GALLENSTEIN (PAUL), ET AL. VS. STRUNK (MICHAEL)
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RENDERED: APRIL 6, 2018; 10:00 A.M. NOT TO BE PUBLISHED Commonwealth of Kentucky Court of Appeals NO. 2015-CA-001567-MR PAUL GALLENSTEIN AND FRED MACKE v. APPELLANTS APPEAL FROM KENTON CIRCUIT COURT HONORABLE KATHLEEN S. LAPE, JUDGE ACTION NO. 14-CI-00658 MICHAEL STRUNK APPELLEE OPINION REVERSING AND REMANDING ** ** ** ** ** BEFORE: KRAMER, CHIEF JUDGE; NICKELL AND THOMPSON, JUDGES. NICKELL, JUDGE: Paul Gallenstein and Fred Macke (collectively, “appellants”) appeal from the Kenton Circuit Court’s grant of summary judgment to Michael Strunk, entered September 15, 2015, and the circuit court’s amended judgment granting prejudgment interest to Strunk, entered October 9, 2015. For the reasons set forth below, we reverse and remand for further proceedings. BACKGROUND This case involves dueling claims between the parties alleging breach of contract stemming from a purchase agreement between Best Life Companies, LLC (“BLC”) and Home Care Northern Kentucky, LLC (“HCNK”). Gallenstein and Macke, along with Gene Daniels,1 were members with ownership interests in BLC. HCNK was a company owned and operated by Sharon Strunk. Pursuant to the agreement, BLC created a new company, Best Life Home Care, LLC (“BLHC”), to purchase HCNK and operate the entity as a home health care business. The agreement also provided terms for the employment of Sharon’s husband, appellee Strunk, as Executive Director of BLHC. The agreement required Strunk to “use full effort” as Executive Director and provided him a salary conditioned upon BLHC’s gross profits, as well as the possibility of quarterly bonuses. Of particular importance to this appeal, Section 4 of the agreement, entitled “Final Bonus,” stated in relevant part as follows: [p]rovided Strunk has complied with all of the conditions and obligations set forth herein, on or after two years from the date of the commencement date of the business, Strunk, in his sole discretion, may elect to terminate his services. ... Upon the termination of Strunk’s services by either Strunk or BLHC, Strunk shall be paid a final bonus in an amount equivalent to two times EBITA2 for the prior twelve months (EBITA shall include any sums paid as 1 Although he participated in the underlying purchase agreement at the heart of this action, Gene Daniels is not a party to this appeal. -2- salary to Strunk for prior twelve months (i.e. EBITA plus Strunk salary)). In consideration of entering this Agreement, Strunk shall enter into a non-compete agreement with BLC to not compete in any manner with any of the companies or services offered by BLC for a period of five years and within a [twenty-five-mile] radius of any offices or place of business of BLC. ... At any time after twelve months from the date of execution of this Agreement if Strunk is unable or unwilling to materially perform his obligations hereunder at any time during the duration of this Agreement, BLHC shall have the right to terminate this Agreement with Strunk and pay him an amount equal to one and a half times EBITA for the time period Strunk provided services to BLHC, up to a maximum of twelve months. ... Paul Gallenstein, Fred Macke and Gene Daniels, by executing this Agreement, hereby personally guaranty the payments from BLHC or BLC to Strunk whether it is salary or final bonus. ... (Footnote added.) The following signatories then executed the agreement: Paul Gallenstein, on behalf of BLC; Sharon Strunk, both as herself and on behalf of HCNK; and Michael Strunk. In a separate block on the same page, Paul Gallenstein, Fred Macke, and Gene Daniels signed the agreement as “Guarantors pursuant to Section 4 above[.]” After two years’ service as Executive Director, Strunk gave notice of his intent to retire, which led to a dispute about his final bonus under Section 4 of 2 The appellants’ brief explains this term as follows: “EBITA stands for Earnings Before Income Taxes, and Expenses. It is a somewhat complex figure to determine in any particular business.” -3- the agreement. Gallenstein, Macke, and Daniels were purportedly unhappy with Strunk’s performance and did not believe he had earned the “two times EBITA” bonus provided in Section 4. However, there is no indication any of the three complained about Strunk’s performance prior to his announced retirement. Strunk, having given the promised two years of service to BLHC, believed he was entitled to the bonus. On April 3, 2014, Strunk filed a complaint against Gallenstein and Macke in Kenton Circuit Court, alleging breach of contract. Strunk claimed he was owed $111,338 for his final bonus, $27,835 of which had not been paid. He attached two exhibits to his complaint. Exhibit A was a copy of the purchase agreement between BLC and HCNK. Exhibit B was a printout of an email he had written on September 13, 2013, entitled “Strunk Payout,” which he had sent to Gallenstein, Macke, Daniels, Paul Darpel (appellants’ counsel), and Sharon Strunk. This email states, in its entirety, as follows: Fred and Gene[,] As you know, I have retired from Best Life Home Care and Best Life Day Care on August 31, 2013. As per the terms of the Agreement dated August 14, 2011, Best Life Companies is to pay me $111,338. Paul Gallenstein along with his accountant, James Paulin, have reviewed the numbers and all are in agreement. Paul Gallenstein has agreed to pay $66,802 and will give me a check on Monday (Sept. 16th). -4- Paul tells me Fred is to pay Mike Strunk $16,700 and Gene is to pay $27,835.3 These funds are due immediately. Please call me if you have any questions. [telephone number] Please remit you [sic] funds to: Mike Strunk [Address] Covington, KY 41011 Sincerely[,] Mike Strunk (Footnote added.) Gallenstein and Macke subsequently paid sums to Strunk in accord with the email. Daniels, however, suffered a severe financial reversal and could not pay, leaving Strunk with a shortfall of $27,835. Therefore, Strunk alleged he was owed $27,835 on his contract for which Gallenstein and Macke were jointly and severally liable as guarantors. In their answer and counterclaim, appellants asserted Strunk did not “use full effort” as Executive Director, and, therefore, Strunk was in breach of the agreement. Alternatively, appellants argued the contract failed for lack of consideration because Strunk never entered a separate non-compete agreement pursuant to Section 4. In another defense, asserting accord and satisfaction or compromise, appellants alleged: (1) Strunk knew Gallenstein and Macke did not intend to pay the portion owed by Daniels; (2) Strunk was aware the payments 3 These figures actually total $111,337, not $111,338. Neither the record nor the briefs explain the discrepancy. -5- from Gallenstein and Macke were intended to be in full accord and satisfaction of their portions of Strunk’s contract; (3) Strunk accepted said payments with this knowledge; and, (4) Strunk never attempted to claim the portion owed from Daniels. Finally, in their counterclaim, appellants argued Strunk either breached the contract first, or the contract failed for lack of consideration, and thus, Strunk was unjustly enriched to the detriment of the appellants. Appellants, therefore, asked the trial court to order Strunk to return the amount they paid toward his final bonus, a total of $83,502. Following the court’s order setting a trial date, Strunk moved for summary judgment, arguing Gallenstein and Macke were jointly and severally liable as guarantors for the amount unpaid by Daniels. He also contended he was not in material breach of the contract with regard to the non-compete provision of Section 4, for several reasons: (1) the contract could reasonably be read as an agreement not to compete on its own, without a separate document; (2) BLC/BLHC never gave Strunk a separate non-compete document to sign; and, (3) Strunk never violated the terms of the non-compete provision, stated in the agreement as he moved to Arizona shortly after retirement and was not working. As part of their competing summary judgment motion, the appellants attached Gallenstein’s signed affidavit outlining why Strunk was not entitled to the full “two times EBITA” figure for his final bonus under the agreement. The affidavit alleged Strunk failed to adequately operate BLHC, asserting the company’s “gross profits and other revenue indicators were not in line with -6- expectations or projections.” Thus, Gallenstein asserted Strunk did not use “full effort” as required by the agreement. In addition, he claimed Strunk did not file a separate non-compete agreement with either BLC or BLHC, as required by the purchase agreement. Gallenstein explained Strunk’s email was related to an attempted settlement, and his purported agreement on the EBITA figure was “solely in connection with the settlement[.]” Furthermore, Gallenstein asserted the EBITA figure was based solely on financial data provided by Strunk, because “the financial documents were in such a disarray that we could not accurately calculate EBITA under the Agreement.” Gallenstein admits he and Macke paid their portions in conformity with those described in the email, but with the understanding the sums would be “full payment and satisfaction from each of us.” Finally, Gallenstein also contended all parties to the purchase agreement believed guarantor liability would be based on a proportionate share of their respective ownership interests. The trial court considered the above facts and granted summary judgment to Strunk. The court found Gallenstein, Macke, and Daniels had joint and several liability for Strunk’s bonus, because all had signed as guarantors without any language limiting their respective liabilities to a proportionate ownership interest. The court also appeared to find, based on the Strunk email, Gallenstein’s accountant had calculated the proper payout amount based on two times EBITA, after which time Gallenstein and Macke paid their respective amounts to Strunk. The court found appellants’ complaint about breach of the -7- non-compete provision was “disingenuous” because the non-compete agreement was contained within the purchase agreement, and this was satisfactory to all parties until Strunk filed his complaint. The court also noted appellants’ criticism regarding Strunk’s performance of his duties did not appear until Strunk filed his complaint. Finally, the court concluded there was no accord and satisfaction relating to the amounts Gallenstein and Macke paid to Strunk, because there was no proof the amounts were offered as full satisfaction of the claim. In light of its findings, the trial court granted summary judgment against Gallenstein and Macke, jointly and severally, in the amount of $27,835. Following summary judgment, Strunk moved the court to alter or amend the judgment to allow prejudgment interest on the award. Attorneys for Gallenstein and Macke argued the motion was not properly served on them, and they found the pending motion by “sheer luck” of logging into the CourtNet system to check on another case and discovered a hearing was scheduled on this matter. Strunk’s counsel contended service was adequate and, in any event, appellants’ counsel was able to respond to the motion. The trial court found the debt was liquidated and was “satisfied that [Strunk’s] motion to alter or amend was served upon counsel of record for the [appellants.]” The court then granted prejudgment interest on the award to Strunk, at the rate of eight percent from August 31, 2013, to September 15, 2015. This appeal followed. STANDARD OF REVIEW -8- Appellants contend the trial court erroneously granted summary judgment to Strunk. A trial court properly awards summary judgment when “the pleadings, depositions, answers to interrogatories, stipulations, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” CR4 56.03. “Summary judgment is not intended as a substitute for trial and should be cautiously applied.” Kirby v. Lexington Theological Seminary, 426 S.W.3d 597, 604 (Ky. 2014). Summary judgment should be granted only if it appears impossible the nonmoving party will be able to produce evidence at trial warranting a judgment in his or her favor. Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476, 482 (Ky. 1991). Furthermore, a trial judge must view the evidence in the light most favorable to the nonmoving party . . . . The moving party bears the initial burden of demonstrating that no genuine issue of material fact exists and then the burden shifts to the party opposing summary judgment to produce at least some affirmative evidence showing that there is a genuine issue of material fact requiring trial. First Federal Sav. Bank v. McCubbins, 217 S.W.3d 201, 203 (Ky. 2006) (citations omitted). We review a trial court’s summary judgment ruling de novo. Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C., 436 S.W.3d 189, 194 (Ky. 2013). ANALYSIS 4 Kentucky Rules of Civil Procedure. -9- Appellants present several arguments on appeal. They first contend the trial court erroneously granted summary judgment because Strunk failed to submit sufficient proof to sustain the judgment. As part of this argument, appellants contend the circuit court “strangely relied on the Strunk e-mail with no supporting testimony whatsoever . . . and fail[ed] to credit the undisputed affidavit regarding a dispute over [the] amount owed[.]” We agree. Because we reverse and remand on these grounds, we need not consider appellants’ other arguments at this time. The circuit court inappropriately awarded summary judgment because there were genuine issues of material fact surrounding Strunk’s bonus. The problem in the case sub judice is that Strunk’s final bonus is not a fixed dollar amount, but relies upon EBITA, a corporate accounting calculation. The amount owed by appellants was therefore not immediately obvious. The trial court accepted the dollar amounts provided in Strunk’s email as dispositive of what the appellants actually owed–however, the email does not explicitly mention EBITA. Furthermore, appellants correctly point out the email was one-sided, arguably hearsay, and unsupported by sworn testimony. At the same time, the court disregarded Gallenstein’s sworn affidavit which asserted the figures within the email were in reference to a proposed settlement of Strunk’s claim. In choosing to believe Strunk’s interpretation of what the email signified, the trial court went beyond what was appropriate for summary judgment. “[T]rial judges are to refrain from weighing evidence at the summary judgment stage[.]” Welch v. American -10- Publishing Co. of Kentucky, 3 S.W.3d 724, 730 (Ky. 1999) (citing Steelvest, 807 S.W.2d at 482-83). In its reliance on Strunk’s interpretation of the email, the court also failed to “view the evidence in the light most favorable to the nonmoving party[.]” McCubbins, 217 S.W.3d at 203. The grant of summary judgment was erroneous under these circumstances. CONCLUSION For the foregoing reasons, we reverse the Kenton Circuit Court’s order granting summary judgment entered September 15, 2015, as well as the order amending judgment entered October 9, 2015, and remand for further proceedings consistent with this Opinion. ALL CONCUR. BRIEFS FOR APPELLANTS: BRIEF FOR APPELLEE: Christopher Wiest Crestview Hills, Kentucky Stephen D. Wolnitzek Covington, Kentucky Paul Darpel Crestview Hills, Kentucky -11-
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