Palmer v. Bowers

2019 Ohio 1274
Ohio Court of Appeals·Decided April 8, 2019·No. 17CA011137·Published·Cited by 4 cases

Opinion

STATE OF OHIO ) IN THE COURT OF APPEALS )ss: NINTH JUDICIAL DISTRICT COUNTY OF LORAIN )

RICHARD PALMER C.A. No. 17CA011137 Appellants

v. APPEAL FROM JUDGMENT ENTERED IN THE

ROBERT J. BOWERS COURT OF COMMON PLEAS COUNTY OF LORAIN, OHIO

Appellees CASE No. 12CV178356

DECISION AND JOURNAL ENTRY Dated: April 8, 2019

CALLAHAN, Presiding Judge.

{¶1} Appellants, Richard Palmer, Loretta Frimel, and Mike Taylor, appeal from the judgment of the Lorain County Common Pleas Court in favor of Appellees, Graham Hall, Robert Bowers, Judith Bowers, and Hall Contracting Services, Inc.1 For the reasons set forth below, this Court reverses.

I.

{¶2} Hall Contracting Services, Inc. (“HCS”), a privately held Ohio corporation, was incorporated in 2005 with Mr. Palmer, Mr. Hall, Mr. Bowers, and others as shareholders. HCS was engaged in the business of installing and removing printing presses in the newspaper industry throughout the United States.

1 While Robert Bowers and Hall Contracting Services, Inc. are listed as appellees, Mr. Palmer’s assignments of error only pertain to Mr. Hall and Mrs. Bowers.

{¶3} In 2007, eight of HCS’s nine shareholders signed a Majority Shareholder Agreement (“MSA”). Mr. Bowers did not sign the MSA and thus was not bound by any of the MSA terms. The MSA placed limitations on the transferability of shares, identified rights of first and second refusal, and established steps for amending the MSA.

{¶4} In May 2012, Mr. Palmer, Mr. Hall, and a third shareholder, Robert MacKenzie,2 were elected as directors of HCS, and Mr. Palmer was selected as president. Shortly thereafter, Mr. Hall and Mr. Bowers began discussing a sale of shares in order to “‘kill the shareholders agreement’” and take control of HCS.

{¶5} Following those conversations, Mr. Bowers sold his shares to Mr. Hall in July 2012, but Mr. Hall did not disclose the transfer to HCS and the other directors and shareholders until August 2012. This sale of shares resulted in Mr. Hall becoming the majority shareholder of HCS and Mr. Bowers no longer being a shareholder of HCS. Despite the fact that Mr. Bowers was no longer a shareholder, Mr. Hall continued to share confidential financial information regarding HCS with Mr. Bowers.

{¶6} In September 2012, Mr. Hall and Mr. MacKenzie voted as a supermajority to amend the MSA. The amendment removed the restrictions on the transferability of shares, including those limitations related to transfers between spouses, and eliminated the right of first and second refusal. Later the same month, Mr. Hall and Mr. MacKenzie sold their shares in HCS to Mrs. Bowers, making her the majority shareholder. After the stock transfer, Mrs. Bowers appointed her husband, Mr. Bowers, as the new president and CEO of HCS.

2 Mr. MacKenzie is a third-party defendant in the underlying case, but not a party to this appeal.

{¶7} In response to these events, Mr. Palmer filed a shareholder derivative action on behalf of HCS (a nominal defendant) against Mr. Hall and Mr. and Mrs. Bowers. Additionally, Mr. Palmer filed individual claims for injunctive relief, accounting, civil conspiracy, and breach of fiduciary duty. The verified complaint also asserted various declaratory judgment claims regarding the validity of the parties’ actions and the parties’ rights and status with respect to HCS. Mr. Hall, Mr. and Mrs. Bowers, and HCS filed their own counterclaims, cross-claims, and a third-party complaint.

{¶8} The parties filed various competing summary judgment motions. However, only two summary judgment motions were granted and are the subject of this appeal.

{¶9} The first concerns Mr. Hall’s motion for summary judgment as to two of the declaratory judgment claims and the civil conspiracy and breach of fiduciary duty claims in Mr. Palmer’s verified complaint. The trial court granted Mr. Hall summary judgment on counts 1, 2, 9, and 10 of Mr. Palmer’s verified complaint.

{¶10} The second involves Mr. and Mrs. Bowers and HCS’s motion for summary judgment as to all of the declaratory judgment claims, the civil conspiracy claim, and the shareholder derivative action. The trial court granted Mr. and Mrs. Bowers and HCS summary judgment as to counts 1-9, and 113 of Mr. Palmer’s verified complaint.

3 Mr. Palmer suggests that the trial court’s order referencing Count 11 is an error and in fact should read Count 10. This Court disagrees. First, Count 10 only asserts a claim against Mr. Hall. Second, Mr. and Mrs. Bowers and HCS sought summary judgment as to Count 11, not Count 10, and a trial court may not grant summary judgment on a claim when it was not sought. Urda v. Buckingham, Doolittle & Burroughs, LLP, 9th Dist. Summit No. 22547, 2005-Ohio- 5949, ¶ 13. While there is no count numbered “11” in the verified complaint, the request for a derivative action follows Count 10 and can be construed as being Count 11. Moreover, Mr. and Mrs. Bowers and HCS moved for summary judgment on the derivative action.

{¶11} Upon the joint request of Mr. Hall, Mr. and Mrs. Bowers, and HCS, the trial court amended these two judgments by adding the certification that there was no just reason to delay an appeal of the two summary judgment orders. Concurrent with the order certifying Civ.R. 54(B) language, the trial court granted Ms. Frimel and Mr. Taylor, other minority shareholders of HCS, permission to intervene as plaintiffs upon the condition that they “participate in and be bound by the * * * disposition of the appeal.” Further, the trial court ordered that Ms. Frimel and Mr. Taylor “shall be bound by all rulings entered in this case to date, including but not limited to the summary judgment rulings disposing of [Mr.] Palmer’s claims and which are equally dispositive of their claims.” After the appeal was filed, the trial court stayed the case.

{¶12} Mr. Palmer, Ms. Frimel, and Mr. Taylor timely appeal from the summary judgment entries, asserting one assignment of error regarding the civil conspiracy (Count 9) and breach of fiduciary duty (Count 10) claims.4 II.

ASSIGNMENT OF ERROR

THE TRIAL COURT ERRED AS A MATTER OF LAW BY GRANTING SUMMARY JUDGMENT ON THE CONSPIRACY AND BREACH OF FIDUCIARY DUTY CLAIMS.[]

{¶13} Mr. Palmer asserts that the trial erred when it granted summary judgment on the breach of fiduciary duty and civil conspiracy claims. This Court agrees.

4 During oral argument, Mr. Palmer’s counsel confirmed he is not appealing the trial court’s decision relative to his declaratory judgment claim contained in Count 1.

{¶14} This Court reviews an order granting summary judgment de novo. See Bonacorsi v. Wheeling & Lake Erie Ry. Co., 95 Ohio St.3d 314, 2002-Ohio-2220, ¶ 24, citing Doe v. Shaffer, 90 Ohio St.3d 388, 390 (2000). Summary judgment is proper under Civ.R. 56(C) when: (1) no genuine issue as to any material fact exists; (2) the party moving for summary judgment is entitled to judgment as a matter of law; and (3) viewing the evidence most strongly in favor of the nonmoving party, reasonable minds can only reach one conclusion, and that conclusion is adverse to the nonmoving party. Civ.R. 56(C); Temple v. Wean United, Inc., 50 Ohio St.2d 317, 327 (1977).

{¶15} Summary judgment consists of a burden-shifting framework. The movant bears the initial burden of demonstrating the absence of genuine issues of material fact concerning the essential elements of the nonmoving party’s case. Dresher v. Burt, 75 Ohio St.3d 280, 292 (1996). Specifically, the moving party must support the motion by pointing to some evidence in the record of the type listed in Civ.R. 56(C). Id. at 292-293. Once the moving party satisfies this burden, the nonmoving party has a “reciprocal burden” to “‘set forth specific facts showing that there is a genuine issue for trial.’” Id. at 293, quoting Civ.R. 56(E). However, “[i]f the moving party fails to satisfy its initial burden, the motion for summary judgment must be denied.” Id. at 293. Count 10 – Breach of Fiduciary Duty against Mr. Hall

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