RELD & G ENTERPRISE INC., ET AL. v. RABIH I. ELDANAF
No. 113881
COURT OF APPEALS OF OHIO EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA
January 30, 2025
2025-Ohio-276
SEAN C. GALLAGHER, J.
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED
RELEASED AND JOURNALIZED: January 30, 2025
Appearances:
ICE MILLER LLP, Kristina S. Dahmann, and Kishala Srivastava, for appellant.
David J. Horvath, for appellee.
SEAN C. GALLAGHER, J.:
{¶ 1} Alice Griffin appeals the interlocutory decision granting summary judgment in favor of Rabih I. Eldanaf upon her breach-of-fiduciary-duty, interference-with-a-contract, and conversion claims (collectively “self-dealing claims“), which arise from their relationship as alleged minority shareholders of Reld & G Enterprise, Inc. (“Reld“).1 For the following reasons, we affirm.
{¶ 2} In 2018, George Shamatta, in his individual capacity as the alleged majority shareholder of Reld, and Reld filed the underlying action against Eldanaf essentially claiming that Eldanaf self-dealt and interfered with Reld‘s contractual interests through his role as a minority shareholder and president of the corporation. The original complaint alleged that Eldanaf and Shamatta are the shareholders and principals of Reld. Griffin was not mentioned in the initial pleading. Reld is a for-profit corporation incorporated under the laws of Ohio. Griffin attached Reld‘s incorporating document from the Ohio Secretary of State to her opposition to summary judgment, which notes that the corporation has 800 common shares available for distribution. There is also a copy of an unexecuted close corporation agreement naming Shamatta and Eldanaf as the sole shareholders, the document required for a corporate entity to be deemed a close corporation, and unexecuted share subscriptions demonstrating that Shamatta and Eldanaf would respectively receive 100 and 200 shares of Reld. Otherwise, the record is largely devoid of any corporate documentation.
{¶ 3} In 2020, Shamatta unexpectedly passed away. His estate, with his wife Christine Alsaker being named the personal representative, was substituted in place of Shamatta. In addition, Reld was put under the control of a receiver, Sean Allan, for the purposes of winding up the corporate affairs. Neither the receiver nor the estate, now the alleged majority shareholder of Reld, showed interest in pursuing Shamatta‘s claims against Eldanaf.
{¶ 4} In January 2021, Griffin attempted to intervene simply by filing an amended complaint that duplicated the original complaint filed by Shamatta, with the exception of adding herself as a named plaintiff based on the allegation that she was also a minority shareholder. She failed to comply with
{¶ 5} Eldanaf filed a motion for partial summary judgment seeking judgment in his favor upon all claims advanced by Griffin. In pertinent part, Eldanaf claimed that Griffin‘s amended complaint failed to properly advance a shareholder derivative claim under
{¶ 6} The trial court agreed with Eldanaf and concluded that Griffin lacked standing to assert a shareholder derivative claim under
{¶ 7} According to Griffin, the trial court erred in granting summary judgment in Eldanaf‘s favor. In this appeal, Griffin challenges the trial court‘s conclusion, claiming that because neither the receiver nor Alasker “have Reld‘s best interest in mind when they failed to prosecute the case[,]” Griffin is the only plaintiff who will do so. While that may well be true, that does not relieve Griffin of adhering to legal formalities. In order to pursue her claims, Griffin is required to comply with
{¶ 8} Appellate review of summary judgment is de novo, governed by the standard set forth in
{¶ 9} Griffin concedes that the amended complaint does not comply with
{¶ 10} “It is well-settled that only a corporation and not its shareholders can complain of an injury sustained by, or a wrong done to, the corporation” outside the context of
{¶ 11} As the Ohio Supreme Court reasoned in Crosby, if courts were to “require a minority shareholder in a close corporation, who alleges that the majority shareholders breached their fiduciary duty to him, to institute an action pursuant to
{¶ 12} The exception established in Crosby is narrow. As at least one court has noted, Crosby has not been extended to apply outside the narrow confines of a minority shareholder challenging the majority shareholders of close corporations. For instance, it has not been applied to cases in which there are no minority shareholders, such as a corporation owned by two equal shareholders. Hanko v. Nestor, 2019-Ohio-2256, ¶¶ 21-22 (6th Dist.) (string citing cases omitted). Likewise, another court declined to extend the limited holding of Crosby to a case in which the defendants were not the majority shareholders or involving entities other than close corporations. Lugenbeal v. Stupak, 2016-Ohio-7408, ¶ 10 (1st Dist.); see also Blank v. Bluemile, Inc., 2021-Ohio-2002, ¶ 32 (10th Dist.) (declining to extend Crosby to apply to suits involving limited liability partnerships or those asserting other claims beyond a breach of fiduciary duty). Thus, Crosby has consistently been applied to its specific holding that “claims of a breach of fiduciary duty alleged by minority shareholders against shareholders who control a majority of shares in a close corporation,” who “use their control to deprive minority shareholders of the benefits of their investment, may be brought as individual or direct actions and are not subject to the provisions of
{¶ 14} And further, we decline any implicit invitation to sua sponte extend Crosby to include claims of a minority shareholder against another minority shareholder, especially one who lacks control over the corporate operations. The express rationale for allowing direct actions by minority shareholders of close corporations was the practical reality that any recovery by a minority shareholder in a derivative action accrues to the corporation. In such a situation, the majority shareholder of the close corporation would still be in a position to deny the minority shareholder relief. That concern is not present in the current case in which Griffin alleges that Eldanaf is a minority shareholder and is no longer the acting president or otherwise in control of Reld. As she further concedes, Reld has no board of directors, much less one controlled by Eldanaf. A shareholder derivative action, even presuming Griffin is a shareholder, would have adequately protected her interests.
{¶ 15} As a result, any claims Griffin has as a minority shareholder must be asserted in compliance with
{¶ 16} Based on the foregoing, the trial court correctly granted Eldanaf partial summary judgment upon all claims asserted by Griffin in her individual capacity. That judgment is affirmed.
It is ordered that appellee recover from appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the common pleas court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure.
SEAN C. GALLAGHER, JUDGE
EMANUELLA D. GROVES, P.J., and
WILLIAM A. KLATT, J.,* CONCUR
(*Sitting by assignment: William A. Klatt, J., retired, of the Tenth District Court of Appeals.)