[Cite as Hanko v. Nestor, 2019-Ohio-2256.]
IN THE COURT OF APPEALS OF OHIO SIXTH APPELLATE DISTRICT ERIE COUNTY
Michael Hanko Court of Appeals No. E-18-007
Appellee Trial Court No. 2001 CV 0304
v.
Michael Nestor, et al.
Appellant
Robert Hanko DECISION AND JUDGMENT
Appellee Decided: June 7, 2019
*****
Brent L. English, for appellees.
Steven B. Beranek, for appellant.
SINGER, J.
{¶ 1} This is an appeal from the January 19, 2018 judgment of the Erie County
Court of Common Pleas denying appellant’s motion for a new trial. Finding no error, we
affirm the judgment. Assignments of Error
{¶ 2} Appellant sets forth two assignments of error:
1. THE TRIAL COURT ERRED WHEN IT GRANTED
APPELLEE’S ORAL MOTION FOR DIRECTED VERDICT AT THE
CLOSE OF APPELLANT’S CASE.
2. THE TRIAL COURT ERRED WHEN IT FAILED TO GRANT
APPELLANT’S MOTION FOR NEW TRIAL.
Background
{¶ 3} The facts of this case are fully set forth in our decisions in Hanko v. Nestor,
6th Dist. Erie No. E-11-055, 2012-Ohio-4488 (“Hanko I”), and Hanko v. Nestor, 6th Dist.
Erie No. E-15-041, 2016-Ohio-2976 (“Hanko II”).
{¶ 4} In May of 1994, appellant, Michael Nestor, and appellee, Michael Hanko,
formed H&N Construction, Inc. (“H&N”). Before establishing H&N, appellee and
appellant worked together for another construction company.
{¶ 5} H&N had two executive directors, appellant and appellee, and both owned
50 percent of the company. Appellant was president, appellee was vice-president, and
appellant’s wife, Betsy Nestor, was secretary. The company also employed labor
workers, and it used equipment that appellant and appellee either brought to H&N or
purchased to contribute to H&N’s production.
{¶ 6} Until around mid-1999, appellant and appellee received equal paychecks and
profits, and the business was going well. Then appellant and appellee’s relationship
2. began to deteriorate, and appellee communicated that he wanted to sell his interest in the
company. He demanded around $200,000 for his share. Appellant was only willing to
pay him half of that price. There was no shareholder or operating agreement in place and
an impasse ensued.
{¶ 7} Appellant continued to operate the business while appellee was treated as if
he retired and abandoned his interests. Appellee filed a complaint against appellant in
November 1999, alleging that appellant had, among other things, breached fiduciary
duties to appellee and usurped corporate opportunities. Appellant filed counterclaims
against appellee alleging similar causes of action. The case was voluntarily dismissed
without prejudice in April 2001.
{¶ 8} Appellee re-filed the action in June 2001. Appellant again filed
counterclaims against appellee. The cases were identical other than the addition of
appellee’s brother, Robert Hanko, and Hanko Farms, Inc. as parties to a third-party
complaint filed by appellant and his wife.
{¶ 9} In 2009, appellant filed two separate motions to dismiss appellee’s claims
for failure to prosecute. On July 2, 2009, the trial court dismissed appellee’s complaint
with prejudice for failure to prosecute pursuant to Civ.R. 41(B)(1).
{¶ 10} On September 28, 2012, we affirmed the trial court’s July 2, 2009
judgment dismissing appellee’s claims. See Hanko I. Appellee then filed an application
for reconsideration, which we denied. The Supreme Court of Ohio did not accept the
3. case for review. See Hanko v. Nestor, 134 Ohio St.3d 1469, 2013-Ohio-553, 983 N.E.2d
368.
{¶ 11} On May 12, 2015, appellee filed a motion for relief from the trial court’s
June 17, 2011 judgment denying appellee’s motion for reconsideration of the July 2,
2009 order. In the motion, appellee claimed he was entitled to relief pursuant to Civ.R.
60(A) or Civ.R. 60(B)(5). The trial court held an evidentiary hearing and, on July 24,
2015, the trial court granted appellee’s motion. Appellant timely appealed to this court.
{¶ 12} On May 13, 2016, we reversed the trial court’s July 24, 2015 judgment.
See Hanko II. We determined the trial court improperly proceeded under Civ.R. 60. Our
judgment affirmed that appellee could not bring forth his claims as held in the July 2,
2009 trial court order. This court found, however, that appellant’s 2001 counterclaims
were preserved and the case was remanded to the trial court.
{¶ 13} The matter proceeded to trial on appellant’s breach of fiduciary duty claim
on September 25, 2017. At the close of appellant’s evidence, appellee moved for a
directed verdict. The trial court granted the motion. The judgment was journalized on
October 25, 2017. Appellant then moved the court for a new trial, and the court denied
the motion on January 19, 2018. Appellant timely appeals.
Legal Analysis
{¶ 14} Although not asserted in an assignment of error, the parties initially place
in dispute to what extent this court should address appellant’s counterclaims considering
he brought forth the claims in a direct, as opposed to a derivative action. This issue is
4. one of law and shall be reviewed de novo. See Heaton v. Rohl, 193 Ohio App.3d 770,
2011-Ohio-2090, 954 N.E.2d 165, ¶ 53 (11th Dist.).
{¶ 15} Appellant asserts a derivative action is not necessary because Ohio law
allows business partners and shareholders to bring forth direct, as opposed to derivative
claims against other partners or shareholders for a breach of fiduciary duty.
{¶ 16} Appellee contends appellant’s counterclaims should be denied because
appellant must, but did not, proceed with a derivative action.
{¶ 17} Initially, we note H&N was a close corporation because it only had two
shareholders and H&N’s shares were not traded on a securities market. See Crosby v.
Beam, 47 Ohio St.3d 105, 548 N.E.2d 217 (1989), paragraph one of syllabus.
{¶ 18} Directors and shareholders of a closely held corporation owe the
shareholders fiduciary duties to act in good faith and to refrain from self-dealing. See id.
at 107-108; Heaton, 193 Ohio App.3d 770, 2011-Ohio-2090, 954 N.E.2d 165, at ¶ 47.
{¶ 19} Generally, “actions for breach of fiduciary duties are to be brought in
derivative suits.” Grand Council v. Owens, 86 Ohio App.3d 215, 220, 620 N.E.2d 234
(10th Dist.1993), citing Cole v. Ford Motor Co., 566 F.Supp. 558, 568-569
(W.D.Pa.1983). One nuanced exception is where the case involves “claims by
shareholders in a close corporation.” See, e.g., Terry v. Carney, 6th Dist. Ottawa No.
OT-94-054, 1995 Ohio App. LEXIS 5754, *17 (Dec. 29, 1995).
{¶ 20} Appellant argues he was not required to bring forth his counterclaims as a
derivative action because his claims involved a close corporation. For support he
5. specifically points to Crosby, where the Supreme Court of Ohio held that “claims of a
breach of fiduciary duty alleged by minority shareholders against shareholders who
control a majority of shares in a close corporation, and use their control to deprive
minority shareholders of the benefits of their investment, may be brought as individual or
direct actions and are not subject to the provisions of Civ. R. 23.1.” Crosby at 109-110.
{¶ 21} In this case, we cannot say the facts fit squarely within the explicit
framework of Crosby because the parties were both equal owners of H&N, and thus there
was no majority or minority shareholder.
{¶ 22} We look to Crosby’s progeny, and note that this court has not applied the
rule articulated in Crosby to a case where there has been no minority shareholder. See
Frick v. Frick, 6th Dist. Wood No. WD-03-075, 2004-Ohio-6898; Mulchin v. ZZZ
Anesthesia, Inc., 6th Dist. Erie No. E-05-045, 2006-Ohio-5773; Binsack v. Hipp, 6th Dist.
Huron No. H-97-029, 1998 Ohio App. LEXIS 2370 (June 5, 1998); Terry v. Carney, 6th
Dist. Ottawa No. OT-94-054, 1995 Ohio App. LEXIS 5754 (Dec. 29, 1995); Crosby v.
Beam, 83 Ohio App.3d 501, 615 N.E.2d 294 (6th Dist.1992); Hall v. Edmonds, 6th Dist.
Lucas No. L-91-219, 1992 Ohio App. LEXIS 4349 (Aug. 28, 1992).
{¶ 23} We first point to Citizens Fed. Bank v. Chateau Constr. Co., 2d Dist.
Montgomery No. 13902, 1994 Ohio App. LEXIS 167 (Jan. 19, 1994), where a direct
action was allowed.
{¶ 24} In Citizens, the Second District Court of Appeals applied the holding of
Crosby despite there being no minority shareholder. Id. at *4. There were two business
6. partners, Nelson and Ross, who each owned 50 percent of a company they started in
1987. Evidence demonstrated “that [Nelson] was the controlling shareholder.” Id. at *5.
As a result of Nelson being the controlling shareholder, breach of his fiduciary duty to
Ross was actionable. See id. at *4, citing Crosby at 109 (implying “controlling”
shareholder can be treated as a “majority,” perhaps despite there being no true “minority”
shareholder).
{¶ 25} Distinguishable from Citizens is Kable v. Trinity Fin. Corp., S.D.Ohio No.
07-CV-1131, 2008 U.S. Dist. LEXIS 23974 (Mar. 11, 2008), where a direct claim was
denied. In Kable, the U.S. District Court for the Southern District of Ohio cited Crosby
and found “the minority-shareholder exception is inapplicable to cases in which there are
no minority shareholders.” Id. at *15-16. Kable and Andolshek were equal partners in
their company, and Kable sued Andolshek. Id. at *2. Andolshek was vice-president and,
in that capacity but for his own personal gain, had wired $125,102.50 of company funds
to a third party. Kable alleged this transfer was an illegal conversion, and he brought a
derivative claim on behalf of the company for $125,102.50 and, in the alternative, a direct
claim for breach of fiduciary duty for $62,551.25 (50 percent of $125,102.50) on behalf
of himself. Id.
{¶ 26} The Kable court dismissed the direct claim. Id. at *15-17. In doing so, the
court first analyzed the factor of control in favor of disallowing the direct claim and
recognized that as an equal partner and president, Kable “would have as much right and
opportunity to exercise control over any judgment[.]” Id. at *15.
7. {¶ 27} Additionally, the court recognized that the legal authorities on which Kable
relied were distinguishable in that those “Ohio courts permitted direct claims in lieu of
derivative actions because the corporation no longer existed.” Id. at *17. Thus the court
analyzed whether the company was an ongoing concern, and found it favored disallowing
a direct claim if so.
{¶ 28} Lastly, the court stated “Kable allege[d] no injury separate and distinct
from that of [the company,]” id., hence there analyzing who bears the injury or harm, and
whether the injury or harm directly affected the company and only indirectly affected the
shareholder, Kable. See also Crosby at 110, citing Adair v. Wozniak, 23 Ohio St.3d 174,
492 N.E.2d 426 (1986).
{¶ 29} Consistent with the law of Crosby, Citizens, and Kable, and because we
found 50/50 co-owners of a close corporation in this appeal, we consider the following in
determining if a direct claim is proper: (1) is the injury or harm separate and distinct
from the injury or harm to the company; (2) did defendant have authority and control the
company in a way that led to harming other shareholders; and (3) is the company an
ongoing concern. See, e.g., Gensemer v. Hallock, 125 Ohio App.3d 84, 92, 707 N.E.2d
1156 (9th Dist.1997) (stating “* * * where there is a close corporation with only four
shareholders, where the corporation has already been dissolved, and where the issues
involved are not terribly complex, we cannot say the lower court errs in allowing a
former shareholder to pursue a direct action[.]”).
8. (1) Separate and Distinct Injury or Harm
{¶ 30} To illustrate the “separate and distinct” consideration we look to Heaton,
193 Ohio App.3d 770, 2011-Ohio-2090, 954 N.E.2d 165, where the Eleventh District
Court of Appeals allowed a direct claim, stating “[a] shareholder * * * may bring a direct
action against a director or officer for injuries suffered by the corporation where: (1) the
injury arises out of a special duty * * * or (2) the shareholder suffered damages separate
and distinct from that suffered by other shareholders.” Id. at ¶ 55.
{¶ 31} Rohl and Heaton were equal (50/50) shareholders of a close corporation
named All Aircraft Services, Inc. (“AAS”). Id. at ¶ 57. AAS was an aviation business
that serviced aircrafts, and Rohl was the sole owner of the company, T&G, which held
the lease “over the hangar in which AAS conducted its operations[.]” Id. at ¶ 58.
{¶ 32} The Heaton court found that Rohl and Heaton agreed AAS would provide
discounted labor to T&G, which was “to offset expenses incurred by AAS, including rent
and other overhead.” Id. at ¶ 8. AAS operated for 39 months and was profitable and
self-sustaining financially. After a disagreement about profits, Rohl and Heaton’s
relationship deteriorated. T&G, through Rohl, requested that AAS pay it $90,000, in
mostly back rent, for the period from January 2003, through to September 2005. Id. at
¶ 19-20.
{¶ 33} AAS could not pay the back rent and ceased operations. Id. Rohl
continued operating the same type of business, from the same facility, using the same
employees, and assisting the same customers, as AAS. Id. Heaton sued Rohl for, among
9. others, breach of fiduciary duty. The Heaton court held that Rohl indeed breached his
duties to act in good faith and refrain from self-dealing. Id. at ¶ 59.
{¶ 34} The Heaton court further held Rohl caused Heaton injury which was
separate and distinct from that which the company suffered. Id. More specifically, the
court recognized that “Rohl’s actions deprived Heaton, the sole remaining shareholder, of
both his equal share in the company and his employment.” Id. The court then stated that
“Rohl, on the other hand, was able to continue operating a business engaged in the same
operations as AAS, in the same location, with the same employees, assisting the same
customers[,]” and that Rohl was undamaged by his own actions and profited at Heaton’s
expense. Id.
{¶ 35} Here, appellant asserts the injury or harm he suffered as a result of
appellee’s acts was separate and distinct from the company because appellee, the
wrongful actor, was the only shareholder to otherwise suffer or profit from his wrongful
acts. Appellant cites to Medina v. Perumbeti, 8th Dist. Cuyahoga No. 66732, 1994 Ohio
App. LEXIS 5809 (Dec. 22, 1994), referring to it as “remarkably instructive with regard
to * * * whether the injury caused to H&N Construction by Hanko’s breach of fiduciary
duties in effect constitutes injury to Nestor personally.” Appellant otherwise concedes
the injury or harm the company suffered was the same harm he suffered.
{¶ 36} Appellee contends that because H&N was a separate legal entity from its
shareholders, appellant improperly asserted a direct claim below because appellant’s
10. claims, “even if proved, were for injuries to H&N and clearly not to Nestor personally.”
Appellee thus asserts a derivative claim and compliance with Civ.R. 23.1 were necessary.
{¶ 37} We particularly find appellant’s allegations, if proven and well-taken by the
trier-of-fact, would demonstrate appellee sought to compete, disrupted business
operations by terminating employees, used and converted equipment, and usurped and
withheld business opportunities, all in an effort to deliberately seek to harm H&N, which
was appellant’s sole means of income. Appellee was the only other shareholder of H&N,
and like Rohl in Heaton, was allegedly undamaged by his own actions and actually
profited at appellant’s expense. See Heaton at ¶ 59.
{¶ 38} Accordingly, we find this first consideration weighs in favor of allowing a
direct claim by appellant.
(2) Company Control
{¶ 39} We next consider whether appellee controlled H&N, with exclusive
authority, in a way that led to harming other shareholders. We again reference Citizens,
2d Dist. Montgomery No. 13902, 1994 Ohio App. LEXIS 167, where the Second District
Court of Appeals relied on this consideration to allow a claim against the controlling
partner.
{¶ 40} In Citizens, supra, Nelson was a “controlling shareholder” who breached
his fiduciary duty to Ross. Nelson was considered “controlling” because he was the
president, treasurer and manager, and he and his wife handled the books, records, and
11. bank account, paid the subcontractors, suppliers, and creditors, and negotiated contracts
and actively participated in the day-to-day operation of the company. Id. at *5.
{¶ 41} Moreover, throughout the company’s existence, Ross, Nelson, and
Nelson’s wife all loaned it money in his or her individual capacity. In 1991, the company
went out of business and only Ross was left owed debt because Nelson, as treasurer, paid
back money he and his wife were owed from H&N’s remaining funds. Ross then
successfully sued Nelson alleging this failure to pay him back to be a breach of fiduciary
duties.
{¶ 42} Here, we find appellee was not alleged to be more of a controlling partner
than appellant. To the contrary, it was appellant and his wife who admittedly ran the day-
to-day operations of H&N, and as an equal partner we find appellant had as much right
and opportunity to exercise control over any judgment exercised by H&N as had
appellee.
{¶ 43} However, we look again to Heaton, 193 Ohio App.3d 770, 2011-Ohio-
2090, 954 N.E.2d 165, for another angle at the issue. Appellee, similarly to Rohl in
Heaton, was alleged to have operated the same type of business as H&N after leaving the
company, to have used H&N employees and equipment for the benefit of him and his
other company, and to have assisted the same potential customers as those of H&N, all
while maintaining an interest in an undissolved H&N. See Heaton at ¶ 59, supra.
{¶ 44} Accordingly, we find this second consideration weighs neutral in our
direct-claim analysis.
12. (3) On Going Concern
{¶ 45} Lastly, we consider whether the company is an ongoing concern. See
Kable at *17, S.D.Ohio No. 07-CV-1131, 2008 U.S. Dist. LEXIS 23974, supra.
{¶ 46} Here, we find H&N is not. Specifically, the record supports the parties
ceased working together in late 1999, and that H&N was enjoined from operation in
2011. We find this third consideration, thus, weighs in favor of allowing a direct claim.
{¶ 47} Accordingly, under these facts and based on the foregoing considerations,
we find a direct action against appellee was appropriate.
Assignment of Error No. 1
{¶ 48} In his first assignment of error, appellant contends the trial court erred in
granting appellee’s motion for directed verdict because there was substantial, competent
evidence in his favor so that reasonable minds might reach a different conclusion.
Appellee counters, asserting the trial court properly granted the directed verdict.
{¶ 49} Civ.R. 50(A)(1) provides that a motion for directed verdict “may be made
on the opening statement of the opponent, at the close of the opponent’s evidence or at
the close of all the evidence.” Civ.R. 50(A)(4) follows with:
When a motion for a directed verdict has been properly made, and
the trial court, after construing the evidence most strongly in favor of the
party against whom the motion is directed, finds that upon any
determinative issue reasonable minds could come to but one conclusion
upon the evidence submitted and that conclusion is adverse to such party,
13. the court shall sustain the motion and direct a verdict for the moving party
as to that issue.
See, e.g., Howell v. Dayton Power & Light Co., 102 Ohio App.3d 6, 13, 656 N.E.2d 957
(4th Dist.1995). A de novo standard is applied in reviewing a trial court’s ruling on a
motion for directed verdict under Civ.R. 50. See Kassmakis v. Dasani, 6th Dist. Lucas
No. L-04-1041, 2004-Ohio-6463, ¶ 9.
{¶ 50} We first note that appellant’s counterclaims below were for breach of
fiduciary duty, conversion, and civil conspiracy. On appeal, appellant only challenges
the trial court’s denial of the claim for breach of fiduciary duty. Consequently, he has
waived any challenge to the disposition of his counterclaims for conversion and civil
conspiracy. Thus we proceed, addressing only his claim for breach of fiduciary duty.
“One asserting a claim of breach of fiduciary duty must establish the existence of a
fiduciary duty, breach of that duty, and injury proximately caused by the breach.”
Newcomer v. Natl. City Bank, 2014-Ohio-3619, 19 N.E.3d 492, ¶ 9 (6th Dist.).
{¶ 51} Here, we find appellee certainly owed appellant a fiduciary duty while he
was a partner, director, officer and shareholder of H&N. On appeal, appellant explicitly
highlights appellee’s director and shareholder statuses to establish this duty and breach.
See, e.g., Frick v. Frick, 6th Dist. Wood No. WD-03-075, 2004-Ohio-6898, ¶ 102; Burns
v. Burns Iron & Metal Co., 6th Dist. Sandusky No. S-12-024, 2013-Ohio-2024, ¶ 18 (“It
is well-settled that shareholders in a closely held corporation ‘owe one another a
fiduciary duty to act in good faith and refrain from self-dealing.’”).
14. {¶ 52} We agree. Moreover, with respect to breach, appellant specifically claims
that appellee laid off employees to the detriment of H&N, actively competed with H&N,
and usurped business opportunities available to H&N.
{¶ 53} Appellee contends the employees were at-will and actually decided to not
continue working for H&N, and that appellant failed to demonstrate with evidence that
appellee’s alleged competing or usurping opportunities caused injury or damages.
{¶ 54} Viewing the record at the close of appellant’s evidence most favorable to
him, we find appellee breached his fiduciary duties of good faith and to refrain from self-
dealing. Appellee nevertheless argues that, despite any breach of fiduciary duties,
appellant failed to prove with certainty the amount of monetary damages he was entitled
to as a result of appellee’s acts or omissions.
{¶ 55} We first analyze whether appellant, before closing of his evidence at trial,
established that appellee proximately caused injury or monetary damages. “Proximate
cause ‘is often difficult of exact definition as applied to the facts of a particular case.’”
Morgan v. Ramby, 12th Dist. Warren Nos. CA2010-10-095, CA2010-10-101, 2012-
Ohio-763, ¶ 25, citing Young v. Hollins, 12th Dist. No. CA89-11-099, 1991 Ohio App.
LEXIS 178, 1991 WL 6361, * 4 (Jan. 22, 1991). “Nevertheless, while oftentimes
difficult to define, the proximate cause of an event is generally thought of as ‘that which
in a natural and continuous sequence, unbroken by any new, independent cause, produces
that event and without which that event would not have occurred.’” Id., citing Wilson v.
15. AC & S, Inc., 169 Ohio App.3d 720, 2006-Ohio-6704, 864 N.E.2d 682, ¶ 106 (12th
Dist.).
{¶ 56} We look to Morgan where the Twelfth District Court of Appeals held that
no damages were proximately caused despite a shareholder/director/officer breaching his
fiduciary duties by leaving his company without winding up its affairs and by failing to
participate or assist in defending lawsuits brought against the company. Id. at ¶ 26.
{¶ 57} Morgan and Ramby were each 50 percent shareholders of a home-
construction business. Id. at ¶ 2. Their relationship eroded and Ramby separated from
the business, which at that time left Morgan to deal with several disgruntled clients,
unpaid invoices, mechanics liens, and lawsuits. Id. at ¶ 5. Morgan filed claims against
Ramby for, among others, breach of fiduciary duties. Id. at ¶ 6. The trial court found
Ramby could be liable for breaching fiduciary duties owed to both Morgan and the
company for failing to formally resign and refusing to cooperate in defense of the
litigation. Id. at ¶ 10. Despite this breach element being met, however, the trial court
held that Morgan only proved the breach proximately resulted in $42,972.70 damages,
which was for incurred legal fees. Id. at ¶ 26.
{¶ 58} The Morgan appellate court affirmed that Ramby’s acts were “unbecoming
of an otherwise prudent businessman,” and reflected “a reckless disregard for [the
business’s] corporate interests.” Id. The appellate court specifically found, “[t]o simply
walk away from the situation, as Ramby did, demonstrates a lack of good faith and
violates the fiduciary duty owed to [the business] and Morgan.” Id. The court then
16. turned “to the question of whether Morgan and [the business] have been damaged as a
proximate result of Ramby’s conduct,” and answered it in the negative. Id. at ¶ 27. The
court stated, “while Ramby’s assistance in defending against the lawsuits may have
proved beneficial, it simply cannot be said that his departure proximately caused”
$42,972.70 in attorney fees. Id. The court also affirmed that Morgan failed to show
Ramby’s acts resulted in other damages.
{¶ 59} Likewise, in this case we cannot say appellant has shown a causal link
between appellee’s acts and resulting injury or damages. We find as a matter of law
pursuant to Civ.R. 50(A)(4), insufficient evidence and reasonable minds could only come
to the conclusion that appellee did not cause damages to appellant. The damages
appellant requested in his counterclaims were for compensatory damages for a
“disgorgement of all profits derived,” for punitive damages “in an amount to be
determined at trial,” and for “interest, costs, attorney’s fees and such other legal and
equitable relief as this Court deems proper.”
{¶ 60} Based on our review of the evidence below, we cannot agree appellee
proximately caused, in a natural and continuous sequence, unbroken by any new,
independent cause, any monetary damages appellant may have suffered. Even viewing
the evidence most favorably to appellant, we find his actions were new, independent
causes of the claimed damages to H&N and himself. Specifically, and based on his own
testimony, we find appellant essentially terminated appellee and forced his resignation,
locked appellee out of H&N’s affairs and records, terminated appellee’s company credit
17. card and access to H&N’s bank account, turned off appellee’s company phone and pager,
blocked appellee from H&N jobs and profits, all while increasing appellant and his wife’s
salaries and bonuses and completely taking dominion over the company and its profits
without sharing.
{¶ 61} All this was done without winding up the affairs of the company or buying
out appellee, even after the two partners had discussed not continuing in the business
together. We find that had appellant wound up the affairs or purchased appellee’s shares
in H&N before the breaches of fiduciary duties began, he and H&N would not have
suffered damages as a result. Both parties could have continued on freely without
breaching any duty owed to the other partner.
{¶ 62} Therefore, we first hold that even viewing the record in a light most
favorable to appellant does not result in this court concluding there is sufficient evidence
to support that appellee caused harm in a natural and continuous sequence, unbroken by
any new, independent cause, especially not to the degree necessary to warrant punitive
damages.
{¶ 63} Furthermore and with respect to the other prayed-for damages, again, we
find appellant’s own testimony supports that he was an independent, intervening, and
contributing cause of the lost opportunity and profits. We find appellant failed to show
that without appellee’s acts his damages would not have occurred.
{¶ 64} Accordingly, we find that appellant’s first assignment of error is not-well
taken and is denied.
18. Assignment of Error No. 2
{¶ 65} In the second assignment of error, appellant argues the trial court erred in
failing to grant his motion for a new trial where the issued judgment was contrary to law.
Appellee contends the court correctly denied the motion for a new trial.
{¶ 66} Civ.R. 59(A)(7) states that “[a] new trial may be granted to all or any of the
parties and on all or part of the issues upon” showing that “[t]he judgment is contrary to
law.”
{¶ 67} We review the denial of a motion for a new trial brought under Civ.R.
59(A)(7) de novo. See Moore v. Moore, 6th Dist. Erie No. E-17-011, 2018-Ohio-1545,
¶ 14.
{¶ 68} Here, appellant argues he is entitled to a new trial for essentially the same
reasons he claims to be entitled to withstand the directed verdict. He therefore argues
that the October 25, 2017 judgment memorializing the court’s grant of directed verdict
was contrary to law. We disagree for the reasons stated above.
{¶ 69} Accordingly, we find no merit in appellant’s second assignment of error.
Conclusion
{¶ 70} The January 19, 2018 judgment of the Erie County Court of Common Pleas
is affirmed. The costs of this appeal are assessed to appellant pursuant to App.R. 24.
Judgment affirmed.
19. Hanko v. Nestor C.A. No. E-18-007
A certified copy of this entry shall constitute the mandate pursuant to App.R. 27. See also 6th Dist.Loc.App.R. 4.
Arlene Singer, J. _______________________________ JUDGE
Christine E. Mayle, P.J. _______________________________ CONCURS AND WRITES JUDGE SEPARATELY.
Gene A. Zmuda, J. ________________________________ CONCURS IN DECISION ONLY JUDGE AND WRITES SEPARATELY.
MAYLE, P.J.
{¶ 71} I concur with the majority decision. I write separately to emphasize my
view that appellant was entitled to bring a direct claim against appellee―even though
appellant did not establish that appellee was the sole “controlling” shareholder―because
it would have been “a considerable waste of judicial resources” to require appellant to
20. pursue a derivative claim on behalf of a close corporation that is no longer in operation.
Gensemer v. Hallock, 125 Ohio App.3d 84, 92, 707 N.E.2d 1156 (9th Dist.1997).
{¶ 72} The Ninth District’s opinion in Gensemer is particularly instructive. In that
case, the court concluded that the trial court properly allowed a direct fiduciary-duty
claim by Richard and Paula Gensemer (who owned 50 percent of a close corporation)
against Macy and Clare Hallock (who owned the other 50 percent) even though the
Gensemers did not establish that they suffered separate and distinct injury, or that the
Hallocks were the “controlling” shareholders. Id. at 91. The court stated:
To require the Gensemers now to pursue a derivative action for
[damage incurred during] the years preceding dissolution would seem a
considerable waste of judicial resources. The issues in either case would be
identical. In a situation such as this, then, where there is a close
corporation with only four shareholders, where the corporation has already
been dissolved, and where the issues involved are not terribly complex, we
cannot say the lower court errs in allowing a former shareholder to pursue a
direct action against another former shareholder. Id. at 92.
{¶ 73} I believe that the Ninth District’s reasoning in Gensemer applies with equal
force in this case.1 Moreover, Gensemer is in line with other Ohio courts that have
1 In truth, the reasoning of Gensemer arguably applies with even more force here given that―as the majority concludes―the appellant did allege a “separate and distinct” injury in this case.
21. considered the relevant issue here―i.e., the propriety of a direct fiduciary-duty claim by
a 50 percent coequal shareholder against the other 50 percent coequal shareholder of a
close corporation―although, in most of those cases, the impact of the corporation’s
ongoing status (or lack thereof) appears to have been an implicit, rather than explicit,
consideration.
{¶ 74} In DeHoff v. Veterinary Hosp. Operations of Cent. Ohio, Inc., 10th Dist.
Franklin No. 02AP-454, 2003-Ohio-3334, ¶ 83, the court found that the trial court did not
err by allowing appellee, a 50 percent coequal shareholder, to assert a claim against the
other shareholder for “breach[ing] a fiduciary duty owed directly to him by failing to
assist with the dissolution and winding up the affairs of the corporations * * * [because]
the usual concerns that generally preclude a shareholder from bringing an individual
action are not present * * *.”
{¶ 75} In Stumpff v. Harris, 2d Dist. Montgomery No. 21407, 2006-Ohio-4796,
¶ 57, a case involving judicial dissolution of a close corporation, the court found that a 50
percent coequal shareholder “is not barred from bringing a direct cause of action against
[the other] for breach of fiduciary duty”―albeit without extensive discussion.
{¶ 76} In Citizens Fed. Bank v. Chateau Constr. Co., Inc., 2d Dist. Montgomery
No. 13902, 1994 Ohio App. LEXIS 167 (Jan. 19, 1994), although the court found that a
50 percent coequal shareholder could bring a direct claim against the other shareholder
because there was evidence that the defendant-shareholder was the “controlling
22. shareholder,” id. at 5, it is noteworthy that the lawsuit in that case was filed after “the
corporation went out of business.” Id. at 3.
{¶ 77} Similarly, in Heaton v. Rohl, 193 Ohio App.3d 770, 2011-Ohio-2090, 954
N.E.2d 165 (11th Dist.), although the court found that a 50 percent shareholder of a close
corporation could sue the other shareholder directly because, in part, the defendant-
shareholder “possessed unique, supervening control” over the corporation, id. at ¶ 57, the
court also found that the plaintiff-shareholder arguably suffered “injuries separate and
distinct” from the other shareholder who was alleged to have “unilaterally caused [the
corporation] to cease operations.” Id. at ¶ 56, 59.
{¶ 78} Finally, in Kable v. Trinity Fin. Corp., S.D.Ohio No. 07-CV-1131, 2008
U.S. Dist. LEXIS 23974, 17 (Mar. 11, 2008), the federal district court reviewed Ohio
case law and concluded that “Ohio courts permit[] direct claims in lieu of derivative
actions * * *” where the close corporation “no longer existed.” The federal court then
refused to allow a direct claim because the plaintiff did not allege separate and distinct
injury, and because the corporation at issue “remain[ed] a going concern.” Id.
{¶ 79} In light of the foregoing precedent, I believe that appellant’s direct action
against appellee was appropriate because their closely-held corporation, H&N, was no
longer in operation. For me, that is the determinative factor in this case.2
2 I also note that appellant’s “separate and distinct” injury―as alleged―necessarily depends upon the corporation’s ultimate collapse. That is, by alleging that appellee took illegitimate actions to usurp all of H&N’s business opportunities, which (according to appellant’s allegations) caused H&N’s eventual downfall, appellant essentially alleged
23. {¶ 80} And, I agree with the majority that, although the appellant properly alleged
a direct claim against appellee, the trial court correctly granted a directed verdict in
appellee’s favor on that claim because, under the facts that were admitted into evidence,
appellant did not prove that appellee’s conduct was the proximate cause of any damage
that appellant may have suffered.
ZMUDA, J, concurring in decision only.
{¶ 81} Because I disagree with the majority’s determination regarding the
propriety of a direct action, but otherwise agree with the conclusion that the trial court
appropriately granted a directed verdict, I write separately, concurring only with the
majority’s decision to affirm the trial court’s judgment.
{¶ 82} In addressing the appropriateness of a direct claim by appellant, the
majority applied the factors articulated in Crosby v. Beam, 47 Ohio St.3d 105, 548
N.E.2d 217 (1989). Despite finding no separate and distinct injury suffered by appellant,
and finding that appellant and his wife, not appellee, controlled the corporation, the
majority determined a direct claim to be proper. However, analysis regarding direct
that appellee deprived him of “an equal opportunity to benefit” from H&N. See Crosby v. Beam, 47 Ohio St.3d 105, 548 N.E.2d 217 (1989).
24. versus derivative claims is unnecessary, as the finding regarding damages is dispositive
of all matters on appeal.
{¶ 83} The trial court granted appellee’s motion for directed verdict, finding
insufficient evidence to demonstrate appellee’s conduct proximately caused damages to
appellant or the corporation. Based upon my review of the evidence in the record, and
for the reasons articulated by the majority, the trial court properly granted the motion for
directed verdict. Therefore, I concur in the decision to affirm the judgment of the trial
court, with any analysis regarding the type of claim asserted of no consequence, based on
this conclusion.
This decision is subject to further editing by the Supreme Court of Ohio’s Reporter of Decisions. Parties interested in viewing the final reported version are advised to visit the Ohio Supreme Court’s web site at: http://www.supremecourt.ohio.gov/ROD/docs/.
25.