2023 Ohio 3077
Ohio Ct. App.2023Background:
- Mission Essential, an LLC, had four members (Greg Miller 42%, Chad Monnin 42%, Scott Humphrys 10%, Chris W. Miller 6%); Monnin’s interest was later acquired by Greg Miller.
- Plaintiffs (Humphrys and Chris W. Miller) refused to sign a 2016 fifth operating agreement and dissented from a 2018 corporate vote; they demanded payment under Ohio dissenters’ rights law (R.C. 1705.41–.42).
- Two consolidated actions: a fiduciary-duty/declaratory action (challenge to the fifth operating agreement) and a dissenters’ rights valuation action; trial court held neither the 4th nor 5th operating agreement provided a reasonable basis to displace statutory dissenters’ rights.
- Court-appointed appraiser (MacMorran) valued the interests using the original 2019 budget (there was an alternative 2019 budget offered by the company with materially lower EBITDA); the court admitted the expert and credited his reasoning to exclude the alternative budget.
- Trial court applied minority and marketability discounts and awarded judgment with 6% interest; on appeal the court affirmed most rulings but reversed the application of discounts because the remaining majority member would acquire 100% control, producing a windfall.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether operating agreements displaced statutory dissenters’ rights (R.C. 1705.41(F)) | Neither the 4th nor 5th OA references dissenters’ rights or gives a reasonable basis to determine/pay fair cash value, so R.C. 1705.42 applies | OA repurchase provisions provide a reasonable method to determine/pay fair cash value and therefore displace R.C. 1705.42 | Court: OA language does not provide a basis for dissenters’ valuation; plaintiffs may proceed under R.C. 1705.42 (affirmed) |
| Whether denial of Civ.R. 56(F) continuance was an abuse of discretion | No further discovery needed because issue was legal (contract interpretation/statutory question) | Needed discovery because stay had limited prior discovery and factual development might matter | Denial upheld: the question was legal and additional discovery would not change outcome |
| Admissibility and weight of court-appointed appraiser’s reliance on original 2019 budget | Appraiser reasonably excluded the alternative budget (original was detailed, consistent with history/market) | Alternative budget reflected actual 2019 budgeting process and showed much lower value; appraiser’s reliance inflated value | Trial court did not abuse discretion admitting and crediting the expert; factual credibility issues go to weight, not admissibility |
| Whether to apply minority and marketability discounts in computing fair cash value under R.C. 1705.42(B) | Discounts are inappropriate here because the buyer will be the remaining majority (Greg Miller), so discounts would give him a windfall | Ohio law and precedent interpreting willing-buyer/willing-seller permit discounts where relevant | Court: Discounts are generally permissible under R.C. 1705.42(B), but applying them here (where transferee becomes 100% owner) would unjustly benefit the buyer; appellate court reversed application of discounts and remanded for recalculation without them |
| Interest rate awarded on judgment | (Plaintiffs) 6% based on appraiser’s projected EBITDA margins | (Defendant) challenges basis that relied on contested budget | Award of 6% interest upheld as within trial court discretion |
Key Cases Cited
- Armstrong v. Marathon Oil Co., 32 Ohio St.3d 397 (Ohio 1987) (discusses appraisal standard and role of market evidence in dissenters’ valuations)
- O'Brien v. Univ. Community Tenants Union, Inc., 42 Ohio St.2d 242 (Ohio 1975) (standard for Civ.R. 12(B)(6) dismissal)
- Dresher v. Burt, 75 Ohio St.3d 280 (Ohio 1996) (movant’s burden on summary judgment)
- Blakemore v. Blakemore, 5 Ohio St.3d 217 (Ohio 1983) (abuse-of-discretion standard)
- Eastley v. Volkman, 132 Ohio St.3d 328 (Ohio 2012) (manifest-weight review principles)
- C.E. Morris Co. v. Foley Constr. Co., 54 Ohio St.2d 279 (Ohio 1978) (competent, credible evidence standard for appellate review)
- Hansen v. 75 Ranch Co., 957 P.2d 32 (Mont. 1998) (discounts inappropriate where transferee consolidates control)
- Cavalier Oil Corp. v. Harnett, 564 A.2d 1137 (Del. 1989) (analysis of discounts and appraisal fairness)