. . . .
B. [Provident is] unwilling to enter into the
[Credit Agreement] unless [plaintiff] executes this
[Subordination] Agreement.
C. As an inducement to [Provident] to enter into
the [Credit Agreement], [defendants] and [plaintiff] have
agreed to subordinate, in the manner herein set forth,
the Subordinated Obligations (as hereinafter defined) to
the due and punctual payment in full of all the
indebtedness now or hereafter owed by [defendants] to
[Provident] arising under [Provident's loan to
defendants].
. . . .
3.
Certain Definitions. As used in this Agreement,
the following terms shall have the following meanings:
. . . .
(g) “
Senior Indebtedness” shall be defined as
the principal of (and premium, if any) and interest on
and fees and other amounts payable with respect to (i)
all debt or obligations of [defendants] . . . now or
hereafter arising or existing under the [Credit
Agreement] . . ., (ii) all other indebtedness now or
hereafter extended by [Provident] to [defendants] . . .,
and (iii) all amendments, renewals, extensions,
modifications and refinancings of any such debts or
obligations;
provided, that (A) in no event shall the
outstanding principal amount of the Senior Indebtedness
exceed at any time Thirty Million and 00/100 Dollars
($30,000,000.00), and (B) in no event shall the sum of
the outstanding principal amount of Senior Indebtedness
and all other Indebtedness . . . exceed five (5) times
the consolidated EBITDA of [defendants] (for the fiscal
year ending December 31, 1999) or four (4) times the
consolidated EBITDA of [defendants] (for each fiscal year
thereafter).
(h) “
Subordinated Obligations” shall mean (i)
the obligations and indebtedness of [defendants] due
[plaintiff] under the Subordinated Promissory Note . . .
in the original principal amount of One Million Four
Hundred Thousand and 00/100 Dollars ($1,400,000.00), (ii)
the obligations and indebtedness of [defendants] . . .
due [plaintiff] under [the non-compete clause] of the
Stock Purchase Agreement . . ., and (iii) the obligations
of [defendants] . . . to pay the Earn-Out Compensation
(as defined in the Employment Agreement . . . .)
. . . .
4.
Subordination and Permitted Payments.
(a) [Plaintiff] agrees that payment of the
Subordinated Obligations is expressly subordinate to the
prior payment in full of all Senior Indebtedness and,
that, except as permitted by Section 4(b) hereof, unless
and until the Senior Indebtedness shall have been fully
paid and satisfied and all financing arrangements between
[defendants] and [Provident] pursuant to the [Credit
Agreement] or otherwise have been terminated, [plaintiff]
will not: (i) accelerate, ask, demand, sue for, take or
receive from or on behalf of [defendants] . . . the whole
or any part of any monies which may now or hereafter be
owing to [plaintiff] on the Subordinated Obligations;(ii) initiate or participate with others in any suit,
action or proceeding against [defendants] . . . to
collect the whole or any part of the Subordinated
Obligations . . .; (iii) make any payment on account of
the Subordinated Obligations, other than under Clause
(iii) of the definition of Subordinated Obligations,
unless a Payment Default [on defendants' obligations to
Provident] shall have occurred and is continuing
(assuming the amortization of the Senior Indebtedness to
the extent in effect on the date hereof); . . . .
(b) Notwithstanding the foregoing, [plaintiff]
may receive and [defendants] may make the regularly
scheduled payments . . . due on the Subordinated
Obligations if, at the time of such payment and
immediately after giving effect thereto (i) there shall
not exist any Event of Default [on defendants'
obligations to Provident] . . ., or (ii) such payment
would itself not constitute, or with notice or lapse of
time or both constitute, an Event of Default [on
defendants' obligations to Provident], unless and until
such Event of Default shall have been cured or waived or
cease to exist; . . . .
(c) If [plaintiff] in violation of this
Agreement shall commence, prosecute or participate in any
suit, action or proceeding against [defendants] . . . or
shall take or attempt to enforce, foreclose or realize
upon any security for the Subordinated Obligations,
[defendants] or [Provident] . . . may interpose as a
defense or plea the making of this Agreement . . . .
. . . .
11.
Term. . . . This Agreement shall be irrevocable
by [plaintiff] until all of the Senior Indebtedness shall
have been paid and fully satisfied and all financing
arrangements between [defendants] and [Provident] have
been fully terminated in writing, or until the
Subordinated Obligations shall have been paid and fully
satisfied, whichever first occurs.
. . . .
20.
Governing Law. This Agreement shall be
interpreted, and the rights and liabilities of the
parties hereto determined, in accordance with the laws
and decisions of the State of Ohio.
. . . .
According to the affidavits of Emily G. Neese, USI's Chief
Operating Officer, and Alan R. Henning, a Vice President of
Provident, defendants defaulted on their obligations to Provident
in September 2000, and remained in default at all times between
commencement of this case and the entry of summary judgment herein.
During the period when defendants were in default of their
obligations to Provident, defendants also ceased making the future
payments promised to plaintiff under the Employment Agreement,
Subordinated Promissory Note, and Stock Purchase Agreement.
(See footnote 3)
On 12 January 2001, plaintiff brought an action against
defendants alleging breach of the Employment Agreement and
Subordinated Promissory Note, asserting that defendants had
defaulted on the following payments to plaintiff: (1) $600,000.00
of earn-out compensation, pursuant to the Employment Agreement; (2)
$1,400,000.00, representing the balance of the principal amount
secured by the Subordinated Promissory Note; and (3) $320,000.00,
representing the remaining payments due plaintiff under the non-
compete provision of the Stock Purchase Agreement. On 4 September
2001, the parties entered a consent order allowing Provident tointervene. Defendants and Provident answered, pleading,
inter
alia, the Subordination Agreement in bar of plaintiff's suit.
Defendants and Provident also asserted counterclaims against
plaintiff.
(See footnote 4)
On 25 February 2002, defendants' and Provident's joint
motion for summary judgment was heard, and on 7 March 2002, the
trial court entered an order granting summary judgment in favor of
defendants and Provident on plaintiff's claims. From this order,
plaintiff appeals.
The sole issue presented by this appeal is whether the trial
court correctly entered summary judgment in favor of defendants and
Provident on plaintiff's claims. For the reasons stated herein, we
affirm the trial court's order.
Summary judgment is appropriate where there is no genuine
issue as to any material fact and any party is entitled to judgment
as a matter of law. N.C. Gen. Stat. § 1A-1, Rule 56(c) (2001);
Weeks v. N.C. Dept. of Nat. Resources and Comm. Development, 97
N.C. App. 215, 224, 388 S.E.2d 228, 233,
disc. review denied, 326
N.C. 601, 393 S.E.2d 890 (1990). Summary judgment is appropriately
entered “to foreclose the need for a trial when, based upon the
pleadings and supporting materials, the trial court determines that
only questions of law, not fact, are to be decided.”
Robertson v.
Hartman, 90 N.C. App. 250, 252, 368 S.E.2d 199, 200 (1988).
The parties agree that this case turns on the interpretation
of the Subordination Agreement, which defendants contend on itsface relegates plaintiff to junior creditor status and prevents
plaintiff from being paid by, or bringing suit against, defendants
as long as defendants are in default on the “senior indebtedness,”
i.e., defendants' loan from Provident. Plaintiff, however,
contends that subsection 3(g) of the Subordination Agreement is
ambiguous and could reasonably be interpreted as providing that
Provident loses its senior-creditor status relative to plaintiff if
the outstanding principal amount of the senior indebtedness exceeds
certain limits. Plaintiff contends that interpretation of
subsection 3(g) in this manner creates a genuine issue of material
fact, such that judgment as a matter of law is improper. We
disagree with plaintiff's contentions.
At the outset, we note that pursuant to its express terms, the
Subordination Agreement must be interpreted in accordance with Ohio
law. A subordination agreement “provides that the subordinated
creditor's right to payment and collection will be subordinate to
the rights of another claimant.”
In re Lantana Motel, 124 B.R.
252, 255 (Bankr. S.D. Ohio 1990). “Under Ohio law, subordination
agreements are 'to be interpreted in accordance with ordinary
contract principles . . . When a contract is unambiguous, the
parties['] rights are governed exclusively by the contract.'”
In
re Kobak, 280 B.R. 164, 169 (Bankr. N.D. Ohio 2002) (quoting
In re
Perrysburg Marketplace Co., 208 B.R. 148, 160 (Bankr. N.D. Ohio
1997)). Where a contract's terms are clear and unambiguous, an
appellate court cannot in effect create a new contract by finding
an intent not expressed in the clear language employed by theparties.
Long Beach Assn., Inc. v. Jones, 82 Ohio St. 3d 574, 577,
697 N.E.2d 208, 210 (1998).
In the case
sub judice, we agree with the trial court's
determination that the four corners of the Subordination Agreement
clearly and unambiguously evidence the parties' intent to
subordinate plaintiff's right to receive the promised future
payments from defendants to Provident's right to receive due and
punctual payment in full of defendants' indebtedness to it. This
intent is expressly set forth in paragraph “C” of the Subordination
Agreement's “Recitals” section, with the additional provision in
paragraph “B” that Provident is “unwilling to enter into the [loan
with defendants] unless [plaintiff] executes this [Subordination
Agreement].”
Section 4 of the Subordination Agreement sets forth
precisely how this subordination of plaintiff's right to payment
from defendants vis-a-vis that of Provident is to be accomplished,
providing in subsection 4 (a) that “payment of [the future payments
promised from defendants to plaintiff] is expressly subordinate to
the prior payment in full of all Senior Indebtedness” and that
plaintiff will not sue to collect any payments owed to her by
defendants “unless and until the Senior Indebtedness shall have
been fully paid and satisfied and all financing arrangements
between [defendants] and [Provident] . . . have been terminated[.]”
Moreover, subsection 4(c) expressly provides that defendants “may
interpose as a defense or plea the making of this [Subordination]
Agreement” should plaintiff “commence, prosecute, or participate in
any suit, action or proceeding” seeking to enforce her right toreceive the promised future payments before defendants have
satisfied in full their Senior Indebtedness to Provident.
After careful examination of the Subordination Agreement,
pleadings, affidavits, and other record evidence, we are not
persuaded by plaintiff's assertion that the Subordination
Agreement's subsection 3(g) creates a genuine issue of material
fact as to whether Provident's senior-creditor status relative to
plaintiff terminates when defendants' borrowing exceeds certain
limits. Plaintiff contends that subsection 3(g)(B), which provides
that “in no event shall the outstanding principal amount of the
Senior Indebtedness . . . exceed five (5) times the consolidated
EBITDA of [defendants] (for the fiscal year ending December 31,
1999) or four (4) times the consolidated EBITDA of [defendants]
(for each fiscal year thereafter)” could reasonably be interpreted
as providing that plaintiff's right to payment from defendants is
no longer subordinated to that of Provident when these limits are
exceeded. Plaintiff presented evidence that the Senior
Indebtedness exceeded these limits in fiscal years 1999 and 2000,
arguing that subsection 3(g)(B)'s ambiguity as to whether the
Subordination Agreement terminates under these circumstances
created a genuine issue of material fact rendering summary judgment
inappropriate.
In considering plaintiff's argument, we are mindful that the
Ohio appellate courts have stated “[t]he cardinal purpose for
judicial examination of any written instrument is to ascertain and
give effect to the intent of the parties.”
Foster WheelerEnviresponse v. Cty Convention, 78 Ohio St. 3d 353, 361, 678 N.E.2d
519, 526 (1997). Moreover, “[t]he intent of the parties to a
contract is presumed to reside in the language they chose to employ
in the agreement.”
Kelly v. Medical Life Ins. Co., 31 Ohio St. 3d
130, 132, 509 N.E.2d 411, 413 (1987). With these principles in
mind, we conclude that, when considered in light of the instrument
as a whole, subsection 3(g)(B) does not support a “reasonable
construction” of the Subordination Agreement in the manner urged by
plaintiff. Nowhere in the Subordination Agreement does any
language appear stating that the Subordination Agreement is
invalidated or that Provident loses its status as defendants'
senior creditor relative to plaintiff if the Senior Indebtedness
exceeds the subsection 3(g)(B) limits. By contrast, section 11 of
the Subordination Agreement, entitled “Term,” expressly provides
that the Subordination Agreement “shall be irrevocable by
[plaintiff] until all of the Senior Indebtedness shall have been
paid and fully satisfied and all financing arrangements between
[defendants] and [Provident] have been terminated in writing, or
until [defendants' promises of future payment to plaintiff] shall
have been paid and fully satisfied, whichever first occurs.”
Thus,
by its express terms, the Subordination Agreement is to remain in
full force and effect as long as there is any Senior Indebtedness
outstanding, regardless of its amount. Significantly, rather than
being found in the “Term” section of the Subordination Agreement,
the section 3(g)(B) limitations are contained in the instrument's
“Definitions” section, where they are part of the language used bythe parties to define “Senior Indebtedness.” In examining, as we
must,
Id., the Subordination Agreement's language in order to
ascertain and give effect to the parties' intent, we conclude (1)
that the parties did not intend to invalidate the Subordination
Agreement should the Senior Indebtedness exceed the limits set
forth in subsection 3(g)(B), and (2) that subsection 3(g)(B) did
not create a genuine issue of material fact.
In sum, we agree with the trial court's conclusion that the
parties “signed a contract and it's clear within its four corners
. . . [that] the intent . . . of the parties was to subordinate the
plaintiff's claim [to promised future payments from defendants] to
the bank's claim [to payments from defendants on the loan].”
In
the absence of any genuine issue of material fact, the trial
court's order is
Affirmed.
Judges TIMMONS-GOODSON and HUNTER concur.
Report per Rule 30(e).
Footnote: 1