Schmitt v. Schmitt

[Cite as Schmitt v. Schmitt, 2022-Ohio-1685.]
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
Joseph T. Schmitt, :
Plaintiff-Appellee, :
Mark Schmitt, :
No. 21AP-328
Plaintiff-Appellant, : (C.P.C. No. 20CV-5630)
v. : (REGULAR CALENDAR)
Stephen Schmitt et al., :
Defendants-Appellees. :
D E C I S I O N
Rendered on May 19, 2022
On brief: Arnold & Clifford, LLP, James E. Arnold, and
Tiffany L. Carwile, for appellant. Argued: Tiffany L.
Carwile.
On brief: Reminger Co., L.P.A., Patrick Kasson, Brandon
Abshier, and Steven A. Chang, for appellee The Jet Container
Company Argued: Steven A. Chang.
APPEAL from the Franklin County Court of Common Pleas
LUPER SCHUSTER, P.J.
{¶ 1} Plaintiff-appellant, Mark Schmitt, appeals from a decision and entry of the
Franklin County Court of Common Pleas denying his motion for advancement of litigation
expenses. For the following reasons, we reverse.
I. Facts and Procedural History
{¶ 2} Defendant-appellee, The Jet Container Company ("Jet Container"), is a
family business. Jet Container has five shareholders: Richard Prohl and four brothers,
No. 21AP-328 2
Mark Schmitt, Joseph T. Schmitt, Stephen Schmitt, and Michael Schmitt. Additionally, all
five of the shareholders are the only members of Jet Container's board of directors. Mark
is the former chief financial officer ("CFO") of Jet Container.
{¶ 3} Jet Container has articles of incorporation and a buy-sell agreement, both of
which are silent as to the advancement of litigation expenses. However, the buy-sell
agreement does have an indemnification provision providing that Jet Container shall
indemnify its shareholders and officers "to the full extent permitted by the Ohio Revised
Code." (Pls.' Ex. A, Buy-Sell Agreement Section 3.2., attached to Aug. 25, 2020 Compl.)
{¶ 4} On August 25, 2020, Mark and Joseph filed a complaint against Stephen,
Michael, Prohl, and Jet Container asserting claims of breach of contract, breach of fiduciary
duty, civil conspiracy, and declaratory judgment. The claims arose from the termination of
Mark's and Joseph's employment with Jet Container on July 31, 2020. Subsequently, on
December 7, 2020, Jet Container filed a counterclaim against Mark asserting claims of
breach of fiduciary duty and conversion.
{¶ 5} In response to the filing of the counterclaim, Mark, through his counsel, sent
a letter dated December 23, 2020 to counsel for Jet Container requesting an advancement
of litigation expenses, including attorney fees, pursuant to R.C. 1701.13(E)(5). Additionally,
Mark executed an undertaking in which he agreed to repay any amount advanced to him if
a court determined that his actions or failure to act involved a deliberate intent to injure Jet
Container or constituted a reckless disregard for Jet Container's best interest. Counsel for
Jet Container responded via email on January 5, 2021 that it was denying Mark's request
for advancement of expenses on the grounds that the claims against Mark are not made
against him in his capacity as a director of the corporation.
{¶ 6} On February 5, 2021, Mark filed a motion for advancement of litigation
expenses pursuant to R.C. 1701.13(E)(5)(a). Jet Container opposed the motion in a
February 19, 2021 memorandum contra. Mark filed a reply in support of his motion on
March 5, 2021. Jet Container then filed a motion for leave to file a surreply to Mark's
motion on the basis that Mark had used his reply in support to advance new arguments for
his motion for advancement of expenses. Mark filed an objection to Jet Container's motion
seeking leave.
No. 21AP-328 3
{¶ 7} In a June 3, 2021 decision and entry, the trial court granted Jet Container's
motion for leave to file a surreply and denied Mark's motion for advancement of litigation
expenses. The trial court determined that because Jet Container brought the counterclaim
against Mark solely in his capacity as an officer, not as a director, R.C. 1701.13(E)(5)(a) is
not applicable and, therefore, Mark is not entitled to advancement of litigation expenses.
Mark timely appeals.
II. Assignment of Error
{¶ 8} Mark assigns the following error for our review:
The trial court erred in denying Mark Schmitt's Motion for
Advancement of Litigation Costs.
III. Discussion
{¶ 9} In his sole assignment of error, Mark argues the trial court erred in denying
his motion for advancement of litigation expenses. Through his argument, Mark asserts
the trial court erred in its application of R.C. 1701.13(E)(5)(a).
{¶ 10} Generally, statutory construction is a question of law subject to de novo
review. Ceccarelli v. Levin, 127 Ohio St.3d 231, 2010-Ohio-5681, ¶ 8; State v. Fraternal
Order of Police of Ohio, Inc., Ohio Labor Council, Inc., 10th Dist. No. 16AP-457, 2017-Ohio-
1382, ¶ 12, citing Licking Hts. Local School Dist. Bd. of Edn. v. Reynoldsburg City School
Dist. Bd. of Edn., 10th Dist. No. 12AP-579, 2013-Ohio-3211, ¶ 9. A court's duty is to give
effect to the words used in a statute, not to delete or insert words. State v. Maxwell, 95
Ohio St.3d 254, 2002-Ohio-2121, ¶ 10. "Where the language of a statute is plain and
unambiguous and conveys a clear and definite meaning there is no occasion for resorting
to rules of statutory interpretation. An unambiguous statute is to be applied, not
interpreted." Sears v. Weimer, 143 Ohio St. 312 (1944), paragraph five of the syllabus.
"Only when a definitive meaning proves elusive should rules for construing ambiguous
language be employed. Otherwise, allegations of ambiguity become self-fulfilling." State
v. Porterfield, 106 Ohio St.3d 5, 2005-Ohio-3095, ¶ 11.
{¶ 11} R.C. 1701.13 provides for the advancement of expenses to a director of a
corporation. Miller v. Miller, 132 Ohio St.3d 424, 2012-Ohio-2928, ¶ 22. At issue here is
R.C. 1701.13(E)(5), which provides:
No. 21AP-328 4
(a) Unless at the time of a director's act or omission that is the
subject of an action, suit, or proceeding referred to in division
(E)(1) or (2) of this section, the articles or the regulations of a
corporation state, by specific reference to this division, that the
provisions of this division do not apply to the corporation and
unless the only liability asserted against a director in an action,
suit, or proceeding referred to in division (E)(1) or (2) of this
section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in
defending the action, suit, or proceeding shall be paid by the
corporation as they are incurred, in advance of the final
disposition of the action, suit, or proceeding, upon receipt of an
undertaking by or on behalf of the director in which the director
agrees to do both of the following:
(i) Repay that amount 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;
(ii) Reasonably cooperate with the corporation concerning the
action, suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a director,
trustee, officer, employee, member, manager, or agent in
defending any action, suit, or proceeding referred to in division
(E)(1) or (2) of this section, may be paid by the corporation as
they are incurred, in advance of the final disposition of the
action, suit, or proceeding, as authorized by the directors in the
specific case, upon receipt of an undertaking by or on behalf of
the director, trustee, officer, employee, member, manager, or
agent to repay that amount, if it ultimately is determined that
the person is not entitled to be indemnified by the corporation.
R.C. 1701.13(E)(5)(a) through (b).
{¶ 12} Pursuant to the statute, R.C. 1701.13(E)(5) provides for both mandatory and
permissive advancement of expenses in subsections R.C. 1701.13(E)(5)(a) and (b),
respectively. Miller at ¶ 28 (R.C. 1701.13(E)(5)(a) is mandatory in its application); Magnus
Internatl. Group, Inc. v. Forster, 8th Dist. No. 105948, 2018-Ohio-2192, ¶ 12
("[p]ermissive advancement is governed by R.C. 1701.13(E)(5)(b)"). Mark asserts that,
based on the plain language of R.C. 1701.13(E)(5)(a), the trial court erred when it
No. 21AP-328 5
determined that, even though he was a director of Jet Container, he was not entitled to the
mandatory advancement of litigation expenses.
{¶ 13} In support, Mark relies on the Supreme Court of Ohio's decision in Miller,
holding that "[a] corporation cannot avoid its duty to advance expenses to a director under
R.C. 1701.13(E)(5)(a) by claiming that the director's alleged misconduct, if proven, would
amount to a violation of his or her fiduciary duties and would therefore foreclose
indemnification." Miller at paragraph one of the syllabus. Further, the Supreme Court held
that "[w]hen a corporation has received from a director the undertaking described in R.C.
1701.13(E)(5)(a), the corporation is required to advance expenses to the director unless the
corporation's articles or regulations specifically state that R.C. 1701.13(E) does not apply to
the corporation." Miller at paragraph two of the syllabus. Here, the parties agree that Jet
Container did not opt out of the mandatory advancement of expenses in its articles or
regulations, and that Mark provided the undertaking described in R.C. 1701.13(E)(5)(a)(i)
and (ii). Therefore, Mark asserts both the plain language of R.C. 1701.13(E)(5)(a) and the
Supreme Court of Ohio's decision in Miller direct that Jet Container must advance litigation
expenses to him to defend the claims raised in Jet Container's counterclaim.
{¶ 14} Jet Container responds that Miller is not applicable to the instant case
because, unlike in Miller, Jet Container brought the counterclaim against Mark in his
capacity as an officer of the corporation, not in his capacity as a director of the corporation.
Jet Container acknowledges that Miller purports to specifically reject the argument that the
director "was acting as an officer and was therefore not entitled to advancement of
expenses." Miller at ¶ 40. However, Jet Container asserts this language is limited to the
particular facts of Miller in which the Supreme Court expressly noted that "throughout this
litigation [the corporation has] focused on whether [the director] is entitled to
advancement of fees for his role as a director," and only asserted the argument the director
was operating in his capacity as an officer for the first time on appeal to the Supreme Court,
thereby finding the assertion to be "disingenuous." Miller at ¶ 41. Here, Jet Container
maintains it has, throughout the pendency of the litigation, consistently framed its
opposition to the advancement of expenses to Mark on the grounds that it brought the
counterclaim against Mark the officer, not against Mark the director.
No. 21AP-328 6
{¶ 15} The question before us, then, is whether the mandatory advancement
provision of R.C. 1701.13(E)(5)(a) applies when an individual serves in a dual capacity as
both a director and an officer of a corporation and the subject of the action is the director's
conduct as an officer of the corporation, not his conduct as a director of the corporation.
In denying Mark's motion for advancement of expenses, the trial court agreed with Jet
Container that R.C. 1701.13(E)(5)(a) did not apply because Jet Container brought the
counterclaim based on Mark's conduct as an officer of the corporation. Stated another way,
the trial court concluded that it is not enough, under R.C. 1701.13(E)(5)(a) that Mark is a
director of the corporation, that he provided the undertaking described in the statute, and
that Jet Container had not opted out of mandatory advancement. Instead, the trial court
found that for R.C. 1701.13(E)(5)(a) to apply, the subject of the action must specifically
relate to the director's conduct as a director. We find the trial court's construction of R.C.
1701.13(E)(5)(a) imposes an additional requirement for its applicability in contravention of
the plain language of the statute.
{¶ 16} In finding that Mark is not entitled to the mandatory advancement of
expenses, the trial court construed the phrase "at the time of the director's act or omission
that is the subject of an action, suit, or proceeding" as imposing a capacity limitation on the
types of allegations for which a director is entitled to mandatory advancement. The trial
court reads that phrase as applying only when the subject of the action is the director's act
or omission taken in his or her capacity as a director. However, nothing in the text of R.C.
1701.13(E)(5)(a) premises a corporation's mandatory duty to advance expenses to a director
on a requirement that the director's act or omission be taken in the director's official
capacity as a director. To agree with the trial court's interpretation of R.C. 1701.13(E)(5)(a),
we would have to add language to the statute that does not exist. The rules of statutory
construction prohibit such a reading of the statute. In re Certificate of Need Application
for Project "Livingston Villa," Cuyahoga Cty., 10th Dist. No. 15AP-1146, 2017-Ohio-196,
¶ 38 ("[w]hen interpreting a statute, '[c]ourts may not delete words used or insert words
not used' "), quoting Columbia Gas Transm. Corp. v. Levin, 117 Ohio St.3d 122, 2008-Ohio-
511, ¶ 19; In re Application of Columbus S. Power Co., 147 Ohio St.3d 439, 2016-Ohio-
1608, ¶ 49 ("[b]ut in construing a statute, we may not add or delete words"); Hulsmeyer v.
Hospice of Southwest Ohio, Inc., 142 Ohio St.3d 236, 2014-Ohio-5511, ¶ 23 ("court[s] must
No. 21AP-328 7
give effect to the words used, making neither additions nor deletions from words chosen by
the General Assembly"). Rather, when a statute's meaning is "clear, unequivocal, and
definite, then statutory interpretation ends, and the court applies the statute according to
its terms." Livingston Villa at ¶ 38, citing Columbia Gas at ¶ 19, and Hubbel v. Xenia, 115
Ohio St.3d 77, 2007-Ohio-4839, ¶ 11.
{¶ 17} Here, the plain language of the statute requires that Mark receive the
mandatory advancement of expenses under R.C. 1701.13(E)(5)(a). The trial court's and Jet
Container's construction of the statute ignores the remaining language in R.C.
1701.13(E)(5)(a). More specifically, the trial court's reading of the statute isolates the
phrase "director's act or omission that is the subject of an action, suit, or proceeding" and
ignores the language both immediately preceding that phrase and immediately following
that phrase. In its relevant context, R.C. 1701.13(E)(5)(a) states "[u]nless at the time of a
director's act or omission that is the subject of an action, suit, or proceeding referred to in
division (E)(1) or (2) of this section, the articles or the regulations of a corporation state, by
specific reference to this division, that the provisions of this division do not apply to the
corporation,* * * expenses, including attorney's fees, incurred by a director in defending
the action, suit, or proceeding shall be paid by the corporation as they are incurred, in
advance of the final disposition of the action." (Emphasis added.) When read in context, it
is clear that the director's act or omission is a reference to the timing of when a corporation
needed to have opted out of the mandatory advancement requirement. See Bartchy v. State
Bd. of Edn., 120 Ohio St.3d 205, 2008-Ohio-4826, ¶ 16 (a court "must consider the
statutory language in context, construing words and phrases in accordance with rules of
grammar and common usage"), citing State ex rel. Stoll v. Logan Cty. Bd. of Elections, 117
Ohio St.3d 76, 2008-Ohio-333, ¶ 34.
{¶ 18} Nonetheless, Jet Container asserts that its construction of R.C.
1701.13(E)(5)(a) as only applying to a director's act or omission taken in his capacity as a
director gives effect to the entire statute. According to Jet Container, because directors are
also included in the permissive advancement statute, R.C. 1701.13(E)(5)(b), the General
Assembly must have intended the mandatory advancement statute to apply only when the
director's act or omission was taken in his capacity as a director. Otherwise, Jet Container
asserts, reading R.C. 1701.13(E)(5)(a) without the assumed capacity limitation renders the
No. 21AP-328 8
reference to directors in R.C. 1701.13(E)(5)(b) duplicative and completely meaningless.
Again, we disagree with Jet Container's reading of the statute.
{¶ 19} By its very terms, R.C. 1701.13(E)(5)(a) provides corporations with a method
of opting out of the mandatory advancement requirement; that is, a corporation can
explicitly state in its articles or regulations that mandatory advancement does not apply to
it. In such a circumstance, then, a director could request from the corporation permissive
advancement of expenses under R.C. 1701.13(E)(5)(b). Thus, the inclusion of directors in
R.C. 1701.13(E)(5)(b) is not superfluous but is reflective of the plain meaning of R.C.
1701.13(E)(5)(a) and (b).
{¶ 20} Additionally, we note that elsewhere in R.C. Chapter 1701, the General
Assembly expressly included a capacity limitation to the statute's application when a
director is acting in his or her capacity as a director. In R.C. 1701.59, which governs the
authority of corporate directors, the General Assembly specifically stated "[n]othing
contained in division (D) or (E) of this section affects the duties of * * * [a] director who acts
in any capacity other than the director's capacity as a director." R.C. 1701.59(G)(1). It is
clear, therefore, that the General Assembly knows how to specifically limit a statute's
application to a director acting in his capacity as a director. See Hulsmeyer at ¶ 27 (where
the General Assembly, in the same bill, included a reporting requirement in one section of
the statute but did not include the reporting requirement in another section of the statute,
a court presumes that the absence of the reporting requirement is intentional). If the
General Assembly had intended R.C. 1701.13(E)(5)(a) to apply only when the director was
acting in his capacity as a director, it would have provided so expressly. Id. ("[i]f the General
Assembly had intended to afford protection to only to [specific employees,] it could have
done so by inserting" additional language, and a reviewing court "will not add those words
by judicial fiat"). See also State ex rel. Canales-Flores v. Lucas Cty. Bd. of Elections, 108
Ohio St.3d 129, 2005-Ohio-5642, ¶ 34-35 ("[i]f the General Assembly had intended to
restrict [certain election] statutes to persons seeking more than one office at the same
election, it would have done so with appropriate language").
{¶ 21} Having reviewed the statutory text, we conclude the plain language of R.C.
1701.13(E)(5)(a) does not require that the subject of the action be a director's act or
omission taken in his capacity as a director. The applicability of R.C. 1701.13(E)(5)(a) does
No. 21AP-328 9
not differ where the director serves in an additional capacity as an officer of the corporation
and the substance of the allegations against the director relate to his non-directorial role.
Here, Jet Container did not opt out of the mandatory advancement provision in its articles
or regulations, and Mark submitted the undertaking described in R.C. 1701.13(E)(5)(a)(i)
and (ii). Therefore, Mark was entitled to the advancement of expenses and Jet Container's
statutory duty to advance those expenses arose upon receipt of Mark's undertaking. Miller
at ¶ 54. Accordingly, we find the trial court erred when it denied Mark's motion for the
advancement of expenses. We sustain Mark's sole assignment of error.
IV. Disposition
{¶ 22} Based on the foregoing reasons, the trial court erred in denying Mark's
motion for the advancement of litigation expenses. Having sustained Mark's sole
assignment of error, we reverse the decision and entry of the Franklin County Court of
Common Pleas and remand the matter to that court for further proceedings consistent with
this decision.
Judgment reversed;
cause remanded.
DORRIAN and MENTEL, JJ., concur.