David L. Swartz, et al.,

Appellants,

V.

Try Hours Inc,

Appellees.

IN THE SUPREME COURT OF OI-IIO

07-0813.. _ .., _

* On Appeal from the Lucas County* Court of Appeals, Sixth Appellate District** Court of Appeals Case No. L-06-1077*****

4

*

MEMORANDUM IN SUPPORT OF JURISDICTION OF APPELLANTS DAVID L.SWARTZ, CHRIS MOREY, JOHN MUELLER AND PREMIUM TRANSPORTATION

LOGISTICS, LLC

Todd M. Zimmerman (0068112) (COUNSEL OF RECORD)Nicholas J. Cron (0022290)J. Mark Trimble (0046515)Rohrbachers Light Cron& Trimble Co., L.P.A.405 Madison Avenue, 8th FloorToledo, Ohio 43604-1243Telephone (419) 248-2600Fax (419) 248-2614

COUNSEL FOR APPELLANTS, DAVID L. SWARTZ, CHRIS MOREY, JOHN MUELLERAND PREMIUM TRANSPORTATION LOGISTICS, LLC

David W. Zoll (0008548)Pamela A. Borgess (0072789)Zoll & Kranz, LLC6620 W. Central AvenueToledo, Ohio 43617Telephone (419) 841-9623Fax: (419) 841-9719

COUNSEL FOR APPELLEE TRY HOURS, INC.

TABLE OF CONTENTS

Paee

EXPLANATION OF WHY THIS CASE IS OF PUBLIC OR GREATGENERAL INTEREST ...... .................................................

STATEMENT OF THE CASE AND FACTS ............................. 4

ARGUMENT IN SUPPORT OF PROPOSITIONS OF LAW .......... 7

Proposition of Law No. I: In a claim for tortiousinterference with a business contract, a Plaintiff mustbase its damages on its own lost revenues and profits........ 7

Proposition of Law No. II: Damages based upon a"general business rule of thumb" for customer turnoverrates are speculative where a particular ongoing businesshas its own historical turnover rate and is in a readilyidentifiable industry ................................................. 9

CONCLUSION ... ............................................................. 13

PROOF OF SERVICE ......................................................... 14

APPENDIX Anpx. Page

Decision and Judgment Entry of the Lucas County Court ofAppeals (March 23, 2007) ............................................ A-1

Opinion and Judgment Entry of the Lucas County Court ofCommon Pleas (Feb. 1, 2006) ........................................ B-1

EXPLANATION OF WHY THIS CASE IS A CASE OF PUBLIC OR GREAT GENERALINTEREST

This case presents two very critical issues that may impact any Ohio citizen or business

faced with a claim of tortious interference with a business contract or any claim that involves lost

profits. First, whether contrary to past precedent, damages in a claim for tortious interferencel

with a business contract can be calculated based off of the tortfeasor's revenues, as opposed to an

evaluation of whether the plaintiff has even lost revenues and ultimately profits. Second,

whether damages for an ongoing business in a very defmable industry with extensive prior

financial history and a turnover rate capable of being calculated are speculative when based on a

"general business rule of thumb." The Court of Appeals' decision in this case unfortunately

permits both, thereby eroding what is required to demonstrate lost profits.

The current Court of Appeals' decision will have a negative impact in tortious

interference cases by permitting a plaintiff to base its lost profit damages not on the amount of

revenue or profit the plaintiff lost, but instead based off of the perceived amount of revenues the

tortfeasor gained. The current decision also increases the risk of an improper damages award in

a claim for lost profits by holding that damages are not speculative when based on a "general

business rule of thumb" for customer turnover rates, as opposed to using a turnover rate based

upon a plaintiff's actual, calculable turrtover or at minimum a turnover rate of a particular

industry. Thus, if left unaddressed, the Court of Appeals' decision will stand for the proposition

that very general rules of thumb are sufficient to substantiate lost profit estimates. The decision

will also stand for the proposition that in a tortious interference case for lost profits, the plaintiff

I Appellants are asserting in their first proposition of law only that Appellant/PTL's revenues arenot proper to examine in the context of a tortious interference of business contract case and thatthe Trial Court's summary judgment as to that particular cause of action should be reinstated.Appellants are not claiming this argument applies to the other causes of action such asmisappropriation of trade secrets, etc.

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is not even required to consider whether it lost revenues and thereby actually lost profits.

Certainly neither of the above holdings makes sense, nor are they consistent with precedent in

Ohio. Therefore the case presents issues of public or great general interest and merits this

Court's review and ultimately reversal.

In this case, Appellee Try Hours, was an over the road trucking company in business

since the 1980's. Appellants David Swartz, Chris Morey and John Mueller all worked for Try

Hours and at separate times left their employment to start and co-own Appellant Premium

Transportation Logistics, LLC (hereinafter PTL). In forming the company, PTL was essentially

engaged in the same trucking business or industry. Subsequent to Swartz, Morey and Mueller

leaving their former employment, Try Hours brought the present action against the Appellants,

including claims of tortious interference with a business contract, breach of common law

fiduciary duties, conversion, misappropriation of trade secrets, unfair competition, violations of

the Ohio Uniform Trade Secret Act and punitive damages.

In pursuing its case, the Appellee presented an expert who calculated his estimate of

damages for tortious interference not on the Appellee's own revenue numbers and in turn lost

profits, but instead based on PTL's revenues. The Trial Court properly held that damages in a

tortious interference case must be based off of a plaintiff's own lost profits, not the defendant's

revenue numbers. The Trial Court also properly held that the Appellee's damage calculations

were speculative and not based upon reasonable certainty because there was no basis for Try

Hours' expert's assumption that the customers included in the damages calculation would remain

with or generate additional revenues. The Appellate Court then reversed the summary judgment

decision citing that where a plaintiff in a tortious interference case claims lost profits instead of

unjust enrichment as the basis for its damages, it does not need to use its own revenues and

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profits to calculate damages but instead may do so based on the tortfeasor's revenues. The

Appellate Court then held that, despite numerous uncertainties in Try Hour's expert's calculation

of damages for all causes of action (except punitive), the lost profits calculated were not

speculative and were reasonably certain such that summary judgment was not appropriate. In so

doing, the Appellate Court hung its hat on the fact that Plaintiff's expert had considered a

"general business rule of thumb" of twenty percent for a customer turnover rate.

In light of the above, it is clear that the Appellate Court's ruling has taken precedent

requiring a plaintiff to base its damages in a tortious interference case on its own lost revenues

and profits and thrown it out the window. As absurd as it might sound, the Court has essentially

held that to avoid having to demonstrate its own lost revenues and profits as damages, a plaintiff

merely needs to claim "lost profits" as opposed to "unjust enrichment" in its Complaint.

Certainly it makes no sense to have a standard in tortious interference cases whereby to avoid the

need to demonstrate lost revenues and profits, one simply needs to claim to have "lost profits."

Solid logic would dictate that a case where lost profits were claimed as damages would be the

exact case where a plaintiff should be required to demonstrate it lost revenues and profits, not

simply that the alleged tortfeasor had revenues. Thus, it is critical that this Court address this

matter to clarify the permissible methodology to demonstrate damages in a tortious interference

case.

It is further critical that this Court address the fact that damages that are otherwise

speculative, can be afforded "reasonable certainty" status when based on a general business rule

of thumb. More specifically, where an expert bases his damages calculation not upon a historical

turnover rate of the Appellee's business or even a documented turnover rate in that industry, but

instead on some "general business rule of thumb" the damages are speculative. Essentially, the

3

Court of Appeals has held that it is not speculative to calculate damages by applying a very

general customer turnover rate to an ongoing trucking business, where that rate is broad enough

to include tumover of fairgoers to fairs, fast food patrons to restaurants, children and parents to

daycare centers and grocery shoppers to grocery stores. Under the category "general business"

certainly all the businesses listed above are considered. Unquestionably however, there are

different factors that apply to customer loyalty for all the industries listed above and thus to

simply apply a "general business" turnover rate to any of those businesses or the trucking

industry to calculate lost profits would be to speculate. At a minimum an industry specific

turnover rate must be used and more appropriately the historical tumover rate of the Appellee

must be used to meet the standard of reasonable certainty. Thus, this Court cannot allow a

holding to stand that permits general business "rules of thumb" to be applied to specific

industries, ignoring actual historical data, and meet the standard of reasonable certainty. For that

reason it is of great public importance and interest that this Court address the standard set by the

Court of Appeals decision.

STATEMENT OF THE CASE AND FACTS

Appellee was formed in the 1980's by Tim Wojkiewicz under the name of Try Hours,

Inc. The Company provides shipping (i.e. trucking) services to customers. Appellant Chris

Morey was employed by Appellee in 1993 with job responsibilities including operations,

recruitment, orientation, and training the drivers. Mr. Morey resigned in March 2003. Appellant

John Mueller was employed by Appellee in 1995 as Safety-Director, which included recruiting

and orientation of drivers, accident investigation, insurance-related tasks and log auditing. Mr.

Mueller resigned in October 2001. Appellant David Swartz was employed by Appellee in

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October 1993 as Sales Representative and later as Sales Manager. Mr. Swartz resigned

September 18, 2003.

In order to preserve their employment, sometime after their employment began,

Appellants were required by Appellee to execute a non-compete agreement. Eventually,

Appellants, Mueller, Morey and Swartz, decided to form their own trucking company under the

name of Premium Transportation Logistics (PTL). At the time of formation of PTL, John

Mueller was no longer employed by Appellee and had not been employed with Appellee for

more than a year, the time period specified in the Covenant Not to Compete.

Appellants Morey and Swartz remained employed by Appellee after PTL was formed,

but took no action during their employment to promote PTL or to perform work for PTL. Prior

to the termination of his employment, Mr. Swartz only took and performed administrative

functions for PTL, such as securing a lease and banking relationship for PTL. Appellants made

every effort to avoid hiring drivers of Appellee; in fact, PTL only hired those drivers who were

no longer employed by Appellee.

Following all Appellants' departure from Try Hours, Appellee brought the present action

and included claims for tortious interference with a business contract, breach of common law

fiduciary duties, conversion, misappropriation of trade secrets, unfair competition, violations of

the Ohio Uniform Trade Secret Act and punitive damages. At the trial court level, Appellee

secured the services of two experts to opine regarding profits lost by Appellee as a result of

Appellants' actions. The first expert was David Hiatt who rendered the opinion that Appellee

had been damaged in the sum of $1.25 million. Upon deposition, Mr. Hiatt testified that this was

the first matter in which he had been engaged as an expert witness and that he had not previously

served as an expert witness rendering an opinion concerning lost profits. Appellants secured the

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services of Jeffrey Denning, CPA, ABV, to review the opinion of Mr. Hiatt. In his opinion, Mr.

Denning was critical of the valuation performed by Mr. Hiatt in that the lost profits determined

by Mr. Hiatt did not seem to correspond with financial information concerning Appellee in

which it had been demonstrated that Appellee had taxable losses from operations and had

consistently lost money or had only minimal profits during any relevant time period to this

matter. Mr. Hiatt never reviewed any of the business customer records of Appellee in order to

determine if Appellee had, in fact, received any revenue from any of the customers allegedly

misappropriated by Appellants.

Realizing the defects in Mr. Hiatt's opinion and Mr. Hiatt's indication that he could not

serve as an expert in this matter due to a job change, Appellee secured the services of an

additional expert, Blake Radcliffe. Mr. Radcliffe also reviewed information provided to him by

Appellee and reduced Appellee's lost profit claim to $244,000.00.

In his deposition, Mr. Radcliffe testified extensively concerning the documentation he

had reviewed, including Appellee's 1988-2004 financials, and most importantly for these

proceedings, based his lost revenue projections solely upon the revenue that Appellants had

derived from former customers of Appellee. At no time did Mr. Radcliffe examine the revenue

that Appellee had received in prior years from these alleged customers of Appellee. Further, Mr.

Radcliffe's deposition testimony revealed that in calculating lost profits, he did not use Try

Hours' historical customer turnover rate nor even a documented trucking industry tumover rate,

but instead, "utilized a general business rule of thumb of, you know, approximately 20 percent

tumover and 80 percent retainage."

In light of discovery, both Appellants and Appellee filed motions for summary judgment.

The Trial Court granted the Appellants' motion for summary judgment on all counts holding

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specifically that in a tortious interference case the Appellee's damages needed to be based off an

evaluation of the Appellee's revenues and lost profits and not PTL's revenues. The Trial Court

also found that the Appellee's damages were speculative and not based upon reasonable certainty

because there was no record support for Try Hours' assumption that the customers that Radcliffe

included in his calculation would remain with or generate additional revenues for Try Hours.

Having found Appellee failed to prove damages on all its substantive claims, the Trial Court also

found there was no basis for punitive damages. The Appellate Court subsequently reversed the

Trial Court notably holding that the Appellee's expert could rely on PTL's revenues to calculate

Appellee's lost profits where the tortious interference claim included a claim for lost profits in

the Complaint as opposed to unjust enrichment. The Appellate Court further noted that the lost

profit calculation was not speculative where Radcliffe used a "general business rule of thumb" of

20 percent tumover. Thus, the Appellate Court essentially reinstated the Appellee's case in its

entirety.

ARGUMENT IN SUPPORT OF PROPOSITIONS OF LAW

Proaosition of Law No. I: In a claim for tortious interference with a

business contract, a Plaintiff must base its damages on its own lost

revenues and profits.

In overturning summary judgment for Appellants on the claim of tortious interference

with a business contract, the Appellate Court held that the Appellee could base its damages on

PTL's revenues as opposed to basing damages on the Appellee's actual revenues and profits. In

so doing, it attempted to distinguish a line of cases from both the Sixth and Tenth appellate

districts that held tortious interference damages of a plaintiff must be based on the plaintiff's

own lost revenues and profits. The Appellate Court reasoned that somehow the present case was

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different because the Appellee did not make a claim for unjust enrichment in the context of the

tortious interference claim.

Ohio courts have been specific as to whose revenues must be considered when

determining lost profits. The courts in Ohio that have considered the issue have universally held

that the lost revenues to be measured are those of the party asserting the lost profits, not the

revenue received by the other party from the former customers of the party asserting lost profits.

UZ Engineered Products Company v. Midwest Motor Supply Co., Inc., (2001), 147 Ohio App.3d

382, 400 (Tenth Dist.), 770 N.E.2d 1068, 2001 Ohio 8779; Brookeside Ambulance, Inc. v.

Walker Ambulance Serv., (1996), 112 Ohio App.3d 150, 158 (Sixth Dist.), 678 N.E.2d 248;

Developers Three v. Nationwide Ins. Co. (1990), 64 Ohio App.3d 794, 803 (Tenth Dist.), 582

N.E.2d 1130.

In Brookeside, the Sixth District held that, "Lost profit damages must be measured by the

loss sustained by the plaintiffs business and not by its effect upon defendant's business."

Brookeside at 158, (citing Developers Three). Interestingly, consistent with the facts in this case,

the claim in Brookeside was one for lost profits arising out of tortious interference with a

business contract and not a claim for unjust enrichment. Id. Similarly, the Court in UZ

Engineered Products Company held that lost profit damages are measured by the loss to the

plaintiff and not the effect upon the defendant's business. UZ Engineered Products at 400,

(citing Developers Three). Again, the UZ Engineered Products case involved a claim for lost

profits based upon tortious interference of a business contract and did not involve a claim for

unjust enrichment. Thus certainly there is precedent in Ohio for the proposition that in tortious

interference cases where no unjust enrichment claim has been made, a plaintiff must still

demonstrate damages based upon its own lost revenues. As such, the Appellate Court in this

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case en-ed when it changed this requirement and seemingly contradicted its own standard in

Brookeside by holding a plaintiff need not consider its own revenues when detennining its lost

profits. For that reason this case presents issues of public or great general interest and

jurisdiction should be granted by this Court.

Proposition of Law No. II: Damages based upon a "general business

rule of thumb" for customer turnover rates are speculative

where a particular ongoing business has its own historical turnover

rate and is in a readily identifiable industry.

The general test of recovery of lost profits in Ohio is set forth in Charles R. Combs

Trucking, Inc. v. International Harvester Company. (1984), 12 Ohio St.3d 241, 466 N.E.2d 883,

12 O.B.R. 322.

Lost profits may be recovered by the plaintiff in a breach ofcontract action if: (1) profits were within the contemplation of theparties at the time the contract was made, (2) the loss of profits isthe probable result of the breach of contract, and (3) the profits arenot remote and speculative and may be shown with reasonablecertainty." Id at 244

In AGF, Inc. v. Great Lakes Heat Treating Company, 51 Ohio St.3d 177, 183, 52 N.E.2d 634,

the Court in addressing how "reasonable certainty" is met, referenced, Restatement of Contracts

2d, Section 352, Comment b stating that " * * * dainages [lost profits] rnay be established with

reasonable certainty with the aid of expert testimony, economic and financial data, market

surveys and analyses, business records of similar enterprises, and the like." (emphasis added).

"The damages may not be merely speculative, possible or imaginary. Although lost profits need

not be proven with mathematical precision, they must be capable of measurement based upon

known reliable factors without undue speculation." McNulty v. PLSAcguisition Corp., (Dec.

26, 2002), Cuyahoga App. Nos. 79025, 79125, 79195, par. 87, fn. 14, (Eighth Dist., unreported),

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2002 Ohio 7220, (emphasis added).

In the present case the Trial Court held that the Appellee's alleged damages were

speculative and not based upon reasonable certainty. In so doing, it relied in part on Lewis v.

Surgery & Gynecology, Inc. (Mar. 12, 1991), Franklin App. No. 90 AP-300, (Tenth Dist.,

unreported), wherein the plaintifl's expert had failed to take into account any customer turnover

rate in calculating damages. In reversing the Trial Court's decision that damages in this case

were speculative, the Appellate Court cited to the sole fact that in Lewis the plaintiff's expert did

not incorporate any customer turnover in his calculation of lost profits and in the present case the

Appellee's expert used a "general business rule of thumb of approximately 20 percent tumover

and 80 percent retainage." Decision and Judgment Entry (March 23, 2007), par. 30.

Interestingly, the Appellate Court then went on to list several factors that made Appellee's

expert's calculation questionable. Decision and Judgment Entry, (March 23, 2007), par. 31.

Apparently however, the linch pin of whether the damages were speculative or merely

questionable was the "turnover rate" applied in the calculation.

Without question the use of a "general business rule of thumb" of twenty percent

customer tumover is arbitrary and thus the resulting damages calculated are speculative. Given

that Try 13ours had been in business a significant period of time, a more appropriate and less

speculative turnover rate would clearly be its own historical customer turnover rate.

Alternatively, even an industry tumover rate for trucking would have been less speculative.

Instead, the Appellee's expert calculated damages based on a turnover rate that seemingly

incorporates every size and type of business that exists. Even then, the expert's calculations are

not based on a specifically identifiable rate that has been researched and documented, but instead

merely an approximation of twenty percent tumover based on a rule of thumb. Certainly the

10

application of such a general rate to a specific industry that may or may not mimic the general

business world at best results in speculative damages.

In Stern Enterprises v. Plaza Theaters I and 17, Inc. (1995), 105 Ohio App.3d 601, 610,

664 N.E.2d 981, testimony regarding lost profits was adduced in the context of loss of return of

patrons. The theater's expert testified that "loyalty" or return customer business did not apply in

the movie industry because a patron would not return based upon loyalty to the cinema, but

rather to see a specific movie. Id. Thus, in at least one industry that makes up the business

world, the tumover rate could be as much as 100 percent depending on a movie. As part of

"general business" the Appellee's expert in this case has seemingly incorporated the movie

industry into the tumover rate then applied to the trucking industry. Certainly the two have

different features and the movie industry is but one example of how industries differ such that

the application of a "general business rule of thumb" applied to a specific industry makes

absolutely no sense and results in speculative damages.

Examples of both the type of underlying comparison that leads to a reasonably certain

damages estimate and the type of underlying comparison that leads to a speculative damages

estimate can be seen in the cases of Bobb v. Forest Products, Inc. v. Morbark Industries, Inc.

(2002), 151 Ohio App.3d 63, par. 79-80, 783 N.E.2d 560, 2002 Ohio 5370, and Telxon v. Smart

Media of Delaware, Inc. (Sept. 21, 2005), Summit App. Nos. 22098 & 22099, par. 112 - 113,

(Ninth Dist., unreported), 2005 Ohio 4931. While admittedly the cases took place in the context

of new businesses, these cases demonstrate the sound reasoning underlying the reasonable

certainty that must be present to avoid the label of speculative. In Bobb, the Court found that the

damages estimate met the reasonably certain threshold where the underlying facts and

comparison was based upon amongst other things:

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* * * the average selling price per board feet of lumber; the cost of goodssold as demonstrated both by the history of Bobb's parents' sawmill and apublication which contained figures averaging the cost of goods sold forsawmills of comparable size nationally; and the general and administrativeexpenses of sawmills as demonstrated by that same publication.

Bobb at par. 79 (emphasis added). In Telxon however, the Court in addressing records

underlying damages estimates in the context of a grocery store pricing device stated:

AGF, Inc. also asks for "business records of similar enterprises." Id. Asdiscussed previously under "Telxon's First Assignment of Error," suprapar. 12-27, SMI sought to compare itself with two entirely dissimilarcompanies: Optimal Robotics Corp., a maker of free standing scannersystems; and Catalina Marketing Corp., a maker of devises that printpaper coupons. Meanwhile, SMI and Dupre entirely ignored twosimilar companies: * * *

Telxon at par. 112. In tum, the Telxon Court went on to fmd that the lost profits were

speculative. Id. at par. 113. Again Appellants are aware that these cases dealt with lost profits of

new businesses, but their reasoning that assumptions made regarding lost profits of a business

should be based upon historical data or statistics from similar businesses or industries is

nonetheless applicable.

In the present case, the Appellee's expert has not used a turnover rate based upon

historical data despite sufficient ongoing history to calculate such a rate. Nor has Appellee's

expert based his turnover rate on similar businesses or even a more general rate for the trucking

industry. Instead, the damages calculation was based on an unsubstantiated rule of thumb that

incorporates all businesses in all industries. Thus, the rate applied in this case again appears to

include things such as movie goers, ice cream cone buyers, jewelry stores patrons and criminals

to defense attorneys. Certainly, incorporating the turnover rate for clients of these industries into

a "general business rule of thumb" and applying it to the trucking industry is not grounded in the

realities of that industry and makes absolutely no sense. There is no evidence as to whether the

12

trucking industry has traditionally mimicked a "general business" twenty percent tumover rate or

whether that industry historically has a significantly higher or lower turnover rate. More

importantly, there is no evidence of whether Try Hours' turnover rate has been consistent with a

general business turnover rate, though the same would have been able to be determined. As a

result, the damages estimate based upon such a generic turnover rate is speculative. In turn, the

Trial Court's reliance on Lewis in holding that the Appellees damages in the present case were

speculative was well founded. Therefore, it is of public or great general interest that this Court

make clear that in determining damages for an ongoing business in a particular industry,

something more than turnover rates from a general business rule of thumb must be used to

prevent the erosion of reasonably certain into speculation.

CONCLUSION

For the reasons discussed above, this case involves matters of public and great general

interest. The Appellants request that this Court grant jurisdiction and allow this case so that the

important issues presented in this case will be reviewed on the merits.

COUNSEL-FOR APPELLANTSDAVID L. SWARTZ, CHRIS MOREY,JOHN MUELLER AND PREMIUMTRANSPORTION LOGISTICS, LLC

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Proof of Service

I certify that a copy of this Memorandum in Support of Jurisdiction was sent by ordinary

U.S. mail to counsel for appellees, David W. Zoll, Esq. and Pamela A. Borgess, at Zoll & Kranz,

LLC, 6620 West Central Avenue, Suite 200, Toledo, Ohio 43617 on May 4, 2007.

By:

COUNSEL FOR APPELLANTSDAVID L. SWARTZ, CHRIS MOREY,JOHN MUELLER AND PREMIUMTRANSPORTION LOGISTICS, LLC

14

CUURT oF qPPEatS

1001MAR23Aq:II

COMMON PLEAS COURrBERNIE OUILTER

CLERt( OF COURTS

IN THE COURT OF APPEALS OF OHIOSIXTH APPELLATE DISTRICT

LUCASCOUNTY

Try Hours, Inc. Court of Appeals No. L-06-1077

Appellant Trial Court No. CI-03-5587

V.

David L. Swartz, et al. DECISION AND JUDGMENT ENTRY

Appellees Decided: MAR 2 3 2007

s****

David W. Zoll and Pamela A. Borgess, for appellant.

Nicholas J. Cron, J. Mark Trimble, Todd M. Zimmerman, and

Jack J. Lah, for appellees.

HANDWORK, J.

{¶ 1} This case is before the court on appeal from the judgment of the Lucas

County Court of Common Pleas which granted the motion for summary judgment filed

by appellees, David L. Swartz, Premium Transportation Logistics LLC ("PTL") Chris

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Morey, and John Mueller (collectively referred to as "appellees"), and denied the motion

for summary judgment filed by appellant, Try Hours, Inc. ("Try Hours"). For the reasons

that follow, we reverse the decision of the trial court.

112) On appeal, Try Hours raises the following assignments of error:

{¶ 31 "I. The trial court erred in granting defendant-appellees' cross-motion for

summary judgment on the basis that plaintiffs expert, Blake Radcliffe, failed to calculate

the lost profit damages to a reasonable degree of certainty using an approved

methodology.

{¶ 4} "II. The trial court erred in holding that plaintiff-appellant was not entitled

to seek any damages for those customers identified in the stipulated permanent injunction

order.

{¶ 5} "III. The trial court erred in granting defendant-appellees' cross-motion for

summary judgment, and dismissing plaintiff s claim for punitive damages.

1161 "IV. The trial court erred in dismissing all of plaintiffs claims."

[17) Try Hours is a locally owned trucking operation that provides expedited

freight services for its customers. Mueller, Morey and Swartz each held a top

management position with Try Hours, and each signed an agreement that they would not

engage in unfair competition with Try Hours, solicit Try Hours' customers or employees,

and would keep confidential Try Hours' business information, for a period of one year

following termination of their employment with Try Hours, and would not solicit Try

Hours' drivers for a period of two years. Mueller (former safety director) resigned from

A-22.

Try Hours in October 2001, Morey (former operations manager) resigned in March 2003,

and Swartz (former sales manager) resigned in September 2003. Mueller, Morey and

Swartz formed PTL prior to Swartz's and Morey's resignations from Try Hours. Mueller

began fWl-time at PTL January 1, 2003, Morey in April 2003, and Swartz in September

2003.

{¶ 8} Since its inception, PTL served some of the same customers that Try Hours

served and used some of the same truck drivers that Try Hours had used. As a result, on

October 29, 2003, Try Hours filed a verified complaint and motion for temporary

restraining order, alleging: (1) breach of contract; (2) breach of common law fiduciary

duties; (3) conversion; (4) misappropriation of trade secrets; (5) unfair competition; (6)

tortious interference with business relations; (7) violations of the Ohio Uniform Trade

Secret Act; and (8) punitive damages. The motion for temporary restraining order was

granted ex parte. On February 18, 2004, the parties entered into a stipulated permanent

injunction, whereby the parties agreed that PTL would be enjoined from contacting,

soliciting, or hauling freight on behalf of 71 customers designated by Try Hours for an

additional period of one year, beginning February 1, 2004. PTL was also enjoined from

contacting, soliciting, contracting, or hiring any drivers who had worked for Try Hours

for a period of two years, beginning February 1, 2004. The stipulation specified that "(i]t

shall not affect any claims for monetary relief *** as may be asserted by Plaintiff or any

defenses of the Defendants."

3. .A-3

{¶ 9} Try Hours filed a motion for summary judgment with regard to damages on

October 6, 2004. In support of its motion, Try Hours filed the affidavit of David Hiatt,

CPA, who determined that using a "before and after" methodology for business valuation,

appellants incurred damages totaling $1,250,000 for 2002 and 2003. On August 1, 2005,

appellees responded to appellant's motion for summary judgment and filed a cross-

motion for summary judgment, asserting that, based on Hiatt's affidavit, appellant did not

demonstrate the existence and amount of future lost profits with reasonable certainty, that

the method for calculating Try Hours' alleged consequential damages was flawed, and

that punitive damages cannot be awarded pursuant to a motion for summary judgment.

{¶ 101 In support of its response and cross-motion for summary judgment,

appellees included the affidavit of Jeffrey S. Denning, CPA, who identified errors with

Hiatt's valuation methods, including, a lack of: (1) research regarding standard industry

and comparable company performance•, (2) customer analysis; (3) deductions for variable

cost components necessary to calculate lost net profits; (4) analysis for the appropriate

damages period; (5) consideration of mitigating actions and factors; (6) reasonableness

tests; and (7) consideration of PTL's sales for 2003. Particularly, Denning noted that

establishing the existence and amount of lost profits in this type of action "requires

performance of standard industry and comparable company research and analysis under

the commonly utilized'yardstick approach,"' which Hiatt did not use. Denning also

stated, "Hiatt failed to consider that [PTL] had sales of $462,000 (not $4.3 million) and a

loss in 2003."

4. n-4

{¶ 11} In addition to his affidavit, Denning testified in a deposition wherein he

described the three methods that could be used for valuing lost profits: (1) the sales

projection method (but/for method), whereby sales are projected to determine anticipated

net profits; (2) the before and after method, whereby the periods immediately before and

after the alleged breach occurred are examined to determine the lost profits during the

damage period; and (3) the yardstick method, which examines the performance of a

comparable company to determine, through comparison, the amount the claimant could

have expected to earn during the same time period. Denning testified that had he done a

valuation of lost profits, he would have considered all three methods, and that any of the

methods could be appropriate. He further testified that he would look at the historical

sales and profits within an industry, when available, to determine gross and net profits

and to do forecasts. In particular, Denning testified that he would "certainly consider"

sales data of Try Hours' customers before and after the breach, including the amount of

sales that was provided to those customers by PTL. By using such information, Denning

opined that the before and after method or the yardstick method would be the most

appropriate to use. Denning stated that the "yardstick might be useful as opposed to just

using the subject company data in a vacuum," to provide a basis for reasonableness.

However, he noted that the sales projection method may be appropriate as well, but said,

"if you have sufficient data to use the other two methods you may be able to take some of

the guesswork out of using a sales projection model." Finally, regarding valuation,

Denning testified that during a given period of time, he "would assume that a certain

level of the business would be sustained," that certain customers may turn over, but that

the business would "not make any drastic changes."

{¶ 121 On October 12, 2005, the trial court granted Try Hours' motion to compel

production of financial documents from PTL. Thereafter, on November 3, 2005, Try

Hours filed an affidavit of Blake N. Radcliffe, CPA. Radcliffe, who had been retained as

an expert to analyze and calculate any business damages sustained by Try Hours, stated

that in his professional opinion: (1) "there are several well-accepted methods which may

be utilized to calculate damages to a business, including the before and after method, the

yardstick method, and the but for/sales method"; (2) "regardless of the preferred

methodology applied, it is reasonable to take the profits received by the Defendants from

Try Hours' customers during the relevant time periods, and use that as a basis for

calculating the damages sustained by Try Hours"; and (3) "Try Hours sustained

significant and substantial losses to its business." In describing the method he used to

calculate Try Hours' damages of $64,000 to $85,000 for 2003, and $180,000 for 2004,

Radcliffe stated:

{¶ 13) "In reaching my professional opinion, I identified all gross revenue

received by Defendant PTL from customers who were or had been customers of Try

Hours, and subject to the employment contracts each individual defendant executed. I

then calculated a net margin for Defendant PTL based on the partial data provided and

also calculated a net margin for Plaintiff Try Hours based on its fmancials, calculating the

driver profit percentage and other cost of sales percentage."

{¶ 14} Radcliffe further explained his findings in a supplemental affidavit, filed

November 22, 2005, wherein he stated:

{¶ 15} "* **'monetary loss' [as used in the November 3, 2005 affidavit] is defined

as the monetary value of the pre-tax net income, not sales or gross profits, sustained by

Plaintiff due to the loss of the diverted sales. The calculation of pre-tax net income takes

into account both direct and indirect costs, including but not limited to fixed costs such as

overhead, depreciation and interest, and variable expenses, including but not limited to

variable operating expenses and direct cost of sales (i.e. driver payments)."

[116) In addition to his affidavits, Radcliffe testified in a deposition that he

determined Try Hours' net loss of profits by calculating PTL's gross revenue based on

sales made to former Try Hours customers, and then reducing that amount by the costs

Try Hours would have incurred in generating that amount of revenue. In making his

valuation, Radcliffe testified that he used the "but for/sales method" because he felt that

"the only appropriate method was to look at the actual sales that PTL had and take those

sales and apply the cost structure of Try Hours as if they had those additional sales in the

years in question and determine the calculation of the lost net profits ***." Radcliffe

testified that he used this method, rather than the "yardstick" method because there were

no available industry statistics to compare, due to Try Hours being in a "specialty niche,"

and, in any event, the more acceptable and appropriate data to rely upon was "the actual

sales numbers as reported by PTL on their fmancial statements and customer revenue

report and the actual cost structure of Try Hours."

{¶ 17} In calculating the amount of costs Try Hours would have incurred in

generating the additional revenue, Radcliffe testified that he examined Try Hours'

financial statements from 1998-2004 to determine a trend, and included as costs the

percentages received by drivers, other direct costs, and incremental nondirect expenses,

such as overhead, depreciation and interest.' Radcliffe, however, noted that the

additional volume of sales would not have incrementally increased Try Hours' nondirect

and overhead expenses because Try Hours "would have been able to absorb those

additional sales" within its current structure. Additionally, in determining what amount

of PTL's gross revenue Try Hours would have likely received from its previous

customers, whose sales were "taken" by PT'L, Radcliffe testified that he used a general

business rule of thumb of "approximately 20 percent turnover and 80 percent retainage."

{¶ 18} Ultimately, Radcliffe calculated, in his professional opinion and to a

reasonable degree of certainty, that Try Hours sustained loss of pre-tax net income, as a

result of PTL's unfair competition, totaling approximately $416,370 for the calendar

years of 2003 and 2004, and $281,545 future lost profits for 2005. These amounts

indicate the "additional net lost profits that Try Hours would have had but for the fact that

those sales were taken by PTL." Radcliffe determined that the percentage of profit

margin, for PTL sales to Try Hours' customers, was 19 percent in 2003 and 22.9 percent

'Radcliffe testified that he attempted to do a cost analysis for PTL, but found that

PTL's profit reports were insufficient for him to make those calculations.

in 2004. Radcliffe recognized, however, that Try Hours' reported net income as a

percentage of total sales was a negative .5 percent in 2003 and .5 percent in 2004.2

1119) In its February 1, 2006 judgment entry, the trial court granted PTL's motion

for summary judgment and dismissed Try Hours' complaint. The trial court held that "the

only issues that remain to be determined are the extent of Try Hours' injuries and

damages," but found that Try Hours failed to prove its damages for lost profits because

"lost profits must be measured by the loss of business sustained by the plaintiff, not by

the gain of or effect on the defendant's business." The trial court also found that "there is

no record support for Try Hours' assumption that the customers that Radcliffe included in

his calculation would remain with or generate additional revenues for Try Hours," and

that "Try Hours cannot claim damages based upon customers that it relinquished in the

Stipulated Permanent Injunction." Having held that Try Hours failed to establish

compensable damages, the trial court also dismissed Try Hours' claim for punitive

damages.

{¶ 201 In reviewing a motion for summary judgment, an appellate court must

apply the same standard of law as the trial court. Lorain Natl. Bank v. Saratoga Apts.

(1989), 61 Ohio App.3d 127, 129. As such, summary judgment will be granted only

when there remains no genuine issue of material fact and, when construing the evidence

most strongly in favor of the non-moving party, reasonable minds can only conclude that

the moving party is entitled to judgment as a matter of law. Civ.R 56(C). This review is

2 Try Hours argues that its net income would have been greater in 2003 and 2004 ifappellees had not taken Try Hours' customers.

done by an appellate court de novo, Grafton v. Ohio Edison Co. (1996), 77 Ohio St.3d

102, 105, and requires the court to independently examine the evidence to determine,

without deference to the trial court's determination, if summary judgment is warranted.

Brewer v. Cleveland City Schools (1997), 122 Ohio App.3d 378, 383, citing Brown v.

County Comm'rs (1993), 87 Ohio App.3d 704, 711.

{¶ 211 In this case, Try Hours' claims for relief included breach of contract, breach

of fiduciary duties, conversion, misappropriation of trade secrets, unfair competition,

tortious interference with business relations, and violations of the Ohio Uniform Trade

Secret Act. In granting summary judgment to appellees, the trial court held that

Radcliffe, Try Hours' expert, was not permitted to rely on PTL's financial data and sales

revenue when calculating Try Hours' lost net profits. In its first assignment of error, Try

Hours argues that the trial court erred in granting PTL's cross-motion for summary

judgment on the basis that Try Hours' expert failed to calculate the lost profit damages to

a reasonable degree of certainty using an approved methodology. Specifically, Try Hours

argues that the trial court's reliance on Developers Three v. Nationwide Ins. Co. (1990),

64 Ohio App.3d 794, and Lewis v. Surgery & Gynecology, Inc. (Mar. 12, 1991), 10th

Dist. No. 90AP-300, was misplaced.

(122) "In order for a plaintiff to recover lost profits in a breach of contract action,

the amount of the lost profits, as well as their existence, must be demonstrated with

reasonable certainty." Gahanna v. Eastgate Properties, Inc, (1988), 36 Ohio St.3d 65,

syllabus. See, also, Charles R. Combs Trucking, Inc. v. International Harvester Co.

(1984), 12 Ohio St.3d 241, paragraph two of the syllabus. Further, "Ohio law'requires

that evidence of lost profits be based upon an analysis of lost "net" profits after the

deduction of all expenses impacting on the profitability of the business in question."'

(Emphasis in original.) Miller Medical Sales, Inc. v. Worstell (Dec. 21, 1993), 10th Dist.

No. 93-AP-23, citing Justice Wright's concurrence, in part, and dissent, in part, in Digital

& AnalogDesign Corp. v. North Supply Co. (1989), 44 Ohio St.3d 36, 48. Unless a party

proves "(a) what he would have received from the performance so prevented" and "(b)

what such performance would have cost him (or the value to him of relief therefrom)," he

cannot recover as damages the profits he would have eamed from full performance of the

contract. Digital at 40, citing Allen, Heaton & McDonald, Inc. v. Castle Farm

Amusement Co: (1949), 151 Ohio St. 522, 526. "Evidence which does not meet these

thresholds must be considered speculative and an insufficient basis for an award of

damages." Digital at 40.

{¶ 23} Additionally, in actions for misappropriation of trade secrets and cases

involving breaches of fiduciary or confidential relationships, which Try Hours also

claims, "the proper measures of damages for misappropriation of trade secrets * * * are

either the award to plaintiff of profits lost by the misappropriation or an accounting by

defendant of profits gained by the misappropriation." Wiebold Studio, Inc. v. Old World

Restorations, Inc. (1985), 19 Ohio App.3d 246, 251. This measure of damages for

misappropriation of trade secrets was codified in R.C. 1333.63(A), effective July 20,

1994, which stated that "[d]amages may include both the actual loss caused by

misappropriation and the unjust enrichment caused by misappropriation that is not taken

into account in computing actual loss." In Miller Medical Sales, Inc. v. Worstell (Dec.

21, 1993), 10th Dist. No. 93-AP-23, the court held that "plaintiff would be entitled to the

higher amount of either plaintiff s lost profits or defendant's gain." The Tenth District

noted, however, that the award cannot be based upon a gross revenue amount; rather, the

total gross billings must be reduced by "any costs and expenses defendant would have

incurred in producing income on the accounts and which should have been deducted from

the gross revenue figure to determine defendant's net gain." Id.

{¶ 24} In a case involving the tortious interference with a business contract, the

Tenth District Court of Appeals held that "plaintiffs correct measure of damages in this

tortious interference action is the plaintiffs loss (including lost profits) that arises out of

the tortious interference, not the defendant's gain." Developers Three, 64 Ohio App.3d

794, 803. In Developers Three, defendants bought and developed property to which

plaintiff had held an option to purchase. Plaintiff sued upon a theory of tortious

interference with a business contract and claimed that, irrespective of the amount of its

actual loss, it was entitled to recover, under a theory of unjust enrichment, the amount of

defendants' profits that were derived from the development. In fact, plaintiff "explicitly

disclaim[ed] a measure of damages based upon its lost profits or lost expectancy," and,

instead, sought to recover defendants' entire gross profits. Id. at 797. Defendants,

however, argued that plaintiff did not have the same ability as defendants to develop the

property and, therefore, plaintiff s recovery of defendants' profits would not be

appropriate because plaintiffs actual loss was much less than defendants' gain. Id. at

797-798.

{¶ 251 Unjust enrichment occurs when a person "has and retains money and

benefits which injustice and equity belong to another." Hummel v. Hummel (1938), 133

Ohio St. 520, 528. In Developers Three, the court considered at length the pros and cons

of allowing an award of damages based upon a theory of unjust enrichment. Ultimately,

the court held that it was "reluctant to abandon a purely compensatory damage formula

unless policy and precedent clearly support an unjust enrichment theory of recovery."

Developers Three at 801. In determining that damages awarded upon a theory of unjust

enrichment was not the best method for calculating plaintiffs damages, the court noted

that in tortious interference cases "the plaintiff frequently has lost more than the

defendant has gained, and sometimes the defendant has gained more than the plaintiff has

lost." Id., citing Restatement of the Law, Restitution (1937) 595-596, Introductory Note

to Section 150, et seq. Additionally, the court noted that `[t]o compel defendant to

disgorge [its] profits could give plaintiff a windfall and penalize the defendant. ***"' Id.

at 800, citing American Air Filter Co. v. McNichol (C.A.3, 1975), 527 F.2d 1297, 1300.

Although the usual justification for awarding a defendant's unjust enrichment to the

plaintiff is to discourage commission of the tort, Developers Three held that "punitive

damages may serve well to counterbalance the unavailability of an unjust enrichment

theory in tortious interference cases." Developers Three at 801.

13.A-13

{¶ 26} Since Developers Three, this court and the Tenth District have both cited to

Developers Three for the rationale that "[1]ost profit damages are measured by the loss,

including lost profits the plaintiff business sustained as a result of the tortious

interference, not by its effect upon the defendant's business." UZ Engineered Products

Co. v. Midwest Motor Supply Co., Inc. (2001), 147 Ohio App.3d 382,155 (damages for

breach of non-competition agreement at issue); and Brookeside Ambulance, Inc. v.

Walker Ambulance Serv. (1996), 112 Ohio App.3d 150, 158 (tortious interference case).

In applying this holding from Developers Three to the present case, the trial court held

that, when calculating Try Hours' lost profits, Radcliffe was not permitted to consider the

amount of revenue PTL generated from sales to Try Hours' customers. Because

Radcliffe used the amount of PTL's profits in calculating Try Hours' net lost profits, the

trial court held that Radcliffe's method of computation was speculative and did not

substantiate Try Hours' damages. We, however, find that Developers Three is not

applicable because it is distinguishable from the facts in this case.

{¶ 27} When read in context of its entire decision, the holding in Developers Three

is clearly limited to situations wherein the plaintiff seeks recovery on the basis of unjust

enrichment. As stated above, Developers Three, the plaintiff, explicitly was not seeking

a recovery on the basis of lost profits. Hence, the Tenth District was charged with

determining whether the plaintiff could disgorge defendant of its profits pursuant to a

theory of unjust enrichment, rather than upon a "lost profits" basis. Ultimately, the court

rejected the plaintiffs theory of recovery on the basis of unjust enrichment, "plaintiffs

14. A-14

correct measure of damages in this tortious interference action is the plaintiffs loss

(including lost profits) that arises out of the tortious interference, not the defendant's gain

[emphasis added]," and affirmed a compensatory damages method of recovery.

Developers Three, supra at 803. Additionally, although both UZ Engineered Products

and Brookeside Ambulance correctly cited the holding in Developers Three, neither case.

involved a claim for unjust enrichment and the amount of the defendants' profits were not

at issue. Rather, in each case, the courts recognized that the appropriate measure of

damages for lost profits was a compensatory damage formula, whereby lost profits are

calculated by reducing the amount of revenue plaintiff would have generated, but for the

tortfeasor's actions, by the costs the plaintiff would have incurred in generating such

revenue. See, also, Digital & Analog Design, supra at 40.

{¶ 28) We find that Radcliffe's calculation of net lost profits was not speculative

and was demonstrated with reasonable certainty. Radcliffe, an expert accredited in

business valuations by the American Institute of Certified Public Accountants, testified

that, regardless of the method, before and after, yardstick, or but for/sales method, used to

calculate damages to a business, it is reasonable to take PTL's profits from Try Hours'

customers, during the relevant time periods, and use those amounts as a basis for

calculating the damages sustained by Try Hours. He stated that the more acceptable and

appropriate data to rely upon was "the actual sales numbers as reported by PTL on their

financial statements and customer revenue report and the actual cost structure of Try

Hours." Appellees' expert, Jeffrey Denning, also testified that he would "certainly

15. A_15

consider" sales data of Try Hours' customers before and after the breach, including the

amount of sales that was provided to those customers by PTL, in determining Try Hours'

damages.3 In fact, Denning criticized Try Hours' initial expert, Hiatt, for failing to

consider the amount ofPTL's sales when calculating Try Hours' lost profits.

{¶ 29) Moreover, we find that there is support in Ohio for using an accounting of

the tortfeasor's profits, gained through misappropriation of trade secrets, breaches of

fiduciary or confidential relationships, and breaches of non-competition agreements, in

calculating a business's damages and lost profits. See, e.g., Wiebold Studio, Inc. v. Old

World Restorations, Inc. (1985), 19 Ohio App.3d 246, 251 (a proper measure of damages

for misappropriation of trade secrets is an accounting by defendant of profits gained by

the misappropriation); R.C. 1333.63(A) (damages may include the unjust enrichment

caused by misappropriation); Miller Medical Sales, Inc. v. Worstell (Dec. 21, 1993), 10th

Dist. No. 93-AP-23 (plaintiff was awarded damages in an amount equal to gross profits

received by defendant while breaching a non-competition agreement); American

Logistics Group, Inc. v. Weinpert, 8th Dist. No. 85041, 2005-Ohio-4809, 129 (trial court

did not err in calculating lost profits by subtracting the tortfeasor's salary, which would

have been the company's cost in generating the extra revenue, from the amount defendant

netted in profits while breaching the non-competition agreement); and Cleveland Cotton

Products v. James (Oct. 31, 1996), 8th Dist. No. 70051 (lost profits calculated by

3Denning, however, was not asked to calculate, or render an opinion regarding, theamount of Try Hours' damages.

16. A-16

subtracting plaintiffs normal costs from defendant's gross sales generated while

breaching the non-competition agreement).

1130) We additionally find that the trial court erred in awarding appellees

summary judgment on the basis that Try Hours' asserted damages were speculative and

not based upon reasonable certainty because "there is no record support for Try Hours'

assumption that the customers that Radcliffe included in his calculation would remain

with or generate additional revenues for Try Hours." In making this determination, the

trial court relied on Lewis v. Surgery & Gynecology, Inc. (Mar. 12, 1991), 10th Dist. No.

90AP-300, wherein the court found the company's damages to be unbelievable, in part,

because the medical group's calculation of damages assumed that all of its former

patients, who were treated by Lewis after his departure, would have come back to the

medical group had Lewis not been practicing within Franklin County. Try Hours does

not make the same assumption regarding the retention of customers that the medical

group in Lewis made; rather, Radcliffe testified that he used a general business rule of

thumb of "approximately 20 percent turnover and 80 percent retainage." Thus, unlike the

medical group, Try Hours did not assume that it would have retained its entire customer

base. Moreover, we find that Radcliffe's assumption was reasonable because appellees'

expert also testified that he "would assume that a certain level of the business would be

sustained," that certain customers may turn over, but that the business would "not make

any drastic changes." We find that Lewis is distinguishable on its facts from this case

and, therefore, find that the trial court's reliance on Lewis was misplaced.

{¶ 31} Based upon Radcliffe's testimony, we find that Try Hours established the

amount of its damages with reasonable certainty. We recognize that appellees raised

issues to call Radcliffe's calculations into question, such as the fact that Try Hours did not

have as large a profit margin prior to the damages period as he had calculated during the

damages period, that Radcliffe did not determine the actual profitability of each of Try

Hours' customers prior to the damages period, and the fact that Radcliffe opined that the

additional revenue would not have increased Try Hours' fixed costs. Nevertheless, we

find that these are issues which should be resolved by the trier of fact. Accordingly, we

fmd that there are genuine issues of material fact which preclude the granting of summary

judgment in this case and that appellees were not entitled to summary judgment as a

matter of law. Try Hours' first assignment of error is therefore found well-taken.

{¶ 321 Try Hours argues in its second assignment of error that the trial court erred

in holding that Try Hours was not entitled to seek any damages for those customers

identified in the stipulated permanent injunction order. We agree. The stipulation is

silent as to any waiver by Try Hours to pursue damages, past or future, from appellees

based upon their solicitation of Try Hours' customers. In fact, the stipulation clearly

states that "[i]t shall not affect any claims for monetary relief * * * as may be asserted by

Plaintiff or any defenses of the Defendants." Accordingly, we fmd that the trial court

erroneously limited Try Hours' recovery in this respect. Try Hours' second assignment of

error is therefore found well-taken.

A_gB18.

{¶ 33) In its third assignment of error, Try Hours argues that the trial court erred in

granting appellees' cross-motion for summary judgment, and dismissing plaintiffs claim

for punitive damages. We agree. The trial court's granting of summary judgment

regarding Try Hours' claim for punitive damages was based solely upon the fact that it

found that Try Hours had failed to establish compensatory damages with reasonable

certainty. Having reversed the trial court's grant of summary judgment with respect to

the issue of compensatory damages, we find that the trial court's award of summary

judgment regarding punitive damages was also contrary to law. Appellant's third

assignment of error is therefore found well-taken.

1134) Try Hours argues in its fourth assignment of error that the trial court erred

in dismissing all of its claims. Based upon our decision as to Try Hours' first, second and

third assignments of error, we find Try Hours' fourth assignment of error well-taken.

{¶ 35} On consideration whereof, the court fmds substantial justice has not been

done the party complaining and the judgment of the Lucas County Court of Common

Pleas is reversed. This matter is remanded to the trial court for further proceedings in

accordance with this decision and judgment entry. Appellees are ordered to pay the costs

of this appeal pursuant to App.R. 24. Judgment for the clerk's expense incurred in

preparation of the record, fees allowed by law, and the fee for filing the appeal is awarded

to Lucas County.

JUDGMENT REVERSED.

19. A_19

Try Hours, Inc. v. David L. Swartz, et al.L-06-1077

A certified copy of this entry shall constitute the mandate pursuant to App.R. 27.See, also, 6th Dist.Loc.App.R. 4.

Peter M. Handwork, J.

Mark L. Pietrykowski, P.J.

George M. Glasser, J.CONCUR.

Judge George M. Glasser, retired, sitting by assignment of the Chief Justice of theSupreme Court of Ohio.

This decision is subject to further editing by the Supreme Court ofOhio's Reporter of Decisions. Parties interested in viewing the final reported

version are advised to visit the Ohio Supreme Court's web site at:http://www.sconet.state.oh.us/rod/newpdf/?source=6.

20. A- 2 0

L^U^S'L:C'U,`1i

2uC5 FE5 - I A II: 35

CO`1MON RLE..5 COtJRiBERNIE OUILTER.

CLERK OF COIJRTS

THIS iS. A FiNAL •' APPEALABLE ORD'ER

IN THE COURT OF COMMON PLEAS OF LUCAS COUNTY, OHIO

Try Hours, Inc.,

Plaintiff,

vs.

David L. Swartz, et al.,

I?efeindants.

Case No. CIo3-5587

OPINION AND JUDGIYIENT.ENTRY

Hon. Jack Zduhary •

This case is before the Court on the iespective motions. for summary judgment on

the issue of damages filed by'Plaintiff Try Hours, Inc. and Defendants David L. Swartz,

Premium Transportation Logistics LLC (PTL); Chris Morey, and John Mueller.

The parties fully briefed the issues raised by the suniinary judgment motibns,

presented oral argument r^' 3nt to the inotions on November 2g, 2005; aind submitted

supplen-- y 4, 20o6, the Court advised counsel by telephone of its

decisi d ,I % tion and deny 1'laintiff s motion. '(See Order of January

6, 200t v u Opinion and Judgment Entry confirming that decision.

ProceduralHistory

Trj nours filed this action after Defendants Swartz, :Morey, and Mueller left their

employment with Try Hours and forined P.TL. Both. companies are'eri Med in the

^^^r, ^Zuexpedited freight business. TryHours maihfainsthatSwa y,an^dMuellerbreached

-419r- .'Gassada'_

_Ir'' -_.. -.... ^L^

- B-1

their non-compete agreements with Try Hours and seeks injunctive relief and monetary

damages (lost profits and punitive damages) against Defendants for breach of contract,

breach of common law fiduciary duties, conversion and misappropriation of trade secrets,

unfair competition, tortuous interference with business relations, andviolation of the Ohio

Uniform Trade Secret Act.

The Court granted Try Hours' request for an ex parte TRO in late 2003. The parties

entered into a Stipulated Permanent Injunction in early 2004. Therefore, the only issues

that remain to be determined are the extent of Try Hours' injuries and damages.

Summary JudgmentArguments

Try Hours seeks summary judgment with regard to damages on the ground that

there are no genuine issues of material fact that it has been significantly injured and that

summaryjudgment inthe amount of $244,000 for compensatory damages,' plus costs and

attorneys' fees, is appropriate. Acknowledging that the amount of punitive damages to

which it is entitled is a question of fact, Try Hours offers to withdraw its claim for punitive

damages if the Court grants summary judgment in its favor but reserves the right to seek

punitive damages if a trial is necessary.

Defendants oppose Try Hours' summaryjudgmentbidon the ground thatTry Hours'

claim for damages is legally insufficient because it improperly calculates future lost profits

and is unrealistically inflated. Defendants also claim that Try Hours' request for punitive

damages is premature.

'Try Hours initially sought compensatory damages in the amount of $1,25o,ooo, based onthe opinion of CPA David Hiatt, but later revised its demand to $244,ooo, based on theopinion of CPA Blake Radcliffe.

2

B-2

Defendants seek summary judgment on two grounds: (i) Try Hours cannot

demonstrate that it is entitled to an award of compensatory damages because (a) it fails the

legal test for determining future lost profits and (b) "the unmistakable pattern of significant

financial decline at Try Hours that was entrenched well before [Swartz, Morey, and Mueller

left] prevents Try Hours from making the requisite showing of an existence of alleged future

lost profits with reasonable certainty"'; and (2) Try Hours cannot demonstrate that it is

entitled to punitive damages because (a) it cannot sustain its claim for compensatory

damages and (b) even if Try Hours can prove future lost profits with reasonable certainty,

Swartz, Morey, and Mueller "made nothing more than sensible business decisions and did

not act with malice."3

At the hearing, the parties focused on the recently-held deposition of Try Hours'

expert, Blake Radcliffe, who testified that Try Hours suffered a loss due to customers taken

byDefendants. RadcliffebasedhisconclusiononrevenuesthatPTLreceivedin2oo3, 2004

and 2005 from former Try Hours customers and applied those revenues to Try Hours' cost

structure to argue that Try Hours sustained net lost profits. Defendants argued that Ohio

law requires Try Hours to base its calculation of lost profits on its own revenues and not on

PTL's revenues.

Law andAnalysis

1. Summary Judgment Standard

Under Civ.R. 56, summary judgment is proper when (i) no genuine issue as to any

material fact remains to be litigated; (2) the moving party is entitled to judgment as a

2 Defendants' Cross Motion for Summary Judgment, at page 2.

31d.

3

matter of law; and (3) after construing the evidence most favorably in the nonmoving

party's favor, reasonable minds can only reach a conclusion that is adverse to the

nonmoving party.4

The party seeking summaryjudgment bears the burden of showing that no genuine

issue of material fact exists for trial5 and of informing the trial court of the basis for the

summaryjudgment motion andidentifying the portions of the recordthat showthe absence

of a genuine issue of fact on a material element of the nonmoving party's claim.b Doubts

must be resolved in favor of the nonmoving party.' But the nonmoving party must produce

evidence on any issue for which that party bears the burden of production at trial,$ may not

rest on the mere allegations or denials of his pleadings, and must set forth specific facts

showing that there is a genuine issue for trial.9

2. Law applicable to Try Hours' Claim for Lost Profits

In Ohio, a plaintiff in a breach of contract case may recover lost profits if: "(1) profits

were within the contemplation of the parties at the time the contract was made, (2) the loss

of profits is the probable result of the breach of contract, and (3) the profits are not remote

' Zivich v. Mentor Soccer Club, Inc. (1998), 82 Ohio St.3d 367, 369-370; State ex rel.Parsons v. Fleming (1994), 68 Ohio St.3d 509, 511.

5 Celotex Corp. u. Catrett (1986), 477 U.S. 317, 330; Mitseff v. Wheeler (1988), 38 OhioSt.3d 112, 115.

6 Dresher v. Burt (1996), 75 Ohio St.3d 280, 296.

7Murphy v. Reynoldsburg (1992), 65 Ohio St.3d 356, 358-359.

B Wing v. Anchor Media, Ltd. (1991), 59 Ohio St.3d 1o8,1i1; Celotex, 477 U.S. at 322-323.

9 Chaney v. Clark Cty. Agricultural Soc. (1993), go Ohio APP.3d 421, 424•

4

and speculative and may be shown with reasonable certainty."10 "[T]he amount of the lost

profits, as well as their existence, mustbe demonstrated with reasonable certainty."" Ohio

courts, including the Sixth District Court of Appeals, agree that lost profits must be

measured by the loss of business sustained by the plaintiff, not by the gain of or effect on

the defendant's business.12

3. Try Hours' Claim for Lost Profit Damages FailsBecause Its Expert Has Not Calculated Its Lost Profit Damages

to the Required Degree of "Reasonable Certainty."

As aptly detailed by Defendants, Try Hours' expert, Blake Radcliffe, used a "but-for"

methodology based on PTL's financial gain, rather than on Try Hours' financial loss, to

calculate Try Hours' lost profit claim; and Ohio courts reject Radcliffe'S methodology.13

Defendants point to the Developers Three and Lewis cases, arguing that Try Hours

must rely on its own revenues, not the revenues of others, to determine its lost profits. Try

Hours attempts to distinguish these cases, saying that Radcliffe limited his analysis to Try

Hours former customers and utilized Try Hours' cost structure to determine what profits

those customers would have generated if Try Hours had retained them. The Court

acknowledges that the pattern of financial decline that plagued Try Hours even before

" Charles R. Combs Trucking, Inc. v. Internatl. Harvester Co. (1984), 12 Ohio St.3d 241,paragraph two of the syllabus.

" Gahanna v. Eastgate Properties, Inc. (1988), 36 Ohio St.3d 65, syllabus.

" UZ Engineered Products Co. v. Midwest Motor Suppl Co., Inc. (ioth Dist. 2001), 147Ohio App. 3d 382,400; BrookesideAmbulance, Inc. V. Walker Ambulance Svc. (6th Dist.1996), 112 Ohio App.3d 15o, 158; Developers Three v. Nationwide Ins. Co. (loth Dist.199o), 64 Ohio APP.3d794, 803; Lewis v. Surgery & Gynecology, Inc.,ioth Dist. No. 9oAP-300, 1991 WL 35010, *5-6.

'3 See Defendants' Supplemental Brief Pursuantto Court Order Dated November 23, 2005,filed December 2, 2005, at pages 2-10.

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Swartz, Morey, and Mueller left to form PTL may inhibit Try Hours' ability to base its

calculation of lost profits on its own revenues. However, the Court finds that both Lewis

and Developers Three, as well as other Ohio cases cited earlier in this Opinion, support

Defendants' position that Try Hours cannot base its lost profit calculation on PTL's gain.'"

Further, there is no record support for Try Hours' assumption that the customers

that Radcliffe included in his calculation would remain with or generate additional revenues

for Try Hours.15 Lewis is directly on point on this issue:

"At trial, appellant set out to prove damages by way of establishing that, sincehe terminated his employment with appellant, appellee had seen a certainnumber of patients who had previously been patients of appellant. Based onthis fact, appellant sought to persuade the trial court to award it damages inthe amount of the total charges which were made to those patients. Theamount of money that appellee charged his patients for his proceduresindicated the revenue that appellant would have derived from those patientshad appellee not left their employment or had appellee been restrained fromseeing former patients of appellant.

"The trial court found appellant's evidence on the issue of damages to bespeculative and unbelievable because the evidence assumes that all of itsformer patients who were treated by appellee after his departure fromappellant would have come back to appellant had appellee not beenpracticing in Franklin County. However, the court found that there was nodirect evidence presented to support this assumption. ***

"Upon review of the evidence, this court agrees with the finding of the trialcourt that the evidence presented by appellant as to the issue of damages wasindeed speculative. ii6

Moreover, Try Hours cannot claim damages based upon customers that it

relinquished in the Stipulated Permanent Injunction."

'^ See Defendants' Supplemental Brief, at pages 6-9.

'S See Defendants' Supplemental Brief, at pages 13-14.

16 Lewis, 1991 WL 3501o, at *5-6.

" See Defendants' Supplemental Brief, at pages io-iz.

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Accordingly, Try Hours has not demonstrated its lost profits to the degree of

"reasonable certainty" that the Ohio Supreme Court requires,'8 and Defendants are entitled

to judgment on the issue of damages as a matter of law.

4. The Failure of Try Hours' Claim for Lost Profit DamagesPrecludes Its Claim for Punitive Damages.

In Ohio, "proof of actual damages on the underlying claim is a necessary predicate

for an award of punitive damages," and "compensable harm stemming from a cognizable

cause of action must be shown to exist before punitive damages can be considered."'9 As

Try Hours' claim for lost profit damages fails as a matter of law, Try Hours' claim for

punitive damages also fails.

JUDGMENT ENTRY

It is ORDERED that the Motion for Summary Judgment with Regard to Damages

filed by Plaintiff Try Hours, Inc. on October 6, 2004 is DENIED.

It is further ORDERED that the Cross-Motion for Summary Judgment filed by

Defendants David L. Swartz, Premium Transportation Logistics LLC, Chris Morey, and

John Mueller on August 1, 2005 is GRANTED.

January 31, 2oo6

cc: J. Mark Trimble, Esq.David W. Zoll, Esq.

18 Combs 7)-ucking, 12 Ohio St.3d at paragraph two of the syllabus; Gahanna, 36 Ohio St.3dat syllabus.

19 Moskovitz v. Mt. Sinai Med. Ctr. (1994), 69 Ohio St.3d 638, 649-65o.

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