Bender v. Logan

• Decision Date: 01 August 2016
• Docket Number: No. 14CA3677.,14CA3677.
• Citation: 2016 Ohio 5317,76 N.E.3d 336
• Parties: Trina L. BENDER, et al., Plaintiffs–Appellants, v. Julie A. LOGAN, et al., Defendants–Appellees.
• Court: Ohio Court of Appeals

76 N.E.3d 336

2016 Ohio 5317

Trina L. BENDER, et al., Plaintiffs–Appellants,

v.Julie A. LOGAN, et al., Defendants–Appellees.

No. 14CA3677.

Court of Appeals of Ohio, Fourth District, Scioto County.

Aug. 1, 2016.

James R. Cummins and Adam S. Brown, Cummins & Brown, LLC, Cincinnati, OH, for Appellants.

William A. Posey, Charles M. Miller, Sophia R. Jannace, Keating, Muething & Klekamp, PPL, Cincinnati, Ohio, and Stanley C. Bender, Portsmouth, OH, for Appellees Julie A. Logan, Scott D. Logan, Burg DMI, LLC, Julie A. Logan Revocable Trust, and Elite Institute, Inc.¹

Jason D. Winter and Holly Marie Wilson, Reminger Co., LPA, Cleveland, OH, for Appellee Joshua Howard.

ABELE, J.

{¶ 1} This is an appeal from a Scioto County Common Pleas Court summary judgment entered in favor of Julie A. Logan, Scott D. Logan, Burg DMI, LLC, the Julie A. Logan Revocable Trust, Elite Institute, Inc. (the Logan defendants), and Joshua Howard, defendants below and appellees herein. Trina L. Bender and Mark K. Bender, plaintiffs below and appellants herein, assign the following errors for review:

FIRST ASSIGNMENT OF ERROR:

"THE TRIAL COURT ABUSED ITS DISCRETION WHEN IT DENIED PLAINTIFF–APPELLANTS' MOTION TO STAY PENDING MOTIONS FOR SUMMARY JUDGMENT UNDER CIV.R. 56(F) AND MOTION TO ALLOW DISCOVERY."

SECOND ASSIGNMENT OF ERROR:

"THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT TO APPELLEES JULIE A. LOGAN, SCOTT D. LOGAN, BURG DMI, LLC, JULIE A. LOGAN REVOCABLE TRUST, ELITE INSTITUTE, INC. AND JOSHUA D. HOWARD."

IBACKGROUND

AFACTS

{¶ 2} This case arises out of an agreement among former friends to open a cosmetology school. Trina Bender and her friend, Julie Logan, decided to open a cosmetology school called Elite Institute. Julie and her husband, Scott, agreed to fund the corporation. Julie served as Elite's business manager and oversaw the finances. Trina used her knowledge as a cosmetologist to prepare the school for students and was a lead instructor. Trina's husband, Mark, provided labor to help oversee the renovations to the building that would house Elite and provided security for the school. Burg DMI (a Logan-owned entity) owned the building that would house Elite.

{¶ 3} The parties dispute many of the facts that surrounded the formation of Elite, including the alleged oral promises and representations.² According to Trina, she and Julie agreed that they would be equal partners with equal governance rights and that Elite would pay Trina and Mark each a $60,000 annual salary. According to the Logans, they did not agree to equally share control over Elite with Trina. Instead, the Logans believed that because they invested significant sums of money in Elite, and appellants invested none, the Logans would retain control of the corporation, while Julie and Trina would equally share any profits. The parties do not dispute that Joshua Howard, the Logans' attorney, prepared the corporate formation documents.

{¶ 4} In February 2011, appellants met with the Logans and signed various corporate documents, including a subscription to shares agreement that issued fifty class B shares to Trina, a stock certificate for class B nonvoting shares issued to Trina, and employment agreements. Julie was issued fifty shares of class A stock.

{¶ 5} Apparently, neither Trina nor Mark paid much attention to the documents that they signed. Indeed, Trina admits that she "signed papers * * * that ended up hurting me in the long run because I didn't read them." Appellants did, however, note that the employment agreements stated that each would be paid an annual salary of $30,000. Appellants informed the Logans that the parties had previously verbally agreed that each would be paid $60,000 per year. According to appellants, Scott told them that he would fix the discrepancy later. Appellants thus signed the employment agreements that indicated each would be paid $30,000 per year in reliance upon Scott's assurance that he would correct the salary figures. Appellants worked at Elite for the next several months and did not receive their verbally-promised $60,000 salaries. Nor did they receive the $30,000 salaries as provided for in the agreement that they signed. Mark eventually received approximately $4,000 as payment for some of his services.

{¶ 6} According to Julie, even though the parties had signed employment agreements that indicated that Trina and Mark each would be paid an annual salary, the parties mutually understood, through verbal discussions, that none of them would receive payment from Elite until the business became profitable. Julie stated that she had in essence forgotten about the employment agreements until appellants filed their complaint.

{¶ 7} According to the Logans, shortly before the school opened in May 2012 they realized that they would need to continue to fund the school for two years before the school could receive financial aid. Because they determined that they could not afford to fund the school if they received only half of the net operating loss, the Logans concluded that their options were to close the school or to have Julie hold all the equity. The Logans claim that they, along with Trina, decided to transfer Trina's class B shares to Julie's trust. Trina, however, denies that she verbally agreed to transfer her shares to the trust.

{¶ 8} According to Trina, in July 2012 Scott told Trina that he had paperwork for her to sign and described the paperwork as "nothing major." Trina visited Scott's house and he placed the paperwork in front of her. Trina claims that Scott showed her where to sign, but that he covered the contents of the documents. Trina signed the documents without reading them or questioning Scott about them, and jokingly asked Scott whether she was signing over her house and car. Scott replied that it was "just some paperwork." Because Trina did not read the documents, she failed to realize that this paperwork actually consisted of documents in which Trina sold her fifty percent stake in Elite to the trust and resigned from the corporation. The documents provided that the effective date of her action was December 31, 2011. Trina admits that she could have read the documents, but did not because she trusted Scott.

{¶ 9} Trina and Mark continued to work at Elite until the fall of 2012 when Trina received a phone call from Howard. Howard informed Trina that Julie wanted to dissolve the business, and offered Trina a sum of money to "walk away." Trina told Howard that she did not want to give up her "50% ownership and 50% control" of the corporation.

{¶ 10} On October 4, 2012, Trina received a letter from Howard that stated: "It has become apparent there are irreconcilable differences that have arisen between you and the corporation." The letter contained a written settlement offer and further advised Trina that if she refused to accept the offer, the corporation would be dissolved and she would be liable for one-half of the corporation's debt of approximately $500,000. The letter also informed Trina that she was relieved of all of her responsibilities and asked her not to return to the premises. Mark received a similar letter. Appellants did not sign the settlement agreements, but instead sought legal counsel.

{¶ 11} Eventually, Trina learned that the documents she signed in July 2012 transferred her shares to the trust and stated that she resigned from Elite. She also learned that the shares she had been issued when the parties initially formed the corporation were non-voting shares.

BFEDERAL COURT PROCEEDINGS

{¶ 12} Appellants filed a complaint against the Logan defendants in federal district court that contained a federal securities fraud claim and that also asserted state law claims for fraudulent inducement, unjust enrichment, conversion, civil conspiracy, and a claim to "pierce the corporate veil" so as to hold Julie personally liable to appellants.

{¶ 13} The Logan defendants requested summary judgment, and the district court granted their motion as it related to the federal securities claim. The court determined that Trina was not justified in relying upon any alleged misrepresentations in connection with the purchase or sale of securities. Bender v. Logan, S.D.Ohio No. 1:12–CV–956, 2014 WL 2515402 (June 3, 2014). The court noted that Trina admitted that she signed the documents without reading them, and that if she had read them, she would have noticed that two classes of stock were issued. The district court found that "the documents plainly disclosed that there were two classes of stock, and that Julie was receiving a different class than Trina." Id. at *12. With respect to the documents that sold her shares to the trust and Trina's allegation that Scott covered the content of the documents and simply pointed where to sign, the court noted that Trina did not claim that Scott prevented her from reading the documents or that she asked any questions about the documents. The court found that the "documents were not complex. If she had read them, the Court has no doubt she would have understood what they said." Id. The court further determined that Trina failed to establish that she suffered a loss as a result of any alleged misrepresentation in connection with the purchase or sale of securities. Thus, the district court (1) entered summary judgment in the Logan defendants' favor regarding appellants' federal securities fraud claim, and (2) dismissed the state law claims without prejudice.

{¶ 14} While this appeal was pending, the United States Court of Appeals for the Sixth Circuit affirmed the district court's decision that granted the Logan defendants summary judgment regarding appellants' federal securities claim. Bender v. Logan, 608 Fed.Appx. 356 (6th Cir.2015). The Sixth Circuit concluded that Trina did not justifiably rely on the Logans' alleged misrepresentations in connection with the sale of securities and that Trina's failure to read the documents that she signed rendered any reliance she placed upon the Logans' verbal...