Court Opinion

ID: 2700103
Source: CourtListenerOpinion
Date Created: 2014-08-04 18:14:05.012694+00
Date Added: 2024-06-11T12:52:22.731746
License: Public Domain

[Cite as Sapienza v. Material Eng. & Technical Support Servs. Corp., 2011-Ohio-3559.]

                                       COURT OF APPEALS
                                    DELAWARE COUNTY, OHIO
                                   FIFTH APPELLATE DISTRICT

RICHARD SAPIENZA                                 :         JUDGES:
                                                 :         Hon. Sheila G. Farmer, P.J.
        Plaintiff-Appellant                      :         Hon. John W. Wise, J.
                                                 :         Hon. Julie A. Edwards, J.
-vs-                                             :
                                                 :
MATERIAL ENGINEERING AND                         :
TECHNICAL SUPPORT SERVICES                       :         Case No. 10CAE110092
CORPORATION, ET AL.                              :
                                                 :
        Defendants-Appellees                     :         OPINION

CHARACTER OF PROCEEDING:                              Appeal from the Court of Common Pleas,
                                                      Case No. 10CVH081164

JUDGMENT:                                             Reversed

DATE OF JUDGMENT ENTRY:                               July 15, 2011

APPEARANCES:

For Plaintiff-Appellant                               For Defendants-Appellees

MICHAEL G. LONG                                       MARION H. LITTLE, JR.
WILLIAM D. KLOSS, JR.                                 MATTHEW S. ZEIGER
ROBERT J. KRUMMEN                                     41 South High Street
52 East Gay Street                                    Suite 3500
P.O. Box 1008                                         Columbus, OH 43215
Columbus, OH 43216-1008
[Cite as Sapienza v. Material Eng. & Technical Support Servs. Corp., 2011-Ohio-3559.]

Farmer, P.J.

        {¶1}    Materials Engineering and Technical Support Services Corporation

(hereinafter "METSS") is an Ohio corporation with its principal office in Delaware

County, Ohio. Appellant, Richard Sapienza, and appellee, Richard Heater, are the only

directors and shareholders of METSS, each owning a 50% share of the corporation.

Appellant resides in New York, developing technologies which the company would then

market commercially. Appellee resides in Delaware County and manages the day-to-

day operations of METSS.

        {¶2}    Appellee received information that appellant was diverting opportunities

from METSS by consulting with companies other than METSS, including several

corporations in which appellant held an ownership interest. Meanwhile, METSS was

the sole member of Geo-Tech Polymers, LLC, a limited liability company.                         A

disagreement arose between appellant and appellee over Geo-Tech which led to

appellant divesting his interest in Geo-Tech.                  Following his divestment, appellant

believed there were financial irregularities between Geo-Tech and METSS, with

appellee diverting METSS assets to the insolvent Geo-Tech.

        {¶3}    On February 2, 2010, METSS filed an action against appellant in the Court

of Common Pleas of Franklin County, Ohio, alleging breach of fiduciary duties, including

misappropriation of corporate opportunities. On the same day, appellee fired appellant

from his employment at METSS. Appellant filed a counterclaim seeking the dissolution

of the corporation.        On August 17, 2010, the Franklin County court dismissed the

dissolution claim from the action.
Delaware County Case No. 10CAE110092                                                   3

       {¶4}   Following the filing of the Franklin County action, appellant scheduled

three special shareholders meetings of METSS – the first on March 2, 2010; the second

on March 18, 2010; and the third on April 14, 2010. Appellee did not appear, thereby

preventing a quorum and any business from being transacted.

       {¶5}   An annual shareholders meeting was held on May 3, 2010 wherein

appellant and appellee re-elected themselves to the board of directors.            Upon

considering various resolutions, the two did not agree on a single one. Appellant voted

for a resolution dissolving the corporation while appellee voted against the resolution.

Appellee removed the resolutions dealing with the election of corporate officers from the

shareholders meeting agenda because the resolutions were to be heard during the

board of directors meeting which was to be held immediately following the shareholders

meeting. Before any business could be discussed at the board of directors meeting,

appellee left. The election of corporate officers never took place.

       {¶6}   On August 5, 2010, appellant filed the instant action against appellee and

METSS seeking dissolution of the corporation. He also filed a motion for appointment

of a receiver and a motion to stay the Franklin County action. On September 10, 2010,

appellees filed a motion for summary judgment. A non-evidentiary hearing was held on

September 15, 2010. The trial court denied appellant's motion to stay the Franklin

County action, and directed the matter to mediation.         The remaining issues were

scheduled to be heard on November 8, 2010.

       {¶7}   On October 25, 2010, appellant filed a cross-motion for summary

judgment. By judgment entry filed October 26, 2010, the trial court granted appellees'

motion for summary judgment and dismissed the complaint for dissolution.
Delaware County Case No. 10CAE110092                                              4

      {¶8}    Appellant filed an appeal and this matter is now before this court for

consideration. Assignments of error are as follows:

                                           I

      {¶9}    "THE TRIAL COURT ERRED AS A MATTER OF LAW BY FAILING TO

JUDICIALLY DISSOLVE THE CORPORATION PURSUANT TO R.C. 1701.91(A)(4) IN

THE FACE OF UNDISPUTED EVIDENCE THAT THE PARTIES ARE DEADLOCKED

REGARDING THE CONTINUED EXISTENCE OF THE CORPORATION."

                                           II

      {¶10} "THE     TRIAL    COURT      ERRED    AS   A   MATTER    OF   LAW    BY

CONSIDERING EVIDENCE NOT RELEVANT TO THE SPECIAL STATUTORY

PROCEEDING OF A JUDICIAL DISSOLUTION PURSUANT TO R.C. 1701.91(A)(4)."

                                          III

      {¶11} "IF THERE IS ANY DISPUTE AS TO THE EXISTENCE OF DEADLOCK,

THE   TRIAL     COURT     ERRED     IN   AWARDING      SUMMARY      JUDGMENT     TO

DEFENDANT-APPELLEE MATERIAL ENGINEERING AND TECHNICAL SUPPORT

SERVICES CORPORATION ('APPELLEE' OR 'METSS')."

                                          IV

      {¶12} "THE TRIAL COURT ERRED BY AWARDING SUMMARY JUDGMENT

TO METSS BASED ON A DEFENSE THAT REQUIRES THE ADJUDICATION OF

GENUINE ISSUES OF MATERIAL FACT – SPECIFICALLY QUESTIONS OF

MATERIAL FACT OVER WHICH THE TRIAL COURT HAD NO JURISDICTION TO

DECIDE BECAUSE THOSE ISSUES ARE BEFORE THE FRANKLIN COUNTY

COURT OF COMMON PLEAS, OHIO, IN CASE NO. 10 CVH-02-1636."
Delaware County Case No. 10CAE110092                                                       5

                                             V

       {¶13} "THE TRIAL COURT ERRED AS A MATTER OF LAW BY AWARDING

SUMMARY JUDGMENT TO DEFENDANT-APPELLEE METSS BASED SOLELY ON

THE FACT THAT PLAINTIFF-APPELLANT DR. RICHARD SAPIENZA ('APPELLANT'

OR 'SAPIENZA') FAILED TO RESPOND TO METSS’S SUMMARY JUDGMENT

MOTION WITHIN 14 DAYS."

                                            I, III

       {¶14} We address these assignments of error together as they both challenge

the trial court's granting of summary judgment to appellees and failure to judicially

dissolve the corporation.

       {¶15} At the outset, we note that while couched in the context of a Civ.R. 56

summary judgment proceeding, this is not the type of case that would go forward with a

full trial. It is the practice of Ohio courts to decide the issue of corporate dissolution by

means of an evidentiary hearing rather than a full trial. Callicoat v. Callicoat (1994), 73

Ohio Misc.2d 38, citing Hunt v. Kegerreis (November 8, 1979), Monroe App. No. 523;

Sergakis v. White (October 2, 1984), Jefferson App. No. 83-J-13. Because each party

filed motions for summary judgment, it appears they tacitly agreed to allow the trial court

to decide the issue based on the undisputed facts.

       {¶16} R.C. 1701.91 governs judicial dissolution and provides the following in

pertinent part:

       {¶17} "(A) A corporation may be dissolved judicially and its affairs wound up:

       {¶18} "(4) By an order of the court of common pleas of the county in this state in

which the corporation has its principal office, in an action brought by one-half of the
Delaware County Case No. 10CAE110092                                                      6

directors when there is an even number of directors or by the holders of shares entitling

them to exercise one-half of the voting power, when it is established that the corporation

has an even number of directors who are deadlocked in the management of the

corporate affairs and the shareholders are unable to break the deadlock, or when it is

established that the corporation has an uneven number of directors and that the

shareholders are deadlocked in voting power and unable to agree upon or vote for the

election of directors as successors to directors whose terms normally would expire upon

the election of their successors.       Under these circumstances, dissolution of the

corporation shall not be denied on the ground that the corporation is solvent or on the

ground that the business of the corporation has been or could be conducted at a profit.

      {¶19} "(D) After a hearing had upon such notice as the court may direct to be

given to all parties to the proceeding and to any other parties in interest designated by

the court, a final order based either upon the evidence, or upon the report of the special

master commissioner if one has been appointed, shall be made dissolving the

corporation or dismissing the complaint.***"

      {¶20} Because R.C. 1701.91(A)(4) involves an analysis of the facts presented

by the complaining shareholders and directors, our standard of review is essentially a

sufficiency of the evidence standard.

      {¶21} Appellant argues the uncontroverted facts establish a deadlock exists

between the parties, each owning a 50% interest in the corporation. In support of this

proposition, appellant cites to the May 3, 2010 annual shareholders meeting. At this

meeting, various resolutions were considered wherein the parties did not agree,

including a resolution for a forensic audit of METSS and the appointment of a receiver
Delaware County Case No. 10CAE110092                                                     7

for METSS. May 3, 2010 Shareholders Meeting T. at 7-8. Another resolution was

presented to dissolve the corporation with appellant voting for and appellee voting

against. Id. at 8. Resolutions relative to other litigation, to the removal of appellant as

an employee, and to make a monetary distribution to the shareholders for fiscal year

2009 were split for and against. Id. at 8-11.

       {¶22} The shareholders meeting was adjourned and appellee immediately called

a board of directors meeting and refused to entertain any issues and adjourned the

meeting. Id. at 12-13.

       {¶23} Appellant attempted to call a shareholders meeting on September 1, 2010,

but appellee refused to participate. September 1, 2010 Shareholders Meeting T. at 6.

A board of directors meeting was held immediately thereafter wherein appellee, as

chair, left. Id. Appellant read into the record the reasons for the meeting, including

three offers to purchase the corporation. Id. at 7-8. One resolution called for the filing

of criminal charges against appellee for the misappropriation of funds from METSS to

Geo-Tech. Id. at 12-13.

       {¶24} Previously, three other special shareholders meetings were called by

appellant and appellee failed to participate resulting in the lack of a quorum (March 2

and 18, 2010, and April 14, 2010).

       {¶25} It is uncontested that appellant and appellee are each 50% shareholders

of the corporation.      Appellee runs and manages the day-to-day activity of the

corporation. Appellant alleges financial misconduct by appellee in his ownership of

GeoTech and his failure to fulfill the obligations to METSS as memorialized in a

Memorandum of Understanding dated November 1, 2005, including the repayment of
Delaware County Case No. 10CAE110092                                                           8

loans, the payment of accounts receivable, and the payment of rent by GeoTech to

METSS.      Appellee alleges appellant has violated his duty to the corporation by

engaging in outside activities. As a result, appellee as CEO terminated appellant's

employment at METSS and appellant was sued by his own corporation.

        {¶26} During appellee's deposition, he testified that he saw no basis and had no

desire to dissolve the corporation while acknowledging that appellant sought dissolution.

Heater depo. at 146-147. Appellee argues the day-to-day activity of the corporation is

on-going and despite the lack of cooperation in the shareholders meetings, dissolution

is not warranted. See, Appellees' Motion for Summary Judgment filed September 10,

2010.

        {¶27} It is clear from the record that the issues of dissolution and sale of the

corporation to another have been stonewalled by appellee in his failure to attend the

three special shareholders meetings and his vote against dissolution at the May 3, 2010

annual shareholders meeting. In fact, during the operational arm of the corporation, the

board of directors meeting which appellee called, appellee immediately adjourned and

left.

        {¶28} There is no doubt that the parties are in complete deadlock. One party

wishes to end the corporation while the other wishes to continue on. Although the day-

to-day activities are still happening, the governance of the corporation is at a standstill.

        {¶29} Upon review, we find sufficient evidence in the record of an actual

deadlock of the corporation. We find judicial dissolution to be mandated by the clear

language of R.C. 1701.91.

        {¶30} Assignments of Error I and III are granted.
Delaware County Case No. 10CAE110092                                            9

                                     II, IV, V

      {¶31} Based upon our decision in the previous assignments, these assignments

of error are moot.

      {¶32} The judgment of the Court of Common Pleas of Delaware County, Ohio is

hereby reversed.

By Farmer, P.J.

Wise, J. concurs.

Edwards, J. dissents.

                                       _s/ Sheila G. Farmer____________________

                                      s/ John W. Wise________________________

                                      _____________________________________

                                                           JUDGES

SGF/db 629
Delaware County Case No. 10CAE110092                                                    10

EDWARDS, J., DISSENTING OPINION

       {¶33} I respectfully dissent from the majority opinion.

       {¶34} R.C. 1701.91 provides in pertinent part:

       {¶35} “(A) A corporation may be dissolved judicially and its affairs wound up:

       {¶36} “(4) By an order of the court of common pleas of the county in this state in

which the corporation has its principal office, in an action brought by one-half of the

directors when there is an even number of directors or by the holders of shares entitling

them to exercise one-half of the voting power, when it is established that the corporation

has an even number of directors who are deadlocked in the management of the

corporate affairs and the shareholders are unable to break the deadlock, or when it is

established that the corporation has an uneven number of directors and that the

shareholders are deadlocked in voting power and unable to agree upon or vote for the

election of directors as successors to directors whose terms normally would expire upon

the election of their successors. Under these circumstances, dissolution of the

corporation shall not be denied on the ground that the corporation is solvent or on the

ground that the business of the corporation has been or could be conducted at a profit.

       {¶37} “(D) After a hearing had upon such notice as the court may direct to be

given to all parties to the proceeding and to any other parties in interest designated by

the court, a final order based either upon the evidence, or upon the report of the special

master commissioner if one has been appointed, shall be made dissolving the

corporation or dismissing the complaint. . . .”

       {¶38} I would find that based on the language of this statute, the court has

discretion to grant or deny dissolution even where there is evidence of deadlock.
Delaware County Case No. 10CAE110092                                                   11

       {¶39} The Ohio Supreme Court has discussed the issue of statutory use of the

words “may” and “shall” in Dorrian v. Scioto Conservancy Dist. (1971), 27 Ohio St.2d

102, 107-108, 271 N.E.2d 834, 837-838:

       {¶40} “The character of a statute, as mandatory or permissive, is commonly

determined by the manner in which particular terms used therein are construed.

       {¶41} “In determining whether a statute is mandatory or permissive, it is often

necessary, as in this case, to trace its use of the terms ‘may’ and ‘shall.’

       {¶42} “The statutory use of the word ‘may’ is generally construed to make the

provision in which it is contained optional, permissive, or discretionary (Dennison v.

Dennison (1956), 165 Ohio St. 146, 134 N.E.2d 574), at least where there is nothing in

the language or in the sense or policy of the provision to require an unusual

interpretation (State ex rel. John Tague Post v. Klinger (1926), 114 Ohio St. 212, 151

N.E. 47).

       {¶43} “The word ‘shall’ is usually interpreted to make the provision in which it is

contained mandatory (Dennison v. Dennison, supra), especially if frequently repeated

(Cleveland Ry. Co. v. Brescia (1919), 100 Ohio St. 267, 126 N.E. 51).

       {¶44} “Ordinarily, the words ‘shall’ and ‘may,’ when used in statutes, are not

used interchangeably or synonymously. State ex rel. Wendling Bros. Co. v. Board of

Edn. (1933), 127 Ohio St. 336, 188 N.E. 566.

       {¶45} “However, in order to serve the basic aim of construction of a statute-to

arrive at and give effect of the intent of the General Assembly-it is sometimes necessary

to give to the words ‘may’ and ‘shall’ as used in a statute, meanings different from those

given them in ordinary usage (State v. Budd (1901), 65 Ohio St. 1, 60 N.E. 988; State
Delaware County Case No. 10CAE110092                                                        12

ex rel. Myers v. Board of Edn. (1917), 95 Ohio St. 367, 116 N.E. 516), and one may be

construed to have the meaning of the other (State v. Budd, supra; State ex rel. Myers v.

Board of Edn., supra; Gallman v. Board of County Commrs. (1953), 159 Ohio St. 253,

112 N.E.2d 38).

       {¶46} “But when this construction is necessary, the intention of the General

Assembly that they shall be so construed must clearly appear (General Electric Co. v.

International Union (1952), 93 Ohio App. 139, 108 N.E.2d 211), from a general view of

the statute under consideration (State v. Budd, supra; State ex rel. Myers v. Board of

Edn., supra), as where the manifest sense and intent of the statute require the one to be

substituted for the other (State ex rel. Mitman v. Greene County (1916), 94 Ohio St.

296, 113 N.E. 831; State ex rel. Methodist Children's Home v. Board of Edn. (1922),

105 Ohio St. 438, 138 N.E. 865).

       {¶47} “As Judge Stewart of this court said in Dennison v. Dennison, supra:

‘Although it is true that in some instances the word, ‘may,’ must be construed to mean

‘shall,’ and ‘shall’ must be construed to mean ‘may,’ in such cases the intention that they

shall be so construed must clearly appear. Ordinarily, the word ‘shall’ is a mandatory

one, whereas ‘may’ denotes the granting of discretion.'”

       {¶48} In the instant statute, I do not find that the General Assembly clearly

intended that “may” be interpreted as “shall.” In subsection (D), the legislature used the

word “shall” to direct the trial court to issue a final order either dissolving the corporation

or dismissing the complaint. By the use of both “may” and “shall” in the same statute, it

would appear the General Assembly intended the words to be given their ordinary

meaning.
Delaware County Case No. 10CAE110092                                                   13

      {¶49} I would therefore find that our standard of review is whether the court

abused its discretion in denying judicial dissolution.    Appellant’s verified complaint

demonstrates that the parties were deadlocked on the issue of dissolution of the

corporation and also had failed to elect directors after Heater walked out of a meeting.

However, there was evidence that the parties were not hopelessly deadlocked. The

evidence demonstrates that the parties were both willing to sell the company. Appellant

had no involvement in the day-to-day management of the business, and the company

continued to operate in the usual manner in spite of the obvious animosity between

appellant and Heater.    The meetings which appellant claims demonstrate deadlock

were called by appellant after he had been sued by METSS for breach of fiduciary duty

and the court could have determined that he was deliberately attempting to create

deadlock for the purpose of dissolving the corporation. In his deposition testimony,

appellant cited three reasons for wanting to dissolve the corporation, none of which was

an inability to operate the company due to deadlock:

      {¶50} “Q. And you’re seeking to dissolve METSS even though you’ve made 95

percent of your entire income over your time at METSS through METSS?

      {¶51} “A. Yes.

      {¶52} “Q. And you’re willing to dissolve the company and put all those families

out of work?

      {¶53} “A. Yes.

      {¶54} “Q. Why?

      {¶55} “A. I told you, I have three reasons. The first one is I’m not involved in the

management or the operations of the company. Two, my partner’s actually sued me to
Delaware County Case No. 10CAE110092                                                   14

say that I don’t work and don’t do things for the company. And, three, my partner is a

crook. So those are all very, very good reasons. Three wonderful reasons right there to

dissolve the company, because I don’t need it.” Sapienza Deposition, p. 103.

       {¶56} By his own admission, appellant was not involved in the day-to-day

management or operations of the business, and, therefore, his deadlock with Heater on

some issues did not extend to how the company was managed. As there was some

evidence that the parties were not completely deadlocked and/or such deadlock was

deliberately manufactured by appellant because he was angry over the breach of

fiduciary duty suit and simply trying to get even with Heater, I would find that the court

did not abuse its discretion in denying dissolution.

                                         Julie A. Edwards________________

                                        Judge Julie A. Edwards
[Cite as Sapienza v. Material Eng. & Technical Support Servs. Corp., 2011-Ohio-3559.]

             IN THE COURT OF APPEALS FOR DELAWARE COUNTY, OHIO

                                   FIFTH APPELLATE DISTRICT

RICHARD SAPIENZA                                      :
                                                      :
        Plaintiff-Appellant                           :
                                                      :
-vs-                                                  :
                                                      :        JUDGMENT ENTRY
MATERIALS ENGINEERING AND                             :
TECHNICAL SUPPORT SERVICES                            :
CORPORATION, ET AL.                                   :
                                                      :
        Defendants-Appellees                          :        CASE NO. 10CAE110092

        For the reasons stated in our accompanying Memorandum-Opinion on file, the

judgment of the Court of Common Pleas of Delaware County, Ohio is reversed. Costs

to appellees.

                                                       _s/ Sheila G. Farmer__________________

                                                          s/ John W. Wise_____________________

                                                          _________________________________

                                                                            JUDGES