McGlinchey Commercial Law Bulletin

Can a Corporate Officer Be Sued Individually?

December 22, 2022

Ohio

Equitable Lien

Michael v. Miller, Slip. Op. No. 2022-Ohio-4543

In this discretionary appeal, the Ohio Supreme Court outlined when and in what circumstances an equitable lien may arise.

The Bullet Point: A lien is “‘a hold or claim which one person has upon the property of another as a security for some debt or charge.’“ “A lien becomes equitable in character when satisfaction of the lien is sought from a particular fund or specific property under principles of equity.”

Ohio courts have held that three elements are required to establish an equitable lien: (1) a duty, debt, or obligation, (2) an identifiable res, and (3) an express or implied intent that the property serve as security for the payment of a debt or obligation. As the Ohio Supreme Court noted, even if these factors are all met, they are not dispositive as to whether an equitable lien exists. Rather, “[c]ourts also take into account traditional equitable considerations, such as whether third parties had notice of the outstanding equitable interest.”

Material Breach of Contract

McKinney v. Lamalfa Party Center, 11th Dist. Lake, No. 2022-Ohio-4333.

In this appeal, the Eleventh Appellate District affirmed the trial court’s decision granting judgment to the plaintiff on a breach of contract claim due to the defendant’s material breach of a wedding agreement as a result of the COVID-19 pandemic.

The Bullet Point: “‘[A] material breach occurs when a party violates a term essential to the purpose of the agreement.’” “‘Mere nominal, trifling, or technical departures will not result in a breach of contract; slight departures, omissions, and inadvertencies should be disregarded.’” In order to establish a material breach, courts consider the following factors:

1. the extent to which the injured party will be deprived of the benefit that he reasonably expected,
2. the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
3. the extent to which the party failing to perform or to offer to perform will suffer forfeiture,
4. the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances, and
5. the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.’”

As the Eleventh District noted in this case, “[w]ith these unilateral changes, [plaintiff]would have had a substantially different wedding reception than the one for which she contracted. The mandates, while appropriate COVID-19 safety measures in general, materially altered the contract” and constituted a material breach.

Adoptive Business Records Exception

U.S. Bank v. Williams, 10th Dist. Franklin, No. 2022-Ohio-4590.

In this appeal, the Tenth Appellate District reversed the trial court’s decision to grant the plaintiff summary judgment in a foreclosure action, finding that an issue of fact existed as to the amount owed on the loan.

The Bullet Point: Pursuant to Evid.R. 803(6), business records that meet the enumerated requirements are excepted from the hearsay rule. Evid.R. 803(6) permits the admission of business records of an entity even when the entity was not the maker of the records, so long as the other requirements of Evid.R. 803(6) are met, and circumstances indicate that the records are trustworthy. Accordingly, under the adoptive business records exception, the record need not be “prepared by the entity offering them if the entity received, maintained, and relied on the records in the ordinary course of business, and incorporated the records into the business records of the testifying entity.”

Frustration of Purpose

Cafaro-Peachcreek Joint Venture Partnership v. Spanggard, 11th Dist. Trumbull, No. 2022-Ohio-4468.

In this appeal, the Eleventh Appellate District reversed in part the trial court’s decision to grant summary judgment on the plaintiff’s breach of contract claim but refused to accept the defendant’s proposition to void the agreement pursuant to the concept of “frustration of purpose.”

The Bullet Point: Voiding a contract due to “frustration of purpose” arises: “[w]here, after a contract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event, the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.” As the Eleventh District noted, the concept is not widely accepted in Ohio, and the Supreme Court of Ohio has not yet expressly adopted it. 

Florida

Active Participation Theory

Costa Invs., LLC v. Liberty Grande, LLC and Moses Bensusan, No. 4D21-2676 (Dec. 21, 2022)

The Fourth District concluded that a corporate officer who actively participates in a corporation’s torts can be individually liable even while acting in a corporate capacity.

The Bullet Point: Although a corporate officer is not liable for the corporation’s torts simply by virtue of his corporate officer status, a corporate officer may be individually liable for the torts of the corporation in which he actively participates. Under this “active participation theory,” courts impose liability on the individual as an actor rather than as a corporate officer, and liability is therefore not predicated on a finding that the corporation is a sham and a mere alter ego of the officer.

The central question in this appeal was whether the appellee corporate officer could be individually liable for fraudulent representations in an investor contract, which he signed as president of the corporation and not individually. Applying the active participation theory, the Fourth District held that he can. This is because the evidence shows that a fraud was committed, and the corporate officer actively participated in the fraud by signing the documents, even though he signed on behalf of the corporation. The trial court’s order granting summary judgment in favor of the corporate officer was therefore reversed.

Judgments Exceeding Jurisdictional Limits

Exquisite Carpet & Interiors, Inc. v. Martinez, No. 2D21-2272 (Fla. 2d DCA Dec. 21, 2022)

The Second Circuit determined a final judgment for damages was void because it exceeded the county court’s prescribed jurisdictional limits.

The Bullet Point: The county courts of Florida are courts of limited jurisdiction and therefore precluded from entering a judgment for damages in excess of its mandated jurisdiction. If a judgment for damages exceeds the county court’s jurisdictional limit, the county judge has no power to enter the judgment, and it is void. In this case, the trial court entered a final summary judgment awarding damages in excess of the $15,000 jurisdictional limit of the county court. On appeal, the Second District concluded that this judgment is void, and the proper course is to remand the case to the county court for further proceedings. On remand, if the county court determines that the amount in controversy exceeds the prescribed jurisdictional limit, the county court should transfer the action to the circuit court.

Inadequate Appellate Record

Henry v. AIM Indus., LLC and Amy Abdnour, No. 2D22-330 (Fla. 2d DCA Dec. 16, 2022)

The Second District denied a petition for certiorari because there was an inadequate appellate record.

The Bullet Point: On appeal, the appellate court is bound by the presumption of correctness afforded to the circuit court, and it is the burden of the appellant or petitioner to show a departure from the essential requirements of the law. Therefore, where there is an inadequate appellate record, the appellate court is unable to determine whether the trial court committed any error. In this case, the petitioner alleged that the circuit court did not provide an opportunity to present evidence prior to discharging her notices of lis pendens. The Second District found that it is unclear whether the circuit court committed that error because there was an inadequate appellate record, as the Second District did not have a transcript of the hearing, and the petitioner did not attempt to provide a statement of the proceedings. The petition for writ of certiorari requesting that the court quash the circuit court’s order discharging the notices of lis pendens was therefore denied.