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Merletti v. E-Merging Technologies Group, Inc.

Court of Appeals of Ohio, Eighth District, Cuyahoga

June 14, 2018


          Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-12-796025

          ATTORNEYS FOR APPELLANT Richard C. Haber Daniel M. Connell Haber, Polk & Kabat, L.L.P.

          ATTORNEYS FOR APPELLEES For Jeremy A. Samide Louise M. Mazur Kate M. Bradley Marc B. Merklin Kyle A. Shelton Brouse McDowell, L.P.A.

          For Ann Katigbak William D. Edwards Ulmer & Berne, L.L.P. Edward J. Stoll

          BEFORE: Jones, J., McCormack, P.J., and Keough, J.



         {¶1} Plaintiff-appellant Lewis Merletti ("Merletti") appeals from the trial court's August 1, 2017 decision granting summary judgment in favor of defendants-appellees Jeremy Samide ("Samide") and Ann Katigbak ("Katigbak"). For the reasons that follow, we affirm.

         I. Factual and Procedural Background

         {¶2} Samide and Katigbak, along with nonparties Don Heestand ("Heestand") and Brian McCune, founded defendant-appellee E-Merging Technologies Group, Inc. ("ETG" or "the company"). Pursuant to a January 1, 2001 shareholder agreement, Heestand was the chief executive officer and owned 85 shares of the company's stock; Samide was the treasurer and owned five shares; and Katigbak was the secretary and owned five shares. McCune owned the remaining five shares of the company's stock. Heestand, Samide, and Katigbak were primarily responsible for the day-to-day operations of the company.

         {¶3} In 2007, Heestand recruited Merletti to sit on ETG's senior advisory board and Merletti agreed. Heestand gifted Merletti ten shares of the company's stock in exchange for his participation. Merletti thereby became an ETG minority shareholder and advisory board member; it is undisputed that Merletti was never an ETG employee. According to Merletti, Heestand told him that his shares in the company would one day make him a millionaire.

         {¶4} In June 2008, Heestand passed away. At the time of Heestand's passing, ETG was a multimillion dollar company. After Heestand's death, Samide and Katigbak took control of the company and, according to Merletti, did so in a manner to benefit themselves and to the detriment of the shareholders. For example, Merletti detailed "dramatic pay increases [Samide and Katigbak took] without any notice to or approval by the other shareholders."

         {¶5} In March 2009, a meeting was held to nominate and appoint a board of directors for the company. As a result of the meeting, seven people were appointed: Samide, Katigbak, Merletti, Charles Painter, Thomas Kasza, Michael Dobeck, and Jacquelyn Huron.

         {¶6} In July 2009, Merletti was appointed as chairman of the board of directors, and was compensated for his services in that position. He was also provided a commission for any business that he helped the company develop. However, Merletti never received a salary or other employment-related compensation from ETG.

         {¶7} As a result of Heestand's passing, Samide was promoted to the position of chief executive officer, and he and the company executed an employment agreement. Katigbak also executed a similar employment agreement with the company.

         {¶8} Merlettti contends that the agreements were "surreptitiously" executed without board approval, and provided "exorbitant" compensation and "significant fringe benefits" for Samide and Katigbak. The agreements included provisions that if Samide or Katigbak were terminated or had their salaries reduced, they were entitled to have ETG repurchase their shares of stock. Additionally, after Heestand's passing, the company, as required by the shareholder agreement, entered into an agreement with Heestand's estate to purchase his shares in the company.

         {¶9} After this reorganization in the company, Samide and Katigbak each owned 20 shares in ETG; Merletti retained his original ten shares; and other employees/directors owned the remaining shares.

         {¶10} Further, because a number of the company's shareholders were directors but not employees of the company (including Merletti), the shareholders executed a first amendment to the 2001 shareholder agreement. Pursuant to the amendment, the company had the right, in its sole discretion, to purchase a director's shares in ETG upon the director's termination or resignation from service to the company in the same manner that the company could elect to purchase the shares of employees who resigned or were terminated from the company. The amended agreement provided that

[f]or purposes of the [shareholder agreement], a member of the Board of Directors of [the] Company shall be considered an employee and removal or resignation shall be considered a right for the Company to purchase the Director's shares at Book Value pursuant to Section 4 of the [shareholder agreement].[1]

         {¶11} The record demonstrates that the company's financial outlook declined after Heestand's death. The board secured an outside accounting firm to conduct a forensic audit of the company for the year 2011. The audit revealed an unexplained increase of over $975, 500 from 2010 to 2011 in "general and administrative" expenses.

         {¶12} In August 2012, a board meeting was held, and the results of the audit were reviewed. According to Merletti, the unexplained increase was not properly accounted for. The board decided that it was going to conduct another audit for the years 2010-2012. Merletti sought to obtain documents relative to ETG, including financial documents. The company, through Katigbak, refused to provide Merletti with any financial documents.

         {¶13} After Merletti raised his concerns, Samide scheduled a "special" shareholder meeting for September 7, 2012. The purpose of the meeting was to fix the number of board members to three and elect those members. During his deposition, Samide testified that he felt this was necessary because Merletti and some of the other board members had become "adversarial" toward him, and he felt that reducing the board to three members would help protect himself, his family, and ETG. Believing that his removal from the board was certain, Merletti resigned.

         {¶14} After Merletti's resignation, the company provided Merletti notice of its intention to purchase his shares at book value as provided under the shareholder agreement and the first amendment to the agreement. In October 2012, the company informed Merletti that his shares in ETG had a negative book value and, thus, the company had no obligation to pay him for the shares.

         {¶15} In November 2012, Merletti initiated this action against ETG, Samide, and Katigbak seeking (1) a declaratory judgment regarding the "appropriate method for calculating the value of [his] shares" due to his resignation from the board (Count 1); (2) specific performance of the shareholder agreement to value his shares at the fair market value (Count 2); and (3) production of the company's financial documents (Count 3). Merletti also asserted claims against the defendants for breach of fiduciary duty (Count 4) and fraud (Count 5).

         {¶16} ETG, Samide, and Katigbak counterclaimed against Merletti for breach of contract, breach of fiduciary duty, tortious interference with business relations, and unjust enrichment. The defendants also filed a Civ.R. 12(B)(6) motion to dismiss Merletti's complaint. The trial court granted the motion to dismiss as it related to Counts 1, 2, and 3 of Merletti's complaint.

         {¶17} The case proceeded through discovery, and in June 2015, while the case was still pending, ETG filed a voluntary petition for bankruptcy under Chapter 7 of the United States Bankruptcy Code. Despite the bankruptcy filing, the case remained active on the common pleas docket, and Samide and Katigbak filed motions for summary judgment.

         {¶18} As a result of proceedings in the bankruptcy court, Merletti dismissed his claims against ETG and ETG dismissed its counterclaims against Merletti. Thus, Merletti's remaining claims were against Samide and Katigbak for breach of fiduciary duty and fraud.

         {¶19} In August 2017, the trial court rendered its decision on Samide's and Katigbak's motions for summary judgment. The court found that it was "constrained by the bankruptcy proceeding of [ETG] from allowing [Merletti] to proceed forward with his remaining claims in the matter." The trial court therefore granted summary judgment in favor of Samide and Katigbak and against Merletti. Merletti now appeals, contending the following in his sole assignment of error:

The trial court erred by granting summary judgment in favor of Defendant-Appellees Jeremy Samide and Ann Katigbak based upon a finding that Plaintiff-Appellant Lewis Merletti's claims against Mr. Samide and Ms. Katigbak personally were derivative, became the property of the bankruptcy estate for the company in which he, Mr. Samide, and Ms. Katigbak were shareholders, and were resolved in the bankruptcy proceedings.

         {¶20} Additional facts will ...

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