Escue v. Sequent, Inc. et al

Filing 188

ORDER finding as moot 145 Defendants Schoonover, Boyer, Gettman, Kerber and Ewers' Motion for Summary Judgment; granting in part and denying in part 146 Defendants Sequent, Inc., Hutter, Schoonover, Boyer, Gettman, Kerber and Ewers' Motion for Summary Judgment; granting in part and denying in part 157 Plaintiff's Motion for Summary Judgment; granting 182 Plaintiff's Supplemental Motion for Summary Judgment. Signed by Judge Gregory L Frost on 4/25/12. (sem1)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
MICHAEL R. ESCUE,
Plaintiff,
Case No. 2:09-cv-765
JUDGE GREGORY L. FROST
Magistrate Judge Mark R. Abel

v.
SEQUENT, INC., et al.,
Defendants.

OPINION AND ORDER
This matter is before the Court for consideration of the following filings:
(1) a motion for summary judgment filed by Defendants Michael Schoonover, John
Boyer, Glenn Gettman, Steven Kerber, and Thomas Ewers (ECF No. 145), a memorandum in
opposition filed by Plaintiff Michael Escue (ECF No. 154), and a reply memorandum filed by
Schoonover, Boyer, Gettman, Kerber, and Ewers (ECF No. 169);
(2) a motion for summary judgment filed by Defendants Sequent, Inc., William Hutter,
Schoonover, Boyer, Gettman, Kerber, and Ewers (ECF No. 146), a memorandum in opposition
filed by Escue (ECF No. 155), and a reply memorandum filed by Sequent, Inc., Hutter,
Schoonover, Boyer, Gettman, Kerber, and Ewers (ECF No. 168);
(3) a motion for summary judgment filed by Escue (ECF No. 157), a memorandum in
opposition filed by Sequent, Inc., Hutter, Schoonover, Boyer, Gettman, Kerber, and Ewers (ECF
No. 153), and a reply memorandum filed by Escue (ECF No. 170);1 and

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The non-sequential numbering of the briefing related to Escue’s motion is a result of
his having obtained leave to file an amended motion for summary judgment that did not
necessitate changes in the previously filed memorandum in opposition. See ECF No. 157.
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(4) a supplemental motion for summary judgment filed by Escue (ECF No. 182), a
memorandum in response filed by Sequent, Inc. (ECF No. 183), and a reply memorandum filed
by Escue (ECF No. 186).
For the reasons that follow, the Court GRANTS IN PART and DENIES IN PART the
motion for summary judgment filed by Sequent, Inc., Hutter, Schoonover, Boyer, Gettman,
Kerber, and Ewers (ECF No. 146), GRANTS IN PART and DENIES IN PART the motion for
summary judgment filed by Escue (ECF No. 157), and GRANTS the supplemental motion for
summary judgment filed by Escue (ECF No. 182). The motion for summary judgment filed by
Schoonover, Boyer, Gettman, Kerber, and Ewers is MOOT. (ECF No. 145.)
I. Background
This is a diversity action filed by Plaintiff, Alabama resident Michael R. Escue, against
Defendant Sequent, Inc. (“Sequent”), a closely held Ohio corporation with its principal place of
business in Dublin, Ohio. Also named as defendants are William F. Hutter, the CEO and
majority shareholder of Sequent, and Sequent shareholders and directors Chairman Michael L.
Schoonover, Treasurer John E. Boyer, Glenn J. Gettman, Corporate Secretary Steven R. Kerber,
and Thomas A. Ewers.
Escue was the sole shareholder of Better Business Solutions of Alabama, Inc. (“BBSA”),
a professional employee organization (“PEO”) located in Birmingham, Alabama, that provided
human resource services to business clients in the Birmingham area. PEOs provide services
typically performed by a human resources department, including payroll, audit, tax management,
the administration of employee benefit plans, employment and labor law compliance, workers’
compensation claims, and risk management.

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Sequent is also a PEO and provides human resource services, including health, dental,
and vision insurance coverages, as well as coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1985 (“COBRA”) to its own employees and to business clients (“Jobsite
Employers”) and employees (“Jobsite Employees”) leased by Sequent to Jobsite Employers.
Sequent is the sponsor of the Sequent, Inc. Flexible Benefits Plan (“the Plan”), an employee
benefit plan under the Employee Retirement Income Security Act of 1974 (“ERISA”). Sequent
also created the Sequent Welfare Benefits Trust (“the Trust”) for the purpose of holding the Plan
assets, receiving premium payments received from Jobsite Employers and Employees and
Sequent’s own employees, and paying those premiums to insurers.
Hutter and the other individual defendants also formed Accompany Benefits, LLC
(“ABL”), an Ohio limited liability company currently registered under the trade name SRBG.
ABL was formed to offer consulting services in the areas of employee benefits design, life,
health, and disability insurance, as well as retirement and nonqualified deferred compensation
plans. ABL provides consulting services to Sequent, the Plan, and the Trust. ABL’s
shareholders and directors are Sequent’s shareholders and directors.
Beginning in 2005 and continuing into 2006, Escue engaged in negotiations with Hutter
concerning the merger of BBSA with Sequent. In August 2005 and again in April 2006, Hutter
told Escue that Sequent was the subject of a routine audit by the Department of Labor (“DOL”).
Escue was aware that the DOL routinely audited PEOs and thought that this information was not
significant. During the negotiations, Hutter also described Sequent’s business practice of
“tiering,” which consisted of charging some Jobsite Employers more for insurance premiums in
order to subsidize the coverage provided to other Jobsite Employers who were charged lower

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premiums in an effort to attract them as clients. Hutter represented that this practice was the
reason for Sequent’s success, that it was legal, and that it had been approved by specialized
ERISA counsel. A business valuation expert was employed to value both companies based on
the 2005 financial statements and projections for 2006. BBSA was valued at $1,756,455, and
Sequent was valued at $14,973,040.
Escue alleges that a draft of the proposed merger agreement was exchanged in December
2006. Section 6.08 of the merger agreement disclosed that Sequent was the subject of a “DOL
Investigation into Sequent’s Section 125 Plan.” Escue apparently assumed that this meant the
routine audit which was referred to by Hutter during the negotiations. Hutter and the other
individual defendants signed a corporate resolution, effective December 19, 2006, which
approved the merger agreement. Escue then signed the agreement, and Hutter signed the merger
agreement and a closing certificate for the merger as CEO and President of Sequent. It is alleged
in the first amended complaint that effective January 1, 2007, Sequent acquired BBSA through a
merger transaction. Escue surrendered his BBSA shares, valued at $1,756,455, for 14,000 shares
of Sequent common stock with a negotiated value of $1,871,630. After the merger, Escue
became a director of Sequent and entered into an employment agreement with Sequent at an
annual salary of $160,000 and incentive compensation in the amount of 10% of BBSA’s
earnings for the fiscal year.
According to Escue, in order to procure the merger between BBSA and Sequent, Hutter
and the other individual defendants made false statements to him and concealed or failed to
disclose material facts bearing upon the value of Sequent and the shares acquired by Escue
pursuant to the merger agreement. Specifically, Escue alleges that prior to the merger, Sequent,

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Hutter, and the other individual defendants engaged in improper and illegal activities that
exposed Sequent to potential and actual financial liability and that adversely impacted the value
of the Sequent shares acquired by Escue pursuant to the merger agreement. Escue also asserts
that the financial statements provided to the valuation expert were false because Sequent failed
to disclose material facts about Sequent, including the fact that Sequent had been the target of a
DOL criminal investigation since January 2006.
Escue alleges that prior to the merger, Hutter and the other individual defendants
approved a plan for Sequent to make loans in a total amount of $347,918 to the individual
defendants. According to Escue, this resulted in Sequent’s financial status failing to meet
accounting standards established by the Employer Services Assurance Corporation, an entity that
provides accreditation and client assurance programs for the PEO industry. To rectify this
situation, Defendants allegedly approved the sale of the loans to ABL in October 2005. Because
ABL allegedly only had $90,000 in available cash, Hutter and the other individual defendants
allegedly caused the Trust to act in violation of ERISA by illegally paying $257,918 to ABL on
January 12, 2006. ABL then transferred the money to Sequent.
On January 27, 2006, the DOL served written notice on Sequent that the company was
under investigation. Hutter and the other individual defendants then reversed the transfer of
funds by returning the $257,918 to the Trust as of February 27, 2006. Escue further alleges that
later in 2006, Hutter and the other individual defendants arranged to have Sequent forgive the
loans made to them.
Escue asserts he was not informed before the merger that Sequent was the subject of a
DOL criminal investigation. He alleges that he first learned about the criminal investigation at a

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September 24, 2007 Sequent board meeting. Escue also asserts that he did not learn the full
extent of the DOL criminal investigation until early December 2008, when Sequent’s counsel
issued a memorandum describing the investigation. Escue alleges that as a result of the criminal
investigation, various individuals, including Hutter, have incurred legal fees exceeding $1
million, which have been paid partially or entirely by the Trust, that Sequent has paid
overinflated severance packages to or entered into unnecessary contracts with Sequent
employees as “hush money,” and that Sequent paid $230,000 to the DOL as a civil settlement
that was really the obligation of ABL. Escue asserts that the $230,000 is the amount of funds
that ABL improperly obtained from the Trust.
In mid-2005, Hutter and the other individual defendants allegedly caused ABL to
increase the fees it charged to the Plan and Trust, thereby doubling the amount of fees charged
on an annual basis. Escue further alleges that after being informed by the DOL that a criminal
investigation had been commenced, Hutter instructed Sequent employees to suspend all further
payments from the Trust to ABL.
Escue also asserts that prior to the merger, Hutter and the other individual defendants
caused Sequent to charge its Jobsite Employer clients an inflated administrative fee for services
provided, to misrepresent the amount charged by insurers for insurance premiums, and to
overcharge employers for insurance premiums. Sequent allegedly retained the difference
between the inflated price and the actual cost of coverage charged by the insurers for its own
benefit. Escue alleges that Sequent stopped this practice after being informed of the DOL
criminal investigation.
Additionally, Escue asserts that Sequent’s practice of “tiering” by overcharging some

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Jobsite Employer clients for insurance premiums in order to be able to offer other Jobsite
Employer clients a lesser rate and attract more clients was illegal conduct constituting a breach
of fiduciary duty under ERISA. He alleges that since Sequent has been unable to charge enough
in excess fees to support the below-cost subsidies, the Trust lacked sufficient funds to make
premium payments. Sequent has purportedly loaned money to the Trust in an amount exceeding
$1.5 million to cover the cost of those premiums. Escue further contends that Hutter’s previous
representations that the practice of “tiering” had been approved by specialized ERISA legal
counsel were shown to be false at a director’s meeting in June 2009, where Hutter proposed that
Sequent ought to obtain an outside expert opinion and consultant on the issue of “tiering” and
compliance with ERISA.
According to Escue, Sequent has since 2005 charged its clients and its own employees
inflated rates for vision, dental, and COBRA coverage above the actual amount of administrative
expenses and premium costs incurred by Sequent and the Trust. Escue also alleges that since
2005, Sequent has charged its Jobsite Employer clients an administrative fee that includes a
hidden “risk management fee” that did not reflect any administrative costs to Sequent, but rather
was an arbitrary charge imposed solely for the fraudulent purpose of padding Sequent’s fees.
Escue filed the instant action in September 2009. He asserts twelve claims for relief in
his amended complaint. (ECF No. 19.) Sequent in turn asserts two counterclaims against Escue
in an amended answer. (ECF No. 176.) All of the parties have filed motions for summary
judgment, all of which are now ripe for disposition. (ECF Nos. 145, 146, 157, 182.)

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II. Discussion
A. Standard involved
Federal Rule of Civil Procedure 56 provides that 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). The Court may therefore grant a motion
for summary judgment if the nonmoving party who has the burden of proof at trial fails to make
a showing sufficient to establish the existence of an element that is essential to that party’s case.
See Muncie Power Prods., Inc. v. United Tech. Auto., Inc., 328 F.3d 870, 873 (6th Cir. 2003)
(citing Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)).
In viewing the evidence, the Court must draw all reasonable inferences in favor of the
nonmoving party, which must set forth specific facts showing that there is a genuine issue of
material fact for trial. Id. (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475
U.S. 574, 587 (1986)); Hamad v. Woodcrest Condo. Ass’n, 328 F.3d 224, 234 (6th Cir. 2003). A
genuine issue of material fact exists “if the evidence is such that a reasonable jury could return a
verdict for the nonmoving party.” Muncie, 328 F.3d at 873 (quoting Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986)). Consequently, the central issue is “ ‘whether the evidence
presents a sufficient disagreement to require submission to a jury or whether it is so one-sided
that one party must prevail as a matter of law.’ ” Hamad, 328 F.3d at 234-35 (quoting Anderson,
477 U.S. at 251-52).

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B. Analysis2
1. Escue’s First and Second Claims
In his first claim, Escue seeks the common law breach of contract remedy of rescission of
the merger agreement. In his second claim, Escue alternatively asserts a breach of contract
entitling him to monetary damages. This Court disagrees with Escue that he is entitled to
summary judgment on these claims and agrees with Defendants that both claims are foreclosed
by a survival clause contained in the merger agreement.
The survival clause is set forth at § 8.04 of the merger agreement, titled “Survival of
Representations and Warranties; Indemnification.” Subsection (b) of § 8.04 provides in relevant
part that select representations and warranties “shall survive the execution and delivery of this
Agreement and the Closing until the earlier of an initial public offering of Sequent’s Common
Stock or the second anniversary date of the Closing.” (ECF No. 147-56, at 38.)3 The subsection
as a whole provides that some written representations among the parties shall never expire, some
representations shall expire after seven years after the merger closes, and some shall expire two
years after the merger closes. Of relevance here is the last category, quoted above, and its
anniversary date provision. Based on the closing date, Defendants argue that § 8.04 bars nonexempted claims asserted after the second anniversary date of January 1, 2009.
Pursuant to the survival clause, the purported misrepresentations upon which Escue relies

2

All pinpoint references to documents filed on the electronic docket shall be to the page
numbers assigned by the electronic filing system each document, not to the original page
numbers of the documents involved.
3

Both sides have filed the merger agreement to support their briefing. For ease of
reference, the Court shall refer only to the docket number of the merger agreement filed by
Escue.
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in his first two claims fall within expired representations as of January 1, 2009. Prior to this
date, Escue’s counsel sent a December 18, 2008 letter to Sequent, directed to the attention of
Hutter. The letter stated that it constituted notice pursuant to § 8.04 of unspecified breaches of
inaccuracies of Sequent representations and warranties, as well as the unidentified failure of
Sequent to pay or perform as required under the merger agreement. (ECF No. 142-16, at 1.)
The letter did not disclose any details behind the allegations. Escue now argues that the letter
preserved his right to file claims against Sequent after January 1, 2009, which he did on
September 2, 2009.
Nowhere in § 8.04 is there a provision that enables a party to extend the two-year
expiration simply by providing notice. Section 11.12 of the merger agreement, however,
provides that “[t]his Agreement may not be amended except by an instrument in writing signed
on behalf of each of the parties hereto.” (ECF No. 147-56, at 45.) Sequent therefore argues that
Escue’s letter serves as an intended unilateral modification of the merger agreement.
The Ninth Circuit provided a useful discussion on the effects of survival clauses in
Western Filter Corp. v. Argan, Inc., 540 F.3d 947 (9th Cir. 2008). In Western Filter, the court of
appeals explained:
The closing date itself triggers the contractual limitation on liability. Unless
the parties agree to a survival clause—extending the representations and warranties
past the closing date—the breaching party cannot be sued for damages post-closing
for their later discovered breach. With that premise in mind, [the defendant]
reasonably argues that the one-year limitation in the Survival Clause was intended
to serve as a contractual time limit on any action brought based on a breach of the
contract’s representations and warranties. Under [the defendant’s] theory, [the
plaintiff] could not bring a claim without the Survival Clause, and, even with the
Survival Clause, [the plaintiff] only had one year after closing to bring such a claim.
This interpretation has some basis in out-of-circuit case law. In State Street
Bank & Trust Co. v. Denman Tire Corp., 240 F.3d 83 (1st Cir. 2001), the First
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Circuit held that a clause stating that the representations and warranties “shall expire
on the second (2nd) anniversary of the Closing” clearly described a contractual
statute of limitation. Id. at 87–88. The court reasoned that “[t]o say that something
‘shall survive’ for a period of time, . . . is very much like saying something ‘shall
expire’ after a period of time.” Id. at 88. And, although the clause did not include
any language stating that a claim must be filed within the limitation period, “the
language was reasonably susceptible to only one meaning: that any claim based on
warranties contained in the Purchase Agreement must be brought within [the
specified time period] of the closing.” Id. (alterations in original) (internal quotation
marks omitted); see also Latek v. LeaseAmerica Corp., No. 90 C 7230, 1992 WL
170546, at *3 (N.D.Ill. July 16, 1992), aff'd, 7 F.3d 238 (7th Cir. Sept. 22, 1993)
(stating that a provision that warranties “shall survive” for 18 months from the
closing date “clearly describes a contractual statute of limitations”); Commonwealth
Fin. Corp. v. USAmeribancs, Inc., No. 86 C 6181, 1987 WL 19142, at *2 (N.D.Ill.
Oct. 20, 1987) (concluding that a cause of action was time-barred when the provision
authorizing suit stated that the seller shall indemnify buyer for one year after
closing).
Id. at 952-53 (footnotes omitted). Thus, a survival clause can operate as a contractual statute of
limitations that mandates the timely filing of a claim or claims prior to the expiration of the
representation or warranty.
The particular survival clause at issue in Western Filter did not foreclose the assertion of
the claims involved because the applicable state law disfavored such a provision and “suggested
that language limiting the life of a warranty is not sufficiently clear and explicit to also limit the
statute of limitation.” Id. at 953. Thus, the Ninth Circuit concluded that the survival clause
before it was ambiguous and could also be read to suggest “that the [clause’s] one-year
limitation serves only to specify when a breach of the representations and warranties may occur,
but not when an action must be filed.” Id.
Such reasoning is similar to the Sixth Circuit’s analysis in Arcade Co. Ltd. v. Arcade,
LLC, 105 F. App’x 808 (6th Cir. 2004). In that case, the court of appeals addressed the effect of
a survival clause that provided that “[t]he representations, warranties, obligations, covenants,

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agreements, undertakings and indemnifications of the parties contained herein and in any
instrument acquired to be delivered pursuant hereto shall survive the Closing for a period of one
(1) year.” Id. at 810.
Ohio law governed that survival clause, just as Ohio law governs the effect of § 8.04(b)
here. Thus, the Sixth Circuit began by recognizing that “Ohio law permits contractual
modification of the applicable statute of limitations if the modification is reasonable.” Id. The
court of appeals therefore explained that “[t]he question we must answer is not whether a
contractual modification of the applicable statute of limitations is valid but whether this
particular contract provides for one.” Id. And the Sixth Circuit answered the question as
follows:
[T]he plain language of the [survival clause] provision neither mentions nor purports
to limit any “action,” “lawsuit,” or “demand.” Rather, the provision explicitly states
that the “representations, warranties, obligations, covenants, agreements,
undertakings and indemnifications of the parties . . . shall survive the closing.” We
conclude that under Ohio’s case law, something more than this language is required
to support a finding that the parties intended to modify the statute of limitations.
Id. In reaching this conclusion, the court of appeals surveyed Ohio case law and determined that
the inclusion of specific language limiting the time within which to bring lawsuits or claims
made the parties’ intent express and was permitted under Ohio law. Rejecting an inference that
would read the Arcade Co. survival clause to have the same effect despite its lacking specific
language, the Sixth Circuit concluded:
Statutes of limitation exist to provide finality for potential litigants. This finality is
achieved by extinguishing-after a statutorily prescribed period of time-potentially
valid claims. An agreement purporting to affect this finality must be made manifest
in clear, unequivocal language. A survival clause such as the one at issue here,
which contains no express reference to “actions,” “demands,” or even to breach of
the contract, does not clearly manifest an intent to establish a contractual limitations
period.
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Id. at 811. This at first blush would appear to dispose of the argument that Escue failed to file
his claims in time, in a manner adverse to Defendants.
What distinguishes the instant case from Arcade Co. is that all of the parties involved
here agree that they meant § 8.04(b) to extinguish claims after the two-year period provided by
the contract. Defendants seek the dismissal of Escue’s first two claims on the grounds that he
failed to file them by January 1, 2009. Escue in turn seeks to dismiss Sequent’s first
counterclaim on the grounds that the company failed to assert the counterclaim within the twoyear period (which the Court will discuss later). The parties disagree only on whether notice
preserves the right to a claim or whether filing is needed. No party contends that § 8.04 does not
preclude claims; the dispute is only in the details of whether a party can work around the
deadline and file a claim later.
Therefore, in contrast to Arcade Co., there is no real inference of intent necessary here to
accept the contractual language as a limitation. Rather, there is a simple recognition of what the
parties agree they meant to express. But for the parties’ agreement, § 8.04 would have the same
effect here as the survival clause in Arcade Co.
Escue argues that, even if the merger agreement required him to sue instead of sending
his vague letter before January 1, 2009, Defendants have waived the defense. He notes that they
failed to assert the § 8.04 argument in the 2009 negotiations between the parties and that
Defendants failed to rely on the argument in their prior motion to dismiss briefing. Escue has
failed to present this Court with any case law for the dubious proposition that a party has to rely
upon any available defense it may have in negotiations or lose that defense. Additionally, Escue
has failed to present this Court with any authority for the proposition that the non-appearance of
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the defense in a Rule 12 motion resulted in waiver. The defense does not fall within the specific
defenses subject to such waiver under Federal Rule of Civil Procedure 12(h)(1), and Defendants’
Third Defense in their amended answer captures the defense. (ECF No. 176 ¶ 176.) There has
been no waiver.
In light of the foregoing, this Court gives effect to the intended and agreed-upon, if
perhaps less than optimally expressed in the contract, effect of § 8.04. Additionally, the possible
defense that there has been a waiver of invoking this section to preclude Escue’s claims fails.
The Court then answers the next obvious question by recognizing that Escue’s December 18,
2008 letter failed to extend the time limit for the representations and warranties he asserts
Defendants violated.
It is one thing to accept the parties’ representations as to what effect they intended the
language of § 8.04 to have. The parties’ agreement as to the intended effect gives concrete
meaning to otherwise arguably ambiguous language. It is quite another thing to read into the
language that which is not even remotely there. In other words, accepting the survival clause as
being intended to terminate claims is reasonable here given that the clause’s language could
carry that agreed-upon effect. To ignore the parties due to lack of magic words in the clause
would be improper under these specific circumstances. But construing § 8.04 to speak in any
way to the notice issue would be unreasonably imputing to the clause a topic upon which it does
not even arguably touch.
Section 8.04(b) does not include any express language stating that any such claims had to
be filed within the two-year limitation period, but given the agreed-upon intent of the survival
clause and the Sixth’s Circuit’s recognition that Ohio imposes an obligation to be specific on

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survival clauses, the reasoning necessarily follows. Just as a party cannot evade a statutory
statute of limitations simply by providing notice, so too Escue cannot evade the contractual
limitations period by providing notice in the absence of a contractual provision permitting him to
do so. Any claim based on representations or warranties contained in the merger agreement
must be brought before the Court within two years of the closing. An interpretation that enables
a vague notice of unidentified claims such as that found here to preserve the right to file would
merely serve to read out the time component of the survival clause and enable one party to
circumvent that which it agreed to contractually. If the parties intended for one another to have
such a right of notice, they could and should have written it into their agreement.
Because the representation and warranties therefore expired on January 1, 2009, and
because Escue did not assert his first two claims until September 2, 2009, only Defendants are
entitled to summary judgment on Escue’s first two claims.
2. Escue’s Third and Fourth Claims
Escue seeks rescission of the merger agreement on the grounds of common law
fraudulent inducement in his third claim, and in his fourth claim, Escue alternatively seeks
monetary damages for fraudulent inducement. Under Ohio law, “[a] classic claim of fraudulent
inducement asserts that a misrepresentation of facts outside the contract or other wrongful
conduct induced a party to enter into the contract.” ABM Farms, Inc. v. Woods, 81 Ohio St.3d
498, 503, 692 N.E.2d 574, 578 (1998). In his summary judgment briefing, Escue recasts his
third and fourth claims more broadly, directing this Court to the elements of a general claim of
fraud:
(1) a representation (or concealment of a fact when there is a duty to disclose); (2)
that is material to the transaction at hand; (3) made falsely, with knowledge of its
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falsity or with such utter disregard and recklessness as to whether it is true or false
that knowledge may be inferred; (4) with intent to mislead another into relying upon
it; (5) justifiable reliance; and (6) resulting injury proximately caused by the reliance.
Dunlop v. Ohio Dep’t of Job & Family Servs., No. 11AP-929, 2012 WL 1078778, at *5 (10th
App. Dist. Mar. 29, 2012) (treating fraudulent inducement claim as a broader fraud claim). This
Court agrees with Defendants that they are entitled to summary judgment on both claims.
The purported fraud that Escue targets is essentially the conduct at the heart of his
contract claims recast as tort claims. Ohio law provides that “[a] tort claim based upon the same
actions as those upon which a claim of contract breach is based will exist independently of the
contract action only if the breaching party also breaches a duty owed separately from that created
by the contract, that is, a duty owed even if no contract existed.” Textron Fin. Corp. v.
Nationwide Mut. Ins. Co., 115 Ohio App.3d 137, 151, 684 N.E.2d 1261, 1270 (9th App. Dist.
1996) (citing Battista v. Lebanon Trotting Assoc., 538 F.2d 111, 117 (1976)). It is therefore
questionable whether Ohio law permits the claims Escue asserts here.
Assuming arguendo that Escue can establish the separate duty so as to proceed in tort, his
fraud claims suffer from a flawed foundation. Originally, Escue asserted that he had never been
informed of the DOL criminal investigation and that he had learned of the investigation at a postmerger Sequent meeting. His testimony that he could not recall an alleged email and subsequent
phone conversation with Hutter regarding the DOL investigation is ultimately of little import in
this regard and does not provide a genuine issue of material fact, however, given that Sequent
unquestionably disclosed the investigation in a letter turned over as part of the due diligence
exchange. This May 2006 letter also describes the reversed transaction involving the transferral
of funds from the Trust and its status as a potential ERISA violation. Escue downplays the letter

16

and cites the lack of the investigation in the audited financial statement, but even his own expert
testified that given the greater materiality standard for those statements, no one would rely solely
on the statements in performing due diligence. In other words, the letter disclosure was key.
The letter cannot be regarded as insufficient because Escue and his merger team testified
that if they had read the letter, it would have been enough to halt the merger process. Even if
there was a misrepresentation or omission arising from the sufficiency of the content of the
letter, however, Escue cannot be said to have relied on the misrepresentation or omission.
Sequent’s disclosure cannot be held to have harmed Escue as a matter of both logic and law
because Escue simply cannot be regarded as having relied on something that he did not know
existed. Sequent turned over a letter disclosing the DOL investigation. Neither Escue nor any
member of his merger team read that letter. Thus, the letter did not mislead Escue into anything.
Although Escue complains that the letter was just part of four boxes worth of documents
turned over to him, the manner of disclosure does not salvage his claims here. Sequent did what
it was obligated to do, and there is even an argument that its placing the letter behind a tab for
“Litigation” for Escue erodes his “but they made it a needle in a haystack” argument. The letter
was also part of the electronic disk disclosure that followed the paper disclosures.
Escue and every member of his merger team acknowledged during this litigation that
they received the May 2006 letter. None of them asked for additional information on the DOL
investigation of the reversed transaction. The disclosure statement attached to the merger
agreement also referenced the investigation, and no one on Escue’s team commented on it. The
merger closed on January 1, 2007, Sequent settled the civil aspect with the DOL in September
2008, and the criminal aspect concluded without charges. But Escue now asserts that Sequent

17

fraudulently hid the investigation and its circumstances so as to induce him into the merger.
This contention is flawed. Sequent did not conceal the investigation, even if the
investigation did not appear on the audited financial statements. Although Escue’s expert faults
the 2006 statement for failing to disclose the investigation, she would accept the disclosure that
appeared in the 2007 statement–a statement that did not disclose the criminal component of the
DOL investigation. There is also no evidence the company concealed practices it knew to be
illegal. Although some of the activities Escue asserts are illegal are unquestionably curious, this
does not mean they are necessarily illegal. Escue’s contentions of illegal dealing by Defendants
is based on his own assertions; in his briefing, he does not “show his work” to raise a genuine
issue of material fact in regard to the proposition.
There is no fraud here because Sequent did not conceal that which Escue targets, the fact
of the investigation and the reversed transaction. Sequent disclosed both, and although Escue
asserts the disclosure letter was misleading, he cannot attack its contents as a fraud that led him
into the merger. Logic dictates that a party cannot ignore what is given to him and then
complain that the contents of that which he ignored misled him. Accordingly, Escue is not
entitled to partial summary judgment on these claims, and Defendants are entitled to summary
judgment.
3. Escue’s Fifth and Sixth Claims
Escue asserts fraud claims in his fifth and sixth claims for relief under Section 10(b) of
the Securities Exchange Act of 1934, 15 U.S.C. §78j(b), and SEC Rule 10b-5, 17 C.F.R. §
240.10b-5(b), seeking the remedy of rescission of the merger agreement, or, in the alternative,
monetary damages. In addition to other arguments, Defendants argue that the same rationale that

18

proved dispositive of Escue’s prior two fraud claims. This Court agrees.
The Sixth Circuit had explained that “[t]o prevail on a securities fraud claim under §
10(b)(5) and Rule 10b–5, “a plaintiff must establish (1) a misrepresentation or omission, (2) of a
material fact, (3) made with scienter, (4) justifiably relied on by plaintiffs, and (5) proximately
causing them injury.” Saxe v. Dlusky, 268 F. App’x 438, 440 (6th Cir. 2008) (citing Helwig v.
Vencor, Inc., 251 F.3d 540, 554 (6th Cir. 2001) (en banc)). Based on the reasoning set forth in
Section II(B)(3) above, there is no misrepresentation or omission here to serve as the predicate
fraud, and even if there were, there was absolutely no reliance. Defendants are entitled to
summary judgment on Escue’s fifth and sixth claims.
4. Escue’s Seventh Claim
In his seventh claim, Escue asserts a claim against Hutter and the other individual
defendants under Ohio Rev. Code §1701.93(A)(1) for damages proximately caused by their
misrepresentations and omissions. The reasoning set forth in Section II(B)(3) above explains
why there is no misrepresentation or omission here. Defendants are therefore also entitled to
summary judgment on Escue’s seventh claim.
5. Escue’s Eighth Claim
At the outset, the Court notes that the parties, especially Escue, have briefed this claim is
such a nearly Spartan manner that they appear to be mainly arguing by inference, relying on this
Court to deduce what they mean and to find the evidence supporting their less than fully realized
contentions. This is a curious approach to litigating Defendants’ motion. Such a troubling
approach pervades select portions of all the briefing, but perhaps nowhere as prevalent as in
connection to Escue’s eighth claim.

19

In this claim, Escue asserts a claim for breach of fiduciary duty against Hutter and the
other individual defendants. He posits that the individual defendants owe a fiduciary duty to
Sequent and its shareholders. Escue also contends that as the administrator of the benefit plans
using the Trust, Sequent owes a fiduciary duty to the plans’ participants and beneficiaries. By
tiering and collecting rates above the actual insurance costs and reasonable expenses of
administration, Escue argues, Defendants have misappropriated plan assets and breaches these
duties. Finally, Escue asserts that because the individual defendants failed to disclose to him the
full details surrounding the payment of $233,000 of Sequent funds to the DOL to settle the civil
investigation (thereby negating and potential personal liability for the other directors), he was
induced into voting for the expenditure.
Defendants argue that Escue is impermissibly attempting to obtain damages that would
go to Sequent, not himself. They assert that given that he has failed to sustain distinct damages
separate from those allegedly suffered by the corporation and all its shareholders, Escue cannot
bring the claim outside of a shareholder derivative action. Additionally, Defendants contend that
Escue has failed to explain both what efforts he made to obtain the action he seeks from the
individual directors and his failure to make a pre-suit demand, which they contend are necessary
in any shareholder derivative action under Federal Rule of Civil Procedure 23.1 and its Ohio
counterpart. See Davis v. DCB Fin. Corp., 259 F. Supp. 2d 664, 669-70 (S.D. Ohio 2003).
In response, Escue argues that he “has been separately and distinctly harmed from an
injury to the corporation.” (ECF No. 155, at 32.) He then proceeds to cite his support of the
$233,000 payment and the up-charges for benefits as an employee and as a former employee
receiving COBRA benefits as personal harm that sets him apart from Defendants’ theory for

20

summary judgment. Finally, Escue complains that the fact that he was not fully informed before
voting delayed his learning about the basis for his merger agreement claims under the survival
clause in that agreement had nearly expired.
To the extent that Escue’s eighth claim seeks in any way to pursue damages that are not
separate and distinct from any injury to Sequent, the individual defendants are entitled to
judgment. Another judicial officer in this District has accurately explained the rationale:
Corporations and their officers and directors occupy a fiduciary relationship
with corporate shareholders. See Thomas v. Matthews, 94 Ohio St. 32, 113 N.E. 669
(1916); Thompson v. Central Ohio Cellular, Inc., 93 Ohio App.3d 530, 540, 639
N.E.2d 462 (1994). However, actions for breach of fiduciary duties are generally
brought in derivative suits. Owens, 86 Ohio App.3d at 220, 620 N.E.2d 234. This
is because the right to maintain an action to recover for the alleged negligence, fraud,
or misconduct of directors and officers, resulting in the depletion of the corporation
property, belongs to the corporation itself. Id. A complaining shareholder has a
direct action only if he is injured in a way that is separate and distinct from an injury
to the corporation. Weston, 74 Ohio St.3d at 379, 658 N.E.2d 1058.
Davis, 259 F. Supp. 2d at 673. Defendants are therefore correct that Escue can only rely on a
distinct injury personal to him.
The Court does not accept as distinct personal harm Escue’s contention that he was
delayed until the survival clause has almost expired in finding out about the basis for his Merger
Agreement claims. This Court does not see how this constitutes harm given that at worst, Escue
did discover the claims in time and then only failed to assert them properly (i.e., by filing)
because he did not understand the agreement he had negotiated and signed. That
misunderstanding neither arises from the circumstances surrounding the $233,000 nor can be
attributed to the fact of the payment having been made.
This leaves as potential sufficient damages the nebulous harm Escue insists he incurred
by voting in favor of the $233,000 payment and the purported upcharges he paid for benefits
21

during and after his employment. Neither component of Escue’s argument salvages his claim.
First, the payment of the $233,000, if improper, is a harm that flows to Sequent and its
shareholders generally, not distinctly to Escue. A shareholder derivative action is the proper
avenue for any potential relief.
Second, Escue’s election to hide the law and relevant facts from the opposing parties and
this Court means that he has failed to present the genuine issue of material facts he posits arises
from the asserted upcharging. Nowhere in the briefing on his eighth claim does Escue direct this
Court to the elements of his claim. Nowehere does he connect the evidence to those elements,
And nowhere does he note the law that would support his contention that upcharging is improper
so as to be cognizable as a breach of fiduciary duty. Instead, Escue’s states in an affidavit: “It is
my understanding that a business, like Sequent, may charge an administrative fee, or may upcharge insurance premiums to cover the expenses of administering a Plan that includes those
insurance benefits.” (ECF No. 155-2, Escue Aff. ¶ 22.) The time to share the basis for that
understanding beyond simply noting in his deposition that his counsel had informed him that the
practice is improper was during summary judgment briefing. It is not this Court’s proper role to
assemble a party’s case for that party.
Defendants are also entitled to summary judgment on Escue’s eighth claim.
6. Escue’s Ninth and Tenth Claims
Escue asserts two additional fraud claims in his ninth and tenth claims, which he brings
against Sequent, Hutter, and the other individual defendants for the purported unlawful sale of a
security under Ohio Revised Code §§ 1707.43 and 1707.44. Escue seeks rescission of the
merger agreement or, in the alternative, damages.

22

It is well settled that §§ 1707.44(B)(4) and 1707.44(J) prohibit only an affirmative
misrepresentation. Neither statutory provision applies to a fraudulent nondisclosure or an
omission of material facts. State v. Warner, 55 Ohio St.3d 31, 38, 564 N.E.2d 18, 52 (1990).
Escue argues that misrepresentations occurred, but as explained in Section II(B)(3) above, there
has been no fraudulent nondisclosure here, much less an affirmative misrepresentation.
Defendants are entitled to summary judgment on Escue’s ninth and tenth claims.
7. Escue’s Eleventh Claim
In his eleventh claim, Escue alleges that Sequent breached his employment agreement
with Sequent by failing to compensate him under the terms of the agreement. Specifically, he
contends that Sequent failed to pay his full base salary for 2008 and 2009, failed to pay the
correct 491(k) retirement plan matching amount for 2008 and 2009, and failed to fund fully his
portion of the Sequent non-qualified deferred compensation plan. Escue also asserts that
Sequent has refused to provide him with a car allowance or lease for 2007, 2008, and 2009,
despite doing so for other employees.
Sequent moves for summary judgment on this breach of contract claim, arguing that
“Escue received that to which he was entitled under his employment agreement.” (ECF No. 146,
at 36.) This statement, contained in the memorandum in support of Sequent’s motion, is
incorrect based on the contentions Sequent then makes forty-two days later in its reply
memorandum.
In the reply memorandum, Sequent takes Escue to task for “[h]olding Sequent to the
letter of his employment agreement.” (ECF No. 168, at 34.) Sequent then soon concedes that it
fell short of meeting its 2009 contribution to Escue’s 401(k) by four cents and that it fell short of

23

its 2008 contribution by $972.39 (using Sequent’s amounts). This alone precludes summary
judgment for Sequent on this aspect of Escue’s claim and punctures the company’s “Escue
received everything” argument.
The remaining portions of Escue’s eleventh claim are also inappropriate for summary
judgment in light of various disputed facts. Sequent has produced an affidavit and
documentation that suggests that it paid Escue what he was due, but he rejects such a contention
in his affidavit and in fact states that he received no funds for select areas in years when Sequent
states it paid him. The calculations used to determine the appropriate sums due Escue, if any, are
in dispute, as well as whether Sequent properly applied compensation for his time on forced
leave following the filing of this lawsuit against what they owed him. Additionally, Escue
contends that a change Sequent made in how it calculated and applied overhead costs worked to
unilaterally change the terms of his employment agreement, and this Court’s review of the
agreement does not reveal a provision addressing this point; it is unclear whether any restriction
existed on such action by Sequent. It is also unclear what precise role a loan from Sequent to
Escue actually played in their financial dealings and whether, as it contends, Sequent is due or
even can now claim and offset related to that loan.
Equally unclear is whether Escue’s position encompasses contributions that would have
occurred but for the 2008 termination of the nonqualified deferred compensation plan. It appears
to this Court that Escue is targeting such contributions, but that must be this Court’s flawed
reading of the briefing, because it also appears that Escue voted to terminate this plan. The
Court will address this matter at the final pretrial conference. Certainly, Escue cannot complain
about failing to receive that which he voted to stop receiving.

24

Finally, there also exists a genuine dispute of material facts surrounding the car-related
component of his claim. Sequent has produced an affidavit in which Sequent CFO Caldwell
states that Escue was able to direct the Birmingham staff to provide him with a car allowance,
but that Escue never did, and when the payroll and benefits functions were transferred to the
Columbus office, the Ohio staff simply followed the lack of allowance. (ECF No. 146-5,
Caldwell Aff. ¶ 14.) In Escue’s affidavit, however, he states that he requested the car benefit.
(ECF No. 155-2, Escue Aff. ¶ 37.)
8. Escue’s Twelfth Claim
Escue requests declaratory judgment in his twelfth claim, asserting that the noncompetition and non-solicitation provisions of his employment agreement, some of which extend
for twenty-four months, are void and unenforceable. Addressing this claim in the summary
judgment briefing, Defendants state that “[t]he relief sought in th[is] final claim is moot since
over twenty-four (24) months will have passed by the time this motion is decided.” (ECF No.
146, at 36.) In response, Escue states in his briefing that “Defendants’ stipulation that Claim 12
is moot indicates that Defendants will not attempt to enforce the provisions referenced in that
Claim.” (ECF No. 155, at 6.)
These statements are of little assistance to this Court in disposing of a claim that
apparently no party sees a need to pursue. Although this Court suspects that the intent of
Defendants’ statement is to indicate that the non-competition and non-solicitation provisions of
Escue’s employment agreement are a non-issue–meaning that not only have they expired, but
there is also no interest in pursing any possible breach of the provisions while they were in
effect–the Court cannot sua sponte dismiss a claim based upon drawing a possibly incorrect

25

inference read into a declaration of “mootness” in a statement made in briefing. There is a
difference between restrictive provisions that have expired and restrictive provisions that were
void and unenforceable from the outset. Additionally, Escue’s characterization of Defendants’
statement is not precisely correct, even if it is a probable inference. In any event, no party has
moved for summary judgment on Claim Twelve, which means that the claim remains pending.

9. Sequent’s First Counterclaim
In its first counterclaim, Sequent asserts a claim for damages for breach of the merger
agreement based upon the 2001-2007 receipt of commissions by Escue and BBSA that the DOL
determined were in violation of ERISA. Sequent alleges that as a result of Escue’s conduct, it
incurred attorney fees and costs and had to pay as reimbursement a total amount of $64,395 to
BBSA Benefit Plan participants. The DOL compliance review related to the commissions took
place after the effective date of the merger, but addressed actions that occurred prior to the
merger.
Escue seeks summary judgment on this counterclaim on the ground the claim is timebarred. He also asserts an alternative ground that this Court need not reach given the dispositive
nature of this first argument. To support that argument, Escue explains that his alleged breach of
the merger agreement can only relate to representations or warranties he made concerning BBSA
in the actual merger agreement and that the merger agreement itself consequently bars the claim.
Escue directs this Court to § 8.04 of the merger agreement, which as this Court noted
earlier is titled “Survival of Representations and Warranties; Indemnification” and provides in
relevant part that his representations “shall survive the execution and delivery of this Agreement

26

and the Closing until the earlier of an initial public offering of Sequent’s Common Stock or the
second anniversary date of the Closing.” (ECF No. 147-56, at 38.) The section as a whole
provides that some written representations among the parties shall never expire, some
representations shall expire after seven years after the merger closes, and some shall expire two
years after the merger closes. Of relevance here is the last category, quoted above, and its
anniversary date provision. Based on the closing date, § 8.04 bars non-exempted claims asserted
after the second anniversary date of January 1, 2009. Because Sequent first asserted the
purported breach by Escue on December 18, 2009, Escue posits, the company’s first
counterclaim is time-barred.
In its memorandum in response, Sequent relies on the legal axiom that “[w]hat is ‘sauce
for the goose, is sauce for the gander.’ ”4 (ECF No. 183, at 6.) Sequent repeats its position that it
recognizes January 1, 2009, as the critical date for every single claim in this action for breach of
the merger agreement based on a written representation. The company again explains its
position that Escue cannot evade the preclusive effect of § 8.04 on his own claims by a unilateral
notice while concurrently using the same section to dispose of the first counterclaim. Sequent
also notes that it had previously indicated that if this Court granted summary judgment in the

4

This saying upon which many attorneys rely without apparent hesitation (often in
discovery disputes), also described as an aphorism, appears in enough decisions to reach the
status of an axiom. See, e.g., U.S. v. Mitchell, 429 F. App’x 271, 275 (4th Cir. 2011); Perkins v.
McKee, 411 F. App’x 822, 831 (6th Cir. 2011); In re Aurora Dairy Corp. Organic Milk Mkt. &
Sales Practices Litig., 621 F.3d 781, 791 (8th Cir. 2010); SCO Group, Inc. v. Novell, Inc., 578
F.3d 1201, 1227 (10th Cir. 2009); Martinez-Serrano v. Quality Health Servs. of Puerto Rico,
Inc., 568 F.3d 278, 284 n.2 (1st Cir. 2009); Aurora Loan Servs., Inc. v. Caddieth, 442 F.3d 1018,
1028 (7th Cir. 2006); U.S. v. Doherty, 786 F.2d 491, 500 (2d Cir. 1986); Mercer v. C.A. Roberts
Co., 570 F.2d 1232, 1239 (5th Cir. 1978). In contrast to invocation of the saying in many if not
most discovery disputes, the saying actually applies here.
27

company’s favor on Escue’s first claim for breach of the merger agreement, then Sequent would
dismiss the first counterclaim. One line in a response memorandum does not effectuate a
contingent dismissal.
Section 8.04 required Sequent to bring its claim prior to January 1, 2009. The company
failed to do so. Accordingly, Escue is entitled to summary judgment on the first counterclaim.
10. Sequent’s Second Counterclaim
Sequent’s second counterclaim alleges that Escue breached a fiduciary duty to the
company in his management of Sequent’s Birmingham, Alabama office. The parties agree on
the elements involved in this claim:
In order to recover for a breach of fiduciary duty, the plaintiff must show the
existence of a duty on the part of the alleged wrongdoer not to subject the
corporation to the injury complained of, a failure to observe such duty, and an injury
proximately resulting therefrom.
Davis v. DCB Fin. Corp., 259 F. Supp. 2d at 673 (citing McConnell v. Hunt Sports Enters., 132
Ohio App.3d 657, 687, 725 N.E.2d 1193, 1215 (1999)). Additionally, the parties agree on the
duties involved, specifically those set forth in Ohio Revised Code § 1701.59(B), and the standard
applied, set forth in Ohio Revised Code § 1701.59(C)(1). The particular circumstances to which
this Court must apply the foregoing law are most easily discussed when broken into three basic
contentions.
The company first argues that Escue engaged in self-dealing. The lease that BBSA had
for its Birmingham office space expired in September 2008. At a Sequent board meeting, Escue
purportedly informed the board that he had executed a sub-lease with Optimal Reading Services
Group, Inc. (“Optimal”), which itself was leasing the space from the City of Homewood.
Sequent claims that Escue failed to disclose that he either owned or had an equity interest in
28

Optimal, thereby breaching his fiduciary duty to Sequent. According to Sequent CFO Caldwell,
the new lease was much more expensive than the lease Escue had held. (ECF No. 146-5,
Caldwell Aff. ¶ 16.) He also asserts that “[t]his new lease was negotiated by Mr. Escue.” (Id.)
Escue in turn directs this Court to evidence that indicates that in addition to his
involvement in the sub-lease negotiations, Defendant Kerber and Sequent’s in-house and outside
counsel were involved. (ECF No. 147-61.) Escue also notes that he disclosed his small
ownership role in Optimal when asked. Escue then finally focuses on the key area related to this
aspect of the counterclaim, arguing that
Sequent cannot point to any injury by way of Escue’s alleged actions. Sequent has
not provided any evidence of being tied to a sub-lease that was priced above the local
market for similar class and location space as of the execution of the sub-lease in
October 2008. Sequent similarly cannot point to any direct monetary benefit to
Escue, to the detriment of Sequent, by Sequent’s execution of the sub-lease.
(ECF No. 157, at 40.)
It perhaps does not matter as much who knew what when or who aside from Escue
participated in the negotiations if the negotiations did not result in a sub-lease that was not in
Sequent’s interests. But Hutter states in an affidavit that “Sequent did not pay a proportionate
share of the rent,” suggesting that the company indeed incurred harm. ((ECF No. 153-3, Supp.
Hutter Decl. ¶ 9.) Hutter also states that if Sequent had known of the potential conflict of
interest, the company “would not have allowed [Escue] to participate in the negotiations.” (Id.)
Escue attempts to counter these points by pointing out that, given his greater interest in Sequent
than Optimal, “[a]ny ‘gain’ by Optimal would disproportionately harm Escue through his
ownership of Sequent stock.” (ECF No. 170, at 4.) There is at least an at-first-blush, superficial
appeal to this reasoning, but there is also a genuine issue of material fact as to the circumstances

29

surrounding the sub-lease and whether Sequent sustained injury from Escue’s conduct. The
proper focus is not on whether Escue actually made a smart move, but on whether he failed to
work in Sequent’s interests.
Sequent next claims that Escue breached his fiduciary duty “by refusing to implement
Sequent polices and procedures, countermanding directives from senior management, and not
devoting full time to his duties as regional manager.” (ECF No. 176 ¶ 205.) In arguing for
summary judgment on this aspect of Sequent’s counterclaim, Escue asserts that the company
cannot show that he failed to observe his duties. To support this contention, Escue directs this
Court to Hutter’s deposition testimony, which Escue summarizes as follows: “Defendant
William Hutter, Chief Executive Officer of Sequent and to whom Mr. Escue reported while
employed at Sequent, testified that ‘Mr. Escue did not violate his employment’ in any way.”
(ECF No. 157, at 41.)
Escue’s brief leaves out the full exchange that took place at the deposition:
Q. Did Mr. -- other than for what you’ve just described -- strike that.
Did Mr. Escue violate his employment in any way?
A. Mr. Escue did not violate his employment, but he violated -- he
certainly violated the -- the spirit and intent of a cooperative working
relationship, which is necessary at the executive level.
(ECF No.160, at 60 (Hutter Dep. at 235).) When asked later about the allegations comprising
this aspect of the counterclaim, Hutter then explained:
Q. And what facts underlie those allegations?
A. The fact that there was inconsistent communication with clients
under Mr. Escue's purview. There was inadequate billing on a client-by-client
basis, in which he favored his friends and family network. I was told by
numerous people in the office that upon our departure from the environment,
that Mr. Escue would come back in and say, don't pay any attention to that,
30

we're not going to do that.
Q. And when you say that there was inadequate billing, what specifically are
you talking about?
A. The nature of the sophistication of offering and indemnification
provisions that Sequent provides to client companies, including our ESAC
performance surety bond, our certification institute, and the credibility of
factors that we bring to the table cost a lot more money to deliver that level of
service. And because of that, revenue needed to increase within the
Birmingham market and the Nashville market.
Q. And what role did Mr. Escue perform or not perform in that regard?
A. He chose not to follow directives and implement the appropriate
charges to cover those operating expenses.
(Id. at 160 (Hutter Dep. at 244-45).) Even if Hutter could not provide at his deposition the
precise numbers associated with the damage Sequent had purportedly sustained–he stated they
had not quantified it yet5–the foregoing extended testimony places the testimony fragment upon
which Escue relies into context and presents a genuine issue of material fact precluding summary
judgment for Escue.
Sequent also claims that Escue revealed attorney-client privileged communications in the
amended complaint and otherwise in order to further his own business interests. Correctly
noting that the issue of whether the complaint itself can serve as the basis for a counterclaim,
Escue seeks summary judgment on the otherwise-disclosed communication aspect on the

5

The Court notes that Hutter’s statement might appear to be curious because he also
states in his January 3, 2012 Supplemental Declaration that prior to the lawsuit, “an analysis
reflected that Mr. Escue’s friends received preferential economic terms because of his reluctance
to implement Sequent’s policies. This analysis was in discovery.” (ECF No. 153-3, Supp.
Hutter Decl. ¶ 8.) The Court assigns no conflict to the declaration and deposition testimony; it
appears an analysis was prepared and disclosed during discovery, but as of the time of the
deposition, the analysis had not resulted in a quantified number of precise amount of the claimed
injury Sequent allegedly has sustained.
31

grounds that Sequent has failed to identify the conduct complained of and how it benefitted
Escue.
In response, Sequent explains that it has inferred that Escue told Craig Parker, then the
CEO of Optimal, information protected by the attorney-client privilege. Parker was secretly
representing Escue against Sequent. The company then asserts that Parker pretended to be
outraged about the contents of Escue’s pleading, told people in the Birmingham community,
including Sequent customers, that Sequent was engaging in illegal practices, and caused Optimal
to terminate its Sequent contract.
Parker’s deposition testimony confirms an attorney-client relationship with Escue and
recounts a Sequent open house in which Parker questioned Hutter about the circumstances
surrounding Escue’s conflict with the company. The deposition also indicates that Parker
unsuccessfully sought written assurances from Sequent regarding its practices and the security of
Optimal’s business dealings with Sequent; Optimal was concerned about it potential exposure to
its employees and whether any of its funds had been misappropriated. Additionally, Parker
explains how he sent the complaint and his own email communications with Hutter to several
friends who had companies that did business with Sequent and discussed the allegations of
misconduct with these individuals.
Where Sequent’s theory of the claim breaks down is attributing Optimal’s decision to
terminate its relationship with Sequent to Parker. Sequent’s briefing argues that Parker caused
Optimal to terminate its contract with Sequent. Parker testified that he did not know who made
the decision to terminate Optimal’s relationship with Sequent. (ECF No. 163, Parker Dep., at
110.) Optimal’s Jeremy Sprinkle testified in his deposition that after meeting with Hutter, he

32

made the decision to terminate Sequent. (ECF No. 166-1, at 20 (Sprinkle Dep., at 77).) Review
of both men’s depositions indicates that Optimal replaced Sequent after repeatedly asking
Sequent for clarification of its business practices and receiving what Optimal regarded as
unsatisfactory answers.
Sequent’s claim does not connect to the damages the company asserts it sustained.
Parker apparently set the Optimal inquiry into motion, but others within Optimal made the
ultimate decision that Sequent asserts as damages. Although Parker’s role is curious, the loss of
business that Sequent sustained was due to Sequent’s dealings with Optimal, not to the
allegations of illegal conduct by Sequent that Escue alleges. In other words, the mere allegations
of misconduct did not cause the loss of business. Rather, the insufficiency of Sequent’s response
to inquiries caused the loss of business. Summary judgment for Escue is therefore warranted on
this component of the second counterclaim.
11. Motion filed by Individual Shareholders (ECF No. 145)
Schoonover, Boyer, Gettman, Kerber, and Ewers also filed a joint motion for summary
judgment filed that presents arguments on the ten claims Escue has asserted again them that are
distinct from those arguments discussed above. (ECF No. 145.) Because these defendants are
already entitled to summary judgment based on those arguments set forth in their other summary
judgment motion filed in conjunction with Sequent and Hutter (ECF No. 146), the Court notes
that their alternative arguments and additional motion for summary judgment (ECF No. 145) are
moot.

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III. Conclusion
As set forth herein, the Court GRANTS IN PART and DENIES IN PART the motion
for summary judgment filed by Sequent, Inc., Hutter, Schoonover, Boyer, Gettman, Kerber, and
Ewers (ECF No. 146), GRANTS IN PART and DENIES IN PART the motion for summary
judgment filed by Escue (ECF No. 157), and GRANTS the supplemental motion for summary
judgment filed by Escue (ECF No. 182). The motion for summary judgment filed by
Schoonover, Boyer, Gettman, Kerber, and Ewers is MOOT. (ECF No. 145.)
Defendants are entitled to summary judgment on Escue’s first, second, third, fourth, fifth,
sixth, seventh, eighth, ninth, and tenth claims. Escue is entitled to summary judgment on
Sequent’s first counterclaim and the communications component of Sequent’s second
counterclaim. Escue’s eleventh and twelfth claims remain pending, as does the self-dealing and
policies-and-procedures components of Sequent’s second counterclaim.
IT IS SO ORDERED.
/s/ Gregory L. Frost
GREGORY L. FROST
UNITED STATES DISTRICT JUDGE

34