Title: Myocare Nursing Home, Inc. v. Fifth Third Bank

State: ohio

Issuer: Ohio Supreme Court

Document:

[Cite as Myocare Nursing Home, Inc. v. Fifth Third Bank, 98 Ohio St.3d 545, 2003-Ohio-2287.] 
 
 
MYOCARE NURSING HOME, INC. ET AL., APPELLEES, v. FIFTH THIRD BANK; 
COURY ET AL., APPELLANTS. 
[Cite as Myocare Nursing Home, Inc. v. Fifth Third Bank, 98 
Ohio St.3d 545, 2003-Ohio-2287.] 
Corporations — Close-corporation agreement pursuant to R.C. 1701.591 is not 
invalidated by failure to disclose the existence of the agreement to a 
shareholder who obtained his or her shares by gift after execution of the 
agreement. 
(No. 2001-2033 — Submitted January 8, 2003 — Decided May 14, 2003.) 
APPEAL from the Court of Appeals for Cuyahoga County, No. 79045. 
__________________ 
SYLLABUS OF THE COURT 
A close-corporation agreement pursuant to R.C. 1701.591 is not invalidated by 
failure to disclose the existence of the agreement to a shareholder who 
obtained his or her shares by gift after execution of the agreement. 
__________________ 
 
MOYER, C.J. 
{¶1} 
Six siblings, who are majority shareholders of five corporations 
engaged in nursing-home and related businesses, initiated this cause of action by 
filing a complaint both in their individual capacities and on behalf of the 
corporations of which they are shareholders.  The majority shareholders, 
appellees, named as  a defendant the Fifth Third Bank, with which the 
corporations banked.  They also named as defendants another shareholder, their 
brother, appellant Elias Coury, and their father and the founder of the 
corporations, appellant Joseph E. Coury. 
SUPREME COURT OF OHIO 
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{¶2} 
Prior to December 1993, all of the stock of three of the 
corporations was owned by the father, Joseph.  Joseph and son Elias owned the 
stock of the two remaining corporations.  After January 23, 1992, Joseph made 
gifts of all of his stock in the corporations to his eight children,1 in equal shares. 
{¶3} 
Disputes among the shareholders regarding control and direction of 
the corporation arose, with six siblings coalescing into a majority shareholder 
group that opposed Elias.  Ultimately, the bank received conflicting instructions 
regarding the financial activities of the corporations.  Joseph attempted to 
negotiate the differences between his children and engaged an attorney in 1998 to 
mediate their disagreements.  However, those efforts proved unsuccessful. 
{¶4} 
In August 1999, Joseph disclosed the existence of five documents 
purporting to affect the five corporations he had founded, each entitled “Close 
Corporation Agreement” (“CCA”).  Each CCA stated that it was to be governed 
by R.C. 1701.591.  The majority shareholders had not previously been aware of 
the existence of these five CCAs. 
{¶5} 
Each of the documents bore an execution date of January 23, 1992, 
and purported to have been executed by the corporation and by all shareholders 
owning stock on that date, i.e., Joseph alone as to three of the corporations and 
Joseph and Elias as to the remaining two corporations.  The CCAs provided that, 
irrespective of future stock ownership, Joseph would be chairman of the board 
until death, legal incapacity, resignation, or appointment by him of a successor.  
They further provided that many typical actions of the corporations, including the 
purchase of property, approval of annual budgets, borrowing of money, making of 
contracts, and determination of salaries and bonuses, could be implemented by the 
officers of the corporation “only after obtaining the approval of the Chairman of 
The Board or the unanimous approval” of the shareholders.  Each CCA expressly 
                                                 
1. 
The eighth sibling, Joseph M. Coury, is not a party in the case at bar. 
January Term, 2003 
3 
provided that in the absence of unanimous consent by the existing shareholders as 
to these matters, “the Chairman of the Board shall be authorized to act in any 
manner he deems appropriate and any said action will be final and binding.”  
Each CCA further provided that if any shareholder challenged the validity of the 
CCA, the corporation had the duty to redeem that shareholder’s stock for a price 
of $100 per share. 
{¶6} 
In their complaint, the majority shareholders sought injunctive and 
declaratory relief regarding the five documents.  They asserted that the CCAs had 
not been executed in conformity with R.C. 1701.591 and should therefore be 
declared void and unenforceable.  They further claimed that the CCAs had not 
been executed on January 23, 1992, as indicated on the documents themselves, 
but  had instead been signed after the transfer of stock by Joseph to his children 
and had hence not been executed by “[e]very person who is a shareholder of the 
corporation at the time of the agreement’s adoption” as required by R.C. 
1701.591(A)(1). 
{¶7} 
Joseph and Elias answered the complaint, and, in a counterclaim, 
they sought a judgment declaring the CCAs valid and enforceable.  They also 
demanded an award of attorney fees and costs. 
{¶8} 
The parties filed cross-motions for summary judgment.  The trial 
court granted the motion of appellants Joseph E. Coury and Elias J. Coury and 
upheld the validity of the CCAs.  The court of appeals reversed, finding that a 
genuine issue of material fact existed as to the date Joseph and Elias Coury signed 
the agreements, thereby precluding summary judgment.  The court of appeals 
found that all other issues raised by the parties in the appeal and in a cross-appeal 
by Elias and Joseph were moot.  It remanded the cause to the trial court.  The 
cause is before this court upon the allowance of a discretionary appeal. 
SUPREME COURT OF OHIO 
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{¶9} 
We hold that summary judgment was properly granted in favor of 
Joseph and Elias Coury and accordingly reverse the judgment of the court of 
appeals. 
{¶10} R.C. 1701.591 authorizes close-corporation agreements to govern 
the internal affairs of close corporations and the legal relationships of their 
shareholders at variance with general corporation law that would otherwise apply.  
R.C. 1701.591 states: 
{¶11} “(A) In order to qualify as a close corporation agreement under this 
section, the agreement shall meet the following requirements: 
{¶12} “(1) Every person who is a shareholder of the corporation at the 
time of the agreement’s adoption, whether or not entitled to vote, shall have 
assented to the agreement in writing; 
{¶13} “(2)  The agreement shall be set forth in the articles, the 
regulations, or another written instrument;  
{¶14} “(3) The agreement shall include a statement that it is to be 
governed by this section. 
{¶15} “(B) A close corporation agreement that is not set forth in the 
articles or the regulations shall be entered in the record of minutes of the 
proceedings of the shareholders of the corporation * * *. 
{¶16} “(C) Irrespective of any other provisions of this chapter, but 
subject to division (D)(2) of this section, a close corporation agreement may 
contain provisions, which shall be binding on the corporation and all of its 
shareholders, regulating any aspect of the internal affairs of the corporation or the 
relations of the shareholders among themselves, including the following:    
{¶17} “(1) Regulation of the management of the business and affairs of 
the corporation; 
{¶18} “* * * 
January Term, 2003 
5 
{¶19} “(3) * * * [V]oting requirements, including the requirement of the 
affirmative vote or approval of all shareholders or of all directors, which voting 
requirements need not appear in the articles unless the close corporation 
agreement is set forth in the articles;  
{¶20} “* * * 
{¶21} “(8) * * * [D]elegation to one or more shareholders or other 
persons of all or part of the authority of the directors; 
{¶22} “* * * 
{¶23} “(F) No close corporation agreement is invalid among the parties 
or in respect of the corporation on any of the following grounds: 
{¶24} “* * * 
{¶25} “(4) The agreement has not been filed with the minutes as required 
by division (B) of this section. 
{¶26} “* * * 
{¶27} “(H) The existence of a close corporation agreement shall be noted 
conspicuously on the face or the back of every certificate for shares of the 
corporation and a purchaser or transferee of shares represented by a certificate on 
which such a notation so appears shall be conclusively considered to have taken 
delivery with notice of the close corporation agreement.  Any transferee of shares 
by gift, bequest, or inheritance and any purchaser or transferee of shares with 
knowledge or notice of a close corporation agreement is bound by the agreement 
and shall be considered to be a party to the agreement. 
{¶28} “(I)(1) A close corporation agreement becomes invalid under any 
of the following circumstances: 
{¶29} “* * * 
{¶30} “(d)  Shares of the corporation are transferred or issued to a person 
who takes delivery of the certificate for the shares other than by gift, bequest, or 
SUPREME COURT OF OHIO 
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inheritance and without knowledge or notice of the close corporation agreement 
[and the person does not consent to the agreement].”2 
{¶31} The court of appeals correctly observed that the date on which the 
CCAs were signed is a critical factor: if the CCAs were signed after the father 
gave away some or all of his stock to his other children, the CCAs are not valid, 
because they were not assented to by every shareholder as prescribed by R.C. 
1701.591(A). 
{¶32} The court of appeals observed that the CCAs had not been 
disclosed to all of the shareholders or even to the father’s accountant, that they 
had not been mentioned in the corporations’ articles, regulations or minutes, and 
that the existence of the CCAs had not been noted on the stock certificates 
themselves, as required by  R.C. 1701.591(A), (B), and (H).  It found that this 
evidence precluded summary judgment because it demonstrated a genuine issue 
as to a material fact, i.e., the date the CCAs were signed. 
{¶33} Summary judgment may not be granted if there is any genuine 
issue of material fact.  Civ.R. 56(C).  However, in determining whether a genuine 
issue exists as to a material fact, a court of appeals must determine whether the 
evidence presented a “sufficient disagreement to require submission to a jury’ or 
[is] ‘so one-sided that one party must prevail as a matter of law.’ “   Turner v. 
Turner (1993), 67 Ohio St.3d 337, 340, 617 N.E.2d 1123, quoting Anderson v. 
Liberty Lobby, Inc. (1986), 477 U.S. 242, 251-252, 106 S.Ct. 2505, 91 L.Ed.2d 
202. “[T]he determination of whether a given factual dispute requires submission 
to a jury must be guided by the substantive evidentiary standards that apply to the 
case.”  Anderson, 477 U.S. at 255, 106 S.Ct. 2505, 91 L.Ed.2d 202.  “[I]n ruling 
                                                 
2. 
Although the statute was substantially rewritten in 1993, the quoted language is virtually 
identical in the current and prior versions.  1986 Sub.H.B.No. 428, 141 Ohio Laws, Part II, 3817.  
The bracketed phrase at the end of the quotation summarizes a condition of the prior, applicable 
version.  In the current version, the condition is that the transferee reject the agreement within a 
specified time. 
January Term, 2003 
7 
on a motion for summary judgment, the judge must view the evidence presented 
through the prism of the substantive evidentiary burden.”  Id., 477 U.S. at 254, 
106 S.Ct. 2505, 91 L.Ed.2d 202.  Accordingly, in determining whether a triable 
issue of fact exists so as to preclude summary judgment, a court should determine 
whether a reasonable jury could find that the evidence satisfies the evidentiary 
standards required at trial.  Only then does a genuine issue of material fact 
precluding summary judgment exist. 
{¶34} The majority shareholders did not produce evidence sufficient to 
demonstrate that the date of execution of the CCAs was in genuine dispute.  The 
court of appeals correctly recognized that the date of execution of the CCAs is a 
material fact.  However, the court of appeals erred in failing to recognize and give 
full effect to the long-recognized presumption that a contract or other written 
instrument that is regular on its face and that contains no indications of erasure or 
falsity is correctly dated.  Hammond v. Ocean Shore Dev. (1913), 22 Cal.App. 
167, 170, 133 P. 978; see, also, Ratcliff v. Dick Johnson School Twp. (1933), 204 
Ind. 525, 185 N.E. 143; J.R. Watkins Co. v. Pace (1924), 212 Ala. 63, 101 So. 
758.  Moreover, Joseph and Elias presented their testimony, along with that of 
Joseph’s attorney, that they signed the CCAs on the date indicated on the 
documents. 
{¶35} It is true that this presumption is rebuttable.  However, where a 
rebuttable presumption exists, a party challenging the presumed fact must produce 
evidence of a nature that counterbalances the presumption or leaves the case in 
equipoise.  Only upon the production of sufficient rebutting evidence does the 
presumption disappear.  Carson v. Metro. Life Ins. Co. (1951), 156 Ohio St. 104, 
108, 45 O.O. 103, 100 N.E.2d 197. 
{¶36} No reasonable jury could find the evidence presented by the 
majority shareholders sufficient to counter the evidence that the January 23, 1992 
date shown on the CCAs was the true date the instruments were created.  
SUPREME COURT OF OHIO 
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Nondisclosure of the CCAs does not prove or disprove that date, particularly in 
that failure to disclose the existence of a CCA to shareholders who receive their 
interest by gift, as in the case at bar, does not invalidate the agreement.  R.C. 
1701.591(H) (although the existence of a close-corporation agreement is to be 
noted on every share certificate, “[a]ny transferee of shares by gift * * * is bound 
by the agreement and shall be considered to be a party to the agreement”).  See, 
also, R.C. 1701.591(I)(d) (a close-corporation agreement becomes invalid under 
some circumstances upon the transfer or issuance of shares of the corporation “to 
a person who takes delivery of the certificate for the shares other than by gift * * 
* and without knowledge or notice of the close corporation agreement” [emphasis 
added]). 
{¶37} The majority shareholders also assert that the date of the execution 
of the CCAs is in genuine dispute based on testimony that Joseph and Elias had 
been deceitful generally in their personal and private lives and had acted after 
January 23, 1992, in a manner inconsistent with recognition of the existence of 
the CCAs.  However, this evidence does not contradict the representation on the 
CCAs themselves that they were executed on January 23, 1992.  As cogently 
described by the appellants, this evidence reflects little more than unfounded 
suspicion and personal vendetta, rising only to the level of speculation and 
innuendo.  In short, the majority shareholders did not present evidence sufficient 
to countervail the presumption that the CCAs were in fact executed on January 
23, 1992, the date indicated on the CCAs themselves. 
{¶38} The court of appeals deemed moot several remaining reasons 
urged by the majority shareholders for declaring the CCAs invalid.  We choose to 
exercise our authority to address those issues de novo.  Univ. Hosp. of Cleveland, 
Inc. v. Lynch, 96 Ohio St.3d 118, 2002-Ohio-3748, 772 N.E.2d 105, ¶ 52. 
{¶39} R.C. 1701.591(A)(2) provides that in order “to qualify as a close 
corporation agreement * * * [t]he agreement shall be set forth in the articles, the 
January Term, 2003 
9 
regulations, or another written instrument.”  In addition, R.C. 1701.591(B) 
provides, “A close corporation agreement that is not set forth in the articles or the 
regulations shall be entered in the record of minutes of the proceedings of the 
shareholders of the corporation * * *.”  It is undisputed that no CCA was 
incorporated into or referred to by the articles or regulations of any of the five 
Coury corporate entities or entered into the minutes.  The majority shareholders 
contend that the CCAs are therefore invalid. 
{¶40} However, R.C. 1701.591(F)(4) provides that a close-corporation 
agreement is not invalid between the parties or in respect of the corporation on the 
grounds that the agreement was not filed with the minutes as required by R.C. 
1701.591(B).  The question thus remains whether the CCAs were set forth in “the 
articles, the regulations or another written instrument.” (Emphasis added.)  R.C. 
1701.591(A)(2). 
{¶41} The majority shareholders contend that the CCAs do not comply 
with R.C. 1701.591(A)(2), in that this provision requires a written instrument akin 
to articles of incorporation or regulations of a corporation, which are never secret 
and are subject to inspection by any shareholder at any time.  They argue that 
R.C. 1701.591(A)(2) therefore requires a CCA to be set forth in a writing 
available for inspection by anyone who becomes a shareholder after execution of 
the CCA. 
{¶42} We reject the majority shareholders’ interpretation of R.C. 
1701.591(A)(2).  First, as previously discussed, R.C. 1701.591 read in its entirety 
does not require disclosure to shareholders who obtained their shares by gift.  
R.C. 1701.591(H).  Moreover, R.C. 1701.591(I) repeatedly distinguishes between 
such shareholders and others, providing more comprehensive protection to 
shareholders who do not obtain their shares by gift, bequest, or inheritance. R.C. 
1701.591(I)(2)(a) and (3). 
SUPREME COURT OF OHIO 
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{¶43} Second, 
R.C. 
1701.591(A)(2) 
bars 
oral 
close-corporation 
agreements. The statute simply requires that the agreement be written.  The 
written agreement may be incorporated into the articles or regulations or a 
separate written contract, as is the case here.  Had the General Assembly intended 
to require disclosure to persons who become shareholders by gift, it would have 
done so expressly rather than by the indirect means suggested by the majority 
shareholders. 
{¶44} The majority shareholders further contend that their father, Joseph, 
was bound by the fiduciary duties set forth in R.C. 1701.59(B) and (E) and that 
those duties required disclosure of the CCAs.  However, that argument is not 
consistent with R.C. 1701.591 when viewed in its entirety.  As noted previously, 
division (H) of that statute provides that a party holding shares as a result of a gift 
is bound by a CCA and is deemed a party to it, even where no notation of the 
existence of the CCA appears on the certificate. 
{¶45} We hold that a close-corporation agreement pursuant to R.C. 
1701.591 is not invalidated by failure to disclose existence of the agreement to a 
shareholder who obtained his or her shares by gift made after execution of the 
agreement. 
{¶46} Finally, the majority shareholders contend that even if the trial 
court correctly upheld the validity of the CCAs, the cause should nevertheless be 
remanded for consideration of their additional claims, not determined by the trial 
court, for reformation and estoppel. 
{¶47} In the court of appeals, Elias and Joseph filed a cross-appeal, 
asserting that no issues remained for determination after the trial court granted 
their motion for summary judgment declaring that the agreements were valid and 
enforceable and after they voluntarily dismissed their remaining counterclaim for 
attorney fees.  They claimed that those two actions rendered the trial court’s 
judgment complete rather than partial. 
January Term, 2003 
11 
{¶48} Although the court of appeals did not reach the merits of this cross-
appeal, we exercise our authority to finally resolve this cause.  We agree with the 
analysis of the unique procedural facts of this case as set forth by Elias and Joseph 
in their cross-appeal in the court of appeals.  We therefore reverse the judgment of 
the court of appeals and remand the cause with instructions that final judgment be 
entered for Elias.3 
Judgment reversed 
and cause remanded. 
 
F.E. SWEENEY, PFEIFER, BROGAN, LUNDBERG STRATTON and O’CONNOR, 
JJ., concur. 
 
GWIN, J., dissents and would affirm the judgment of the court of appeals. 
 
W. SCOTT GWIN, J., of the Fifth Appellate District, sitting for RESNICK, J. 
 
JAMES A. BROGAN, J., of the Second Appellate District, sitting for COOK, 
J. 
__________________ 
 
Kohrman, Jackson & Krantz, P.L.L., Jonathon M. Yarger, Valoria C. 
Hoover and Bonnie S. Finley; Mark I. Wallach and Leah Pappas, for appellees. 
 
Arter & Hadden, L.L.P., Irene C. Keyse-Walker, Hugh M. Stanley Jr. and 
Edward E. Taber, for appellants. 
__________________ 
                                                 
3. 
Joseph died during the pendency of this appeal.