978-1285770178 Case Printout Case CPC-06-05

subject Type Homework Help
subject Pages 17
subject Words 4538
subject Authors Roger LeRoy Miller

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wrecker and procuring vehicles for salvage purposes. Stumpff was listed as the
that time, Mahaffey's continued to pay Stumpff $2,500.00 a month as well as
provide him health insurance benefits. Although Stumpff asserts otherwise,
Harris testified that he asked him to return to work on numerous occasions, but
Stumpff refused and allegedly threatened Harris. Consequently, Harris stopped
paying a salary to Stumpff and discontinued his health benefits in May of 2003.
business to cover checks it had already written.
*2 {¶ 9} Harris and Stumpff then attempted to enter into negotiations for one of
them to buy out the other's interest in the business. It is apparent from the results
of these negotiations that they had widely differing opinions as to the value of
Mahaffey's. At one point, Harris offered Stumpff approximately $30,000.00 for his
premises. The magistrate ultimately discounted Hall's opinion regarding the fair
market value of Mahaffey's finding that he was neither offered nor accepted as a
valuation expert at trial.
*2 {¶ 11} Harris, on the other hand, offered the testimony of an accountant,
William Driver, C.P.A., with respect to the value of the business. Based on a
*2 {¶ 12} After buy-out negotiations failed, Stumpff filed suit, claiming that Harris
breached his fiduciary duty by: 1) ousting him from his employment position at
Mahaffey's and refusing to pay his salary and health benefits; 2) converting
business opportunities to his own advantage; and 3) refusing to permit Stumpff to
enter the business premises. Harris filed a counterclaim seeking judicial
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judicially dissolved pursuant to . The trial court subsequently overruled Stumpff's
objections to the magistrate's decision and adopted said decision in an opinion
issued on December 6, 2005. It is from this judgment that Stumpff now appeals.
II
*3 {¶ 14} Stumpff' s first assignment of error is as follows:
magistrate's decision, the trial court is not required to follow or accept the findings
or recommendations of its magistrate. and In accordance with , the trial court
must conduct an independent review of the facts and conclusions contained in
the magistrate's report and enter its own judgment. . Thus, the trial court's
standard of review of a magistrate's decision is de novo.
that the trial court's actions were arbitrary or unreasonable. . Presumptions of
validity and deference to a trial court as an independent fact-finder are embodied
in the abuse of discretion standard. Whiting, supra.
*3 {¶ 18} An abuse of discretion means more than an error of law or judgment; it
implies that the trial court's attitude was unreasonable, arbitrary, or
fair market value of Mahaffey's. Hall's testimony, if believed, places the value of
the business at $450,000.00, while Harris' expert testified that the business was
worth between approximately $17,000.00 and $27,300.00.
*4 {¶ 20} During trial, when Stumpff's counsel asked Hall what his professional
opinion was with respect to the value of Mahaffey's, defense counsel lodged an
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one transaction, never saw the books, never witnessed anything with regard to
the books, one day out of all the years that Mahaffey's has been there.
*4 {¶ 23} “And we don't-we can't see for the record that he would qualify as an
expert to make an opinion about the value when he has one comparable
*4 {¶ 25} In her written decision issued on November 24, 2004, the magistrate,
however, made the following statement with respect to her ruling on Harris'
objection to Hall's testimony at trial:
*4 {¶ 26} “Although the Court sustained the objection to Hall's opinion of the fair
market value of the business, the opinion was proffered that the value of
out by one of the parties. Clearly, the magistrate did not initially exclude the
testimony of Hall. She was free, however, to give Hall's testimony zero weight in
contrast to the valuation testimony offered by Harris' expert, William Driver,
C.P.A., when assessing the value of the business. We note that the magistrate
concluded in her written decision that “Hall does not have any expertise in
the valuation of Mahaffey's.
*4 {¶ 29} Moreover, we find that the trial court committed harmless error when it
repeated in its decision the magistrate's incorrect statement that she had
sustained the objection to Hall's testimony. No prejudice resulted to the parties as
a result of this incorrect statement. After conducting a de novo review of the
review of the record in the instant matter, we find that the trial court did not abuse
its discretion when it held that Hall was not qualified to provide said expert
valuation testimony and discounted his testimony on that basis.
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5
when it ordered judicial dissolution pursuant to on the basis that both Harris and
Stumpff were deadlocked with respect to the management of the business.
Essentially, Stumpff asserts that there was no evidence presented at trial to
support the magistrate's decision to order a dissolution under the . We disagree.
*5 {¶ 34} states, in pertinent part, as follows:
deadlocked in the management of the of the corporate affairs and the
shareholders are unable to break the deadlock, or when it is established that the
corporation has an uneven number of directors and that the shareholders are
deadlocked in voting power and unable to agree upon or vote for the election of
directors as successors to directors whose terms normally would expire upon the
specified in this section.”
*5 {¶ 39} Stumpff did not raise this argument at any point before or during the
trial before the magistrate. Instead, Stumpff attempted to advance this argument
after the conclusion of the trial in a post-trial brief. Additionally, Stumpff attempts
to argue for the first time on appeal that pursuant to , he was entitled to, but did
these objections for the purposes of this appeal.
*6 {¶ 40} With respect to his request for judicial dissolution, Harris' makes the
following averments in his counterclaim:
*6 {¶ 41} “25. Two (2) years ago, Plaintiff Stumpff said he needed ‘time off’ and
left the business for two (2) years.
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*6 {¶ 43} “27. Plaintiff Stumpff has taken $54,000.00 in salary without working
and has fraudulently withdrawn $15,000.00 plus $1,000.00 in two checks from
the corporate checking account without any authorization and for his own use, a
total of $70,000.00 in two (2) years.
*6 {¶ 44} “28. Plaintiff Stumpff has been terminated as an employee of the
demonstrate that the two directors and sole shareholders, Richard Harris and
Kenneth Stumpff, are deadlocked in the management of the corporate affairs.
Harris' counterclaim as well as the testimony offered at trial clearly establish that
there are two directors and two fifty-percent shareholders in Mahaffey's, Inc., i.e.
plaintiff-appellant Stumpff and defendant-appellee Harris. Harris requests that the
thus impairing the ability of the business to operate effectively. Contrary to
Stumpff's assertions, it is abundantly clear that Harris and Stumpff were
hopelessly deadlocked in the management of the corporate affairs. Thus, the trial
court did not err when it affirmed the decision of the magistrate which ordered
judicial dissolution pursuant to .
PROSPECTIVE PURCHASER OF MAHAFFEY'S ASSETS A REASONABLE
OPPORTUNITY TO CONTINUE THE BUSINESS AT THE VALLEY STREET
LOCATION.”
*7 {¶ 50} In his third assignment, Stumpff contends that the trial court erred
when it ordered judicial dissolution without conditioning Harris' sale of Mahaffey's
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7
office is located; the names and addresses of its directors and officers; the name
and address of a statutory agent; and, if desired, such other provisions with
respect to the judicial dissolution and winding up as are considered necessary or
continuing the auto salvage operation for himself post-dissolution. In support of
this assertion, Stumpff directs us to a bankruptcy case from Pennsylvania in
which the court found that “although the president of a debtor corporation has the
right to terminate [a] lease and evict the debtor, because the lease is valuable,
the president is barred from terminating it because of the fiduciary duty which he
the subject property in any manner he sees fit. Harris cannot breach his fiduciary
duty to an entity that no longer exists, and at no point in time has he attempted to
evict Mahaffey's from the Valley Street address while it is still a going concern.
Once the business is dissolved and liquidated, however, the trial court cannot
force Harris to lease the property to anyone. Thus, we find that the trial court did
*8 {¶ 56} “THE TRIAL COURT COMMITTED PREJUDICIAL ERROR BY
DETERMINING THAT STUMPFF HAD BREACHED HIS FIDUCIARY DUTY TO
MAHAFFEY'S.”
*8 {¶ 57} In his fourth assignment, Stumpff contends that the trial court erred
when if found that Stumpff breached his fiduciary duty to Mahaffey's. Initially,
company had been a close corporation, then the plaintiffs could have maintained
a direct cause of action against it. Id. Neither party disputes that Mahaffey's is
close corporation, and that Harris and Stumpff are its only shareholders. Thus,
the holding in Weston is inapplicable to the instant case, and Harris is not barred
page-pf8
8
from bringing a direct cause of action against Stumpff for breach of fiduciary duty.
*8 {¶ 58} Next, Stumpff argues that his actions in failing to report to work for
approximately two years and withdrawing $16,000.00 from Mahaffey's corporate
account for his own personal use did not constitute a breach of fiduciary duty. We
disagree.
*8 {¶ 59} “The ownership of a close corporation is limited to a small number of
people who are dependent on each other for the enterprise to succeed.” . “The
relationship between the shareholders must be one of trust, confidence and
loyalty if the close corporation is to thrive.” Id.
*8 {¶ 60} After Stumpff's wife passed away, Harris allowed him to take
trier of facts.” . The trial court agreed with the magistrate and found that Stumpff
did not attempt to return to work, despite the opportunity to do so, and thereby
breached his fiduciary duty to Harris and Mahaffey's as a matter of law.
*8 {¶ 61} Additionally, the magistrate found that Stumpff' s withdrawal of
$16,000.00 from Mahaffey's corporate account served no legitimate business
series of self-dealing transactions that were an unequivocal breach of his
fiduciary duty to Harris and Mahaffey's.
*9 {¶ 63} Stumpff' s fourth assignment of error is overruled.
VI
*9 {¶ 64} Stumpff's fifth assignment of error is as follows:
when he prohibited Stumpff from entering the business premises.
*9 {¶ 67} After a thorough review of the pleadings in this matter, we find that
Stumpff's initial complaint does not contain a cause of action for breach of
fiduciary duty concerning Harris' decision to increase the rent Mahaffey's paid to
him for the use of the property. Moreover, there is no evidence in the record that
page-pf9
fiduciary duty by prohibiting Stumpff from entering the business premises, we find
that the trial court did not abuse its discretion when it found that Harris
possessed valid reasons for forbidding Stumpff from entering the property.
Although Harris' motion for a restraining order was ultimately denied by the
magistrate, the trial court found that evidence adduced at trial clearly
VII
*9 {¶ 70} Stumpff's sixth and final assignment of error is as follows:
*9 {¶ 71} “THE TRIAL COURT COMMITTED PREJUDICIAL ERROR BY
FAILING TO GRANT THE MOTION TO FILE AN AMENDED, SUPPLEMENTAL
COMPLAINT.”
the magistrate's decision or in any subsequent order, the trial court did not
address Stumpff's motion to file an amended complaint.
*10 {¶ 73} As Stumpff correctly notes, it is presumed that a trial court overrules
any pretrial motion on which it has failed to rule prior to the commencement of
the trial. . A trial court's denial of a motion for leave to amend a complaint will not
omission to be an abuse of discretion. Stumpff's motion for to file an amended
complaint was filed subsequent to the issuance of the magistrate's decision as
well as after Stumpff had filed his objections to her decision. Viewed in this light,
the trial court did not abuse its discretion when it failed to grant Stumpff's
untimely motion to amend the initial complaint.
concerning the value of the corporation or the parties' respective shares. Those
10
issues were deferred to determination if and when a receiver is appointed, which
on this record appears likely.
2
wrecker and procuring vehicles for salvage purposes. Stumpff was listed as the
that time, Mahaffey's continued to pay Stumpff $2,500.00 a month as well as
provide him health insurance benefits. Although Stumpff asserts otherwise,
Harris testified that he asked him to return to work on numerous occasions, but
Stumpff refused and allegedly threatened Harris. Consequently, Harris stopped
paying a salary to Stumpff and discontinued his health benefits in May of 2003.
business to cover checks it had already written.
*2 {¶ 9} Harris and Stumpff then attempted to enter into negotiations for one of
them to buy out the other's interest in the business. It is apparent from the results
of these negotiations that they had widely differing opinions as to the value of
Mahaffey's. At one point, Harris offered Stumpff approximately $30,000.00 for his
premises. The magistrate ultimately discounted Hall's opinion regarding the fair
market value of Mahaffey's finding that he was neither offered nor accepted as a
valuation expert at trial.
*2 {¶ 11} Harris, on the other hand, offered the testimony of an accountant,
William Driver, C.P.A., with respect to the value of the business. Based on a
*2 {¶ 12} After buy-out negotiations failed, Stumpff filed suit, claiming that Harris
breached his fiduciary duty by: 1) ousting him from his employment position at
Mahaffey's and refusing to pay his salary and health benefits; 2) converting
business opportunities to his own advantage; and 3) refusing to permit Stumpff to
enter the business premises. Harris filed a counterclaim seeking judicial
judicially dissolved pursuant to . The trial court subsequently overruled Stumpff's
objections to the magistrate's decision and adopted said decision in an opinion
issued on December 6, 2005. It is from this judgment that Stumpff now appeals.
II
*3 {¶ 14} Stumpff' s first assignment of error is as follows:
magistrate's decision, the trial court is not required to follow or accept the findings
or recommendations of its magistrate. and In accordance with , the trial court
must conduct an independent review of the facts and conclusions contained in
the magistrate's report and enter its own judgment. . Thus, the trial court's
standard of review of a magistrate's decision is de novo.
that the trial court's actions were arbitrary or unreasonable. . Presumptions of
validity and deference to a trial court as an independent fact-finder are embodied
in the abuse of discretion standard. Whiting, supra.
*3 {¶ 18} An abuse of discretion means more than an error of law or judgment; it
implies that the trial court's attitude was unreasonable, arbitrary, or
fair market value of Mahaffey's. Hall's testimony, if believed, places the value of
the business at $450,000.00, while Harris' expert testified that the business was
worth between approximately $17,000.00 and $27,300.00.
*4 {¶ 20} During trial, when Stumpff's counsel asked Hall what his professional
opinion was with respect to the value of Mahaffey's, defense counsel lodged an
one transaction, never saw the books, never witnessed anything with regard to
the books, one day out of all the years that Mahaffey's has been there.
*4 {¶ 23} “And we don't-we can't see for the record that he would qualify as an
expert to make an opinion about the value when he has one comparable
*4 {¶ 25} In her written decision issued on November 24, 2004, the magistrate,
however, made the following statement with respect to her ruling on Harris'
objection to Hall's testimony at trial:
*4 {¶ 26} “Although the Court sustained the objection to Hall's opinion of the fair
market value of the business, the opinion was proffered that the value of
out by one of the parties. Clearly, the magistrate did not initially exclude the
testimony of Hall. She was free, however, to give Hall's testimony zero weight in
contrast to the valuation testimony offered by Harris' expert, William Driver,
C.P.A., when assessing the value of the business. We note that the magistrate
concluded in her written decision that “Hall does not have any expertise in
the valuation of Mahaffey's.
*4 {¶ 29} Moreover, we find that the trial court committed harmless error when it
repeated in its decision the magistrate's incorrect statement that she had
sustained the objection to Hall's testimony. No prejudice resulted to the parties as
a result of this incorrect statement. After conducting a de novo review of the
review of the record in the instant matter, we find that the trial court did not abuse
its discretion when it held that Hall was not qualified to provide said expert
valuation testimony and discounted his testimony on that basis.
5
when it ordered judicial dissolution pursuant to on the basis that both Harris and
Stumpff were deadlocked with respect to the management of the business.
Essentially, Stumpff asserts that there was no evidence presented at trial to
support the magistrate's decision to order a dissolution under the . We disagree.
*5 {¶ 34} states, in pertinent part, as follows:
deadlocked in the management of the of the corporate affairs and the
shareholders are unable to break the deadlock, or when it is established that the
corporation has an uneven number of directors and that the shareholders are
deadlocked in voting power and unable to agree upon or vote for the election of
directors as successors to directors whose terms normally would expire upon the
specified in this section.”
*5 {¶ 39} Stumpff did not raise this argument at any point before or during the
trial before the magistrate. Instead, Stumpff attempted to advance this argument
after the conclusion of the trial in a post-trial brief. Additionally, Stumpff attempts
to argue for the first time on appeal that pursuant to , he was entitled to, but did
these objections for the purposes of this appeal.
*6 {¶ 40} With respect to his request for judicial dissolution, Harris' makes the
following averments in his counterclaim:
*6 {¶ 41} “25. Two (2) years ago, Plaintiff Stumpff said he needed ‘time off’ and
left the business for two (2) years.
*6 {¶ 43} “27. Plaintiff Stumpff has taken $54,000.00 in salary without working
and has fraudulently withdrawn $15,000.00 plus $1,000.00 in two checks from
the corporate checking account without any authorization and for his own use, a
total of $70,000.00 in two (2) years.
*6 {¶ 44} “28. Plaintiff Stumpff has been terminated as an employee of the
demonstrate that the two directors and sole shareholders, Richard Harris and
Kenneth Stumpff, are deadlocked in the management of the corporate affairs.
Harris' counterclaim as well as the testimony offered at trial clearly establish that
there are two directors and two fifty-percent shareholders in Mahaffey's, Inc., i.e.
plaintiff-appellant Stumpff and defendant-appellee Harris. Harris requests that the
thus impairing the ability of the business to operate effectively. Contrary to
Stumpff's assertions, it is abundantly clear that Harris and Stumpff were
hopelessly deadlocked in the management of the corporate affairs. Thus, the trial
court did not err when it affirmed the decision of the magistrate which ordered
judicial dissolution pursuant to .
PROSPECTIVE PURCHASER OF MAHAFFEY'S ASSETS A REASONABLE
OPPORTUNITY TO CONTINUE THE BUSINESS AT THE VALLEY STREET
LOCATION.”
*7 {¶ 50} In his third assignment, Stumpff contends that the trial court erred
when it ordered judicial dissolution without conditioning Harris' sale of Mahaffey's
7
office is located; the names and addresses of its directors and officers; the name
and address of a statutory agent; and, if desired, such other provisions with
respect to the judicial dissolution and winding up as are considered necessary or
continuing the auto salvage operation for himself post-dissolution. In support of
this assertion, Stumpff directs us to a bankruptcy case from Pennsylvania in
which the court found that “although the president of a debtor corporation has the
right to terminate [a] lease and evict the debtor, because the lease is valuable,
the president is barred from terminating it because of the fiduciary duty which he
the subject property in any manner he sees fit. Harris cannot breach his fiduciary
duty to an entity that no longer exists, and at no point in time has he attempted to
evict Mahaffey's from the Valley Street address while it is still a going concern.
Once the business is dissolved and liquidated, however, the trial court cannot
force Harris to lease the property to anyone. Thus, we find that the trial court did
*8 {¶ 56} “THE TRIAL COURT COMMITTED PREJUDICIAL ERROR BY
DETERMINING THAT STUMPFF HAD BREACHED HIS FIDUCIARY DUTY TO
MAHAFFEY'S.”
*8 {¶ 57} In his fourth assignment, Stumpff contends that the trial court erred
when if found that Stumpff breached his fiduciary duty to Mahaffey's. Initially,
company had been a close corporation, then the plaintiffs could have maintained
a direct cause of action against it. Id. Neither party disputes that Mahaffey's is
close corporation, and that Harris and Stumpff are its only shareholders. Thus,
the holding in Weston is inapplicable to the instant case, and Harris is not barred
8
from bringing a direct cause of action against Stumpff for breach of fiduciary duty.
*8 {¶ 58} Next, Stumpff argues that his actions in failing to report to work for
approximately two years and withdrawing $16,000.00 from Mahaffey's corporate
account for his own personal use did not constitute a breach of fiduciary duty. We
disagree.
*8 {¶ 59} “The ownership of a close corporation is limited to a small number of
people who are dependent on each other for the enterprise to succeed.” . “The
relationship between the shareholders must be one of trust, confidence and
loyalty if the close corporation is to thrive.” Id.
*8 {¶ 60} After Stumpff's wife passed away, Harris allowed him to take
trier of facts.” . The trial court agreed with the magistrate and found that Stumpff
did not attempt to return to work, despite the opportunity to do so, and thereby
breached his fiduciary duty to Harris and Mahaffey's as a matter of law.
*8 {¶ 61} Additionally, the magistrate found that Stumpff' s withdrawal of
$16,000.00 from Mahaffey's corporate account served no legitimate business
series of self-dealing transactions that were an unequivocal breach of his
fiduciary duty to Harris and Mahaffey's.
*9 {¶ 63} Stumpff' s fourth assignment of error is overruled.
VI
*9 {¶ 64} Stumpff's fifth assignment of error is as follows:
when he prohibited Stumpff from entering the business premises.
*9 {¶ 67} After a thorough review of the pleadings in this matter, we find that
Stumpff's initial complaint does not contain a cause of action for breach of
fiduciary duty concerning Harris' decision to increase the rent Mahaffey's paid to
him for the use of the property. Moreover, there is no evidence in the record that
fiduciary duty by prohibiting Stumpff from entering the business premises, we find
that the trial court did not abuse its discretion when it found that Harris
possessed valid reasons for forbidding Stumpff from entering the property.
Although Harris' motion for a restraining order was ultimately denied by the
magistrate, the trial court found that evidence adduced at trial clearly
VII
*9 {¶ 70} Stumpff's sixth and final assignment of error is as follows:
*9 {¶ 71} “THE TRIAL COURT COMMITTED PREJUDICIAL ERROR BY
FAILING TO GRANT THE MOTION TO FILE AN AMENDED, SUPPLEMENTAL
COMPLAINT.”
the magistrate's decision or in any subsequent order, the trial court did not
address Stumpff's motion to file an amended complaint.
*10 {¶ 73} As Stumpff correctly notes, it is presumed that a trial court overrules
any pretrial motion on which it has failed to rule prior to the commencement of
the trial. . A trial court's denial of a motion for leave to amend a complaint will not
omission to be an abuse of discretion. Stumpff's motion for to file an amended
complaint was filed subsequent to the issuance of the magistrate's decision as
well as after Stumpff had filed his objections to her decision. Viewed in this light,
the trial court did not abuse its discretion when it failed to grant Stumpff's
untimely motion to amend the initial complaint.
concerning the value of the corporation or the parties' respective shares. Those
10
issues were deferred to determination if and when a receiver is appointed, which
on this record appears likely.

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