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Slezak v. Slezak

Court of Appeals of Ohio, Ninth District, Summit

August 28, 2019

DR. FREDERICK A. SLEZAK, M.D., et al. Appellees
v.
ARNOLD G. SLEZAK Appellant

          APPEAL FROM JUDGMENT ENTERED IN THE COURT OF COMMON PLEAS COUNTY OF SUMMIT, OHIO CASE No. CV-2017-04-1680

          ROBERT D. KEHOE, KEVIN P. SHANNON, and LAUREN N. ORRICO, Attorneys at Law, for Appellant.

          RONALD S. KOPP, STEPHEN W. FUNK, and JESSICA A. LOPEZ, Attorneys at Law, for Appellees.

          DECISION AND JOURNAL ENTRY

          DONNA J. CARR JUDGE

         {¶1} Defendant-Appellant Arnold Slezak appeals from the judgment of the Summit County Court of Common Pleas. This Court affirms in part, reverses in part, and remands the matter for proceedings consistent with this opinion.

         I.

         {¶2} In 2014, siblings Arnold Slezak, Plaintiffs-Appellees Dr. Frederick Slezak, M.D., and Cynthia Slezak owned all of the shares of common stock of Plaintiff-Appellee RJS Corporation. The Slezaks entered into a close corporation agreement. Arnold Slezak was an officer, director, and also employee of RJS Corporation. The close corporation agreement contained an arbitration provision.

         {¶3} In November 2015, Dr. Slezak and Cynthia Slezak filed a demand for commercial arbitration. They alleged claims for breach of fiduciary duty against Arnold Slezak, and Arnold Slezak asserted counterclaims for "breach arising out of [Arnold Slezak's] departure from his employment and his subsequent removal as an Officer and Director of RJS Corporation, Inc."

         {¶4} An arbitrator was appointed January 8, 2016. The arbitration hearing took place March 1, 2016 through March 3, 2016. On May 24, 2016, the arbitrator issued a decision in which she made the following findings:

1) Respondent Arnold Slezak voluntarily resigned as an employee of RJS effective January 6, 2015;

2) Respondent Arnold Slezak was properly terminated from his position as an Officer and Director of RJS for cause effective October 23, 2015;

3) Respondent Arnold Slezak, due to his voluntary resignation as an employee of RJS and his subsequent termination from his positions as an Officer and Director of RJS for cause, must sell not less than all of the shares owned by Respondent to Claimants [Dr. and Cynthia Slezak] and/or the Corporation, pursuant to Section 7(c) of the Close Corporation Agreement and at a value to be determined in accordance with Section 8 of that Agreement.

4) Respondent and Claimant pursuant to Section 8(a)(i) of the Close Corporation Agreement shall attempt to execute an Agreed Value Certificate to the value of the Respondent's shares to be sold to the Claimants and/or the Corporation within 30 days of the Arbitrator's final Order, the Claimants and Respondent shall adhere to the appraisal procedures for determining the value of Respondent's shares, as outlined in Section 8(a)(ii) of the Close Corporation Agreement. Pursuant to the parties' agreement, Respondent shall receive, in exchange for his shares, an amount equal to 100% of their value as reflected in either the Agreed Value Certificate or such other appraised value determined in accordance with Section 8(a)(ii) of the Close Corporation Agreement.

5) The administrative filing fees of the American Arbitration Association ("the Association") totaling $10, 400.00 and the compensation of the Arbitrator shall be borne equally by the parties. Therefore, Respondent shall reimburse Claimants the sum of $550.00 for that portion of its share of administrative filing fees previously incurred by Claimant.

6) This award is in full settlement of all claims and counterclaims submitted to this arbitration. All claims not expressly granted herein are hereby, denied.

         {¶5} When the Slezaks could not agree on a value of Arnold Slezak's shares, the appraisal process was begun. The close corporation agreement provided that first RJS Corporation's outside certified public accountant would appraise the fair market value of RJS Corporation and provide an analysis as to the value of one share. The selling shareholder would then have the opportunity to dispute the valuation, and provide his or her own appraisal. If the difference between the values was less than 10%, then the mean of the two values would become the final value. If the difference was more than 10%, then the two appraisers would select a third appraiser who would choose one of the two original values, which would become the final and binding value.

         {¶6} Here, Arnold Slezak did dispute the value determined by the accountant from RJS Corporation and had his own appraisal done. That value was significantly higher than that of the corporation's accountant. As the difference between the two values was more than 10%, a third appraiser was chosen and that appraiser chose the value the corporation's accountant used. That final appraisal was completed on November 9, 2016.

         {¶7} Thereafter, RJS Corporation issued a promissory note and began sending monthly checks to Arnold Slezak. Arnold Slezak refused to accept or cash the payments.

         {¶8} On April 26, 2017, Dr. Slezak, Cynthia Slezak, and RJS Corporation filed a "Combined Application to Confirm Arbitration Award and Complaint for Declaratory Judgment and Mandatory Injunction" in the trial court. Therein, they sought to have the award confirmed, to have various declarations issued, and for the trial court to issue an injunction requiring Arnold Slezak to accept the payments made by RJS Corporation as provided by the promissory note. As to the declarations, Dr. Slezak, Cynthia Slezak, and RJS Corporation requested that the trial court declare that Arnold Slezak voluntarily agreed to adhere to the arbitration award, agreed to engage in the valuation process in the close corporation agreement, did engage in the process without objection, and permitted his shares to be transferred to RJS Corporation.

         {¶9} On June 29, 2017, Arnold Slezak filed an answer and counterclaims for breach of fiduciary duty and declaratory judgment. He alleged that Dr. and Cynthia Slezak and RJS Corporation breached their fiduciary duty by providing the third appraiser with "selective and misleading information" and by excluding Arnold Slezak from the valuation process. Arnold Slezak sought declarations that the arbitration award should not be confirmed, the appraisal process was not impartial, the failure to confirm the award prior to the valuation process rendered the valuation process void, the original valuation was not binding because it used a valuation date prior to the date of the award, Arnold Slezak was entitled to valuation based on complete and accurate information, he was entitled to information concerning the valuation process, and the refusal to allow him to exercise his shareholders rights after October 23, 2015 was contrary to law.

         {¶10} That same day, Arnold Slezak also filed a motion to vacate the arbitration award. Inter alia, he asserted that the arbitrator lacked subject matter jurisdiction because the close corporation agreement provided that the arbitrations had to ...


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