 2, 2016, appellee filed a complaint for declaratory judgment
pursuant to R.C. 2721.03. In his complaint, appellee requested a declaratory judgment
that he was, in fact, entitled to operate his own martial arts training facility pursuant to the
withdrawal agreement. Appellee attached the operating agreement, the withdrawal
agreement, and the letter from MaxOut’s counsel to his complaint. On March 29, 2016,
It is unclear whether the withdrawal agreement was drafted by appellee, Hudson, or another
1
representative of MaxOut.
MaxOut filed an answer and asserted a counterclaim against appellee for breach of the
noncompete provision.
{¶8} MaxOut filed a motion for summary judgment and a preliminary injunction
on August 31, 2016. Appellee filed a motion for summary judgment on September 1,
2016.
{¶9} On November 7, 2016, the trial court granted appellee’s motion for summary
judgment in part and denied the motion in part. The trial court granted summary
judgment in appellee’s favor on his claim for declaratory relief, concluding that the
withdrawal agreement was a valid contract that permitted appellee to compete against
MaxOut. The court denied appellee’s motion for summary judgment on MaxOut’s
counterclaim for breach of the noncompete provision. Furthermore, the trial court
denied MaxOut’s motion for summary judgment and preliminary injunction.
{¶10} On December 8, 2016, the parties filed an agreed order in which MaxOut
agreed to dismiss its counterclaim for breach of the noncompete provision without
prejudice, rendering the trial court’s November 7, 2016 judgment a final appealable
order. The trial court approved the parties’ agreed order.
{¶11} On December 13, 2016, MaxOut filed the instant appeal challenging the
trial court’s judgment. MaxOut assigns two errors for review:
I. The trial court erred in granting [s]ummary [j]udgment to [appellee] and
denying summary judgment to Max[O]ut on the issue of the validity of the
withdrawal agreement.
II. The trial court erred in failing to grant injunctive relief.
II. Law and Analysis
A. Summary Judgment
{¶12} This court reviews an appeal from summary judgment under a de novo
standard of review. Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105, 671 N.E.2d
241 (1996). We accord no deference to the trial court’s decision and independently
review the record to determine whether summary judgment is appropriate.
{¶13} Pursuant to Civ.R. 56, summary judgment is appropriate when (1) no
genuine issue as to any material fact exists, (2) the party moving for summary judgment is
entitled to judgment as a matter of law, and (3) viewing the evidence most strongly in
favor of the nonmoving party, reasonable minds can reach only one conclusion that is
adverse to the nonmoving party.
{¶14} On a motion for summary judgment, the moving party carries an initial
burden of identifying specific facts in the record that demonstrate his or her entitlement to
summary judgment. Dresher v. Burt, 75 Ohio St.3d 280, 292-293, 662 N.E.2d 264(1996). If the moving party fails to meet this burden, summary judgment is not
appropriate. However, if the moving party meets this burden, the nonmoving party has
the reciprocal burden to point to evidence of specific facts in the record demonstrating the
existence of a genuine issue of material fact for trial. Id. at 293. Summary judgment is
appropriate if the nonmoving party fails to meet this burden. Id.
B. Interpretation of the Operating Agreement
{¶15} The withdrawal agreement provides:
[appellee] expressed interest in purchasing a competing business to
[MaxOut], and as such, agreed to withdrawal as a member, manager, and
officer of [MaxOut]. As part of this withdrawal, [appellee] agreed to
relinquish his share in [MaxOut] to Shane Hudson.
In exchange for [appellee’s] withdrawal, [MaxOut] agrees not to enforce
the specific term prohibiting managers from engaging in “any enterprise
conducting business activities that are the same as or similar to MaxOut
Sports within a 50-mile radius of [MaxOut]” per the non-compete
provisions in the [operating agreement]. All other provisions in the
non-compete provision, including a prohibition from “directly or indirectly
solicit[ing] business from customers, clients, and prospective clients of
[MaxOut]” as well as the prohibition from “directly or indirectly solicit[ing]
any employee or independent contractor of [MaxOut] for employment
elsewhere” shall remain in full effect.
The withdrawal agreement proposed to relieve appellee from the prohibition in the
operating agreement’s noncompete provision against conducting the same or similar
business activities within a 50-mile radius of MaxOut. Accordingly, the withdrawal
agreement was, in effect, an amendment of the operating agreement.
{¶16} In order to determine whether the withdrawal agreement is valid and
enforceable, we must determine whether appellee and Hudson had authority to amend the
operating agreement’s noncompete provision. In order to make this determination, it is
necessary to review the terms and provisions set forth in the operating agreement.
{¶17} As noted above, the operating agreement provides that MaxOut will be
managed by four managers — Hudson, Mihalca, Bagne, and appellee. The operating
agreement sets forth each manager’s ownership of the company: Hudson, 30%; Mihalca,
30%; Bagne, 5%, and appellee, 30%.2
The remaining 5% is owned by Dan Pazara who is not listed as a manager.
2
{¶18} The operating agreement’s voting provision provides, in relevant part:
Managers shall be entitled to vote based upon the following:
One (1) vote for each 10% ownership of stock; one half (0.5) vote for each
5% ownership of stock.
Regular matters that require a vote of the managers shall be approved by a
majority vote.
A majority vote of the managers is required in order to authorize the
following acts:
***
-amendment of the Operating Agreement
***
Action may be taken without a meeting if a majority vote of the managers
consent to the action in writing.
Accordingly, there were a total of nine and one-half manager votes — Hudson, Mihalca,
and appellee each had three votes, and Bagne had one-half vote.
{¶19} The operating agreement’s noncompete provision provides, in relevant part:
[u]nless a majority approval is provided by all managers, no manager, for
any reason, shall directly or indirectly solicit business from customers,
clients and prospective clients of MaxOut Sports. Nor shall any manager
engage in (as employee, instructor, principal, shareholder, partner,
consultant, or any other capacity) any enterprise conducting business
activities that are the same as or similar to MaxOut Sports within a 50-mile
radius of MaxOut Sports. Manager shall not directly or indirectly solicit
any employee or independent contractor of MaxOut Sports for employment
elsewhere.
The parties dispute the meaning of the language “[u]nless a majority approval is provided
by all managers” and the approval that is required in order to amend the noncompete
provision by approving the withdrawal agreement. Appellee contends that this language
refers to a majority vote as provided in the operating agreement’s voting provision. On
the other hand, MaxOut asserts that this language refers to the approval of a majority of
the managers — three out of the four managers — rather than a majority vote.
{¶20} In his motion for summary judgment, appellee argued that his and Hudson’s
approval of the withdrawal agreement was sufficient because together, he and Hudson
represented a majority of the managers’ vote. Furthermore, appellee argued that he and
Hudson were the only managers who were authorized to vote on and approve the
withdrawal agreement. In support of his argument, appellee directed the trial court to
MaxOut’s Internal Revenue Service tax document for the 2015 calendar year.
{¶21} The tax document listed four MaxOut “partners” and indicated the partner’s
share of profit, loss, and capital: (1) Hudson, 60%; (2) Mihalca, 0%; (3) Bagne, 0%; and
(4) appellee, 40%. Appellee’s argument is based on an application of the operating
agreement’s voting and “profit allocation” provisions. The profit allocation provision
provides, “[n]et income or net loss of the LLC will be allocated to the members in
proportion to their ownership of the LLC.” Accordingly, appellee argues that because
Mihalca’s and Bagne’s share of the profit, loss, and capital was 0%, their ownership of
the company was 0% and, thus, they were not entitled to vote on or approve the
withdrawal agreement.
{¶22} On the other hand, MaxOut argued that the withdrawal agreement needed to
be approved by a majority of the managers — three out of the four managers — rather
than a majority vote of the managers. After review, however, we find that the operating
agreement is devoid of any language supporting MaxOut’s position.
{¶23} The purpose of contract construction is to discover and effectuate the intent
of the parties. Saunders v. Mortensen, 101 Ohio St.3d 86, 2004-Ohio-24, 801 N.E.2d
452, ¶ 9. The intent of the parties is presumed to reside in the language they chose to
use in their agreement. Kelly v. Med. Life Ins. Co., 31 Ohio St.3d 130, 132, 509 N.E.2d
411 (1987). Principles of contract interpretation preclude us from rewriting the contract
by reading into its language or terms that the parties omitted. DDR Rio Hondo, L.L.C. v.
Sunglass Hut Trading, L.L.C., 8th Dist. Cuyahoga No. 98986, 2013-Ohio-1800, ¶ 23.
{¶24} In the instant matter, MaxOut essentially asks this court to rewrite the
operating agreement by reading into it that the approval of three out of the four managers
is required in order to modify the operating agreement and/or approve the withdrawal
agreement. MaxOut’s contention is expressly contradicted by the voting provision’s
language that “[a] majority vote of the managers is required in order to authorize * * *
amendment of the operating agreement.” The operating agreement does not draw a
distinction between “voting” and “approving.” In fact, the voting provision’s language
that “[r]egular matters that require a vote of the managers shall be approved by a majority
vote” suggests that voting and approving are one and the same.
{¶25} After reviewing the record, we find that appellee and Hudson had the
authority to approve the withdrawal agreement. The withdrawal agreement amended the
operating agreement’s noncompete provision. As noted above, the voting provision
specifically provides that a majority vote is required in order to authorize an amendment
of the operating agreement. It is undisputed that appellee and Hudson represented a
majority of the managers’ vote. Accordingly, the trial court properly declined to adopt
MaxOut’s interpretation that the approval of three out of the four managers was required,
rather than a majority vote, in order to approve the withdrawal agreement.
{¶26} Regarding the 2015 tax document, MaxOut argued that a manager’s
ownership was governed by the operating agreement, not the tax document, and that the
operating agreement cannot be amended by any tax documentation. MaxOut is
essentially asking this court to apply the operating agreement’s “members” provision,
which sets forth the managers’ ownership of the company, but not apply the operating
agreement’s profit allocation provision. MaxOut cannot have it both ways. Although
the operating agreement may not have been formally amended to show a change in the
managers’ ownership interest in the company, an examination of the operating
agreement’s members and profit allocation provisions and the 2015 tax document clearly
reflect that there had, in fact, been a change in the managers’ ownership of the company
between the execution of the operating agreement in December 2012, and the execution
of the withdrawal agreement in January 2016.
{¶27} For all of the foregoing reasons, we find no merit to MaxOut’s assertion that
the withdrawal agreement needed to be approved by a majority of the managers rather
than a majority vote of the managers.
C. Condition Precedent
{¶28} In its motion for summary judgment, MaxOut further argued that Hudson’s
approval of the withdrawal agreement was conditioned upon Mihalca’s approval of the
agreement, and this condition was not satisfied.
Under basic contract law, “[a] condition is an event, not certain to occur,
which must occur, unless its non-occurrence is excused, before performance
under a contract becomes due.” Restatement of the Law 2d, Contracts,
Section 224 (1981). A condition precedent is an event that must take place
before a duty to perform arises. Atelier Dist. v. Parking Co. of Am., Inc.,
10th Dist. Franklin No. 07AP-87, 2007-Ohio-7138, ¶ 35. “Whether a
provision in a contract is a condition precedent is a question of the parties’
intent. Intent is ascertained by considering not only the language of a
particular provision, but also the language of the entire agreement and its
subject matter.” Troha v. Troha, 105 Ohio App.3d 327, 334, 663 N.E.2d
1319 (2d Dist.1995). Conditions precedent are not favored under contract
law and will not be found unless the agreement plainly shows an intent to
the contrary. Campbell v. George J. Igel & Co., [2013-Ohio-3584, 3
N.E.3d 219, ¶ 13 (4th Dist.)].
(Emphasis added.) Westlake v. VWS, Inc., 8th Dist. Cuyahoga No. 100180,
2014-Ohio-1833, ¶ 24.
{¶29} In the instant matter, we cannot say that the withdrawal agreement plainly
shows that the parties intended to create a condition precedent. The terms of the
withdrawal agreement are clear and unambiguous. The express terms of the agreement
require that appellee withdraw as a member, officer, and manager of MaxOut, relinquish
his ownership shares to Hudson, and comply with the noncompete provision’s
prohibitions against soliciting business from MaxOut and MaxOut’s employees.
Furthermore, the express terms of the agreement require that MaxOut relieve appellee
from the noncompete provision’s prohibition against conducting the same or similar
business activities within a 50-mile radius of MaxOut.
{¶30} The withdrawal agreement’s language does not modify the parties’
obligations and there is no language that evidences an intent to make these obligations
conditional. The withdrawal agreement lacks language or words that are typically found
in a conditional contract, including, but not limited to, “condition,” “conditional,”
“contingent,” “subject to,” or “unless.” See Campbell at ¶ 21. The agreement’s
language does not indicate that Hudson’s approval is conditional in any way, and makes
no reference to Mihalca’s approval of the agreement. Had the parties intended to make
Hudson’s approval conditioned upon Mihalca’s approval, they easily could have inserted
language to that effect.
{¶31} In support of its argument that Mihalca’s approval of the withdrawal
agreement was a condition precedent, MaxOut attached affidavits of Hudson and Mihalca
to its motion for summary judgment. First, Hudson averred, in relevant part,
I had grave doubts about whether [the withdrawal] agreement would be fair
to the other members and I told [appellee] that I would only approve this
agreement if it were approved also by [Mihalca] who was another primary
member/manager and who had loaned large sums of money to the company
in order to provide the initial financing. I signed the withdrawal
agreement, but did not deliver the signed copy to [appellee], but rather gave
it to [Mihalca] for his consideration. I told [Mihalca] that if he approved of
the withdrawal agreement, then he could send it with my approval to
[appellee]. Ultimately neither [Mihalca] nor any of the other members or
managers approved the withdrawal agreement and to my knowledge the
partially executed withdrawal agreement was never delivered to [appellee].
{¶32} Second, Mihalca averred, in relevant part,
I received a copy of the proposed withdrawal agreement from [Hudson]
which he had signed but not delivered to [appellee] and was told that if I
approved the agreement I could send it with his and my signature to
[appellee].
After due consideration, I determined that there was nothing of benefit to
[MaxOut] in the withdrawal agreement. I therefore did not approve the
withdrawal agreement and did not forward the copy of the agreement with
[Hudson’s] signature to [appellee].
{¶33} It is undisputed that these affidavits are parol evidence. The parol evidence
rule prohibits a party to a contract from introducing evidence of alleged or actual
agreements that contradict the unambiguous terms of a written contract. Grimmer v.
Shirilla, 8th Dist. Cuyahoga No. 103921, 2016-Ohio-5423, ¶ 20, citing Ed Schory &
Sons, Inc. v. Francis, 75 Ohio St.3d 433, 440, 662 N.E.2d 1074 (1996). However, Ohio
courts have held that parol evidence is admissible to establish a condition precedent to the
existence of a contract.
{¶34} MaxOut directs this court to Carter v. New Buckeye Redevelopment Corp.,
8th Dist. Cuyahoga No. 72501, 1998 Ohio App. LEXIS 1414 (Apr. 2, 1998). There, this
court held that even if a condition precedent is not included in the language of a contract,
parol evidence is admissible to establish that the condition precedent was orally agreed
upon. Id. at 7, citing Riggs v. Std. Slag Co., 9th Dist. Summit No. 16199, 1993 Ohio
App. LEXIS 5431 (Nov. 10, 1993), and Frankel Chevrolet Co. v. Snyder, 37 Ohio App.
378, 174 N.E. 751 (8th Dist.1930). This court explained, “[t]he parol evidence
establishing a condition precedent does not contradict the terms of the document, but
establishes a separate agreement that the document would only go into effect if certain
contingencies occurred.” Carter at 7-8.
[E]ven a condition precedent may not be shown by parol evidence when the
condition is inconsistent with the express terms of the writing. When the
subject matter of a condition precedent is dealt with in the written
instrument, in any form, the condition may not be shown by parol evidence
to be different from the manner in which it is expressed in the writing.
Villa Realty Co., Inc. v. Allied Invest. Credit Co., 8th Dist. Cuyahoga No. 35585, 1977
Ohio App. LEXIS 9337 (July 14, 1977). Accord Campbell, 2013-Ohio-3584, 3 N.E.3d
219, at ¶ 24; Hiatt v. Giles, 2d Dist. Darke No. 1662, 2005-Ohio-6536, ¶ 32.
{¶35} In the instant matter, as noted above, the withdrawal agreement
unambiguously imposes a contractual duty on appellee and MaxOut to perform.
Specifically, the withdrawal agreement provides, “[i]n exchange for [appellee’s]
withdrawal, [MaxOut] agrees not to enforce the specific term prohibiting managers from
engaging in ‘any enterprise conducting business activities that are the same as or similar
to [MaxOut] within a 50-mile radius of [MaxOut.]’” Because the withdrawal agreement
specifically addresses MaxOut’s duties and obligations, any parol evidence, such as
Hudson’s and Mihalca’s affidavits, offered to prove a contingent or conditional
relationship contradict the express terms of the agreement. Accordingly, it would be
inappropriate to rely on these affidavits. See Campbell at ¶ 24.
{¶36} We further note that Hudson’s and Mihalca’s affidavits are the only parol
evidence in the record regarding the alleged condition precedent. Because MaxOut
sought injunctive relief prohibiting appellee from conducting his competing business,
these affidavits are undoubtedly self-serving.
{¶37} The nonmoving party cannot avoid summary judgment “by merely
submitting a self-serving affidavit that simply contradicts the evidence offered by the
moving party.” FIA Card Servs., N.A. v. Pfundstein, 8th Dist. Cuyahoga No. 101808,
2015-Ohio-2514, ¶ 11. “Permitting a nonmoving party to avoid summary judgment by
asserting nothing more than ‘bald contradictions of the evidence offered by the moving
party’ would render the summary judgment exercise meaningless.” Id., quoting Greaney
v. Ohio Turnpike Comm., 11th Dist. Portage No. 2005-P-0012, 2005-Ohio-5284, ¶ 16.
{¶38} For all of the foregoing reasons, we find no merit to MaxOut’s contention
that Mihalca’s approval was a condition precedent. Aside from the self-serving
assertions in Hudson’s and Mihalca’s affidavits, there is no evidence in the record that
Mihalca’s approval was a condition precedent to appellee’s or MaxOut’s duties to
perform under the withdrawal agreement. Furthermore, as noted above, Mihalca’s
approval was not necessary in order to approve the withdrawal agreement because the
agreement was approved by Hudson and appellee who, together, represented a majority
vote.
D. Delivery
{¶39} MaxOut argues that the withdrawal agreement was not valid because the
agreement was never signed and delivered back to appellee. MaxOut further asserts that
the signed withdrawal agreement was “never delivered to [appellee] as an executed
document.” Appellant’s reply brief at 1.
{¶40} Appellee attached a copy of the withdrawal agreement to his complaint.
This copy did not contain any signatures. In support of his motion for summary
judgment, appellee attached another copy of the withdrawal agreement. This copy
contained the signatures of appellee and Hudson. In its reply brief, however, MaxOut
contends that the copy of the signed withdrawal agreement was only provided to appellee
during the exchange of discovery.
{¶41} In its appellate brief, MaxOut asserts that appellee signed the withdrawal
agreement and that Hudson “conditionally signed” the withdrawal agreement, but did not
deliver the “conditionally signed” agreement to appellee. Appellant’s brief at 3.
Furthermore, MaxOut maintains that the withdrawal agreement was partially and
conditionally executed. Appellant’s brief at 4.
{¶42} As noted above, we find no merit to MaxOut’s contention that Hudson
conditionally approved the withdrawal agreement and that Mihalca’s approval was a
condition precedent. Furthermore, MaxOut’s contention that the withdrawal agreement
was partially approved or executed is belied by the record.
{¶43} The withdrawal agreement cannot be partially executed if it was signed by
Hudson, alone, or by Hudson and appellee. As noted above, the 2015 tax document
reflects that Hudson’s share of the company’s profit, loss, and capital was 60%, and
appellee’s share of the company’s profit, loss, and capital was 40%. Accordingly, there
were a total of ten manager votes — Hudson had six and appellee had four. Hudson
alone represented a majority vote. Hudson and appellee were the only managers with
voting authority when the withdrawal agreement was executed in January 2016.
{¶44} The affidavits of both Hudson and Mihalca acknowledge that Hudson did, in
fact, sign the withdrawal agreement. Hudson’s affidavit provides, in relevant part, “I
signed the Withdrawal Agreement, but did not deliver the signed copy to [appellee], but
rather gave it to [Mihalca] for his consideration.” Mihalca’s affidavit provides, in
relevant part, “I received a copy of the proposed Withdrawal Agreement from [Hudson]
which he had signed but not delivered to appellee[.]”
{¶45} In Estate of Brewer v. Dowell & Jones, Inc., 8th Dist. Cuyahoga No. 80563,
2002-Ohio-3440, this court explained, “physical delivery of a contract is not essential to
create a legally enforceable agreement. Indus[.] Heat Treating Co. v. [Toledo Stamping
and Mfg. Co.], 104 Ohio App.3d 499, 662 N.E.2d 837 [(6th Dist.1995)]. Where the
parties intend to be bound by the contract, it is valid[.]” Id. at ¶ 11. Accord Melia v.
OfficeMax N. Am., Inc., 8th Dist. Cuyahoga No. 87249, 2006-Ohio-4765, ¶ 21.
{¶46} MaxOut does not dispute that Hudson signed the withdrawal agreement.
Rather, MaxOut argues that (1) Hudson’s approval was conditioned upon Mihalca’s
approval and (2) the withdrawal agreement was only partially executed because it was not
signed or approved by Mihalca.
{¶47} The fact that Mihalca and Bagne did not approve or sign the withdrawal
agreement has no effect on the agreement’s validity. In fact, the 2015 tax document
reflects that they had no share of the company’s profit, loss, and capital, and thus, no
voting authority.
{¶48} For all of these reasons, we find no merit to MaxOut’s contention that the
withdrawal agreement was not valid and enforceable because a signed copy was not
physically delivered to appellee.
E. R.C. 1705.31
{¶49} MaxOut argues that the trial court erred by failing to apply R.C. 1705.31 in
determining whether the withdrawal agreement was valid and enforceable.
{¶50} R.C. 1705.31(A), governing contracts in which a manager of a limited
liability company has a financial or personal interest, provides,
Unless otherwise provided in the operating agreement, the following apply:
(1) No contract, action, or transaction is void or voidable with respect to a
limited liability company because it is between or affects the company and
one or more of its members, managers, or officers, or because it is between
or affects the company and any other person in which one or more of its
members, managers, or officers are members, managers, directors, trustees,
or officers or have a financial or personal interest, or because one or more
interested members, managers, or officers participate in or vote at the
meeting that authorizes the contract, action, or transaction, if any of the
following applies:
(a) The material facts as to his or their relationship or interest and as to the
contract, action, or transaction are disclosed or are known to the members
or managers, and the members or managers, in good faith reasonably
justified by those facts, authorize the contract, action, or transaction by the
affirmative vote of a majority of the disinterested members or managers,
even though the disinterested members or managers constitute less than a
quorum of the members or managers.
(b) The material facts as to his or their relationship or interest and as to the
contract, action, or transaction are disclosed or are known to the members
entitled to vote on the contract, action, or transaction, and the contract,
action, or transaction is specifically approved at a meeting of the members
held for that purpose by the affirmative vote of the members entitled to
exercise a majority of the voting power of the company held by persons not
interested in the contract, action, or transaction.
(c) The contract, action, or transaction is fair to the company as of the time
it is authorized or approved by the members or managers.
{¶51} MaxOut argues that none of the three scenarios set forth in
R.C. 1705.31(A)(1)(a), (b), and (c) apply. First, MaxOut asserts that there was not full
disclosure of all the material facts because appellee failed to disclose that he had already
solicited business from MaxOut customers and clients by informing them that he was
leaving the company and opening up his own training facility. Second, MaxOut
contends that Hudson and appellee were not disinterested parties to the contract because
appellee was relieved from the noncompete provision and Hudson received appellee’s
interest in the company. Third, MaxOut argues that the withdrawal agreement was not
fair to the company because only Hudson benefitted from the agreement by receiving
appellee’s ownership and the company received no benefit from the agreement.
{¶52} MaxOut emphasizes that “the withdrawal agreement was not approved by a
majority vote of disinterested members[.]” Appellant’s brief at 9. Initially, we note
that the operating agreement provides that the company’s managers are entitled to vote
based on their ownership of stock in the company. The operating agreement does not
provide for voting by members. Furthermore, this argument — that the withdrawal
agreement had to be approved by a majority vote of the disinterested members —
conflicts with MaxOut’s assertion that the withdrawal agreement had to be approved by
three out of the four managers.
{¶53} Nevertheless, MaxOut’s reliance on R.C. 1705.31 is misplaced. It is
undisputed that both Hudson and appellee were financially or personally interested in the
withdrawal agreement. Pursuant to the withdrawal agreement, appellee would be
relieved from the noncompete provision’s prohibition against conducting the same or
similar business activities within a 50-mile radius of MaxOut, and Hudson received
appellee’s ownership in the company.
{¶54} The only disinterested managers were Mihalca and Bagne. However, as
noted above, MaxOut’s 2015 tax document reflects that both Mihalca’s and Bagne’s
share of the profit, loss, and capital was 0%. Because the operating agreement provides
that net income or net loss of the company is allocated in proportion to the members’
ownership of the company, the only logical conclusion is that Mihalca’s and Bagne’s
ownership of MaxOut was 0%. Without any ownership of stock in the company, neither
Mihalca nor Bagne was entitled to vote on the withdrawal agreement.
{¶55} Accordingly, although Hudson and appellee both had an interest in the
withdrawal agreement, the record reflects that they were the only managers who shared
the company’s profit, loss, and capital, and thus, were the only managers who were
entitled to vote on or approve the withdrawal agreement. Therefore, the trial court did
not err by failing to apply R.C. 1705.31.
{¶56} For all of the foregoing reasons, we find that the trial court properly granted
summary judgment in appellee’s favor and concluded that the withdrawal agreement was
a valid contract. First, the withdrawal agreement was approved by appellee and Hudson
who, together, represented a majority of the managers’ vote. Second, Mihalca’s approval
was not a condition precedent to the parties’ duties to perform under the withdrawal
agreement. Third, R.C. 1705.31 is inapplicable. Accordingly, MaxOut’s first
assignment of error is overruled.
F. Injunctive Relief
{¶57} In its second assignment of error, MaxOut argues that the trial court erred by
failing to grant injunctive relief. MaxOut concedes, however, that the trial court’s
determination that the withdrawal agreement modified the noncompete provision
rendered its motion for preliminary injunction moot.
{¶58} In light of our determination that the withdrawal agreement is a valid and
enforceable contract, and that the trial court properly granted summary judgment in
appellee’s favor, MaxOut’s second assignment of error pertaining to its motion for a
preliminary injunction is moot.
III. Conclusion
{¶59} After thoroughly reviewing the record, we find that the trial court properly
granted summary judgment in favor of appellee on his declaratory judgment claim. The
withdrawal agreement was a valid and enforceable contract that relieved appellee from
the noncompete provision’s prohibition against conducting the same or similar business
activities within a 50-mile radius of MaxOut.
{¶60} Judgment affirmed.
It is ordered that appellee recover from appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment into
execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
FRANK D. CELEBREZZE, JR., JUDGE
EILEEN T. GALLAGHER, P.J., and
PATRICIA ANN BLACKMON, J., CONCUR