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Acquisition Services, Inc. v. Zeller

Court of Appeals of Ohio, Second District

August 9, 2013

JAMES M. ZELLER, ET AL. Defendants-Appellees

Civil Appeal from (Common Pleas Court) Trial Court Case No. 2011-CV-7640

STEPHEN E. KLEIN, Atty. Reg. No. 0014351, Attorney for Plaintiff-Appellant

JOHN M. CLOUD, Atty. Reg. No. 0006262, KELLY A. BENNINGTON, Atty. Reg No. 0082277, JOSEPH C. LUCAS, Atty. Reg. No. 0081336, JOHN R. GLANKLER, Atty. Reg. No. 0089941, Attorneys for Defendants-Appellees



(¶ 1} Plaintiff-Appellant, Acquisition Services, Inc. (Acquisition), appeals from a judgment of the trial court dismissing Acquisition's action against Defendants-Appellees, James Zeller and William Smith. Acquisition contends that the trial court erred as a matter of law in dismissing the action, because Acquisition procured an offer from a ready, willing, and able buyer for the Defendants' business, and the Defendants entered into a purchase contract with the buyer on terms similar to the buyer's original offer.

(¶ 2} We conclude that the trial court did not err in rendering judgment in favor of Zeller and Smith, because there are no issues of material fact regarding their liability on any legal theories that Acquisition presented to the trial court. Accordingly, the judgment of the trial court will be affirmed.

I. Facts and Course of Proceedings

(¶ 3} James Zeller and William Smith have been partners for a number of years in various limited liability companies, including, among others, BJ Building Co., LCC, Griffin Cards, LLC, and Three Sisters, LLC. One of their companies, BJ Building, owned an interest in a building that housed a Hallmark store located at 2100 East Dorothy Lane, Kettering, Ohio.

(¶ 4} When the lease on the Hallmark store ended, Zeller and Smith formed Griffin Cards, LLC (Griffin), for the purpose of purchasing the Hallmark business. They did so because the landlord did not want a vacant space in the building. Zeller and Smith lacked experience in selling greeting cards, and enlisted Cory Morris, the former manager of the Hallmark store, to assist them. They gave Morris a 10% share in Griffin and kept 45% each. Griffin was registered with the Secretary of State as an LLC in March 2006.

(¶ 5} In order to finance the purchase of inventory, Griffin took out a loan of $160, 000 from Liberty Savings Bank (Liberty). Zeller and Smith signed for the loan as owners of Griffin, and also personally guaranteed the loan. In June 2006, Liberty filed a UCC Financing Statement with the Secretary of State, securing its loan to Griffin.

(¶ 6} Griffin incurred other debts, including an open account with Hallmark, which was used to purchase cards. A loan was also taken out in 2006 or 2007 with Park Security National Bank (Park), for about $200, 000. Zeller and Smith personally guaranteed these debts as well.

(¶ 7} By the end of 2008, the business was nearing break-even or was slightly profitable. During 2008, the lease was renewed, and was scheduled to run through 2012. However, the store was carrying too much inventory, and by 2009, the business was losing money. Griffin also owed a substantial obligation to Hallmark. As a result, Griffin began to look for people who might know others with retail experience. One of these people was Kenneth Hattan, who owned Acquisition, a company that offered brokerage services to people seeking buyers for their businesses.

(¶ 8} In May 2009, Griffin and Acquisition signed an "Exclusive Agency Contract, " which provided, in pertinent part, as follows:

1. The UNDERSIGNED hereby agrees to sell through Acquisition Services, Inc., hereinafter referred to as AGENT, as sole and exclusive agent, the business described below, at a price of Six Hundred and Fifty Thousand Dollars $_650, 000_ including all inventory, fixtures, franchise rights, lease assignment, equipment, name, goodwill, and no liability assumptions of the business known as Griffin's Hallmark Shop, in Kettering, Ohio (Business).
2. Terms of sale will be an asset sale free and clear of all debts.
3. The UNDERSIGNED hereby authorizes AGENT to secure a purchaser for the above described business, and to accept a deposit thereon. The UNDERSIGNED agrees to pay AGENT a fee of 6% of the total consideration received for the business. The Fees shall be earned whether the business is sold, exchanged, consolidated, merged, or [sic] purchase of corporate stock in whole or part. As contemplated herein, the transaction is to be structured as an asset sale; however, in the event Sellers and Buyers decide to proceed with a stock sale, exchange, consolidation, or merger, then the fees shall be calculated as if the sale were an asset sale.
4. In consideration of AGENT'S effort to find a purchaser, it is agreed that AGENT shall have "The Sole and Exclusive Right to Sell" said business until December 31, 2009. It is further agreed that AGENT shall be entitled to the commission if the business is sold during the existence of this contract by AGENT or the UNDERSIGNED*[1] or by any other person at any price acceptable to the UNDERSIGNED. AGENT shall also be entitled to the commission if the business is sold within (12) months following the expiration date hereof, or any extension, to any person, persons, or corporation (or anyone acting in behalf of such purchaser) with whom AGENT has had contact relative to the sale of said business during the term of this contract. THE UNDERSIGNED agrees to refer promptly to ASI all contacts including the name, address and telephone number by potential buyers received during the term of this exclusive Agency contract. Such potential buyers shall be included among the contacts for which AGENT shall be entitled to receive a 3% commission in the event of sale within (12) months following of this contract. It is further agreed that AGENT shall be entitled to a commission if an arrangement is made between Seller and a third party intended to lead to a sale but not amounting to a sale during the period of this agency agreement, e.g., an agreement involving employment and/or an option to purchase intended to take effect after the term of the listing agreement.
5. The UNDERSIGNED acknowledges receipt of a copy of this agreement and certifies he is the Owner of said business or the duly authorized agent of the Owner, and that the business is under the management and control of the UNDERSIGNED. Said business will be made available to AGENT for showing at all reasonable times by AGENT, its associates and cooperating agents. Available data, records, and documents relating to the business will be shown or furnished to AGENT upon request. The UNDERSIGNED agrees to commit no act that will tend to obstruct AGENT'S performance hereunder.
* * *
6. AGENT hereby accepts exclusive right-to-sell agency for said business on the terms stated above, and agrees to use discretion and diligence in effecting a sale.

Exhibit A attached to the Complaint. See also, Exhibit 1 attached to the Affidavit of Kenneth Hattan, which in turn is attached to Acquisition's Motion for Extension of Time, Doc. #16; and Exhibit B attached to the Affidavit of Kenneth Hattan, which in turn is attached to Acquisition's Memo Contra Defendants' Motion for Summary Judgment and Motion to Dismiss Complaint, Doc. #31.

(¶ 9} Zeller signed the agency agreement on behalf of Griffin, as a "member." Smith did not sign the agreement in any capacity. Hattan signed the agreement on behalf of Acquisition.[2]

(¶ 10} Hattan then attempted to find buyers for about six months. Two prospective buyers stopped negotiating after they contacted Hallmark and received discouraging comments. In October 2009, Hattan procured additional buyers - Timothy Kleptz and Timothy's wife, Michelle Kleptz - who expressed substantial interest in purchasing the business.

(¶ 11} Around November 3, 2009, Zeller and Hattan met with Mr. and Mrs. Kleptz. At that time, Hattan presented an offer from the Kleptzes. The offer included purchase of all the assets, except cash accounts or accounts receivables, and also included the secured and personally guaranteed liabilities of the business. The buyers offered a purchase price of $1.00, plus the assumption of the lines of credit and the assumption of the accounts payable that the seller had secured or personally guaranteed. In addition, the agreement noted that while a specific dollar amount of indebtedness had not yet been determined, the buyer intended to commit to the assumption of $500, 000 worth of liabilities in completing the transaction. Doc. # 31, Affidavit of Kenneth Hattan, ¶ 13, and Exhibit C attached to the Hattan Affidavit.[3]

(¶ 12} According to Hattan, Zeller delayed accepting the agreement because he wanted to wait until after the busy holiday season when the business would be in a better cash position. Zeller also testified that the parties became considerably more serious about the sale once they got through the Christmas season, which was a very busy period.

(¶ 13} After the November meeting, Griffin's attorney, Mr. Cloud, was contacted about setting up a limited liability corporation and creating documents to reflect a sale transaction. Hattan testified that neither Zeller nor Smith communicated with him for months after the November meeting, despite his frequent attempts to reach them. Zeller stated that discussions with Hattan occurred following the November meeting. However, Zeller later indicated that he did not contact Hattan until after the sale was completed. According to Zeller, Timothy Kleptz was Hattan's "client, " and should have kept Hattan informed about what was going on. Both Zeller and Smith were experienced in signing listing agreements and had attended numerous real estate closings prior to this transaction.

(¶ 14} On January 15, 2010, articles of organization were filed for a limited liability company called Dorothy Lane Hallmark. The owners were Zeller, Smith, and Mr. and Mrs. Kleptz. The purpose of forming this entity was to move the Kleptzes into an organization that would give them participation as members. By January 15, 2010, the parties had reached a meeting of the minds with respect to the sale, which was ultimately consummated on February 15, 2010. Three Sisters Cards, LLC (Three Sisters), was subsequently substituted for Dorothy Lane Hallmark, because the latter name was not acceptable.

(¶ 15} Before the sale was consummated, BJ Properties filed a UCC Filing Statement with the Secretary of State, asserting a security interest in the goods and assets of Griffin in the amount of $200, 000. According to Zeller, BJ had borrowed money from Park in early or mid-2007, and had loaned the money to ...

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