The opinion of the court was delivered by: JOHN PADOVA, District Judge
Plaintiff Cary W. Toner brought this diversity action against
Defendants Tessa R. Miller and William M. Kettler for damages resulting
from Defendants' alleged breach of a contract between the parties.
Defendants have filed an Amended Motion for Summary Judgment pursuant to
Federal Rule of Civil Procedure 56, and the matter has been fully briefed
by the parties. For the reasons that follow, the Court denies Defendants'
Amended Motion for Summary Judgment in its entirety.
The following facts are essentially undisputed. Plaintiff is the former
President, Chief Executive Officer and sole shareholder of a Pennsylvania
corporation known as the Toner Organization. (Toner Dep., Def. Ex. A at
27-28.) Although the Toner Organization operated primarily as an
insurance agency, the company also provided loans to start-up businesses
to fund their initial operating costs. (Id. at 50-51.) In early 1999,
Jack Kettler, who was then serving as the President of the Toner
Organization, advised Plaintiff that his son, Defendant William Kettler,
wanted to form a title insurance company in Ohio, but lacked the
start-up capital. (Id. at 37-38, 42-43.) Jack Kettler asked Plaintiff to
consider loaning his son the start-up capital for this new venture. (Id.)
Plaintiff agreed to meet with Defendant Kettler and his business
partner, Defendant Tessa Miller, to discuss the matter. (Id. at 50.)
During this initial meeting in June 1999, Defendants presented
Plaintiff with a business plan for their new company, Expedient.
(Business Plan, Def. Ex. A-1.) The business plan sought $145,000 in
start-up capital, which Defendants promised to repay "by the end of
fiscal year 2001," and forecast "net profits of over $750,000 by the end
of fiscal year 2002 from an investment of under $150,000." (Id.) The
business plan also offered an equity stake in Expedient to whomever would
agree to provide the start-up capital. (Id.)
On behalf of the Toner Organization, Plaintiff agreed to loan all of
the start-up capital needed to fund Expedient's initial operations.
(Toner Dep., Def. Ex. A at 73.) Plaintiff declined, however, to take an
equity position in Expedient. (Id. at 103-104.) Instead, Plaintiff asked
for an interest in Expedient's profits, if any, as well as sufficient
management rights to be able to monitor and protect his investment.
The parties then drafted a Management Contract to formalize their
agreement. (Id. at 77.) Defendant Kettler's father, Jack Kettler, drafted
the Management Contract. (Id.) The Management Contract provides, in its
entirety, as follows:
This contract, made this 7th day of October, 1999,
between Tessa R. Miller and William M. Kettler
(principals) and Cary Toner (manager), defines the
certain terms the above parties agree to adhere to
with regard to the operation of Expedient Title, LLC
1. This contract will be in effect until one of
the following occurs:
manager terminates said contract.
principals pay manager $1,000,000.00 to
terminate said contract.
ten years elapse, terminating said contract.
2. Manager will have the authority to override
any operating decisions made by principals.
3. Manager will make final decisions on salary
and staffing level increases based on proposals
presented by principals.
4. Initial investment made by manager will be
paid back at an annual percentage rate of 15%.
5. Manager will have the right to 40% of net profit
until the initial investment is repaid at which
time the manager's right to profit will drop to
6. Net profit distribution to principals will
not occur until the initial investment is repaid
except for funds necessary to pay tax liability
incurred as a result of LLC tax laws.
(Management Contract, Def. Ex. B.) After the Management Contract was
signed by the parties, the document was modified by Plaintiff's
accountant, Michael Stewart, who inserted a handwritten amendment noting
that Plaintiff had signed the Management Contract "for Toner
Organization." (Toner Dep., Def. Ex. A at 110-11).
From September 1999 through March 2000, the Toner Organization loaned
Defendants approximately $79,126.55 in start-up capital, pursuant to a
series of funding requests that Defendants submitted to Steven Rickel,
Chief Financial Officer of the Toner Organization. (See Pl. Ex. 1-3.)
Although the initial checks issued by the Toner Organization were made
payable to Defendants personally, Defendants subsequently requested that
the Toner Organization make checks payable to Expedient. (See Pl. Ex. 2;
Toner Dep., Def. Ex. A at 148.) Defendants, who are the sole members and
owners of Expedient and control all of its day-to-day operations, used
this money to pay their own salaries, for office furniture and supplies,
and for other related expenses. (See Pl. Ex. 3.) While monthly status
reports and projections were transmitted to the Toner Organization by
Expedient for some period of time following the signing of the Management
Contract, Plaintiff never reviewed the personal financial information of
either Defendant. (Toner Dep., Ex. A at 94-95.)
On April 17, 2001, Defendants began repaying the initial loan by making
out a $5,000 check payable to the Toner Organization. (See Pl. Ex. 4.) On
May 17, 2001 and June 6, 2001, Defendants submitted loan repayment
checks, made payable to the Toner Organization, in the respective amounts
of $2,500 and $10,000. (Id.) On June 27, 2001, the Toner Organization
sold most of its assets to BISYS Insurance Services, Inc. ("BISYS")
pursuant to a
Stock Purchase Agreement between BISYS, the Toner Organization, and
Plaintiff. (See Stock Purchase Agreement, Pl. Ex. 6.) Pursuant to Section
4.14(a) of the Stock Purchase Agreement, Plaintiff personally purchased
the Toner Organization's rights under the Management Contract from the
Toner Organization for $79,126.55. (See id.) Defendants thereafter made
their loan repayment checks payable to Plaintiff, rather than the Toner
Organization. (See Pl. Ex. 4.)
By March 2002, Defendants had fully satisfied their obligation under
the Management Contract to pay off the initial loan amount, thus reducing
Plaintiff's profit interest to 30 percent. (See Pl. Ex. 7.) On August
27, 2002, Defendants issued a check to Plaintiff in the amount of
$40,589.20, representing his 40 percent share of Expedient's profits for
2001. (Pl. Ex. 8.) All of the loan repayment and profit-share checks
written to the Toner Organization and Toner during this period were
signed by either Defendant Kettler or Defendant Miller or both, and paid
out of Expedient's accounts. (See Pl. Ex. 3.) Plaintiff made no
complaints with respect to the payments by Defendants being drawn from
Expedient's accounts. (Toner Dep., Def. Ex. A. at 148-49.)
By August 2002, Defendants had become interested in buying out
Plaintiff's profit interest and management rights in Expedient under the
Management Contract. (See Pl. Ex. 8.) On or about February 4, 2003,
Plaintiff and Expedient executed a
Confidentiality Agreement, which was signed by Plaintiff and, on behalf
of Expedient, by Defendants. (See Confidentiality Agreement, Def. Ex.
A-2.) The Confidentiality Agreement facilitated the exchange between
Plaintiff and Expedient of "certain confidential knowledge and
information about Expedient" so that the parties could "examine the
feasibility of the termination of the document entitled `Management
Contract' dated October 7, 1999. . . ." (Id.)
The financial data that Expedient subsequently disclosed to Plaintiff
pursuant to the Confidentiality Agreement raised concerns to him about how
Defendants had been running Expedient, and whether they had satisfied
their obligations to pay a percentage of the company's profits to him.
Plaintiff's accountant, Mr. Stewart, sent a spreadsheet of allegedly
questionable "business" expenses totaling $15,360.41 to Defendants'
accountant, Brian Long, for explanation. (See Pl. Ex. 9; Long Dep., Pl.
Ex. 10 at 105-06.) Mr. Long shared the spreadsheet with ...