978-1285770178 Case Printout Case CPC-06-05

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Kenneth M. STUMPFF, Plaintiff-Appellant

Richard L. HARRIS, Defendant-Appellee.

alleging breach of fiduciary duty by Harris as well as numerous instances of self–

judicial dissolution of the corporation and liquidation of its assets.

December 8, 2004. On December 6, 2005, the trial court issued a decision

Stumpff filed a notice of appeal with this Court on December 19, 2005.

which Mahaffey’s was situated and charged the company rent for the use of the

property. Initially, she charged the business $600.00 for rent, but eventually

raised the price to $1,200.00 a month. Harris, Clara Mahaffey’s foster son,

inherited the land upon her death and raised the rent to $1,500.00 a month.

a functioning illiterate. His main duties at Mahaffey’s included operating the

Decided Sept. 15, 2006.

, J.

*1 {¶ 1} Plaintiff-appellant Kenneth M. Stumpff (hereinafter “Stumpff”) appeals

from a decision of the Montgomery County Court of Common Pleas which

adopted the decision of the magistrate which found for the defendant-appellee

relationship deteriorated, Stumpff and Harris were each 50% co-owners of an

auto salvage business located in Dayton, Ohio. Stumpff initially filed the suit

dealing on the part of Harris contrary to the interests of Stumpff. Along with his

answer to Stumpff’s complaint, Harris filed a counterclaim requesting judicial

dissolution of the business as well as a restraining order barring Stumpff from the

business premises.

2004, the magistrate issued a judgment on November 24, 2004, in favor of Harris

and ordering Stumpff to pay the costs of the action. Specifically, the magistrate

recommended the dismissal of Stumpff’s claims against Harris and ordered the

overruling Stumpff’s objections and adopting the decision of the magistrate.

*1 {¶ 4} As previously stated, Harris and Stumpff were 50% co-owners of

Mahaffey’s Auto Salvage, Inc. (hereinafter “Mahaffey’s”). Mahaffey’s has been in

existence since the 1960’s at which time Clara Mahaffey operated the business

as a sole proprietorship. After it was closed for a period of time, Clara Mahaffey,

with the help of Harris and Stumpff, reopened the business on May 13, 1993.

*1 {¶ 5} Until Clara Mahaffey died on March 10, 2002, she owned the land upon

Harris, who is listed as president of the company in the corporate documents,

also handles the bookkeeping. In March of 2004, two months prior to the trial

before the magistrate, Harris raised the rent on the property to $2,500.00 a

month without consulting Stumpff.

Mahaffey, testified that he never received a formal education and is, essentially,

Slip Copy, 2006 WL 2640232 (Ohio App. 2 Dist.), 2006 -Ohio- 4796

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.

*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.

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

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

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.

*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

issues were deferred to determination if and when a receiver is appointed, which

on this record appears likely.