JOHN J. REISTER, RECEIVER ON BEHALF OF CERTIFIED STEEL STUD ASSOCIATION, INC., Appellant and Cross-Appellee, v. WILLIAM A. GARDNER, Appellee and Cross-Appellant, and EDWARD R. SLISH, Appellee, v. CLARKWESTERN DIETRICH BUILDING SYSTEMS, LLC dba CLARKDIETRICH, Appellant and Cross-Appellee, v. CERTIFIED STEEL STUD ASSOCIATION, INC., Intervenor-Plaintiff.
CASE NOS. CA2019-01-010, CA2019-01-011, CA2019-01-020
IN THE COURT OF APPEALS TWELFTH APPELLATE DISTRICT OF OHIO BUTLER COUNTY
11/18/2019
2019-Ohio-4720
Case No. CV2018-02-0442
Millikin & Fitton Law Firm, Steven A. Tooman, Heather Sanderson Lewis, 9032 Union Centre Boulevard, Suite 200, West Chester, Ohio 45069; Helmer, Martins, Rice & Popham Co., L.P.A., James B. Helmer, Jr., Robert M. Rice, Jennifer L. Lambert, B. Nathaniel Garrett, for appellant and cross-appellee, John J. Reister, Receiver
Taft, Stettinius & Hollister LLP, Daniel R. Warncke, Aaron M. Herzig, Donnell J. Bell, 425 Walnut Street, Suite 1800, Cincinnati, Ohio 45202; Fox Rothschild LLP, Jeffrey M. Pollock, Robert J. Rohrberger, Allison L. Hollows, 997 Lenox Drive, Lawrenceville, New Jersey, 08648, for appellee and cross-appellant, William A. Gardner
Dinsmore & Shohl LLP, Peter J. Georgiton, Justin M. Burns, 191 W. Nationwide Boulevard, Suite 300, Columbus, Ohio 43215; Chamberlain Hrdlicka White Williams & Aughtry, Scott M. Ratchick, John C. Guin, 191 Peachtree Street, NE, 46th Floor, Atlanta, Georgia 30303, for appellee, Edward R. Slish
Frost Brown Todd LLC, Matthew C. Blickensderfer, 3300 Great American Tower, 301 East Fourth Street, Cincinnati, Ohio 45202; Cohen & Grigsby, P.C., Anthony Cillo, Fridrikh V. Shrayber, 625 Liberty Avenue, Pittsburgh, Pennsylvania, 15222, for appellant and cross-appellee, Clarkwestern Dietrich Building Systems LLC
Faruki Ireland Cox Rhinehart & Dusing PLL, D. Jeffrey Ireland, Stephen A. Weigand, Jason W. Palmer, 201 East Fifth Street, Suite 1420, Cincinnati, Ohio 45202, for Intervenor-Plaintiff, Certifed Steel Stud Association, Inc.
{¶ 1} Appellants, Clarkwestern Dietrich Building Systems LLC, DBA ClarkDietrich, and John Reister (“the Receiver“), appeal the decision of the Butler County Court of Common Pleas, granting judgment on the pleadings in favor of certain members of the board of directors for the Certified Steel Stud Association, Inc., (“the Association“).1 For the reasons detailed below, we affirm.
{¶ 3} The Association is a nonprofit corporation and trade association in the steel stud industry organized under Delaware law. The founding members of the Association, who were also codefendants in the underlying action, are Marino/Ware Industries, Inc. (“Ware“), California Expanded Metal Products Company (“CEMCO“), and Telling Industries, LLC (“Telling“).
{¶ 4} At the time of the events giving rise to the underlying action, the Association‘s Board was comprised of one employee from each of its founding corporate members, as well as a fourth director from a fourth Corporation that joined the Association after its founding, Phillips Manufacturing (“Phillips“).
{¶ 5} In pertinent part, appellees William Gardner and Edward Slish were members of the Association‘s Board at all times relevant to this action. According to the complaint in the underlying matter, the Association released a publication allegedly making derogatory assertions that ClarkDietrich‘s products did not comply with various codes and regulations. This publication was disseminated by the Association to 9,560 customers and others involved in the nonstructural steel framing industry. After the publication was distributed, ClarkDietrich alleged that it lost projects and millions of dollars in revenue.
{¶ 7} On September 15, 2015, the matter proceeded to an 11-week jury trial. On the eve of closing, ClarkDietrich offered to dismiss its claims against the Association with prejudice. The Association refused the settlement offer. Next, ClarkDietrich filed a motion to dismiss its claims against the Association with prejudice, pursuant to
{¶ 8} On November 16, 2015, the jury returned a unanimous verdict in favor of ClarkDietrich, awarding the company $49.5 million, $43 million of which was apportioned to the Association. The trial court subsequently entered a judgment against the Association in the amount of $43 million.
{¶ 9} The Association stipulated it has insufficient tangible assets to satisfy the judgment. ClarkDietrich filed a motion for assignment of the Association‘s possible breach of fiduciary duty claim against its officers, directors, and agents, based on their decision to decline ClarkDietrich‘s offer to dismiss by stipulation, oppose ClarkDietrich‘s motion to dismiss, and proceed with the case through the jury determination. The trial court held a hearing on the matter and, at the suggestion of the trial court, ClarkDietrich withdrew its motion for assignment and filed a motion for the appointment of a receiver.
{¶ 10} On March 29, 2017, over the Association‘s objection, the trial court appointed a receiver “to investigate and, if he determines it to be appropriate, bring, prosecute, and manage claims against [the Association‘s] officers, directors and agents arising from the
{¶ 11} The instant appeal involves the action for damages and declaratory judgment brought by the Receiver on behalf of the Association against the individual directors Gardner and Slish.3 The Receiver alleges Gardner and Slish breached their fiduciary duties to the Association causing the Association to lose a $43 million jury verdict. Reister claims that by either accepting the offer to dismiss or by not opposing the motion to dismiss, Gardner and Slish would have eliminated any chance that the Association would lose, thereby ensuring that the Association would be insulated from further litigation on the same claims. In rejecting the offer and opposing the motion to dismiss, the Receiver claims Gardner and Slish caused the Association professional and financial ruin.
{¶ 12} In Count One of his complaint, the Receiver sought damages against Gardner and Slish for breach of fiduciary duties arising from their roles as directors of the Association. In Count Two, the Receiver sought declaratory judgment to prevent Gardner and Slish from claiming the protections of the business judgment rule.
{¶ 13} Gardner and Slish moved to dismiss, or in the alternative, for judgment on the pleadings. Both Gardner and Slish argued that the litigation privilege rule and the business judgment rule shield them from any liability. The Receiver opposed the motions, arguing that any privilege related to the underlying proceedings applied only to “defamatory comments” made before or during judicial proceedings and did not shield them from their obligations as directors to protect the corporation.
{¶ 14} In its judgment entry, the trial court found that both Gardner and Slish were
{¶ 15} The Receiver‘s Assignment of Error:
{¶ 16} THE TRIAL COURT ERRED BY GRANTING JUDGMENT ON THE PLEADINGS FOR DIRECTORS GARDNER AND SLISH.
{¶ 17} ClarkDietrich‘s Assignment of Error:
{¶ 18} THE TRIAL COURT ERRED BY GRANTING THE DEFENDANT SLISH‘S AND DEFENDANT GARDNER‘S MOTIONS FOR JUDGMENT ON THE PLEADINGS.
{¶ 19} The Receiver and ClarkDietrich both argue the trial court erred in granting judgment on the pleadings in favor of Gardner and Slish. Based on our review of the record, we find both Gardner and Slish are shielded from liability in this action due to operation of the litigation privilege doctrine and therefore the trial court appropriately granted judgment on the pleadings.
{¶ 20} A trial court‘s decision on a
{¶ 21} A statement made in a judicial proceeding enjoys an absolute privilege against a defamation action as long as the allegedly defamatory statement is reasonably related to the proceeding in which it appears. Surace v. Wuliger, 25 Ohio St.3d 229 (1986), syllabus; Hecht v. Levin, 66 Ohio St.3d 458, 461 (1993). This absolute privilege applies whether or not the purportedly defamed party was a party to the underlying action.4 Surace at 234; Krakora v. Gold, 7th Dist. Mahoning No. 98 CA 141, 1999 Ohio App. LEXIS 4699, at *6 (Sep. 28, 1999) (“An absolute privilege applies to allegations referring to parties and non-parties alike.“) Although the Ohio Supreme Court recognized that the rule could cause some hardship to a defamed party, the court reasoned that “the cogent public policy of guaranteeing the free flow of information in a judicial proceeding outweighed the hardship” to an aggrieved party. Hecht at 461.
{¶ 22} The genesis of the Surace case involved a civil racketeering case. Surace at 229. The plaintiff, Daniel Dzina, and his attorney, William Wuliger, filed a complaint in federal court predicated on the Racketeer Influenced and Corrupt Organizations Act
In 1975 or 1976, defendant James Palladino, who was already operating defendant Ohio Bulk, gathered together certain investors to form defendant Inland and purchase and operate a sanitary landfill located in 6705 Richmond Road, Glenwillow, Ohio. Said investors included defendant James Palladino himself, defendants Harry Fedele, and Albert Seymour. Also said investors included such known underworld figures as Danny Greene, Joseph Surace, John Nardi, Harvey Reiger and Frank Embrecia.
Id. at 229-230. Subsequently, Surace filed a complaint against Dzina and Wuliger, alleging that the abovementioned pleading in the RICO action was libelous, false and malicious, and its import was neither relevant nor pertinent to the RICO action. Id. at 230.
{¶ 23} The trial court granted a motion to dismiss on the basis that the alleged defamatory pleading was absolutely privileged. Id. The court of appeals reversed after applying an “alternative remedies” theory, concluding that Surace‘s complaint was actionable because there was no alternative remedy to clear his name in the RICO action since he was not a party. Id. The Ohio Supreme Court then reversed the court of appeals and reinstated the trial court‘s order of dismissal. Id. In so doing, the Court specifically rejected the argument that absolute privilege only applies to parties in a litigation. Id. at 233-234. Rather, the Court held “as a matter of public policy, under the doctrine of absolute privilege in a judicial proceeding, a claim alleging that a defamatory statement was made in a written pleading does not state a cause of action where the allegedly defamatory statement bears some reasonable relation to the judicial proceeding in which it appears.” Id. at 233.
{¶ 25} The rationale for providing immunity to “actions” as opposed to merely “statements” is consistent with the purposes of the litigation privilege rule. “Just as participants in litigation must be free to engage in unhindered communication, so too must those participants be free to use their best judgment in prosecuting or defending a lawsuit
{¶ 26} Although we are aware of no decision in this state where the privilege has been applied to a corporate board of directors for actions taken in the negotiation of ongoing, protracted litigation as is the case here, we note that other state and federal courts have applied similar litigation privileges to settlement activities. See, e.g., Jackson at 1275, citing Petty v. Gen. Accident Fire & Life Assurance Corp., 365 F.2d 419, 421 (3d Cir.1966) (negotiation of a settlement is a part of a judicial proceeding); Arochem Internatl., Inc. v. Buirkle, 968 F.2d 266, 271-72 (2d Cir.1992) (statements made to encourage settlement of litigation absolutely privileged under California‘s litigation privilege).
{¶ 27} Since this matter is before this court following judgment on the pleadings, we are necessarily limited to the allegations set forth in the pleadings. Golden, 2009-Ohio-3418 at ¶ 6. See
{¶ 28} In the present case, it is undisputed that the claims against Gardner and Slish arise entirely from their decision as directors of the Association to reject ClarkDietrich‘s settlement offer and oppose ClarkDietrich‘s motion to dismiss. According to the Receiver‘s complaint, Slish and Gardner “breached their fiduciary duty to [the Association] when they
{¶ 29} Though the Receiver claims that the Gardner and Slish‘s actions resulted in the $43 million verdict against the Association, we find it contrary to the purposes of the litigation privilege rule to second-guess the litigation strategy employed by the directors and the Association‘s counsel. Gardner and Slish cannot be held liable for actions and statements in the prior case that are “reasonably related to the proceeding in which it appears.” Hecht, 66 Ohio St.3d at 460. Consistent 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. As a result, the trial court appropriately granted judgment on the pleadings to Gardner and Slish. Therefore, we find the assignments of error raised by the Receiver and ClarkDeitrich are without merit and hereby overruled.
{¶ 30} Gardner‘s Cross-Assignment of Error No. 1:
{¶ 31} THE TRIAL COURT ERRED IN DISMISSING GARDNER AND SLISH‘S COUNTERCLAIMS.
{¶ 32} In his first cross-assignment of error, Gardner argues the trial court erred by denying his request for indemnification from the Association for his expenses in defending
To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action * * * such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.
The Court of Chancery is vested with “exclusive jurisdiction” to hear and determine such an action.
{¶ 33} Gardner Cross-Assignment of Error No. 2:
{¶ 34} THE TRIAL COURT ERRED IN DENYING GARDNER‘S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION.
{¶ 35} In his second assignment of error, Gardner argues the trial court erred by denying his motion to dismiss for lack of personal jurisdiction. As noted by the Ohio Supreme Court, “[a]bsent a patent and unambiguous lack of jurisdiction, a post-judgment appeal from a decision overruling a motion to dismiss for lack of personal jurisdiction will
{¶ 36} Judgment affirmed.
PIPER, J., concurs.
S. POWELL, J., dissents.
S.POWELL, J., dissenting.
{¶ 37} Citing to the Ohio Supreme Court‘s statement in Surace v. Wuliger, 25 Ohio St.3d 229 (1986), that the absolute privilege afforded to a defendant by the litigation privilege rule “applies to allegations referring to parties and non-parties alike,” the majority has taken a now three-decade old blanket statement of law that established an absolute privilege only as to defamatory statements in litigation to extend the litigation privilege rule beyond its originally intended scope. Contrary to the majority‘s holding, and as explained more fully below, I believe the scope of the litigation privilege should return to its roots and provide a defendant with immunity only where the lawsuit is brought by the defendant‘s party opponent in the underlying action giving rise to the suit. Therefore, because the majority‘s decision in this case has now stretched the privilege to a point where litigants are conceivably free to engage in any form of tortious conduct so long as the conduct occurred in a judicial or quasi-judicial proceeding, I must dissent.
{¶ 39} I agree with the majority‘s decision finding the litigation privilege rule should apply to both “statements” and “actions” made in judicial and quasi-judicial proceedings. However, as noted above, I believe the majority has now expanded the privilege beyond its originally intended scope that established an absolute privilege only as to defamatory statements in litigation by providing litigants with a safe haven to engage in tortious conduct against third parties that would otherwise be actionable had that conduct occurred anywhere other than in a judicial or quasi-judicial proceeding. Therefore, contrary to the
{¶ 40} I reach this decision notwithstanding the Ohio Supreme Court‘s now three-decade-old statement in Surace that the absolute privilege afforded to a defendant by the litigation privilege rule “applies to allegations referring to parties and non-parties alike[.]” In Surace, unlike in this case, the Ohio Supreme Court was addressing only whether the litigation privilege rule should apply to both parties and non-parties where a “defamatory statement was made in a written pleading[.]” Therefore, because the Ohio Supreme Court‘s decision in Surace addressed only whether the litigation privilege rule applied equally to all parties and nonparties where a defamatory statement was made as part of a written pleading, I disagree with the majority‘s assertion that Surace stands for the proposition that the absolute privilege applies to all parties and nonparties under any and all circumstances as a matter of law. This is particularly true as it relates to claims where, as here, a director serving on a party corporation‘s board of directors is alleged to have breached his or her fiduciary duty to that party corporation. Accordingly, because the Ohio Supreme Court‘s decision in Surace addressed a wholly separate issue than what is at issue here, the Ohio Supreme Court‘s decision in Surace is distinguishable from the case at bar and holds significantly less precedential value than what the majority suggests.
{¶ 42} In light of the foregoing, unless and until the Ohio Supreme Court holds otherwise, I must dissent from the majority‘s decision. I believe the absolute privilege afforded to a defamation suit defendant by the litigation privilege rule should be limited to defamatory statements or actions made in the course of the initial litigation. And further limited to just the parties of that initial litigation. Therefore, because I believe the majority has now expanded the privilege beyond its originally intended scope that established an absolute privilege only as to defamatory statements in litigation to now provide immunity to
S. POWELL
JUDGE