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Auth v. Industrial Physical Capability Services, Inc.

Court of Appeals of Ohio, Ninth District, Summit

April 5, 2017

RICHARD J. AUTH Appellee/Cross-Appellant
v.
INDUSTRIAL PHYSICAL CAPABILITY SERVICES, INC. Appellant/Cross-Appellee and THOMAS B. GILLIAM Defendant

         APPEAL FROM JUDGMENT ENTERED IN THE COURT OF COMMON PLEAS COUNTY OF SUMMIT, OHIO CASE No. CV 2015 01 0446

          JOHN B. SCHOMER, DAVID J. LEWIS, MICHELE MORRIS, and TERRY J. EVANS, Attorneys at Law, for Appellant/Cross-Appellee.

          JEFFREY T. HEINTZ, LOUISE M. MAZUR, BRIDGET A. FRANKLIN, and LAURA F. FRYAN, Attorneys at Law, for Appellee/Cross-Appellant.

          JOHN C. WEISENSELL, Attorney at Law, for Defendant.

          DECISION AND JOURNAL ENTRY

          LYNNE S. CALLAHAN J.

         {¶1} Appellant/Cross-Appellee, Industrial Physical Capability Services, Inc. ("IPCS"), appeals from the judgment of the Summit County Court of Common Pleas. Additionally, Appellee/Cross-Appellant, Richard Auth, appeals from the court's judgment. This Court affirms.

         I.

         {¶2} IPCS is a corporation that performs physical capability testing for companies who want to assess the capabilities of potential and current employees. Dr. Thomas Gilliam formed IPCS in 1998 and created the mathematical model that the corporation uses to conduct its assessments. Dr. Gilliam operated IPCS and acted as its president and sole owner until 2010. By that time, however, IPCS was struggling financially. To secure additional capital, Dr. Gilliam approached his friend, Auth, and the two agreed that Auth would invest in the company in exchange for an ownership interest.

         {¶3} Dr. Gilliam and Auth memorialized their investment agreement in two letters of understanding, signed April 29, 2010, and October 17, 2010. Pursuant to the first letter, Auth agreed to provide IPCS with marketing assistance and a line of credit in exchange for a 25% ownership interest in the corporation. Pursuant to the second letter, Auth agreed to provide IPCS with an additional line of credit in exchange for another 20% ownership interest in the corporation. The second letter also provided that Auth would "become CEO [of IPCS] with the same compensation * * * and benefits as [Dr.] Gilliam once cash flow permits." There is no dispute that, as a result of the letters of understanding, Auth became a 45% owner of IPCS while Dr. Gilliam retained a 55% ownership interest.

         {¶4} In 2012, IPCS consulted with a law firm that prepared a shareholder buy/sell agreement for the corporation. Dr. Gilliam and Auth ultimately executed the agreement in October 2012 along with a joint action that ratified several resolutions for the corporation. The buy/sell agreement addressed a variety of issues related to the corporation's stock, including issues pertaining to its transferability and repurchase. Meanwhile, the joint action established that IPCS would have two directors, Dr. Gilliam and Auth. The joint action also named Dr. Gilliam and Auth as the corporation's president and vice president, respectively.

         {¶5} At some point in 2014, Dr. Gilliam and Auth experienced a rift. The rift caused IPCS to hire a different law firm to represent its corporate interests. Meanwhile, both Dr. Gilliam and Auth retained separate counsel for themselves. Their inability to resolve the rift that arose between them ultimately led to the filing of this lawsuit.

         {¶6} Auth initiated the current lawsuit by filing a complaint against both Dr. Gilliam and IPCS. Auth claimed that (1) IPCS breached the contract that it had with him pursuant to the letters of understanding, (2) Dr. Gilliam breached his fiduciary duties as IPCS' majority shareholder, (3) he was entitled to an accounting of IPCS' business records and financial information, and (4) he was entitled to declaratory judgment on a variety of issues. A portion of his claims revolved around the mathematical model that IPCS used to serve its clients. He alleged that Dr. Gilliam had only recently claimed to own the mathematical model himself, such that it was never IPCS' property. Auth asked the court to declare, among other things, that IPCS owned the mathematical model.

         {¶7} IPCS responded to Auth's complaint and filed several counterclaims against him. IPCS claimed that (1) Auth breached their contract, as memorialized in the letters of understanding, (2) Auth breached his fiduciary duties to IPCS, and (3) it was entitled to declaratory judgment on a variety of issues. A portion of IPCS' claims revolved around its contention that Auth had conspired with the corporation's former counsel to draft a buy/sell agreement that favored him personally. IPCS asked the court to rescind both the buy/sell agreement and the letters of understanding. It also asked the court to make a declaration regarding the mathematical model that it used in its operations. IPCS asked the court to declare that Dr. Gilliam was the owner of the mathematical model.

         {¶8} Dr. Gilliam responded separately to Auth's complaint. He too filed several counterclaims against Auth, but he also filed several cross-claims against IPCS. With regard to his counterclaims, he alleged that (1) Auth breached his fiduciary duties to IPCS and Dr. Gilliam, (2) he was entitled to rescission of the buy/sell agreement, and (3) he was entitled to declaratory judgment on a variety of issues. Meanwhile, he asserted cross-claims against IPCS based on his assertion that he owned the mathematical model it used in its operations. Dr. Gilliam alleged that IPCS owed him damages ...


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