Schmitt v. Schmitt

• Citation: 2022 Ohio 1685
• Decision Date: 19 May 2022
• Docket Number: 21AP-328
• Parties: Joseph T. Schmitt, Plaintiff-Appellee, v. Stephen Schmitt et al., Defendants-Appellees. Mark Schmitt, Plaintiff-Appellant,
• Court: United States Court of Appeals (Ohio)

2022-Ohio-1685

Joseph T. Schmitt, Plaintiff-Appellee, Mark Schmitt, Plaintiff-Appellant, v. Stephen Schmitt et al., Defendants-Appellees.

No. 21AP-328

Court of Appeals of Ohio, Tenth District

May 19, 2022

APPEAL from the Franklin County Court of Common Pleas (C.P.C. No 20CV-5630)

On brief:

Arnold & Clifford, LLP, James E. Arnold, and Tiffany L. Carwile for appellant.

Reminger Co., L.P.A., Patrick Kasson, Brandon Abshier, and Steven A. Chang, for appellee The Jet Container Company

Argued:

Tiffany L. Carwile.

Steven A. Chang.

DECISION

LUPER SCHUSTER, P.J.

{¶ 1} Plaintiff-appellant, Mark Schmitt, appeals from a decision and entry of the Franklin County Court of Common Pleas denying his motion for advancement of litigation expenses. For the following reasons, we reverse.

I. Facts and Procedural History

{¶ 2} Defendant-appellee, The Jet Container Company ("Jet Container"), is a family business. Jet Container has five shareholders: Richard Prohl and four brothers, Mark Schmitt, Joseph T. Schmitt, Stephen Schmitt, and Michael Schmitt. Additionally, all five of the shareholders are the only members of Jet Container's board of directors. Mark is the former chief financial officer ("CFO") of Jet Container.

{¶ 3} Jet Container has articles of incorporation and a buy-sell agreement, both of which are silent as to the advancement of litigation expenses. However, the buy-sell agreement does have an indemnification provision providing that Jet Container shall indemnify its shareholders and officers "to the full extent permitted by the Ohio Revised Code." (Pls.' Ex. A, Buy-Sell Agreement Section 3.2., attached to Aug. 25, 2020 Compl.)

{¶ 4} On August 25, 2020, Mark and Joseph filed a complaint against Stephen, Michael, Prohl, and Jet Container asserting claims of breach of contract, breach of fiduciary duty, civil conspiracy, and declaratory judgment. The claims arose from the termination of Mark's and Joseph's employment with Jet Container on July 31, 2020. Subsequently, on December 7, 2020, Jet Container filed a counterclaim against Mark asserting claims of breach of fiduciary duty and conversion.

{¶ 5} In response to the filing of the counterclaim, Mark, through his counsel, sent a letter dated December 23, 2020 to counsel for Jet Container requesting an advancement of litigation expenses, including attorney fees, pursuant to R.C. 1701.13(E)(5). Additionally, Mark executed an undertaking in which he agreed to repay any amount advanced to him if a court determined that his actions or failure to act involved a deliberate intent to injure Jet Container or constituted a reckless disregard for Jet Container's best interest. Counsel for Jet Container responded via email on January 5, 2021 that it was denying Mark's request for advancement of expenses on the grounds that the claims against Mark are not made against him in his capacity as a director of the corporation.

{¶ 6} On February 5, 2021, Mark filed a motion for advancement of litigation expenses pursuant to R.C. 1701.13(E)(5)(a). Jet Container opposed the motion in a February 19, 2021 memorandum contra. Mark filed a reply in support of his motion on March 5, 2021. Jet Container then filed a motion for leave to file a surreply to Mark's motion on the basis that Mark had used his reply in support to advance new arguments for his motion for advancement of expenses. Mark filed an objection to Jet Container's motion seeking leave.

{¶ 7} In a June 3, 2021 decision and entry, the trial court granted Jet Container's motion for leave to file a surreply and denied Mark's motion for advancement of litigation expenses. The trial court determined that because Jet Container brought the counterclaim against Mark solely in his capacity as an officer, not as a director, R.C. 1701.13(E)(5)(a) is not applicable and, therefore, Mark is not entitled to advancement of litigation expenses. Mark timely appeals.

II. Assignment of Error

{¶ 8} Mark assigns the following error for our review:

The trial court erred in denying Mark Schmitt's Motion for Advancement of Litigation Costs.

III. Discussion

{¶ 9} In his sole assignment of error, Mark argues the trial court erred in denying his motion for advancement of litigation expenses. Through his argument, Mark asserts the trial court erred in its application of R.C. 1701.13(E)(5)(a).

{¶ 10} Generally, statutory construction is a question of law subject to de novo review. Ceccarelli v. Levin, 127 Ohio St.3d 231, 2010-Ohio-5681, ¶ 8; State v. Fraternal Order of Police of Ohio, Inc., Ohio Labor Council, Inc., 10th Dist. No. 16AP-457, 2017-Ohio-1382, ¶ 12, citing Licking Hts. Local School Dist. Bd. of Edn. v. Reynoldsburg City School Dist. Bd. of Edn., 10th Dist. No. 12AP-579, 2013-Ohio-3211, ¶ 9. A court's duty is to give effect to the words used in a statute, not to delete or insert words. State v. Maxwell, 95 Ohio St.3d 254, 2002-Ohio-2121, ¶ 10. "Where the language of a statute is plain and unambiguous and conveys a clear and definite meaning there is no occasion for resorting to rules of statutory interpretation. An unambiguous statute is to be applied, not interpreted." Sears v. Weimer, 143 Ohio St. 312 (1944), paragraph five of the syllabus. "Only when a definitive meaning proves elusive should rules for construing ambiguous language be employed. Otherwise, allegations of ambiguity become self-fulfilling." State v. Porterfield, 106 Ohio St.3d 5, 2005-Ohio-3095, ¶ 11.

{¶ 11} R.C. 1701.13 provides for the advancement of expenses to a director of a corporation. Miller v. Miller, 132 Ohio St.3d 424, 2012-Ohio-2928, ¶ 22. At issue here is R.C. 1701.13(E)(5), which provides:

(a) Unless at the time of a director's act or omission that is the subject of an action, suit, or proceeding referred to in division (E)(1) or (2) of this section, the articles or the regulations of a corporation state, by specific reference to this division, that the provisions of this division do not apply to the corporation and unless the only liability asserted against a director in an action, suit, or proceeding referred to in division (E)(1) or (2) of this section is pursuant to section 1701.95 of the Revised Code, expenses, including attorney's fees, incurred by a director in defending the action, suit, or proceeding shall be paid by the corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding, upon receipt of an undertaking by or on behalf of the director in which the director agrees to do both of the following:

(i) Repay that amount if it is proved by clear and convincing evidence in a court of competent jurisdiction that the director's action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the corporation or undertaken with reckless disregard for the best interests of the corporation;

(ii) Reasonably cooperate with the corporation concerning the action, suit, or proceeding.

(b) Expenses, including attorney's fees, incurred by a director, trustee, officer, employee, member, manager, or agent in defending any action, suit, or proceeding referred to in division (E)(1) or (2) of this section, may be paid by the corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding, as authorized by the directors in the specific case, upon receipt of an undertaking by or on behalf of the director, trustee, officer, employee, member, manager, or agent to repay that amount, if it ultimately is determined that the person is not entitled to be indemnified by the corporation.

R.C. 1701.13(E)(5)(a) through (b).

{¶ 12} Pursuant to the statute, R.C. 1701.13(E)(5) provides for both mandatory and permissive advancement of expenses in subsections R.C. 1701.13(E)(5)(a) and (b), respectively. Miller at ¶ 28 (R.C. 1701.13(E)(5)(a) is mandatory in its application); Magnus Internatl Group, Inc. v. Forster, 8th Dist. No. 105948, 2018-Ohio-2192, ¶ 12 ("[p]ermissive advancement is governed by R.C. 1701.13(E)(5)(b)"). Mark asserts that, based on the plain language of R.C. 1701.13(E)(5)(a), the trial court erred when it determined that, even though he was a director of Jet Container, he was not entitled to the mandatory advancement of litigation expenses.

{¶ 13} In support, Mark relies on the Supreme Court of Ohio's decision in Miller, holding that "[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." Miller at paragraph one of the syllabus. Further, the Supreme Court held that "[w]hen 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." Miller at paragraph two of the syllabus. Here, the parties agree that Jet Container did not opt out of the mandatory advancement of expenses in its articles or regulations, and that Mark provided the undertaking described in R.C. 1701.13(E)(5)(a)(i) and (ii). Therefore, Mark asserts both the plain language of R.C. 1701.13(E)(5)(a) and the Supreme Court of Ohio's decision in Miller direct that Jet Container must advance litigation expenses to him to defend the claims raised in Jet Container's counterclaim.

{¶ 14} Jet Container responds that Miller is not applicable to the instant case because, unlike in Miller, Jet Container brought the counterclaim against Mark in his capacity as an officer of the corporation, not in his capacity as a director of the...