Court No. 2001 CV 0304
L. English, for appellees.
B. Beranek, for appellant.
DECISION AND JUDGMENT
1} This is an appeal from the January 19, 2018
judgment of the Erie County Court of Common Pleas denying
appellant's motion for a new trial. Finding no error, we
affirm the judgment.
2} Appellant sets forth two assignments of error:
1. THE TRIAL COURT ERRED WHEN IT GRANTED APPELLEE'S ORAL
MOTION FOR DIRECTED VERDICT AT THE CLOSE OF APPELLANT'S
2. THE TRIAL COURT ERRED WHEN IT FAILED TO GRANT
APPELLANT'S MOTION FOR NEW TRIAL.
3} The facts of this case are fully set forth in our
decisions in Hanko v. Nestor, 6th Dist. Erie No.
E-11-055, 2012-Ohio-4488 ("Hanko I"), and
Hanko v. Nestor, 6th Dist. Erie No. E-15-041,
2016-Ohio-2976 ("Hanko II").
4} In May of 1994, appellant, Michael Nestor, and
appellee, Michael Hanko, formed H&N Construction, Inc.
("H&N"). Before establishing H&N, appellee
and appellant worked together for another construction
5} H&N had two executive directors, appellant
and appellee, and both owned 50 percent of the company.
Appellant was president, appellee was vice-president, and
appellant's wife, Betsy Nestor, was secretary. The
company also employed labor workers, and it used equipment
that appellant and appellee either brought to H&N or
purchased to contribute to H&N's production.
6} Until around mid-1999, appellant and appellee
received equal paychecks and profits, and the business was
going well. Then appellant and appellee's relationship
began to deteriorate, and appellee communicated that he
wanted to sell his interest in the company. He demanded
around $200, 000 for his share. Appellant was only willing to
pay him half of that price. There was no shareholder or
operating agreement in place and an impasse ensued.
7} Appellant continued to operate the business while
appellee was treated as if he retired and abandoned his
interests. Appellee filed a complaint against appellant in
November 1999, alleging that appellant had, among other
things, breached fiduciary duties to appellee and usurped
corporate opportunities. Appellant filed counterclaims
against appellee alleging similar causes of action. The case
was voluntarily dismissed without prejudice in April 2001.
8} Appellee re-filed the action in June 2001.
Appellant again filed counterclaims against appellee. The
cases were identical other than the addition of
appellee's brother, Robert Hanko, and Hanko Farms, Inc.
as parties to a third-party complaint filed by appellant and
9} In 2009, appellant filed two separate motions to
dismiss appellee's claims for failure to prosecute. On
July 2, 2009, the trial court dismissed appellee's
complaint with prejudice for failure to prosecute pursuant to
10} On September 28, 2012, we affirmed the trial
court's July 2, 2009 judgment dismissing appellee's
claims. See Hanko I. Appellee then filed an
application for reconsideration, which we denied. The Supreme
Court of Ohio did not accept the case for review. See
Hanko v. Nestor, 134 Ohio St.3d 1469, 2013-Ohio-553, 983
11} On May 12, 2015, appellee filed a motion for
relief from the trial court's June 17, 2011 judgment
denying appellee's motion for reconsideration of the July
2, 2009 order. In the motion, appellee claimed he was
entitled to relief pursuant to Civ.R. 60(A) or Civ.R.
60(B)(5). The trial court held an evidentiary hearing and, on
July 24, 2015, the trial court granted appellee's motion.
Appellant timely appealed to this court.
12} On May 13, 2016, we reversed the trial
court's July 24, 2015 judgment. See Hanko II. We
determined the trial court improperly proceeded under Civ.R.
60. Our judgment affirmed that appellee could not bring forth
his claims as held in the July 2, 2009 trial court order.
This court found, however, that appellant's 2001
counterclaims were preserved and the case was remanded to the
13} The matter proceeded to trial on appellant's
breach of fiduciary duty claim on September 25, 2017. At the
close of appellant's evidence, appellee moved for a
directed verdict. The trial court granted the motion. The
judgment was journalized on October 25, 2017. Appellant then
moved the court for a new trial, and the court denied the
motion on January 19, 2018. Appellant timely appeals.
14} Although not asserted in an assignment of error,
the parties initially place in dispute to what extent this
court should address appellant's counterclaims
considering he brought forth the claims in a direct, as
opposed to a derivative action. This issue is one of law and
shall be reviewed de novo. See Heaton v. Rohl, 193
Ohio App.3d 770, 2011-Ohio-2090, 954 N.E.2d 165, ¶ 53
15} Appellant asserts a derivative action is not
necessary because Ohio law allows business partners and
shareholders to bring forth direct, as opposed to derivative
claims against other partners or shareholders for a breach of
16} Appellee contends appellant's counterclaims
should be denied because appellant must, but did not, proceed
with a derivative action.
17} Initially, we note H&N was a close
corporation because it only had two shareholders and
H&N's shares were not traded on a securities market.
See Crosby v. Beam, 47 Ohio St.3d 105, 548 N.E.2d
217 (1989), paragraph one of syllabus.
18} Directors and shareholders of a closely held
corporation owe the shareholders fiduciary duties to act in
good faith and to refrain from self-dealing. See id.
at 107-108; Heaton, 193 Ohio App.3d 770,
2011-Ohio-2090, 954 N.E.2d 165, at ¶ 47.
19} Generally, "actions for breach of fiduciary
duties are to be brought in derivative suits." Grand
Council v. Owens, 86 Ohio App.3d 215, 220, 620 N.E.2d
234 (10th Dist. 1993), citing Cole v. Ford Motor
Co., 566 F.Supp. 558, 568-569 (W.D.Pa.1983). One nuanced
exception is where the case involves "claims by
shareholders in a close corporation." See, e.g.,
Terry v. Carney, 6th Dist. Ottawa No. OT-94-054, 1995
Ohio App. LEXIS 5754, *17 (Dec. 29, 1995).
20} Appellant argues he was not required to bring
forth his counterclaims as a derivative action because his
claims involved a close corporation. For support he
specifically points to Crosby, where the Supreme
Court of Ohio held that "claims of a breach of fiduciary
duty alleged by minority shareholders against shareholders
who control a majority of shares in a close corporation, and
use their control to deprive minority shareholders of the
benefits of their investment, may be brought as individual or
direct actions and are not subject to the provisions of Civ.
R. 23.1." Crosby at 109-110.
21} In this case, we cannot say the facts fit
squarely within the explicit framework of Crosby
because the parties were both equal owners of H&N, and
thus there was no majority or minority shareholder.
22} We look to Crosby's progeny, and
note that this court has not applied the rule articulated in
Crosby to a case where there has been no minority
shareholder. See Frick v. Frick, 6th Dist. Wood No.
WD-03-075, 2004-Ohio-6898; Mulchin v. ZZZ Anesthesia,
Inc., 6th Dist. Erie No. E-05-045, 2006-Ohio-5773;
Binsack v. Hipp, 6th Dist. Huron No. H-97-029, 1998
Ohio App. LEXIS 2370 (June 5, 1998); Terry v.
Carney, 6th Dist. Ottawa No. OT-94-054, 1995 Ohio App.
LEXIS 5754 (Dec. 29, 1995); Crosby v. Beam, 83 Ohio
App.3d 501, 615 N.E.2d 294 (6th Dist.1992); Hall v.
Edmonds, 6th Dist. Lucas No. L-91-219, 1992 Ohio App.
LEXIS 4349 (Aug. 28, 1992).
23} We first point to Citizens Fed. Bank v.
Chateau Constr. Co., 2d Dist. Montgomery No. 13902, 1994
Ohio App. LEXIS 167 (Jan. 19, 1994), where a direct action
24} In Citizens, the Second District Court
of Appeals applied the holding of Crosby despite
there being no minority shareholder. Id. at *4.
There were two business partners, Nelson and Ross, who each
owned 50 percent of a company they started in 1987. Evidence
demonstrated "that [Nelson] was the controlling
shareholder." Id. at *5. As a result of Nelson
being the controlling shareholder, breach of his fiduciary
duty to Ross was actionable. See id. at *4, citing
Crosby at 109 (implying "controlling"