Stumpff v. HarrisStumpff v. Harris
Rendered on the 26th day of March, 2010.
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KONRAD KUCZAK, Atty. Reg. #0011186, 130 West Second Street, Suite 1010, Dayton, Ohio 45402-1588 Attorney for Plaintiff-Appellants
ALFRED W. SCHNEBLE III, Atty. Reg. #0030741, 11 West Monument, Suite 402, Dayton, Ohio 45402 Attorney for Defendant-Appellees
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BROGAN, J.
{¶ 1} Kenneth M. Stumpff and Mahaffey’s Auto Salvage appeal from the trial court’s entry of summary judgment against them on their breach-of-fiduciary-duty complaint against appellees Richard Harris and Valley Auto Parts.
{¶ 2} The appellants advance two assignments of error. First, they contend the trial court erred in permitting Harris and Valley Auto Parts to file an answer out of
{¶ 3} The present appeal represents the most recent chapter in a seven-year legal battle between the parties. At one time, Stumpff and Harris jointly operated Mahaffey’s Auto Salvage as a corporation. In 2003, their relationship soured. Stumpff sued for breach of fiduciary duty in Mont. C.P. Case No. 2003-CV-5624. Harris counterclaimed in that case for judicial dissolution. A magistrate ruled in favor of Harris on the complaint and counterclaim, ordering judicial dissolution and liquidation of the corporate assets. Stumpff objected to the magistrate’s ruling. After objecting, he also moved to amend his complaint to add a claim alleging usurpation of corporate opportunities based on Harris’ purchase of property across the street from Mahaffey’s to operate Valley Auto Parts as a competing business. The trial court overruled the objections, adopted the magistrate’s decision, and implicitly denied Stumpff’s motion to amend his complaint. Stumpff appealed, and we affirmed. See Stumpff v. Harris, Montgomery App. No. 21407, 2006-Ohio-4796.
{¶ 4} Following our ruling, the trial court attempted to facilitate the orderly liquidation of Mahaffey’s assets. It eventually appointed a receiver to do the job. The trial court then ordered a hearing to determine the business assets. At the same time, Stumpff obtained permission to add Valley Auto Parts as a party defendant on the basis that Harris was using Mahaffey’s inventory and goodwill to operate the competing business. The appellants contend that during a January 23, 2008, asset hearing, Harris produced an accounting disk showing “that from June 1, 2005, through January 15,
{¶ 5} On July 2, 2008, Mahaffey s filed a formal “notice of claims,” seeking recovery of the funds Harris allegedly had misappropriated for his operation of Valley Auto Parts. The notice of claims included a memorandum in support and an affidavit from counsel for Stumpff and Mahaffey s along with several exhibits. On July 9, 2008, the receiver filed a report in which he noted the liquidation of most of Mahaffey s assets. The receiver also identified twenty-four claims that had been filed against the proceeds of the liquidation. They included the claims Mahaffey s had filed against Harris to reduce his share of the proceeds. The receiver s report failed to identify Mahaffey s claims against Harris as being among those the receiver considered valid. Stumpff objected, arguing, inter alia, that the receiver s proposed distribution plan did not account for Harris alleged misuse of Mahaffey s money to pay expenses for Valley Auto Parts employees. On October 7, 2008, the trial court summarily overruled the objections,
{¶ 6} Instead, Stumpff and Mahaffey s filed the present action against Harris and Valley Auto Parts on October 23, 2008. The appellants complaint accuses Harris of breaching his fiduciary duty to Stumpff and Mahaffey s by using Mahaffey s money to pay wages, taxes, and benefits to himself and other Valley Auto Parts employees for work performed in part for the benefit of Valley Auto Parts. The complaint alleges that Stumpff discovered this misuse of funds during the January 23, 2008, asset hearing mentioned above in connection with Mont. C.P. Case No. 2003-CV-5624. The complaint further alleges that Stumpff s efforts to address the issue in that case proved futile.
{¶ 7} The record reflects that the appellants obtained service of their complaint on Valley Auto Parts on October 25, 2008, and on Harris on October 28, 2008. Thereafter, on November 18, 2008, attorney Alfred Schneble entered an appearance “on behalf of the Defendant Richard L. Harris[.]” At 8:57 a.m. on December 1, 2008, after the time for filing an answer had expired, Stumpff and Mahaffey s moved for a default judgment on their complaint. Their motion indicated that attorney Schneble had been served by e-mail and ordinary mail. At 2:40 p.m. that same day, Schneble filed a motion for leave to file an answer out of time. The brief motion reads: “Now comes the Defendant Richard L. Harris by and through his undersigned counsel and hereby moves this Court for an Order Granting leave to file an Answer out of time. Counsel was
{¶ 8} The appellants filed a memorandum opposing the motion for leave to answer. They criticized the motion because it lacked an affidavit. They also argued that Schneble s proffered justifications for a late filing did not constitute excusable neglect under
{¶ 9} In their first assignment of error, the appellants contend the trial court erred in allowing Harris and Valley Auto Parts to file an answer out of time instead of entering default judgment against them. They raise several arguments in support. First, they contend Valley Auto Parts should not have been permitted to answer because it did not join in Harris motion for leave to do so. Second, they point out that the trial court s entry granting leave included no finding of “excusable neglect.” Third, the appellants stress that Harris did not seek leave until after they moved for default
{¶ 10} Upon review, we find the foregoing arguments to be unpersuasive. ”
{¶ 11} “Neglect under
{¶ 12} In the present case, the appellants first contend Valley Auto Parts should not have been permitted to answer because it did not join in Harris motion for leave to do so. As set forth above, the motion for leave filed by attorney Schneble on December 1, 2008 was filed on behalf of “the Defendant Richard L. Harris[.]” The motion makes no mention of defendant Valley Auto Parts. Nevertheless, we note that the answer, which was filed contemporaneously with the motion for leave, was filed by Schneble on behalf of the “Defendants.” While counsel certainly should have been more careful, under these circumstances the motion for leave reasonably may be construed as applying to both Harris and Valley Auto Parts, which the complaint alleges is Harris alter ego.
{¶ 13} The appellants next point out that the entry granting leave to file an answer lacked a finding of “excusable neglect.” We agree with this observation. As set forth above, the trial court s entry stated: “Upon Motion of the Defendant and for good cause shown, the Court hereby grants Defendant s Motion for Leave to File an Answer Out of Time.” (Emphasis added). When the time for performing a required act has not yet expired,
{¶ 14} Here the trial court s reference to “good cause shown” aligns more closely with the standard for extending the time to act when such time has not expired. The parties agree, however, that the time for Harris and Valley Auto Parts to answer the complaint had expired prior to December 1, 2008. Despite the trial court s word choice,
{¶ 15} On the issue of excusable neglect, the appellants stress that Harris did not seek leave until after they moved for default judgment. They also contend attorney Schneble s motion for leave failed to establish excusable neglect. In particular, they criticize Schneble s conclusory reference to a “lengthy trial” and his reliance on a “busy holiday,” which they argue is tantamount to an admission of inexcusable neglect.
{¶ 16} Although the issue is close, we cannot say the trial court abused its discretion in allowing Harris and Valley Auto Parts to file an answer a few days out of time. As set forth above, whether neglect is excusable or inexcusable requires consideration all the surrounding facts and circumstances. One of those facts is the existence of the appellants motion for default judgment, which was filed several hours before the motion for leave to answer. To some extent, the existence of a pending motion for default judgment militates against granting leave. Cf. Marion Production Credit Assn, 40 Ohio St.3d at 272 ( “Until a motion for default is filed, it is presumed that the complaining party is not entitled to a default judgment, which fact serves to enlarge the discretion of the trial court to allow a delayed responsive pleading.“). We note too that some courts have found delays occasioned by a busy trial schedule and holidays
{¶ 17} On the other hand, the fact that it may not be an abuse of discretion to deny leave based on a busy schedule or a hectic holiday does not mean that it necessarily is an abuse of discretion to grant leave for these reasons. Writing for this court in Brown v. Household Realty Corp., Miami App. No. 2003-CA-24, 2003-Ohio-5414, Judge William Wolff astutely observed: “[W]hether a party s action or inaction constitutes excusable neglect is commended to the discretion of the trial court, which means that an appellate court must accord the trial court a certain decisional latitude in determining whether its ruling is an abuse of discretion. Therefore, in a close case, the trial court s determination of whether certain action or inaction constitutes excusable neglect may be upheld on appeal, regardless of what the trial court determines.” Id. at ¶18 (Emphasis added). We find this principle to be applicable here. Although we would be disinclined to reverse if the trial court had denied leave to answer out of time, we cannot say its act of granting leave was an abuse of discretion. While attorney Schneble s motion would have been more helpful if he had fleshed out his justifications with some details, the trial court did not abuse its discretion in taking his word, as an officer of the court, that his participation in a “lengthy trial” and a “busy
{¶ 18} Finally, we disagree with the appellants claim that “it remains problematical as to whether either appellee has filed an answer at all since leave was given only to Harris, not Valley and no answers were filed thereafter.” As set forth above, the motion for leave Schneble filed on behalf of Harris reasonably may be construed as applying to Valley Auto Parts as well. Moreover, an answer on behalf of Harris and Valley Auto Parts accompanied the motion for leave. Once the trial court granted leave, the answer became effective and did not need to be filed again. The first assignment of error is overruled.
{¶ 19} In their second assignment of error, the appellants claim the trial court erred in sustaining the motion for summary judgment filed by Harris and Valley Auto Parts on the basis of res judicata.
{¶ 20} In support of its ruling, the trial court reasoned that Stumpff could have moved to amend his complaint in Mont. C.P. Case No. 2003-CV-5624 to add a new claim against Harris for misusing Mahaffey s funds for the benefit of Valley Auto Parts. Although judicial dissolution already had been ordered, the trial court noted that no determination had been made as to “the financial rights and obligations of the parties” when Stumpff discovered Harris alleged wrongdoing in January 2008. In any event, the trial court noted that Stumpff did raise the issue in Mont. C.P. Case No. 2003-CV-5624, albeit not through a formal amendment of the complaint. The trial court reasoned that
{¶ 21} On appeal, Stumpff and Mahaffey s raise four arguments against the trial court s ruling. First, they contend res judicata does not apply because their claim for Harris misuse of Mahaffey s money, which allegedly began in 2005, did not arise out of the same nucleus of operative facts as the prior action, which was filed in 2003 and involved the dissolution of Mahaffey s. Second, the appellants argue that the law-of-the case doctrine precluded them from amending their complaint in Mont. C.P. Case No. 2003-CV-5624 to add a new claim against Harris for misusing Mahaffey s money. As set forth above, in our 2006 ruling affirming a finding of judicial dissolution, we also upheld the trial court s denial of a motion for leave to amend to add a different claim. In light of this ruling, the appellants claim the law of the case barred yet another attempt to amend. Third, the appellants claim that a separate lawsuit to recover money from Harris, rather than seeking recovery within the dissolution proceeding, is the proper vehicle for pursuing their claim. Fourth, the appellants argue that res judicata does not apply because no final judgment has been entered in Mont. C.P. Case No. 2003-CV-5624.
{¶ 22} The doctrine of res judicata requires a party to present every ground for relief in the first action or be forever barred from asserting it. Natl. Amusements, Inc. v. Springdale (1990), 53 Ohio St.3d 60, 62. “It has long been the law of Ohio that an existing final judgment or decree between the parties to litigation is conclusive as to all
{¶ 23} The appellants first two arguments rest on the premise that the present claims against Harris were not litigated in the prior action and could not have been litigated there. The first argument presumes that the claims were not litigated and suggests that they could not have been because they do not even share a common nucleus of operative facts with the claims at issue in the prior case. The second argument asserts that the present claims could not have been litigated in the prior case because the law-of-the-case doctrine precluded amending the pleadings to add them. Both of these arguments fail, however, because the present claims actually were litigated in the prior action.
{¶ 24} As indicated above, Mahaffey’s filed a formal “notice of claims” against Harris on July 2, 2008, seeking recovery of the funds he allegedly misappropriated for his operation of Valley Auto Parts. The record reflects that these are the same funds at issue in the present lawsuit. The receiver’s July 9, 2008, report in Mont. C.P. Case No. 2003-CV-5624 noted the existence of Mahaffey’s claims along with numerous others. The receiver’s report did not include Mahaffey’s claims against Harris among those the receiver found to be valid. Stumpff and Mahaffey’s twice objected. The trial court overruled the objections and ultimately approved the receiver’s proposed distribution of the liquidation proceeds. In so doing, the trial court necessarily rejected the same argument that the appellants are advancing in the present lawsuit.
{¶ 25} The appellants contend in their third argument, however, that the prior
{¶ 26} “This section (now R.C. 1701.91), however, does not require that actions brought by the receiver to recover monies due the corporation, or property or assets belonging to it, should be brought in the action for dissolution. If the receiver had sought to recover money or property for the dissolved corporation, it would have been necessary for him to have brought an independent action. In our judgment, the plaintiffs in error, desiring to pursue their remedies against third parties named and the plaintiffs, should file an independent suit for that purpose.”
{¶ 27} Upon review, we find Rundell to be distinguishable. As the Tenth District Court of Appeals recognized in Dehoff v. Veterinary Hosp. Operations of Cent. Ohio, Inc., Franklin App. No. 02AP-454, 2003-Ohio-3334, Rundell involved claims in a dissolution proceeding being asserted against non-parties to the action. Id. at ¶101. Claims against a party to a dissolution proceeding properly are brought as part of that action. Id. at ¶100-101. Indeed, the Revised Code expressly authorizes a trial court to require parties to a dissolution proceeding to present and prove their claims and to make all demands regarding the dissolved corporation s property. Dehoff, at ¶93-99, quoting
{¶ 28} Finally, we turn to the appellants argument that no final judgment exists in Mont. C.P. Case No. 2003-CV-5624. In support, the appellants cite
{¶ 30} As set forth above, the trial court ordered Mahaffey s judicially dissolved on December 6, 2005. In its ruling, the trial court stated that the dissolution would be effective upon the filing of a final judgment entry with the Secretary of State as required by
{¶ 32} Given that finality has not attached in Mont. C.P. Case No. 2003-CV-5624, the appellants claims against Harris in that case may be pursued further on appeal whenever final judgment is entered. But the appellants cannot simultaneously pursue their claims in the present lawsuit while the same claims remain part of a pending dissolution action in the same court. Cf. Castrataro v. Urban, 155 Ohio App.3d 597, 608, 2003-Ohio-6953, ¶58 (“Moreover, plaintiff s pursuit of her claim before this court while simultaneously pursuing the same claim before the court that first acquired jurisdiction to consider the claim served to harass the defendant and cause him considerable expense.“). We are aware of no authority that would allow a plaintiff separately to litigate the same claims in the same court at the same time. In any event, this is an issue for the trial court and the parties to address on remand.
{¶ 33} Based on the reasoning set forth above, we find no abuse of discretion in the trial court s decision to allow Harris and Valley Auto Parts to file an answer out of time. We conclude, however, that the trial court erred in entering summary judgment against the appellants on the basis of res judicata. Accordingly, we reverse the trial court s entry of summary judgment and remand the cause for further proceedings.
{¶ 34} Judgment reversed and cause remanded.
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Copies mailed to:
Konrad Kuczak
Alfred W. Schneble III
Hon. Mary L. Wiseman