Bracha Found. v. Warren Steel Holdings, L.L.C.
2017 Ohio 7557
| Ohio Ct. App. | 2017Background
- Vadim Shulman (beneficiary of Bracha Foundation and owner of Hornbeam) and related entities alleged minority-shareholder harm after Halliwel Assets (a BVI corporation) became sole owner of Warren Steel Holdings, which owns an Ohio steel plant.
- Shulman claimed co-investors (Kolomoisky, Bogolubov) and Warren Steel officers engaged in self-dealing via transactions benefiting affiliated companies, harming Halliwel/Warren Steel value and Shulman’s interest.
- Hornbeam (registered Halliwel shareholder) pursued BVI proceedings (failed liquidation, cost order) and U.S. discovery under 28 U.S.C. §1782; Bracha, Hornbeam, and Shulman later sued in Ohio state court asserting fraud, conversion, unjust enrichment, injunctive relief, receiver appointment, and books-and-records claims.
- Defendants moved to dismiss under Civ.R. 12(B), arguing lack of standing, application of the internal‑affairs doctrine (BVI law governs), failure to meet BVI statutory procedures for shareholder claims, lack of Ohio forum convenience, and Hornbeam’s lack of an Ohio foreign‑corporation license.
- Trial court dismissed all claims: it held the internal‑affairs doctrine required BVI law (which channels derivative/unfair‑prejudice claims to the BVI High Court), found standing issues (though the majority opinion acknowledged Hornbeam might not be "transacting business" in Ohio), and alternatively pointed to verification/forum‑non‑conveniens defects. The appellate majority affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing / foreign‑corp license (Hornbeam) | Hornbeam does not transact business in Ohio; R.C. 1703.29(A) does not bar its suit | Hornbeam transacts business (via Halliwel/Warren Steel) and lacked Ohio license, so cannot sue in Ohio | Majority: Hornbeam not transacting in Ohio on pleadings but dismissal still affirmed on other grounds; trial court’s standing ruling harmless error |
| Applicability of internal‑affairs doctrine | Claims arise from conduct affecting Ohio assets and Ohio law should govern; alternative: plaintiffs are creditors/minority shareholders bringing direct tort claims | Halliwel is a BVI corporation; dispute concerns shareholder relations and internal affairs governed by BVI law; BVI statutory scheme channels derivative/unfair‑prejudice claims to BVI courts | Applied internal‑affairs doctrine: BVI law governs; plaintiffs’ claims are shareholder‑based and subject to BVI statutory procedures, barring Ohio suit |
| Nature of damages claims (derivative vs direct) | Plaintiffs characterize claims as direct tort/creditor claims (not derivative) for minority shareholders harmed by self‑dealing | Defendants (and BVI expert) treat claims as derivative or as remedies under BVI unfair‑prejudice provisions requiring proceedings in BVI courts | Court: given allegations, claims effectively seek recovery for the corporation and are derivative/unfair‑prejudice under BVI law, requiring BVI procedures and leaving Ohio court without authority |
| Books & records / injunctive relief | Plaintiffs request inspection of corporate books (Warren Steel records located in Ohio) and injunctive relief to protect assets | Defendants assert Ohio courts cannot order inspection or grant relief that intrudes on internal affairs of a foreign corporation incorporated in BVI | Court: Under internal‑affairs principle and precedent, Ohio court lacks authority to order accounting/inspection of foreign parent’s books or grant injunctive relief; those remedies reside in BVI court |
Key Cases Cited
- Relief Assn. of Union Works v. Equitable Life Assur. Soc., 140 Ohio St. 68 (1942) (under internal‑affairs doctrine, Ohio courts generally lack authority to order accounting of foreign corporation’s books)
- Gries Sports Enterprises, Inc. v. Modell, 15 Ohio St.3d 284 (1984) (exception to internal‑affairs — a forum with the most significant relationship may control voting‑agreement disputes)
- Danzinger v. Luse, 103 Ohio St.3d 337 (2004) (shareholders’ rights to inspect subsidiary records where parent dominates subsidiary)
- Crosby v. Beam, 47 Ohio St.3d 105 (1989) (minority shareholder claims for deprivation of investment benefits may be direct rather than derivative under Ohio law)