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Heath Wallace, D.D.S., LLC v. Kalniz, Choksey Dental-Ralston, Inc.

Court of Appeals of Ohio, Sixth District

July 5, 2013

Heath Wallace, D.D.S., LLC, et al. Appellants
Kalniz, Choksey Dental-Ralston, Inc., et al. Appellees

Court of Appeals No. WD-12-048 Trial Court No. 10 CV 934

Martin J. Holmes, Sr. and Martin J. Holmes, Jr., for appellants.

Roy Hulme and Michelle J. Sheehan, for appellees.



{¶ 1} Appellants Heath Wallace, D.D.S. and Health Wallace, D.D.S., LLC (collectively referred to as "Wallace") timely appeal the December 7, 2011 and August 13, 3012 judgments of the Wood County Court of Common Pleas granting summary judgment to appellees Kalniz Choksey Dental-Ralston, LLC, Kalniz Choksey Dental Services, Inc., Dental Logic, LLC, Kalniz Choksey Dental-Bowling Green, LLC, Scott Kalniz, D.D.S., Alap Choksey, D.D.S., and Kalniz Choksey, LLC, and striking the report and affidavit of his expert witness, Dr. Malcolm Cohen. We find that the trial court properly granted summary judgment to appellees on Wallace's breach of contract claims and in striking Wallace's expert's report and affidavit, but erred in granting summary judgment on Wallace's fraud claim. Accordingly, we affirm in part and reverse in part.

A. Factual Background

{¶ 2} Heath Wallace, D.D.S. is a dentist who has been practicing since 2005. Upon his graduation from the Ohio State University's dental program, he purchased a practice in Weston, Ohio, near Bowling Green, Ohio from a retiring dentist. In late 2007, Dr. Wallace was introduced by Dr. George Namay to Dr. Scott Kalniz, a dentist affiliated with a larger group called Corner Dental. Kalniz planned to expand the group and expressed interest in buying Wallace's practice as part of that expansion plan. Having realized that he did not enjoy the business aspect of running a dental office, Wallace was interested in this prospect. On December 13, 2007, the parties executed a confidentiality and nondisclosure agreement so that they could further explore the potential of Corner Dental acquiring Wallace's practice.

{¶ 3} On May 5, 2008, appellees filed articles of organization to create a new LLC called Kalniz Choksey Wallace Dental, LLC-Bowling Green. Following the creation of this LLC, on May 30, 2008, appellees presented Wallace with a written offer prepared by their attorney, Mark Abramson, contained within an asset purchase agreement, employment agreement, operating agreement, and subscription agreement. Under these agreements, Wallace would be an owner-operator of the office, which would be managed by Dental Logic, a separate company co-owned by Kalniz. Wallace's attorney, Andrew Spitler, reviewed those agreements.

{¶ 4} On June 2, 2008, Kalniz signed a lease on behalf of Kalniz Choksey Wallace Dental-Bowling Green to begin construction of the Bowling Green dental practice. In the meantime, the agreements were still in Spitler's hands. On June 23, 2008, Abramson e-mailed Spitler urging him to complete his review of the agreements because "we really need to bring this to closure." Spitler offered revisions and on July 9, 2008, Abramson e-mailed Spitler attaching revised agreements. Abramson told Spitler: "if these changes meet with your approval, please advise and we can finalize the documents for execution." The next day, Spitler told Abrahamson to prepare the final versions.

{¶ 5} There were certain terms contained within the agreements that were important to Wallace. For example, Wallace negotiated a four-day work week and would work no weekends or holidays. His salary was to be $156, 000 with a 30 percent commission after collecting fees in excess of twice his salary. He would be permitted to treat specified family members at no charge. And the agreement contained a very narrow termination clause, essentially limiting the grounds for termination to illegal conduct, licensure problems, or failure to abide by the terms of the parties' contract. Wallace would be an owner-operator of the new office.

{¶ 6} There were also several items that were missing in the agreements, and there were a number of inconsistencies among the various agreements: (1) the asset purchase agreement, employment agreement, and operating agreement did not specify an effective date; (2) the asset purchase agreement stated that a closing would occur at Abramson's office, but did not specify a closing date; (3) the operating agreement stated that Wallace would have a 49 percent interest but did not specify the amount of his initial capital contribution; (4) the subscription agreement allocated 25 percent interest to Dr. Wallace while the operating agreement allocated 49 percent; and (5) the subscription agreement required Wallace to make a contribution to the company of "three hundred thousand dollars ($100, 000) [sic]" while the operating agreement did not state an initial contribution but said "to come."

{¶ 7} Despite these inconsistencies and missing terms, on July 23, 2008, Wallace signed the agreements and Spitler sent them to Abramson, along with many of the documents that appellees required Wallace to deliver, including lists of excluded office furniture, fixtures, and personal items; tax returns; copies of licenses; copies of insurance policy declarations; copy of an X-ray equipment lease agreement; Wallace's patient demographics and numbers with a promise that a CD of 350 pages containing Wallace's patient list would be delivered; bill of sale and assignment of Wallace's equipment to the new LLC; list of family members to whom Wallace was permitted to provide free dental services; seller's consent to use Wallace's persona for marketing; management and services agreement; IRS form 8594; and notice of transfer of X-ray equipment.

{¶ 8} After receiving the executed agreements from Wallace, Abramson brought them to Kalniz' house to be executed. Kalniz was going to be out of town for several days. He executed the agreements so Abramson could supply the missing terms and finalize the documents while Kalniz was away. He instructed Abramson to retain the agreements until the additional terms were finalized. Wallace requested copies of the executed agreements and was assured that they were forthcoming.[1]

{¶ 9} Sometime around July, appellees hired a new business manager, Stuart Michael Schwartz. Schwartz became a point of contact on the Wallace acquisition. On August 4, 2008, Abrahamson emailed Schwartz, telling him "the only real issue open is the allocation. [Wallace] is being acquired for $350, 000, and the remaining issues deal with how much he will need to contribute back. * * * [O]nce he has the numbers (or meets with Stu) it seems likely the only thing left is to close."

{¶ 10} On September 24, 2008, appellees held a congratulatory party at Wallace's office, at which time they brought a celebratory cookie cake and informed Wallace's staff about the upcoming acquisition for the first time. That day, Wallace gave Kalniz his list of clients and demographics. Approximately three weeks later, Wallace paid his staff to attend training at one of appellees' offices. Appellees had Wallace photographed in Corner Dental attire for publicity purposes and they placed a phone book advertisement indicating that Wallace was with Corner Dental.

{¶ 11} Despite Wallace's belief that the parties' plans were moving forward, on December 1, 2008, without Wallace's knowledge, Kalniz and Choksey signed a document entitled "Operating Agreement of Kalniz Choksey Wallace Dental-Bowling Green, LLC to be known as Kalniz Choksey Dental-Bowling Green, LLC." On December 11, 2008, appellees filed a certificate of amendment with the secretary of state, changing the name of the new LLC to Kalniz Choksey Dental-Bowling Green, LLC, thus removing Wallace's name.

{¶ 12} Around this time, Wallace was informed that appellees now had different ideas about the terms of the agreements. On December 8, 2008, Schwartz communicated to Wallace that appellees had concerns with a number of key terms contained in the original agreements and intended to amend those terms. Revised agreements were provided to Wallace in mid-December. Under the revised terms, he would no longer have any ownership interest. He would be required to work five days a week and some weekends and holidays. His salary would be $180, 000 per year, but the threshold for commission payments increased to collected fees exceeding $500, 000, and the commission rate decreased. In addition, Wallace could be terminated if his fee receipts did not exceed $500, 000, "for convenience, " or for other unspecified reasons constituting "cause." He would have to re-pay the $350, 000 purchase price if he did not meet his $500, 000 goal. If he terminated the employment agreement in years 1 through 5, he would be required to pay back incremental portions of the purchase price. He would be liable for liquidated damages if the employment agreement was terminated before its five-year expiration. His non-compete agreement was extended from one year to two years. And he lost a number of other benefits granted under the original agreement, such as the ability to treat family members for free.

{¶ 13} On Christmas Eve, appellees contacted Wallace, insisting that he make a decision about whether to accept the new terms they proposed. Wallace declined to accept those terms. Negotiations ceased and on January 20, 2009, Abramson formally advised Spitler that his clients were no longer interested in acquiring Wallace's practice. Corner Dental opened its Bowling Green office without Wallace.

B. Procedural History

{¶ 14} Wallace filed his complaint on September 30, 2010, against Kalniz Choksey Dental-Ralston, LLC, Kalniz Choksey Dental Services, Inc., Dental Logic, LLC, and Kalniz Choksey Dental-Bowling Green, LLC alleging breach of contract, deceptive trade practices, and business interference. Wallace later amended his complaint to add claims for conversion and fraudulent misrepresentation and added Scott Kalniz, D.D.S., Alap Choksey, D.D.S., and Kalniz Choksey, LLC as defendants.

{¶ 15} On September 23, 2011, Wallace filed a motion for summary judgment on his breach of contract claims. Appellees filed a cross-motion on all counts. In an order dated December 7, 2011, the trial court denied Wallace's motion and granted appellees' motion as to the breach of contract claims, but denied the motion as to Wallace's tort claims. The court found that no contract had been formed because the agreements were missing essential terms, the exhibits to the asset purchase agreement were not attached, no closing took place, Heath Wallace, D.D.S., LLC continued to do business and to employ Wallace, Wallace did not receive paychecks from Kalniz Choksey Dental-Ralston, Inc., and the capital contribution schedule and subscription agreements were incomplete or contradictory. The court concluded that the agreements were merely drafts.

{¶ 16} Appellees filed a second motion for summary judgment on March 2, 2012, on Wallace's tort claims. On July 13, 2012, they moved to strike Wallace's affidavit filed with his opposition brief, as well as the report and affidavit of Dr. Malcolm Cohen, Wallace's expert economist, also attached to Wallace's opposition brief The court granted the motion to strike Wallace's affidavit as to paragraphs 11 through 15. In its August 13, 2012 order, it granted the motion to strike Dr. Cohen's report and affidavit, reasoning that Dr. Cohen was not qualified under Evid.R. 702(B) and the assumptions on which his loss calculations were based were speculative and unreliable. The court also granted appellees' motion for summary judgment on Wallace's remaining claims, concluding, among other things, that Wallace had not created a genuine issue of material fact as to the damages element of his fraudulent misrepresentation claim.

{¶ 17} Wallace now appeals the trial court's orders and assigns the following errors for our review:

I. The trial court erred in granting summary judgment on the first cause of action when it concluded that no contract had been formed.
II. The trial court abused its discretion in disqualifying the expert testimony of Malcolm Cohen.
III. The trial court erred in granting summary judgment on the second cause of action when it concluded that there was no genuine issue of material fact as to ...

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