Miller v. Miller

• Decision Date: 03 July 2012
• Docket Number: No. 2011–0024.,2011–0024.
• Citation: 973 N.E.2d 228,2012 -Ohio- 2928,132 Ohio St.3d 424
• Parties: MILLER et al., Appellees, v. MILLER, Appellant.
• Court: Ohio Supreme Court

132 Ohio St.3d 424

973 N.E.2d 228

2012 -Ohio- 2928

MILLER et al., Appellees,

v.MILLER, Appellant.

No. 2011–0024.

Supreme Court of Ohio.

Submitted Nov. 2, 2011.

Decided July 3, 2012.

[Ohio St.3d 424]Syllabus of the Court

1. A corporation cannot avoid its duty to advance expenses to a director under R.C. 1701.13(E)(5)(a) by claiming that the director's alleged misconduct, if proven, would amount to a violation of his or her fiduciary duties and would therefore foreclose indemnification.

2. When a corporation has received from a director the undertaking described in R.C. 1701.13(E)(5)(a), the corporation is required to advance expenses to the director unless the corporation's articles or regulations specifically state that R.C. 1701.13(E) does not apply to the corporation.

Tucker Ellis, L.L.P., Irene C. Keyse–Walker, Harry D. Cornett, and Benjamin C. Sassé, Cleveland; Comstock, Springer & Wilson Co., L.P.A., Marshall D. Buck, and Megan M. Graff, Youngstown; and Charles L. Richards, Warren, for appellees.

Ulmer & Berne, L.L.P., Marvin L. Karp, Michael N. Ungar, Lawrence D. Pollack, and Brad A. Sobolewski, Cleveland, for appellant.

Eugene P. Whetzel; and Jones Day, Chad A. Readler, Columbus, Lyle G. Ganske, Jeanne M. Rickert, Louis A. Chaiten, Cleveland, and Amanda R. Parker, urging reversal for amicus curiae, Ohio State Bar Association.

O'CONNOR, C.J.

{¶ 1} In this appeal, we decide whether appellant Samuel M. Miller is entitled to the advancement of expenses from Trumbull Industries, Inc. pursuant to [Ohio St.3d 425]R.C. 1701.13(E)(5)(a), which governs the advancement of litigation expenses by a corporation to one of its directors. For the reasons set forth below, we hold that appellant Miller is entitled to the advancement of expenses. Accordingly, we reverse the judgment of the court of appeals and remand the cause.

Relevant Background

Facts

{¶ 2} Plaintiff-appellee Trumbull Industries, Inc. (“Trumbull”) is an Ohio corporation that sells plumbing supplies. Plaintiff-appellees Murray A. Miller and Samuel H. Miller (“Sam H.”) are shareholders of Trumbull. Defendant-appellant Samuel M. Miller (“Sam M.”) is also a shareholder of Trumbull. Sam M. is the sole trustee of the Samuel M. Miller Revocable Living Trust, which owns 25 percent of the outstanding voting shares of Trumbull. Sam M. is also vice president of sales and marketing and serves as Trumbull's plumbing-products manager.

{¶ 3} Daniel R. Umbs is the former chief executive officer and president of Briggs Plumbing Products, Inc., a supplier to Trumbull. In early 2002, Briggs entered into a contract to supply plumbing products to Jacuzzi, Inc. Later in 2002, Umbs, acting either alone or in concert with Sam M., negotiated a contract to sell plumbing products to Jacuzzi on terms more favorable than those in the contract between Briggs and Jacuzzi.

{¶ 4} Sometime during 2002, and without informing appellees, Sam M. became involved with Umbs in his efforts to sell plumbing products to Jacuzzi. On December 4, 2002, Sam M. sent a memorandum to appellees and shareholders of Trumbull, informing them of a business opportunity involving a company that would market private-brand plumbing products for sale to manufacturers and possibly other wholesalers, including Jacuzzi. Sam M. called this business opportunity the “Brand Company Project.”

{¶ 5} Appellees immediately objected to Sam M.'s involvement and demanded that he cease and desist. According to appellees, Sam M. did not comply with the demand to cease and desist and has continuedto work with Umbs in the Brand Company Project.

Procedural history

{¶ 6} In February 2003, Murray and Sam H., individually and as shareholders, directors, and/or officers of Trumbull, filed a complaint for injunctive relief and damages against Sam M. and Umbs.

{¶ 7} On September 26, 2005, Sam M. sent a memorandum to Murray and Sam H., informing them that he had reimbursed himself for his legal expenses. In support of his right to reimbursement, he attached a copy of his September 13, [Ohio St.3d 426]2005 “undertaking” executed pursuant to R.C. 1701.13(E)(5)(a). The undertaking stated that it had been entered into by Sam M. “pursuant to Ohio Revised Code Section 1701.13(E)(5)(a).” The undertaking also incorporated statutory language requiring repayment of any amounts paid to a director if the director's act or omission was committed with a deliberate intent to injure or with reckless disregard for the corporation's best interests and further requiring reasonable cooperation with the corporation in the suit or proceeding. See R.C. 1701.13(E)(5)(a)(i) and (ii). The undertaking also expressly provided that Sam M. agreed to abide by those subsections.

{¶ 8} On December 15, 2006, both sides moved for declaratory judgment on the issue of Sam M.'s right to indemnification of attorney fees. Appellees argued that “Trumbull Industries should not be required to pay, much less advance,” legal fees to Sam M. They also argued that Sam M. “acting without the knowledge or authority of Trumbull Industries, Inc. removed from the company vault some eleven company checks” and used them to pay attorney fees to the law firm Manchester, Bennett, Powers & Ullman in the amounts of $171,497.30 and $49,900 and to the law firm Guarnieri & Secrest in the amount of $98,693.75. They asserted that even if Sam M. were entitled to indemnification, which appellees deny, much of the funds were incorrectly used to pay attorney fees and expenses for Umbs, Private Brand Organization, L.L.C., and United States Private Brand Company, Inc., who are not directors of Trumbull. Thus, appellees argued, the trial court should order Sam M. to return the funds that were wrongfully taken from Trumbull or, in the alternative, order the return of any fees not associated with the defense of Sam M.

{¶ 9} On January 22, 2007, the trial court issued an opinion regarding the parties' cross-motions for declaratory judgment on the issue of indemnification for attorney fees. The trial court ordered Sam M. to reimburse Trumbull in the amount of $240,068.29. That amount represented “seventy-five per cent of the aggregate sum of $320,091.05,” which, appellees allege, is the total amount that Sam M. wrongfully took from Trumbull and paid to the two law firms. The trial court “determined tentatively that of the total moneys advanced for the payment of the defendants' fees to date, 25% is attributable to the defense of [Sam M.], since there are four defendants in this case.” The trial court also ordered that Sam M. “is entitled to have his, and only his, attorneys' fees reimbursed from time to time by [Trumbull], subject, however, to his reimbursement obligations under the corporate charter.” (Emphasis sic.)

{¶ 10} On February 6, 2007, Sam M. filed a motion for reconsideration and request for clarification of the trial court's January 22, 2007 judgment entry. Sam M. argued that the trial court's order requiring him to repay 75 percent of the defense fees incorrectly assumed that 25 percent of the total defense costs [Ohio St.3d 427]can be attributed to each of the four defendants. The legal invoices, he contended, prove that 99.9 percent of the legal fees are solely attributable to him. He also argued that by executing the September 13, 2005 undertaking, he has “already agreed, in writing, to repay any fees to which he is not entitled at the end of this litigation.” The trial court denied this motion on May 18, 2007.

{¶ 11} From that judgment, Sam M. filed an appeal with the Eleventh District Court of Appeals, which was dismissed for lack of a final, appealable order. Miller v. Miller, 11th Dist. No. 2007–T–0065, 2007-Ohio-5212, 2007 WL 2822611.

{¶ 12} After both sides requested clarification regarding the trial court's January 22, 2007 judgment entry, on June 30, 2008, the trial court ordered that “as of March 25, 2008, Ulmer & Berne LLP only represents the interests of Sam M.,” and “all of Ulmer & Berne's fees and costs incurred beginning on March 25, 2008, shall be promptly paid by Trumbull * * *.” The trial court also ordered that all of Sam M.'s attorney fees “incurred before March 25, 2008 shall be paid in accordance with the January 22, 2007 Order.”

{¶ 13} On July 24, 2008, Sam M. moved for an order requiring Trumbull to pay his counsel or, in the alternative, for an order requiring appellees to show cause why they should not be held in contempt for refusing to abide by the court's June 30, 2008 order.

{¶ 14} On the same day, Sam M. again moved the court to reconsider or to clarify its January 22, 2007 order as it applies to $240,000 that he was required to reimburse to Trumbull and his legal expenses owed to the law firm Ulmer & Berne through March 24, 2008. Sam M. argued that “99% of all fees relate to [himself] because this suit is solely the result of [Sam M.'s] role as an officer and director of Trumbull.” Furthermore, Sam M.'s counsel stated in the motion that “85% [of] the attorneys' fees incurred from February 1, 2008 (when Ulmer & Berne's representation of [Sam M.] began) through March 24, 2008 were devoted to issues related solely to [Sam M.]”

{¶ 15} The trial court held a hearing and on July 24, 2008, found Trumbull in contempt of its January 22, 2007 judgment. The trial court allowed Trumbull to purge itself of contempt by paying all amounts due for the legal bills incurred on behalf of Sam M. in the amount of $138,972.51 by 3:00 p.m. that day. In the event that Trumbull failed to purge itself of contempt by the specified date and time, the trial court would impose a sanction against Trumbull in the amount of $5 per business day commencing July 25, 2008.

{¶ 16} Appellees appealed the trial court's July 24, 2008 judgment entry to the Eleventh District. The Eleventh District again dismissed the appeal for lack of a final, appealable order because there was no finding by the trial court that the contemnor had failed to purge itself and no actual imposition of a penalty or ...