New Destiny Treatment Ctr. Inc. v. Wheeler

• Decision Date: 18 May 2011
• Docket Number: No. 2010–0298.,2010–0298.
• Citation: 129 Ohio St.3d 39,950 N.E.2d 157
• Parties: NEW DESTINY TREATMENT CENTER, INC., et al., Appellees,v.WHEELER et al., Appellants.
• Court: Ohio Supreme Court

129 Ohio St.3d 39

950 N.E.2d 157

2011 -Ohio- 2266

NEW DESTINY TREATMENT CENTER, INC., et al., Appellees,

v.WHEELER et al., Appellants.

No. 2010–0298.

Supreme Court of Ohio.

Submitted Feb. 15, 2011.Decided May 18, 2011.

Gibson & Lowry, Michael J. Moran, and Kenneth L. Gibson, Cuyahoga Falls, for appellee New Destiny Treatment Center, Inc.Gallagher Sharp, Alan M. Petrov, Timothy J. Fitzgerald, Jay Clinton Rice, and Theresa A. Richthammer, Cleveland, for appellant Roderick Linton, L.L.P.Reminger Co., L.P.A., Brian D. Sullivan, Martin T. Galvin, and John P. O'Neil, Cleveland, for appellant E. Marie Wheeler.O'DONNELL, Judge.

[Ohio St.3d 39] {¶ 1} Attorney E. Marie Wheeler and the law firm of Roderick Linton, L.L.P., appeal from a decision of the Ninth District Court of Appeals reversing a grant of summary judgment entered in their favor in a legal malpractice action brought against them by New Destiny Treatment Center, Inc., and Christian Brotherhood Newsletter, both nonprofit corporations and successors to the Barberton Rescue Mission, Inc. The malpractice case arose from the representation of a dissident member of the board of trustees who tried to regain control of the corporation. The issue that concerns us in this case is whether attorneys who were retained by a dissident member of a nonprofit corporation's board of trustees, and who assisted the dissident in temporarily taking control of the corporation, may subsequently be sued by the corporation for malpractice. The answer is no, because no attorney-client relationship existed between the attorney and the corporation.

{¶ 2} Here, Wheeler and the law firm of Roderick Linton represented only the dissident trustee and took action on behalf of the corporation as instructed by the dissident. No attorney-client relationship ever existed between the corporation and the attorney or the law firm. Therefore, there is no basis for the corporation to maintain a cause of action for legal malpractice against either. Accordingly, we reverse the judgment of the court of appeals and reinstate the grant of summary judgment entered in favor of Wheeler and the law firm of Roderick Linton.

Facts and Procedural History

{¶ 3} New Destiny Treatment Center, Inc., is a nonprofit corporation located in Barberton, Ohio. New Destiny and the Christian Brotherhood Newsletter were originally organized as a single nonprofit corporation known as the Barberton [Ohio St.3d 40] Rescue Mission, Inc., which operated a rehabilitation facility for people with substance abuse problems and provided a mutual aid program to assist those who subscribed to its Christian newsletter in paying their uninsured medical expenses.

{¶ 4} In the late 1990s, the Internal Revenue Service, the Ohio attorney general, and the Summit County prosecuting attorney began investigating whether Reverend Bruce Hawthorn, the founder and president of the Mission, had abused the Mission's tax-exempt status by diverting funds designated for a charitable purpose to his personal use and the use of friends and relatives.

{¶ 5} Once he became aware of these investigations, Hawthorn invited Reverend Howard Russell and Reverend Richard Lupton to join the Mission's board of trustees in 1999 to make it appear that the Mission had an independent, rather than a family, board. Russell became chairman and Lupton became secretary of the board, and they discovered that the Mission had fallen as much as $ 35 to 40 million behind in paying its subscriber's medical bills, even though the newsletter generated $ 3 to 4 million per month in charitable contributions. The board retained the law firm of Vorys, Sater, Seymour & Pease, L.L.P., as legal counsel in response to the investigations of the Mission's tax-exempt status and of Hawthorn's alleged misuse of charitable funds.

{¶ 6} When a majority of the members of the board of trustees became concerned that Hawthorn's leadership threatened the continued existence of the ministry, the board placed Hawthorn on a six-month leave of absence from his position controlling the daily activities of the ministry. It appointed Dan Beers, Hawthorn's nephew, as executive director of the Mission and assigned Hawthorn's duties to him; the minutes of a board meeting reflect that Beers resigned his position as a member of the board of trustees when he became executive director. The board eventually replaced Beers with an interim CEO and a management team.

{¶ 7} When Hawthorn began to reassert control over the Mission, members of the board of trustees determined that the best interests of the organization required his removal as president. While divided on this issue, the board in November 2000 extended Hawthorn's leave of absence indefinitely, and Russell and Lupton, at least, believed that this leave relieved him of all executive authority.

{¶ 8} Russell scheduled a meeting of the board of trustees for December 4, 2000, to discuss the attorney general's investigation, to remove Hawthorn and his brother-in-law, Ron Beers, from the board, and to force Hawthorn to retire.

{¶ 9} Hawthorn then retained Wheeler and the law firm of Roderick Linton to ensure that he retained control of the board. He scheduled a board meeting on December 4, earlier in the day than the one scheduled by the board. Wheeler prepared a special meeting agenda for the earlier meeting that included removing [Ohio St.3d 41] Russell from the board and retaining Roderick Linton as counsel for the Mission. Because neither faction could assemble a quorum, neither succeeded in removing the other from the board.

{¶ 10} On December 6, 2000, Hawthorn changed the locks on the Mission's building, fired the board-appointed management team, and announced to employees that he had control of the organization. When Russell, who had been informed of Hawthorn's actions, arrived at the building, Hawthorn purported to remove him from the board, and Wheeler ordered Russell to leave the premises.

{¶ 11} Hawthorn then scheduled a teleconference meeting of the board for December 11, 2000. Although Russell and Lupton were both given notice of the meeting and planned at that time to seek removal of Hawthorn and Ron Beers from the board, neither was permitted to participate.

{¶ 12} At the meeting, Hawthorn and the board members present claimed that Dan Beers had not resigned from the board but rather had returned from a leave of absence as a trustee, found that a quorum existed, and thus purported to remove Russell and Lupton from the board and elect a new slate of trustees more favorable to Hawthorn. Hawthorn also informed the board that he had retained Wheeler on behalf of the Mission.

{¶ 13} That same day, the attorney general, Russell, and Lupton brought an action in the name of the Mission against Hawthorn and others to recover funds misappropriated from the organization. Wheeler filed a notice to voluntarily dismiss the action on behalf of the Mission. Importantly, the attorney general, Russell, and Lupton moved to strike the notice and asserted that Wheeler and another Roderick Linton attorney represented only Hawthorn and the other defendants, but were “ not attorneys for Plaintiff Barberton Rescue Mission, Inc., nor [was] there any way they conceivably could be.” (Emphasis sic.)

{¶ 14} On December 22, 2000, the attorney general, Russell, and Lupton filed a separate action on behalf of the Mission in the Ninth District Court of Appeals seeking a writ of quo warranto to restore Russell and Lupton as members of the Mission's board of trustees. They alleged that Hawthorn had usurped control over the Mission and operated it without corporate authority to do so.

{¶ 15} Wheeler subsequently ended her association with Roderick Linton in February 2001, and in April 2001, the common pleas court appointed R. Scott Haley as operating receiver for the Mission. Although neither Russell nor Lupton acknowledged Wheeler's authority to represent the Mission, Haley formally terminated her as counsel for the Mission. She continued to represent Hawthorn in the court matter, however, until she withdrew in August 2001. The common pleas court litigation proceeded with new defense counsel and resulted in a $2,950,000 jury verdict against Hawthorn.

[Ohio St.3d 42] {¶ 16} On October 3, 2001, the court of appeals entered a summary judgment in the quo warranto action in favor of the attorney general, finding that Dan Beers had not taken a leave of absence from the board of trustees but had resigned from that position. The court therefore determined that the December 11, 2000 meeting, during which Hawthorn had attempted to oust Russell and Lupton from the board of trustees, was invalid for lack of a quorum, and it further held that “[b]ecause the meeting was invalid, any and all actions taken at that meeting [were] void.” State ex rel. Montgomery v. Hawthorn (Oct. 3, 2001), Summit App. No. 20391, 2001 WL 1169559.

{¶ 17} New Destiny then filed this legal malpractice action against Wheeler and Roderick Linton, asserting that they had breached their obligations as attorneys and had negligently represented that a quorum had been present at the December 11, 2001 meeting, which allowed Russell and Lupton to be removed from the board and left Hawthorn in control of the Mission.

{¶ 18} The trial court entered summary judgment in favor of Wheeler and Roderick Linton, concluding that no genuine issue of material fact existed regarding whether the attorneys had entered into an attorney-client relationship with the Mission. As the court explained, “[t]he facts of this case do not provide for a legal malpractice cause of action because there was never an attorney-client relationship between Defendants and Plaintiffs. In fact, the opposite is true: the current parties had an adversarial relationship * * *. The factions had separate interests, separate Boards, and separate attorneys.”

{¶ 19} The court of appeals reversed the trial court on the issue of the existence of an...