548 N.E.2d 217 (Ohio 1989), 88-1516, Crosby v. Beam

Docket Nº:88-1516.
Citation:548 N.E.2d 217, 47 Ohio St.3d 105
Opinion Judge:JAMES A. BROGAN, J., of the Second Appellate District, sitting for RESNICK, J. DOUGLAS, J.
Party Name:CROSBY et al., Appellees, v. BEAM et al., Appellants.
Attorney:David R. Pheils, Jr. & Associates and David R. Pheils, Jr., Perrysburg, for appellees. David R. Pheils, Jr. & Associates and David R. Pheils, Jr., for appellees., Cooper, Straub, Walinski & Cramer, Keith A. Wilkowski and John L. Straub, for appellants., Murray & Murray Co., L.P.A., Dennis S. Murr...
Judge Panel:MOYER, C.J., and SWEENEY, HOLMES, HERBERT R. BROWN and JAMES A. BROGAN, JJ., concur. WRIGHT, J., concurs in part and dissents in part. WRIGHT, Justice, concurring in part and dissenting in part.
Case Date:December 20, 1989
Court:Supreme Court of Ohio
 
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Page 217

548 N.E.2d 217 (Ohio 1989)

47 Ohio St.3d 105

CROSBY et al., Appellees,

v.

BEAM et al., Appellants.

No. 88-1516.

Supreme Court of Ohio.

December 20, 1989

Page 218

Submitted Oct. 11, 1989.

Syllabus by the Court

1. Typically, a close corporation is a corporation with a few shareholders and whose corporate shares are not generally traded on a securities market.

2. Where majority or controlling shareholders in a close corporation breach their heightened fiduciary duty to minority shareholders by utilizing their majority control of the corporation to their own advantage, without providing minority shareholders with an equal opportunity to benefit, such breach, absent any legitimate business purpose, is actionable.

3. 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.

On October 23, 1986, appellees, Howard F. (Dean) Crosby ("Crosby") and Christian Caring Center, The Church of Holy Light ("Church"), filed an amended complaint in the Court of Common Pleas of Lucas County. The record indicates that Seascape Building Company, Inc. ("Seascape") was, between April 30, 1977 and January 29, 1985, an Ohio corporation; that Crosby was a 26.214 percent shareholder in Seascape from April 30, 1977 until September 14, 1984; that in September 1984, Crosby transferred his shares of stock to the Church; that the Church held the shares in Seascape until January 29, 1985 when Seascape was voluntarily dissolved; and that upon dissolution, all corporate assets were transferred to the Crosby Properties Liquidating Trust ("the Trust") and each shareholder of Seascape [47 Ohio St.3d 106] stock became a beneficiary of the Trust in percentages identical to his interest in Seascape.

Appellees brought this action against appellants, Kenneth and Sally Beam and Gary and Sue Graves, who were the controlling shareholders, officers and directors of Seascape. Appellees alleged that appellants improperly expended corporate funds in that appellants: paid themselves unreasonable salaries (Count 1); caused Seascape to pay their personal expenses (Count 2); used Seascape's property for personal enterprise (Count 3); caused Seascape to purchase life insurance for their benefit (Count 4); and took improper, low-interest loans from Seascape, thereby depriving the corporation of interest income (Count 5). Count 6 alleged that the Church received less in Trust payments than the amount to which it was entitled. Appellees' final count, Count 7, alleged that all the foregoing acts of corporate wrongdoing were carried out pursuant to a conspiracy between the appellants. Appellees also claimed to have been deprived of $215,600 in distributions from the Trust and to have incurred more than $50,000 in attorney fees. Jointly, appellees sought $275,000 in compensatory damages and $200,000 in punitive damages.

Appellants filed a Civ.R. 12(B)(6) motion to dismiss the complaint for failure to state a claim. Appellants argued that appellees' action could only be brought as a Civ.R. 23.1 shareholder's derivative action. Appellants contended that appellees did not have standing to bring a shareholder's derivative action because Crosby did not own Seascape stock when this action was commenced and the Church could not assert claims which occurred prior to its acquisition of Seascape stock.

On May 13, 1987, the trial court granted the appellants' motion to dismiss Counts 1 through 5 and Count 7 of appellees' amended complaint. The trial court found that the claims of the appellees affected the corporation itself and that the shareholders were affected only in a general way. Hence, the appellees should have instituted a shareholder's derivative action since the appellees lacked standing to proceed individually. The trial court also noted that one shareholder, Toledo Trust, was not a

Page 219

party to the action and agreed with appellants that Crosby lacked standing to pursue a shareholder's derivative action since Crosby did not own any stock when the action was commenced and the Church could not assert any claims prior to obtaining the stock on September 14, 1984.

Furthermore, the trial court found no merit in the appellees' argument that they should be permitted to proceed individually against the appellants for breach of fiduciary duty owed by majority shareholders to minority shareholders. The trial court found that the alleged acts of appellants did not destroy the appellees' investment for the appellants' benefit. Also, the trial court found that appellants' alleged acts did not produce special damages peculiar to the appellees.

On July 8, 1988, the court of appeals, in reversing the common pleas court, held that the appellees were asserting their claims personally, so compliance with Civ.R. 23.1 was not required. The court of appeals found that appellees' complaint stated a cause of action and the trial court had improperly dismissed appellees' complaint.

The cause is now before this court pursuant to the allowance of a motion to certify the record. [47 Ohio St.3d 107]

David R. Pheils, Jr. & Associates and David R. Pheils, Jr., Perrysburg, for appellees.

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