Mills Fence Co., L.L.C. v. Kinne

2025 Ohio 2247

• Court: Ohio Court of Appeals
• Decided: June 27, 2025
• Docket: C-240452
• Status: Published

Opinion

[Cite as Mills Fence Co., L.L.C. v. Kinne, 2025-Ohio-2247.]

IN THE COURT OF APPEALS FIRST APPELLATE DISTRICT OF OHIO HAMILTON COUNTY, OHIO

MILLS FENCE CO., LLC, : APPEAL NO. C-240452 TRIAL NO. A-2302019 Plaintiff-Appellee, :

vs. : JUDGMENT ENTRY MICHAEL S. KINNE, :

and :

PERLA I. MEDINA-KINNE, :

Defendants-Appellants. :

This cause was heard upon the appeal, the record, the briefs, and arguments. The judgment of the trial court is reversed and the cause is remanded for the reasons set forth in the Opinion filed this date. Further, the court holds that there were reasonable grounds for this appeal, allows no penalty, and orders that costs are taxed under App.R. 24. The court further orders that 1) a copy of this Judgment with a copy of the Opinion attached constitutes the mandate, and 2) the mandate be sent to the trial court for execution under App.R. 27.

To the clerk: Enter upon the journal of the court on 6/27/2025 per order of the court.

By:_______________________ Administrative Judge [Cite as Mills Fence Co., L.L.C. v. Kinne, 2025-Ohio-2247.]

IN THE COURT OF APPEALS FIRST APPELLATE DISTRICT OF OHIO HAMILTON COUNTY, OHIO

MILLS FENCE CO., LLC, : APPEAL NO. C-240452 TRIAL NO. A-2302019 Plaintiff-Appellee, :

vs. : OPINION MICHAEL S. KINNE, :

Civil Appeal From: Hamilton County Court of Common Pleas

Judgment Appealed From Is: Reversed and Cause Remanded

Date of Judgment Entry on Appeal: June 27, 2025

Dinsmore & Shohl LLP, Douglas J. Feichtner and Brian E. Schultz, for Plaintiff- Appellee,

Law Offices of Joshua Davidson, LLC, and L. Joshua Davidson, for Defendants- Appellants. OHIO FIRST DISTRICT COURT OF APPEALS

NESTOR, Judge.

{¶1} This case presents a relatively novel question that few (if any) Ohio

courts have been asked to answer. Defendants-appellants Michael Kinne and Perla

Medina-Kinne (“the Kinnes”) were founders and directors of the nonprofit

corporation Angel’s Rest Animal Sanctuary (“ARAS”). ARAS contracted with plaintiff-

appellee Mills Fence Co., LLC, (“Mills”) to build a fence on the nonprofit’s property.

Several years after ARAS refused to pay Mills for the work done, Mills filed suit and

received a default judgment against ARAS. However, during the pendency of that case

the Kinnes voluntarily dissolved the corporation and sold the property. After Mills

failed to collect the money it was owed from the proceeds of the sale (which the Kinnes

held in escrow), the Kinnes paid themselves back for “Founders’ Loans” they made to

ARAS. Mills filed suit against the Kinnes, claiming they breached their fiduciary duties

and that the corporate veil should be pierced. While the trial court refused to pierce

the corporate veil, it held that the Kinnes breached fiduciary duties they owed to Mills.

The Kinnes now appeal to this court asserting four assignments of error. After

reviewing relevant caselaw, we agree with the Kinnes that the trial court erred in

holding that they owed Mills fiduciary duties. Accordingly, we sustain their first three

assignments of error, which renders their last assignment moot.

I. Factual and Procedural History

{¶2} Mills entered into two contracts with ARAS in 2015 to construct a fence

on the nonprofit’s property. After Mills completed the work, ARAS refused to pay

Mills the agreed upon price because it believed that Mills did not fulfill its contractual

obligations. The contracts totaled approximately $24,000. Mills placed a mechanic’s

lien on the property in the amount of the contract price. However, it took no further

action to collect the debt. OHIO FIRST DISTRICT COURT OF APPEALS

{¶3} ARAS experienced financial hardship, and its directors, the Kinnes,

passed a resolution to voluntarily dissolve the corporation on August 3, 2020. As part

of the dissolution process, ARAS sold the real property where the nonprofit was

located (and where Mills installed the fence). The property sold for $345,000, and the

Kinnes set aside the amount of Mills’s lien in escrow. Mills never collected that money,

and it allowed the lien to expire.

{¶4} After Mills failed to collect the debt, the Kinnes took the money that was

left from the sale. They claimed that they were owed money from ARAS because they

made “Founders’ Loans” to the corporation. In October 2022, Mills filed suit against

ARAS, asserting a breach of contract claim. It received a default judgment against the

nonprofit corporation in March 2023, but before that, the Kinnes properly dissolved

ARAS in December 2022.

{¶5} Mills filed suit against the Kinnes on May 12, 2023. It initially asserted

claims for breach of contract (and requested that the corporate veil be pierced), and

for breach of fiduciary duty. Mills filed an amended complaint on June 23, 2023,

asserting a breach of fiduciary duty claim and a separate claim for piercing the

corporate veil.

{¶6} After the trial court’s denial of several pretrial motions, the issues went

to a bench trial. At the close of the trial, the court orally decided in favor of Mills. The

trial court declined to pierce the corporate veil, but it found that the Kinnes, as

directors of ARAS, breached fiduciary duties they owed to Mills, a creditor of ARAS.

The trial court based its decision on R.C. 1702.49, which states that when directors are

winding up a corporation, they “may . . . apply assets to the payment of obligations.”

More specifically, the trial court found that the Kinnes breached their duties when they

paid themselves for their “Founders’ Loans” before paying ARAS’s debt to Mills.

4 OHIO FIRST DISTRICT COURT OF APPEALS

{¶7} The Kinnes now appeal to this court, asserting four assignments of

error. In their first two assignments of error, they argue that the trial court erred when

it held that they owed fiduciary duties to Mills. In their last two assignments of error,

the Kinnes argue that the trial court erred in denying their Civ.R. 12(B)(6) motion to

dismiss and their motion for summary judgment.

II. Analysis

A. Fiduciary Duties Owed to Creditors of a Dissolved Corporation

{¶8} The primary question before us is whether the Kinnes, as directors of a

nonprofit corporation, owed fiduciary duties to Mills, a creditor of the corporation.

Our answer to this somewhat novel legal question underpins the Kinnes first, second,

and third assignments of error. In their first three assignments of error, the Kinnes

assert that the trial court erred in granting judgment in favor of Mills and that it erred

in denying their Civ.R. 12(B)(6) motion to dismiss, because they did not owe fiduciary

duties to Mills. We agree.

{¶9} Because this is a purely legal question, we review it de novo. See Cuc

Properties VI, LLC v. Smartlink Ventures, Inc., 2021-Ohio-3428, ¶ 7 (1st Dist.), citing

Name Change of Rowe, 2019-Ohio-4666, ¶ 16 (4th Dist.). The same standard applies

to our review of a trial court’s denial of a Civ.R. 12(B)(6) motion to dismiss. See

Brendamour v. City of the Village of Indian Hill, 2022-Ohio-4724, ¶ 17 (1st Dist.),

citing White v. Pitman, 2020-Ohio-3957, ¶ 16 (1st Dist.). In reviewing a motion to

dismiss for failure to state a claim upon which relief can be granted, a court “must

accept factual allegations in the complaint as true and draw all reasonable inferences

in favor of the nonmoving party.” Id., citing Pitman at ¶ 16. “A court should not

dismiss a complaint for failure to state an actionable claim unless it appears ‘beyond

doubt from the complaint that the plaintiff can prove no set of facts entitling [the

5 OHIO FIRST DISTRICT COURT OF APPEALS

plaintiff] to recovery.’” Id., quoting O’Brien v. Univ. Community Tenants Union, Inc.,

42 Ohio St.2d 242 (1975), syllabus.

{¶10} Since Mills asserted a claim for breach of a fiduciary duty, it had to

“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.” Maas v.

Maas, 2020-Ohio-5160, ¶ 16 (1st Dist.), citing Strock v. Pressnell, 38 Ohio St.3d 207

(1988). Therefore, Mills first needed to show that the Kinnes owed it a fiduciary duty.

{¶11} “A fiduciary relationship is one in which special confidence and trust is

reposed in the integrity and fidelity of another and there is a resulting position of

superiority or influence, acquired by virtue of this special trust.” (Internal quotations

omitted.) State v. Massien, 2010-Ohio-1864, ¶ 35, quoting Stone v. Davis, 66 Ohio

St.2d 74, 78 (1981), quoting In re Termination of Pratt, 40 Ohio St.2d 107, 115 (1974).

“A ‘fiduciary’ has been defined as a person having a duty, created by his undertaking,

to act primarily for the benefit of another in matters connected with his undertaking.”

(Internal quotations omitted.) (Emphasis in original.) Id., quoting Strock at 216,

quoting Haluka v. Baker, 66 Ohio App. 308, 312 (9th Dist. 1941), quoting 1

Restatement of the Law, Agency, § 13, Comment a (1933).

{¶12} Basic Ohio corporation law states that “directors . . . of a corporation

shall not be personally liable for any obligation of the corporation.” R.C. 1702.55(A).

Typically, a director’s fiduciary duty flows to the corporation itself, not to third parties.

See DiPasquale v. Costas, 2010-Ohio-832, ¶ 125 (2d Dist.) (“We also recognized in

[Kleemann v. Carriage Trace, Inc., 2007-Ohio-4209 (2d Dist.)], that R.C. 1702.30

imposes fiduciary duties on boards of directors of non-profit corporations.”). These

basic principles do not answer our question directly, but they provide a helpful lens.

{¶13} Other courts that attempted to answer similar questions have

6 OHIO FIRST DISTRICT COURT OF APPEALS

referenced Thomas v. Matthews, 94 Ohio St. 32 (1916). In that case, the Ohio

Supreme Court held that “directors . . . stand in the relation of trustees to the creditors

[during insolvency], and they are not permitted to divert assets from the payment of

its debt by distributing these assets to the stockholders as dividends . . . .” Id. at 47.

This reference to directors as “trustees” stems from the “trust fund doctrine,” which

states that “‘[i]n equity the corporate property becomes the property of the creditors,

and their equities are equal.’” Cay Machine Co. v. Firestone Tire & Rubber Co., 175

Ohio St. 295, 299 (1963), quoting Rouse, Trustee, v. Merchants’ Natl. Bank, 46 Ohio

St. 493 (1889). Under the doctrine, the “trust comes into being when the certificate of

dissolution is filed.” Id. “This property is held by those in charge of winding up the

affairs of the corporation to satisfy claims against the corporation . . . .” Id.

{¶14} Mills relies on the “trust find doctrine” in support of its position that the

Kinnes, as directors of the defunct nonprofit corporation, owed Mills fiduciary duties

while they wound up the business. It contends that the Ohio Supreme Court held in

Cay Machine that R.C. Ch. 1702 codified this doctrine, and that it requires directors

to satisfy the corporation’s existing obligations while winding up the business.

However, nowhere in Cay Machine does the Court explicitly state that directors of a

defunct corporation owe fiduciary duties to creditors of that corporation. Again, a

fiduciary relationship is one of special trust and confidence that extends beyond mere

contractual obligations between two parties.

{¶15} Furthermore, a federal bankruptcy court considered whether directors

generally owed fiduciary duties to creditors upon insolvency. See In re Amcast Indus.

Corp., 365 B.R. 91 (Bankr.S.D. Ohio 2007). That court held that Matthews did not

extend to all insolvency proceedings, as it was limited to payments of dividends during

insolvency (which is a generally accepted corporate principle). Id. at 107. The court

7 OHIO FIRST DISTRICT COURT OF APPEALS

held that due to the nature of insolvency, directors could not owe wide-ranging

fiduciary duties to creditors. Id. Thus, it held that any duty owed by directors of an

insolvent corporation to creditors of that corporation was limited to the context of

dividend payments. Id.

{¶16} Looking at In re Amcast and basic corporation principles for guidance,

we cannot say that directors of a defunct corporation owe creditors of that corporation

fiduciary duties. When faced with a similar issue, the Eleventh District came to the

same conclusion. See generally Custom Assocs., L.P. v. VSM Logistics, LLC, 2020-

Ohio-2994 (11th Dist.). In that case, the court cited the holding in In re Amcast to

support its holding that directors do not owe creditors of the corporation fiduciary

duties. Id. at ¶ 16-19. It explained that in the years since Matthews and other like

cases, the General Assembly enacted applicable statutory provisions, and in those

statutory provisions, it made directors’ consideration of creditors’ interests

permissive. Id. at ¶ 15, 18, quoting In re I.E. Liquidation, Inc., 2009 Bankr. LEXIS

4655, *12 (Bankr.N.D. Ohio 2009). The trial court in the case before us now relied on

R.C. 1702.49, which contains permissive language. We agree with the Eleventh

District’s reasoning and its holding that directors do not owe a corporation’s creditors

fiduciary duties during the winding up process.

{¶17} That is not to say that directors are never liable to a corporation’s

creditors for their wrongdoings during the winding up process. In a for-profit

corporate context, the Twelfth District held that “claims against the corporate assets

[of a dissolved corporation] may be pursued against former shareholders to the extent

of the assets actually distributed to them.” Kesselring Ford, Inc v. Cann, Exrx., 68

Ohio App.2d 131, 133 (12th Dist. 1980). The Eleventh District also acknowledged that

“in some instances, claims can be maintained against members, managers or officers

8 OHIO FIRST DISTRICT COURT OF APPEALS

of an LLC arising from their own wrongful actions or omissions and can be pursued

through claims for tortious conduct . . . however, the sole claim maintained against

appellees was for breach of fiduciary duty.” Custom Assocs. at ¶ 21.

{¶18} As the Kinnes suggest, directors may be liable to creditors in certain

instances for fraudulent behavior. In fact, R.C. 1702.54(A)(1) states that “[n]o []

director . . . of a corporation shall . . . with the intent to deceive . . . issue . . . any

prospectus, report, circular, certificate, statement, balance sheet, exhibit, or

document, respecting membership rights in . . . assets . . . of, a corporation, that is false

in any material respect, knowing the same to be false.” And any director who “violates

th[at] section shall be personally liable . . . to any person for any damage actually

suffered.” R.C. 1702.54(B). But to say that directors may be liable is not to say that

they owe creditors a fiduciary duty. A fiduciary relationship is one with special trust

and confidence. See Massien, 2010-Ohio-1864, at ¶ 35, quoting Stone, 66 Ohio St.2d

at 78, quoting In re Termination of Pratt, 40 Ohio St.2d at 115. Nor does liability

under Ohio’s corporate law mean that a director acts for the benefit of creditors, as

one does in a fiduciary relationship. See id., quoting Strock, 38 Ohio St.3d at 216,

quoting Haluka, 66 Ohio App. at 312, quoting 1 Restatement of the Law, Agency, § 13,

Comment a (1933). Mills did not assert a claim for fraud as it could have under R.C.

1702.54 or the Ohio Uniform Fraudulent Transfer Act under R.C. Ch. 1336.

{¶19} The relationship between Mills and the Kinnes was based on an arms-

length contract that Mills entered into with ARAS. “Generally, ‘a mere debtor-creditor

relationship without more does not create a fiduciary relationship.’” Custom Assocs.,

2020-Ohio-2994, at ¶ 12 (11th Dist.), quoting Lippy v. Society Natl. Bank, 100 Ohio

App.3d 37, 44 (11th Dist. 1995).

{¶20} Based on the caselaw above, we cannot say that directors of a defunct

9 OHIO FIRST DISTRICT COURT OF APPEALS

nonprofit corporation owe the corporation’s creditors fiduciary duties. Thus, the trial

court’s judgment was contrary to law, and Mills could not have proven any set of facts

entitling it to relief.

{¶21} Accordingly, we sustain the Kinnes’s first and second assignments of

error in their entirety. We also sustain their third assignment of error pertaining to

the trial court’s refusal to dismiss Mills’s breach of fiduciary duty claim.

B. Piercing the Corporate Veil

{¶22} Based upon our resolution above, we sustain the remainder of the

Kinnes’s third assignment of error pertaining to the trial court’s refusal to dismiss

Mills’s claim for piercing the corporate veil.

{¶23} The Kinnes correctly point out “‘piercing the corporate veil is not a

claim, it is a remedy encompassed within a claim, whereby liability for a particular tort

may be imposed upon a particular individual.’” Best Fin. Solutions, LLC v. Tifton

Custom Packing, LLC, 2024-Ohio-4458, ¶ 38 (1st Dist.), quoting Pitman, 2020-Ohio-

3957, at ¶ 41 (1st Dist.), quoting Meehan v. Mardis, 2019-Ohio-4075, ¶ 8 (1st Dist.).

In its amended complaint, Mills only asserted claims for a breach of fiduciary duty and

piercing the corporate veil. As explained above, Mills’s claim for a breach of fiduciary

duty was not a viable claim. A “claim” for piercing the corporate veil does not stand

alone. Therefore, Mills cannot prove any set of facts entitling it to relief on its piercing

the corporate veil “claim.”

{¶24} Accordingly, we sustain the Kinnes’s third assignment of error

pertaining to the trial court’s denial of their motion to dismiss Mills’s claim for piercing

the corporate veil. The trial court properly disposed of this claim following the bench

trial.

10 OHIO FIRST DISTRICT COURT OF APPEALS

C. Fourth Assignment of Error

{¶25} Due to our disposition of the Kinnes’s first three assignments of error,

their fourth assignment of error relating to the trial court’s denial of their motion for

summary judgment is moot and we do not address it.

III. Conclusion

{¶26} Based on the foregoing analysis, we sustain the Kinnes’s first three

assignments of error, reverse the judgment of the trial court, and remand the cause to

the trial court with instructions to enter judgment in favor of the Kinnes.

Judgment reversed and cause remanded.

CROUSE, P.J., and MOORE, J., concur.