Atlas Noble, LLC v. Krizman Enterprises, et al

Filing

OPINION filed: For the reasons stated above, we AFFIRM the district court s finding that the earnest-money provision should be construed as a liquidated-damages clause and its denial of Croxton s motion to intervene. The district court s grant of summary judgment for Krizman on the issue of breach and its award of the escrowed funds is REVERSED and REMANDED for consideration consistent with this opinion, decision not for publication. Julia Smith Gibbons (authoring), Deborah L. Cook, and Raymond M. Kethledge, Circuit Judges. [15-4385, 15-4400, 16-3002]

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NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 17a0287n.06
Nos. 15-4385, 15-4400, 16-3002
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
ATLAS NOBLE, LLC,
Plaintiff-Appellant/Cross-Appellee,
v.
KRIZMAN ENTERPRISES, MKE
PRODUCING, INC., and WAYNE HAMMOND
ENTERPRISES, INC.,
Defendants-Appellees/Cross-Appellants;

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FILED
May 23, 2017
DEBORAH S. HUNT, Clerk

ON APPEAL FROM THE
UNITED STATES DISTRICT
COURT FOR THE
NORTHERN DISTRICT OF
OHIO

BEFORE: GIBBONS, COOK, and KETHLEDGE, Circuit Judges.
JULIA SMITH GIBBONS, Circuit Judge. This case revolves around an agreement to
buy and sell oil-and-gas leases entered into by Atlas Noble, LLC (“Atlas” or “buyer”) and
Krizman Enterprises, MKE Producing, Inc., and Wayne Hammond Enterprises, Inc. (collectively
“Krizman” or “sellers”). Each blames the other for the failure of the deal. The district court
found that Atlas anticipatorily repudiated the agreement and that this repudiation entitled the
sellers to the earnest money in the escrow account—but nothing more—because the court
construed the agreement’s earnest-money provision as a liquidated-damages clause. The district
court also denied Beau Croxton’s motion to intervene.
The district court resolved most of this matter correctly. It was right to construe the
earnest-money provision here as a liquidated-damages clause. And the district court did not err
in denying Croxton’s motion to intervene. Further, it correctly found the contract required
Krizman to be in a position to deliver title by 11:59 p.m. on April 3 and that Atlas anticipatorily

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breached the contract by unilaterally terminating the agreement at 5:52 p.m. that same day.
Krizman, however, took no further action after Atlas’s 5:52 p.m. email and it, too, did not tender
performance under the contract. But Atlas’s repudiation of the contract may excuse Krizman’s
non-performance if Krizman can demonstrate that the repudiation was a material reason for its
failure to tender performance. This, in turn, requires Krizman to demonstrate that it was in fact
capable of performing its obligations by 11:59 p.m. on April 3. Otherwise, the parties are in
mutual breach of the agreement. Because there remains a genuine dispute of material fact about
whether Atlas’s repudiation was a material reason for Krizman’s non-performance, we reverse
the district court’s grant of summary judgment for Krizman on this issue and remand this matter
to the district court.
I.
Atlas entered into a Purchase and Sale Agreement (“PSA”) with Krizman in September
2012. The PSA provided that Krizman would sell, and Atlas would buy, certain oil-and-gas
leases in Tuscarawas County, Ohio. Within three days of executing the agreement, Atlas was to
place $2,411,290 into an escrow account. Initially, the contract established that the sale would
close “not later than December 15, 2012 or such other date as Buyer and the Seller mutually
agree in writing . . . .” (DE 1-2, PSA § 1.1, Page ID 13.)
Section 6.2 of the PSA outlined the conditions that Krizman had to meet to trigger Atlas’s
obligation to purchase the leases. As relevant to this dispute, § 6.2(iv) required that Krizman be
able to deliver defensible title to at least 76.85 percent of the 2,414.21 acres offered for sale.1
If the deal failed for any reason other than those contained in § 6.2, the escrowed funds went to
Krizman.

1

The PSA initially required that Krizman be able to deliver at least 80 percent of the acreage, but the
second amendment to the PSA decreased this amount to 76.85 percent.

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Atlas assumed sole responsibility for ensuring that Krizman had good title to the oil-andgas assets Krizman was selling. To help Atlas review those assets, the PSA allowed for a
“review period,” by providing:
Between the execution of this Agreement and 5:01 p.m. Eastern Standard Time on
December 15, 2012 (the “Review Period”), Seller shall make available for review
by Buyer and its representatives, during normal business hours, excluding
weekends and holidays, all records relating to title (including contracts,
correspondence, files and prior title opinions) in its possession pertaining to the
Leases for purposes of permitting Buyer to review Seller’s title to the Leases.
(PSA §§ 4.1 & 4.2, Page ID 19.) This was intended to provide Atlas with sufficient time to
determine whether Krizman had defensible title to the requisite acreage. The PSA was twice
amended to extend the time that Atlas had to review the leases. Ultimately, Atlas’s review
period was extended until April 3, 2013. These amendments necessitated a corresponding
extension of the closing date, which was pushed back to April 3, 2013 as well. Although the
PSA stated that the review period ended at 5:01 p.m., neither it nor its amendments provided an
express time on April 3 by which closing had to be complete.
Section 4.2 of the PSA provided that Atlas’s “sole remedy for any defect of title” was a
reduction in the purchase price. (PSA § 4.2, Page ID 19.) The procedure for defect adjustments
was contained in § 4.3. That section stated that “[o]n or before the end of the Review Period,
Buyer, at its sole and absolute discretion, may determine to exclude all or any portion of a Lease
for title related matters which will then have a corresponding impact on the Purchase Price . . . .”
(PSA § 4.3, Page ID 19.) Pursuant to this section, an Atlas employee sent Krizman a letter2
stating that Atlas had “completed its title review and ha[d] adjusted the net acres for each subject
lease accordingly.” (DE 58-6, Jan. 28, 2013 Letter, Page ID 2480.) The letter further stated that
Atlas intended “to purchase approximately 1,861.3361 acres or 76.85% of the net acres stated in
2

The parties agree that this letter was misdated “January 28, 2012.” It was drafted and sent in January

2013.

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the Purchase and Sale Agreement on or before the new closing date which is proposed to be
April 3, 2013.” (Id. at 2481.)
On April 2, 2013—the day before closing—Atlas sent Krizman an email, explaining the
final steps Krizman needed to take regarding the remaining title defects. Specifically, Atlas
asked Krizman to execute a certain modification with, and obtain a letter regarding severance tax
from, the Muskingum Water Conservancy District (“MWCD”), and to take four steps regarding
the Ralph Ervin lease: produce “[1 a] quit claim deed from Huntington National Bank for
Croxton and Caldwell parcels totaling 118.9392 acres, [2 a] release of Ervin lease, [3] executed
leases from Croxton and Caldwell totaling 118.9392 acres, [and 4] confirmation of payment of
both leases.” (DE 58-7, April 2, 2013 Email, Page ID 2503.)
On April 2 and into the day on April 3, Krizman worked to complete these remaining
requests. The parties do not dispute that most of the necessary steps were taken with regard to
MWCD, and that Krizman had received the quit-claim deeds from Huntington National Bank.
Krizman asserts that it had nearly all of the final agreements in place so that all of Atlas’s
requests could be met, although, importantly, there is a dispute about whether Krizman could
have completed all of the necessary steps that day. But, at 5:52 p.m. on April 3, Atlas emailed
Krizman and indicated that it was unilaterally terminating the agreement, pursuant to § 8.1,
because “Seller has failed to satisfy Section 6.33 of the Agreement, as amended, by the close of
business on April 3, 2013, as [they have] not cleared title to more than 76.85% of the cumulative
acreage totals . . . .” (DE 1-5, April 3, 2013 Termination Letter, Page ID 68.) After receipt of
this email, Krizman took no further action to complete the transaction. It also refused to
authorize release of the escrowed funds.

3

The PSA does not contain a § 6.3, but, as the district court did, we assume that this was simply a
scrivener’s error and that Atlas intended to refer to § 6.2—the section that contains the acreage requirement.

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On July 11, 2013, Atlas filed a one-count complaint in the United States District Court
for the Northern District of Ohio, claiming that Krizman breached the PSA by refusing to
authorize the release of the escrowed funds to Atlas. Krizman filed a three-count counterclaim,
seeking a declaratory judgment that it is entitled the escrowed funds and raising two breach-ofcontract claims—one to recover the amount in escrow and the other seeking damages equal to
the total value of the contract. Additionally, Beau Croxton filed a motion to intervene. Croxton
was one of the individuals with whom Krizman was negotiating on April 2–3 as it tried to
finalize Atlas’s requests relating to the Ervin lease. Croxton sought to intervene as a matter of
right pursuant to Federal Rule of Civil Procedure 24(a)(2), claiming that he had an interest in any
proceeds realized by Krizman and that no other party was willing to protect that interest. Both
Atlas and Krizman objected to his as-of-right intervention and asked the district court also to
deny any attempt at permissive intervention.
On cross-motions for summary judgment, the district court found that Krizman was
entitled to the escrowed funds because Atlas anticipatorily breached the PSA when it unilaterally
terminated the agreement at 5:52 p.m. on April 3, 2013. By subsequent order, however, the
district court dismissed Krizman’s breach-of-contract claim that sought the total value of the
contract, reasoning that the escrow account acted as a liquidated-damages clause that limited
Krizman’s recovery. The district also denied Croxton’s motion to intervene.
Atlas, Krizman, and Croxton appeal. Atlas appeals the district court’s determination that
Krizman is entitled to the funds in the escrow account. Krizman appeals the district court’s
finding that the escrow account acted as a liquidated-damages clause. Croxton appeals the
district court’s denial of his motion to intervene.

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II.
This court reviews the district court’s grant of summary judgment de novo. Domingo v.
Kowalski, 810 F.3d 403, 410 (6th Cir. 2016) (citing Green Party of Tenn. v. Hargett, 767 F.3d
533, 542 (6th Cir. 2014)). Construing the evidence in the light most favorable to the nonmovant,
id. (citing Villegas v. Metro. Gov’t of Nashville, 709 F.3d 563, 568 (6th Cir. 2013)), summary
judgment is appropriate if “the movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law,” Fed. R. Civ. P. 56(a). In Ohio,
interpretation of written contracts is a matter of law reviewed de novo.

Arnott v. Arnott,

972 N.E.2d 586, 590 (Ohio 2012) (citing Saunders v. Mortensen, 801 N.E.2d 452, 454 (Ohio
2004) (“The construction of a written contract is a matter of law that we review de novo.”)).
As for Croxton’s motion to intervene, “[a] district court's denial of intervention as of right is
reviewed de novo, except for the timeliness element, which is reviewed for an abuse of
discretion.” United States v. Tennessee, 260 F.3d 587, 592 (6th Cir. 2001) (citing Grutter v.
Bollinger, 188 F.3d 394, 398 (6th Cir. 1999)).
III.
A.
To determine which party is entitled to the escrowed funds, we must answer several
questions. First, when was the deal scheduled to close? Second, did Krizman have until closing
or until only the end of the review period to perform? Third, what was the effect of Atlas’s
5:52 p.m. email? Finally, did one or both parties breach the agreement?
1.
The initial PSA contained two deadlines—one for the review period and one for closing.
The deadline for the review period and for closing was December 15, 2012. However, unlike the

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review period—which had a time-specific deadline of 5:01 p.m. on December 15—there was no
specific time of day by which closing had to be completed. Although subsequent amendments to
the PSA changed the date for the review period and closing, neither amendment altered the time
of day by which they were to be completed. On appeal, the parties dispute the time for closing,
and, as a necessary corollary, Krizman’s deadline to perform. Atlas asserts that the deadlines for
the review period, closing, and Krizman’s performance were all the same: 5:01 p.m. on April 3.
Krizman claims that, while the review period ended at 5:01 p.m., closing, and Krizman’s
performance, did not have to occur until 11:59 p.m. that evening.
Under the express terms of the contract, as interpreted by Ohio law,4 closing did not have
to be completed until 11:59 p.m. on April 3. Under Ohio law, “a contract which, by its terms,
expires on a certain day, remains in force the whole of that day unless by its express wording it is
limited to a certain time of day upon which it expires.” Greulich v. Monnin, 50 N.E.2d 310, 312
(Ohio 1943) (citation omitted). This gap-filling rule applies here because the PSA did not set a
specific time of day for closing, as it did for the review period. Thus, the parties should have had
until 11:59 p.m. on April 3 to perform. This is what the district court found, and that finding
makes sense—especially if one considers the issues that could arise if, as Atlas would have it, the
review period and closing ended simultaneously. Under this view, Atlas could have identified
title defects at 4:59 p.m., giving Krizman effectively no opportunity to cure those issues. It
seems unlikely that the parties would have intended such a result. And although the PSA here is
limited to its own language, our interpretation is consistent with other oil-and-gas-lease-contract
cases in this circuit, where the parties have had a review period that ended well before the time
of closing. See Broad St. Energy Co. v. Endeavor Ohio, LLC, 975 F. Supp. 2d 878, 880 (S.D.
Ohio 2013) (requiring any title defects to be reported to seller not later than 30 days prior to
4

The PSA contains an Ohio choice-of-law provision, and the parties do not dispute its applicability.

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close), aff’d, 806 F.3d 402 (6th Cir. 2015). Accordingly, the district court was right to find that
closing was at 11:59 p.m.
2.
Having found that closing and the review period ended at different times on April 3, we
must next determine by which of those deadlines Krizman had to cure the title defects that Atlas
had previously identified. Section 4 of the PSA governed title-defect issues. Under that section,
Krizman agreed to give Atlas access to relevant documents and personnel so that Atlas could
complete its title review. Any defects that Atlas found were governed by § 4.3’s defectadjustment procedures. Unlike other oil-and-gas-lease cases, where the underlying contract
required the buyer and the seller to agree to any title-defect adjustments, see Broad St. Energy,
975 F. Supp. 2d at 880 n.2, the PSA here gave Atlas “sole and absolute discretion . . . to exclude
all or any portion of a Lease for title related matters which will then have a corresponding impact
on the Purchase Price.” (PSA § 4.3(a), Page ID 19.) Section 4 further provided the methodology
by which purchase-price adjustments were to be made. And, although § 4.3 gave Atlas sole
discretion to exclude acreage, it required Atlas to do so “[o]n or before the end of the Review
Period.” (Id.)
On January 28, 2013, Atlas informed Krizman that it had completed its review and listed
the properties requiring remedial action. After this, on February 12, 2013, the parties agreed to
extend the review period and the date of closing.5 On April 2, 2013, Atlas emailed Krizman to
inform it of the final six steps that it would need to take to deliver the requisite acreage. There is
no dispute that Krizman accomplished four of the six steps and was in a position to deliver title
to approximately 1,738 of the 1,856 acres necessary to close the deal. In the early evening on

5

This mutual extension of the review period forecloses any argument that Atlas waived its review-period

rights.

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April 3, Krizman was attempting to correct the remaining issues with the final parcel—the Ralph
Ervin lease—that it needed in order deliver the requisite acreage.
Under the express terms of the PSA, Atlas could have unilaterally excluded any lease—
including the Ervin lease—prior to 5:01 p.m. on April 3, the end of the review period. But, once
that deadline passed, Krizman had until closing—11:59 p.m.—to complete the tasks listed in the
April 2 email. Accordingly, while Atlas could have excluded the Ervin lease before 5:01 p.m. on
April 3 or waited until after 11:59 p.m. to see if Krizman had performed—and, under either
event, potentially retained the escrowed funds—it did neither.

Atlas’s 5:52 p.m. email,

if construed as an attempt to exclude the Ervin lease, came fifty-one minutes too late, and,
if construed as an attempt to terminate the contract, came approximately six hours too early.
3.
We conclude that Atlas’s 5:52 p.m. email uncontrovertibly repudiated the PSA.
To demonstrate that Atlas anticipatorily repudiated the PSA, Krizman must prove that Atlas “had
a duty to do something in the future (by continuing toward closing) but wrongfully refused to do
it (by terminating the contract).” Broad St. Energy, 806 F.3d at 406 (citing Se. Land Dev., Ltd. v.
Primrose Mgmt., LLC, 952 N.E.2d 563, 569 (Ohio Ct. App. 2011)). Krizman must establish
(1) that Atlas had no right to terminate the PSA, and (2) that Krizman had not already materially
breached the PSA. Id. (citing Jackson v. State Farm Fire & Cas. Co., 461 F. App’x 422, 426
(6th Cir. 2012)).
There is no doubt that Atlas’s 5:52 p.m. email on April 3 refused future performance and
repudiated the PSA. It stated:
The purpose of this letter is for Buyer to inform Seller that, Seller has failed to
satisfy Section 6.3 of the Agreement, as amended, by close of business on April 3,
2013, as it has not cleared title to more than 76.85% of the cumulative acreage

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totals set forth on Exhibit A to the Agreement. Based upon the foregoing, Buyer
is exercising its right to terminate the Agreement pursuant to Section 8.1.
(DE 1-5, April 3, 2013 Termination Letter, Page ID 68.) Thus, this email informed Krizman that
Atlas was unilaterally terminating the contract and refusing future performance.

Atlas’s

intention to commit breach was unequivocal and was not a mere statement of doubt. See Metz v.
Am. Elec. Power Co., Inc., 877 N.E.2d 316, 323 (Ohio Ct. App. 2007); see also Restatement
(Second) of Contracts § 250 cmt. b (1981).

Under the PSA, Atlas could not unilaterally

terminate the agreement unless Krizman was in breach or otherwise had not completed its
obligations by closing. And, as demonstrated above, Krizman had not breached the PSA and had
until 11:59 p.m. on April 3 to cure the remaining title defects. At the time Atlas sent the April 3
email, sellers were still in position to potentially deliver title on or before closing, and thus, were
not in breach of the PSA. Accordingly, Atlas’s 5:52 p.m. email repudiated the PSA. That,
however, does not end the analysis because Atlas’s repudiation does not necessarily entitle
Krizman to the escrowed funds.
4.
Because Atlas anticipatorily repudiated the PSA, Krizman had the option of
“(1) terminating the contract and suing the breaching party immediately, or (2) continuing the
contract and suing the breaching party for damages after the time for performance has passed.”
Haman Enters., Inc. v. Sharper Impressions Painting Co., 50 N.E.3d 924, 931 (Ohio Ct. App.
2015) (citing Sunesis Trucking Co., Inc. v. Thistledown Racetrack, LLC, 22 N.E.3d 190, 196
(Ohio Ct. App. 2014)). But Krizman did not terminate the PSA and sue immediately nor did it
continue with the contract. In fact, after Atlas’s 5:52 p.m. e-mail, Krizman took no further action
to finalize the deal and did not tender performance. Krizman did, however, send Atlas an e-mail
stating its position that Atlas had anticipatorily repudiated the contract and demanding that Atlas
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rescind its termination.

That e-mail also informed Atlas that Krizman was suspending

performance until it received reasonable assurance that Atlas would continue with the deal.
Atlas did not rescind its termination or provide any assurance that it would tender performance.
And no one disputes that neither party ultimately tendered performance. Thus, as “[i]n many
disputes over failure of performance, both parties fail[ed] to finish performance, and the question
is whether one of them is justified in so doing by the other party’s failure.” Restatement
(Second) of Contracts § 237 cmt. b.
Krizman claims that it ceased performance due to Atlas’s repudiation of the contract and
that its non-performance may be excused because neither Ohio law nor the Restatement (Second)
of Contracts requires a party to perform where that performance will be futile. Daniel E. Terreri
& Sons, Inc. v. Mahoning Cty. Bd. of Comm’rs., 786 N.E.2d 921, 929 (Ohio Ct. App. 2003)
(“When one party to a contract repudiates the contract, or gives notice to the other party before
the latter is in default that he or she will not perform, the nonrepudiating party is entitled to
enforce the contract without previously performing or offering to perform the provisions of the
contract in favor of the repudiating party.”); see also Livi Steel, Inc. v. Bank One, Youngstown,
N.A., 584 N.E.2d 1267, 1270 (Ohio Ct. App. 1989) (“A repudiation of a contract before the time
for performance gives the adverse party the option to treat the entire contract as broken and to
sue for breach of contract, and there is no necessity in such case for a tender of performance or
compliance with conditions precedent, or to wait for the time for performance to arrive.”);
Restatement (Second) of Contracts § 255 (1981) (“Where a party's repudiation contributes
materially to the non-occurrence of a condition of one of his duties, the non-occurrence is
excused.”).

“No one should be required to do a useless act, and if, because of a party's

repudiation, it appears that the occurrence of a condition of a duty would not be followed by

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performance of the duty, the non-occurrence of the condition is generally excused.” Restatement
(Second) of Contracts § 255 cmt. a. Here, this means that Krizman’s failure to produce the
requisite acreage may be excused because continuing performance would have been a futile act.
Such a rule makes sense: Krizman had no reason to put more money, time, and effort into this
deal after Atlas so clearly indicated it would not pay.
But Atlas has a rebuttal. Notwithstanding the other party’s repudiation, “[a] party’s duty
to pay damages for total breach by repudiation is discharged if it appears after the breach that
there would have been a total failure by the injured party to perform his return promise.”
Restatement (Second) of Contracts § 254(1). A failure is total “if it would have been sufficient
to have discharged any remaining duties of the party in breach to render his performance.” Id.
cmt. a. In this case, that means if Krizman would have been unable to reach the requisite acreage
total by 11:59 p.m. on April 3, Atlas’s duty to pay damages for its breach by repudiation would
be discharged because Atlas’s duty to buy the oil-and-gas leases was contingent on Krizman
meeting the acreage total. Thus, if Atlas can show that Krizman could not have performed in
any event, the parties will be in mutual breach of the contract and the PSA must be equitably
rescinded.6 See Admiral Plastics Corp. v. Trueblood, Inc., 436 F.2d 1335, 1339 (6th Cir. 1971);
see also Lewis v. White, 16 Ohio St. 444, 454 (Ohio 1866); Dickson v. Wolin, 18 Ohio Law Abs.
107, 109 (Ohio Ct. App. 1934) (“Failure of both parties to perform their contract gives rise to the
presumption of mutual assent to a rescission of the contract.”); Areawide Home Buyers, Inc. v.
Manser, No. 04 MA 154, 2005 WL 678512, at *5 (Ohio Ct. app. Mar. 16, 2005) (“[Ohio] courts
have held that the mutual failure to perform can give rise to a presumption of mutual assent to
rescission.”).
6

We need not opine on what effect a finding of mutual breach and rescission of the PSA would have on the
parties. This issue has not been briefed and is best left in the first instance to the sound discretion of the district
court.

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Resolving these issues is a factual matter, see Hutton v. Monogram Plus, Inc., 604 N.E.2d
200, 203–04 (Ohio Ct. App. 1992) (noting that the test for satisfaction of certain terms is
“whether the performance would satisfy a reasonable person”—a test that is quintessentially
factual); see also Anderson v. U.S. Cable, Inc., No. 94CA2054, 1995 WL 638567, at *3 (Ohio
Ct. App. Nov. 1, 1995) (holding that sufficiency of performance under a contract is a question of
fact), and there remains a genuine issue of material fact that must be resolved by a factfinder.
Here, if the evidence supports that Krizman was capable of completing its performance but,
justifiably, stopped performing because of Atlas’s repudiation, then Krizman is entitled to the
escrowed funds.7 However, there is at least some evidence in the record—specifically Rob
Rauh’s April 3 email noting that the transaction might have failed by the end of the night
because the logistics were “too difficult”—that suggests that Krizman could not have completed
this transaction even if it had continued its attempts to do so. (DE 61-1, April 3, 2013 Rauh
Email, Page ID 2877.) Accordingly, the district court’s grant of summary judgment for Krizman
on the issue of breach, and its award of the escrowed funds to Krizman pursuant to that breach,
must be reversed and this issue remanded to the district court.
B.
Section 1.2 of the agreement required Atlas to “deposit as an earnest money deposit an
amount in cash equal to one thousand dollars per net acre conveyed to [Atlas], which amount is
anticipated to be the sum of $2,411,290.00 . . . .” (PSA § 1.2, Page ID 13.) That section went on
7

Section 1.3 of the PSA states that Atlas retained the escrowed funds only if it:

fails to close the transaction . . . for one of the following reasons; that (a) Seller does not have
defensible title to . . . at least [76.85% of the cumulative acreage total], (b) there has been
unanticipated plugging of wells . . . (c) environmental issues . . . (d) there is pending or threatened
litigation that relates to the Leases or the transactions . . . (e) Seller cannot transfer to Buyer the
right to operate any Utica/Pt. Pleasant wells that would be drilled by Buyer in the future . . . .
(PSA § 1.3, Page ID 13.) Section 1.3’s conditions mirror those found in § 6.2, which specified what Krizman
needed to do to trigger Atlas’s obligations to perform. Section 1.2 also provided that the escrowed funds would be
paid to Krizman should the deal fail to close for any reason other than those set forth in § 6.2.

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to describe how the escrow amount would be released—essentially providing that the escrowed
funds would release to the non-breaching party. Additionally, § 7.5 of the PSA provided:
Notwithstanding any other provision of this agreement, each party hereby
expressly disclaims, waives and releases the other party from its own special,
exemplary, punitive, consequential, incidental, and indirect damages (including
loss of, damage to or delay in profit, revenue or production) relating to, associated
with, or arising out of this agreement and the transactions contemplated hereby.
No law, theory, or public policy shall be given effect which would undermine,
diminish, or reduce the effectiveness of the foregoing waiver, it being the express
intent, understanding, and agreement of the parties that such damage waiver is to
be given the fullest effect, notwithstanding the negligence (whether sole, joint or
concurrent), gross negligence, willful misconduct, strict liability or other legal
fault of any party.
(PSA § 7.5, Page ID 24–25 (emphasis added).)
Reading these two sections in conjunction, the district court found that Krizman’s
recovery was limited because § 1.2’s escrow account was intended to be a liquidated-damages
clause. Because Krizman could not recover more than the escrowed funds, the district court
dismissed its claim in Count III for actual damages caused by Atlas’s breach.
On appeal, Krizman argues that the district court erred in dismissing its claim for actual
damages because § 1.2 was an earnest-money provision that did not expressly claim to be a
liquidated-damages clause, or, at the very least, did not state that it was in lieu of actual damages.
Earnest-money provisions, Krizman argues, are different from liquidated-damages clauses and
are routine in real-estate option contracts because they provide consideration for sellers holding
property off the market during the option period. And, contrary to Atlas’s position that § 7.5
should be read broadly to bar Krizman’s claim for actual damages, Krizman claims that the
absence of “actual, direct, compensatory damages” from § 7.5’s list of waived damages further
supports the notion that it should be permitted to proceed to trial for actual damages.

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Ohio case law does not directly answer this question. In some cases, Ohio courts have
permitted the non-breaching party to recover actual damages despite the presence of an earnestmoney provision, but, in each of those cases, the underlying contract explicitly provided that the
earnest-money provision did not limit recovery of actual, direct, or compensatory damages,
resolving any ambiguity regarding whether the earnest-money provision was intended to be a
liquidated-damages clause. See Windsor v. Riback, Nos. 2007–G–2775, 2007–G–2781, 2008
WL 1849617, at *7 (Ohio Ct. App. April 25, 2008) (permitting the non-breaching party to sue
for actual damages, where the earnest-money provision was three percent of the purchase price
and the contract provided that nothing in it was to limit the non-breaching party’s ability to
recover actual damages); see also Gaskins v. Young, No. 20148, 2004 WL 1178278, at *4–6
(Ohio Ct. App. May 28, 2004) (refusing to limit recovery to the earnest-money provision where
the contract did not provide that it was to be liquidated damages or otherwise in lieu of actual
damages and where the contract contained a provision noting that the earnest money “shall not
prejudice the rights of the . . . non-defaulting party in an action for damages”). In other cases,
earnest-money provisions have limited recovery, but there the contracts clearly indicated that the
earnest money was to act as liquidated damages, was in lieu of actual damages, or was the nonbreaching party’s sole remedy. See Ohio Title Corp. v. Pingue, No. 10AP–1010, 2012 WL
1077193, at *3–4 (Ohio Ct. App. March 29, 2012) (distinguishing Windsor and Gaskins because
the contract at issue provided that the earnest money was to be liquidated damages and would act
as full settlement between buyer and seller); see also Ottenstein v. W. Reserve Acad., 374 N.E.2d
427, 428–29 (Ohio Ct. App. 1977).
The PSA does not fit neatly into either line of cases as it is ambiguous as to the nonbreaching party’s ability to recover beyond the earnest money. Section 1.2 does not expressly

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claim that the escrowed amount is to be paid as liquidated damages or in lieu of actual damages.
Nor does it indicate that recovering the escrowed amount is the non-breaching party’s sole
remedy. But, unlike the Ohio cases that permitted recovery beyond the earnest money paid, the
PSA lacks affirmative language that the non-breaching party can recover beyond the funds in
escrow.
The district court sought to harmonize the PSA by reading § 1.2 and § 7.5 together.
Doing so, it found that the breadth of the waiver in § 7.5, although not explicitly covering actual
damages, was sufficient to infer that § 1.2’s earnest-money provision was intended to be a
liquidated-damages clause. Specifically, the district court noted that § 7.5 stated that the waiver
provision was “to be given its fullest effect, notwithstanding the . . . legal fault of any party.”
(DE 96, Order Dismissing Krizman Count III, Page ID 3825.) Although helpful and reasonable,
this interpretation does not fully resolve the issue.
Section 7.5 includes a list of the following damages: special, exemplary, punitive,
consequential, incidental, and indirect. According to Black’s Law Dictionary, as well as Ohio
case law, none of those types of damages includes actual, direct, or compensatory damages.
See Damages, Black’s Law Dictionary (10th ed. 2014) (noting that consequential damages are
those that, unlike actual or compensatory damages, do not flow directly from the injurious act);
see also Airlink Commc’ns, Inc. v. Owl Wireless, LLC, No. 3:10 CV 2296, 2011 WL 4376123, at
*3 (N.D. Ohio Sept. 20, 2011) (describing the difference between actual and compensatory
damages and special, consequential, incidental, and exemplary damages). Krizman, noting the
absence of actual damages or proxy terms, asserts that the maxim of expressio unius est exclusio
alterius—that which is not included must be excluded—requires that the PSA be interpreted so

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as to not bar their recovery of actual damages. Yet, as the district court noted, § 7.5’s final
sentence is very broad:
No law, theory, or public policy shall be given effect which would undermine,
diminish, or reduce the effectiveness of the foregoing waiver, it being the express
intent, understanding, and agreement of the parties that such damage waiver is to
be given the fullest effect, notwithstanding the negligence (whether sole, joint or
concurrent), gross negligence, willful misconduct, strict liability or other legal
fault of any party.
(PSA § 7.5, Page ID 24–25.) On the face of the contract alone, it is a close question whether this
provision is broad enough to limit Krizman’s recovery of actual damages. When combined with
the size of the earnest-money provision in the PSA, however, the issue ceases to be a murky one.
The combination of the two factors leads us to conclude that the earnest-money provision here
should be construed as a liquidated-damages clause.
Usually, earnest-money provisions are a relatively small percentage of the overall
purchase price of the relevant asset. See Pingue, 2012 WL 1077193 at *3. Ohio courts have
held that an earnest-money provision that was 7.25 percent of the purchase price was “pushing
the envelope” of enforceability. Cochran v. Schwartz, 696 N.E.2d 656, 658 (Ohio Ct. App.
1997). Thus, if not construed as a liquidated-damages clause, the 20-percent-of-the-purchaseprice earnest-money provision here likely would be unenforceable. But, if interpreted as a
liquidated-damages provision, the amount is reasonable and enforceable.
In Ohio, liquidated damages are enforceable so long as:
the damages would be (1) uncertain as to amount and difficult of proof, and if
(2) the contract as a whole is not so manifestly unconscionable, unreasonable, and
disproportionate in amount as to justify the conclusion that it does not express the
true intention of the parties, and if (3) the contract is consistent with the
conclusion that it was the intention of the parties that damages in the amount
stated should follow breach thereof.

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Samson Sales, Inc. v. Honeywell, Inc., 465 N.E.2d 392, 394 (Ohio 1984) (quoting Jones v.
Stevens, 146 N.E. 894, 895 (Ohio 1925)). Twenty percent is not unreasonably large relative to
the value of the contract. Further, having a liquidated-damages clause in a contract for oil-andgas leases—assets that are subject to fluctuations concomitant with the always volatile
commodities market—is reasonable given the uncertainty that could surround the future value of
those assets. Reading the contract as a whole, while considering the large percentage of the
purchase price encompassed by § 1.2’s earnest-money provision and the breadth of § 7.5’s
waiver, we find that the parties intended the earnest-money provision to serve as a liquidateddamages clause and thus affirm the district court’s decision to limit recovery to the escrowed
funds.
C.
On February 18, 2015 Beau Croxton filed a motion to intervene in this matter, which
both Atlas and Krizman opposed. The district court denied Croxton’s motion, finding that he
could not intervene as-of-right and declining to grant permissive intervention as well.
Federal Rule of Civil Procedure 24(a)(2) governs motions to intervene as-of-right. That
rule provides:
On timely motion, the court must permit anyone to intervene who . . . claims an
interest relating to the property or transaction that is the subject of the action, and
is so situated that disposing of the action may as a practical matter impair or
impede the movant's ability to protect its interest, unless existing parties
adequately represent that interest.
Fed. R. Civ. P. 24(a)(2). Thus, intervention as-of-right will be granted only where the intervenor
can show: “(1) timeliness of the application to intervene, (2) . . . substantial legal interest in the
case, (3) impairment of the applicant's ability to protect that interest in the absence of
intervention, and (4) inadequate representation of that interest by parties already before the

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court.” Tennessee, 260 F.3d at 591–92 (citing Mich. State AFL-CIO v. Miller, 103 F.3d 1240,
1245 (6th Cir. 1997)). The district court denied Croxton’s motion because it found that his
motion was untimely and that he lacked a substantial legal interest.

It did not reach the

remaining two criteria.
This circuit has delineated five factors for determining whether a motion to intervene was
timely filed. Those factors are:
(1) the point to which the suit has progressed; (2) the purpose for which
intervention is sought; (3) the length of time preceding the application during
which the proposed intervenor knew or reasonably should have known of his
interest in the case; (4) the prejudice to the original parties due to the proposed
intervenor's failure, after he or she knew or reasonably should have known of his
interest in the case, to apply promptly for intervention; and (5) the existence of
unusual circumstances militating against or in favor of intervention.”
Id. (quoting Grubbs v. Norris, 870 F.2d 343, 345 (6th Cir. 1989)). “The determination of
whether a motion to intervene is timely should be evaluated in the context of all relevant
circumstances,” Jansen v. City of Cincinnati, 904 F.2d 336, 340 (6th Cir. 1990), and the district
court’s timeliness determination will be affirmed absent an abuse of discretion, Tennessee,
260 F.3d at 592. A district court abuses its discretion only when the reviewing court is “left with
the ‘definite and firm conviction that the court . . . committed a clear error of judgment in the
conclusion it reached upon a weighing of the relevant factors’ or where it ‘improperly applies the
law or uses an erroneous legal standard.’” Id. (quoting Huey v. Stine, 230 F.3d 226, 228 (6th Cir.
2000)).
The district court considered the five timeliness factors noted above and found that
Croxton’s motion was untimely. It noted that Croxton did not file his motion to intervene until
February 18, 2015. This was after the district court had ruled on the cross-motions for summary
judgment, and well after the case had originally been filed in July 2013. The extensive progress

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of the litigation before Croxton attempted to intervene weighs against permitting intervention
here. See Stupak-Thrall v. Glickman, 226 F.3d 467, 475 (6th Cir. 2000). Further, not only had
Croxton known about the suit since its inception, but he had twice been invited to participate and
had taken part in discovery. He also had decided not to intervene in July 2014 despite being
represented by counsel. The district court concluded that Croxton’s late intervention would
prejudice the parties, which were heading towards settlement negotiations and mediation on the
remaining issues in the case. On this record, we find that the district court did not abuse its
discretion in finding Croxton’s intervention motion untimely.
The district court further found that Croxton lacked a substantial legal interest in the
litigation. It was correct to do so. We “subscribe to a rather expansive notion of the interest
sufficient to invoke intervention of right,” Grutter, 188 F.3d at 398 (citation and internal
quotation marks omitted), but the requirement is not without meaning, Coal. to Defend
Affirmative Action v. Granholm, 501 F.3d 775, 780 (6th Cir. 2007). Although the intervenor
“need not have the same standing necessary to initiate a lawsuit in order to intervene in an
existing district court suit where the plaintiff has standing,” Providence Baptist Church v.
Hillandale Comm., Ltd., 425 F.3d 309, 315 (6th Cir. 2005), he “must have a direct and
substantial interest in the litigation,” Grubbs, 870 F.2d at 346. And courts “have generally
concluded that a party may not intervene in support of a defendant solely to protect judgment
funds that the party wishes to recover itself.” Reliastar Life Ins. Co. v. MKP Invs., 565 F. App’x
369, 372 (6th Cir. 2014) (quoting Deutsche Bank Nat’l Tr. Co. v. FDIC, 717 F.3d 189, 195 (D.C.
Cir. 2013)).
Croxton does not have a substantial legal interest in this litigation. We have declined to
adopt a reading of Rule 24 broad enough to permit Croxton to intervene here. See id. Croxton

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was not a party to the PSA, and any agreements he may have been negotiating with Krizman and
others were wholly separate from the contract between Atlas and Krizman. At best, he is one
“who ‘might anticipate a benefit from a judgment in favor of one of the parties to a lawsuit.’” Id.
(quoting Flying J, Inc. v. Van Hollen, 578 F.3d 569, 571 (7th Cir. 2009)). As the district court
found, Croxton’s “peripheral interest in this litigation by virtue of the fact that he may have an
interest in a portion of the judgment proceeds” is insufficient to create a substantial legal interest
in this case. (DE 81, Op. & Order Mot. to Interv., Page ID 3348.) Having found Croxton’s
application untimely, as well as lacking a substantial legal interest, the district court did not need
to consider the two remaining criteria and properly denied his intervention as-of-right.
Although his motion to intervene did not directly raise it, the district court also refused to
allow Croxton permissive intervention. Denial of permissive intervention is reversed only for
the district court’s clear abuse of its discretion. Purnell v. City of Akron, 925 F.2d 941, 951 (6th
Cir. 1991) (citing Meyer Goldberg, Inc. v. Fisher Foods, Inc., 823 F.2d 159, 161 (6th Cir.
1987)). As with intervention as of right, the permissive intervenor must bring his application in a
timely fashion, Fed. R. Civ. P. 24(b), something that the district found Croxton had failed to do.
Nor has Croxton demonstrated that he “has a claim or defense that shares with the main action a
common question of law or fact,” id., and the district court found that permitting intervention
here would cause undue delay and prejudice to the original parties. Thus, the district court did
not abuse its discretion in denying Croxton permissive intervention.
IV.
For the reasons stated above, we affirm the district court’s finding that the earnest-money
provision should be construed as a liquidated-damages clause and its denial of Croxton’s motion
to intervene. The district court’s grant of summary judgment for Krizman on the issue of breach

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and its award of the escrowed funds is reversed and remanded for consideration consistent with
this opinion.

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