Hodak v. Madison Capital Management, LLC et al

Filing 243

MEMORANDUM OPINION & ORDER, (1) Plt's 230 INTERIM MOTION for Attorney Fees DENIED; (2) BENCH TRIAL set for 1/31/2012 at 9:00 AM in LEXINGTON before Judge Joseph M. Hood; (3) parties ADVISE Court of length of trial by 12/9/2011; (4) matter REF ERRED to Magistrate Judge Wier for PTC one week prior to 1/17/2012; (5) one week prior to Magistrate's PTC, file exhibit list, premark exhibits, file witness list, pretrial memo, agreed proposed jury instructions; (5) FINAL PRETRIAL CONFERENCE set for 1/17/2012 at 1:00 PM in LEXINGTON before Judge Joseph M. Hood. Signed by Judge Joseph M. Hood on 12/5/2011.(STB)cc: COR,D

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
KEN HODAK,
Plaintiff,
v.
MADISON CAPITAL MANAGEMENT,
LLC, et al.,
Defendants.
**

**

)
)
)
)
)
)
)
)
)
)
)

Civil Action No. 5:07-5-JMH

MEMORANDUM OPINION AND ORDER

**

**

**

This matter is before the Court on Plaintiff’s Interim Motion
for Attorneys’ Fees and Other Costs [DE 230].

Defendant UAR GP

Services, LLC (hereinafter, “UAR GP Services”) has filed a Response
[DE 239], and Plaintiff has filed a Reply [DE 242] in further
support of his Motion.
I.

This motion is now ripe for decision.

BACKGROUND
The facts and much of the procedural background of this case

have been set forth in detail by this Court in its earlier
Memorandum Opinions and Orders of August 19, 2008 and April 4, 2011
[DE 106 and 227].

The Court incorporates the recitations of the

facts by reference and sets forth here only the most salient facts
with respect to the present motion.
Ken Hodak and UAR GP Services’s May 12, 2006, Non-Competition,
Confidential Information and Invention Agreement (hereinafter,
“Confidentiality

Agreement”)

prohibited
-1-

him

from

disclosing

information regarding UAR’s transactions and acquisitions to third
parties.

In its August 19, 2008, Memorandum Opinion and Order,

this Court dismissed Hodak’s claim for breach of the parties’
Employment Agreement on grounds that UAR GP Services failed provide
him with the requisite notice of the termination of his employment.
The Court concluded that Plaintiff materially breached the parties’
Confidentiality Agreement on at least two occasions, providing more
than

enough

“cause”

for

his

immediate

termination

under

§

9(a)(2)(v) of the Employment Agreement.1
On appeal, the Sixth Circuit vacated the district court’s
decision to grant summary judgment on the breach of contract claim
because there were genuine issues of fact as to whether Hodak’s
breach of the Confidentiality Agreement was the actual reason for
his termination under the Employment Agreement. However, the Sixth
Circuit also agreed with this Court that the evidence showed that
“Hodak

did

what

he

was

prohibited

from

doing

under

the

Confidentiality Agreement: he disclosed confidential information.
By failing to maintain confidentiality on two occasions, Hodak
arguably failed to perform a substantial part of the contract.”
Hodak v. Madison Capital Mgmt., LLC, 348 F. App’x 83, 91 (6th Cir.

1

In relevant part, the Employment Agreement provided that
five business days’ written notice was required to effect
termination without cause but that it could be effected
immediately, i.e., without the required five days’ written notice,
if there was “a material breach of . . . the Confidentiality
Agreement.”
-2-

2009).

When the case was remanded to this Court, the undersigned

denied UAR GP Services’ renewed Motion for Summary Judgment with
respect to its argument that Hodak was properly terminated for
cause under the Employment Agreement due to breaches of the
separate Confidentiality Agreement and granted Hodak’s motion for
summary judgment on his breach of contract claim based on the
Employment Agreement, consistent with the Sixth Circuit ruling.2
As

the

prevailing

party

on

his

claim

of

breach

of

the

Employment Agreement, Plaintiff now seeks an award of attorneys’
fees pursuant to Fed. R. Civ. P. 54(d)(2) and a fee-shifting
provision found in the Confidentiality Agreement which provides, as
follows:
In the event of any litigation or proceeding
concerning any provision of this Agreement or
the rights and duties of the parties hereto,
the party prevailing in such litigation or
proceeding shall, in addition to any other
recovery in such matter, be granted the actual
amount of his, her or its attorneys’ fees and
court and all other related costs in such
matter, which fees and costs shall be
reasonable for such services and goods
provided in Lexington , Kentucky.
He has also filed what appears to be a motion for summary judgment
with respect to the amount of damages due for breach of the

2

This Court did not need to and, thus, did “not reach the
issue of whether UAR GP Services was deprived of the benefit it
reasonably expected and whether, thus, the alleged breaches of the
Confidentiality Agreement were material.” [DE 227 at 16, n. 7.]
-3-

parties’ Employment Agreement with respect to a tax “gross up”
payment, certain expenses related to the lease of a vehicle, and
other benefits.
II.

DISCUSSION
A.

Hodak’s Motion for Attorneys’ Fees and Nontaxable Costs

As a general matter, under the American Rule, each party bears
its own attorneys’ fees “‘absent statutory authorization or an
established contrary exception.’”
Fire

Ins.

Co.,

125

F.3d

308,

Big Yank Corp. v. Liberty Mut.
313

(6th

Cir.

1997)

(quoting

Colombrito v. Kelly, 764 F.2d 122, 133 (2d Cir. 1985)).
exist, however, exceptions to this rule.

There

For example, fees may be

shifted by statute or sanctions awards made pursuant to statute or
the Court’s inherent power.

Fee-shifting can also occur by virtue

of the private agreement of the parties to a contract.

These

agreements are enforceable under Kentucky contract law and, thus,
can serve as the basis for an award of attorneys’ fees in this
Court.

See Nelson Ins. Agency, Inc. v. Famex, Inc., 706 S.W.2d

838, 840 (Ky. Ct. App. 1986).
As set forth above, there is no fee-shifting provision in the
parties’ Employment Agreement, so Hodak relies the fee-shifting
provision in the Confidentiality Agreement.

He argues that he is

entitled to an award of his attorneys’ fees and nontaxable costs
incurred in connection with his successful litigation of his claim
of breach of the parties’ Employment Agreement because, in order to

-4-

prevail, he had to defeat Defendant UAR GP Services’ defense that
it properly terminated his employment without notice because he
violated the Confidentiality Agreement.

Indeed, in an earlier

order prior to Plaintiff’s appeal and remand by the Court of
Appeals

for

further

proceedings,

this

Court

wrote

“that

the

litigation of Count II of Plaintiff’s complaint – truly the central
claim in this case – concerned the rights and duties of the parties
to the Non-Competition Agreement even if it was, on its face, a
claim for breach of the Employment Agreement.” [DE 129 at 4.]

The

Court of Appeals also felt that the litigation of Plaintiff’s
breach of contract claim “concerned interpretation and enforcement
of provisions of the [Confidentiality] Agreement. . . .” Hodak, 348
Fed. App’x at 96.
However, this Court’s decision (and that of the Sixth Circuit
Court of Appeals) was ultimately a decision on the merits of UAR GP
Services’ defense under the Employment Agreement, i.e., whether
confidentiality

breaches

were

the

actual

reason

for

Hodak’s

discharge such that UAR GP Services was free to terminate his
employment without notice under § 9(a)(2)(v) of the Employment
Agreement.

To the extent that there was litigation concerning the

Confidentiality Agreement, it can be said – at best – that this
Court and the Court of Appeals agreed that the evidence showed that
he had breached it to some extent but never reached a conclusion as
to the seriousness of the breach of the Confidentiality Agreement

-5-

itself.

In other words, Hodak was hardly a prevailing party with

respect to litigation concerning that Agreement, if the litigation
can be called that (nor by the same token could UAR GP Services be
called a prevailing party on that issue at this point).3

Thus, the

Court is not persuaded that Hodak prevailed in “litigation or [a]
proceeding

concerning

any

provision”

of

the

Confidentiality

Agreement.

Accordingly, in the absence of statutory authorization

or an established contrary exception to the American Rule, he may
not recover his fees and non-taxable costs.
B.

Tax Gross
Benefits

Up

Payment,

Vehicle

Expenses,

and

Health

Hodak also seeks a tax gross-up payment to cover income tax
liability that will be incurred upon forgiveness of the $100,000
loan made by UAR to Hodak in 2006, reimbursement for the costs of

3

Further, Hodak’s breaches of the Confidentiality Agreement,
while not material to UAR GP Services’ performance under the
termination provisions of the Employment Agreement, would be
central to his ability to recover attorneys’ fees under that
Agreement if he was a prevailing party. A party in breach of a
contract may not demand performance by the non-breaching party.
Dalton v. Mullins, 293 S.W.2d 470, 476 (Ky. 1956); see also Pace v.
Burke, 150 S.W.3d 62, 66 (Ky. 2004) (“As a general rule, one
party's total failure to perform his obligations under a contract
justifies the non-breaching party in treating the contract as
abandoned and suspending his own performance.”); see also 17A Am.
Jur. 2d Contracts §606 (“As a rule, a party first guilty of a
substantial or material breach of contract cannot complain if the
other party subsequently refuses to perform.
That party can
neither insist on performance by the other party nor maintain an
action against the other party for subsequent failure to
perform.”).
Under Kentucky law, Hodak’s breach of the
Confidentiality Agreement may excuse UAR from performance under the
fee-shifting provision of that agreement. The Court need not reach
that conclusion today and declines to do so.
-6-

the lease of a Chevrolet Tahoe, and reimbursement for medical,
dental, and vision benefits incurred and recoverable under § 9(d)
of the Employment Agreement.

The Court understands this request

for relief to be a Motion for Summary Judgment on the issue of the
amount of damages due for breach of the Employment Agreement.4
Summary judgment should be granted where there is no genuine
issue of material fact and the moving party is entitled to judgment
as a matter of law.

Johnson v. United States Postal Serv., 64 F.3d

233, 236 (6th Cir. 1995).

The moving party bears the initial

burden of showing the absence of a genuine issue of material fact.
See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The burden
then shifts to the non-moving party to come forward with evidence
showing that there is a genuine issue for trial.

See Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). A mere scintilla of
evidence is insufficient; rather, “there must be evidence on which
the jury could reasonably find for the [nonmovant].”

Id. at 252.

This standard requires a court to make a preliminary assessment of
the evidence, in order to decide whether the non-moving party’s
evidence concerns a material issue and is more than de minimis.
Hartsel v. Keys, 87 F.3d 795, 799 (6th Cir. 1996). “‘The mere

4

To the extent that Hodak relies on the fee shifting of the
Confidentiality Agreement to recover these items, the Court is not
persuaded that these items are “nontaxable expenses” or otherwise
recoverable under that provision on any set of facts. Even if they
were, his request for relief under that fee-shifting provision
would fail for the reasons set forth above.
-7-

possibility of a factual dispute is not enough.’”

Mitchell v.

Toledo Hosp., 964 F.2d 577, 582 (6th Cir. 1992), quoting Gregg v.
Allen-Bradley Co., 801 F.2d 859, 863 (6th Cir. 1986).
With respect to his request for a tax gross up payment related
to the forgiveness of the loan required under § 4(c) of the
Employment Agreement, this Court has already determined that, under
the Employment Agreement, UAR GP Services is to “relieve [Hodak] of
any remaining loans under [§] 4(c).” [DE 227]

Section 4(c)(1)

provides a method of determining which portion of the loan will be
forgiven – reducing the loan amount by “(x) the Executive’s months
of continuous employment from the Effective Date, divided by (y) 24
months,

multiplied

by

(z)

the

total

amount

of

the

loan.”

Subsection (ii) of § 4(c) provides for an income tax “gross-up”
payment “such that [Hodak] will be made whole for the federal and
state income and employment actual tax impact to [him] of the
forgiveness provided for in this Section and the gross-up payment
contemplated” by § 4(c).

Plaintiff has presented an affidavit of

CPA John M. Lucarelli which purports to calculate the amount of tax
gross up payment that would compensate Hodak as though the Court
had ordered UAR GP Services to forgive all amounts owed under any
loan – which is not the relief for which § 4(c) provides and
certainly is not what this Court intended.

To the extent that

Plaintiff was confused by the Court’s Memorandum Opinion and Order
[DE 227], the Court clarifies it and states that UAR GP Services is

-8-

to afford Hodak loan forgiveness and relief in keeping with the
provisions of § 4(c) of the Employment Agreement.

The Court

concludes, however, that there is insufficient evidence in the
record at this juncture upon which to base any determination of the
amount of gross up payment due to Hodak and denies him the relief
requested without prejudice.
As for his request for further reimbursement with respect to
the Tahoe, Hodak has failed to articulate why he would be due these
amounts under the Employment Agreement or to identify any other
authority that would permit him to recover these costs.

The Court

has already written as follows:
Plaintiff has further claimed that UAR GP
Services breached its obligation to reimburse
him for expenses related to the car that he
purchased while employed by UAR GP Services.
Under the Employment Agreement, UAR GP
Services was to provide Plaintiff with use of
a suitable vehicle, with precise arrangements
to be made at a later date. Plaintiff and
Gordon reached an agreement that Plaintiff
would purchase a vehicle of his choice, and he
would be reimbursed for the “capital costs,”
out-of-pocket costs, and mileage during his
tenure. Plaintiff purchased a car in June
2006, and Plaintiff has confirmed during the
course of this litigation that he was
“reimbursed for everything [he] submitted.”
Accordingly, Hodak’s cause of action for
breach of contract regarding his vehicle fails
and shall be dismissed.
[DE 106 at 14.] The Court of Appeals for the Sixth Circuit has
affirmed that decision, and the Court declines to afford him
further relief with regard to the Tahoe.

-9-

Finally, with respect to the requested reimbursement for the
cost of medical, dental, and vision benefits actually incurred and
recoverable under § 9(d) of the Employment Agreement, there is no
proof in the record of the value of such benefits or of any
expenditure by Plaintiff on such benefits during the severance
period.

He has offered a conclusory statement that he is due

$9,469.00 in the Motion before this Court, but nothing more.
is not enough.

This

As there is insufficient evidence in the record at

this juncture upon which to base any determination of the amount
due to Hodak for the value of medical, dental, and vision benefits
to have been paid during the severance period, the Court will deny
him the relief requested without prejudice.
III. CONCLUSION
For all of the reasons stated above, IT IS ORDERED:
(1)

that Plaintiff’s Interim Motion for Attorneys’ Fees and

Other Costs [DE 230] is DENIED.
Further, upon the Court’s own motion, IT IS FURTHER ORDERED:
(2)

that the above-styled cause be, and the same hereby is,

assigned for trial, without a jury, at LEXINGTON, KENTUCKY, on
Tuesday, January 31, 2012, at 9:00 a.m., subject to intervening
orders of Court.
(3)

that

the

parties

shall

ADVISE

the

Court

of

the

anticipated length of the trial in a Notice of Filing in the record
of this matter on or before December 9, 2011.
-10-

(4)
REFERRED

That the above-styled cause be, and the same hereby is,
to

Magistrate

Judge

Robert

E.

Wier

for

a

pretrial

conference at a date, place and time to be determined by him, but
not later than at least one week prior to January 17, 2012.
(5)

That at least one week before Magistrate Judge Wier’s

pretrial conference, counsel shall:
(a)

file a list of exhibits intended to be used at

(b)

premark and display to opposing counsel all exhibits

trial;

intended to be used at trial.

All objections to the authenticity

of the exhibits shall be waived unless raised at the conference;
(c)

file a witness list with a brief summary of the

expected testimony of each witness;
(d)

file

a

pretrial

memorandum

brief

containing

a

succinct statement of the facts of the case, the questions of fact
and the questions of law; and
(e)

file

conclusions of law.

agreed

proposed

findings

of

fact

and

An electronic copy of same shall be submitted

directly to the undersigned’s chambers, as an attachment to an
email sent to [e-mail] in a format compatible
with Word or WordPerfect 11.
(6)

That the matter be, and the same hereby is, assigned for

a final pretrial conference in LEXINGTON, KENTUCKY on Tuesday,
January 17, 2012, at 1:00 p.m.

At said conference, the parties

-11-

shall be prepared to discuss a settlement of the matter.
This the 5th day of December, 2011.

-12-