Omega Riggers & Erectors, Inc. v. Koverman

• Decision Date: 13 May 2016
• Docket Number: No. 26590.,26590.
• Citation: 65 N.E.3d 210
• Parties: OMEGA RIGGERS AND ERECTORS, INC., et al., Plaintiffs–Appellants v. John R. KOVERMAN, et al., Defendants–Appellees.
• Court: Ohio Court of Appeals

65 N.E.3d 210

OMEGA RIGGERS AND ERECTORS, INC., et al., Plaintiffs–Appellants

v.John R. KOVERMAN, et al., Defendants–Appellees.

No. 26590.

Court of Appeals of Ohio, Second District, Montgomery County.

May 13, 2016.

James M. Hill, Beavercreek, OH, for plaintiffs-appellants.

Neil F. Freund, Lindsay M. Johnson, Dayton, OH, for defendants-appellees.

OPINION

HALL, J.

{¶ 1} Plaintiffs-appellants, Michael Cotter and Al Anthony, shareholders of Omega Riggers & Erectors, Inc. and Hevi– Duty, Inc., appeal from a summary judgment rendered against them on their individual claims for legal malpractice against the corporate attorney. The plaintiffs contend that genuine issues of material fact preclude summary judgment, and request a remand for a trial on the merits. Defendants-appellees John Koverman and Koverman & Smith (hereinafter collectively referred to as Koverman) assert that the trial court properly rendered summary judgment.

{¶ 2} The plaintiffs assert that the trial court erred by finding that Cotter and Anthony, who were at relevant times minority shareholders, were not in privity with the corporations, by finding no genuine issue of fact as to whether Koverman acted with malice, and by finding no genuine issue of material fact as to whether Cotter suffered an injury different than other shareholders. We conclude that the trial court did not err by finding that Cotter and Anthony, as minority shareholders, were not in privity with Koverman's corporate clients. We also conclude that there are no genuine issues of material fact which would preclude summary judgment on the issues of malice and damages.

I. Washington Assets Sold without Minority Shareholder Cotter's Approval

{¶ 3} Omega was engaged in the business of industrial machinery moving. The allied company, Hevi–Duty, was a rigging and moving equipment company that leased equipment to Omega. Both companies were closely held corporations, with their corporate headquarters in Dayton, Ohio. In 1991, they began doing work in the State of Washington and Cotter, who had worked for Omega from at least the middle 1980's, eventually moved from Dayton to the Seattle area and ran the West Coast operation. In 2000, Cotter and Anthony, a Seattle businessman who did not work for Omega, each purchased 24.5% of the shares of Omega and 25% of the shares of Hevi–Duty. The remaining shares were owned by Donald Foreman. The shareholders all executed written Close Corporation Agreements for both Hevi–Duty and Omega, in which Foreman, Cotter, and Anthony were named as officers and directors of both corporations. In both agreements, Foreman was named President of the corporation and Cotter was named Vice–President. In both agreements, Foreman is designated as an employee of the corporation, with the right to certain benefits.

{¶ 4} In early 2003, Foreman began discussions with an independent broker about selling the assets of the Washington division. Koverman provided legal representation to Omega and Hevi–Duty during the negotiations for the sale of the Washington division assets to Morgan Industrial, a Washington competitor. Cotter and Anthony assert, but Koverman denies, that Koverman also represented the personal interests of the majority shareholder, Foreman, during the sale process. The dispute over the sale of the Washington division was submitted to arbitration pursuant to the terms of the close corporation agreements. Depositions taken in that proceeding were submitted or referred to by all parties without objection. Depositions taken in the current litigation were also submitted. Koverman and Foreman testified that since the mid–1990's Koverman had been retained by Foreman to provide legal services to the corporation and to Foreman, personally. In his affidavit filed in support of the motion for summary judgment, Koverman avers that he never acted as Foreman's personal lawyer. Cotter retained and utilized his own lawyers for his personal negotiations to individually purchase the assets of the Washington division.

{¶ 5} In his deposition, Koverman testified that, at the buyer's request, the broker did not initially disclose the identity of the potential buyer, but that Cotter and Anthony were informed that there was an interested buyer shortly after Koverman received his first letter from Morgan in late February. Cotter claims he did not learn the identity of the buyer or the terms of the buyer's offer until late July, because Koverman insisted that the buyer was requiring confidentiality. Koverman admitted that he wrote a confidentiality agreement and that it was designed to protect Omega's proprietary information and had no terms protecting the buyer's identity or the terms of their offer. Koverman claims that he told Cotter that Omega would provide him with all the same information provided to the potential buyer, that he advised Foreman that they had to tell Cotter about the offer, and that he advised the company's treasurer, Si Page, that they had to provide Cotter with the same financial records given to Morgan. Koverman admitted that he knew Cotter would be interested in making his own offer to buy the assets, and claimed that he told Cotter to get his offer together in March. A fax record established that financial records were sent to Morgan on March 11, 2003, and were sent to Cotter on April 7, 2003. Cotter claims that Koverman did not provide him with enough information to make a competitive offer, because he was not given information about an appraisal of the assets and was not told that the offer included the equipment, the customer lists, and a non-compete agreement. Cotter explained in his deposition that Koverman's failure to give him any details about the Morgan offer led him to believe that it was a bogus or sham offer, which did not need to be taken seriously. Koverman admitted that he did not discuss with Cotter that Morgan wanted to have all shareholders sign a non-compete agreement, because he knew Cotter would not sign it. Koverman also admitted that he was concerned that Cotter would try to "kill the deal" by refusing to sign a non-compete and by trying to buy the assets himself.

{¶ 6} On July 11, 2003, Cotter sent a letter of intent to make an offer to Koverman and Foreman, through his personal Washington attorney, offering to purchase the hard assets for $1.2 million, which he thought was the same price offered by Morgan. Cotter's offer did not include any down payment; he would pay Omega $50,000 per year, with a balloon payment after five years. Koverman admitted that he rejected Cotter's offer and told Foreman the offer was illusory, but could not identify who told Cotter that it was unacceptable. Cotter testified that Koverman did not tell him why the offer was unacceptable, and he had no way to know what was lacking. Koverman admits that when negotiating with Morgan, they rejected offers with any contingencies, because they wanted finality to the sale, and they gave Morgan time to obtain financing. Cotter's offer was also contingent upon financing, but he was not told that was the reason for its rejection, and was not given any additional time to secure his financing.

{¶ 7} According to Koverman, the reasons for selling the Washington division assets were because the Washington division was losing money, the warehouse lease was too expensive, and it was too expensive to move the equipment back to Dayton. A letter from the treasurer, Page, to Morgan indicated that they needed to complete the sale quickly because the warehouse lease was expiring. Koverman admitted that before the sale was finalized, he was able to negotiate acceptable terms for an extension of the warehouse lease.

Cotter testified that the Washington division was financially successful, and that he was not given any opportunity to discuss the financial issues before the sale was approved.

{¶ 8} A meeting of the Omega Board of Directors to discuss the sale of the assets was held on July 25, 2003. At that meeting, Cotter offered a different and more detailed purchase agreement, offering to buy all the fixed assets of both the Ohio and Washington divisions of Omega for $2.4 million, subject to an appraisal, in which case the price could rise to $2.6 million. The offer was subject to financing through Oak Hills Bank, and the purchase price was to be paid in full at closing within 30 days. At the meeting, Cotter brought in an investor, who offered to guarantee the loan, and offered assurance, as a past board member of Oak Hills Bank, that Cotter's loan would be approved. At this meeting, Cotter first learned that Morgan's offer had been reduced to only $700,000 for the Washington division assets, and $100,000 for a non-compete agreement, subject to financing that would be obtained by the end of the month. Cotter objected, claiming that the Board did not have proper authority to act, because notice of the meeting was defective, so it was agreed to reschedule the meeting. At that initial meeting, Cotter was given a copy of a memo drafted by Koverman, apparently prepared in anticipation of approval of the sale. The memo indicated that if the sale of the Washington division was approved at the meeting, Cotter was to turn in his company truck, credit cards, and cell phone, to not have any contact with the Washington division employees or customers, and to not represent himself as an agent of Omega. After the July meeting, Cotter returned to Washington and discovered that he was locked out of his office, his credit cards were cancelled, and the cell-phone account was terminated.

{¶ 9} On July 30, 2003, Cotter filed a lawsuit in Montgomery County Ohio Common Pleas Court seeking a temporary restraining order to stop the sale to Morgan. On July 31, 2003, a temporary restraining order was issued stopping the sale at that time but the order acknowledged, and did not prevent, a second board meeting, with more appropriate notice, which was to be held on August 4, 2003. The order scheduled a court hearing...