Leight v. Osteosymbionics, L.L.C.

[Cite as Leight v. Osteosymbionics, L.L.C., 2017-Ohio-5749.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 105101
TROY LEIGHT, ET AL.
PLAINTIFFS-APPELLANTS
vs.
OSTEOSYMBIONICS, L.L.C., ET AL.
DEFENDANTS-APPELLEES
JUDGMENT:
AFFIRMED AND REMANDED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-14-835958
BEFORE: Boyle, J., McCormack, P.J., and S. Gallagher, J.
RELEASED AND JOURNALIZED: July 6, 2017
ATTORNEYS FOR APPELLANTS
Michael R. Stavnicky
Jay P. Auwerter
T. Christopher O’Connell
Singerman, Mills, Desberg, & Kauntz Co., L.P.A.
3333 Richmond Road, Suite 370
Beachwood, Ohio 44122
ATTORNEYS FOR APPELLEES
For Osteosymbionics, L.L.C.
Mark R. Jacobs
Matasar Jacobs, L.L.C.
1111 Superior Avenue, Suite 1355
Cleveland, Ohio 44114
For James Africa
James Africa, pro se
64 South Chillicothe Road
Aurora, Ohio 44202
MARY J. BOYLE, J.:
{¶1} The central question we are called upon to answer is whether, under R.C. 2735.01,
a trial court may grant an ex parte emergency motion to appoint a receiver to manage and operate
an Ohio limited liability company.1
{¶2} In this case, plaintiffs-appellants, Troy Leight and John Nail (collectively
“appellants”), appeal from the trial court’s judgment granting the emergency motion of
defendant-appellee Susan Zull, administrator of the estate of Cynthia Brogan, to appoint a
receiver to manage and operate the business of Osteosymbionics, L.L.C. (“Osteo”). On
appeal, appellants raise the following assignments of error:
1. An ex parte receivership is improper.
2. An ex parte receivership is unconstitutional.
3. The receivership was invalid because the executrix is not an owner.
4. [The] estate had no damage.
5. The trial court has acted inconsistently with this appellate jurisdiction.
6. [The] bond is inadequate.
{¶3} Because we find that Ohio law permits the granting of an emergency ex parte motion
to appoint a receiver and the facts of this case justified the trial court’s judgment without
providing notice and holding an evidentiary hearing, we affirm and remand to the lower court for
further proceedings.
I. Procedural History and Facts
1
This case came to be heard upon the accelerated calendar pursuant to App.R. 11.1 and Loc.R. 11.1. According
to Loc.R. 11.1(B)(5), “in its discretion, the court may issue a ‘judgment entry — accelerated calendar’ or a full
opinion.”
{¶4} In October 2006, appellants and Cynthia Brogan entered into an Operating
Agreement to form Osteo — an Ohio limited liability company in the business of manufacturing
medical devices, primarily cranial implants. Osteo’s implants benefit patients in need of brain
surgeries.
{¶5} In March 2014, “Brogan, acting alone, signed an Amended and Restated
Operating Agreement,” which amended the Operating Agreement in several ways. Leight v.
Osteosymbionics, 8th Dist. Cuyahoga No. 102869, 2016-Ohio-110, ¶ 11. Specifically, the
Amended and Restated Operating Agreement eliminated “the Board of Managers, making
Brogan the sole Manager, vesting the Manager with ‘full, exclusive, and complete discretion,
power, and authority * * * to manage, control, administer, and operate the business and affairs of
the Company,’ and giving the Manager irrevocable power of attorney over all members.” Id. at
¶ 12. In addition, the Amended and Restated Operating Agreement added an arbitration clause.
Id.
{¶6} On November 14, 2014, appellants filed their complaint against Osteo and Brogan
for breach of fiduciary duty, fraud, civil conspiracy, freeze out, accounting, and injunctive relief.
Appellants alleged that “Brogan mismanaged and improperly exercised control over the L.L.C.,
including ‘attempt[ing] to unilaterally change the operating agreement and governing documents
of the Company to benefit herself.’” Leight at ¶ 13.
{¶7} In response to the complaint, Brogan filed a motion to dismiss the complaint or, in
the alternative, to compel arbitration. The trial court denied Brogan’s motion, and she appealed
to this court. On January 14, 2016, we affirmed the trial court’s denial of Brogan’s motion to
dismiss. See Leight.
{¶8} Prior to our decision, however, Brogan died on August 31, 2015. At the request
of appellants, the trial court substituted Zull as a party for Brogan because Zull had been
appointed the administrator of Brogan’s estate.
{¶9} On June 17, 2016, appellants and Zull, on behalf of Brogan’s estate, entered into a
settlement agreement that allowed Leight to “operate and have full authority to operate the
business” of Osteo for a period of 120 days (the “Standstill Period”). During the Standstill
Period, Zull agreed to “cooperate and use best efforts to aid Leight in the transfer of operations of
the business, including, without limitation, finances, banking, orders, access, computer access,
customer service, production, IP and IT.”
{¶10} In addition, during the Standstill Period, Leight agreed to provide to Zull, as
administrator of Brogan’s estate, “monthly reports as to the operations of [Osteo], * * * including
sales efforts, orders, revenue, expenses and liabilities of [Osteo].” Leight also agreed to
provide “all information reasonably requested from Leight concerning the operations of [Osteo]
during the standstill period” and to “make best efforts to operate [Osteo] as a going concern to
preserve the value of [Osteo] and its assets.”
{¶11} Leight further agreed to use his “best efforts during said 120 day standstill to
investigate the allegations of the Lawsuit and any misconduct by [Brogan].” According to the
settlement agreement, if Leight “[wa]s satisfied at its sole choice, determination and election as
to its investigation that there was no misconduct, then Leight shall pay the [sic] Brogan
$20,000.00 for all units owned or previously owned by [Brogan] and her Estate and the parties
shall then be released in accordance with Section 3, below.” If, however, Leight determined
“that there was misconduct or improprieties with the business, then Leight shall provide written
notice of that determination to Brogan, no payment shall be made, the Lawsuit shall become
active and there shall be no release by or between the parties under this Agreement.”
{¶12} The parties also agreed that “[n]othing in this [Settlement] Agreement shall be
construed as an agreement by Brogan that Leight is authorized to operate [Osteo] beyond the
standstill period or to give greater rights to Leight to operate [Osteo] beyond the standstill
period.”
{¶13} Effective June 17, 2016, Leight began to operate Osteo during the Standstill
Period. According to a memorandum from Zull’s attorney, however, Leight failed to deliver
Osteo’s financial reports until August 9, 2016. Although these financial reports were not made
a part of the trial court record, Zull claimed that they showed that Osteo had a balance of
$79,111.83 in its checking account as of the end of July 2016.
{¶14} Zull also believed that Leight provided incomplete financial reports for Osteo.
Therefore, on August 16, 2016, Zull’s attorney emailed Leight’s attorney and attached a
memorandum with nine initial questions regarding the financial reports. The email stated that
“we tried to remain focused on the primary issues. My client does not waive her right to ask for
any more information or any other rights she has.”
{¶15} Within hours of this email on August 16, 2016, Leight’s attorney responded, “We
are terminating the settlement and returning the case to active litigation. Additionally, due to
the manner the company was run prior to my client’s recent involvement, there is a massive
negative balance. My client is making a capital call of $150,000. Please let me know who I
should be contacting.”
{¶16} In response, on September 1, 2016, Zull’s attorney sent correspondence to Leight’s
attorney reminding him that:
[Brogan] is still the majority owner of [Osteo]. As your clients were exercising
management of [Osteo] solely under authority granted by the [Settlement]
Agreement, your clients are no longer authorized to take any actions on behalf of
[Osteo] without my client’s approval. Nonetheless, your clients currently have
exclusive control over [Osteo’s] records, bank accounts, and other assets and they
are under a duty to maintain and manage those records and assets for the benefit
of the company and its members until such time as control of those records and
assets are properly transferred.
In this same letter, Zull requested that the members select “a new person to run” Osteo’s
business. Although Zull suggested two candidates, he also requested appellants to “propose
candidates that they would accept.”
{¶17} On September 1, 2016, Zull’s attorney wrote another letter to Leight’s attorney
informing him that Osteo’s customer, Longeviti Neuro Solutions (Longeviti), wanted to explore
“a merger with or purchase of” Osteo. In the letter, Zull’s attorney explained that Longeviti’s
founder and chief executive officer, Jesse Christopher, had recently told him “that [Jesse
Christopher] had previously expressed his interest to Troy Leight, but Mr. Leight declined to
discuss the opportunity.” Zull’s attorney then wrote, “Not only does Mr. Leight lack authority
to make such decisions, he never informed my client of Mr. Christopher’s interest.” Zull
requested consent from appellants to move forward with exploring the opportunity with
Longeviti.
{¶18} After receiving no response to his letters, on September 8, 2016, Zull’s counsel
emailed Leight’s counsel asking whether to expect a response. On September 9, 2016, Leight’s
counsel replied that he had “been buried on other matters and in court. I hope to get back to you
next week.” On September 14, 2016, Leight’s counsel again emailed, “I am following up my
guy on your letters.” Nothing in the record suggests that Leight substantively responded to
Zull’s letters or questions about the financial records.
{¶19} Although Leight terminated the Settlement Agreement, he continued to operate
and manage Osteo. During this time, Longeviti had a pending order that Osteo needed to
deliver by October 6, 2016, for a patient’s brain surgery scheduled on October 19, 2016. In
support of these facts, Jesse Christopher, the chief executive officer of Longeviti, provided an
affidavit that averred:
Longeviti recently submitted another order for a cranial implant to
Osteosymbionics (the “Current Order”) for the same price as the Initial Order.
The patient to receive that implant is scheduled to have brain surgery on October
19, 2016. That implant must be delivered by October 6, 2016 for that surgery to
proceed as scheduled. I know of at least two other patients who are scheduled to
have brain surgery and other patients who are waiting to have their brain surgeries
scheduled with the expectation that Osteosymbionics’ implant will be used in
those surgeries. Some of those patients are in pain. Surgeons are developing a
new technique that reduces complications for brain surgery patients. That
technique depends on the use of Osteosymbionics’ implants. If Osteosymbionics
does not provide those implants, the scheduled and pending surgeries will be
delayed.
On September 26, 2016, Leight informed me that Osteosymbionics does not
intend to fill the Current Order.
Based on demand, I expect that Longeviti will be providing at least an average of
two orders for cranial implants to Osteosymbionics per week over the next six
months if Osteosymbionics continues to fill orders for cranial implants. It is
likely that the number of orders submitted by Longeviti will increase above two
per week.
{¶20} Christopher’s affidavit included emails between Leight and himself about the
upcoming October 6 order and future orders. On September 22, 2016, Christopher emailed
Leight, “Our next order’s surgery date is 10/6, and we’d like to make an arrangement for 75 more
over the next 12 months for a collective expense of around $300,000.” The next day, Leight
emailed
Appears that Mark Jacobs is not interested in my offer. Your proposed unit price
would not even cover my basic costs such as rent and liability insurance. I have no
interest in keeping a company alive to continue to lose money. Bankruptcy is a
better financial option.
{¶21} Christopher responded, “We are open to discussion on covering operational costs,
please let us know what those may be,” and Leight answered, “I entertained your ideas and quite
obviously Mark Jacobs has no desire in resolving the issues. Go someplace else.” After
another email from Christopher trying to maintain the business, Leight replied, “What part of no
do you not understand?”
{¶22} Cameron Fordyce, a consultant hired by Leight during the Standstill Period, also
provided an affidavit in support of Zull’s emergency motion to appoint a receiver that averred:
Longeviti placed an order for another cranial implant last week for the same price
that it paid for its previous cranial implant. I expected that Osteosymbionics
would fill that order. Osteosymbionics is capable of filling that order, once
Osteosymbionics pays Brian [Greene, a former Osteosymbionics employee] the
$500 he is owed for work performed in filling prior orders. The cranial implant
that Longeviti ordered must be delivered by October 6, 2016. To deliver that
implant on time, Osteosymbionics must begin working on the implant no later
than first thing in the morning on October 3, 2016.
Longeviti was willing to commit to placing 75 orders for cranial implants in the
next 12 months generating at least $300,000 in revenue for Osteosymbionics.
On September 26, 2016, Leight informed Longeviti that Osteosymbionics would
not fill Longeviti’s order.
When Leight engaged me as a consultant for Osteosymbionics, he agreed that
Osteosymbionics would pay me $2,000 per week for my services.
Osteosymbionics paid me $4,000 for my first two weeks and has not paid me
since. When I asked Leight for Osteosymbionics to pay amounts owed to me
and to Brian $500 that was owed to him, so that Brian will be available to
continue filling orders, he told me that Osteosymbionics was bankrupt and that we
would have to file a claim with the bankruptcy court.
{¶23} Based upon these facts and evidence, on September 30, 2016, Zull filed her
emergency motion to appoint a receiver to manage and operate Osteo.2 Zull’s motion relied
upon R.C. 2735.01(A)(1), (A)(6), and (A)(7) and argued that Osteo “[was] in imminent danger of
suffering significant harm” because: (1) Leight refused to complete a pending order for a cranial
implant that needed to be delivered to Longeviti by October 6, 2016 — six days from the filing
of the emergency motion to appoint a receiver — for a patient’s brain surgery, (2) Leight’s
refusal to complete the order could result in the loss of Longeviti as a customer thereby causing
Osteo to suffer approximately $300,000 of revenue in the next year, (3) Osteo’s failure to
complete future cranial implants would prevent other patients from having brain surgeries, (4)
Leight’s representations that Osteo “[was] bankrupt” necessitated a receiver to preserve its assets
from insolvency or bankruptcy, and (5) Leight continued to control Osteo even though he
unilaterally terminated the settlement agreement.
{¶24} On the same day Zull filed her emergency motion to appoint a receiver, the trial
court granted the motion ex parte. In granting the motion, the trial court held that, “[a]fter
considering the pleadings and other documents presented in connection with the matter, as well
as arguments presented to the court”:
Zull has met the requirements of Ohio Revised Code Section 2735.01 and the
appointment of a Receiver is an appropriate remedy.
Zull has shown by clear and convincing evidence that (a) Osteosymbionics, LLC
(“Osteosymbionics”) has been and is being financially and operationally
mismanaged; (b) Osteosymbionics is in imminent danger of becoming insolvent;
2
Contemporaneous with her emergency motion to appoint a receiver, Zull filed her answer and counterclaim against
appellants and Osteo. Zull’s counterclaim asserted claims for breach of fiduciary duty, accounting, breach of
settlement agreement, declaratory judgment, deferred compensation, and breach of operating agreement.
and (c) the appointment of a Receiver is necessary to preserve the assets of Osteo
and protect the interests of the parties during the pendency of this litigation.
The Court is convinced that Osteosymbionics and its assets are in danger and the
immediate appointment of a Receiver is necessary and appropriate.
{¶25} It is from this judgment that appellants appeal.
II. Law and Analysis
A. Standard of Review
{¶26} Appellants argue that this court should apply a de novo standard of review with
respect to their second assignment of error only. Specifically, appellants claim that the trial
court’s failure to give notice or hold a hearing prior to granting Zull’s emergency motion violated
their constitutional due process rights, and therefore, a de novo review should apply.
Appellants, however, fail to cite to a single legal authority in support of their position.
{¶27} Zull argues that an abuse of discretion standard of review applies in this case. She
further states that appellants “provide no support” for the argument that a de novo standard of
review applies.
{¶28} The trial court is vested with sound discretion to appoint a receiver. State ex rel.
Celebrezze v. Gibbs, 60 Ohio St. 3d 69, 73, 573 N.E.2d 62 (1991). The decision to appoint a
receiver will not be disturbed on appeal unless there is an abuse of discretion. Id. at ¶ 74;
Cawley JV, L.L.C. v. Wall St. Recycling, L.L.C., 8th Dist. Cuyahoga No. 102121,
2015-Ohio-1846, ¶ 7. “Abuse of discretion” has been defined as an attitude that is
unreasonable, arbitrary, or unconscionable. In re C.K., 2d Dist. Montgomery No. 25728,
2013-Ohio-4513, ¶ 13, citing Huffman v. Hair Surgeon, Inc., 19 Ohio St. 3d 83, 482 N.E.2d 1248
(1985).
{¶29} We will apply an abuse of discretion standard of review for each of appellants’
assignments of error.
B. Appointment of the Receiver Without Notice and a Hearing
{¶30} Appellants’ first and second assignments of error claim that the trial court erred in
granting Zull’s emergency motion to appoint a receiver because appellants had no notice and the
trial court failed to hold an evidentiary hearing. Specifically, appellants argue that the ex parte
appointment of the receiver violates Ohio law and their constitutional right to due process.
Because these two assignments of error are interrelated, they will be considered together.
{¶31} The appointment of a receiver necessarily requires dispossessing the owner of his
or her property, and therefore, courts have generally required that notice be given before the
appointment of a receiver. This court, however, has held that the general rule requiring notice
“is not inflexible” and, thus, a trial court may appoint a receiver without notice if the “facts and
situation warrant such an appointment.” United States Bank, N.A. v. Gotham King Fee Owner,
L.L.C., 8th Dist. Cuyahoga No. 98618, 2013-Ohio-1983, ¶ 12; see also Euclid Roxford Co. v.
Bolgar, 8th Dist. Cuyahoga No. 6928, 1926 Ohio Misc. LEXIS 968 (Mar. 1, 1926) (when an
emergency exists that requires immediate action, a receiver may be appointed without notice);
Natl. Salt Co. v. United Salt Co., 8 Ohio N.P. 325, 11 Ohio Dec. 348, 1901 Ohio Misc. LEXIS
27, syllabus ( 1901) (no notice required if immediate appointment of a receiver is justified and
required).
{¶32} Notice may also be dispensed with when it appears that the delay required to give
notice of a motion for receiver will result in irreparable harm. Mfrs. Life Ins. Co. v. Patterson,
51 Ohio App. 3d 99, 100, 554 N.E.2d 134 (8th Dist.1988).
{¶33} In Saferin v. Mach Ents., 6th Dist. Lucas No. L-85-070, 1985 Ohio App. LEXIS
8842 (Oct. 18, 1985), the plaintiff and the defendants entered into a limited partnership
agreement where the defendants managed and controlled the operations of the company.
Plaintiff filed a complaint against the defendants and the company alleging that the defendants
breached their fiduciary duty and contractual agreement by failing to distribute and allocate net
profits, refusing reasonable requests to inspect the company’s books, misappropriating and
co-mingling business profits with personal funds, wrongfully disposing of partnership property,
and violating the terms of the partnership agreement. Along with the complaint, the plaintiff
requested the immediate appointment of a receiver. Without the defendants being served or
otherwise receiving notice, the trial court appointed a receiver at an ex parte hearing.
{¶34} On appeal, the defendants in Saferin argued that the trial court erred when it
appointed a receiver without notice to them. The Sixth District found that the complaint with
exhibits supported the allegations that the defendants breached their contractual obligations,
failed to adequately maintain the property, and fraudulently retained company profits. Saferin
at ¶ 7. Because the evidence proved that the defendants’ conduct caused irreparable damage,
the Sixth District held that the trial court did not err when it appointed a receiver in an ex parte
hearing. Id.
{¶35} In addition, R.C. 2735.01 does not mandate an evidentiary hearing before ruling on
a motion to appoint a receiver. In Cawley, 8th Dist. Cuyahoga No. 102121, 2015-Ohio-1846,
our court held: “[W]here the court is sufficiently convinced that the property is in danger from a
review of the affidavits * * * admissions and inferences that can be rationally drawn from these
materials and from any arguments presented[,] then a decision appointing a receiver without a
hearing is not error.” Id. at ¶ 8, citing Victory White Metal Co. v. N.P. Motel Sys., Inc., 7th Dist.
Mahoning No. 04MA245, 2005-Ohio-2706; see also Pal v. Strachan, 8th Dist. Cuyahoga No.
91808, 2009-Ohio-730 (because the pleadings, affidavit and other materials showed that the
business was in danger of being “materially injured,” the sua sponte appointment of a receiver
without a hearing was proper).
{¶36} In this case, the trial court had been involved in the case since November 2014, had
held several pretrials, knew the parties, understood the claims and issues, and had ruled on
motions, including discovery motions. By the time Zull filed her emergency motion for the
appointment of a receiver, the trial court had been involved in the case for almost two years.
{¶37} Moreover, appellants’ complaint against Brogan centered on a theory that she
mismanaged and embezzled money from Osteo and appellants. The parties entered into the
Settlement Agreement whereby Leight obtained access over Osteo in order to investigate whether
evidence existed to support appellants’ claims against Brogan. Once Leight began operating
Osteo, he had to provide financial reports during the Standstill Period, but according to the email
from Zull’s counsel, he failed to do so timely. Then, after being asked questions about the
financial reports that he did provide, instead of responding to the questions, Leight, via email,
terminated the Settlement Agreement without providing “written notice” of a determination that
Brogan committed misconduct with Osteo.
{¶38} Even then, Leight continued to control Osteo, but there is no evidence that he
reached out to the other members of the company, including Zull on behalf of Brogan, in making
decisions. Rather, the affidavits of Christopher and Fordyce proved that Osteo had customers,
including Longeviti, that had pending orders that Leight refused to fill. For one order, Osteo
had three days to “begin working” on a cranial implant (and six days to deliver it to Longeviti) so
that a patient could have a scheduled brain surgery. Leight’s own email told Longeviti to “go
someplace else,” and “what part of no do you not understand?”
{¶39} In addition, Leight’s email to Christopher showed that he believed that
“Bankruptcy [was] a better financial option” than to continue to do business with Longeviti.
And according to Fordyce’s affidavit, Leight told her that Osteo “was bankrupt.” Yet, Leight
refused to permit Osteo to complete the cranial implant order for Longeviti. Had the order not
been timely completed, Osteo could have lost Longeviti’s business — which Christopher
anticipated the amount to be $300,000 in revenue in the next 12 months. Likewise, the affidavit
of Christopher proved that other patients expected Osteo’s cranial implants for future brain
surgeries. These facts support that Leight’s actions posed an immediate and significant threat of
imminent danger to Osteo and its assets, including its financial viability.
{¶40} Appellants rely on Ry. Co. v. Jewett, 37 Ohio St. 649, 1882 Ohio LEXIS 229
(1882), for the argument that the trial court erred in granting the motion to appoint a receiver
without notice to them. After a review of Jewett, we do not find that the Ohio Supreme Court
forbids a granting of a motion for a receiver without notice. In Jewett, the Ohio Supreme Court
found that the trial court had no obstacle to provide notice to the defendant before acting on the
appointment of a receiver because the allegations in the case did not include fraud, insolvency, or
danger of harm to the company property. Id. at 659. The Jewett court held, however, that a
motion for appointment of a receiver can be lawfully made without notice if the delay required to
give such notice will result in irreparable loss. Id.
{¶41} The facts of this case are distinguishable from Jewett. Here, the affidavits of
Christopher and Fordyce, along with the emails between Christopher and Leight proved that
imminent danger to Osteo would have occurred had the trial court not immediately appointed a
receiver because the Longeviti order would not have been filled; the patient would not have had
the scheduled brain surgery; other patients would not have received their cranial implants; and
Longeviti would likely have stopped doing business with Osteo, thereby preventing Osteo from
receiving revenues of approximately $300,000 over the next 12 months. Therefore, had the trial
court delayed the granting of the emergency motion in order to provide notice to appellants and a
hearing, Osteo would have suffered irreparable harm.
{¶42} Accordingly, we find that the trial court did not abuse its discretion in granting
Zull’s emergency motion for the appointment of a receiver without notice or a hearing.
{¶43} Appellants’ first and second assignments of error are overruled.
C. Standing
{¶44} Appellants’ third assignment of error argues that the trial court erred when it
granted the emergency motion to appoint a receiver because Zull, as administrator of Brogan’s
estate, “is not an owner of” Osteo. Relying on R.C. 1705.15 and the 2006 Osteo Operating
Agreement, appellants claim that because Brogan died in August 2015, so too did her
membership interest in Osteo. Thus, according to appellants, Zull has no “right to or interest
in” Osteo property and, therefore, Zull did not have standing to obtain a receiver under R.C.
2735.01.
{¶45} In response, Zull claims that the language contained in R.C. 2735.01(A)(1), (A)(6)
and (A)(7) does not require her to have an ownership interest in Osteo to have standing to obtain
the appointment of a receiver. Regardless, Zull asserts she has an interest in Osteo as the
administrator of Brogan’s estate, and therefore, she properly obtained the appointment of the
receiver.
{¶46} R.C. 2735.01(A)(1) provides that the appointment of a receiver is proper “between
* * * others * * * interested in any property or fund, on the application * * * of a party whose
right to or interest in the property or fund, or the proceeds of the property or fund, is probable,
and when it is shown that the property or fund is in danger of being lost, removed, or materially
injured.”
{¶47} Applying the plain language of the statute, we find that Zull had standing to seek
the appointment of the receiver. The trial court substituted Zull for Brogan after Brogan died.
As the administrator of Brogan’s estate, Zull had the obligation to protect Brogan’s assets,
including her interest in Osteo. Thus, Zull had a “probable” “right to or interest” in the Osteo
property in order to protect Brogan’s estate’s interests and claims to Osteo and its assets.
{¶48} Because we find that Zull had standing to seek the appointment of a receiver for
Osteo under R.C. 2735.01(A)(1), we need not render an opinion as to the extent of Zull’s rights
and interest in Osteo because those will be determined at the trial of the underlying matter.
Appellants’ third assignment of error is overruled.
D. Damages
{¶49} Appellants’ fourth assignment of error claims that the trial court erred in appointing
the receiver because Zull failed to allege or show any probable damage because “none had
occurred or could occur.” Because Brogan died on August 31, 2015, according to appellants,
the amount owed by or to Brogan “could not increase or decrease based upon anything [Osteo]
does now.”
{¶50} In response, Zull argues that the basis for the appointment of a receiver is to
“prevent the damage caused by the loss of property and to preserve the property so that interested
parties may recover on their underlying rights and claims.” Zull claims that it is the damage
caused by loss to Osteo that is addressed by the appointment of a receiver, not the damages
sought in the underlying claims in the action.
{¶51} We agree with Zull. R.C. 2735.01(A)(1) states that the appointment of a receiver
is proper when “it is shown that the property or fund is in danger of being lost, removed, or
materially injured.” Likewise, R.C. 2735.01(A)(6) states that a receiver may be appointed if the
limited liability company “is insolvent, [or] is in imminent danger of insolvency.” Thus, the
issue is not whether Zull proved damages. The issue is whether the evidence proved that
Osteo’s assets “were in danger of being lost, removed, or materially injured” or whether Osteo
“is insolvent [or] is in imminent danger of insolvency.”
{¶52} We have determined that the trial court properly granted the emergency motion to
appoint a receiver because of the imminent danger to Osteo, its assets, and its financial viability.
Therefore, the trial court did not abuse its discretion in granting Zull’s emergency motion for the
appointment of a receiver.
{¶53} Appellants’ fourth assignment of error is overruled.
E. The Trial Court’s Conduct After Granting Zull’s Emergency Motion
{¶54} Appellants’ fifth assignment of error argues that the trial court has acted
inconsistently with appellate jurisdiction. Specifically, appellants claim that the trial court “has
been taking actions post appeal” despite the fact that all actions should be stayed because the trial
court is divested of jurisdiction.
{¶55} This assignment of error is unrelated to the trial court’s judgment granting Zull’s
emergency motion for the appointment of a receiver, which is the only issue on appeal. Rather,
this assignment of error seeks review of actions by the trial court after the September 30, 2016
judgment granting Zull’s motion. It is well established that this court need not address an
assignment of error pertaining to issues outside the scope of an appeal. State v. Briscoe, 8th
Dist. Cuyahoga No. 98414, 2012-Ohio-4943, ¶ 9, citing State v. Pollard, 8th Dist. Cuyahoga No.
97468, 2012-Ohio-2311. This court does not allow such impermissible bootstrapping. Id.
{¶56} Even if we consider appellants’ fifth assignment of error, we would not find that
the trial court’s actions “post appeal” are improper. “Even if an appeal is pending, the trial
court retains jurisdiction to take action in aid of the appeal and ‘over issues not inconsistent with
the appellate court’s jurisdiction to reverse, modify, or affirm the judgment appealed from.’”
Schmitt v. Ward, 9th Dist. Summit No. 28324, 2017-Ohio-4171, ¶ 8, quoting In re S.J., 106 Ohio
St.3d 11, 2005-Ohio-3215, 829 N.E.2d 1207. Thus, the timely filing of a notice of appeal only
precludes a trial court from issuing orders affecting matters at issue in the appeal. State ex rel.
Electronic Classroom of Tomorrow v. Cuyahoga Cty. Court of Common Pleas, 129 Ohio St. 3d
30, 2011-Ohio-626, 950 N.E.2d 149, ¶ 14.
{¶57} Appellants’ fifth assignment of error is overruled.
F. Bond
{¶58} Appellants’ sixth assignment of error claims that the trial court erred when it
required only a $1,000 bond to be posted for the appointment of the receiver. Appellants argue
that the nominal bond is inconsistent with Zull’s arguments and the injuries suffered by the
appellants because the bond does not accurately reflect the value of the assets or property the
receiver may possess.
{¶59} R.C. 2735.03 allows a trial court to direct the amount of a receiver’s bond; thus,
“the amount of the bond is within the discretion of the trial court[.]” Am. Ent. Bank v. Garfield
Hts. Prop., L.L.C., 8th Dist. Cuyahoga No. 98646, 2013-Ohio-2526, ¶ 29. In Am. Ent. Bank,
this court found a $1,000 receiver bond to be proper even though the property in the case had a
market value of greater than $1.1 million. Id. at ¶ 30, 32. In addition, in Fifth Third Bank v.
Q.W.V. Properties, L.L.C., 12th Dist. Butler No. CA2010-09-245, 2011-Ohio-4341, ¶ 31, the
trial court did not abuse its discretion by setting a receiver’s bond at $0 even though the property
was valued in excess of $1 million.
{¶60} Here, using its discretion, the trial court set the receiver’s bond at $1,000.
Appellants have provided no evidence to indicate that the bond amount is inadequate. Rather,
appellants simply assert that Zull has “claimed that the estate’s interest in the company has some
great value to them. If that is true, then there is great value and the receiver should be required
to post a commensurate bond that reflects that high value.” From the evidence submitted to the
trial court, however, appellants themselves believed Osteo to be financially unsound because
Leight made representations that Osteo “was bankrupt.”
{¶61} Based on these facts, we decline to find that the trial court abused its discretion
with respect to the amount of the receiver’s bond. Appellants’ sixth assignment of error is
overruled.
III. Conclusion
{¶62} We find that an abuse of discretion standard of review applies when we review a
judgment granting an emergency ex parte motion to appoint a receiver. We also hold that the
trial court did not abuse its discretion when it granted Zull’s emergency ex parte motion for the
appointment of a receiver. We further find that Zull had standing to seek the appointment of a
receiver for Osteo under R.C. 2735.01(A)(1). We also determined that Zull did not have to
prove damages in order to obtain the appointment of a receiver; rather, she had to prove, and did
prove, that Osteo’s assets “were in danger of being lost, removed, or materially injured” or that
Osteo “is insolvent [or] is in imminent danger of insolvency.” Finally, we hold that the trial
court did not abuse its discretion when it required a $1,000 receiver’s bond.
{¶63} Judgment affirmed and case is remanded for further proceedings consistent with
this opinion.
It is ordered that appellees recover from appellants the costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the common pleas
court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the
Rules of Appellate Procedure.
MARY J. BOYLE, JUDGE
TIM McCORMACK, P.J., and
SEAN C. GALLAGHER, J., CONCUR