ALBERT CINELLI v. THOMAS G. WARD KENTUCKY DATA LINK, INC.; WRIGHT BUSINESSES, INC.; ARTHUR WRIGHT; and A. D. WRIGHT v. THOMAS G. WARD
Annotate this Case
Download PDF
RENDERED: January 8, 1999; 2:00 p.m.
TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO. 1997-CA-001578-MR
ALBERT CINELLI
v.
APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE GARY D. PAYNE, JUDGE
ACTION NO. 96-CI-735
THOMAS G. WARD
and:
APPELLEE
NO. 1997-CA-001579-MR
KENTUCKY DATA LINK, INC.;
WRIGHT BUSINESSES, INC.;
ARTHUR WRIGHT; and
A. D. WRIGHT
v.
APPELLANTS
APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE GARY D. PAYNE, JUDGE
ACTION NO. 96-CI-735
THOMAS G. WARD
BEFORE:
APPELLEE
OPINION
REVERSING
**
**
**
**
**
HUDDLESTON, KNOPF, and MILLER, Judges.
MILLER, JUDGE.
Albert Cinelli brings Appeal No. 1997-CA-001578-
MR from a March 27, 1997, judgment of the Fayette Circuit Court
entered upon a jury verdict.
Kentucky Data Link, Inc., Wright
Businesses, Inc., Arthur Wright, and A. D. Wright bring Appeal
No. 1997-CA-001579-MR from the same judgment.
We reverse on both
appeals.
The facts are these: Arthur Wright and A. D. Wright
(the Wrights) were sole shareholders of two family-owned
corporations:
Wright Businesses, Inc. (WBI), and Kentucky Data
Link, Inc. (KDL).
The entities were engaged in the
telecommunication business.
WBI and KDL were in default on a
loan agreement with Communications Credit Corporation.
It
appears, however, that the Wrights were not exposed to personal
liability thereon.
The Wrights sought to raise capital to avert
the imminent foreclosure of their businesses.
In such vein, the
Wrights began negotiating with appellee, Thomas G. Ward (Ward),
to sell the controlling interests of WBI and KDL.
In furtherance
thereof, they entered into a “no-shop” agreement, which prevented
the Wrights from negotiating with third parties.
agreement expired in September 1995.
The no-shop
On September 15, 1995, the
parties entered into an “Agreement” (the Agreement).1
The
Agreement’s legal import is a matter of much contention between
the parties and forms the underlying legal basis of the appeals
before us.
In its most basic form, the Agreement contemplated that
at a future date Ward would “lend” to the Wrights $2.65 million,
which would be evidenced by a promissory note.2
At Ward’s
1
See Appendix.
2
It appears that during the course of negotiations, the
(continued...)
-2-
option, the promissory note could be converted into stock
representing 54% of WBI's and KDL's outstanding shares.
Needless
to say, the proposed transaction between the parties never took
place.
It is asserted that negotiations reached an impasse over
three basic issues:
(1) whether the Wrights would accept personal
responsibility for any breaches [sic] of
warranty or representation made by Data Link
or Wright Businesses;
(2) whether the Wrights would accept employment provisions which allowed for them to be
summarily terminated from the companies they
created and developed; and
(3) whether the Wrights would agree to allow
Ward to have day-to-day control over Data
Link and Wright Businesses (in addition to
majority stock control).
In any event, by letter dated January 12, 1996, the Wrights
notified Ward that negotiations were terminated.
It appears that
the Wrights, sometime in November 1995, entered into negotiations
with appellee, Albert Cinelli (Cinelli).
On January 15, 1996,
Cinelli and the Wrights entered into a contract whereby Cinelli
acquired 51% of WBI's and KDL's outstanding shares in exchange
for $3 million.
On March 1, 1996, Ward filed the instant action against
the Wrights for breach of the Agreement, for breach of the
implied duty of good faith and fair dealing, and for conspiracy
to deprive him of an advantageous business relationship.
Cinelli
was also named as a defendant for tortious interference with
(...continued)
original loan amount of $2.65 million was reduced.
-3-
existing and prospective contractual relationships.
The jury
ultimately returned a verdict in favor of Ward in the amount of
$987,000.00 against the Wrights and $867,000.00 against Cinelli.
These appeals followed.
APPEAL NO. 1997-CA-001579-MR
The Wrights contend that the circuit court committed
reversible error by not granting them a judgment upon their
motion for directed verdict.
Ky. R. Civ. P. (CR) 50.01.
Specifically, they contend that the Agreement was unenforceable
under Kentucky law.
It is well established that construction and
interpretation of a written instrument are questions of law for
the court.
See Morganfield National Bank v. Damien Elder & Sons,
Ky., 836 S.W.2d 893 (1992).
We review questions of law de novo
and, thus, without deference to the interpretation afforded by
the circuit court.
Cf. Louisville Edible Oil Products, Inc. v.
Revenue Cabinet Commonwealth of Kentucky, Ky. App., 957 S.W.2d
272 (1997).
There exists much controversy concerning whether the
Agreement was an “agreement to agree” or a binding contract to
sell KDL's and WBI's majority interests.
The Wrights, of course,
contend that the Agreement was merely an agreement to agree,
while Ward believes it constitutes a binding contract to sell.
Resolution of this appeal revolves around the proper construction
of the document.
Provision 1 of the Agreement specifically provides that
“[s]ubject to the terms and conditions set forth herein, Ward
-4-
shall loan to KDL and WBI, on the Closing Date, an aggregate
principal amount of $2,650,000 . . . .”
In exchange for the
“loan,” Ward was given the right to acquire 54% of KDL's and
WBI's outstanding stock shares.
It must be emphasized that the
sale of the majority interests was to take place at a specific
future time designated as the “Closing Date”.
Provision 2 of the
Agreement sets forth the closing date as September 29, 1995, “or
such other date . . . as the parties shall agree . . . .”
Thus,
the Agreement essentially contemplated the future sale of KDL's
and WBI's majority interests.
It appears that the futurity of the sale resulted from
several terms left “open” or unresolved by the Agreement.
These
terms were to be addressed in future negotiations between the
parties.
The open terms included day-to-day control of KDL and
WBI, the Wrights' personal liability, and particulars of the
Wrights’ employment contracts.
Moreover, the Agreement
contemplated that the parties would enter into three additional
agreements, that is, an employment agreement, a shareholders’
agreement, and a loan purchase agreement.
The Agreement’s open
terms were never resolved by the parties’ negotiations, and the
additional agreements were, of course, never consummated.
At the
outset, we conclude that the Agreement’s open terms were
material.
We view these terms as absolutely necessary to the
formation of a binding contract to sell KDL's and WBI's majority
interests.
The Wrights assert that the unresolved open terms
-5-
rendered the Agreement indefinite and unenforceable.
In support
thereof, they cite Walker v. Keith, Ky., 382 S.W.2d 198 (1964),
for the following proposition:
“To be enforceable and valid, a contract to
enter into a future covenant must specify all
material and essential terms and leave
nothing to be agreed upon as a result of
future negotiations.”
Id. at 201 (quoting Johnson v. Lowery, Ky., 270 S.W.2d 943, 946
(1954).
The Walker court concluded that the parties must either
agree upon the material terms or supply a “definite method of
ascertaining” same.
Id. at 202.
Ward, however, contends that
the unresolved open terms of the Agreement do not render it
unenforceable.
He asserts that these terms can be supplied by
the court and directs our attention to
Inc., Ky., 677 S.W.2d 305 (1984).
Simpson v. JOC Coal,
Therein, JOC Coal entered into
an agreement with the majority shareholders of a corporation to
purchase their stock.
In the agreement, JOC Coal also agreed to
“<conclude a similar arrangement with James W. Simpson [the
minority shareholder] under which said James W. Simpson will also
consent to a similar ammending [sic] of the Agreement.’” Id. at
306-307.
Simpson filed an action alleging that JOC Coal failed
to negotiate in good faith, thus violating the agreement.
The
Court of Appeals, holding that the agreement's terms were
indefinite and uncertain, refused to enforce same.
The Supreme
Court reversed by holding:
[Walker v. Keith] is far different in degree
of uncertainty from the present case where
the contract obligates JOC Coal Companies to
undertake to conclude a similar agreement
-6-
with James W. Simpson, which is subject to a
reasonable interpretation as meaning to make
Simpson a similar offer for his shares . . .
. Unlike Walker, here the promisor's commitment is sufficiently defined to be enforceable.
Id. at 309.
As in Simpson, Ward contends that the court can
simply supply the Agreement's unresolved open terms.
We
disagree.
Where an agreement leaves the resolution of material
terms to future negotiations, the agreement is generally
unenforceable for indefiniteness unless a standard is supplied
from which the court can supplant the open terms should
negotiations fail.
In Simpson, 677 S.W.2d 305, the unresolved
material terms were easily determined by reference to the
majority shareholders' agreement.
Conversely, in Walker, 382
S.W.2d 198, there was no similarly agreed-upon “definite method
of ascertaining” such material terms.
In the case at hand, the
court is not supplied any standard or agreed-upon method with
which to supplant the Agreement's unresolved open terms.
Absent
such standard, any attempt to supply the Agreement's unresolved
open terms would be sheer conjecture.
We believe the Agreement
is essentially too indefinite for the court to view it as an
enforceable contract to sell the majority interests in KDL and
WBI.
Additionally, we do not believe that the Agreement was
intended to constitute a binding contract to buy and to sell the
majority interest in KDL and WBI.
When construing a contract, it
is well established that the court may look to surrounding
-7-
circumstances and the parties' conduct as a guide.
See Jones v.
Linkles, Ky., 267 S.W.2d 936 (1954); Dennis v. Watson, Ky., 264
S.W.2d 858 (1954); and Thompson v. Fairleigh, 300 Ky. 144, 187
S.W.2d 817 (1945).
It is difficult for us to accept Ward’s
position that the Agreement was intended to be an iron-clad
contract to sell KDL's and WBI's majority interests when: (1)
throughout negotiations, the parties modified or attempted to
modify the Agreement's settled terms (including the ultimate
purchase price), and (2) the Agreement itself contemplated the
possibility that the deal might never close.
Specifically,
provision 5 of the Agreement states that “[i]n the event the
transaction does not close, all such material, documents and
other information will be returned to KDL and WBI.”
We think the
parties merely intended the Agreement to reflect the current
status of their negotiations and to bind each to negotiate with
“best efforts” for a specified period.
Moreover, the Agreement
was obviously intended to placate the Wrights’ creditor, thus
forestalling foreclosure by continued negotiations.
Simply stated, we view the Agreement as lacking the
necessary definiteness of an enforceable contract requiring
consummation of the proposed transaction and as lacking the
requisite intent of the parties to be bound to same.
We construe
it as merely an attempt to bind the parties to good faith
negotiations.
We note that some jurisdictions recognize such
agreements to negotiate in good faith and have imposed a measure
of damages for a party’s failure to so negotiate.
-8-
See Evans,
Inc. v. Tiffany & Company, 416 F. Supp. 224 (N.D. Ill. 1976), and
Teachers Insurance and Annuity Association of American v. Tribune
Company, 670. F. Supp. 491 (S.D. NY 1987).
traditional “all or nothing” approach:3
We seem to take the
Either the agreement is
enforceable as a binding contract to consummate the transaction
or it is unenforceable as something less.
See Stevens v.
Stevens, Ky., 798 S.W.2d 136 (1990); Simpson, 677 S.W.2d 305;
Walker, 382 S.W.2d 198; and Johnson v. Lowery, Ky., 270 S.W.2d
943 (1954).
We, thus, are compelled to hold the Agreement
unenforceable.
In sum, we are of the opinion that the Agreement is
indefinite and, thus, cannot constitute an enforceable contract
to sell the majority interests of KDL and WBI.
We view it as
simply an agreement to negotiate in good faith and, as such,
without legal import.
Hence, we believe the Wrights were
entitled to a judgment upon their motion for directed verdict.
We deem the Wrights’ remaining arguments moot.
APPEAL NO. 1997-CA-001578-MR
For the reasons enunciated above, we are of the opinion
that Cinelli was entitled to judgment.
We shall not address Cinelli’s remaining issues as we
consider them moot.
3
Harvey L. Temkin, When Does the ‘Fat Lady’ Sing? [. . .]:
An Analysis ‘Agreements in Principle’ in Corporate Acquisitions,
55 Fordham L. Rev. 125 (1986), contains an analysis and
discussion of the “all or nothing” approach.
-9-
For the foregoing reasons, the judgment of the Fayette
Circuit Court is reversed on both appeals.
ALL CONCUR.
-10-
BRIEFS FOR APPELLANT/CINELLI:
BRIEFS FOR FOR APPELLEE/WARD:
Keith Moorman
Medrith Lee Hager
Lexington, KY
Mark J. MacDougall
Tracy B. McKibben
Washington, D.C.
ORAL ARGUMENT FOR
APPELLANT/CINELLI:
Thomas L. Gabelman
Kevin Matthews
Cincinnati, OH
Keith Moorman
Lexington, KY
ORAL ARGUMENT FOR
APPELLEE/WARD:
BRIEFS FOR APPELLANTS/KDL,
WRIGHT BUSINESSES, ET AL.:
Mark J. MacDougall
Washington, D.C.
John R. Leathers
Stephen G. Allen
Lexington, KY
ORAL ARGUMENT FOR APPELLANTS/
KDL, WRIGHT BUSINESSES, ET
AL.:
John R. Leathers
Lexington, KY
-11-
APPENDIX
-12-
-13-
-14-
-15-
-16-
-17-
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.