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Fugmann v. Detmer

United States District Court, E.D. Kentucky, Central Division

July 17, 2019

CHRIS FUGMANN, Plaintiff,
v.
DANIEL DETMER, et al., Defendants.

          ORDER & OPINION

         Before the Court are cross-motions for summary judgment. [DE 43; DE 44.] Plaintiff Chris Fugmann has moved for partial summary judgment on his breach of contract, equitable estoppel, fraud in the inducement, and promissory estoppel claims. [DE 43.] Defendants Daniel Detmer and C2 IT, LLC d/b/a Nelson Comfort, on the other hand, have jointly moved for summary judgment on all claims presented against them. [DE 44.] For reasons stated below, the Court: (1) DENIES Plaintiffs motion for partial summary judgment [DE 43]; and (2) GRANTS in part and DENIES in part Defendants' joint motion for summary judgment. [DE 44.]

         BACKGROUND

         Climate Control, Inc. is a Lexington-based HVAC company that services both residential and commercial properties. Plaintiff Chris Fugmann purchased Climate Control from his father in 1992 and ran the company for two decades before selling it to Defendant C2 IT, LLC d/b/a Nelson Comfort in 2013. [DE 44-4.] Nelson Comfort is a regional HVAC company owned and operated by Defendant Daniel Detmer. It is this 2013 transaction that brings the parties before the Court today.

         Fugmann first considered selling Climate Control back in 2010. [DE 44-6, at 18.] To that end, he hired Carrol and Company, a local business broker. [DE 44-6, at 18.] Carrol and Company connected Fugmann and Detmer (the owner of Nelson Comfort) and the two began discussing a potential sale. These initial conversations were very informal. [DE 44-2, at 14] (Detmer noting that the original conversations were "wide and varied"); [DE 44-6, at 22] (Fugmann describing the discussions as "very general"). At some point Detmer had an appraisal performed on Climate Control, which yielded multiple values ranging from $870, 000 to $1, 100, 000. [DE 44-2, at 19.] From this point forward, the discussions took a more serious tone.

         On December 28, 2011, Fugmann sent Detmer a letter offering to sell Climate Control outright at a price of $1, 750, 000, plus half of the brokering commission. [DE 43-4, at 2.] Fugmann asserted that the above-appraisal price was justified, noting Climate Control's future revenue stream and the fact that he had received more lucrative offers in the past. [DE 43-4, at 2.] Fugmann then went on to list his preferences concerning the deal structure. He wanted half of the purchase price up paid up front, with the remaining balance financed over a period of six to eight years. Lastly, Fugmann indicated that he was willing to stay on after the transaction to ease the ownership transition and to help Detmer "sell, sell, sell." [DE 43-4, at 3.] Detmer declined the offer, but the two continued to negotiate.

         By the spring of 2012, Fugmann had lowered his asking price to $1, 600, 000. [DE 44-6, at 23.] While Detmer was more receptive to this figure, he was concerned that an inflated purchase price might impact his ability to secure funding for the deal. On May 20, 2012, Detmer sent Fugmann an email detailing a meeting with a potential financier. [DE 43-5.] Though Detmer did not reveal the name of the financier, he indicated that it was an individual rather than a traditional lending institution. Detmer stressed to Fugmann the financier's belief that his $1, 600, 000 asking price was too high. [DE 43-5, at 2.]

         Similarly, on January 8, 2013, Detmer notified Fugmann that Nelson Comfort's Board of Advisors had counseled against paying $1, 600, 000 for Climate Control. [DE 43-6, at 2.] Detmer told Fugmann that, based on the "hard numbers" and the appraisal figures, his Board believed that Climate Control was worth closer to $1, 200, 000 to $1, 300, 000. [DE 43-6, at 2.] The Board, Detmer explained, was particularly troubled by Climate Control's revenue, which had dropped almost 25% over the previous year. Nevertheless, Detmer advised that he had "decided to override" the Board's input and was going to try to get as close to Fugmann's $1, 600, 000 figure as possible. [DE 43-6, at 2.]

         Meanwhile, Detmer pursued financing for the deal. One of the financing options was a Small Business Administration ("SBA") loan. In the simplest of terms, the SBA offers a program whereby the federal government guarantees loans extended by private lenders to small companies. Because the loan is guaranteed by the government, the lenders are able to offer flexible terms and lower interest rates.

         In January 2013, Detmer sent Fugmann a lengthy document highlighting complications with the SBA loan application process. [DE 43-7, at 5.] Detmer explained that in accordance with its underwriting procedure, the SBA would perform its own valuation of Climate Control and review the final draft of the APA. Detmer's "biggest concern" was that the government would decline the loan based on the large "air gap" between the predicted valuation and the $1, 600, 000 purchase price. Put differently, Detmer thought the SBA would reject the amount of goodwill being attributed to Climate Control.

         Based on these concerns, Fugmann alleges that the parties tentatively agreed to structure the deal with a $1, 400, 000 purchase price and a separate $200, 000 obligation. [DE 44-6, at 27.] Though Detmer disputes this characterization, the record tends to support Fugmann's narrative.

         On February 10, 2013, Fugmann sent Detmer an email rehashing a conversation that had taken place with one of his attorneys. [DE 43-10.] Importantly, Fugmann relayed his counsel's belief that payment for the "final 200k" would best be accomplished through an employment agreement. [DE 43-10, at 3.] Detmer responded, stating that an employment agreement "made sense" and promised to draft the document. [DE 43-10, at 3.]

         On or about February 11, 2013, Detmer sent Fugmann a document ("the Employment Agreement") which provided that following the sale of Climate Control, Fugmann was to work for Nelson Comfort as a "business consultant." In return, Fugmann would receive $200, 000 paid out in monthly installments over a two-year period (from April 1, 2013 to April 1, 2015). [DE 43-11, at 2-3.] The Employment Agreement further noted that the purpose of the agreement was "for Chris Fugmann to easily assist in the transition of ownership from Chris to Dan and allow for an easy transfer of information." [DE 43-11, at 2.] That said, the Employment Agreement made clear that there were no set requirements for Fugmann to complete. Nor were there any attendance expectations. Rather, Fugmann could provide his consulting services from "any venue." [DE 43-11, at 2.] The record, however, reveals that the Employment Agreement sent to Fugmann was never executed by the parties.

         On February 12, 2013, Fugmann's attorneys sent him a memorandum providing detailed feedback on the most recent APA draft and the deal in general. [DE 43-13, at 2.] Fugmann then passed along the memorandum to Detmer. On February 14, 2013, Detmer sent Fugmann an email addressing each point raised by Fugmann's attorneys in the memorandum. [DE 43-14.] Some of the attorneys' comments-along with Detmer's responses-are worth mentioning.

         It was Fugmann's attorneys' understanding that a chunk of the purchase price might "be paid to [Fugmann] in a separate obligation for the principal amount of $200, 000." [DE 43-13, at 2.] Detmer's corresponding response was "Yes," indicating that he agreed to the attorneys' characterization. [DE 43-14, at 2.] In another comment, the attorneys mention an "Obligation No. 3" that "may be tied to a separate Employment Agreement." [DE 43-13, at 3.] A consideration schedule attached to the memorandum makes clear that "Obligation No. 3" referred to a payment of $200, 000 independent of the $1, 400, 000 purchase price, lease agreement, and commission payments that Fugmann would be receiving. [DE 43-13, at 12.] Detmer did not object to the comment, instead remarking that he did not have any issues with keeping a 0% interest rate on the $200, 000 obligation. [DE 43-14, at 2.] Lastly, Fugmann's attorneys observed that, based on the language of the APA, Nelson Comfort would receive a partial month of free rent at the beginning of its lease term. Fugmann's attorneys counseled that the arrangement was "unusual" and "unfair." [DE 43-13, at 8.] In response to this comment, Detmer proclaimed: "[I]s he kidding. . . . We are working on a $1, 600, 000 purchase agreement with a $360, 000 lease agreement and compensation package that will net out to well over $2, 000, 000" [DE 43-14, at 3.]

         On February 22, 2013, Fugmann forwarded Detmer another email that he had received from his attorneys. [DE 43-15, at 2.] The attorneys' email cautioned that while Fugmann and Detmer had apparently reached an understanding concerning an additional $200, 000 obligation, there was not a written document to that effect. Detmer replied to the forwarded email that very same day. In response to Fugmann's attorneys' statement that they had not seen a draft of the Employment Agreement, Detmer noted: "I have given you a copy of the employment agreement. Although it is very simplistic, I do believe it is binding. Please confirm." [DE 43-15, at 2.] Later in the email he also remarked: "You do have an employment agreement." [DE 43-15, at 2.]

         By March 2014, Detmer had abandoned the prospect of an SBA loan and had decided instead to seek traditional financing. [DE 44-2, at 52.] Because the parties agreed that $700, 000 of the purchase price was to be owner-financed, Detmer only needed to secure a loan for the remaining balance. After negotiating with multiple lenders, Detmer eventually struck a deal with First Financial Bank for a loan of $700, 000 and a $250, 000 line of credit. [DE 44-2, at 70.] In his deposition, Detmer could not recall whether he alerted Fugmann to the fact he chose to finance the deal without the help of an SBA loan. Nor could he remember whether he notified Fugmann that he was able to procure the additional $250, 000 line of credit.

         On March 3, 2013, three days before the deal closed, Detmer sent Fugmann an email suggesting that the parties could mitigate the 5% brokering commission by reallocating the purchase price. [DE 43-16, at 2.] Rather than a "1.4 million purchase price with a 200, 000 employment agreement," Detmer recommended a structure that included a $700, 000 purchase price with a $900, 000 employment agreement. [DE 43-16, at 2.] This reallocation, according to Detmer, would result in a brokerage fee of $35, 000 instead of $70, 000. [DE 43-16, at 2.]

         Fugmann and Detmer finally executed the APA on March 6, 2013. The APA spelled out the parameters of the transaction, including Fugmann's employment as a commission-based salesman and his covenant not to compete. [DE 44-4, at 4.] The APA also included an integration clause that stated:

This Agreement supersedes all prior agreements, arrangements or understandings between the parties with respect to the subject matter hereof and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to said subject matter. This Agreement may not be amended except by a written agreement executed by all the parties hereto.

[DE 44-4, at 16.] The APA did not, however, mention the Employment Agreement or the $200, 000 that had been discussed by the parties throughout the negotiation process.

         Following the execution of the APA, Fugmann worked as a commission-based salesman for Nelson Comfort for five years (through the end of his non-compete agreement). Though the parties envisioned a smooth transition, it appears that Fugmann and Detmer's working relationship was severely strained. A December 16, 2016 email underscores this tension. That day, Detmer sent a message notifying Fugmann that he owed the company over $2, 000 because of a loss sustained on a customer contract. [DE 43-17, at 4.] Detmer offered to deduct the amount from Fugmann's commission check but Fugmann refused. [DE 43-17, at 3.] Instead, Fugmann told Detmer to take the amount off the $200, 000 that Detmer purportedly agreed to when purchasing Climate Control.

         In response, Detmer asked Fugmann to provide documentation of the alleged agreement. [DE 43-17, at 2.] Detmer further claimed that he did not remember discussing the $200, 000 obligation as part of the Climate Control deal and suggested that it might have been part of Fugmann's negotiations with another potential buyer. [DE 43-17, at 2.]

         The December 2016 email thread is the only documented instance where Fugmann brings the Employment Agreement to Detmer's attention. Yet, Fugmann insists that it was not the only time the subject was broached. For one, Fugmann claims that in May of 2013, he and Detmer discussed money owed on some of Climate Control's vehicles. According to Fugmann, he acknowledged that he was responsible for the payments under the APA and requested that Detmer simply deduct the amount from the $200, 000 outlined in the Employment Agreement. Detmer supposedly refused the proposal, opting instead to deduct the money from the $700, 000 note he was paying on. [DE 88, at 127.] Though Detmer confirmed that the vehicle payments were deducted from his note, he does not recall Fugmann ever asking to deduct the amount from the Employment Agreement. [DE 44-2, at 100] ("I do not recall that.").

         Additionally, Fugmann proclaims that he and Detmer discussed the Employment Agreement at Climate Control's Christmas Party in 2017. Though he could not remember the exact words, Fugmann recalls Detmer acknowledging the Employment Agreement and promising to honor it. [DE 44-6, at 97.] Detmer concedes that the parties spoke during the Christmas Party. His account of the conversation, however, is much different than Fugmann's. Detmer maintains that while he said something to the effect of "I'm sure we can work something out," he did not make any commitments to Fugmann regarding the $200, 000. [DE 44-2, at 108.]

         Fugmann resigned from Nelson Comfort in March 2018 at the termination of his five-year non-compete period. Though no longer working for Detmer, Fugmann continued to demand the $200, 000 outlined in the Employment Agreement. When Detmer refused to pay, Fugmann filed the instant action in Fayette Circuit Court. The Complaint names both Detmer and Nelson Comfort as Defendants and asserts various Kentucky common law claims. Fugmann seeks $200, 000 under the Employment Agreement, along with compensatory damages for fraud, punitive damages, and attorneys' fees. Detmer and Nelson Comfort removed the action to this Court on May 14, 2018.

         ANALYSIS

         The parties have now submitted cross-motions for summary judgment. Plaintiff Chris Fugmann moves for partial summary judgment on his breach of contract, equitable estoppel, fraud in the inducement, and promissory estoppel claims. [DE 43.] Defendants Daniel Detmer and Nelson Comfort, in turn, have filed a joint motion for summary judgment on all claims presented against them. [DE 44.]

         I. ...


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