Social media can impact litigation in numerous ways, including giving rise to causes of action, generating damaging evidence, escalating costs, and escalating conflict between parties.

Potential Claims

First, social media can create potential causes of action and claims which might very well end up in litigation. For example, claims for defamation or invasion of privacy might arise when social media content is used to defame or disparage an individual or a company.  Defamation is a false publication that injures a person’s reputation.  A cause of action for defamation consists of five elements: (1) a false and defamatory statement; (2) about the plaintiff; (3) published without privilege to a third party; (4) with fault of at least negligence on the defendant’s part and (5) that was either defamatory per se or caused harm to the plaintiff.  Id. Written defamation, such as a statement on social media, is also known as libel.

Unfair and deceptive trade practices might arise when a person, in the course of their business, vocation or occupation, “[d]isparages the goods, services, or business of another by false representations of fact.”

Trademark Infringement and Unfair Competition

Claims for trademark infringement and unfair competition may also arise from misuse of social media. Unfair competition ordinarily consists of representations by one person, for the purpose of deceiving the public, that his or her goods are those of another. It may also extend to “unfair commercial practices such as malicious litigation, circulation of false rumors, or publication of statements, all designed to harm the business of another.”

Moreover, the use of social media may cause a person to be dragged into a court outside of the county or even the state where the person is sitting when typing a social media post, so caution is recommended.

Potential Evidence

The use of social media may also give rise to evidence that may hurt a person’s standing before a judge, a jury or any other finder of fact such as an arbitrator. In addition to potentially creating a cause of action, social media posts, when properly authenticated, can be used as evidence of motivation, opportunity, statements against interest, admissions, and other evidence of bad conduct. Social media posts can also be used to demonstrate a person’s background, qualifications, employment history, representations to the marketplace and other personal and professional qualifications. In this regard, what a person may say in court, in deposition, or in a pleading or motion, may be substantially different from what that person may have said in a social media post. These contradictions can be used to undermine credibility.

Potential Escalation of Costs

Because imprudent use of social media can create causes of action and be used as evidence in litigation, the costs and expenses of litigation can increase. It should go without saying that defaming another person on social media can result in expensive litigation. But engaging in imprudent use of social media can increase discovery costs and can also lead to embarrassment on a witness stand.

Potential Escalation of Animosity

Finally, it can be observed that imprudent use of social media, or taking your dispute public, can have a counterproductive result through the hardening of positions and the escalation of animosity. While a lawsuit may not have received much if any attention when filed, once a party takes the dispute to social media, the publicity that social media may generate may backfire. This is because both parties may dig in their heels and seek final and conclusive resolution in Court.

Conclusion

Social media is everywhere and it has affected our lives for good and bad. It may also impact litigation by creating causes of action, by providing evidence that can be used in litigation, by escalating costs and expenses, and by escalating animosity between the parties. One angry key stroke to social media can have very real consequences.

For more information, or to seek counsel from our Litigation practice group, please reach out to request a consultation or call us at 216-696-1422.

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What is a Trade Secret?

Ohio has enacted the Uniform Trade Secrets Act (“UTSA”). The UTSA defines a “trade secret” as: Information, including the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, pattern, compilation, program, device, method, technique, or improvement, or any business information or plans, financial information, or listing of names, addresses, or telephone numbers, that satisfies both of the following:

1. It derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.  
2. It is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Ohio’s Trade Secret Test

Ohio Courts utilize a six-factor test for determining whether information constitutes a trade secret:

1. The extent to which the information is known outside the business.
2. The extent to which it is known to those inside the business.
3. The precautions taken by the holder of the trade secret to guard the secrecy of the information.
4. The savings affected and the value to the holder in having the information against competitors.
5. The amount of effort or money expended by the owner in developing the information
6. The amount of time and expense it would take for others to acquire and duplicate the information.

How to Ensure Your Trade Secrets Are Protected Internally

Companies should make sure their confidential and proprietary information is restricted to individuals inside and outside the organization. Such information should only be disclosed to those individuals on a need-to-know basis. Such individuals should also be bound by a non-disclosure and confidentiality agreement. Company policies, employee handbooks, and manuals are not typically sufficient to replace a well-crafted NDA. Confidential information should be kept under lock and key, to the extent it is kept on paper, and access to electronically stored information and data should be restricted and password-protected. Records should be kept showing the amount of time, money, and energy that went into the creation of confidential and proprietary information that is claimed to be a trade secret. And records should be kept showing the value of such information to the organization.

Misappropriation of a Trade Secret

“Misappropriation”  of a trade secret takes place when the (1) acquisition of a trade secret was acquired by “improper means;” or the disclosure or use of a trade secret was made without the express or implied consent of the owner of the information and the person who acquired the information (a) used improper means to acquire knowledge of the trade secret; or (b) at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was derived from or through a person who had utilized improper means to acquire it, or was acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use, or was derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use. “Improper means” includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.

Companies must therefore guard against the use of improper means by individuals who wish to take their trade secrets. Non-disclosure agreements and other agreements requiring confidentiality are a good start. Limiting access and protecting against unauthorized access are also valuable tools to maintain confidentiality.

If your company’s trade secrets have been compromised, or to seek counsel from our Litigation practice group, please reach out to request a consultation or call us at 216-696-1422.

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What is a Contract?

A contract is generally defined as a promise, or a set of promises, actionable upon breach. The essential elements of a contract include an offer, acceptance, contractual capacity, consideration (the bargained-for legal benefit and/or detriment), a manifestation of mutual assent, and legality of object and of consideration.

Contracts can be either written, verbal, or implied. Even agreements that aren’t fully finalized can be enforced, as long as both sides clearly meant to be bound by the deal and the terms are specific enough to follow through.

When Do Contracting Parties Find Themselves in Dispute?

Aside from the failure to exchange the agreed-upon consideration (i.e., the failure to perform or to pay), this article will informally explore some of the five (5) most common contract disputes.

1. Ambiguous Contract Language

The first, and often most obvious, is when a contract is ambiguous. Contractual language is ‘ambiguous’ only where its meaning cannot be determined from the four corners of the agreement or where the language is susceptible to two or more reasonable interpretations. When both parties offer plausible interpretations of the agreement drawn from the contractual language itself, this demonstrates that the provision is ambiguous. Even when a contract is ambiguous, it can still be enforced, but courts (and juries) must look to extrinsic evidence, like communications or past behavior, to determine intention. In commercial contracts, evidence of course of performance, course of dealing, and usage of trade may be considered.

2. Disputes Over Indemnification Clauses

Frequently disputed contract terms include indemnification clauses, representations, warranty and covenant clauses, and limitations or exclusions of remedies. To avoid conflict and dispute, careful consideration should be given to the language used in these types of clauses.

The nature of an indemnity relationship depends on what the parties intended, as expressed by the contract’s language. Ohio courts interpret indemnity clauses strictly and will not extend them beyond what is clearly and unequivocally expressed. These clauses are typically used to shift or specify which party is responsible for errors, omissions, and/or performance (or lack thereof) under the contract.

3. Misrepresentations & Disputes Over Representations

A representation in a contract is an assertion or statement of fact, given by one party (maker) to induce another party (recipient) to enter into a contract or take some other action. A representation must be truthful to avoid claims of fraudulent inducement. Language may be used in a representation to avoid or limit the impact, such as “to the best of the maker’s knowledge” or “to the maker’s actual knowledge, without investigation.”

4. Warranty Disputes

A warranty is a promise that something is true. If that promise turns out to be false, the person making it may be responsible for any resulting harm. Warranties can cover both present conditions and future performance. Some warranties are express, which are clearly stated in the contract to induce a prospective purchaser to buy. Others are implied considering the nature of the deal, the relationship between the parties, or the surrounding circumstances. In a warranty, a maker should only give truthful statements and should use language to limit the impact.

A covenant is a promise or agreement about a future act. Some covenants are implied, while others are specific.

5. Limitations or Exclusions of Remedies

A limitation or exclusion of remedies must be a part of the parties’ bargain in fact. These clauses are used to prevent certain types of damages or remedies, including indirect, consequential, punitive, or treble damages. Limitations or exclusions of damages or remedies should stand out in the contract, so they are brought to the other’s attention, often in bold print, all capitals, and/or larger print.

For all contract provisions, clear and concise language should be used. Parties should read and re-read all provisions, including the fine print.

To seek counsel from our Litigation practice group, please reach out to request a consultation or call us at 216-696-1422.

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In celebration of National Small Business Month, we proudly recognize the contributions of small businesses in our community. McCarthy Lebit is committed to supporting entrepreneurs and business owners with trusted legal guidance through every stage of their journey, from formation to growth and beyond. As a law firm deeply connected to the small business community, we’re proud to serve as trusted advisors and advocates for business owners throughout the region.

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Definition & Scope of SLAPP Protections

Senate Bill 237 aims to prevent Strategic Lawsuits Against Public Participation (SLAPP), which are intended to stop individuals or groups from using their First Amendment rights in discussions about public issues. SLAPP lawsuits are often time-consuming and expensive for the individual or organization being sued. 

Senate Bill 237 creates an expedited process for individuals engaging in speech protected by the United States and Ohio Constitutions to have these lawsuits dismissed if they meet certain criteria. The bill also allows a successful defendant to recoup attorney fees and other court fees if the case is dismissed, removing the financial burden of SLAPP cases.

Specifically, SB 237 applies to a cause of action asserted in a civil action against a person based on any of the following:

1. The person’s communication in a legislative, executive, judicial, administrative, or other governmental proceeding;
2. The person’s communication on an issue under consideration or review in a legislative, executive, judicial, administrative, or other governmental proceeding;
3. The person’s exercise of the right of freedom of speech and of the press, the right to assemble and petition, and the right of association, guaranteed by the United States Constitution or the Ohio Constitution, on a matter of public concern.

Expedited Relief for SLAPP Defendants

In such a case, a defendant has a right to seek expedited relief to dismiss the civil action or claim. If expedited relief is sought, the Court may stay all other proceedings in the action, including discovery, and any other pending hearings or motions.

Criteria for Case Dismissal

In ruling on the motion for expedited relief, the court must dismiss with prejudice a cause of action, or part of a cause of action, if all of the following apply:

1. The moving party establishes that the cause of action is based on a communication or action described in division (B) of section 2747.01 of the Revised Code;
2. The responding party fails to establish that this chapter does not apply to the cause of action due to an exception in division (C) of section 2747.01 of the Revised Code;
3. Either the responding party fails to establish a prima-facie case for each essential element of the cause of action or the moving party establishes one of the following: (a) The responding party failed to state a cause of action upon which relief can be granted. (b) There is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law on the cause of action or part of the cause of action.

Ohio courts are now required to rule on the motion for expedited relief not later than sixty days after the hearing.

Awarding Attorney Fees & Costs

Ohio courts will be required to award reasonable attorney’s fees, court costs, and other reasonable litigation expenses to the moving party if successful.

Broad Application of First Amendment Protections

Courts must broadly construe and apply the new law so as to protect the exercise of the right of freedom of speech and of the press, the right to assemble and petition, and the right of association, guaranteed by the United States Constitution and the Ohio Constitution.

Final Appealable Order

A decision granting or denying expedited relief is a final appealable order.

To seek counsel from our Litigation group, please reach out to request a consultation or call us at 216-696-1422.

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First, needless to say, contact your attorney and schedule a face-to-face meeting. Virtual meetings through platforms like Zoom or Teams are helpful, but they are no substitute for a face-to-face meeting, where documents can be reviewed, and plans and strategies agreed upon.

Second, gather and organize all relevant contracts, demands, notices, communications, emails, and text messages exchanged among you, your business, its employees, and the adverse party.

Third, issue a litigation hold to all employees and other representatives. A litigation hold should instruct all employees and other representatives to refrain from deleting or destroying evidence including contracts, notices, communications, emails, and text messages.

Fourth, make sure you understand the contract provisions including, in particular, any notice of default, termination provisions, venue selection clauses, and contract provisions purporting to limit the time in which to submit a claim or file a lawsuit. Frequently, a contract will require notice of default and opportunity to the other side to cure said default.

Fifth, immediately take steps to mitigate or minimize your damages. This may include finding alternative sources of supplies or hiring a replacement contractor to repair, replace or complete your project. That said, you should not engage in remediation work without giving the adverse side an opportunity to inspect the current state of the project.

Sixth, make sure you understand the timing of default occurrences, as many contracts contain shortened limitation periods for filing suits. Furthermore, these contracts may impose restrictions on the venue for legal proceedings and the applicable laws. Many contracts also contain mandatory mediation and/or arbitration provisions which must be complied with.

Seventh, in collaboration with your attorneys, interview key employees and other representatives to determine what information they possess. Additionally, steps should be taken to preserve this information through witness statements or affidavits, if deemed necessary.

Eighth, work with your attorney to establish a litigation budget and litigation plan as soon as possible. However, it’s essential to keep in mind that litigation entails risks and significant expenses. Therefore, it’s crucial to regularly review, update, and revise budgets and litigation plans to accommodate any developments that arise as the litigation progresses.

For more information or to seek counsel from our team of litigation attorneys, please reach out to request a consultation or call us at 216-696-1422.

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A close corporation agreement, often referred to as a “shareholders’ agreement,” is a legal document that outlines the business’ ownership structure, management, and day-to-day operations. An operating agreement for limited liability companies functions in the same way. A well-crafted close corporation agreement or operating agreement will include mechanisms for decision-making, capital calls, voting rights, winding up and dissolving the entity, and dispute resolution.

A buy-sell agreement, or “buyout agreement,” outlines the terms and conditions for the sale or transfer of shareholder or member equity. Buy-sell agreements may include an agreed upon formula, or a certificate of valuation, for a buy-out of one shareholder or member’s interest. Regardless of the buyout mechanism, it should be understood by all parties, with input from business valuation experts, accountants, and legal counsel. The buy-out mechanism should also be reviewed yearly to ensure it is up to date. Buy-sell agreements may also include rights of first refusal, call options, put options and drag along rights.

Having both a close corporation agreement and buy-sell agreement in place provides numerous benefits to the company and its shareholders or members. They create a framework for sound governance and dispute resolution, facilitate transparent business practices and common understandings, and prepare for the smooth transfer of ownership interest. While incorporating these agreements into the family business plan would seem like a no-brainer, many closely held businesses operate without them, or with outdated agreements, which risks feuding, financial losses, and lawsuits.

Beyond having these contractual arrangements in place, shareholder or member agreements should be reviewed and updated frequently, especially as your company grows. Purchase price mechanisms should be assessed periodically to ensure that compensation paid upon the death, disability or departure of a shareholder or member is understood and fair to all parties. And life insurance should be maintained to fund a buyout of another shareholder or member’s interest and to fund ongoing business operations.

By referencing and incorporating legal tools and best practices, family run businesses can create a long-lasting foundation for their company’s ongoing success, now and in the future.

For more information or to seek counsel from our team of litigation attorneys, please reach out to request a consultation or call us at 216-696-1422.

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The following article will consider strategies which small to mid-sized business owners can adopt to avoid litigation or minimize the impact of business litigation. I focus on five (5) key areas where small businesses commonly face litigation: employment matters, business to business contracts, lending, shareholder agreements, and succession planning.

Employment Matters

Employment litigation ranges from lawsuits alleging discrimination, retaliation, unfair labor standards, medical leave, and contract disputes. While it is important to have thoughtful employment policies and procedures in place, it is also important to educate and train your managers and employees in their use. A well written, easily understood and encompassing employee handbook can prevent allegations of unfair and unlawful employment practices and minimize the impact of litigation.

Written employment contracts are typically used for management level and sales employees and should be reviewed on a regular basis to ensure that they adequately address expectations, job duties, termination rights and compensation. Formulas for the award of bonus and commission compensation should be reviewed frequently to ensure the formulas and expectations are understood by the employee and the company’s owners.

Business to Business Contracts

Whether negotiating purchase and sale agreements, purchase orders, supply agreements, or leases, the terms and conditions of the agreement should be clear and unambiguous to meet both parties’ reasonable expectations. The length of the agreement and reasons for early termination should be spelled out. Business owners should note whether an agreement automatically renews and whether notice of termination is required to avoid automatic renewal. Payment terms should be clear. Business owners should also be mindful of representations, warranties and covenants contained within their agreements.

When submitting or receiving purchase orders, business owners should be mindful of the standard terms and conditions found on the reverse side or referenced and found on a website. If certain purchase order terms are onerous, objections should be noted on any purchase order confirmation.

It is recommended that legal counsel review all written agreements and purchase orders before they are executed. It is also wise to periodically conduct an audit of all your company’s significant business contracts to ensure that your company’s contracting needs are being protected.

Lenders

Business owners need to thoroughly understand their lines of credit, loan agreements, mortgages, security agreements, and guarantees. In particular, the representations, warranties and covenants of your company’s loan agreements need to be accurate to avoid default. Lenders retain many rights and remedies in their agreements and a thorough understanding of those rights is important to set expectations and maintain compliance.

Shareholder Agreements & Succession Planning

It is important for business owners to plan. Shareholder agreements, which include close corporation agreements and buy sell agreements, are an important part of any strategy to plan and to avoid litigation.

Buy-sell agreements must be reviewed and updated frequently. Purchase price mechanisms must be reviewed to ensure that compensation paid upon the death, disability or departure of a shareholder is understood and fair to all parties. Life insurance should be maintained to fund a buyout. And, to the extent that life insurance does not fully fund a buyout, the terms of payment for the balance should not cripple a business’s cash flow.

It is not enough to simply have a close corporation agreement or buy sell agreement in place. Shareholder agreements must be reviewed and updated frequently, especially as your company grows.

Alternative Dispute Resolution

Litigation in the court system is public for anyone, including your competitors and employees, to see. One avenue to minimize or avoid the impact of business litigation is alternative dispute resolution. Including a contractual provision in your company’s agreements requiring mediation and arbitration reduces exposure to expensive and time-consuming litigation.

Key Takeaways:

• Be proactive with legal counsel and have your counsel review key contracts and purchase orders before entering them.
• Periodically review all your company’s key contracts to ensure that your company is in compliance.
• Review and update your company’s employee handbook and educate and train your employees and managers on its use.
• Consider alternative dispute resolution provisions in key contracts.

For more information or to seek counsel from our team of litigation attorneys, please reach out to request a consultation or call us at 216-696-1422.

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So, how does a majority shareholder, officer, or director of a corporation avoid a trap? The answer is to exercise sound business judgment, in good faith, and in a fair and rational fashion, with input from a disinterested board of directors. 

Ohio law has long since recognized “the rights of the majority to exercise control over the corporate affairs to which ownership of their shares entitled them.” Armstrong v. Marathon Oil Co. (1987), 32 Ohio St.3d 397, 402, 513 N.E.2d 776, 782. “Ohio courts adhere to the ‘business judgment rule,’ and will not inquire into the wisdom of actions taken by majority shareholders, directors or officers in the absence of fraud, bad faith or abuse of discretion * * *. [T]he business judgment rule recognizes that many important decisions are made under circumstances of uncertainty, and it prevents courts from imposing liability on the basis of ex post judicial hindsight and lowers the volume of costly litigation challenging the directorial actions.” Radol v. Thomas (C.A.6, 1985), 772 F.2d 244, 256.

The protection of the business judgment rule can only be “claimed by disinterested directors.” Gries Sports Ent., Inc. v. Cleveland Browns Football Co. (1986), 26 Ohio St.3d 15, 20, 26 OBR 12, 16, 496 N.E.2d 959, 964. “Disinterested directors” does not mean indifferent directors, or directors with no stake in the outcome. If that were so, shareholders could never be directors or officers. Johnson v. Trueblood (C.A.3, 1980), 629 F.2d 287, 292 (“by the very nature of corporate life, a director has a certain amount of self-interest in everything he does”); Asarco, Inc. v. Court (D.C.N.J.1985), 611 F.Supp. 468, 473 (“the fact that Asarco directors own stock * * * is not sufficient to deprive their decision of the benefit of the business judgment rule”).

Disinterested directors are those who “neither appear on both sides of the transaction nor expect to derive any personal financial benefit from it in the sense of self-dealing, as opposed to a benefit which devolves [641 N.E.2d 273] upon the corporation or all stockholders generally.” Gries, supra, 26 Ohio St.3d at 20, 26 OBR at 17, 496 N.E.2d at 964. The decisions of disinterested directors will not be disturbed if they can be attributed to any rational business purpose. Id. “The burden is on the party challenging the decision to establish facts rebutting the presumption” of good faith of directors invoked by the business judgment rule. Id.

If you have questions regarding your rights and responsibilities as an owner, officer, director, manager, or partner of a business entity, please reach out to request a consultation or visit David’s bio for his contact information to reach out to him directly, or give us a call at 216-696-1422.

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When times are good, the economy is running smoothly, and businesses are profitable, business partners are inclined to “get along.” In other words, when there is enough money and benefits to “go around,” business partners are more likely to overlook minor grievances and treat each other with fairness – at least one hopes. However, when times get tough, the economy slows, and businesses become less profitable, business partners tend lose patience with one another. As a result, we tend to see an uptick in legal disputes between business partners during these less prosperous periods. Those business partners, however, have fiduciary duties which they to one another. When a fiduciary duty is breached, litigation can be difficult to avoid. And, when litigation is brought, the stakes can be very high. When it comes to fiduciary duty litigation, there are several pitfalls and traps to avoid.

Fiduciary duties are typically found amongst business partners, shareholders in a close corporation, members of a limited liability company, officers and directors of a corporation or limited liability company, and trustees of a trust to its beneficiaries. The elements of a breach of fiduciary duty claim, most recently upheld by the Ohio Court of Appeals for the Third District, Shelby County are (in re: Thomas v. Fletcher):

1. The existence of a duty arising from a fiduciary relationship;
2. A failure to observe those duties; and
3. An injury resulting proximately therefrom.

For purposes of this discussion, the reader can simply substitute “majority members of a limited liability company,” or “partners of a partnership,” for majority shareholder of a closely held corporation. This is because, for purposes of applying fiduciary law, close corporations bear a striking resemblance to a partnership or a limited liability company. In essence, the ownership of a close corporation, like limited liability companies or partnerships, is limited to a small number of people who are dependent on each other for the enterprise to succeed. Just like a partnership, the relationship between the shareholders must be one of trust, confidence, and loyalty if the business is to thrive. Crosby v. Beam, 47 Ohio St.3d 105, 107 (1989); Gigax v. Repka, 83 Ohio App.3d 615, 620 (Montgomery Cty. 1992).

Majority shareholders owe a heightened fiduciary duty to minority shareholders. That duty is defined as the “utmost good faith and loyalty.” Crosby v. Beam, 47 Ohio St.3d 105, 108 (1989); Gigax v. Repka, 83 Ohio App.3d 615, 621 (Montgomery Cty. 1992); and Thomas v. Fletcher, 2000-Ohio-6685 (Shelby Cty. App.) at ¶15. It is a breach of fiduciary duty for a majority shareholder, to use their majority control of the corporation, for their own advantage, without providing the minority shareholders with an equal opportunity to share in the benefits of the corporation or to deprive minority shareholders of the benefits of their stock ownership in the corporation. Crosby v. Beam, 47 Ohio St.3d 105, 109 (1989); Gigax v. Repka, 83 Ohio App.3d 615, 621 (Montgomery Cty. 1992); Yackel v. Kay, 95 Ohio App.3d 472, 477 (Cuyahoga Cty. 1994).

There are many traps waiting for majority shareholders to fall into when dealing with minority shareholders. Examples of a majority shareholder’s misuse of their majority control of a corporation include:

• Removing a minority shareholder from the payroll of a close corporation which has never paid a dividend and where there is no legitimate business purpose for the removal. Crosby v. Beam, supra at 109; 
• A majority shareholder who derives excessive personal financial benefit from the close corporation that deprives the minority shareholders of their just share of the corporation’s profits; 
• Excessive personal financial benefit can include: excessive salary and bonuses, personal automobile and gasoline expenses, excessive medical insurance benefits, excessive use of credit card to pay personal expenses, which are reimbursed by the close corporation. Yackel v. Kay, 95 Ohio App. 3d 472, 475 (Cuyahoga Cty. 1994);
• A majority shareholder who induces a minority shareholder to extend loans or to post personal assets as collateral for loans to the close corporation at the same time that the majority shareholder is taking action against the interest of the minority shareholder constitutes a breach of fiduciary duty. Estate of Louise Morad v. Task, 1994, Ohio App. LEXIS 921 at 5. Both the Yackel case and the Morad case present analogous fact patterns that are instructive for our case.

A director and an officer of a close corporation owes a fiduciary duty of utmost good faith and loyalty to a minority shareholder as well. Cousins v. Brownfield, 83 Ohio App.3d 782, 791 (Franklin Cty. 1992). The failure of a director or officer of a close corporation to comply with the duties specified by Ohio statute constitute a breach of fiduciary duty owed to a minority shareholder. Id. For example, it is a breach of fiduciary duty for a director or officer to fail to provide a financial statement of the corporation to a minority shareholder who has properly requested one. Cousins v. Brownfield, supra at 785; Ohio Revised Code Section 1701.94(A)(4). The failure to send amended regulations to a minority shareholder violates a statutory obligation under Ohio law and amounts to a breach of fiduciary duty. Ohio Revised Code Section 1701.94(A)(2).

When litigation is filed, the stakes are high. That is because compensatory and punitive damages can be awarded for a breach of fiduciary duty that has caused actual damages to be suffered by the minority shareholder. For punitive damages to be awarded, there must be actual malice, which is evidenced by extremely reckless behavior revealing a conscious disregard of a great and obvious harm to another. Actual malice requires conscious, deliberate, or intentional wrongdoing, in the absence of which punitive damages cannot be awarded. Preston v. Murty, 32 Ohio St. 3d 334 (1987); Cousins v. Brownfield, 83 Ohio App.3d 782, 793 (Franklin Cty. 1992); Yackel v. Kay, 95 Ohio App. 3d 472, 481 (Cuyahoga Cty. 1994). Examples of actual malice can include wrongful termination, breach of majority shareholder fiduciary duty, and increasing personal compensation and maintaining family members on the payroll of the close corporation. Blake v. Faulkner, 1996 Ohio App. LEXIS 5288 (Shelby Cty.) at 17. In one case, Estate of Morad, punitive damages were awarded where the Court found that the majority shareholder, President, and Director of the close corporation fraudulently induced the minority shareholder to extend loans and to post collateral to the corporation and the majority shareholder.

If you have questions regarding your rights and responsibilities as an owner, officer, director, manager, or partner of a business entity, please reach out to request a consultation, visit David’s bio for his contact information to reach out to him directly, or give us a call at 216-696-1422.

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The Act will have wide-standing implications in the field of employment litigation.

The Act amends the Federal Arbitration Act (the “FAA”), Title 9 of the United States Code, with respect to the arbitration of disputes involving sexual assault and sexual harassment. A sexual assault dispute is broadly defined as a dispute involving a nonconsensual sexual act or sexual contact, including when the victim lacks capacity to consent. Likewise, a sexual harassment dispute is broadly defined as a dispute relating to conduct that is alleged to constitute sexual harassment under applicable federal, tribal, or state law.

In general, the Act states that, at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, or the named representative of a class or in a collective action alleging such conduct, no pre-dispute arbitration agreement or pre-dispute joint-action waiver shall be valid or enforceable with respect to a case which is filed under federal, tribal, or state law and relates to the sexual assault dispute or the sexual harassment dispute.

Of course, pre-dispute arbitration agreements are frequently found in employment agreements and such arbitration agreements typically require arbitration of employment-based claims involving quid pro quo sexual harassment, hostile work environment based on sex, and retaliation claims based on reporting sexual harassment and participating in investigations of sexual harassment. Those types of employment-based claims would now fall within the Acts prohibition of forced arbitration of sexual assault and sexual harassment claims in the workplace.

The determination of whether the Act applies with respect to a dispute shall be determined under Federal law by a federal or state court, rather than an arbitrator, irrespective of whether the party resisting arbitration challenges the arbitration agreement specifically or in conjunction with other terms of the contract containing such agreement, and irrespective of whether the agreement purports to delegate such determinations to an arbitrator. Further, under the FAA, states are prohibited from passing or enforcing laws which are inconsistent with the FAA.

Update on Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act – March 4, 2022

On March 3, President Biden officially signed H.R.4445. The law went into effect immediately upon signing, effectively voiding any mandatory arbitration clauses in Employment Agreements when it comes to claims of sexual harassment or assault in the workplace. Employers are strongly advised to consult with legal counsel for full review and revision of existing employment agreements and should immediately negotiate the conclusion of any active or in progress arbitrations in these matters.

For more information or assistance, please reach out to request a consultation or give us a call at 216-696-1422.

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