The opinion
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION AT DAYTON
GeoShack Canada Company, et al.,
Plaintiffs/Counter-Defendants,
Case No. 3: 19-cv-158
Judge Thomas M. Rose
Daniel Hendriks,
Defendant/Counter-Plaintiff.
ENTRY AND ORDER DENYING MOTION TO EXCLUDE BY
DANIEL W. HENDRIKS, DOC. 70; DENYING MOTION TO STAY
OR DEFER RULING RE: 69 MOTION FOR SUMMARY
JUDGMENT BY DANIEL W. HENDRIKS, DOC 77; GRANTING IN
PART MOTION FOR SUMMARY JUDGMENT AGAINST
GEOSHACK CANADA COMPANY BY DANIEL W. HENDRIKS,
DOC. 58, AWARDING DANIEL W. HENDRIKS $52,855.00 PER
SHARE OF STOCK AND 7.25% INTEREST FROM MAY 30, 2019;
DENYING DANIEL W. HENDRIKS’S MOTION FOR SUMMARY
JUDGMENT ON CLAIM THAT HENDRIKS WAS TERMINATED
“FOR CAUSE,” DOC. 59; GRANTING MOTION FOR SUMMARY
JUDGMENT BY GNA CANADIAN HOLDING COMPANY,
GEOSHACK CANADA COMPANY, GNA CANADIAN HOLDING
COMPANY, AND GEOSHACK CANADA COMPANY, DOC 69;
AND TERMINATING CASE.
Pending before the Court are five motions the parties have entitled: Motion for Summary
Judgment against Plaintiffs by Defendant Daniel W. Hendriks, Doc. 58; Defendant’s Motion for
Summary Judgment on Plaintiffs’ Claim that Hendriks was Terminated “For Cause,” Doc. 59;
Motion for Summary Judgment by Counter-Defendants GNA Canadian Holding Company,
GeoShack Canada Company, Plaintiffs GNA Canadian Holding Company, GeoShack Canada
Company, Doc 69; Motion to Exclude by Defendant Daniel W. Hendriks, Doc. 70; and Motion to
Stay or Defer Ruling re 69 Motion for Summary Judgment by Defendant Daniel W. Hendriks. Doc
77. The Court will begin by considering Motion to Exclude by Defendant Daniel W. Hendriks.
Doc. 70.
I. Motion to Exclude
Defendant Daniel W. Hendriks seeks to exclude the testimony of Thomas L. Hawthorne
Jr., Chief Operating Officer for Defendant GeoShack North America. Hendriks would have
Hawthorne’s testimony excluded because GeoShack did not name Hawthorne as a witness in
response to discovery.
In response to interrogatories that asked GeoShack to list the individuals who it believed
had relevant information and for the individuals that it planned to call at trial, GeoShack listed only
Scott Beathard and Dan Hendriks. (Doc. 74-3, PageID 1400-01). GeoShack later amended this
response on December 20, 2020, to include Dan O’Reilly, but not Hawthorne. (Doc. 70-12,
PageID 1226). Plaintiff's witness list concluded:
Plaintiff reserves the right to (a) designate additional witnesses, if
needed; (b) elicit opinion testimony from its witnesses; (c) identify
rebuttal witnesses to any witness named by Defendant; and (d) call
any witness designated by Defendant as upon cross-examination.
(Id.). GeoShack never supplemented its witness list. Hendriks has moved the Court to exclude
Hawthorne’s testimony.
Federal Rule of Civil Procedure 37 provides that where a party fails to “identify a witness
as required by Rule 26(a) or (e), “the party is not allowed to use that information or witness to
supply evidence...at a trial, unless the failure was substantially justified or is harmless.” Fed. R.
Civ. P. 37(c)(1). The purpose of Rule 26(a)(3) is to list “the witnesses who will be called by a party
at trial and allow the opposing party to properly prepare to examine those witness.” Quesenberry v.
Volvo Group N. Am., Inc., 267 F.R.D. 475, 480, 2010 U.S. Dist. LEXIS 39025, *11 (W.D. Va.,
April 20, 2010). Plaintiff failed to identify Hawthorne as a witness as required by Rule 26(a) or (e)
and thus is prohibited by Rule 37 from using the witness's testimony unless the failure was
substantially justified or harmless. Fed. R. Civ. P. 37(c)(1).
Five factors are used in determining whether an omitted or late disclosure is “substantially
justified” or “harmless”:
(1) the surprise to the party against whom the evidence would be
offered; (2) the ability of that party to cure the surprise; (3) the
extent to which allowing the evidence would disrupt the trial; (4) the
importance of the evidence; and (5) the nondisclosing party's
explanation for its failure to disclose the evidence.
Howe vy. City of Akron, 801 F.3d 718, 748 (6th Cir. 2015) (quoting Russell v. Absolute Collection
Serve., Inc., 763 F.3d 385, 396-97 (4th Cir. 2014)). The Federal Rules of Civil Procedure confer
very broad and comprehensive discretion by district courts over the management of all pretrial
activities, especially discovery and scheduling. /d.
Hendriks asserts the failure was neither justified nor harmless:
GeoShack argues they should be able to rely on Hawthorne
because someone else, Hendriks, disclosed him in his initial
disclosures and witness disclosures. But Hendriks’ inclusion of
Hawthorne does not relieve GeoShack of having to disclose him.
See Oster v. Huntington Bancshares Inc., 2017 U.S. Dist. LEXIS
118997, *30-31, 2017 WL 3208620 (S.D. Ohio July 28, 2017).
Oster is on point and supports the exclusion requested by Hendriks.
In fact, the circumstances in Oster are less egregious than the
current case.
In Oster, Chief Judge Marbley excluded witnesses the
defendant included on its witness disclosures but that it never
identified in its initial disclosures or discovery. Id. Like here, the
party opposing exclusion argued that its disclosure failures were
harmless because the movant included the witnesses on their own
initial disclosures and the names of the witnesses were on discovery
documents. Id., *29-30. The Court rejected these arguments and
held “[uJntil Defendant actually identified these individuals as
witnesses, Plaintiff had little incentive to depose them or conduct
written discovery. Id., *30, (emphasis in original.) Just like in Oster,
here, Hendriks had no reason to push for discovery related to
Hawthorne because GeoShack never disclosed him as a witness.
Doc. 81, PageID 1528.
The difference between Oster and this case is that Defendant Hendriks himself disclosed
Hawthorne as a witness “with relevant knowledge” in his initial disclosures (Doc. 74-2, PageID
1393, Exhibit A) (“Mr. Hawthorne is a current employee of Plaintiffs. Defendant believes Mr.
Hawthorne may testify regarding Defendant’s employment and performance, as well as the value
of Defendant’s shares and book value of Ultara Holdings, Inc. He may also testify on all topics
testified to during his deposition, if any, taken in this matter.”). Plaintiff GeoShack disclosed
Hawthorne, if only by incorporation, in its discovery responses to Hendriks (Doc. 74-3, PageID
1401, Exhibit B2). Unlike Oster, Hendriks did depose Hawthorne. The parties filed a joint motion
seeking to extend the discovery cutoff until May 31, 2021, “to complete the depositions of Thomas
Hawthorne, Dan O’Reilly and a 30(B)(6) deposition of Plaintiff.” Doc. 74-4. Hawthorne was
deposed May 19, 2021. (Doc. 71-2, PageID 1255). To the extent that Defendant wished to perform
additional discovery, the Court would have granted further extensions of discovery, as it
frequently does, prior to the dispositive motion deadline. Now that dispositive motions have been
filed, the time for discovery disputes is closed.
Rule 37(c)(1) does require “absolute compliance” with Rule 26(a) and (e). Oster at *28,
(quoting Production Design Servs., Inc. v. SuthertandSchultz, Ltd., 2015 U.S. Dist. LEXIS
110478, 2015 WL 4945745, at *4 (S.D. Ohio Aug. 20, 2015) (quoting Roberts ex ret Johnson v.
Galen of Virginia, Inc., 325 F.3d 776, 782 (6th Cir. 2003)). However, “It is clear from the language
of the Advisory Committee Note that the concern is whether the party had knowledge of the
existence of the witness.” Production Design Services, Inc. v. Sutherland-Schultz, Ltd., No.
3:13-CV-338, 2015 WL 4945745, at *4 (S.D. Ohio Aug. 20, 2015) (Rice, J.).
“In the absence of bad faith, nondisclosure of witnesses is harmless where the other party
knows ‘the names of its witnesses and the scope of their relevant knowledge well before
trial.’” Jd. (quoting Newman v. GHS Osteopathic, Inc., v. Parkview Hosp., Div., 60 F.3d 153, 156
(3d Cir. 1995)). “The burden to prove harmlessness is on the potentially sanctioned party.” Nathan
v. Ohio State Univ., No. 2:10-CV-872, 2012 WL 12985801, at *2 (S.D. Ohio Apr. 17, 2012).
Given that Defendant identified Hawthorne in Defendant’s initial disclosures and set forth
Hawthorne’s knowledge of this case, the Court will not exclude Hawthorne’s testimony. See E/
Camino Res., Ltd. v. Huntington Nat. Bank, No. 1:07-CV-598, 2009 WL 1228680, at *2 (W.D.
Mich. Apr. 30, 2009) (“These [initial disclosure] provisions make it clear that a party will not be
allowed to insist on exclusion of a witness whose relevance the party was already aware of,
especially when that party has itself recognized the witness's importance by including him in the
party's own Rule 26(a) disclosure’); see also Jackson v. Herrington, No. 4:05-CV-186, 2011 WL
1750800, at *2 (W.D. Ky. May 6, 2011) (finding defendant's failure to
disclose witnesses harmless because plaintiff had already disclosed them). Accordingly, the Court
finds Hawthorne’s testimony will not be excluded. See also Almanza v. Sessions, 3:15-CV-389,
2018 WL 5263033, at *2—3 (E.D. Tenn. June 15, 2018).
Hendriks is correct that Rule 26 does not just require the names of persons with relevant
information, but also the subjects of the witness’s testimony. Fed. R. Civ. P. 26(a)(1)(A)(i).
However, Hendriks always knew about Hawthorne and what information he possessed.
Hendriks’s initial disclosures proclaimed “Mr. Hawthorne is a current employee of Plaintiffs.
Defendant believes Mr. Hawthorne may testify regarding Defendant’s employment and
performance, as well as the value of Defendant’s shares and book value of Ultara Holdings, Inc.
He may also testify on all topics testified to during his deposition, if any, taken in this matter.”
(Doc. 74-2, PageID 1393, Exhibit A). Thus, Motion to Exclude by Defendant Daniel W. Hendriks,
Doc. 70, is DENIED. Plaintiffs may call Thomas Hawthorne and use his deposition testimony at
trial or summary judgment.
I. Motion to Stay
Next the Court considers the Motion to Stay or Defer Ruling re Doc. 69, Motion for
Summary Judgment by Defendant Daniel W. Hendriks. Doc. 77. Resolution of a motion to stay is
a question committed to the discretion of the Court. F.7.C. v. E.M.A. Nationwide, Inc., 767 F.3d
611, 623 (6th Cir. 2014). Reviewing courts examine a number of factors when determining
whether a district court abused its discretion in failing to grant a motion for further discovery:
[W]hen the appellant learned of the issue that is the subject of the
desired discovery; (2) whether the desired discovery would have
changed the ruling below; (3) how long the discovery period had
lasted; (4) whether the appellant was dilatory in its discovery
efforts; and (5) whether the appellee was responsive to discovery
requests.
Plott v. Gen. Motors Corp., Packard Elec. Div., 71 F.3d 1190, 1196-97 (6th Cir. 1995) (internal
citations omitted); CenTra, Inc. v. Estrin, 538 F.3d 402, 420 (6th Cir. 2008). The main inquiry is
“whether the moving party was diligent in pursuing discovery.” Dowling v. Cleveland Clinic
Found., 593 F.3d 472, 478 (6th Cir. 2010); see also F.T.C. v. E.M.A. Nationwide, Inc., 767 F.3d
611, 623 (6th Cir. 2014).
Here, Defendant knew of the issues that were the subjects of the desired discovery early on
in the proceedings. As to the second factor, the Court does not conjecture what would be
discovered beyond Defendant’s assertion that it would possibly contradict Hawthorne’s testimony.
The third Plott factor weighs in favor of denying the stay. Discovery has been pursued for nineteen
months, a span that has included resolution by the Court of several disputes and the granting of
numerous extensions. The fourth Plott factor favors denying the stay as well. Plaintiff waited until
July 12, 2021, when summary judgment briefing was nearly complete, to decry conduct that took
place in May. The final factor appears to weigh slightly in favor of denying the stay, as Plaintiff
provided the timely-requested discovery, though Defendant decries that it was provided at the
eleventh hour. Because these factors taken together weigh against relief, the Motion to Stay or
Defer Ruling re: Doc. 69, Motion for Summary Judgment by Defendant Daniel W. Hendriks, Doc.
77, is DENIED.
Il. Motions for Summary Judgment
The parties have filed cross-motions for summary judgment: Motion for Summary
Judgment against Plaintiffs by Defendant Daniel W. Hendriks, Doc. 58; Defendant’s Motion for
Summary Judgment on Plaintiffs’ Claim that Hendriks was Terminated “For Cause,” Doc. 59;
Motion for Summary Judgment by Counter-Defendants GNA Canadian Holding Company,
GeoShack Canada Company, Plaintiffs GNA Canadian Holding Company, GeoShack Canada
Company. Doc 69.
A. Background
Plaintiff GeoShack Canada Company, now known as GNA Canadian Holding Company,
entered into an Employment Agreement with Defendant Daniel W. Hendriks in 2004. (Doc. 1, 4
8, 47; Doc. 20, PageID 276). As part of Hendriks’ Employment Agreement and Stock Purchase
Agreement, Hendriks received shares in GeoShack. (Doc. 1-1 at PageID 10). Section 6.4 of the
Employment Agreement governs what happens to those shares upon a termination of Hendriks’
employment. (Id. at PageID 14-16). Upon Hendriks’ resignation or termination, GeoShack had the
option to redeem Hendriks’ shares. (Id. at PageID 14-15, §§ 6.4(A)(a1); (B)(ii)).
GeoShack exercised its option to redeem Hendriks’ shares. (Doc. 16- 4 at PageID 157;
Doc. 23, PageID 391-393). The terms required GeoShack deliver Hendriks 20% of the net book
value of his shares soon after he exercised his redemption right. This is true regardless of whether
Hendriks resigned or GeoShack terminated him. (Doc. 1-1, PageID 14-16, §§ 6.4(A)(ii); (B)(1i)).
If Hendriks resigned and GeoShack redeemed his shares, then GeoShack owed Hendriks 20% of
the net book value of his shares within six months. (Doc. 1-1, PageID 14-15, § 6.4(A)(ii). On the
other hand, if GeoShack terminated Hendriks—for cause or not for cause—and the redemption
option was exercised, then GeoShack owed Hendriks 20% of the net book value of his shares
within 60 days of the exercise date. (Id. at PageID 15-16, § 6.4(B)(11)).
The difference between a for-cause or not-for-cause termination is that, assuming no
breach of the payment terms, GeoShack has 3-years to pay Hendriks 150% of his share value if he
was terminated not for cause, or 5-years 100% of his share value if he is terminated for cause. (Id.
at PageID 16, § 6.4(B)(1i)). GeoShack also owed Hendriks six months’ severance if Hendriks was
terminated for reasons other than for cause. Doc. 1-1, PageID 15, § 6.4(B)(i).
Regardless of how Hendriks’ employment ended, after the 20% payment was made, the
balance of the purchase price for Hendriks’ shares was to be paid over a 3-5 year period and bear
interest at the prime rate of interest announced effective at the time of the termination of
employment at Bank One, NA (or its successor) plus two (2) points. (Doc. 1-1, PageID 15-16 at §§
6.4(A)(11);(B)(i1)). GeoShack was to make payments in “[a]nnual equal installments, plus accrued
interest” over the next three to five years. (Id.)
Lastly, the terms of GeoShack’s repayment were to be on “typical terms and conditions,
including acceleration upon default.” (Id.) The interest rate and value of Hendriks shares is not in
dispute. (Doc. 54 at PageID 715). Also, GeoShack’s CEO understood these terms and had
knowledge of them. (Beathard Dep., p 29:13-32:5; 65:5-66:3.)
Hendriks got into the construction equipment sales industry by buying half of CRS Survey
Equipment (“CRS”), a construction equipment sales company based in Ontario, in 1995. (Id. at
13:1-14:14, 22:10-13). Over the following eight years that Hendriks co-owned CRS, Hendriks
was responsible only for outside sales, did not serve as a manager or supervisor, did not prepare
budgeting or planning exercises, and neither looked at CRS’s financial statements nor understood
them. (Id. at 23:13—24:1, 25:4—26:25, 28:5—24; see id. at 26:20—25.
In October 2004, GeoShack, a Texas company, acquired CRS and retained Hendriks as a
Manager, a role in which Hendriks’ primary responsibility was to sell products in that region.
(Exhibit C, Hendriks’ Response to Interrog. No. 12). After GeoShack acquired CRS in 2004, the
landscape of the construction equipment industry in Canada changed causing Hendriks’
managerial sales role to evolve. (Id. at 36:10—37:2). According to Hendriks, when he first started
as a GeoShack sales manager, “it was a smaller business, so you had more intimacy with the
transactions and the customers and the evolution of the territory and [I was] much more
hands-on[,]” but, as the business grew and support staff were added, Hendriks became less
involved in the “tactical” aspects of the business and more involved in the strategy. (Id.). More
specifically, Hendriks was responsible for developing, improving, and executing GeoShack’s
business strategy to drive the sales, as well as direct selling. (Id. at 37:5—15). Thus, one of
Hendriks’ primary responsibilities was overseeing regional “operations,” like accounts
receivables, logistics, and inventory. (Id.).
From 2004 to 2012, Hendriks succeeded in his sales role. As Regional Sales Manager of
Ontario from 2004 to 2012, Hendriks was responsible for increasing revenues and market share,
monitoring and maintaining inventory, and ensuring that his region’s gross sales margin exceeded
40%, while operating margin exceeded 10%. Based on Hendriks’ performance numbers from
2004 to 2011, Hendriks achieved each of those performance goals. (Exhibit D; Exhibit E at 1).
Hendriks’ personal sales were good and growing, and the Ontario region’s sales goals were being
met. (Exhibits D & E). In fact, in 2010 and 2011, Hendriks surpassed his annual sales goal by
$2,024,783 (21.3%) and $3,138,021 (27.1%), respectively. (Exhibit D). Hendriks’ performance
metrics appeared so good that, at Hendriks’ insistence, GeoShack opened two new locations in
Quebec (Quebec City and Montreal) and put Hendriks in charge of those operations with the goal
of expanding GeoShack’s market share throughout that region. (Exhibit E at 1).
In 2012, Hendriks missed his sales goals—which Hendriks helped set—by $2,190,782, or
-12.5%, (Id.). By comparison, all of GeoShack’s other primary regions cumulatively exceeded
their sales goals that year by 9.2%. (Exhibit F at 2). (See Exhibit D). Hendriks missed his annual
sales targets by over one million dollars every year thereafter:
Year Amount Under Target Percentage Under Budget
* 2013: $3,033,059 (-17.7%)
* 2014: $1,478,422 (-9.7%)
° 2015: $3,434,223 (-19.1%)
* 2016: $12,160,212 (-36.4%)
* 2017: $2,190,932 (-72.7%)
10
° 2018: $1,158,567 (-87.8%)
(See Exhibit D).
Hendriks’ sales performance prompted GeoShack to visit and investigate Hendriks’
projects in the Ontario and Quebec regions. (Exhibit E at 1; Exhibit G, Hawthorne Dep. at 36:22-—
25). Over a three-year period, from 2012 to 2015, GeoShack discovered that Hendriks’ leadership
had created a culture of not following GeoShack’s institutional rules and policies. (Id. at 117:9-
121:16). GeoShack found that Hendriks ignored accounting principles and company policies when
Hendriks would authorize excessive discounts and credit terms on products, violate revenue
recognition rules, and disregard inventory controls, all of which inflated Hendriks’ actual sales
numbers and “killed [GeoShack] on the bottom line.” (Hawthorne Dep. at 48:9-49:16; id. at
80:13-81:17 (excessive credit, improper revenue and inventory records); id. at 74:15—79:13
(inventory issues); see also Beathard Dep. at 213:25— 215:7 (excessive discounts and credit
terms)). Pricing, accounting, and logistics are fundamental to any sales role. Hendriks’ mistakes
and errors in managing GeoShack’s Ontario and Quebec regions were also systemic. (Id. at
213:25—215:7; Ex. G, Hawthorne Dep. at 74:15— 79:13).
Starting with any given sale, Hendriks would offer excessive discounts and unworkable
credit terms that significantly cut into GeoShack’s profit margins. (Beathard Dep. at 213:25-—
215:7). Next, Hendriks allowed customers to take possession of products before the customers
paid, which often led to substantial write-offs, and thus bottom-line losses to GeoShack. (Exhibit
G, Hawthorne Dep. at 79:14—-81:17). Moreover, Hendriks invoiced and reported sales before those
products were delivered, and, in one instance, before the customer had even agreed to purchase the
products. (Id.). Finally, Hendriks incorrectly serialized products; serialized products went missing;
non-serialized products were mishandled; Hendriks allowed customers to “lease” GeoShack’s
11
products for free, which reduced the value of GeoShack’s inventory without receiving any
revenue; Hendriks failed to ensure that purchased products were ever delivered to customers; and
Hendriks applied trade-in credits to customers who had never traded in anything to GeoShack. (Id.
at 74:15—81:17; Exhibit E at 2-3).
GeoShack had to make significant investments in the Ontario and Quebec regions in 2013
and 2014 to attempt to fix the situation. (Exhibit G, Hawthorne Dep. at 72:9— 77:2). Those
investments included hiring an accounting manager and inventory specialist, as well as opening a
separate warehouse to prevent Hendriks from mishandling inventory and subverting rules and
procedures. (Id. at 74:15—-77:2). These investments in personnel and management support for
Hendriks proved unsuccessful, as Hendriks never reached his sales goals in the Quebec region,
failed to recruit, hire, and train a single sales manager, and, at one point, “operated” one of the two
locations within the Quebec region for months at a time without a single employee working there.
(Exhibit E at 2; see also Exhibit H, Beathard Nov. 20, 2015 Email to Hendriks (“I need solid ideas
from you and a commitment to overcome the ongoing chronic problems with inventory and AR
across [GeoShack Canada] and the persistent issue of underqualified personnel on the counter and
in the warehouse in Toronto.”).
On March 16, 2015, Beathard encouraged Hendriks to address “operational issues in
Ontario” and a “recruiting problem in Quebec,” warning “in 2015, you will be held responsible for
final bottom line results in Quebec.” (Doc. 69-10, PageID 1093, Exhibit I at 1). From 2012 to
2015, GeoShack’s Ontario and Quebec regions were forced to: (1) write off more than
$500,000.00 in receivables, (2) write off approximately $2,300,000.00 in inventory, and (3) credit
more than $6,200,000.00 in sales. (Doc. 69-6, Exhibit E at 1). Ultimately, GeoShack winded down
12
its operations in the Quebec region, after the operating losses there totaled nearly $3 million in just
eight years of existence. (Hawthorne Dep. at 117:9- 20; Exhibit J at 1).
After GeoShack learned of Hendriks’ performance issues related to sales, accounts
receivables, and inventory management from 2012 to 2015, GeoShack also discovered Hendriks
was failing to effectively lead the GeoShack employees who reported to him. For example,
Hendriks would pass his supervisory duties onto other senior employees and create his own
operational structures, job duties, pay scales, and commissions that conflicted with GeoShack
policies and procedures. On September 16, 2015, Beathard wrote Hendriks:
Dan,
You must formally stop using Dave...in any kind of
supervisory role immediately. All of the GCC bench and field techs
must be managed and directed by you. He is not to set schedules or
priorities for other techs. As a senior guy, he can and should help
train new guys, but no day-to-day management of others.
Yes, you guys are being lambasted by Paul G down here on a
variety of issues. Big part of his claim is that you had him do things
not in his job duties, including managing the other guys.
So, this job creep at GCC stops now please.
And GCC must standardize to all of our policies and
procedures — including operational structures, job duties, pay scales,
commissions, EVERYTHING.
(See Doc. 69-12, PageID 1100, Exhibit K). Hendriks was such an absent “leader” and so difficult
to contact that his coworkers dubbed him “the Ghost” because “he was never around.” (Ex. C,
Hendriks’ Response to Interrogatories No. 13; Ex. L; Beathard Dep. at 221:14-21). Several
GeoShack employees quit because Hendriks was their manager. (Id. at 113:2-117:2; Hendriks’
Dep. I at 107:11-18; Exhibit G, Hawthorne Dep. at 120:12— 121:8).
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In late 2015, while the extent of Hendriks’ shortcomings was being discovered, Hendriks
began struggling with “personal issues” related to his family. (Beathard Dep. at 329:1— 4). To help
alleviate Hendriks’ stress, and at Hendriks’ request, in 2016, GeoShack merged its Ohio and
Michigan regions with Hendriks’ Ontario and Quebec regions (collectively the “Eastern District’),
so that Hendriks would travel less, receive more management support, and benefit from working
with detail-oriented managers who would offset Hendriks’ weaknesses in that area. (Exhibit G,
Hawthorne Dep. at 60:20—62:11; Exhibit E at 2). Rather than collaborate with this additional
support staff, however, Hendriks ostracized his GeoShack team.
While approving a credit request that was forwarded to Hendriks through two female
employees, Hendriks signed off and added “—F--- you—” below his signature. (See Doc. 69-14,
PageID 1103, Exhibit M at 2). As one of the employees thought it was directed at her, GeoShack’s
Chief Financial Officer, Robert Makenas, wrote to Hendriks, “I am also under the understanding
that this may not be the first time this has occurred.... Angie, Tracey, Dahlia, Linda, and Cathy are
there to support you and your sales team, your actions and words are not supporting th[ei|r
efforts.” (Id., PageID 1104).
Throughout 2016, Hendriks consistently acted in ways that were “unacceptable,
unprofessional, unethical, and [with] a complete lack of judgement and character on [his] part.”
(Id.). Hendriks’ actions, and inactions in failing to provide leadership, drove away the Ohio and
Michigan teams that his predecessor, Dan O’Reilly, had recruited and developed in 2014 and
2015. (Hendriks’ Dep. at 107:11—18; Beathard Dep. at 113:2— 117:2).
In an August 24, 2016 email that Beathard sent to Hendriks, Beathard stated, “[t]he new
District Manager compensation structure is obviously not working as planned yet. It is taking more
time than expected to get all cylinders firing together.” (Exhibit L at 1). Beathard then explained
14
that “[i]f you can quickly place either two Selling Managers in OH & MI or a full-time Regional
Manager over both, you will no doubt magnify your efforts there and free you up more to work on
ON & QC.” (Id.). Despite this advice, Hendriks did not place any selling managers or regional
managers in Ohio or Michigan. (Hendriks’ Dep. II at 93:1—15).
A few months later, on January 20, 2017, Beathard sent Hendriks a letter that set forth
Hendriks’ transition from the Eastern District to a new position with new primary responsibilities
in the Mining Division. (Doc. 69-15, Exhibit N). Hendriks’ responsibilities as Senior Vice
President and Manager of the Mining Division included:
1. To successfully and profitably distribute all defined mining
products in our GeoShack Mining business.
2. To manage all aspects of this new business venture, including
vendor relationships.
3. To professionally manage and proactively drive sales and exceed
baseline sales plans monthly.
4. To implement and utilize daily our sales management CRM
system within NetSuite that will ensure a strong activity level that
results in thorough territory and product line coverage from all team
players; and track the individual deals that your reps need to achieve
their monthly plans.
5. To review and approve all quotes/estimates in NetSuite, before
issuing to a prospective customer, but after the costs and therefore
the margins are correct.
6. To communicate to me weekly in writing on key strategic,
marketing, sales updates, personnel issues and operational issues.
7. To follow and implement all company policies, whether sales,
margin, inventory, commissions, credit, collections, personnel or
PTO related.
8. To design and implement GeoShack Advantage value added
service programs customized for Mining.
15
9. Achieve gross margins in the 40-45% range, blended with value
added services.
10. Control operating expenses and enforce expense policy.
11. Maintain adequate but not excessive inventory levels.
12. Maintain accounts receivable to 30 days DSO or below.
13. Return a minimum pre-tax Operating Income of 10%.
(id.).
Despite Hendriks’ willingness to take on the role, Hendriks failed to perform virtually any
of his Mining Division responsibilities in 2017 and 2018. (See Exhibits D, E, F, and J). The Mining
Division’s gross margin in 2017 was well under the “40-45% range” at only 30.73%, and its
operating margin was negative, at -0.39%. (Exhibit J at 5). Hendriks fell short of his annual sales
goal by $2,190,932 (or -72.7%). (Id.). Moreover, from an inventory control standpoint, nearly
$30,000 of the Mining Division’s inventory was lost in 2017. (Exhibit F at 1). GeoShack’s only
two sales representatives who worked there at the time left. (Exhibit E).
Then, Hendriks terminated GeoShack’s relationship with all of its Mining Division
vendors, save one. (Id.). That one remaining vendor only offered one product for GeoShack to sell.
(id.). Unsurprisingly, the following year, the Mining Division—run by Hendriks—sold less than
$50,000 of products, and operated at a loss of $158,051, or -97.91%. (Exhibit J at 5).
By the end of the 2017, Hendriks was failing at his second new role in two years. So, on
November 27, 2017, Beathard emailed Hendriks about Hendriks’ performance. (Exhibit O).
Beathard explained to Hendriks that “the Mining business is not growing fast enough to justify
your full[-|time efforts. So going forward, you must either ramp up faster and therefore the path to
profitability or take on additional responsibilities.” (Id.).
16
Beathard listed four optional roles for Hendriks. (Id.). From the four options, Hendriks
remained a sales manager in GeoShack’s Mining Division and Specialty Retail Group and took on
the additional role of a sales manager for GeoShack’s Survey Sales team. (Exhibit P). Hendriks
reported to Beathard for his work related to the Mining Division and Specialty Retail Group, and
Hendriks reported to Dan O’Reilly for his work related to the Survey Sales team. (Id.).
GeoShack reduced Hendriks’ annual sales target for the Mining Division by more than half
to reflect the additional responsibilities that Hendriks gained as manager for the Survey Sales
team. (Exhibit D). Hendriks’ performance did not improve. (Doc. 69-18, Exhibit Q; see also Doc.
69-6, Exhibit E).
On November 1, 2018, Beathard sent Hendriks a letter (the “Default Letter’), formally
notifying Hendriks that, based on his lack of performance, he was in material breach of his
Employment Agreement. (Exhibit Q at 1-2). That letter read:
This letter provides you with formal notice of that you are in
material breach of your Employment Agreement with GeoShack
Canada Company.
There has been a lack of performance on your part that places you in
material breach of the Employment Agreement. Even though we
have attempted over the last three years to find a suitable position
within our organization for you, I think that you will agree that you
have not been successful in any of those attempts.
In 2016, we removed you from the operational side of GCC, our GS
Retail business in Canada and opened a separate warehouse to
control and protect our assets; and then expanded your sales
management role to include Ohio and Michigan as well as Ontario
and Quebec. Even though Mr. O'Reilly made great progress in
Michigan in 2014 und 2015 to tum it around and build a team, you
proceeded to unravel all the progress he made in Michigan in just
months. So we had to remove you from that management
responsibility before it impacted more of our GS Retail business,
especially in Ohio.
17
In 2017, we transferred you over to lead our NA Mining business in
which you quickly drove away both of the sales professionals on
staff, which to this day you have not replaced. And you ended our
relationships with all but one vendor partner. Today you are the only
sales representative for that business with only one product, and it is
no surprise that we are at all time low in sales in 2018 losing money
in that business; and you have given us no credible ideas to fix it.
You were also asked to research potential acquisition targets in the
sector, our goal was to find another business for you to operate for
us and hopefully be successful again. While you did present a few
ideas, you did not put serious effort into driving any deals or
conducting any substantial due diligence.
In early 2018, to help justify your continued employment as a
Senior Manager with our company, you were asked to take on
additional duties to manage and grow our Survey Sales business in
Ontario along with your Mining responsibility. While you have
made some personal sales, you have not placed and trained a Survey
sales specialist to date; and we cannot continue to pay you as a
Senior Manager to do the job of a sales rep.
Dan, we have had many discussions about these issues and you have
been given many opportunities to turn these situations around, but to
no avail. Effective immediately you are placed on administrative
leave for the next thirty (30) days. During this period, please
propose to me a plan to cure your past performance failures to
determine whether your employment will continue after this thirty
(30) day period or be terminated for Cause at that time.
My offer to meet in person next Tuesday, Nov. 6 still stands.
Sincerely,
P. Scott Beathard
Doc. 69-18, PageID 1111-12.
Hendriks received the Default Letter and responded via email on November 4, 2018.
Dear Scott,
This letter is in response to your correspondence of November 1,
2018 and subsequent email of November 2, 2018.
18
I contacted you on October 29, 2018 for the purpose of arranging a
face-to-face meeting to tender my resignation from GeoShack. I
offered to fly to Dallas to meet with you on November 2nd but you
indicated you were unavailable and instead suggested meeting on
November 5th or 6th, In the meantime, you prepared and forwarded
me a letter, dated November 1, 2018, setting out reckless and
misleading claims about my performance, placing me on a 30-day
administrative suspension, and freezing my email account. At no
time prior to receipt of this letter did you indicate a concern about
my performance.
It Is quite apparent you anticipated my resignation, and in order to
avoid GeoShack’s contractual obligations under the Close
Corporation Agreement of October 14, 2003 ("CCA"), you claimed
that I am in material breach of my employment agreement. The
claims relating to my performance made in your November |st letter
do not represent my contribution to the organization.
My response to your comments about my 2018 performance are as
follows:
* | have grown the survey business by 154% from the same period in
2017. Comparatively, the entire retail business has declined more
than 5% over the same period
* Adam Tyler left our employment in April 2018 and I have offered
a number of candidates the position; a six month vacancy in a
position is not unique at this company
* Our mutually-agreed-upon 2018 plan did not contemplate any new
head counts, acquisitions or product additions
* In early 2018, I was instrumental in collecting $235,400 of
$242,900 of delinquent Quebec AR per your direct request
* 100% of our Teledyne units sold in the mining business in the last
18 months have failed as a result of product deficiencies, creating
significant sales resistance which was not anticipated. You were
made aware of these product failures.
Notwithstanding the above, I intend to meet with you on November
6, 2018, as agreed, in the hopes we can engage in a meaningful,
good faith discussion about next steps. In the meantime, it is my
intention to continue carrying out my day-to-day obligations to
19
GeoShack customers. As per your request, I will keep you apprised
of such activities.
Yours truly,
Dan Hendriks
(Doc. 69-19, PageID 1113-14, Exhibit R at 2).
The Court notes Hendriks only responded to his inadequate performance in 2018, not
mentioning his performance in 2016 and 2017, or earlier. (See id.). Moreover, having been
instructed that he was on administrative leave, he proclaims that he will “continue carrying out my
day-to-day obligations to GeoShack customers,” which is somehow “[a]s per your request.”
On November 21, nearly three weeks after Hendriks responded to Beathard, Hendriks sent
another email to Beathard, in which Hendriks stated that, “[i]t is my view that the substance of [the
Default Letter] and actions you have taken on behalf of the corporation constitute constructive
dismissal of my employment.” (Exhibit S at 2). Hendriks continues, “You have placed me on an
‘administrative leave’ for 30 days. This is tantamount to an unwarranted disciplinary suspension.”
(Id.). Hendriks claims that “at no time throughout my fourteen years with the company have you
given me any prior warnings regarding my performance.” (Id.). Hendriks concludes: “I have been
directed that I am expected to create a business plan acceptable to you to ‘cure’ my alleged ‘past
performance failures’ in order to attempt to salvage my employment, failing which I have been
threatened that I will be terminated for cause. Again, this is humiliating. I believe this direction
was made in bad faith and that the company does not have any true intention of continuing my
employment.” (Id.).
On November 28, 2018, again Hendriks wrote to Beathard, “[u]nfortunately your action of
Nov. | has made it impossible for me to continue at GeoShack.” (Exhibit T at 2). That same day,
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Beathard emailed Hendriks, asking “[w]hile on leave, have you come up with any new ideas on
potential roles that would fit your situation and resolve our issues?” (Id.). On December 2, 2018,
Beathard sent Hendriks an email that stated, “[s]ince we finally received your new personal
contact information from you and your clarification that you do not intend to return to work
through these issues and have not proposed a corrective plan, we consider you to be terminated for
cause, effective Nov. 30, 2018 — the end of your paid administrative leave period.” (Exhibit U at
2).
After Hendriks’ employment with GeoShack ended, on December 18, 2018, GeoShack
sent Hendriks notice that it would redeem/purchase his shares. (Doc. 16-4 at PageID 157.) To date,
GeoShack has not paid Hendriks for his shares. (Hendriks Decl., J 6-7, Beathard Dep., p.
294:13-23.
On March 26, 2019, Hendriks’ counsel wrote GeoShack stating that Hendriks disagreed
that he was fired for cause and informed GeoShack that even if Hendriks was fired for cause,
GeoShack still owed him 20% of his shares. (Doc. 58-3, PageID 740, Ex. A, March 26, 2019 Letter
at 3; Hendriks Decl., §] 9). The Letter asked that GeoShack pay 20% of the amount GeoShack was
offering to resolve their dispute, a payment that was then arguably two months past due. (Id.)
Then, in June of 2019, counsel for Hendriks wrote GeoShack again stating that it was in default of
the Employment Agreement for failing to deliver 20% of what it owed Hendriks following
GeoShack’s December 2018 share redemption. (Doc. 58-3, Ex. B, June 28, 2019 Letter p. 1;
Richards Decl., § 2). A few weeks later, Hendriks’ counsel sent GeoShack a “Notice of Default”
declaring GeoShack in default, requested the minimum amount owed be paid, and declared all
outstanding amounts due accelerated. (Doc. 58-3, Ex. C, July 8, 2019 Notice of Default at pp. 1-2;
Richards Decl., § 2). Six months later, Hendriks’ counsel wrote GeoShack’s counsel again
21
reminding GeoShack of its continued breach of the Employment Agreement because of its failure
to pay 20% of the disputed amount. (Doc. 58-3, Ex. D, February 6, 2020 Letter at p. 2; Richards
Decl., ¥ 2). In April of 2020, Hendriks himself wrote GeoShack stating that GeoShack was in
default, accelerating the debt, and demanding the 20% be paid. (Doc. 58-3, Ex. E, April 2, 2020
Letter; Hendriks Decl., {J 8-10). Hendriks’ counsel also forwarded this default letter to GeoShack
counsel. (Doc. 58-3, Ex. F, April 2, 2020 Email; Richards Decl., 4] 2). Finally, in mid-March of
2021, Hendriks’ counsel sent all the above default notices to GeoShack’s new counsel and again
sought payment. (Doc. 58-3, Ex. G, Emails forwarding Default Correspondence; Richards Decl.,
2).
On May 24, 2019, GeoShack Canada Company sued Hendriks asserting breach of contract
and seeking declaratory judgment that Hendriks was terminated for cause. (Doc. 1). On August 20,
2019, Hendriks answered, asserting a counterclaim breach of contract and seeking declaratory
judgment. Doc. 10.
B. Legal Standard
The standard of review applicable to motions for summary judgment is established by
Federal Rule of Civil Procedure 56 and associated case law. Rule 56 provides that summary
judgment “shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P.
56(c). Alternatively, summary judgment is denied “[i]f there are any genuine factual issues that
properly can be resolved only by a finder of fact because they may reasonably be resolved in favor
of either party.” Hancock v. Dodson, 958 F.2d 1367, 1374 (6th Cir. 1992) (quoting Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 250 (1986)). Summary judgment must be entered “against a
22
party who fails to make a showing sufficient to establish the existence of an element essential to
that party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986).
The party seeking summary judgment has the initial burden of informing the court of the
basis for its motion, and identifying those portions of the pleadings, depositions, answers to
interrogatories, admissions and affidavits which it believes demonstrate the absence of a genuine
issue of material fact. /d., at 323. The burden then shifts to the nonmoving party who “must set
forth specific facts showing that there is a genuine issue for trial.” Anderson, 477 U.S., at 250
(quoting Fed. R. Civ. P. 56(e)).
Once the burden of production has shifted, the party opposing summary judgment cannot
rest on its pleadings or merely reassert its previous allegations. It is not sufficient to “simply show
that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v.
Zenith Radio Corp., 475 U.S. 574, 586 (1986). Rule 56 “requires the nonmoving party to go
beyond the pleadings” and present some type of evidentiary material in support of its position.
Celotex Corp., 477 U.S., at 324.
In determining whether a genuine issue of material fact exists, a court must assume as true
the evidence of the nonmoving party and draw all reasonable inferences in the favor of that party.
Anderson, 477 US., at 255. If the parties present conflicting evidence, a court may not decide
which evidence to believe by determining which parties' affiants are more credible. 1OA Wright &
Miller, Federal Practice and Procedure, § 2726. Rather, credibility determinations must be left to
the fact-finder. /d.
The instant case involves questions of state law. In reviewing an Ohio claim, this Court
must apply the law of Ohio, as interpreted by the Supreme Court of Ohio. Northland Ins. Co. v.
23
Guardsman Prods. Inc., 141 F.3d 612, 617 (6th Cir. 1998). Specifically, this Court must apply the
substantive law of Ohio “‘in accordance with the then-controlling decision of the highest court of
the State.” Imperial Hotels Corp. v. Dore, 257 F.3d 615, 620 (6th Cir. 2001) (quoting Pedigo v.
UNUM Life Ins. Co., 145 F.3d 804, 808 (6th Cir. 1998). Also, to the extent that the highest court in
Ohio has not addressed the issue presented, this Court must anticipate how Ohio's highest court
would rule. /d. (quoting Bailey Farms, Inc. v. NOR-AM Chem. Co., 27 F.3d 188, 191 (6th Cir.
1994).
Finally, in ruling on a motion for summary judgment, “[a] district court is not ... obligated
to wade through and search the entire record for some specific facts that might support the
nonmoving party's claim.” JnterRoyal Corp. v. Sponseller, 889 F.2d 108, 111 (6th Cir. 1989).
Thus, in determining whether a genuine issue of material fact exists on a particular issue, the court
is entitled to rely upon the Rule 56 evidence specifically called to its attention by the parties.
C. Argument
The factual issues that impact the redemption value of Hendriks’ shares are: (1) whether
Hendriks was terminated “for cause”; (2) the “Purchase Price” of the shares—a term from the
Employment Agreement—and dictated by the value of the shares and date of valuation; and (3)
whether interest 1s appropriate under the Employment Agreement.
Five of the Employment Agreement’s provisions are relevant to determining whether
Hendriks was fired for cause, fired not for cause or resigned. First, § 2.3 provides that Hendriks
“will have such duties as are assigned and delegated to the Employee by the President of the
Employer.” (Id. at 3). Further, § 2.3 states that Hendriks will use his best efforts to promote
GeoShack’s success and “will fully cooperate with the President in advancement of’ GeoShack’s
best interests. (Id.). Thus, Hendriks’ obligations under the contract are found in GeoShack’s letters
24
and emails to Hendriks that outlined Hendriks’ duties for position. (See, e.g., Exhibit L at 1,
Exhibit J at 2).
The second relevant provision is § 6.1, titled “Events of Termination,” that provides four
ways that Hendriks’ employment at GeoShack could end. Only two are relevant here: (1) “for
cause (as defined in Section 6.3), immediately upon notice from the Employer to the Employee, or
at such later time as such notice may specify”; or (2) “immediately upon notice of resignation from
the Employee to the Employer, or at such later time as Employee and Employer may agree.”
(Exhibit A at 4).
Third, § 6.3 of the Employment Agreement, titled “Definition of ‘For Cause’,” sets forth
five ways that Hendriks could be subject to termination “for cause.” The two that are relevant
emphasize written communication: (1) “the Employee’s material breach of this Agreement,
provided that the Employee shall have been given written notice by the Employer of such alleged
breach and shall have failed to cure such breach within 30 days after date of such notice”; and (2)
“the Employee’s failure to adhere to any written Employer policy if the Employee has been given
a reasonable opportunity to comply with such policy or cure his failure to comply within 30 days
after written notice.” (Id. at 5).
Fourth, § 6.4, titled “Termination Pay and Stock Purchase After Termination,” provides
GeoShack’s obligations to pay Hendriks, which depend entirely upon the reason Hendriks’
employment was terminated and whether Hendriks completed the necessary conditions precedent.
More specifically, § 6.4 states that, if GeoShack terminates Hendriks for cause, then the purchase
price of Hendriks’ shares is 100% of the shares’ net book value. (Id. at 6—7). In contrast, if
GeoShack terminates Hendriks for reasons other than for cause, or if Hendriks voluntarily
terminates his employment, the purchase price of Hendriks’ shares is 150% of the shares’ net book
25
value, plus six-months of Hendriks’ salary. Moreover, if GeoShack terminates Hendriks for
reasons other than for cause, then Hendriks was required to sign a release of “all employment or
other claims” against GeoShack and its affiliates. (Id. at 6).
The fifth applicable section of the Employment Agreement is § 9.6, that provides: □□□□□□
notices, consents, waivers, and other communications under this Agreement must be in writing
and will be deemed to have been duly given when”: (1) delivered by hand, (2) sent by fax and
registered mail, or (3) sent by a nationally recognized overnight delivery service. (Id. at 8).
The Employment Agreement states that GeoShack may terminate Hendriks “for cause”
upon Hendriks’ “material breach of this Agreement.” (Employment Agreement at § 6.3).
Moreover, the Employment Agreement defines Hendriks’ “duties” as the responsibilities assigned
to Hendriks by GeoShack President Scott Beathard, as well as Hendriks’ full cooperation with
Beathard and Hendriks’ best efforts towards GeoShack’s success. (Id. at § 3.1). Thus, to determine
whether Hendriks materially breached the Employment Agreement—and thus whether GeoShack
terminated Hendriks “for cause’”—requires review of the responsibilities that Beathard assigned to
Hendriks. Those are stated in letters that Beathard sent to Hendriks when Hendriks’ roles at
GeoShack changed each year in 2016, 2017, and 2018. Some of the duties that Hendriks was
assigned as Vice President and Sales Manager of GeoShack’s Mining Division in 2017 and 2018,
along with the objective measures of his performance related to those key duties:
Hendriks’ Duties as Mining | Hendriks’ 2017 Performance | Hendriks’ 2018 Performance
Division Vice President and
Sales Manager
To successfully and profitably | Total Sales: $823,317.95 Total Sales: $161,432.57
distribute all defined mining Operating Profit: -0.39% Operating Profit: -97.91%
products in our GeoShack (-$3,243.43) (-$158,051.98)
Mining business.
To manage all aspects of this | Lost all but one vendor
26
new business venture,
including vendor relationships.
To professionally manage and | Missed Annual Sales Goal by | Missed Annual Sales Goal by
proactively drive sales, and $2,190,931 (-72.7%) $1,158,567 (-87.8%)
exceed baseline sales plans
monthly.
To follow and implement all Inventory issues continued Inventory issues continued
company policies, whether
sales, margin, inventory,
commissions, credit,
collections, personnel or PTO
related.
Achieve gross margins inthe | 30.73% Gross Profit Ratio 11.03% Gross Profit Ratio
40-45% range, blended with
value added services.
Control operating expenses 31.13% Expense Ratio 108.93% Expense Ratio
and enforce expense policy. Compared to Total Sales Compared to Total Sales
Maintain adequate but not $27,371 in Inventory Losses $3,435 in Inventory Losses
excessive inventory levels. 4.1% of 2017 Product Sales 6.9% of 2018 Product Sales
Return a minimum pre-tax -0.39% (-$3,243.43) -97.91% (-$158,051.98)
Operating Income of 10%
Reviewing the stated duties and performance goals, Hendriks failed to perform the
essential duties of his role in the Mining Division in 2017 and 2018. In addition to Hendriks’
performance resulting in unsatisfactory financials, Hendriks also failed to perform his managerial
responsibilities. He lost sales representatives and support staff. As Beathard testified, losing
employees would have been acceptable if Hendriks had recruited, hired, and trained new
employees to fill those openings. Instead, Hendriks had vacant positions across GeoShack’s
regions. Hendriks can be held responsible for bottom-line financial results in the divisions where
he worked. Hendriks failed to substantially perform his essential duties; failed to fully cooperate
with Beathard; and failed to put forth his best efforts to support GeoShack’s success. Accordingly,
27
Hendriks materially breached the Employment Agreement, and GeoShack had a right to terminate
Hendriks for cause under the terms of the Employment Agreement.
GeoShack complied with the contractual provision that they give Hendriks a chance to
identify how he would try to cure his performance. Hendriks did not do that. Instead, Hendriks,
waived his right to cure.
Under Ohio law, a breach is material when the injured party will be deprived of the benefits
that it reasonably expected. Hendriks’ breaches were material because he did not substantially
perform his job duties. “A party is in substantial compliance with its promises only when its
deviations are ‘nominal,’ ‘trifling,’ ‘technical,’ ‘slight,’ and consistent with ‘an honest effort to
perform.’” Ehrhardt v. Hamilton Fan & Blower Co., No. C-850265, 1986 WL 3423, at *5 (Ohio
Ct. App. 1986) (quoting Ohio Farmers Ins. Co. v. Cochran, 104 Ohio St. 427, 135 N.E. 537 (Ohio
1922)) (cleaned up). A breach is material when he violates a specific promise and that violation
amounts in a nearly 20% loss of the total benefit contemplated by the parties. Ehrhardt, 1986 WL
3423, at *5.
Here, Hendriks’ performance under the Employment Agreement directly resulted in more
than a 20% loss. GeoShack lost in excess of $3 million from 2009 to 2018. (Exhibit G, Hawthorne
Dep. at 117:9-20; see also Exhibit J at 1). Setting aside Hendriks missing his annual sales targets
every year from 2012, until his termination in 2018 (which totaled a variance of over $25 million),
Hendriks’ refusal to follow inventory protocols and revenue recognition procedures cost
GeoShack millions of dollars on the bottom-line.
From 2012 to 2015, Hendriks operated the Ontario and Quebec regions, where GeoShack
credited $6.2 million in sales, exceeded the expense budgets by more than $2 million, and wrote
off $500,000 of accounts receivables and approximately $2.3 million in inventory. Similarly, in
28
2016, Hendriks caused GeoShack to write off $40,000 in accounts receivables and $600,000 in
inventory. And Hendriks’ Ontario and Quebec regions that year exceeded its expense budget by
more than $144,000.
With Hendriks at the helm of the Quebec region from 2009 to 2016, the total operating loss
there was more than $2.8 million. (Exhibit J at 1). This pattern of losing money continued when
Hendriks moved to the Mining Division in 2017 and 2018, when that operation lost money both
years, totaling more than $161,000. Thus, the majority of regions that Hendriks was in charge of
operated at a loss when he was there. GeoShack suffered tens of millions of dollars in losses.
Hendriks deprived GeoShack of the benefit that 1t reasonably expected—to operate at a return of
10% or higher, which Hendriks achieved early in his career at GeoShack. Thus, Hendriks
materially breached the Employment Agreement by failing to adequately perform his essential
duties.
GeoShack notified Hendriks in writing and provided 30 Days to cure deficiencies. The
Default Letter that GeoShack emailed to Hendriks on November 1, 2018, properly notified
Hendriks that he had materially breached the Employment Agreement, for his specific failures,
and that he was placed on paid administrative leave for 30 days, during which Hendriks was
required to propose a plan to cure his material breaches or otherwise risk termination for cause.
Hendriks argues that, because the Employment Agreement the parties entered in 2004 sets
forth several specific methods that qualify as effective notice, none of which mention sending
notice via email, GeoShack did not properly notify Hendriks of his breaches with the Default
Letter. Under Ohio law, the “failure to comply with a contractual notice provision may be harmless
if actual or constructive notice is nonetheless accomplished.” Simplifi Health Benefit Mgmt. v.
Cayman Islands Nat’l Ins. Co., No. 2:13-CV-714, 2016 WL 4131857, *6 (S.D. Ohio Aug. 2,
29
2016). That is, “[e]ven if written notice is required, where there is evidence of actual notice, a
technical deviation from a contractual notice requirement will not bar the action for breach of
contract brought against a party that had actual notice. MRI Software, LLC v. West Oaks Mall FL,
LLC, 116 N.E.3d 694 (Ohio Ct. App. 2018) (quoting Gollihue v. Nat’l City Bank,
2011-Ohio-5405, 969 N.E.2d 1233, 4] 22 (Ohio Ct. App. 2011)). Given that Hendriks sent several
messages to GeoShack about the Default Letter after he had received the Letter, there is no genuine
dispute that the Default Letter actually notified Hendriks that he had materially breached his
Employment Agreement and had 30 days to cure or otherwise be terminated for cause. (Hendriks’
Dep. I at 58:18—22; see also Exhibit R at 1-2).
Hendriks sent responsive emails to GeoShack on November 4, 21, 22, 29, and 30. And
Hendriks admitted in those emails that, via the Default Letter, he had “been directed ... to create a
business plan acceptable to [GeoShack] to ‘cure’ [his] alleged ‘past performance failures’ in order
to attempt to salvage [his] employment, failing which [he would] be terminated for cause.”
(Exhibit S at 2). Thus, Hendriks clearly had actual notice of the Default Letter, and Hendriks’
complaints that GeoShack sent the Default Letter by email is a “nominal, trifling, [and] technical
departure that hardly destroys the value or purpose of the contract.” Medpace, Inc. v. InspireMD,
Inc., No. 1:16-cv-830, 2019 WL 1109352, at *8 (S.D. Ohio 2019) (citation omitted). Because Ohio
law does not require strict compliance with the delivery of the Default Letter, GeoShack notified
Hendriks that he had materially breached the Employment Agreement on November 1, 2018.
Hendriks further materially breached the employment agreement and did not act in good
faith by failing to attempt to cure his material breaches. One of Hendriks’ duties under the
Employment Agreement was to fully comply with the President of GeoShack. Yet when Beathard,
the President of GeoShack, notified Hendriks of his material breaches on November 1, 2018, and
30
further instructed Hendriks to propose a cure or face termination for cause, Hendriks did not. That
refusal is an independent breach of the Employment Agreement, and thus independently
establishes “for cause” termination. Moreover, Hendriks’ refusal to even attempt to cure his
performance failures while he was on the 30-day paid administrative leave also illustrate
Hendriks’ failure to act in good faith.
“The purpose of giving notice of breach is to allow the breaching party to cure the breach
and thereby avoid the necessity of litigating the matter in court.” Bunn v. Navistar, Inc., 797 F.
App’x 247, 252 (6th Cir. 2020) (quoting Alvarez v. Chevron Corp., 656 F.3d 925, 932 (9th Cir.
2011)). “A court should confine the application of the doctrine of substantial performance to cases
where the party has made an honest or good faith effort to perform the terms of the contract.”
Klaus v. Hilb, Rogal & Hamilton Co., 437 F. Supp. 2d 706, 730-31 (S.D. Ohio 2006).
Hendriks ignored GeoShack’s notice of breach, not attempting to cure those breaches,
contrary to the notice and right-to-cure provisions of the contract. By refusing to fully cooperate
with Beathard’s demand to propose a plan to cure, Hendriks materially breached the Employment
Agreement again. Accordingly, GeoShack permissibly terminated Hendriks for cause for that
second, independent breach.
Finally, Hendriks filed a Motion for Default Judgment (Doc. 58), seeking a declaration that
GeoShack has “defaulted” on its obligation to pay for Hendriks’ shares. Because a “net book value
of shares” has not been established, GeoShack is not in default. The Employment Agreement
states that: “[t]he purchase price will be paid 20% within six (6) months and the balance evidenced
by a promissory note of which will be unsecured and bear interest at the prime rate of interest
announced effective at the time of the termination of employment at Bank One, NA (or its
successor) plus two (2) points” (Employment Agreement at § 6.4(A)(i1), Exhibit A at 6-7).
31
The parties have stipulated to the net book value of the shares, depending on the day
Hendriks’ employment was terminated:
a. October 31, 2018: (i) $50,737.00 (at a 100% net book
valuation); (ii) $76,105.50 (at a 150% net book valuation);
b. November 30, 2018: (i) $52,855.00 (at a 100% net book
valuation); (11) $79,282.50 (at a 150% net book valuation);
c. December 31, 2018: $54,765.00 (at a 100% net book
valuation); (ii) $82,147.50 (at a 150% net book valuation);
4. The prime rate of interest announced effective as of October 31,
2018 and November 30, 2018 at Bank One, NA (or its successor
JPMorgan Chase) plus two (2) points is 7.25%.
Doc. 54, PageID 715. Which share value pertained to the redemption has been in dispute until
now. Thus, GeoShack has not been in default.
Hendriks was terminated for cause, effective November 30, 2018-the end of his paid
administrative leave period. The parties’ agreement states [t]he purchase price will be paid 20%
within six (6) months and the balance evidenced by a promissory note of which will be unsecured
and bear interest at the prime rate of interest announced effective at the time of the termination of
employment at Bank One, NA (or its successor) plus two (2) points” (Employment Agreement at §
6.4(A)(ii))
Thus, Hendriks is entitled to $52,855.00 per share of stock and 7.25% interest from six
months from November 30, 2018. That is, interest accrues from May 30, 2019. To this extent the
Court will grant Motion for Summary Judgment against Plaintiffs by Defendant Daniel W.
Hendriks. (Doc. 58).
IV. Conclusion
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The Court GRANTS IN PART Motion for Summary Judgment against Plaintiffs by
Defendant Daniel W. Hendriks, Doc. 58, AWARDING Hendriks $52,855.00 per share of stock
and 7.25% interest from May 30, 2019; DENIES Defendant’s Motion for Summary Judgment on
Plaintiffs’ Claim that Hendriks was Terminated “For Cause,” Doc. 59; GRANTS Motion for
Summary Judgment by Counter-Defendants GNA Canadian Holding Company, GeoShack
Canada Company, Plaintiffs GNA Canadian Holding Company, GeoShack Canada Company,
Doc 69; DENIES Motion to Exclude by Defendant Daniel W. Hendriks, Doc. 70; and DENIES
Motion to Stay or Defer Ruling re 69 Motion for Summary Judgment by Defendant Daniel W.
Hendriks. Doc 77.
The instant case is TERMINATED from the dockets of the United States District Court
for the Southern District of Ohio, Western Division at Dayton.
DONE and ORDERED in Dayton, Ohio, this Tuesday, December 21, 2021.
s/Thomas M. Rose
THOMASM.ROSE-
UNITED STATES DISTRICT JUDGE
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