Breach of Fiduciary Duty and Aiding and Abetting Claims in Ohio
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In Ohio, the relationship between the officers and directors and their corporation and its stockholders is one of trust. It is also known as a "fiduciary" relationship. Ohio Revised Code Sections 1701.59 and 1701.60 codify the scope of a director's fiduciary duty and standard of care. The duties owed to the company and shareholders include the duties of loyalty, care, fair dealing and disclosure. While a director shall consider the interests of the shareholders, a director may consider the interests of the corporation's creditors - in other words, considering the interests of the creditors is permissive, not mandatory. Unlike those of directors, the obligations of corporate officers have not been codified. However, Ohio courts have held that corporate officers may be held personally liable for acts of a corporation if they took part in the act, specifically directed the act to be done, or participated or cooperated in the commission of the act.
Ohio Revised Code Section 1701.59 requires a director to perform his or her duties "in good faith, in a manner the director reasonably believes to be in or not opposed to the best interests of the corporation, and with the care that an ordinarily prudent person in a like position would use under similar circumstances." Ohio Revised Code § 1701.59(B). A director who performs his or her duties in accordance with this standard shall have no liability imposed because of his or her position as director of the corporation. Ohio Revised Code § 1701.59(C). In evaluating a director's compliance with these duties, courts adhere to the "business judgment rule," a judicially created rule under which courts defer to the business judgment of directors who are making corporate decisions within their broad discretion. The rule recognizes that many important corporate decisions are made under conditions of uncertainty and, consequently, courts are not to "inquire into the wisdom of actions taken by the directors in the absence of fraud, bad faith or abuse of discretion."
However, the business judgment rule only protects "disinterested directors." A disabling interest exists when directors either "appear on both side of the transaction [or] expect to derive any personal benefit from it in the sense of self-dealing, as opposed to a benefit which devolves upon the corporation or all stockholders generally." Directors who waste corporate assets of an insolvent company, are uninformed, not independent, or grossly negligent are not protected by the business judgment rule. Also unsheltered by the rule are directors who fail to act upon learning of another director's waste of corporate assets or self-dealing.
In Ohio, to state a claim for breach of fiduciary duty, a plaintiff must allege the existence of a duty on the part of the alleged wrongdoer, a breach of that duty, and a resulting injury. In order to prove that a director has breached his or her duties, it must be demonstrated, by "clear and convincing evidence that the director has not acted in good faith, in a manner that the director reasonably believes to be in or not opposed to the best interests of the corporation . . . ." Ohio Revised Code § 1701.59(C). Furthermore, for that director to be liable for damages in any action that he or she takes or fails to take, it must be proven by "clear and convincing evidence . . . that the director's action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the corporation or undertaken with reckless disregard for the best interests of the corporation." Ohio Revised Code § 1701.59(D).
It is unclear if a cause of action for aiding and abetting a breach of fiduciary duty exists under Ohio law. Such a claim would impose liability on non-fiduciaries who knowingly aid fiduciaries in breaching their duties. In 1988, the Ohio Supreme Court considered the issue in Great Central Insurance Company v. Tobias, 37 Ohio St. 3d 127, 524 N.E.2d 168 (Ohio 1988) , but ultimately did not make a determinative ruling on whether Ohio law recognizes such a claim. The Court alluded, however, to the possibility that aiding and abetting fraud could be actionable under Ohio law. Id. at 172.
After this decision, Ohio state and federal courts have split on whether a cause of action exists. Some lower Ohio courts have held that such a cause of action does not exist under Ohio law. See Federated Management Co. v. Coopers & Lybrand, 137 Ohio App. 3d 366, 738 N.E.2d 842, 853 (Ohio App. 2000)(holding that "Ohio does not recognize a claim for aiding and abetting common law fraud" and that "one is liable if one actually engages in conduct that is wrongful. Thus, one is not liable as an aider and abettor but as an active wrongdoer."); see also Collins v. Nat'l City Bank,2003 Ohio 6893,**13 ("The [trial] court correctly held that aiding and abetting common law fraud is not cognizable in law."). Others, including the United States Court of Appeals for the Sixth Circuit and other Ohio appellate courts, have held that the Ohio Supreme Court would recognize a cause of action for aiding and abetting "if squarely faced with the issue." Aetna Cas. And Surety Co. v. Leahey Contruction Co., 219 F.3d 519, 533 (6th Cir. 2000); see also Harris v. Ambrozic, 2004 WL 251840 at *4 (Ohio App. 5 Dist. Feb. 9, 2004) (holding that claim for aiding and abetting would not be dismissed on summary judgment). The issue remains open for discussion and ripe for judicial determination by the Ohio Supreme Court.
It is important to note that this is a summary of the law in the State of Ohio on fiduciary duties and aiding and abetting. The law of the state of incorporation applies when determining whether fiduciary duties have been breached and/or whether aiding and abetting claims exist. Our attorneys are licensed to practice not only in Ohio, but other states as well. Please contact us for further information.
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