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Court News Ohio
Court News Ohio

Association Directors Not Immune from Lawsuit

A Butler County trial court improperly cited the “litigation privilege” to end an Ohio manufacturer’s quest to obtain a $43 million judgment it won from an association that made false and disparaging claims about its building products, the Ohio Supreme Court ruled today.

The Supreme Court wrote that the lower courts confused the litigation privilege and “the business-judgment rule,” which provides business leaders some protection against liability for controversial decisions they make. Writing for the Court  majority, Justice Patrick F. Fischer stated the decision clarifies the separate protections provided by the litigation privilege and the business-judgment rule.

The Court reversed a Twelfth District Court of Appeals decision and allows ClarkWestern Dietrich Building Systems (ClarkDietrich) to pursue the $43 million a jury awarded the company in 2015 from suing the Certified Steel Stud Association (CSSA) and its member companies.

Chief Justice Maureen O’Connor and Justices Sharon L. Kennedy, Judith L. French, R. Patrick DeWine, and Michael P. Donnelly joined Justice Fischer’s opinion. Justice Melody J. Stewart concurred in judgment only.

Association Refuses to Settle Case
The CSSA includes four companies that compete with ClarkDietrich in supplying steel studs to the commercial building industry. The CSSA board of directors is comprised of the chief executive officers of the four member companies. ClarkDietrich sued the CSSA and the member companies for defamatory statements the CSSA made about ClarkDietrich in trade publications. William Gardner and Edward Slish were members of the CSSA board of directors at the time and leaders of two of the CSSA member companies.

As the litigation proceeded in Butler County Common Pleas Court, ClarkDietrich was able to settle its claims against the member companies and agreed to dismiss  the case against the CSSA. The CSSA board of directors rejected the offer, in part out of concerns that were not addressed by the settlement offer.

The trial court denied ClarkDietrich’s request to dismiss the case and the case proceeded to a jury trial. The jury ruled unanimously for ClarkDietrich and awarded it $49.5 million. The CSSA was responsible for $43 million.

Company Seeks Payment from Association
Anticipating the small association would not have the funds to pay the judgment, ClarkDietrich asked the trial court to appoint a receiver on behalf of the CSSA so that the association could sue its own board of directors. By claiming breach of fiduciary duty by the directors who insisted in going forward with the lawsuit, the receiver could potentially obtain the funds needed to pay the judgment, ClarkDietrich maintained.

The receiver, John J. Reister, filed lawsuits against the four directors, including Gardner and Slish, alleging they breached their duty to the association by mishandling ClarkDietrich’s lawsuit and rejecting opportunities to resolve the case at no cost to the association.

Gardner and Slish asked the trial court to dismiss the case at an early stage in the process, requesting a judgment on the pleadings. The two argued that their actions to reject the settlement were protected by the litigation privilege. The trial court agreed and dismissed the case.

Reister appealed to the Twelfth District, which in a 2-1 decision, affirmed the trial court. Reister and ClarkDietrich appealed the Twelfth District’s decision to the Supreme Court, which agreed to hear the case.

Court Reviewed Business-Judgement Rule and Litigation Privilege
Justice Fischer explained the central issue in the case is the application of the litigation privilege. The litigation privilege provides absolute immunity to parties, witnesses , lawyers, and judges from future lawsuits for “statements” made during judicial proceedings, he wrote.

The trial court and the Twelfth District applied the privilege to “actions,” not statements, made by the board of directors during the case, the opinion noted. Actions by business leaders regarding litigation might be protected by the business-judgment rule, the Court stated, but these are different concepts, which the lower courts have intermingled.

The Court explained the litigation privilege is designed to “protect the integrity of the judicial process” by protecting participants from facing future lawsuits over the statements they make during judicial proceedings. Removing the fear of future lawsuits facilitates the disclosure of important information and helps to “ascertain the truth.”

“It is not applicable, however, to conduct that is simply connected in some way to litigation,” the opinion stated. “Consequently, the litigation privilege has nothing to do with the decisions that corporate directors make during litigation.”

The Court ruled the trial court improperly dismissed Gardner, Slish and others by allowing them to invoke the litigation privilege. The opinion stated that while the litigation privilege was inapplicable, it did note the board of directors might invoke the business-judgment rule.

The business-judgment rule presumes that directors of corporations act in good faith and in the honest belief that the actions they have taken are in the best interests of their companies. Business leaders can invoke the rule when faced with litigation that second-guesses the decisions corporate officers and directors are tasked with making. The opinion noted the rule presumes the leaders are acting in the best interest of their companies, but the rule can be rebutted.

Reister argued that Gardner, Slish and the others did not act in the best interest of the CSSA, but had conflicts of interest as they settled their company’s cases with ClarkDietrich while leaving CSSA exposed to a jury decision.

The Court remanded the case to the trial court, stating that its ruling made no judgment on the merits of the case.

2019-1815. Reister v. Gardner, Slip Opinion No. 2020-Ohio-5484.

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