Razavi v. Vasila

2022 Ohio 463

• Court: Ohio Court of Appeals
• Decided: February 15, 2022
• Docket: 21 CAE 06 0032
• Status: Published

Opinion

[Cite as Razavi v. Vasila, 2022-Ohio-463.]

COURT OF APPEALS DELAWARE COUNTY, OHIO FIFTH APPELLATE DISTRICT

MOHAMMAD RAZAVI : JUDGES: : Hon. William B. Hoffman, P.J. Plaintiff-Appellant : Hon. John W. Wise, J. : Hon. Earle E. Wise, Jr., J. -vs- : : THOMAS VASILA, ET AL. : Case No. 21 CAE 06 0032 : Defendants-Appellees : OPINION

CHARACTER OF PROCEEDING: Appeal from the Court of Common Pleas, Case No. 19 CVH 09 0518

JUDGMENT: Affirmed

DATE OF JUDGMENT: February 15, 2022

APPEARANCES:

For Plaintiff-Appellant For Defendant-Appellee Thomas Vasila BRIAN P. O'CONNOR CHARLES E. REYNOLDS STEVEN W. TIGGES ALEXANDER R. FOXX STUART G. PARSELL 600 Vine Street 41 South High Street Suite 2700 Suite 3500 Cincinatti, OH 45202 Columbus, OH 43215

For Defendant-Appellee Rubbertec Industrial Products Company

JAMES S. SAVAGE DOUGLAS J. SEGERMAN 1160 Dublin Road Suite 400 Columbus, OH 43215-1052 Delaware County, Case No. 21 CAE 06 0032 2

Wise, Earle, J.

{¶ 1} Plaintiff-Appellant, Mohammad Razavi, appeals the May 28, 2021 judgment

entry of the Court of Common Pleas of Delaware County, Ohio, granting summary

judgment to Defendants-Appellees, Thomas Vasila and Rubbertec Industrial Products

Company.

FACTS AND PROCEDURAL HISTORY

{¶ 2} At the outset, we note a majority of the filings and documents, including the

trial court's judgment entry, are filed under seal. However, the complaint and answers

are not. We are mindful of the parties' desire to keep this case confidential as we proceed

with the opinion.

{¶ 3} Appellee Rubbertec is a privately held manufacturing company with three

shareholders: appellant, appellee Vasila, and Mark Knore. Vasila is the majority

shareholder, owning more than three times as many shares as each of the other two

shareholders. He is the Chief Executive Officer and President of Rubbertec. Appellant

is not employed by Rubbertec. Mr. Knore is Vice-President of Sales. Prior to 2014, all

three individuals served as the directors of Rubbertec. In 2014, the three agreed to

amend Rubbertec's Code of Regulations and elect Vasila as Rubbertec's sole director.

In subsequent years, appellant continued electing Vasila as sole director up through and

including the shareholders meeting held on September 26, 2019.

{¶ 4} On September 19, 2019, one week prior to that meeting, appellant had filed

a complaint against Vasila claiming breach of fiduciary duty, alleging in part Vasila

entered into a favorable employment agreement with himself, paid himself a disguised

dividend in the form of an excessive salary, used Rubbertec funds for personal expenses,

purchased a vehicle and a Florida condominium for his exclusive use, did not prepare Delaware County, Case No. 21 CAE 06 0032 3

accurate financial statements, borrowed funds from Rubbertec, and has had Rubbertec

hold on to excessive amounts of cash without distributing the earnings to all shareholders

equally. The complaint also included a shareholder derivative action on behalf of

Rubbertec seeking to remedy "breaches of fiduciary duties, conflict of interest, corporate

waste, self-dealing, misuse of corporate assets, gross mismanagement of Rubbertec, and

other improper conduct."

{¶ 5} On December 18, 2020, Vasila filed a motion for summary judgment. On

same date, Rubbertec filed a motion to dismiss under Civ.R. 23.1. By judgment entry

filed May 28, 2021, the trial court construed Rubbertec's motion as a motion for summary

judgment and granted both motions. The trial court determined appellant's claims against

Vasila were barred by the statute of limitations and waiver, and appellant failed to prove

damages. As for the derivative claim, the trial court found appellant did not fairly and

adequately represent the interests of the only other similarly situated shareholder.

{¶ 6} Appellant filed an appeal and this matter is now before this court for

consideration. Assignments of error are as follows:

I

{¶ 7} "THE TRIAL COURT ERRED IN GRANTING APPELLEES' MOTION FOR

SUMMARY JUDGMENT BASED ON AN ERRONEOUS APPLICATION OF THE

STATUTE OF LIMITATIONS TO CLAIMS WHICH WERE BROUGHT BEFORE THE

STATUTE HAD RUN."

II

{¶ 8} "THE TRIAL COURT ERRED BY CONVERTING DEFENDANT

RUBBERTEC'S MOTION TO DISMISS TO A MOTION FOR SUMMARY JUDGMENT

WITHOUT NOTICE TO PLAINTIFF RAZAVI." Delaware County, Case No. 21 CAE 06 0032 4

III

{¶ 9} "THE TRIAL COURT ERRED BY HOLDING THAT PLAINTIFF RAZAVI DID

NOT PROVIDE PROOF OF DAMAGES."

IV

{¶ 10} "THE TRIAL COURT ERRED BY ASSIGNING THE BURDEN OF PROOF

TO PLAINTIFF RAZAVI INSTEAD OF DEFENDANT VASILA."

V

{¶ 11} THE TRIAL COURT ERRED IN FINDING THAT RAZAVI DID NOT FAIRLY

AND ADEQUATELY REPRESENT THE INTEREST OF ALL SIMILARLY SITUATED

SHAREHOLDERS."

{¶ 12} The assignments of error challenge the trial court's order granting summary

judgment to appellees. Summary Judgment motions are to be resolved in light of the

dictates of Civ.R. 56. Said rule was reaffirmed by the Supreme Court of Ohio in State ex

rel. Zimmerman v. Tompkins, 75 Ohio St.3d 447, 448, 663 N.E.2d 639 (1996):

Civ.R. 56(C) provides that before summary judgment may be

granted, it must be determined that (1) no genuine issue as to any material

fact remains to be litigated, (2) the moving party is entitled to judgment as

a matter of law, and (3) it appears from the evidence that reasonable minds

can come to but one conclusion, and viewing such evidence most strongly

in favor of the nonmoving party, that conclusion is adverse to the party

against whom the motion for summary judgment is made. State ex. rel.

Parsons v. Fleming (1994), 68 Ohio St.3d 509, 511, 628 N.E.2d 1377, 1379, Delaware County, Case No. 21 CAE 06 0032 5

citing Temple v. Wean United, Inc. (1977), 50 Ohio St.2d 317, 327, 4 O.O3d

466, 472, 364 N.E.2d 267, 274.

{¶ 13} As an appellate court reviewing summary judgment motions, we must stand

in the shoes of the trial court and review summary judgments on the same standard and

evidence as the trial court. Smiddy v. The Wedding Party, Inc., 30 Ohio St.3d 35, 506

N.E.2d 212 (1987).

{¶ 14} As explained by this court in Leech v. Schumaker, 5th Dist. Richland No.

15CA56, 2015-Ohio-4444, ¶ 13:

It is well established the party seeking summary judgment bears the

burden of demonstrating that no issues of material fact exist for trial.

Celotex Corp. v. Catrett (1986), 477 U.S. 317, 330, 106 S.Ct. 2548, 91

L.Ed.2d 265 (1986). The standard for granting summary judgment is

delineated in Dresher v. Burt (1996), 75 Ohio St.3d 280 at 293: " * * * a party

seeking summary judgment, on the ground that the nonmoving party cannot

prove its case, bears the initial burden of informing the trial court of the basis

for the motion, and identifying those portions of the record that demonstrate

the absence of a genuine issue of material fact on the essential element(s)

of the nonmoving party's claims. The moving party cannot discharge its

initial burden under Civ.R. 56 simply by making a conclusory assertion the

nonmoving party has no evidence to prove its case. Rather, the moving

party must be able to specifically point to some evidence of the type listed

in Civ.R. 56(C) which affirmatively demonstrates the nonmoving party has Delaware County, Case No. 21 CAE 06 0032 6

no evidence to support the nonmoving party's claims. If the moving party

fails to satisfy its initial burden, the motion for summary judgment must be

denied. However, if the moving party has satisfied its initial burden, the

nonmoving party then has a reciprocal burden outlined in Civ.R. 56(E) to

set forth specific facts showing there is a genuine issue for trial and, if the

nonmovant does not so respond, summary judgment, if appropriate, shall

be entered against the nonmoving party." The record on summary

judgment must be viewed in the light most favorable to the opposing party.

Williams v. First United Church of Christ (1974), 37 Ohio St.2d 150.

{¶ 15} It is with these standards in mind that we review the assignments of error.

I, III, IV

{¶ 16} In his first assignment of error, appellant claims the trial court erred in its

application of the statute of limitations to claims which were brought before the statute

had run.

{¶ 17} In his third assignment of error, appellant claims the trial court erred in

finding he did not provide proof of damages.

{¶ 18} In his fourth assignment of error, appellant claims the trial court erred in

assigning him the burden of proof instead of Vasila.

{¶ 19} In his complaint against Vasila, appellant alleged breach of fiduciary duties.

The applicable statute of limitations is four years, and the discovery rule does not apply

unless the claim is based on fraud. R.C. 2305.09(D); Caghan v. Caghan, 5th Dist. Stark

No. 2014 CA 00094, 2015-Ohio-1787, ¶ 45-46; Wells v. C.J. Mahan Construction Co., Delaware County, Case No. 21 CAE 06 0032 7

10th Dist. Franklin Nos. 05AP-180 & 05AP-183, 2006-Ohio-1831, ¶ 26-29; Cundall v. U.S.

Bank, 122 Ohio St.3d 188, 2009-Ohio-2523, 909 N.E.2d 1244, ¶ 24.

{¶ 20} In its May 28, 2021 judgment entry filed under seal, the trial court addressed

each of appellant's claims and found them to be barred by the statute of limitations. The

trial court also found appellant did not assert fraud in this case and in fact, was "aware of

the actions he contends constitute breaches of fiduciary duty." We find the trial court's

determination to be supported by the record. Razavi depo. at 16-18, 32-33, 44-56, 62-

63, 75-76, 80-83, 162-179, 185-189, 194-195, 219, 225-228, 237-241, 253-254. Any

claims prior to May 16, 2015, (pursuant to the parties' tolling agreement) are barred by

the statute of limitations. The next issue is whether any claims arose after said date.

{¶ 21} Appellant argues the trial court erred in finding his claims of excessive

compensation, excessive cash reserves, and the Florida condominium were barred by

the statute of limitations and could not be rescued "by simply contending that the breach

is ongoing." May 28, 2021 Judgment Entry at 7.

{¶ 22} Appellant was aware of Vasila's loan from Rubbertec for the condominium

purchase in 2008, and was aware that Vasila was repaying the loan as he was privy to

Rubbertec's financial statements. Razavi depo. at 169-179. We find the Florida

condominium purchase is outside the statute of limitations and was not an "ongoing

breach."

{¶ 23} Each year, Vasila receives a salary and Rubbertec holds funds for cash

reserves. We find appellant's claims for excessive compensation and excessive cash

reserves after May 16, 2015, survive the statute of limitations.

{¶ 24} However, in order to prove a claim for breach of fiduciary duty, appellant

must establish: "(1) the existence of a duty arising from a fiduciary relationship; (2) a Delaware County, Case No. 21 CAE 06 0032 8

failure to observe the duty; and (3) an injury resulting proximately therefrom." Harwood

v. Pappas & Associates, Inc., 8th Dist. Cuyahoga App. No. 84761, 2005-Ohio-2442, ¶ 26.

Accord Grossniklaus v. Waltman, 5th Dist. Holmes No. 09 CA 15, 2010-Ohio-2937.

{¶ 25} In its judgment entry, the trial court found appellant failed to prove "he or

Rubbertec suffered any harm." Appellant could not identify any damages and deferred

the issue to an expert he intended to hire. Razavi depo. at 116-117, 121-122. Appellant

agreed he could not identify any portion of Vasila's compensation that he believed to be

excessive, could not identify any portion of the cash reserves that he believed to be

excessive, could not identify any amount of dividends that he should have received, and

could not identify any specific damages to Rubbertec. Id. at 122.

{¶ 26} Appellant presented the deposition testimony of Dino Lucarelli, CPA, who

opined on the unreasonableness of Vasila's compensation and the high levels of cash

reserves, but could not quantify damages, could not quantify the extent to which appellant

was damaged due to the excessive compensation claim, was unable to provide an

opinion concerning the amount of appellant's damages, and did not have enough

information to opine on damages suffered by Rubbertec. Lucarelli depo. at 16-17, 84,

214, 230. When asked if the combined compensation of Vasila and Mr. Knore paid by

Rubbertec over the years was reasonable, Mr. Lucarelli opined it was reasonable.

Lucarelli depo. at 217.

{¶ 27} As noted by the trial court, "the record is bereft of any financial harm that

has been caused to Razavi as a result of Vasila's alleged actions." May 28, 2021

Judgment Entry at 14. Based on his original investment, appellant has received an

average annual return of over seventy percent since the mid-1990s. Mr. Lucarelli agreed

appellant made a very good return on his investment, and wished he had invested in the Delaware County, Case No. 21 CAE 06 0032 9

company. Lucarelli depo. at 76. When questioned on the issue of excessive cash

reserves, appellant agreed "everybody can have a different opinion" on an appropriate

range of cash reserves. Razavi depo. at 219. Appellant acknowledged if any portion of

the cash reserves were actually distributed to shareholders, Vasila, as majority

stockholder, would receive a substantial amount, and the value of all the shares would

decrease, including his own. Id. at 220-221.

{¶ 28} We concur with the trial court appellant has failed to prove any harm, an

essential element for a breach of fiduciary claim and therefore appellant's burden to

prove. Helfrich v. Strickland, 5th Dist. Licking No. 008 CA 101, 2009-Ohio-4828, ¶ 41.

{¶ 29} Upon review, we find the trial court's determination to be supported by the

record, and find no genuine issue of material fact to exist on the complained of issues.

{¶ 30} Assignment of Error I is granted in part, but does not affect the outcome of

the case. Assignments of Error III and IV are denied.

{¶ 31} In his second assignment of error, appellant claims the trial court erred in

converting Rubbertec's motion to dismiss to a motion for summary judgment without

providing him notice. We disagree.

{¶ 32} In support of his argument, appellant cites the case of Petrey v. Simon, 4

Ohio St.3d 154, 447 N.E.2d 1285 (1983). At paragraph one of the syllabus, the Petrey

court stated: "A court must notify all parties when it converts a motion to dismiss for failure

to state a claim into a motion for summary judgment." The Petrey court followed and

construed Civ.R. 12(B). However, Rubbertec filed its motion to dismiss under Civ.R. 23.1

which states in part: "The derivative action may not be maintained if it appears that the Delaware County, Case No. 21 CAE 06 0032 10

plaintiff does not fairly and adequately represent the interests of the shareholders similarly

situated in enforcing the right of the corporation."

{¶ 33} In his complaint at ¶ 22, appellant alleged he "will adequately and fairly

represent the shareholders similarly situated." After taking depositions, Rubbertec filed

its Civ.R. 23.1 motion to dismiss, arguing appellant did not "fairly and adequately"

represent the interests of Mr. Knore, the only "similarly situated" shareholder. In support,

Rubbertec cited testimony from several depositions filed in the case. Appellant's reply to

Rubbertec's motion also cited to deposition testimony. Clearly each party relied on

evidence outside the four corners of the complaint. Appellant cannot cite to deposition

testimony in support of his position and then complain the trial court treated Rubbertec's

motion as a motion for summary judgment. Appellant does not proffer what additional

evidence he would have presented on the issue had he had prior notification. We do not

find any prejudice to appellant.

{¶ 34} Upon review, we find the trial court did not err in converting Rubbertec's

motion to dismiss as a motion for summary judgment without providing appellant notice.

{¶ 35} Assignment of Error II is denied.

{¶ 36} In his fifth assignment of error, appellant claims the trial court erred in finding

he did not fairly and adequately represent the interest of all similarly situated

shareholders. We disagree.

{¶ 37} In its judgment entry, the trial court found "Vasila is plainly not similarly

situated to Razavi since Vasila is the target of Razavi's claims." The only other

shareholder is Mr. Knore. While both appellant and Mr. Knore are minority shareholders

and are similarly situated, to quote the trial court in its judgment entry at 17, "[i]t appears Delaware County, Case No. 21 CAE 06 0032 11

Knore shares quite literally none of the complaints made by Razavi." Knore depo. at 28,

31-32, 35, 38-39, 42-43, 53, 84. We agree with the trial court's finding, "Knore not only

acquiesced in Vasila's actions, but believes they were appropriate and vital to Rubbertec's

success." May 28, 2021 Judgment Entry at 18. The trial court concluded appellant "does

not fairly and adequately represent the interests of the only other similarly situated

shareholder." Based upon Mr. Knore's deposition testimony, we concur with the trial

court's conclusion.

{¶ 38} Upon review, we find the trial court's determination to be supported by the

record, and find no genuine issue of material fact exists on this issue.

{¶ 39} Assignment of Error V is denied.

{¶ 40} The judgment of the Court of Common Pleas of Delaware County, Ohio is

hereby affirmed.

By Wise, Earle, J.

Hoffman, P.J. and

Wise, John, J. concur.

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