COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 60825 : NANCY BONACCI, ET AL. : : JOURNAL ENTRY Plaintiffs-Appellees : : and -vs- : : OPINION : OHIO HIGHWAY EXPRESS, INC. ET AL. : : Defendants : : and : : THEODORE J. WAITE, JR., : : Defendant-Appellant : DATE OF ANNOUNCEMENT JULY 30, 1992 OF DECISION: CHARACTER OF PROCEEDING: Civil appeal from Common Pleas Court Case No. 085638 JUDGMENT: Affirmed. DATE OF JOURNALIZATION: __________________________ APPEARANCES: FOR PLAINTIFFS-APPELLEES: FOR DEFENDANT-APPELLANT: PATRICK M. FARRELL PHILIP J. WEAVER, JR. ROBERT E. KMIECIK DAVID LEDMAN Hildebrand, Williams & Farrell Conquist, Smith, Marshall & 21430 Lorain Road Weaver Fairview Park, Ohio 44126 500 National City Building 1965 East Sixth Street Cleveland, Ohio 44114 -2- PATRICIA A. BLACKMON, J.: Defendant-appellant, Theodore J. Waite, Jr., hereinafter Defendant timely appeals the jury trial verdict in favor of plaintiffs-appellants, Nancy Bonacci, Alyce Hart and Y'Vonne Willyoung hereinafter Plaintiffs. For the reasons stated below, we affirm. The facts are as follows: Plaintiffs collectively possessed 75% shares of stock in the family's Corporation, Ohio Highway Express, Inc., and their brother, Defendant and President of the Corporation, owned 25% of the shares. The Corporation was permitted to operate as a trucking company. On January 14, 1985, Plaintiffs filed a derivative action pursuant to Civ. R. 23.1 against Defendant, Steven M. Durica, Secretary and Treasurer of the Company, and Carrier Systems Motor Freight, Inc., the Company that purchased Ohio Highway Express' certificate to operate as a trucking company. The complaint stated claims for breach of fiduciary duty, fraud, conversion and rescission of the permit sale, and for relief they sought an accounting of the corporate records and damages both compensatory and punitive. During the trial, the court compelled Defendant and Durica to provide an accounting. Thereafter, a default judgment was entered against Defendant and Durica, which was subsequently vacated pursuant to Civ. R. 60(B); later, this court affirmed the trial court's granting of the motion to vacate. Bonacci v. Ohio Highway Express (Feb. 9, -3- 1989), Cuyahoga App. No. 55019, unreported. On remand, Plaintiffs amended their complaint with leave of court. The amended complaint excluded Carrier Systems Motor Freight, Inc. as a defendant and voluntarily dismissed the rescission of the permit sale cause of action. The issue of providing an accounting was resolved prior to trial. A jury trial of this matter commenced on September 26, 1990. At the close of Plaintiffs' case, Defendant and Durica moved for a directed verdict and renewed it at the close of all evidence. The motions were denied. During the trial the following background was revealed. Highway Express, Inc. was inherited by the Plaintiffs' and Defendant's mother and their father operated this trucking business until the 1960's. Highway Express, Inc. operated with several permits from the State and Federal governments for the operation of a trucking company. As a result of a ruling in the 1950's from the Public Utilities Commission of Ohio, hereinafter P.U.C.O., Highway Express, Inc. could not hold more than one permit for the same purpose. Thus, in 1956, Ohio Highway Express, Inc. was created with the duplicate permit and some equipment from Highway Express, Inc. Plaintiffs and Defendant were each 25% shareholders of Ohio Highway Express, Inc., hereinafter the Corporation. Since 1961, the Board of Directors of the Corporation have consisted of Defendant, Durica, Nancy Bonacci and Alyce Hart. Defendant was -4- President of the Corporation as well as President of Highway Express, Inc. In 1981, Highway Express, Inc. was experiencing financial difficulties including delinquent withholding taxes owned to the Internal Revenue Service and was no longer operating. Defendant and Durica transferred some of its equipment from Highway Express, Inc. to the Corporation. The equipment for both corporations was stored at two terminals, one in Cleveland, Ohio and another in Detroit, Michigan. Shortly after the transfer of the equipment, the I.R.S. seized the equipment stored at the Cleveland terminal. Defendant gave assurances to Nancy Bonacci that the Corporation's equipment would be returned because of the transfer. The I.R.S. did not recognize the transfer and auctioned the seized equipment. In August or September of 1982, Nancy Bonacci and her husband, Richard Bonacci, travelled to Detroit to see whether there was still equipment at the Detroit terminal. She testified that fifty pieces of equipment should have been there, but found about half that amount during her visit. In October, 1982, at a family gathering in celebration of their mother's birthday, Plaintiffs confronted Defendant. He indicated to them that the equipment was still in the Detroit terminal until Nancy Bonacci pointed out that she had been to that terminal and equipment was missing. Defendant then refused to explain or account for the missing equipment and also refused to explain numerous cancelled checks found at the terminal, some -5- of which were made payable to Defendant. Approximately one month later, Nancy Bonacci returned to the Detroit terminal and found even fewer pieces of equipment remaining. From November 1982 through the year 1983, Nancy Bonacci had several conversations with Defendant in which she requested information about the missing equipment, but never received it. Bonacci maintained that Defendant had exclusive control of the Corporation's records. Testimony reveals that the equipment missing was worth in excess of $150,000 In the Fall of 1983, Defendant began to send the Plaintiffs copies of offer letters for the purchase of the Corporation's permits. Nancy Bonacci and Alyce Hart refused to sell the permits, but Y'vonne Willyoung gave her approval. At the request of Nancy Bonacci, her attorney and daughter Tami Bonacci scheduled a shareholder's meeting for December 10, 1983. Nancy Bonacci, her attorney, Hart, Defendant and his attorney, Terrence Durica were present. Defendant was requested to provide an accounting of the transactions of the Corporation. The only document he produced at the meeting was one copy of an unsigned purchase agreement for the sale of the permit to Carrier Systems Motor Freight, Inc. Plaintiffs were not satisfied with his answers to questions about the missing equipment. In January of 1984, Tami Bonacci sent Defendant a letter on behalf of Nancy Bonacci and Alyce Hart demanding an accounting before they would be willing to begin to discuss the sale of the permit. Defendant responded with a partial accounting. -6- On June 27, 1984, Hart contacted the P.U.C.O. and learned that the permit had been sold on December 2, 1983, eight days prior to the time Defendant requested their permission to make the sale. They also learned that Defendant forged their signatures on letters giving their permission for the sale and for the release of $4,000 earnest money held in escrow against the $76,000 purchase price for the permit. Defendant admitted selling off equipment, but explained that the proceeds were used to satisfy obligations of Highway Express, Inc. and to continue to provide medical insurance, pay utility bills and automobile expenses of family members including Plain- tiffs. Defendant further explained that the proceeds of the sale of the permit were spent mainly for the benefit of taking care of their mother's mortgage and real estate tax obligations. Nonetheless, Defendant failed to provide documentation of expenditures, even though numerous checks were made payable to him, personally. After deliberations, the jury returned a verdict for Plain- tiffs against Defendant, but also returned a verdict for Durica against Plaintiffs. The jury's interrogatories reveal that they found Defendant converted assets to his personal use and benefit, breached his fiduciary duty, committed fraud in the sale of the permit and the sale of tractors and trailers. The jury, however, did not find that Defendant acted with actual malice. In their general verdict, the jury awarded Plaintiffs judgment against Defendant in the amounts of $150,000 for -7- conversion, $4,000 for breach of fiduciary duty, $76,000 for fraud and $4.00 for punitive damages. The trial court merged the award for breach of fiduciary duty into the award for fraud and struck the award for punitive damages, because it was inconsistent with the jury's finding of no actual malice. Defendant timely appealed the denial of a directed verdict and the final verdict of $226,000 in favor of Plaintiffs. Defendant's first assignment of error states that: THE TRIAL COURT ERRED BY FAILING TO DISMISS PLAINTIFFS' CLAIMS PURSUANT TO CIVIL RULE 23.1 WHERE THE MANIFEST WEIGHT OF THE EVIDENCE ESTABLISHED THAT PLAINTIFFS FAILED TO DEMAND OR OTHERWISE SEEK REMEDIAL ACTION FROM THE DIRECTORS OR SHAREHOLDERS BEFORE FILING THEIR DERIVATIVE ACTION. Defendant's assignment of error is not well taken. The Supreme Court of Ohio has set forth the rule for manifest weight of the evidence as applied to civil cases in Karches v. Cincinnati (1988), 38 Ohio St.3d 12: In reviewing the court's judgment, we are guided by the principal that judgments supported by competent, credible evidence going to all the material elements of the case must not be reversed as being against the manifest weight of the evidence, C.E. Morris Co. v. Foley Constr. Co. (1978), 54 Ohio St.2d 279, 8 O.O.3d 261, 376 N.E.2d 578. Every reasonable presumption must be made in favor of the judgment and the findings of facts. Seasons Coal Co. v. Cleveland (1984), 10 Ohio St. 3d 77, 10 OBR 408, 461 N.E.2d 1273. Finally, if the evidence is susceptible of more than one construction, we must give it that interpretation which is consistent with the verdict and judgment, most favorable to sustaining the trial court's verdict and judgment. Seasons Coal Co. supra. *** -8- Civ. R. 23.1 requires that the complaint in a derivative action "allege with particularity the efforts, if any, made by the plaintiff to obtain the action he desires from the directors and, if necessary, from the shareholders and the reasons for his failure to obtain the action or for not making the effort." Civ. R. 23.1 and Fed. R. Civ. P. 23.1 are essentially the same. See, Civ. R. 23.1 (1970), staff notes. While the rule supports exhaustion of intra-corporate remedies, "demand on directors is not necessary if the effort would be futile." Granada Investments, Inc. v. DWG Corp. (N.D. Ohio 1989), 717 F. Supp. 533, 536. "Demand is presumptively futile where the directors are 'antagonistic, adversely interested, or involved in the transactions attacked.'" Id., quoting Lewis v. Graves, (C.A. 2, 1983), 701 F.2d 245. An action under Civ. R. 23.1 must do more than merely allege futility, but must "state with particularity the reasons for circumventing the demand requirement." Granada Investments, Inc. at 536. In the instant case, there is competent credible evidence that a demand on defendant would have been futile. Defendant refused to give an accounting until compelled by the trial court and prior to the institution of this action, was antagonistic any time he was confronted with an answer about missing equipment. Furthermore, Defendant was directly involved in the sale of both the permit and the missing equipment. Defendant's second assignment of error states: -9- THE TRIAL COURT ERRED BY FAILING TO DISMISS PLAINTIFFS' CLAIMS AND BY AWARDING DAMAGES TO PLAINTIFFS INDIVIDUALLY WHERE THE PLAINTIFFS WHO WERE SHAREHOLDERS, SOUGHT DAMAGES FOR THEMSELVES, RATHER THAN THE CORPORATION, IN A DERIVATIVE ACTION. Defendant's assignment of error is not well taken. In Ross v. Bernhart (1970), 396 U.S. 531, the Supreme Court of the United States, considered the parties necessary to a derivative action: The claim pressed by the stockholder against directors or third parties is not his own but the corporation's. (Citation omitted). The Corporation is a necessary party to the action; without it the case cannot proceed. Although named a Defendant, it is the real party in interest, the stockholder being at best the nominal Plaintiff. The proceeds of the action belong to the Corporation, and it is bound by the result of the suit. The heart of the action is the Corporate claim. Id. at 538-39, cited with approval in Miller v. General Motors Corp. (Mar. 30, 1987), Cuyahoga App. No. 55200, unreported at 10- 11. In the instant case, the Corporation was properly named a Defendant, and the stockholders as Plaintiffs in the complaint. The complaint sought judgment against the directors. It did not designate to whom judgment should be granted, but did indicate that it was a derivative action. In this derivative action, the proceeds of judgment belong to the Corporation. See, Ross, supra. On that premise, the verdict of the jury was properly granted to Plaintiffs on behalf of the Corporation. There is nothing in the record to suggest that Plaintiffs are relieved of -10- their fiduciary duty to the Corporation or the trial court will not properly direct the proceeds of the action to the Corporation. Defendant's third assignment of error states: THE TRIAL COURT ERROR BY AWARDING COMPENSATORY DAMAGES FOR FRAUD WHERE THE MANIFEST WEIGHT OF THE EVIDENCE ESTABLISHED THAT THE ALLEGED FRAUDULENT ACTS AND OMISSIONS DID NOT PROXIMATELY AND DIRECTLY CAUSE PLAINTIFFS ANY ACTUAL DAMAGES. Defendant's assignment of error is not well taken. Defendant argues that assuming the elements of fraud were met, the Corporation was not damaged by the fraud, because any damage occurred as a result of the conversion of the $76,000 in proceeds which the jury did not find. We disagree. There is competent credible evidence that the fraudulent sale of the permit and the subsequent conversion of the proceeds from that sale were one transaction. See, Seasons Coal Co., supra. The failure of the jury to award damages for conversion of the proceeds of the sale does not eliminate the damages from the conversion of the proceeds of the sale, where the conversion was a part of the fraudulent activity. But for the fraudulent sale, there would be no $76,000 loss. Defendant's fourth assignment of error states: THE TRIAL COURT ERRED BY FAILING TO PARTIALLY DISMISS PLAINTIFFS' CLAIMS PURSUANT TO THE TWO-YEAR STATUTE OF LIMITATIONS SET FORTH IN SECTION 1701.95 OF THE OHIO REVISED CODE WHERE THE EVIDENCE ESTABLISHED THAT MORE THAN TWO YEARS ELAPSED BETWEEN THE DATE A PORTION -11- OF THIS ACTION AROSE AND THE COMMENCEMENT OF THIS ACTION. Defendant's assignment of error is not well taken. It is clear from plain language of 1701.95 that it does not encompass fraud or conversion. R.C. 1701.95 provides, in pertinent part, that: (A) In addition to any other liabilities imposed by law upon directors of a corporation and except as provided in division (B) of this section, directors who vote for or assent to any of the following: (1) The payment of a dividend or distri- bution, the making of a distribution of assets to shareholders, or the purchase or redemption of the corporation's own shares, contrary in any such case to law or the articles; * * * (F) No action shall be brought by or on behalf of a corporation upon any cause of action arising under division (A)(1) or (2) of this section at any time after two years from the day on which the violation occurs. (Emphasis added.) The scope of R.C. 1701.95(A) is limited to loans, dividends or distributions of Corporate assets. See, Cullen v. Milligan (1991), 61 Ohio St.3d 352, 359. "In addition to" that statutory framework, R.C. 2305.09 provides a four year limitation of actions for fraud and conversion of corporate assets: An action for any of the following causes shall be brought within four years after the cause thereof accrued: (A) For trespassing upon real property; (B) For the recovery of personal property, or for taking or detaining it; (C) For relief on the ground of fraud; -12- (D) For an injury to the rights of the plaintiff not arising on contract nor enumerated in sections 2305.10 to 2305.12, inclusive, 2305.14 and 1304.29 of the Revised Code. If the action is for trespassing under ground or injury to mines, or for the wrongful taking of personal property, the causes thereof shall not accrue until the wrongdoer is discovered; nor if it is for fraud, until the fraud is discovered. See also, Zlotnick v. Cortland Savings & Banking Co. (1982), 4 Ohio App.3d 271, 273. Therefore, the instant action for fraud, breach of fiduciary duty and conversion is governed by the four year limitation of R.C. 2305.09. Defendant's fifth assignment of error states: THE TRIAL COURT ERRED BY FAILING TO DISMISS PLAINTIFFS' CLAIMS PURSUANT TO THE EQUITABLE DOCTRINE OF LACHES WHERE THE MANIFEST WEIGHT OF THE EVIDENCE ESTABLISHED THAT PLAINTIFFS FAILED TO ASSERT THEIR RIGHTS FOR AN UNREASONABLE AND UNEXPLAINED LENGTH OF TIME UNDER CIRCUMSTANCES PREJUDICING DEFENDANTS. Defendant's assignment of error is not well taken. Laches protects a party from having a claim asserted against them, when delay in bringing the action would create an inequity to that party. The elements of laches are "(1) delay or lapse of time in asserting a right, (2) absence of an excuse for such delay, (3) knowledge, actual or constructive, of the injury or wrong, and (4) prejudice to the other party." Kennedy v. Cleveland (1984), 16 Ohio App. 3d 399. In the instant case, the defense of laches does not apply. Plaintiffs did not suspect Defendant's conversion activity until -13- August or September of 1982, and then demanded an accounting on December 10, 1983. It was not until June of 1984 that Plaintiffs had constructive knowledge of the fraudulent sale of the permit. The question of conversion of corporate assets required Plaintiffs to exhaust their intra-corporate remedies. See, Civ. R. 23.1. An accounting was the first step in that process, however, it became futile when Plaintiffs learned of Defendant's fraudulent transaction. Thus, any delay was justified by Plaintiffs' attempt to exhaust intra-corporate remedies until the time that they had knowledge of the futility of attempting to get an accounting. See, Kennedy, supra. Once Plaintiffs learned of the futility of their actions, they filed a complaint in less than one year. The delay between June of 1984 and January 14, 1985 did not prejudice Defendant. Defendant's argument that the delay in bringing the action caused the loss of records accounting for the transactions of the Corporation has no merit. There is competent credible evidence that Defendant provided Plaintiffs with assurances of the stability of the company and concealed the sale of equipment owned by the Corporation. See, Seasons Coal Co. Therefore, there was no prejudice to Defendant. Defendant's sixth assignment of error states: THE TRIAL COURT ERRED BY NOT HOLDING THAT PLAINTIFFS WERE ESTOPPED FROM DENYING (1) THE FAIRNESS OF CONSIDERATION AND (2) THE EXISTENCE OF PROPER AUTHORITY WHERE THE -14- PUBLIC UTILITIES COMMISSION HAD APPROVED THE SALE OF THE CERTIFICATE. Defendant's assignment of error is not well taken. Defendant's argument is premised on the belief that no fraud may occur where the P.U.C.O. approves a transaction. We disagree. In the instant case, the validity of the sale of the permit is not challenged and Plaintiffs' attempt to rescind the sale was voluntarily dismissed as a cause of action. Therefore, the approval of the sale by the P.U.C.O. does not per se estop a claim of fraud. Collateral estoppel does not apply by virtue of P.U.C.O. action. Collateral estoppel applies where: (1) The party against whom estoppel is sought was a party or in privity with a party to the prior action; (2) there was a final judgment on the merits in the previous case after a full and fair opportunity to litigate the issue; (3) the issue must have been admitted or actually tried and decided and must be necessary to the final judgment; and (4) the issue must have been identical to the issue involved in the prior suit. E.g. Monahan v. Eagle Picher Industries, Inc. (1984), 21 Ohio App.3d 179, paragraph one of syllabus. In the instant case there is no evidence that the issue of fraud with respect to Defendant's authority to sell the permit was actually tried or decided, much less fully and fairly litigated by the P.U.C.O. Therefore, collateral estoppel does not apply. Judgment affirmed. -15- It is ordered that Appellees recover of Appellant their 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. Exceptions. DYKE, P.J., and JAMES D. SWEENEY, J., CONCUR. PATRICIA A. BLACKMON JUDGE N.B. This entry is made pursuant to the third sentence of Rule 22(D), Ohio Rules of Appellate Procedure. This is an announcement of decision (see Rule 26). Ten (10) days from the date hereof this document will be stamped to indicate journaliza- tion, at which time it will become the judgment and order of the court and time period for review will begin to run. .