Court Opinion

ID: 6700801
Source: CourtListenerOpinion
Date Created: 2022-07-20 22:08:39.530506+00
Date Added: 2024-06-11T16:01:24.644475
License: Public Domain

Colleen M. O’Toole, Judge,
dissenting.
(¶ 67} I respectfully dissent.
{¶ 68} With respect to appellants’ first issue, R.C. 1701.13(E)(1), (2), and (3) permit the corporation to indemnify a director after the litigation against the director, or threatened litigation, has been concluded and the director has been successful on the merits. Consequently, the language in R.C. 1701.13(E)(1), (2), and (3) is permissive.2 The language in R.C. 1701.13(E)(5)(a), however, is mandatory. Again, that section provides that the payment of attorney fees incurred by a director “shall be paid by the corporation as they are incurred.”3 Thus, pursuant to the mandatory language contained in R.C. 1701.13(E)(5)(a), I *471believe the trial court properly followed the law by ordering Trumbull Industries to pay the attorney fees of Sam M.
{¶ 69} Appellants assert that in light of the claims of fraud and breach of fiduciary duty made against Sam M., he cannot satisfy the requirements Of the business-judgment rule.
{¶ 70} R.C. 1701.59(D), the “business judgment rule,” provides: “A director shall be liable in damages for any action that the director takes or fails to take as a director only if it is proved by clear and convincing evidence in a court of competent jurisdiction that the director’s action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the corporation or undertaken with reckless disregard for the best interests of the corporation.”
{¶ 71} Both R.C. 1701.59(D) and R.C. 1701.13(E)(5)(a), the subparagraph at issue in the instant case, deal with the financial obligations that can be imposed on a director who loses a breach-of-fiduciary-duty lawsuit. Again, pursuant to R.C. 1701.13(E)(5)(a), when a suit is filed against a director engaged in fraud or breach of a fiduciary duty (i.e., referred to in division (E)(1) and (2)), the corporation is required to make advance payments of the director’s attorney fees. A director cannot claim the protection of the business-judgment rule and obtain from the corporation indemnification of his attorney fees under R.C. 1701.13(E)(2) if a judgment of breach of fiduciary duty is entered against him. However, a claim of a breach of fiduciary duty against a director does not have the same consequences under either R.C. 1701.59(D) or R.C. 1701.13(E)(5)(a). Thus, the claims of a breach of fiduciary duty and other misconduct made against Sam M. were sufficient to trigger Trumbull Industries’ duty to advance his attorney fees.
{¶ 72} In addition, I believe appellants’ reliance on Endres Floral Co. v. Endres (Feb. 9, 1995), 5th Dist. No. 93AP100071, 1995 WL 156411, is misplaced because the appellant in that case sought indemnification under R.C. 1701.13(E)(2), and it did not involve the advancement provision of R.C. 1701.13(E)(5)(a), which is at issue in the case sub judice.
{¶ 73} I believe appellants’ first issue is without merit.
{¶ 74} With regard to their second issue, I note that the trial court’s January 22, 2007 order was properly authorized by the mandatory provisions of R.C. 1701.13(E)(5)(a) and does not mention Trumbull Industries’ Articles of Incorporation. Because the Articles of Incorporation do not expressly preclude advancement of legal fees, Trumbull Industries must comply with the mandatory provisions of R.C. 1701.13(E)(5)(a).
{¶ 75} I believe appellants’ second issue is without merit.
*472{¶ 76} For the foregoing reasons, as I would affirm the judgment of the trial court, I respectfully dissent.

. R.C. 1701.13(E)(1) applies to an action filed against a director or officer by a third party who is outside the corporation (i.e., an action for negligence or other torts). R.C. 1701.13(E)(2) applies to a shareholder derivative action or an action by the corporation itself against the director or officer (i.e., an action for breach of fiduciary duty). The language in R.C. 1701.13(E)(1), (2), and (3) is nearly identical to those provisions of the Delaware statute dealing with indemnification of officers, directors, employees, and agents, 8 Del. C. Section 145(a), (b), and (c).

. The comparable Delaware provision is contained in subparagraph (e) of 8 Del. C. Section 145. However, the major distinctions between the Delaware and Ohio provisions are that Delaware's advancement provision is permissive and extends to officers and directors, whereas Ohio's advancement provision is mandatory and is limited to directors. Nevertheless, Ohio courts have looked to Delaware cases construing the provisions of 8 Del. C. Section 145 when asked to interpret and apply the comparable provisions of R.C. 1701.13(E). See MD Acquisition, L.L.C. v. Myers, 173 Ohio App.3d 247, 2007-Ohio-3521, 878 N.E.2d 37, at ¶ 7.