Maas v. Maas

2020 Ohio 5160, 161 N.E.3d 863

• Court: Ohio Court of Appeals
• Decided: November 4, 2020
• Docket: C-190536
• Status: Published

Opinion

[Cite as Maas v. Maas, 2020-Ohio-5160.] IN THE COURT OF APPEALS FIRST APPELLATE DISTRICT OF OHIO HAMILTON COUNTY, OHIO

JOSEPH R. MAAS, Individually and : APPEAL NO. C-190536 Derivately on behalf of JTM Provisions TRIAL NO. A-1705836 Company, Inc., : O P I N I O N. Plaintiff-Appellee, :

vs. :

ANTHONY A. MAAS, :

JOHN T. MAAS, JR., :

JEROME T. MAAS, :

GREGORY J. SYKES, :

JOHN SULLIVAN, :

JAMES F. BERDING, :

and :

JTM PROVISIONS COMPANY, INC., :

Defendants-Appellees. :

Civil Appeal From: Hamilton County Court of Common Pleas

Judgment Appealed From Is: Affirmed

Date of Judgment Entry on Appeal: November 4, 2020

Stites & Harbison PLLC, William G. Geisen, Andrew J. Poltorak and Cassandra L. Welch, for Plaintiff-Appellant, OHIO FIRST DISTRICT COURT OF APPEALS

Vorys, Sater, Seymour and Peas LLP, Victor A. Walton, Jr., Jacob D. Mahle and Jessica K. Baverman, for Defendants-Appellees Anthony A. Maas, John T. Maas, Jr., and Jerome T. Maas,

Frost Brown Todd LLC, Ali Razzaghi and Ryan W. Goellner, for Defendants- Appellees Gregory J. Sykes, John Sullivan and James F. Berding,

Santen & Hughes and Brian P. O’Connor, for Defendant-Appellee JTM Provisions Company, Inc.

2 OHIO FIRST DISTRICT COURT OF APPEALS

W INKLER , Judge.

{¶1} Plaintiff-appellant Joseph R. Maas (“Joe”), individually and

derivatively on behalf of JTM Provisions Company, Inc., (“JTM”) appeals the

decision of the Hamilton County Court of Common Pleas granting summary

judgment in favor of the officers, shareholders and directors of JTM on his claims for

breach of fiduciary duty and minority-shareholder oppression. We find no merit in

his three assignments of error, and we affirm the trial court’s judgment.

I. Facts and Procedure

{¶2} JTM is a closely held, family-owned, food-processing business based in

Harrison, Ohio. It originated as a butcher shop and delicatessen operated by the

shareholders’ parents and has transformed into a business with a national presence.

Currently, it is equally owned and controlled by Joe and his three brothers:

defendants-appellees Anthony T. Maas (“Tony”), John T. Maas, Jr., (“Jack”) and

Jerome T. Maas (“Jerry”) (collectively “the shareholders”). All four shareholders also

sit on JTM’s board of directors.

{¶3} Each of the four shareholders has played a role in JTM’s growth from a

small family enterprise to a national supplier of food products to restaurants,

schools, and government entities. Tony is the president and chief executive officer of

the company. Jack is the chairman of the board of directors and was involved in

sales and marketing, although he has stepped away from those duties. Jerry is a

vice-president and focused on business development and special projects. Until

recently, Joe was also a vice-president and focused on facilities management.

{¶4} Defendants-appellees Gregory Sykes, James Berding, and John

Sullivan are independent directors of JTM (collectively “outside directors”). All are

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experienced businessmen and directors. They have been full voting members of the

board of directors since 2013. JTM added the outside directors, who were not family

members or employees, to bring differing perspectives and help ensure sound

decision-making.

{¶5} Joe has long been at odds with his brothers, especially Tony, about the

way the business is run. Woven through the complaint are Joe’s various claims that

Tony is domineering and controlling and forces out anyone who questions his

demands. In Joe’s view, Tony’s volatile leadership style results in the board of

directors consistently voting with Tony, leading to a six to one outcome, with Joe

being the lone dissenting vote. Joe claims that the board lacks independence and

that it acquiesces to Tony’s demands.

{¶6} The other shareholders and the outside directors counter that Joe has

brought forth a litany of meritless complaints about the way JTM is managed and

that those complaints have increased in recent years. They claim that he has become

relentlessly adversarial toward the company and his fellow directors.

{¶7} The outside directors’ response is that they actively participate in

board meetings, engage in discussion and debate, and ask questions. They gather

information and build consensus before voting on a resolution. They also contend

that each time Joe has complained, they have reviewed and investigated his

complaints. The complaints were either found to be unproven or the board adopted

corrective measures.

{¶8} On November 9, 2o17, Joe filed a complaint naming as defendants the

company, the shareholders, and the outside directors. Count one was a direct claim

for minority-shareholder oppression. Counts two through four were breach-of-

fiduciary-duty claims. Joe’s allegations involved three distinct matters: (1) JTM’s

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plant and freezer expansion; (2) excessive and self-serving charitable giving

programs; and (3) self-dealing and gross mismanagement by Tony.

{¶9} The shareholders filed a motion to dismiss count one of Joe’s

complaint for minority-shareholder oppression. The trial court granted the motion

because the allegations of the complaint did not demonstrate that Joe had suffered

individual harm separate and distinct from any injury to the corporation.

Nevertheless, the court dismissed count one of the complaint without prejudice. It

stated that Joe could seek leave to amend his complaint, “but he must submit the

type of facts that support a minority shareholder direct action.”

{¶10} Over a year later, Joe filed a motion for leave to amend his complaint.

His proposed amended complaint contained additional allegations in support of

count one, which had previously been dismissed by the trial court. The court denied

the motion stating that the amendment would be futile. It stated, “The facts in

Plaintiff’s proposed first amended complaint do not describe the kind of facts

required for a minority suppression action. There are no unique facts that are

distinct to Plaintiff but rather a complaint that alleges only facts that implicate the

profitability of the corporation.” The court later permitted Joe to file an amended

complaint, with the caveat that count one had been dismissed.

{¶11} Subsequently, the other shareholders and the outside directors filed

motions for summary judgment on the remaining counts of Joe’s complaint. The

trial court granted those motions. On September 5, 2019, the court journalized a

final judgment entry granting judgment in favor of the defendants and dismissing

the action with prejudice. This appeal followed.

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II. Breach of Fiduciary Duty

{¶12} Joe presents three assignments of error for our review. In his first

assignment of error, he contends that the trial court erred in granting the

shareholders’ and outside directors’ motions for summary judgment. He argues that

material issues of fact existed for trial on his claims for breach of fiduciary duty, that

the trial court disregarded his evidence, and that the trial court improperly applied

the business-judgment rule. This assignment of error is not well taken.

A. Standard of Review for Summary Judgment

{¶13} An appellate court reviews a trial court's ruling on a motion for

summary judgment de novo. Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105, 671

N.E.2d 241 (1996); Chateau Estate Homes, LLC v. Fifth Third Bank, 2017-Ohio-

6985, 95 N.E.3d 693, ¶ 10 (1st Dist.). Summary judgment is appropriate if (1) no

genuine issue of material fact exists for trial, (2) the moving party is entitled to

judgment as a matter of law, and (3) reasonable minds can come to but one

conclusion and that conclusion is adverse to the nonmoving party, who is entitled to

have the evidence construed most strongly in his or her favor. Temple v. Wean

United, Inc., 50 Ohio St.2d 317, 327, 364 N.E.2d 267 (1977); Chateau Estate Homes

at ¶ 10. The trial court has an absolute duty to consider all pleadings and evidentiary

material when ruling on a motion for summary judgment. It should not grant

summary judgment unless the entire record shows that summary judgment is

appropriate. Green v. Whiteside, 181 Ohio App.3d 253, 2009-Ohio-741, 908 N.E.2d

975, ¶ 23 (1st Dist.).

{¶14} The moving party bears the initial burden of informing the court of the

basis for its motion and demonstrating the absence of any genuine issues of material

fact. Dresher v. Burt, 75 Ohio St.3d 280, 282-293, 662 N.E.2d 264 (1996); Taft,

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Stettinius & Hollister, LLP v. Calabrese, 2016-Ohio-4713, 69 N.E.3d 72, ¶ 10 (1st

Dist.). Once the moving party has met its burden, the nonmoving party has a

reciprocal burden to set forth specific evidentiary facts showing the existence of a

genuine issue for trial. Dresher at 293; Columbia Dev. Corp. v. Krohn, 1st Dist.

Hamilton No. C-130842, 2014-Ohio-5607, ¶ 17. The nonmoving party cannot rest on

conclusory allegations or self-serving interpretations of the evidence presented.

Dresher at 293; Zang v. Cones, 2015-Ohio-2530, 34 N.E.3d 955, ¶ 43 (1st Dist.).

{¶15} The mere existence of factual disputes between the parties does not

necessarily preclude summary judgment. Only disputes over genuine factual matters

that affect the outcome of the suit will properly preclude summary judgment.

Factual disputes that are irrelevant should not stop the entry of judgment as a matter

of law. Smith v. A.B. Bonded Locksmith¸ Inc., 143 Ohio App.3d 321, 326, 757 N.E.2d

1232 (1st Dist.2001); Thompson v. Eiler, 1st Dist. Hamilton No. C-990634, 2000 WL

864444,*3 (June 30, 2000).

B. Corporate Officers’ Fiduciary Duties

{¶16} To maintain a claim for breach of a fiduciary duty, the plaintiff must

prove (1) the existence of a duty arising from a fiduciary relationship; (2) a failure to

observe the duty; and (3) an injury proximately resulting from that failure. Strock v.

Pressnell, 38 Ohio St.3d 207, 527 N.E.2d 1235 (1988); Troja v. Pleatman, 2016-

Ohio-7683, 65 N.E.3d 809, ¶ 8 (1st Dist.). Joe brought breach-of-fiduciary-duty

claims against two distinct groups, the shareholders, who are also officers and

directors of the corporation, and the outside directors.

{¶17} As to the officers of the corporation, R.C. 1701.641(B) provides,

An officer shall perform the officer’s duties to the corporation in good

faith, in a manner the officer reasonably believes to be in or not

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opposed to the best interests of the corporation, and with the care that

an ordinarily prudent person in a like position would use under similar

circumstances. In performing an officer’s duties, an officer is entitled

to rely on information, opinions, reports, or statements, including

financial statements and other financial data, which are prepared or

presented by any of the following:

(1) One or more directors, officers, or employees of the corporation

who the officer reasonably believes are reliable and competent in the

matters prepared or presented;

(2) Counsel, public accountants, or other persons as to matters that the

officer reasonably believes are within the person’s professional or

expert competence.

These are the only fiduciary duties an officer owes a corporation unless the articles of

incorporation, corporate regulations, or a separate written agreement establishes

additional fiduciary duties. R.C. 1701.652(A); Fields v. Bastech, Inc., S.D. Ohio No.

3:19-cv-135, 2020 WL 3173145, *8 (June 15, 2020). A plaintiff must prove a breach-

of-fiduciary-duty-claim by clear and convincing evidence. R.C. 1701.641(C).

C. Directors’ Fiduciary Duties

{¶18} As to the directors, the fiduciary relationship between a corporation’s

directors and the corporation and its shareholders includes a duty of good faith, a

duty of loyalty, a duty to refrain from self-dealing, and a duty of disclosure. Zalvin v.

Ayers, 1st Dist. Hamilton No. C-190285, 2020-Ohio-4021, ¶ 15; Wing Leasing, Inc. v

M & B Aviation, Inc., 44 Ohio App.3d 178, 181, 542 N.E.2d 671 (10th Dist.1988).

R.C. 1701.59(B) provides,

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A director shall perform the director’s duties as a director, including

the duties as a member of any committee of the directors upon which

the director may serve, in good faith, in a manner the director

reasonably believes to be in or not opposed to the best interests of the

corporation, and with the care that an ordinarily prudent person in a

like position would use under similar circumstances. A director

serving on a committee of directors is acting as a director.

A director is entitled to rely on the same information as the officers with the addition

that directors can also rely on a committee of directors on which the director does

not serve “as to matters within its designated authority, which the director

reasonably believes to merit confidence.” R.C. 1701.59(C).

{¶19} Under Ohio law, the director of a close corporation owes these duties

to both the corporation and its shareholders. Vontz v. Miller, 2016-Ohio-8477, 111

N.E.3d 452, ¶ 43 (1st Dist.). Because close-corporation directors are frequently the

corporate stockholders, “courts tend to impose a stringent fiduciary duty standard on

such directors.” Genesis Respiratory Servs., Inc. v. Hall, 99 Ohio App.3d 23, 28,

649 N.E.2d 1266 (4th Dist.1994). The plaintiff must prove a breach-of-fiduciary-

duty claim by clear and convincing evidence. R.C. 1701.59(D)(1); Vontz at ¶ 43.

D. The Business-Judgment Rule

{¶20} Ohio courts adhere to the “business judgment rule.” Under that rule,

courts will not inquire into the wisdom of actions taken by the directors in the

absence of fraud, bad faith, or abuse of discretion. Koos v. Cent. Ohio Cellular, Inc.,

94 Ohio App.3d 579, 589, 641 N.E.2d 265 (8th Dist.1994). Directors are presumed

to have acted in good faith and in the best interests of the corporation. Vontz at ¶ 44.

“[D]irectors carry the burden of showing a transaction is fair only after the plaintiff

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has made a prima facie case showing that the directors have acted in bad faith or

without the requisite objectivity.” Vontz at ¶ 44.

{¶21} The protection of the business-judgment rule can only be claimed by

disinterested directors. Gries Sports Ent., Inc. v. Cleveland Browns Football Co.

Inc., 26 Ohio St.3d 15, 20, 496 N.E.2d 959 (1986); Koos at 590. “Disinterested

directors” does not mean indifferent directors or directors with no stake in the

outcome. Koos at 590. Disinterested directors are those who “neither appear on

both sides of the transaction nor expect to derive any personal financial benefit from

it in the sense of self-dealing, as opposed to a benefit that devolves upon the

corporation or all stockholders generally.” Gries at 20. The decisions of

disinterested directors will not be disturbed if they can be attributed to any rational

business purpose. The burden is on the party challenging a decision to establish

facts rebutting the presumption that the directors acted in good faith. Id.; Koos at

590.

{¶22} Joe’s allegations fall into three categories: (1) allegations regarding

plant expansion, specifically the new freezer, (2) allegations related to charitable

giving, and (3) allegations related to Tony’s alleged self-dealing and

mismanagement. We address each of these categories in turn.

E. The Plant and Freezer Expansion

{¶23} In 2015 and 2016, JTM’s board saw a need to increase its

manufacturing capacity, and it began to plan the expansion of JTM’s processing

facility with the construction of a new plant and freezer. At a contentious October

22, 2015 meeting of the board of directors, the board discussed a proposal to perform

an engineering site analysis of ways to satisfy JTM’s long-range needs, including a

new industrial freezer. The initial proposal was to analyze the costs and benefits of a

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new freezer, but the board also wanted to analyze the integration of the freezer with a

possible new plant, depending on the company’s needs.

{¶24} Joe had led previous construction projects for the company, so the

board expected that he would do the same with the expansion project, but he

refused. Consequently, the board agreed that Jerry would oversee hiring an engineer

for the project. Jerry formed a team of JTM management and employees to lead the

project.

{¶25} After investigating various firms, the expansion team invited the

Tippman Group to present its analysis of a possible plant expansion to the board. At

the February 2016 board meeting, Jerry reported that the project’s goal was to

develop a master plan for the expansion. In April 2016, Tippman’s representative

returned to the board to present a proposed site plan that included a new plant, and

the directors provided input on the plan.

{¶26} In May 2016, Sykes met with the shareholders to discuss expansion

options. The shareholders agreed that JTM needed more freezer space and

expanded manufacturing capacity but disagreed on how to remedy the problem. A

detailed summary of the meeting contained an analysis of three proposals for the

expansion, including Joe’s proposal to modify existing facilities.

{¶27} A month later, at the June 23, 2016 board meeting, JTM’s

shareholders voted three to one to approve a contract with Tippman to build a new

freezer. Joe was the sole dissenting vote. At the board’s August 18, 2016 meeting,

the board heard presentations for expanding JTM’s capacity. Tony and Jerry’s

presentation involved constructing a new plant. Joe’s presentation involved

modifying existing facilities. The board voted six to one to build the new plant, with

Joe as the l0ne dissenter.

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{¶28} The next day, Sykes called Jack to try to get Joe on board with building

the new plant, but Jack was not able to do so. After another shareholder meeting

about the expansion, the board met by phone on August 29, 2016, and again voted

six to one to build the new plant as proposed at the August 18 meeting.

{¶29} In support of Joe’s claim for breach of fiduciary duties, he relies upon

decisions that are not in accord with JTM’s stated strategic plan. Joe contends that

the plant-expansion plan was reckless and failed to consider the strategic plan. In

2013, the shareholders had agreed that JTM should emphasize profitability over

revenue and that they would develop their profitability targets and devise plans for

achieving those goals within a long-term strategic plan. Under the 2015-2018 plan,

JTM was to achieve increasing profit levels each year. JTM repeatedly fell short of

those goals.

{¶30} Within two months of adopting the 2015-2018 plan, which purposely

did not provide for any significant capital improvements, Tony requested that the

capital-budget committee evaluate increasing capacity and secure quotes for a new

freezer addition. At Tony’s request, the committee, consisting of Joe, Jack, Jerry,

and two high-level employees, considered the necessity of the desired improvements

at its October 21, 2015 meeting.

{¶31} The committee decided to defer any further action regarding the

freezer because there was no immediate need to proceed with developing a new

freezer or increase capacity to justify deviating from the strategic plan. It decided

that it would not proceed with a design and capital budget related to the freezer until

at least 2017.

{¶32} The following day, at the October 22, 2015 board meeting, Joe

reported the capital-budget committee’s recommendations, which Tony refused to

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accept. According to Joe, Tony physically attacked him and challenged him to a fist

fight, though the other directors did not remember Tony attacking Joe. Joe claimed

that the board agreed to perform a cost-benefit analysis on constructing a new

freezer to calm Tony’s tirade. If it was established that a new freezer was needed,

JTM would engage a site engineer to do a site analysis of JTM’s property.

{¶33} Joe contends that the other shareholders, along with Sullivan,

proceeded with soliciting proposals from various contractors without approval from

the board and without a prior cost-benefit analysis or a site study. He further

contends that Tony withheld a cost-benefit analysis from the board because it was

unfavorable. Instead, Tony presented an analysis he had performed because it was

favorable. JTM never received a site analysis from a site engineer as directed at the

October 22, 2015 meeting. Further, the board decided to hire Blentech, an

equipment manufacturer, to design the production line at the new plant, even though

it had no experience with that type of project.

{¶34} Joe relies heavily on the deviations from the board’s 2015-2018

strategic plan which specifically did not provide for significant capital improvements,

and the recommendations of the capital-budget committee. However, the board was

neither bound by the strategic plan nor the committee’s recommendations. Joe

admitted that the board had the authority to change the strategic plan.

{¶35} The failure to meet short-term profitability goals does not rise to the

level of a breach of fiduciary duty. R.C. 1701.59(F)(4) specifically allows the board to

consider “[t]he long-term as well as the short-term interests of the corporation and

its shareholders.” The shareholders agreed that JTM required more freezer space,

and to expand its manufacturing capacity. Joe just disagreed with how it should be

done.

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{¶36} Further, the record shows that the board did not just accept Tony’s

recommendation. It engaged in due diligence and performed analyses of the

proposed expansion project. Further, the board did not arbitrarily strip Joe of his

responsibilities. Joe refused to lead the project, so his brother Jerry was chosen to

lead the team that completed the project. The team was comprised of experienced

professionals at JTM with Jerry overseeing the project and team.

{¶37} The board had valid reasons for proceeding with construction of the

freezer, even if in hindsight, it did not always go as well as planned. “[T]he business

judgment rule recognizes that many important decisions are made under

circumstances of uncertainty, and it prevents courts from imposing liability on the

basis of ex post facto judicial hindsight * * *.” Koos, 94 Ohio App.3d at 589, 641

N.E.2d 265, quoting Radol v. Thomas, 772 F.2d 244, 256 (6th Cir.1985).

{¶38} The board’s decisions fell squarely within the business-judgment rule.

Most of Joe’s “evidence” consisted of his own opinions and conclusions. He has

failed to make a prima facie case that the directors acted in bad faith or without the

requisite objectivity in dealing with the plant expansion.

F. Charitable Giving

{¶39} JTM has historically had a generous commitment to charitable giving,

which was modeled on the shareholders’ parents long standing practice of charitable

giving. Their parents had tithed ten percent of their income, so JTM in recognition

of its founder’s generosity, donated ten percent of its pre-tax net profits to charity,

with nine percent allocated to cash and one percent in kind. Through the years, all

the shareholders had agreed to continue the ten-percent level of charitable giving.

{¶40} In November 2016, Joe formally objected to the ten-percent level of

giving, based on his concerns about profitability. In response, the board passed a

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resolution regarding charitable giving at its February 9, 2017 meeting. The

resolution reduced and capped charitable giving, whether in cash or in kind, at two

percent of JTM’s pre-tax net income, with a couple of exceptions, and further stated

that JTM would donate no more than $500,000 to $525,000 annually. The

resolution also allowed each of the four brothers to direct 25 percent of the

company’s charitable contributions. The resolution further required the company’s

chief financial officer to submit a written report on a quarterly basis outlining the

level of company donations.

{¶41} According to Joe, the board failed to enforce the policy, and JTM has

given more than two percent of its pre-tax income to charity. The record shows that

JTM gives to charity throughout the year based on forecasted net income, and that,

at times, charitable contributions were over the two percent limit once actual net

income was calculated.

{¶42} After the board learned of an overage in 2017, it passed another

resolution that required the brothers to reimburse JTM proportionally so that not

more than two percent of JTM’s pre-tax income would go to charity. It also required

JTM to hold back some of its projected fourth-quarter charitable contributions in

recognition of the fluctuating and unknown nature of pre-tax income. All the

brothers, with the lone exception of Joe, complied with the reimbursement

requirement.

{¶43} Thus, the record shows that the board complied with Joe’s request

regarding changes to JTM’s charitable contributions. But even if it had not, JTM’s

charitable giving would still fall within the purview of the business-judgment rule.

The record clearly shows that charitable giving is an important part of JTM’s

mission. R.C. 1701.13(D) specifically provides that a corporation “may make

15 OHIO FIRST DISTRICT COURT OF APPEALS

donations for the public welfare or for charitable, scientific, or educational

purposes.” The trial court stated that “[e]ven at the 10% rate, the directors’ and

officers’ commitment to charitable giving is not a breach of fiduciary duty.” We

agree. JTM’s charitable contributions were not exceptionally high and did not lead

to the conclusion that corporate assets were being wasted or misused. See Sobin v.

Lim, 2014-Ohio-4935, 21 N.E.3d 344, ¶ 27 (8th Dist.).

G. Self-Dealing and Mismanagement

{¶44} Finally, Joe contends that Tony engaged in numerous instances of self-

dealing and mismanagement, and that the directors failed to implement internal

controls. According to Joe, Tony misused the company credit cards, misused travel

and entertainment expenses, and hired friends in violation of the board’s policies.

{¶45} A director has a duty to refrain from self-dealing. Directors must

perform their duties in a manner that they reasonably believe to be in or not opposed

to the corporation’s best interest. Vontz, 2016-Ohio-8477, 111 N.E.3d 452, at ¶ 42;

Koos, 94 Ohio App.3d at 589, 641 N.E.2d 265. If a director is not disinterested or

has engaged in self-dealing, the decision is not void but will be closely scrutinized. In

that case, the director will be required to show that the transaction was fair and

reasonable to the corporation notwithstanding the director’s personal interest. Koos

at 590. Further, even if a director is not disinterested, a disinterested majority of the

shareholders may ratify the director’s actions “provided there is no actual fraud in

either inducing or effecting the ratification.” Id., quoting Claman v. Robertston, 164

Ohio St. 61, 128 N.E.2d 429 (1955), paragraph one of the syllabus.

{¶46} Joe alleges that Tony diverted hundreds of thousands of dollars to

himself through a fictitious entity called Triple A Incentives. Tony used the company

to pay himself an extra $3,o00 a month from 2003 to 2010. Tony claimed it was for

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advertising work he performed for JTM, and that an advertising agency receives a

ten to 15 percent commission. No one was aware that Tony had created this

company or that he was paying himself.

{¶47} When Joe first raised the issue in August 2018, the audit committee

referred the issue to corporate counsel to investigate. Counsel discovered that the

board had already addressed the issue in 2010. The board asked Tony to stop the

payments, which he did, although it did not ask him to repay the money. Counsel

recommended that the board not reopen the matter. After deliberating, the audit

committee accepted that recommendation. Thus, while these payments are

concerning, the board ratified the action. See R.C. 1701.60(A); Koos at 290; Antioch

Litigation Trust v. McDermott Will & Emery, LLP, 738 F.Supp.2d 758, 766

(S.D.Ohio 2010).

{¶48} Moreover, the trial court properly determined that any claim related to

those payments was barred by the statute of limitations. The four-year statute of

limitations set forth in R.C. 2305.09(D) applies to causes of action for breach of

fiduciary duty. Chateau Estate Homes, LLC, 2017-Ohio-6985, 95 N.E.3d 693, at ¶

12; Wells v. C.J. Mahan Constr. Co., 10th Dist. Franklin Nos. 05AP-180 and 05AP-

183, 2006-Ohio-1831, ¶ 26. Further, the discovery rule does not apply to breach-of-

fiduciary-duty claims not based on fraud. Investors REIT One v. Jacobs, 46 Ohio

St.3d 176, 182, 546 N.E.2d 206 (1989); Wells at ¶ 28.

{¶49} Joe’s claims concerning those payments were premised upon self-

dealing, not fraud. See Investors REIT One at 182. While Joe’s other complaints

involved issues that were ongoing, “[t]he salient facts of self-dealing were known in

2010,” as stated by the trial court. Therefore, Joe’s argument that he did not

discover the fact until 2018 is irrelevant.

17 OHIO FIRST DISTRICT COURT OF APPEALS

{¶50} Joe further contended that Tony used JTM funds to purchase multiple

$100,000 vouchers from Delta Airlines. He used the vouchers to take trips with his

wife and children, while charging the expenses to JTM. The vouchers also permitted

Tony to maintain his Medallion Member status with Delta. But those alleged

personal trips were family charter retreats. Those retreats were reviewed by JTM’s

chief financial officer and accounting firm, which validated them as legitimate

business expenses.

{¶51} Joe further alleged that Tony, Jerry, and others had used their

corporate credit cards to pay for personal expenses, and that an independent auditor

had flagged JTM’s credit card procedures as inadequate. Under JTM’s procedure,

any charges made to a corporate credit card held by a shareholder were charged

directly against the shareholder’s draw, unless the shareholder provided supporting

documentation to demonstrate that a charge was a reimbursable business expense.

After Joe’s complaint, the board reviewed JTM’s officers’ and directors’ credit-card

use. It decided to enact further controls and to provide additional oversight.

{¶52} Joe also found fault with Tony’s pledge of $500,000 to the University

of Cincinnati for the renovation of its basketball arena without prior board approval.

That commitment violated JTM’s policy that expenditures more than $100,000 must

be approved by the board of directors. But the commitment to the university

required JTM to spend just $50,000 during any one year.

{¶53} Nevertheless, based on Joe’s complaint that the commitment violated

JTM’s policy, the audit committee referred the issue to corporate counsel. Counsel

determined that the expenditures were within the ordinary course of business, but

still recommended that the board review annual entertainment spending as part of

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its budget review. The audit counsel agreed and passed that recommendation onto

the board.

{¶54} Another of Joe’s contentions is that in October 2017, Tony, along with

Sykes, began to explore a way to acquire a business venture, Maka Mia Pizza, (“Maka

Mia”) for the benefit of Tony’s son despite the fact that the board had determined

two years before to disassociate itself from Maka Mia due to one of JTM’s largest

customers objecting to the relationship. Exploration of the acquisition ended when

Sykes learned that Jack and the salesforce opposed the deal. Nevertheless, Tony

negotiated the acquisition of Maka Mia for his son and personally guaranteed the

funding.

{¶55} The record shows that Maka Mia invented a pizza oven that could cook

pizzas very quickly, making it ideal for convenience stores and truck stops. JTM was

involved in the build-up of the Maka Mia brand and supplied it pizza sauce, pizza

crusts and other related items. Tony’s son Matt was employed by JTM at the time,

but also worked with Maka Mia. Tony wanted to buy Maka Mia, but the board

declined to do so because an important customer of JTM objected. Matt signed a

promissory note to purchase Maka Mia, which Tony personally guaranteed. After

that, Matt was no longer employed by JTM.

{¶56} Nothing related to Maka Mia shows self-dealing by Tony. It was a

successful business that JTM could rationally have justified purchasing, which

means the decision to pursue the purchase fell under the business-judgment rule.

But JTM made the decision not to invest in Maka Mia, and therefore, Tony did not

usurp an opportunity which rightfully belonged to JTM. The fact that Tony’s son

ultimately purchased the business and Tony personally guaranteed the note does not

somehow make the purchase of Maka Mia self-dealing.

19 OHIO FIRST DISTRICT COURT OF APPEALS

{¶57} Joe also contends that the board allowed Tony to repeatedly violate

JTM’s affirmative action program, which jeopardized JTM’s government contracts.

He claims that Tony directed JTM’s former talent acquisition and equal-opportunity

manager, to hire a prospective employee without conducting other interviews. The

manager raised concerns with her supervisor, who told her to go ahead and hire the

employee.

{¶58} The manager believed that hiring that eventual employee violated

JTM’s policies, which were designed to comply with Equal Opportunity Commission

regulations. She stated that Tony had asked her to send a letter stating that the

company did not violate its affirmative action program with that hire. She told him

that she would not do it, because the hire did violate that policy. Joe concluded that

“Defendants have acted in bad faith and in reckless disregard for the best interest of

JTM by failing to provide oversight and failing to take action to correct violations of

JTM’s policies, including, without limitation, the human resources policies.”

{¶59} But the record shows when Joe complained, the audit committee

referred the issue to corporate counsel, who investigated and recommended that the

audit committee review JTM’s hiring policies with relevant personnel. Thus, the

directors did take action to correct the violation of JTM’s hiring policies.

{¶60} Joe has “cited no authorities recognizing a separate claim under Ohio

law for breach of fiduciary duties arising from violations of internal corporate

policies.” See Brosz v. Fishman, 99 F.Supp.3d 776, 788 (S.D.Ohio 2015). Further,

nothing in the record shows that the policy was violated, or that JTM suffered any

repercussions. Damage is an essential element of a breach-of-fiduciary-duty claim.

Id., citing Newcomer v. Natl. City Bank, 2014-Ohio-3619, 19 N.E.3d. 492, ¶ 76 (6th

Dist.). “Ohio law requires proof of damages to the corporation before a shareholder’s

20 OHIO FIRST DISTRICT COURT OF APPEALS

derivative action can be maintained.” Brosz at 788, quoting Brown v. Ferro Corp.,

763 F.2d 798, 802-803 (6th Cir.1985).

{¶61} As to Joe’s claims that the board failed to implement internal controls,

the record shows that the board had internal controls. Joe’s claims that the outside

directors were afraid of or controlled by Tony are not supported by the record. The

outside directors all had substantial business backgrounds. They did not vote

against Tony, as Joe contends, but it does not necessarily follow that the board

always did exactly what Tony wanted. The board’s decisions were based on proper

study and analysis and votes generally did not occur until some consensus had been

formed.

{¶62} The record shows that between 2012 and 2014, JTM engaged various

outside consultants to aid in the management of the company. Joe contends that

each of these consultants independently reached the same conclusion: all four

shareholders needed to step down from their day-to-day management of the

company and hire outside professionals to run the business. On November 9, 2017,

Joe formally presented a proposed resolution to the board to that effect. The

resolution failed six to one.

{¶63} Joe also contends that the board ignored the recommendations of the

outside consultants and sought to maintain the status quo. The record shows that

the board considered the recommendations of the consultants and implemented

some of their recommended actions. But the board simply did not agree with some

of the recommendations and chose not to implement them.

{¶64} Further, the minutes of the meeting where Joe presented his

resolution showed that the outside directors did not believe that removing the

owners from the business would be beneficial and that such a huge transition would

21 OHIO FIRST DISTRICT COURT OF APPEALS

be impractical. They preferred the company’s approach of continuing to hire outside

individuals with strong professional backgrounds.

{¶65} Even if the internal controls were not ideal, ideal standards are not

required. As the court stated in Brehm v. Eisner, 746 A.2d 244, 256 (Del.2000),

All good corporate governance practices include compliance with

statutory law and case law establishing fiduciary duties. But the law

of corporate fiduciary duties and remedies for violation of those

duties are distinct from the aspirational goals of ideal corporate

governance practices. Aspirational ideals of good corporate

governance practices for boards of directors that go beyond the

minimal legal requirements of the corporation law are highly

desirable, often tend to benefit stockholders, sometimes reduce

litigation, and can usually help directors avoid liability. But they are

not required by the corporation law and do not define standards of

liability.

{¶66} In sum, the trial court did not improperly apply the business-judgment

rule. Further, it did not ignore Joe’s evidence or improperly weigh the credibility of

the evidence. The various decisions of the board of directors about which Joe

complains fell well within the business-judgment rule. Joe did not meet his

reciprocal burden to show that genuine issues of fact existed for trial. At most, he

showed that he did not agree with the board’s decisions. But a difference of opinion

does not rise to the level of a breach of fiduciary duty. Joe failed to show by clear and

convincing evidence that the conduct of JTM’s officers and directors rose to the level

of a breach of fiduciary duty. Consequently, we overrule Joe’s first assignment of

error.

22 OHIO FIRST DISTRICT COURT OF APPEALS

III. Direct Claim for Minority-Shareholder Oppression

{¶67} In his second assignment of error, Joe contends that the trial court

erred in dismissing his direct claim for minority-shareholder oppression. He argues

that the pleadings demonstrate that the majority shareholders use their control to

deprive minority shareholders of the benefit of their investment. This assignment of

error is not well taken.

A. Standard of Review for a Motion to Dismiss

{¶68} A Civ.R. 12(B)(6) motion to dismiss tests the sufficiency of the

complaint. In ruling on such a motion, the trial court must take all the allegations in

the complaint as true and draw all reasonable inferences in favor of the nonmoving

party. Mitchell v. Lawson Milk Co., 40 Ohio St.3d 190, 192, 532 N.E.2d 753 (1988);

Evans v. Thrasher, 1st Dist. Hamilton No. C-120783, 2013-Ohio-4776, ¶ 13. A court

may dismiss a complaint on a Civ.R. 12(B)(6) motion only when the plaintiff can

prove no set of facts that would entitle the plaintiff to relief. O’Brien v. Univ.

Community Tenants Union, Inc., 42 Ohio St.2d 242, 327 N.E.2d 753 (1975),

syllabus; Evans at ¶ 13. The court should not rely on evidence outside of the

pleadings, but it may consider materials that are referred to or incorporated into the

complaint. State ex rel. Hanson v. Guernsey Cty. Bd. of Commrs., 65 Ohio St.3d

545, 548, 605 N.E.2d 378 (1992); Evans at ¶ 13.

{¶69} While the factual allegations of the complaint are taken as true,

“[u]nsupported conclusions of a complaint are not considered admitted” and are

“not sufficient to withstand a motion to dismiss.” State ex rel. Hickman v. Capots,

45 Ohio St.3d 324, 324, 544 N.E.2d 639 (1989); Richardson v. Clinical Computing

P.L.C., 2016-Ohio-8065, 69 N.E.3d 754, ¶ 38 (1st Dist.). Since factual allegations in

the complaint are presumed true, only legal issues are presented. Therefore, we

23 OHIO FIRST DISTRICT COURT OF APPEALS

review the granting of a Civ.R. 12(B) motion to dismiss de novo. Richardson at ¶ 26;

NCS Healthcare, Inc. v. Candlewood Partners, LLC, 160 Ohio App.3d 421, 2005-

Ohio-1669, 827 N.E.2d 797, ¶ 19 (8th Dist.).

B. Majority Shareholders’ Fiduciary Duties

{¶70} In a close corporation, majority shareholders owe a heightened

fiduciary duty to minority shareholders to protect against abuse and oppression of

minority shareholders. Crosby v. Beam, 47 Ohio St.3d 105, 108, 548 N.E.2d 217

(1989); Vontz, 2016-Ohio-8477, 111 N.E.3d 452, at ¶ 31; Miller v. McCann, 1st Dist.

Hamilton No. C-970035, 1997 WL 789394, *2 (Dec. 26, 1997). This duty prohibits

majority shareholders from preventing minority shareholders from having an equal

opportunity in the corporation and granting themselves benefits that are not shared

by the minority. Crosby at 109; Miller at *2. This abuse or oppression includes a

“squeeze-out” or “freeze-out” meaning the “manipulative use of corporate control to

eliminate minority shareholders, or to reduce their share of voting power or

percentage of ownership assets, or otherwise deprive them of advantages or

opportunities to which they are entitled.” Vontz at ¶ 31, quoting Estate of Schoer v.

Stamco Supply, Inc., 19 Ohio App.3d 34, 38, 482 N.E.2d 975 (1st Dist.1984).

C. Direct v. Derivative Claim

{¶71} A shareholder’s derivative action is brought by a shareholder in the

name of the corporation to enforce a corporate claim. Crosby at 107. Civ.R. 23.1 sets

forth several requirements for maintaining a shareholders’ derivative action. Weston

v. Weston Paper and Mfg. Co., 74 Ohio St.3d 377, 379, 658 N.E.2d 1058 (1996).

Claims for a breach of fiduciary duty brought by a minority shareholder against

majority shareholders, who use their control to deprive minority shareholders of the

benefits of their investment, may be brought as individual or direct actions that are

24 OHIO FIRST DISTRICT COURT OF APPEALS

not subject to the provisions of Civ.R. 23.1. Crosby at paragraph three of the

syllabus.

{¶72} In contrast to a derivative action, in which the injury directly affects

the corporation and only indirectly affects the shareholders, a direct action against a

corporation requires an injury directly to the complaining shareholder. Crosby, 47

Ohio St.3d at 109, 548 N.E.2d 217; Miller at *2. The injury to the shareholder must

be separate and distinct from the injury to the corporation. Weston at 379; Crosby at

107. “A plaintiff-shareholder does not have an independent cause of action where

there is no showing that he has been injured in any capacity other than in common

with all other shareholders as a consequence of the wrongful actions of a third party

directed toward the corporation.” Adair v. Wozniak, 23 Ohio St.3d 174, 492 N.E.2d

426 (1986), syllabus.

{¶73} The difference in the nature of the injury is reflected in the manner of

recovery. In a shareholder’s derivative suit, any recovery accrues to the corporation.

“Where the defendant’s wrongdoing has caused direct damage to corporate worth,

the cause of action accrues to the corporation, not to the shareholders.” Adair at 178.

In a direct action, the complaining shareholder is directly compensated to prevent

the wrongdoers from being the principal beneficiaries of the damages. Crosby at

109; Miller at *2. The court must determine whether a complaint states a derivative

claim or a direct claim by looking to the nature of the alleged wrong rather than the

designation used by the plaintiffs. Sayyah v. O’Farrell, 12th Dist. Brown No.

CA2000-06-017, 2001 WL 433789, *4 (Apr. 30, 2001).

{¶74} Joe contends that direct claims are not limited to situations where the

minority shareholder has suffered a direct injury. Citing Crosby, he argues that “the

operative inquiry when determining whether a complaint properly alleges a direct

25 OHIO FIRST DISTRICT COURT OF APPEALS

cause of action is whether the majority or controlling shareholders have used ‘their

control in a way that deprives the minority shareholder of the benefit of his

investment.’ ”

{¶75} But he takes this statement out of context. The court actually stated in

paragraph three of the syllabus,

Claims of 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.

{¶76} In the body of the opinion the court stated, “The complaint before us,

in essence, alleges that the majority shareholders acted both separately and

collectively to exclude the appellees from the corporation’s profit.” Crosby, 47 Ohio

St.3d at 110, 548 N.E.2d 217. The court then went on to analyze whether the various

counts of the complaint were derivative or direct in nature. Crosby does not say

what Joe claims and does not vitiate the need for a separate and distinct injury to the

minority shareholder. Ohio law is clear that a separate injury is necessary for a

direct claim.

{¶77} As explained in Adair, harm to the corporation does secondary harm

to the shareholders.

When the defendant’s wrongdoing has caused direct damage to the

corporate worth, the cause of action accrues to corporation, not the

shareholders, even though in an economic sense real harm may well be

sustained by the shareholders as a result of reduced earnings,

diminution in the value of ownership, or accumulation of personal

26 OHIO FIRST DISTRICT COURT OF APPEALS

debt and liabilities from the company’s financial decline. The personal

loss and liability sustained by the shareholder is both duplicative and

indirect to the corporation’s right of action.

Adair, 23 Ohio St.3d at 178, 492 N.E.2d 426.

D. Joe’s First Complaint

{¶78} In his first complaint, Joe alleged harm to the corporation generally

and not separate harm to him. Allegations related to Tony’s self-dealing and

mismanagement, the reduced profitability of the corporation due to the plant

expansion and charitable giving all describe harm to the corporation, not harm

unique to Joe. See Sayyah, 12th Dist. Brown No. CA2000-06-017, 2001 WL 433789,

at *4-5; Antioch Baptist Church of Canton v. Jordan, 5th Dist. Stark No.

1998CA00258, 1999 WL 333335, *2 (May 10, 1999). To the extent that defendants

are liable for the loss of corporate assets, the liability runs to the corporation and not

its individual shareholders. See Adair at 177.

{¶79} The only allegation that comes close to showing separate harm was an

allegation that the board, dominated by the controlling shareholders, removed him

from his position as vice-president of engineering, a position he held for decades.

But, as the trial court pointed out, he alleged no facts showing that he suffered a loss

of salary, a reduction in dividends, or a loss of benefits that were unique to him.

{¶80} Moreover, we need to look at the nature of the alleged wrong, rather

than Joe’s characterization of that harm. See Sayyah at *4. Joe’s entire complaint

was for breach of fiduciary duties by the shareholders and the outside directors.

“[A]ctions for breach of fiduciary duty [by directors or officers] are generally to be

brought in derivative suits.” Id. at *3; Grand Council of Ohio v. Owens, 86 Ohio

App.3d 215, 220, 620 N.E.2d 234 (10th Dist.1993). Primarily, the right to maintain

27 OHIO FIRST DISTRICT COURT OF APPEALS

an action to recover for the alleged negligence, fraud, or misconduct of directors and

officers, resulting in the depletion of corporation property, belongs to the

corporation itself. Sayyah at *3; Grand Council at 220-221.

{¶81} Thus, since Joe did not allege any distinct harm, the trial court did not

err in granting the motion to dismiss his direct claim for minority-shareholder

oppression. Therefore, we overrule his second assignment of error.

IV. Amendment of the Complaint

{¶82} In his third assignment of error, Joe contends that the trial court erred

in denying his motion for leave to amend his complaint. He argues that the trial

court improperly found that the amendment would be futile. This assignment of

{¶83} The trial court dismissed the first count of the complaint without

prejudice. It stated, “Plaintiff may seek to amend his Complaint, but he must submit

the type of facts that support a minority shareholder direct action.” Joe filed a

motion for leave to amend his complaint, which the trial court denied.

{¶84} Civ.R. 15(A) governs the amendment of pleadings, and it provides that

the court should freely give leave to amend “when justice so requires.” Isco

Industries, Inc. v. Great Am. Ins., 1st Dist. Hamilton No. C-180636, 2019-Ohio-

4852, ¶ 52; Hensley v. Durrani, 1st Dist. Hamilton No. C-130005, 2013-Ohio-4711, ¶

14. The decision to grant or deny a motion for leave to amend lies within the

discretion of the trial court. Wilmington Steel Prods., Inc. v. Cleveland Elec.

Illuminating, 60 Ohio St.3d 120, 122, 573 N.E.2d 622 (1991); Danopulos v. Am.

Trading II, LLC, 2016-Ohio-5014, 69 N.E.3d 157, ¶ 15 (1st Dist.).

{¶85} In ruling on a motion to amend, the trial court should consider several

factors including whether the movant made a prima facie showing of support for the

28 OHIO FIRST DISTRICT COURT OF APPEALS

new matters sought to be pleaded, the timeliness of the motion, and whether the

proposed amendment would prejudice the opposing party. Danopulos at ¶ 24. A

trial court properly refuses to grant leave to amend when amendment would be

futile. Isco Industries at ¶ 52; Hensley at ¶ 14. The trial court found that count one

of the amended complaint suffered from the same defects as the original complaint

and that amendment of the complaint would be futile.

{¶86} In the amended complaint, Joe alleged that Tony directed that JTM’s

weekly and daily production information be withheld from Joe; that under the

direction of the controlling shareholders, the board determined that Tony would

earn $90,000 more in annual salary than Joe, in violation of JTM’s decades-long

policy that the four brothers would earn the same salary; that the board had voted to

remove him as vice-president of engineering; that the board had voted to remove

him as the chief safety officer, a position he had held for decades; that the board’s

resolution on charitable giving forced him to form, finance, and fund a private

charitable foundation against his will; and that under the resolution he has been

forced to reimburse JTM for his portion of the overage of JTM’s charitable

contributions against his will. These, he claims, are individual harms.

{¶87} But they are simply recitations of his claims for breach of fiduciary

duties by the officers and directors of the corporation, which belong to the

corporation itself and should be brought as a derivative claim. Again, Joe does not

allege any reduction in his salary, benefits or dividends that were not shared by the

other shareholders. Basically, Joe alleges a series of decisions with which he

disagrees. He does not approve of the manner in which Tony runs the company, but

the other members of the board find no fault with Tony’s methods.

29 OHIO FIRST DISTRICT COURT OF APPEALS

{¶88} The fiduciary duties owed by majority shareholders to minority

shareholders do not mean that minority shareholders can frustrate the will of the

majority by disagreeing over the course of the corporate action. Koos, 94 Ohio

App.3d at 588, 641 N.E.2d 265. The majority shareholders have the right “to

exercise control over the corporate affairs to which ownership of their shares

entitle[s] them.” Id. at 588-589, quoting Armstrong v. Marathon Oil Co., 32 Ohio

St.3d 397, 402, 513 N.E.2d 776 (1987). “When a person acquires shares in a

corporation, he comes in to be ruled by the majority in interest, and as long as such

majority acts within the scope of the powers conferred by the corporation, the voice

of the majority is the voice of the corporation and all of the shareholders.” Koos at

588.

{¶89} The trial court’s decision denying Joe’s motion to amend his complaint

was not so arbitrary, unreasonable, or unconscionable as to connote an abuse of

discretion. See Blakemore v. Blakemore, 5 Ohio St.3d 217, 218, 450 N.E.2d 1140

(1983); Cincinnati v. Harrison, 1st Dist. Hamilton No. C-090702, 2010-Ohio-3430,

¶ 7. Therefore, we overrule Joe’s third assignment of error.

V. JTM’s Assignment of Error

{¶90} JTM refers to itself as a “cross-appellant,” and has filed an assignment

of error even though it did not properly file a cross-appeal. Nevertheless, App.R.

3(C)(2) provides that a cross-appeal is not required where an appellee seeks to

defend a trial court’s judgment on a ground other than that relied on by the trial

court but does not seek to the change the judgment or order. McCarthy v. Sterling

Chem., Inc., 1st Dist. Hamilton Nos. C-110805 and C-110852, 2012-Ohio-5211, ¶ 9.

Despite Joe’s arguments to the contrary, JTM’s assignment of error is a proper

assignment of error to prevent reversal because it does not seek to change the court’s

30 OHIO FIRST DISTRICT COURT OF APPEALS

judgment. But we need not address its assignment of error, because we are affirming

the trial court’s judgment. See Estate of Hand, 2016-Ohio-7437, 73 N.E.3d 880, ¶ 42

(12th Dist.).

VI. Summary

{¶91} In sum, we hold that (1) the trial court did not err in granting the

shareholders’ and outside directors’ motions for summary judgment concerning

Joe’s claims for breach of fiduciary duty; (2) the trial court did not err in granting the

shareholders’ motion to dismiss count one of the complaint, which was Joe’s direct

claim for minority-shareholder oppression; and (3) the trial court did not err in

denying Joe’s motion to amend count one of his complaint. Accordingly, we overrule

his three assignments of error and affirm the trial court’s judgment.

Judgment affirmed.

M OCK , P.J., and B ERGERON , J., concur.

Please note: The court has recorded its own entry this date.