Reister v. Gardner

• Decision Date: 03 December 2020
• Docket Number: No. 2019-1815,2019-1815
• Parties: REISTER, Receiver, Appellant, v. GARDNER et al., Appellees; ClarkWestern Dietrich Building Systems, L.L.C., d.b.a. ClarkDietrich, Appellant.
• Court: Ohio Supreme Court

164 Ohio St.3d 546

174 N.E.3d 713

REISTER, Receiver, Appellant,

v.GARDNER et al., Appellees;

ClarkWestern Dietrich Building Systems, L.L.C., d.b.a. ClarkDietrich, Appellant.

No. 2019-1815

Supreme Court of Ohio.

Submitted August 5, 2020

Decided December 3, 2020.

Helmer, Martins, Rice & Popham Co., L.P.A., James B. Helmer Jr., Robert M. Rice, Jennifer L. Lambert, and B. Nathaniel Garrett; and Millikin & Fitton Law Firm, Steven A. Tooman, and Heather Sanderson Lewis, for appellant John J. Reister.

Frost Brown Todd, L.L.C., and Mathew C. Blickensderfer ; and Cohen & Grigsby, P.C., Anthony M. Cillo, and Fridrikh V. Shrayber, for appellant ClarkWestern Dietrich Building Systems, L.L.C.

Dinsmore & Shohl, L.L.P., Brian S. Sullivan, Peter J. Georgiton, and Justin M. Burns ; and Chamberlain, Hrdlicka, White, Williams & Aughtry, Scott M. Ratchick, and John C. Guin, for appellee Edward R. Slish.

Taft, Stettinius & Hollister, L.L.P., Daniel R. Warncke, and Aaron M. Herzig ; and Fox Rothschild, L.L.P., Jeffrey M. Pollock, and Robert J. Rohrberger, for appellee William A. Gardner.

Squire Patton Boggs, L.L.P, Lauren S. Kuley, and Benjamin Beaton ; and Kevin D. Shrimp, urging affirmance for amicus curiae, Ohio Chamber of Commerce.

Fischer, J. {¶ 1} The law is a large and sometimes complicated field. It is made less complicated by the fact that litigants, lawyers, and judges alike may look to precedent for guidance. The Federalist No. 78 at 471 (Alexander Hamilton) (Clinton Rossiter Ed.1961). From time to time, however, discrete concepts are nonetheless confused, and the clarity provided by prior decisions gets muddied. This case involves one such instance of confusion. Because the Twelfth District Court of Appeals conflated the litigation privilege with the business-judgment rule in its decision affirming the trial court's decision to grant judgment on the pleadings, we clarify the separate nature of these rules, and we reverse the Twelfth District's judgment.

I. FACTUAL AND PROCEDURAL BACKGROUND

{¶ 2} Appellant, ClarkWestern Dietrich Building Systems, L.L.C., d.b.a. ClarkDietrich, previously sued the Certified Steel Stud Association, Inc. ("the association"), a Delaware corporation, and its member companies. That lawsuit primarily alleged that the association made defamatory statements about the quality of ClarkDietrich's products in a trade publication that the association published and disseminated. Appellees, William Gardner and Edward Slish, were members of the association's board of directors at that time.

{¶ 3} As relevant here, ClarkDietrich's defamation case proceeded to a lengthy jury trial. During that trial, ClarkDietrich settled its claims against each of the association's member companies and offered to dismiss its remaining claims against the association with prejudice. The association's board, however, voted to reject that offer, apparently in part due to concerns about related litigation that were not addressed by the offer. ClarkDietrich, satisfied that it had been vindicated by the settlements it had already reached, then filed a motion with the trial court to dismiss the case with prejudice. The association opposed this request and asked the trial court to deny the motion. The trial court granted the association's request, denying ClarkDietrich's motion and allowing the case to proceed. Eventually, in what can only be described as a "be careful what you wish for" turn of events, the jury returned a unanimous verdict in favor of ClarkDietrich along with a $49.5 million judgment. The association was ultimately responsible for $43 million of that amount.

{¶ 4} After the judgment was subsequently affirmed on appeal, Clarkwestern Dietrich Bldg. Sys., L.L.C. v. Certified Steel Stud Assn., Inc. , 12th Dist. Butler No. CA2016-06-113, 2017-Ohio-2713, 2017 WL 1843113, ClarkDietrich moved the trial court to appoint a receiver on behalf of the association so that the association could pursue potential breach-of-fiduciary-duty claims against the directors and could obtain the funds it needed, in whole or in part, to satisfy the considerable judgment. The trial court granted the motion and appellant, John J. Reister, was appointed as the receiver.

{¶ 5} After his appointment as receiver, Reister filed this action against the association's four directors, including Gardner and Slish, and designated ClarkDietrich as an interested party. The complaint alleged that the directors breached their fiduciary duties by mishandling the ClarkDietrich litigation and rejecting multiple opportunities to resolve the case at no cost to the association. Arguing that their actions were protected by the litigation privilege, Gardner and Slish each moved for judgment on the pleadings. The trial court agreed with Gardner and Slish and granted those motions.

{¶ 6} On appeal, the Twelfth District Court of Appeals affirmed the trial court's judgment. According to the Twelfth District, "[t]he actions taken and statements made by Gardner and Slish in the underlying matter [were] protected and provided immunity under the litigation privilege rule." 2019-Ohio-4720, 149 N.E.3d 112, ¶ 27. Like the trial court, the Twelfth District determined that the litigation privilege is broad and immunizes " ‘actions’ as opposed to merely ‘statements.’ " Id. at ¶ 25. The Twelfth District accordingly reasoned that the rule is applicable to a corporate board of directors' decision to forgo settling a case. Id. at ¶ 26. Judge Stephen Powell dissented and observed that the litigation privilege is narrower in scope than either the trial court or the majority had acknowledged. Id. at ¶ 37-42 (Powell, J., dissenting).

{¶ 7} Following the Twelfth District's split decision, Reister and ClarkDietrich separately appealed here and we accepted their appeals. See 158 Ohio St.3d 1434, 2020-Ohio-877, 141 N.E.3d 242.

II. ANALYSIS

{¶ 8} The central issue in this appeal is the proper scope of the litigation privilege in Ohio. The litigation privilege provides absolute immunity to parties, witnesses, lawyers, and judges from future lawsuits for statements made during and relevant to judicial proceedings.

Erie Cty. Farmers' Ins. Co. v. Crecelius , 122 Ohio St. 210, 171 N.E. 97 (1930), syllabus; Willitzer v. McCloud , 6 Ohio St.3d 447, 448-449, 453 N.E.2d 693 (1983) ; Surace v. Wuliger , 25 Ohio St.3d 229, 495 N.E.2d 939 (1986), syllabus; Hecht v. Levin , 66 Ohio St.3d 458, 460, 613 N.E.2d 585 (1993). To be clear, it still does that.

{¶ 9} Contrary to 90 years of precedent, however, the court of appeals applied the litigation privilege to actions rather than statements when it held that the litigation privilege shielded the business decisions of the corporate directors in this case. The court justified this departure from our precedent by looking to Florida law, see Levin, Middlebrooks, Mabie, Thomas, Mayes & Mitchell, P.A. v. United States Fire Ins. Co. , 639 So.2d 606, 608 (Fla.1994), and importing concepts borrowed from the business-judgment rule. Specifically, the Twelfth District stated that it was "contrary to the purposes of the litigation privilege rule to second-guess the litigation strategy employed by the directors and the Association's counsel" and that "[c]onsistent with the purposes of the litigation privilege rule, directors Slish and Gardner should be free to use their best judgment in defending the underlying lawsuit without fear of having to defend their action in a subsequent civil action for those decision[s]." 2019-Ohio-4720, 149 N.E.3d 112, at ¶ 29.

{¶ 10} We respectfully reject the determination by the court of appeals and clarify that in this case, Ohio law, not Florida law, controls and defines the contours of the litigation privilege. In doing so, we reaffirm our long-established rule that the litigation privilege provides absolute immunity from civil suits for defamatory statements made during and relevant to judicial proceedings. Willitzer at 448-449, 453 N.E.2d 693 ; Crecelius at syllabus. We further clarify that the business-judgment rule and the litigation privilege are, in fact, discrete concepts.

{¶ 11} Because this case involves a Delaware corporation and litigation that took place in Ohio, we apply Ohio law to define the litigation privilege and we look to Delaware law to define the directors' fiduciary duties and the business-judgment rule, see Gries Sports Ents., Inc. v. Cleveland Browns Football Co., Inc. , 26 Ohio St.3d 15, 20, 496 N.E.2d 959 (1986). Reviewing the pleadings in this case under the guiding principles established by the applicable law, we hold that judgment on the pleadings was improper.

A. Distinguishing Between the Litigation Privilege and the Business-Judgment Rule

{¶ 12} The business-judgment rule is "a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company." Aronson v. Lewis, 473 A.2d 805, 812 (Del.1984), overruled on other grounds , Brehm v. Eisner , 746 A.2d 244, 254 (Del.2000). It is a recognition that judges, with the benefit of hindsight, should not second-guess the numerous and difficult real-time choices that corporate officers and directors are faced with, Sinclair Oil Corp. v. Levien , 280 A.2d 717, 720 (Del.1971), unless, of course, the presumption that the officers and directors acted in accordance with their fiduciary duties is rebutted, Aronson at 812.

{¶ 13} The business-judgment rule is not unique to specific transactions and applies to any decision made pursuant to the directors' authority under Delaware law. Zapata Corp. v. Maldonado , 430 A.2d 779, 782 (Del.1981). Accordingly, the business-judgment rule may apply to the decisions that directors make in connection with litigation involving the corporation they serve. Id. ("managerial decision making power * * * encompasses decisions whether to initiate, or refrain from entering, litigation"). This necessarily means that the...