Title: Weston v. Weston Paper & Mfg. Co.

State: ohio

Issuer: Ohio Supreme Court

Document:

WESTON ET AL., APPELLANTS AND CROSS-APPELLEES, V. WESTON PAPER AND 
MANUFACTURING COMPANY; TURNER ET AL., APPELLEES AND CROSS-
APPELLANTS. 
[Cite as Weston v. Weston Paper & Mfg. Co. (1996), __ Ohio St.3d __.] 
Corporations -- Torts -- Determination of whether shareholder action 
against corporation should be brought as a derivative action 
pursuant to Civ.R. 23.1 or as a direct personal action. 
 
(No. 94-1327 -- Submitted October 24, 1995 -- Decided January 24, 
1996.) 
 
APPEAL and CROSS-APPEAL from the Court of Appeals for Montgomery 
County, No. 13815. 
 
Plaintiffs-appellants and cross-appellees are six members of the Weston 
family who in March 1991 owned about 6.8 percent of the stock of the Weston 
Paper and Manufacturing Company (“Weston Paper”).  Defendants-appellees 
and cross-appellants are Corporate Finance & Investment Studies (“CFIS”), a 
firm hired to make annual valuations of Weston Paper stock for purposes of a 
qualified stock option plan,1 and three of six  Weston Paper corporate directors: 
 
 
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Edward T. Turner, Jr., President and CEO of Weston, Paul H. Granzow, Senior 
Vice-President, and Ruel F. Burns, Jr., a retired employee.  Weston Paper is a 
privately held company whose stock is not traded on any public exchange.   
 
The Westons filed an action in 1991 against the three named directors 
and CFIS, as well as the corporation itself.  They stated their claims as direct 
personal claims against the defendants, rather than as shareholder derivative 
claims on behalf of the corporation.  They alleged that the three directors, in 
collusion with CFIS, had injured them by keeping the price of the stock 
artificially low to reap unfair benefits through the stock option plan.  (The trial 
court dismissed the claims against the corporation, but ordered it to remain a 
party to the action.  The order was not appealed.)  The Westons alleged that the 
defendants’ conduct amounted to a breach of their fiduciary duty to the 
minority shareholders, resulting in specific and distinct injuries to the Westons, 
thus supporting a direct action.  Appellants did not base their claims on the 
theory that the operation of the stock option plan in any way amounted to 
excessive compensation to the beneficiaries thereof.   
 
 
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The Court of Common Pleas of Montgomery County granted the 
defendants’ motion for summary judgment.  The Court of Appeals for 
Montgomery County affirmed.   
 
The cause is now before this court upon the allowance of a discretionary 
appeal. 
 
Murray & Murray Co., L.P.A., John T. Murray, Dennis E. Murray, Jr., 
Dennis E. Murray, Sr., and  David D. Yeagley, for appellants and cross-
appellees. 
 
Bieser, Greer & Landis and David C. Greer, for appellees and cross-
appellants Edward T. Turner, Jr., Paul H. Granzow and Ruel F. Burns, Jr. 
 
Coolidge, Wall, Womsley & Lombard Co., L.P.A., Roger J. Makley and 
Janice M. Paulus, for appellee and cross-appellant Corporate Finance & 
Investment Studies, Inc. 
 
WRIGHT, J.  Appellants urge that they be allowed to maintain a direct 
action against appellees and the directors.  To permit this, they urge an 
extension of the holding in Crosby v. Beam (1989), 47 Ohio St.3d 105, 548 
 
 
4 
N.E.2d 217.  For the reasons set forth, we find that this case, if indeed there has 
ever been a case, should have been filed as a derivative action pursuant to Civ. 
R. 23.1. 
 
Civ.R. 23.1 establishes the requirements for maintaining a shareholders’ 
derivative action.  Specifically, complaining shareholders must (1) spell out the 
efforts made to have the directors or the other shareholders take the action 
demanded, (2) explain why they failed in this effort or did not make it, and (3) 
show that they “fairly and adequately” represent the interests of other 
shareholders “similarly situated.”  Appellants meet none of these criteria on the 
basis of their complaint.  Little wonder that the Westons argue for a direct 
action by extending Crosby v. Beam to reach these facts, since they clearly did 
not meet the requirements of Civ.R. 23.1. 
 
We hold that the Westons do not have a direct cause of action under 
Crosby for the simple reason that Weston Paper is not a close corporation as 
was the case in Crosby.  There was only a handful of shareholders in Crosby.  
Weston Paper has about one hundred shareholders and in March 1991 had 
 
 
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361,533 shares of outstanding stock.  Moreover, every other shareholder is 
situated similarly to appellants and could bring the same action.  As we noted 
in Crosby, “if the complaining shareholder is injured in a way that is separate 
and distinct from an injury to the corporation, then the complaining shareholder 
has a direct action.”  Crosby, 47 Ohio St.3d at 107, 548 N.E.2d at 219.  While 
such a separate and distinct injury was alleged, the Westons have been unable 
to provide any evidence of it.  None of the damage they claim is unique to 
them.  If any injuries occurred, they occurred to all the other shareholders alike.  
That is precisely the situation in which derivative actions are required. 
 
The action against CFIS must be derivative, because the claim against 
CFIS is that it contributed to the same damages caused by the directors and the 
action against the directors must be derivative.  The rule for this situation is 
found in Adair v. Wozniak (1986), 23 Ohio St.3d 174, 23 OBR 339, 492 N.E.2d 
426, syllabus, where this court held that: 
 
“A plaintiff-shareholder does not have an independent cause of action 
where there is no showing that he has been injured in any capacity other than in 
 
 
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common with all other shareholders as a consequence of the wrongful actions 
of a third party directed towards the corporation.” 
 
While we find no injury arising from the conduct of CFIS, we hold that if 
there had been, an action for recovery would have had to have been derivative 
in nature. 
 
Our holding on the threshold issue of whether the action could be 
brought as a direct action rather than a derivative action renders the cross-
appeal moot. 
 
The decision of the court of appeals is affirmed. 
 
 
 
 
 
 
 
Judgment affirmed. 
 
MOYER, C.J., RESNICK, PFEIFER and COOK, JJ., concur. 
 
DOUGLAS and F.E. SWEENEY, JJ., dissent. 
 
 
 
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FOOTNOTE: 
 
1  Weston Paper directors hired Dillon, Read & Company in 1972 to 
make a valuation of company stock in order to effectuate the stock option plan 
for key employees.  Designated employees were permitted to take up to fifty 
percent of their annual bonus in company stock.  CFIS was formed in 1980 by 
Ellis Klingeman, who had performed the valuation work for Dillon, Read.  The 
directors then retained CFIS to perform the annual valuation.