Gerald M. Kelly, et al. vs. The Wellsville Foundry, Inc., et al.

SUPREME COURT CASES

Laws-info.com » Cases » Ohio » 7th District Court of Appeals » 2000 » Gerald M. Kelly, et al. vs. The Wellsville Foundry, Inc., et al.

State: Ohio

Court: Ohio Southern District Court

Docket No: 2000-Ohio-2667

Case Date: 12/06/2000

Plaintiff: Gerald M. Kelly, et al.

Defendant: The Wellsville Foundry, Inc., et al.

Preview:STATE OF OHIO, COLUMBIANA COUNTY IN THE COURT OF APPEALS SEVENTH DISTRICT GERALD M. KELLY, ET AL., ) ) PLAINTIFFS-APPELLEES, ) ) VS. ) ) THE WELLSVILLE FOUNDRY INC., ) ET AL., ) ) DEFENDANTS-APPELLANTS. ) CHARACTER OF PROCEEDINGS: JUDGMENT: APPEARANCES: For Plaintiffs-Appellees: Atty. Frederick C. Emmerling 114 West Sixth Street P.O. Box 25 East Liverpool, Ohio 43920 Atty. John F. Zimmerman, Jr. Atty. Thomas J. Lipka Atrium Level Two The Commerce Building Youngstown, Ohio 44503-1641

CASE NO. 99-CO-27 O P I N I O N

Civil Appeal from Common Pleas Court Case No. 97CV735 Affirmed

For Defendants-Appellants:

JUDGES: Hon. Gene Donofrio Hon. Edward A. Cox Hon. Joseph J. Vukovich Dated: December 6, 2000

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DONOFRIO, J. Defendants-appellants, Wellsville Foundry, Inc. (Wellsville Foundry) and Charles H. Gilmore (Gilmore), appeal a decision rendered by the Columbiana County Court of Common Pleas whereby the trial court issued an injunction enjoining the "reverse stock split" initiated by appellants. The trial court's

injunction effectively restored plaintiffs-appellees, Gerald and Lois Kelley, to their full rights as shareholders in Wellsville Foundry. Wellsville Foundry is in the business of selling castings to the steel industry. Appellees were original shareholders in In addition to

Wellsville Foundry since its inception in 1967.

owning a minority interest in Wellsville Foundry, appellees also own 100 percent of the stock in Yellow Creek Castings, Inc. (Yellow Creek), which is a competitor of Wellsville Foundry. Yellow Creek sells similar products to the steel and pottery industry. Both similar country. Wellsville and Foundry sell and Yellow Creek compete for the

customers

similar

products

throughout

The Yellow Creek Foundry and Wellsville Foundry are

located side-by-side in a rural area. In 1986 Gilmore purchased four hundred shares, or 80

percent, of the total stock in Wellsville Foundry.

At the time

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Gilmore "vaguely Since

purchased aware"

these

shares,

he

testified a

that

he

was

that

appellees in

owned

competitive have

foundry. not been

Gilmore's

purchase

1986,

appellees

involved in the daily operation of Wellsville Foundry, nor have they ever requested any information from Wellsville Foundry that they are entitled to in their capacity as shareholders.

Appellees have never received any proprietary information or trade secrets from Wellsville Foundry, including customer lists or pricing information. As shareholders, appellees have

received financial statements of the corporation and notice of various shareholder meetings. The Foundry. parties are the sole shareholders in Wellsville

Gilmore has been the president, treasurer and director

of Wellsville Foundry, and as the majority shareholder appoints the Board of Directors. He receives a salary and the same Gilmore received a $30,000.00 loan

benefits as other employees.

from Wellsville Foundry in the late 1980's and has yet to make any interest payments on the loan. In 1987, appellees' minority interest represented a 20

percent interest in the company. In 1987, Gilmore requested that the Board of Directors authorize the issuance of two thousand shares of no par stock for sale to Gilmore at the price of $.50 per share. A

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shareholders' meeting was held on April 10, 1987, at which time appellee Gerald Kelly was present, with the proxy of appellee Lois Kelly. At the meeting, the Board of Directors caused the

issuance of an additional two thousand shares of common stock to Gilmore for the sum of $1,000.00. dissenting votes. Appellees were never given the opportunity to purchase this stock, nor were appellees ever notified that the stock was being sold at the price of $.50 a share. Gilmore testified that this Appellees cast the sole

was an attempt by the corporation to dilute appellees' interest in the corporation. The issuance of stock had the effect of

diluting appellees' minority interest from a 20 percent interest of ownership to a roughly 4 percent interest of ownership.

Appellees took no legal action concerning the issuance of these additional shares and their purchase by Gilmore. In August of 1997, Gilmore caused the reverse stock split to be placed into action, which gave rise to this lawsuit. The

resolution, approved by all the shareholders except appellees, reduced the number of authorized shares and left appellees with fractional shares. The resolution also valued the fractional

shares at $3,750.00, per 1/11 share, and set up a procedure for the purchase of these shares by the corporation. The resolution

provided dissenting shareholders with a right to contest the

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valuation of the fractional shares, the ultimate valuation of which would be decided by compulsory arbitration. In arriving at a valuation to suggest to the Board of Directors and the shareholders, Gilmore initially consulted with the CPA firm that reviews the company's books. Gilmore learned

that the cost of a CPA appraisal would run almost as much as the value of the minority interest under his proposed plan. After

reading a magazine article on business valuations, Gilmore made his own calculations as to the value of the 1/11 share of stock. Gilmore's CPA approved the procedure, but not the valuation. Under the valuation procedure adopted by Gilmore, appellees were given a maximum of ten days after the passing of the resolution to determine whether to avail themselves of this arbitration corporation. procedure or accept the price offered by the

Gilmore admits that little, if any, financial

information was afforded to appellees prior to the August 27, 1997 shareholders meeting, or prior to the lapse of the ten-day period, on which they could determine how to value the stock. Rather than follow the procedures set forth in the

resolution and proceed to arbitration as to the value of their minority stock interest, appellees initiated this lawsuit to halt the reverse stock split, contest the valuation procedures,

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and

allege

other

stockholder

actions

against

Gilmore

and

Wellsville Foundry. Gilmore testified that the corporation is on the verge of developing new products. Gilmore feels that Wellsville Foundry Gilmore also testified

has "turned the corner" in its business.

that he sought legal advice, and was under the belief that appellees, as shareholders, were entitled to certain proprietary information under R.C. 1701.37 that they could use to compete against Wellsville Foundry. Therefore, Gilmore testified that

he felt it necessary to try to eliminate appellees' interest because they are in competition with the company. There was no evidence before the trial court that indicated that the two While corporations they may have "done similar battle" in the and market similar

place.

share

products

customers in the market place, both seem to be established in their own particular nitch, vis-

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