Author Archives: Finney Law Firm

In a case expected to be appealed to Ohio’s Supreme Court, Hamilton County’s First District Court of Appeals upheld the ruling of Common Pleas Judge Steven Martin in Vontz v. Miller, et al., 2016-Ohio-8477, that the fifty percent owner of a closely held corporation owes her co-owner a heightened fiduciary duty of “utmost good faith.”

Two siblings share ownership of a beer and wine distributorship – both owning fifty percent of the shares of the company. Thus, argued Miller, neither has a controlling ownership. However, in this instance, the company’s board consisted of Vontz, Miller, and Miller’s husband and two children. Thus, while Vontz is a fifty percent shareholder, the board is dominated by Miller.

Vontz, in an effort to balance control of the company, had sought to call a shareholder meeting to elect a new board. Miller refused. Vontz then brought suit against his sister and her family.

Judge Martin issued an injunction to force a shareholder meeting. Miller and her family appealed. Arguing, in part that Miller, as a fifty percent owner (i.e. less than a majority owner) did not owe a fiduciary duty to her brother who also owned exactly fifty percent of the company. Absent a fiduciary duty to her brother, Miller should not be required to attend or otherwise acquiesce to a shareholder meeting.

The court found that where, as here, one owner dominated the board and refused to adhere to corporate formalities (e.g. holding shareholder meetings where that owner’s family could be removed from the board), then the heightened fiduciary does attach – despite the semantic arguments over whether there can ever be a “controlling shareholder” where two owners each hold fifty percent ownership:

Because Miller so dominated the corporation that she was in control to the exclusion of Vontz, the unusual facts of this case demonstrated that Miller was the controlling shareholder, even though she owned only 50 percent of the voting shares.

…

Under her heightened duty of good faith and loyalty, she had an obligation of fairness to Vontz. Her duty required her to act for his benefit by protecting his right to vote for the election of new directors. She breached that duty because, as Vontz clearly demonstrated, he was unable to exercise his voting power due to a freeze-out by Miller.

The Court of Appeals, while ordering modifications to some of the particulars of Judge Martin’s ruling, upheld the substance of Martin’s ruling.

Closely held corporations bring with them unique challenges, particularly when the owners are family as well as business partners. Finney Law Firm, can help you avoid these pitfalls ahead of time and navigate through them if a challenge has already arisen.

It is a common maxim that you are always liable for your own torts. Meaning, if someone is injured as the result of your own negligence, you will be liable, even when acting through a corporation or limited liability company.

A recent 12th District Court of Appeals case out of Preble County (Whitson v. One Stop Rental Tool and Party, et al. CA 2016-03-004) illustrates one major caveat to the maxim: parties to a contract can agree to hold the other party harmless for negligence, nonetheless, “contract clauses that relieve a party from its own negligence, while generally upheld, are not favored by the law and are to be strictly construed.”

Richard rented a bounce house from One Stop Rental Tool and Party. While Richard was unloading the bounce house from his pickup truck, the strap he was pulling broke and Richard fell out of the truck, onto the ground, suffering serious injuries.

Richard and his wife sued One Stop alleging negligence, loss of consortium, and malicious conduct (alleging that One Stop disregarded the probability that Richard would be injured in such a manner).

The rental agreement included a Release that read in relevant portion:

I understand and acknowledge that the activity to be engaged in through my rental of an inflatable, interactive amusement device, brings with it both known and unanticipated risks to guests, my invitees, and myself. Those risks include, but are not limited to fallings, slipping, crashing, and colliding and could result in injury, illness, disease, emotional distress, death and/or property damage to myself or my guests and invitees. I voluntarily release, indemnify, hold harmless and discharge One Stop Tool Rental, Inc. from any and all liability claims, demands, actions or rights of actions, whether personal to me or to a third party which are related to[,] arise out of or are in any way connected with my rental of the unit, including those allegedly attribute[d] to negligent acts or omissions. I agree to reimburse any reasonable attorney’s fees and costs which may be incurred by One Stop Rental Tool Rental, Inc. in the defense of any such liability claim, demand, action or right of action.

And a Hold Harmless Clause:

HOLD HARMLESS AGREEMENT. Customer agrees to assume the risks of, and hold Dealer harmless for, property damage and personal injuries, including death and dismemberment, caused by the equipment and/or arising out of Dealer’s negligence.

Preble County Common Pleas Judge David NAbruzzo, a no nonsense judge whom we have had the pleasure of appearing before, granted summary judgment against Richard, finding that the release and hold harmless clauses barred his claims, but allowing the wife’s loss of consortium claim to proceed.

The Court of Appeals noted that, “Richard did not read either document before signing them.”

Business owners should take this opportunity to review your contracts to determine if a hold harmless clause or mutual release clause are necessary; and make sure that such clauses will survive being “strictly construed” by the court. For consumers, this should serve as a reminder to read and understand the contract before signing.