2019 Ohio 2256
Ohio Ct. App.2019Background
- In 1994 Michael Nestor (appellant) and Michael Hanko (appellee) formed H&N Construction, a closely held corporation with equal (50/50) ownership; relations soured by 1999 and the business effectively ceased joint operations.
- Appellee originally sued in 1999; actions were dismissed and refiled; procedural history includes a 2009 dismissal with prejudice of appellee’s claims and appellate decisions (Hanko I and Hanko II) preserving Nestor’s 2001 counterclaims and remanding for further proceedings.
- Trial proceeded on Nestor’s counterclaims (breach of fiduciary duty, conversion, civil conspiracy); after Nestor rested, Hanko moved for a directed verdict on the breach claim, which the trial court granted; Nestor moved for a new trial, which was denied.
- On appeal, the core legal questions were (1) whether Nestor could pursue his claims as a direct action rather than derivative against a coequal shareholder in a close corporation that had ceased operations, and (2) whether the directed verdict was properly granted for lack of proof of proximate causation and damages.
- The Sixth District held that a direct action was permissible under the circumstances (considering separate/distinct injury, control, and whether the company was a going concern) but affirmed the directed verdict because Nestor failed to prove that Hanko’s conduct proximately caused monetary damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a 50/50 shareholder may bring a direct (not derivative) breach-of-fiduciary-duty claim against the other shareholder in a close corporation | Nestor: direct action allowed because alleged injury was separate/distinct, Hanko profited while H&N ceased operations, and corporation was not a going concern | Hanko: claim should be derivative; injuries were to H&N (a separate legal entity) and Civ.R. 23.1 applies | Court: Direct action appropriate here (factors favor direct suit: separate/distinct injury and corporation not a going concern; control factor neutral) |
| Whether the trial court erred in granting a directed verdict for Hanko on breach of fiduciary duty | Nestor: evidence supported fiduciary breach and damages; reasonable minds could differ | Hanko: insufficient evidence of proximate causation and concrete damages | Court: Directed verdict proper — Nestor failed to prove proximate causation of monetary damages; his own conduct was an intervening cause |
| Whether denial of new trial was error because judgment was contrary to law | Nestor: judgment contrary to law given evidence | Hanko: denial proper given directed verdict rationale | Court: Denial affirmed; de novo review supports trial court’s rulings on law and sufficiency of evidence |
| Scope of recoverable damages claimed (disgorgement, punitive, etc.) | Nestor sought disgorgement of profits, punitive damages, fees | Hanko contested causation and certainty of damages | Court: No sufficient proof of damages in natural, continuous sequence from Hanko’s acts; cannot award requested monetary relief |
Key Cases Cited
- Crosby v. Beam, 47 Ohio St.3d 105 (Ohio 1989) (close-corporation minority/controlling-shareholder exception to derivative suit requirement)
- Heaton v. Rohl, 193 Ohio App.3d 770 (Ohio Ct. App. 2011) (50/50 coowner may bring direct claim where defendant’s conduct produced separate and distinct injury and corporation ceased operations)
- Gensemer v. Hallock, 125 Ohio App.3d 84 (Ohio Ct. App. 1998) (allowing direct action when close corporation dissolved and issues would be duplicative in derivative suit)
- Grand Council v. Owens, 86 Ohio App.3d 215 (Ohio Ct. App. 1993) (breach-of-fiduciary-duty claims are generally derivative absent narrow exceptions)