Ohio Appellate Reports
Unpublished
POTTSCHMIDT v. KLOSTERMAN, Unpublished Decision
(12-29-2006) 2006-Ohio-6964 STEVEN A. POTTSCHMIDT, M. D.,
Appellee v. THOMAS J. KLOSTERMAN, M. D., INC., et al,
Appellants. No. 06CA0041-M. Court of Appeals of Ohio,
Ninth District, Medina County. Dated: December 29, 2006.
[EDITOR’S NOTE: This case is unpublished as indicated by the
issuing court.] APPEAL FROM JUDGMENT ENTERED IN THE COURT OF
COMMON PLEAS COUNTY OF MEDINA, OHIO, CASE No. 04 CIV 0976.
STEPHEN J. BROWN, Attorney at Law, for Appellants.
STEVEN R. HOBSON, II, Attorney at Law, for Appellee.
DECISION AND JOURNAL ENTRY
This cause was heard upon the record in the trial court.
Each error assigned has been reviewed and the following
disposition is made:
MOORE, Judge.
{¶ 1} Appellants, Thomas J. Klosterman, M.D., Inc.,
Thomas J. Klosterman, M.D. and Klosterman Family Practice,
Inc. (collectively “Appellants”) appeal the judgment of the
Medina County Court of Common Pleas in favor of Appellee,
Steven A. Pottschmidt, M.D. We affirm.
I.
{¶ 2} In the Spring of 2001, Appellee, Steven A.
Pottschmidt (“Dr. Pottschmidt”) joined the family medical
practice of Appellant, Thomas J. Klosterman, M.D., Inc.
(“original corporation”), a subchapter S corporation, of
which Appellant, Thomas J. Klosterman, M.D. (“Dr.
Klosterman”) was the sole shareholder. Dr. Pottschmidt and
the original corporation entered into an employment
agreement with a term of one year on June 4, 2001
(“employment agreement”). The employment agreement was
amended three times thereafter. The first amendment was on
May 3, 2002, and served to extend the term of Dr.
Pottschmidt’s employment through December 2002. The second
amendment was on January 28, 2003, and extended the term of
Dr. Pottschmidt’s employment through June 30, 2003, and
added a 5% management fee to the expense calculation in the
employment agreement. The final amendment was dated
September 16, 2003, and served to extend the term of the
employment agreement until June 30, 2004. This amendment
referenced a potential buy-in agreement, and required Dr.
Pottschmidt to provide written notice of termination of the
contract depending on the number of months left remaining on
the employment agreement, as amended.
{¶ 3} Around the same time the employment agreement
was signed, Dr. Pottschmidt entered into a salary guarantee
agreement with Medina General Hospital, which contract
supplemented Dr. Pottschmidt’s income from his employment
with the original corporation (“hospital contract”). The
hospital contract was referenced in the employment
agreement.
{¶ 4} On July 14, 2004, two weeks after the
employment agreement expired, Dr. Pottschmidt resigned from
the original corporation and in August 2004, filed suit
against the original corporation. The complaint alleged
breach of the employment agreement for failure to pay Dr.
Pottschmidt pursuant to the terms of the employment
agreement and quantum meruit for the original corporation’s
failure to pay Dr. Pottschmidt for the two weeks he worked
for the original corporation after the term of the
employment agreement expired.
{¶ 5} In September 2004, Dr. Klosterman, upon the
advice of counsel, formed Klosterman Family Practice, Inc.
(“new corporation”) in order to avoid liability related to
Dr. Pottschmidt’s employment. The new corporation continued
to exist with the same employees (sans Dr. Pottschmidt) in
the same offices, with the same patients, the same
letterhead (with Dr. Pottschmidt’s name removed) the same
phone number, and the same equipment and office furniture.
The new corporation opened a bank account at the same bank
(First Merit) that the original corporation held an
account, which account was closed in December of 2004. Some
receipts from billings issued by the original corporation
were deposited into the new corporation’s bank account.
{¶ 6} After the formation of the new corporation,
Dr. Pottschmidt amended his complaint to add the new
corporation and Dr. Klosterman as parties and to assert
claims for successor liability, piercing the corporate veil
and violations of the Uniform Fraudulent Transfers Act.
{¶ 7} On August 29, 30 and September 14, 2005, this
matter was tried to a magistrate who issued her decision on
October 5, 2005 (the “Magistrate’s Decision”). On October
13, 2005, Appellants filed Civ.R. 53 objections to the
Magistrate’s Decision to which Dr. Pottschmidt responded on
October 21, 2005 and the Appellants replied on October 28,
2005. On November 22, 2005, the trial court overruled
Appellants’ objections and adopted the Magistrate’s
Decision in its entirety (the “Judgment Entry”).
{¶ 8} On November 30, 2005, Appellants filed a
motion for a new trial and motion for judgment
notwithstanding the verdict to which Dr. Pottschmidt
responded on December 8, 2005, and the trial court denied
on April 28, 2006.
{¶ 9} Appellants filed a timely notice of appeal,
raising four assignments of error for our review.
II.
ASSIGNMENT OF ERROR I
“THE MAGISTRATE’S FINDINGS OF FACT AND CONCLUSIONS OF
LAW, WHICH WERE ADOPTED IN THEIR ENTIRETY BY THE TRIAL
COURT, WERE AGAINST THE MANIFEST WEIGHT OF THE EVIDENCE
WHERE THE COURT ERRONEUOUSLY [SIC] DETERMINED THAT (1)
APPELLANT KLOSTERMAN M.D., INC., HAD BREACHED ITS
EMPLOYMENT CONTRACT WITH APPELLEE POTTSCHMIDT CONCERNING
THE MAXIMIUM [SIC] LIMITATION ON THE AMOUNT OF EXPENSES
THAT COULD BE DEDUCTED FROM CASH RECEIPTS GENERATED BY
APPELLEE, AND (2) KLOSTERMAN M.D., INC. AND APPELLEE
POTTSCHMIDT HAD NOT VERBALLY AGREED TO WAIVE THAT MAXIMUM
LIMITATION ON EXPENSES PROVISION OF THE EMPLOYMENT
CONTRACT.”
{¶ 10} In their first assignment of error,
Appellants contend that the original corporation did not
breach the employment agreement because Dr. Pottschmidt and
the original corporation verbally waived Section 2(D)(2) of
the employment agreement. Dr. Pottschmidt contends that he
did not waive this provision and could not have done so as
the employment agreement at section 10 included a
no-modification provision.
{¶ 11} We review whether a judgment is against the
manifest weight of the evidence in a civil context
utilizing the same standard of review as that used in the
criminal context. Frederick v. Born (Aug. 21, 1996), 9th
Dist. No. 95CA006286, at *6. This Court must, therefore,
review the entire record; weigh the evidence and all
reasonable inferences; consider the credibility of
witnesses; and determine whether, in resolving conflicts in
the evidence, the trier of fact clearly lost its way and
created such a manifest miscarriage of justice that the
judgment must be reversed and a new trial ordered. State v.
Otten (1986), 33 Ohio App.3d 339, 340.
{¶ 12} Further, this Court has stated that it “will
not reverse the judgment of the trial court as being
against the manifest weight of the evidence if the judgment
is based upon some competent, credible evidence that speaks
to all of the material elements of the case.” Morris v.
Andros, 158 Ohio App.3d 396, 2004-Ohio-4446, at ¶ 18.
“This standard is highly deferential and even `some’
evidence is sufficient to sustain the judgment and prevent
reversal.” Bell v. Joecken (Apr. 10, 2002), 9th Dist. No.
20705, at *2. It is well established that “the weight to be
given the evidence and the credibility of the witnesses are
primarily for the trier of the facts.” State v. DeHass
(1967), 10 Ohio St.2d 230, paragraph one of the syllabus.
The trier of fact is in the best position to judge the
credibility of the witnesses, view their demeanor and weigh
the evidence. Akron v. Portman, 9th Dist. No. 22921,
2006-Ohio-2856, at ¶ 13; DeHass, at paragraph one of
the syllabus.
{¶ 13} Pursuant to the employment agreement, Dr.
Pottschmidt’s monthly compensation would be equal to the
difference between his monthly receipts and the corporate
expenses attributed to him. Section 2(D)(2) of the
employment agreement sets forth how the corporate expenses
are to be attributed between Drs. Klosterman and
Pottschmidt and states in relevant part:
“2. [Expenses of employee will be calculated as above
subject to a minimum of $3,000.00 per month and limited to
a maximum amount equal to 50% of Employee’s cash receipts
generated for that month provided said cash receipts are
in excess of $6,000 per month.”
{¶ 14} The trial court found that the original
corporation did not limit the corporate expenses
attributable to Dr. Pottschmidt in accordance with Section
2(D)(2) of the employment agreement (the “50% of receipts
limitation”) and that if Dr. Pottschmidt had been paid in
accordance with the employment agreement, the original
corporation would have paid him an additional $130,958. The
trial court also held that Dr. Pottschmidt did not waive
the 50% of receipts limitation.
{¶ 15} In finding that corporate expenses were not
attributed to Dr. Pottschmidt in accordance with the
employment agreement, the trial court relied upon testimony
from Dr. Pottschmidt and Dr. Klosterman, both of whom admit
that the 50% of receipts limitation was not followed and
both of whom agreed as to how such expenses were to be
calculated if the provision had been followed.
{¶ 16} In finding there to be no waiver of the 50%
of receipts limitation, the trial court relied upon Section
10 of the employment agreement (“no-modification
provision”), which states in relevant part:
“No change or modification hereof shall be valid or
binding unless the same shall be in writing and signed by
the party against which such waiver is sought to be
enforced.”
{¶ 17} In support of his assertion that the parties
waived the 50% of receipts limitation, Dr. Klosterman
testified that the parties agreed to waive the provision
because Dr. Pottschmidt was being reimbursed for his
expenses by Medina General Hospital pursuant to the hospital
contract, the terms of which Dr. Klosterman was not aware
at the time of the signing of the employment agreement.
However, upon cross-examination, Dr. Klosterman
acknowledged that he stated in his deposition that the
parties verbally waived the 50% of receipts limitation
because Dr. Pottschmidt was doing so well financially. Dr.
Klosterman also acknowledged that he was aware of the
hospital contract at the time the employment agreement was
signed and, in fact, the hospital contract is referenced
therein.
{¶ 18} Appellants also assert that Dr. Pottschmidt
waived his right to enforce the 50% of receipts limitation
and the no-modification provision by failing to raise any
issues related thereto throughout the entire term of the
contractual relationship between the parties while
continuing to perform pursuant to the remaining terms of
that contract.
{¶ 19} Initially, it is undisputed that there were
only three signed writings between the parties subsequent
to the employment agreement. None of these writings waived
the 50% of receipts limitation or Section 10 of the
employment agreement. We also note that Sections 10 and 11
of the employment agreement state that if any provision of
the employment agreement is deemed waived, that waiver
shall not operate as a waiver of any other provision of the
contract and shall not operate as a waiver of any
subsequent breach of the contract.
{¶ 20} Nonetheless, Appellants cite several cases in
support of their assertion that Dr. Pottschmidt waived the
right to enforce the no-modification provision, which
enabled him to impliedly waive the 50% of receipts
limitation. Appellants cite two cases in support of their
proposition.[fn1] The first is Fahlgren & Swink, Inc. v.
Impact Resources, Inc. (Dec. 24, 1992), 10th Dist. No.
92AP-303, where the Tenth District Court of Appeals found
there to be a genuine issue of material fact as to whether
or not the parties waived a no oral modification provision
by detrimentally relying on the modification. We note that
Fahlgren is a summary judgment case decided under the
summary judgment standard of whether a genuine issue of
material fact existed. The case at bar was resolved by
trial.
{¶ 21} The second case cited by Appellants is Frantz
v. Van Gunten (1987), 36 Ohio App.3d 96, a Third District
Court of Appeals case in which the court held that evidence
of additions to a contract was properly admitted at trial
“since it was for the jury to determine whether or not the
parties had waived the written-modification clause in the
contract by clear and convincing evidence.” Id. at 100.
{¶ 22} While both of these cases suggest that waiver
of a no oral modification provision is possible, both cases
also suggest that it is for the trier of fact to determine
whether such a waiver occurred. Here, the trial court heard
the testimony of Dr. Pottschmidt that he did not waive any
provision of the employment agreement, verbally or
otherwise, and that he trusted Dr. Klosterman who
calculated and allocated the expenses to do so in
accordance with the terms of the contract. Dr. Pottschmidt
indicated that he only realized that Dr. Klosterman was not
allocating the expenses pursuant to the employment agreement
when he was presented with a new contract that deleted the
50% of receipts limitation. Mr. Cooper, Appellants’
accountant and attorney testified that he was not aware
that the original corporation was not utilizing the 50% of
receipts limitation until 2004. Ms. Boehm, who prepared the
monthly receipts and expense reports, similarly testified
that she was not aware of the 50% of receipts limitation.
{¶ 23} Dr. Klosterman testified that he would not
have amended the employment agreement to extend the term
had Dr. Pottschmidt insisted on utilizing the 50% of
receipts limitation. He claims Dr. Pottschmidt failed to
enforce the provision despite being presented with a
receipts and expense summary sheet each month of his
employment.
{¶ 24} “A party seeking to establish waiver bears a
heavy burden of proof.” Manos v. Vizar (July 9, 1997), 9th
Dist. No. 96CA2581-M, at *2, citing Moses H. Cone Memorial
Hospital v. Mercury Constr. Corp. (1983), 460 U.S.1, 24-25.
We have also held in Portman that the trier of fact is in
the best position to judge the credibility of the witnesses,
view their demeanor and weigh the evidence. Portman, supra,
at ¶ 13. Accordingly, we find that the trial court’s
decision finding a breach of the employment agreement to be
supported by competent, credible evidence. We also find
that the trial court’s finding that the parties did not
waive the 50% of receipts limitation or otherwise modify
the employment agreement related to the calculation of Dr.
Pottschmidt’s compensation to be supported by competent,
credible evidence. Appellants’ first assignment of error is
overruled.
ASSIGNMENT OF ERROR II
“THE TRIAL COURT ERRED AS A MATTER OF LAW IN DETERMINING
THAT APPELLANT KLOSTERMAN FAMILY PRACTICE, INC. SHOULD BE
HELD LIABLE FOR THE OBLIGATIONS OF APPELLANT KLOSTERMAN,
M.D., INC., PURSUANT TO THE RULE OF SUCCESSOR LIABILITY,
AND ITS FINDINGS ARE AGAINST THE MANIFEST WEIGHT OF THE
EVIDENCE.”
{¶ 25} Appellants assert that the trial court
erroneously found the new corporation liable for conduct of
the original corporation based on the doctrine of successor
liability. Dr. Pottschmidt asserts that the trial court
properly followed the law set forth by the Ohio Supreme
Court in the cases of Welco Industries, Inc. v. Applied Cos.
(1993), 67 Ohio St.3d 344, and Flaugher v. Cone Automatic
Machine Co. (1987), 30 Ohio St.3d 60, to render judgment
against the new corporation.
{¶ 26} Flaugher, as followed by Welco, sets forth
the controlling law in Ohio on corporate successor
liability. Dowey v. RCA Rubber Co., et al. (Dec. 24, 1997),
9th Dist. Nos. 18170, 18566, at *2. The doctrine of
successor liability holds that:
“The buyer corporation is not liable for the seller
corporation’s tortious conduct unless one of the following
four exceptions applies:
“(1) the buyer expressly or impliedly agrees to assume
such liability;
“(2) the transaction amounts to a de facto consolidation
or merger;
“(3) the buyer corporation is merely a continuation of
the seller corporation; or
“(4) the transaction is entered into fraudulently for the
purpose of escaping liability.” (Emphasis added). Dowey,
at *1-2, citing Flaugher, at 62.
{¶ 27} The trial court expressly found that the
second and third exceptions, and impliedly found that the
fourth exception, set forth in Flaugher, applied here. We
agree.
A. De facto merger
“A de facto merger is a merger in fact without an
official declaration of such. The hallmarks of a de facto
merger include (1) the continuation of the previous
business activity and corporate personnel, (2) a
continuity of shareholders resulting from a sale of assets
in exchange for stock, (3) the immediate or rapid
dissolution of the predecessor corporation, and (4) the
assumption by the purchasing corporation of all
liabilities and obligations ordinarily necessary to
continue the predecessor’s business operations.” Welco, 67
Ohio St.3d at 349.
“Where the successor corporation shares significant
features with its predecessor, no basis exists for
treating a purchase of assets differently from a de facto
merger.” (Emphasis sic). Flaugher, 30 Ohio St.3d at 65.
{¶ 28} Appellants assert that the trial court
erroneously found there to be a de facto merger between the
original corporation and the new corporation. They assert:
(1) the original corporation has not been dissolved; (2)
there was no transfer of assets from the original
corporation to the new corporation; (3) Dr. Klosterman
personally assumed the liabilities of the original
corporation; (4) the debts of the original corporation
slightly exceeded its value; (5) as of September 2004,
patients were billed by the new corporation; and (6)
receivables were deposited into the new corporation’s bank
account as of October 1, 2004.
{¶ 29} At trial, however, evidence was presented
that the new corporation took possession of the original
corporation’s office equipment, medical supplies and
accounts receivable. The new corporation served
substantially the same patients and was operated in the
same building as the original corporation. There is a
single 100% shareholder of both corporations, Dr.
Klosterman. The new corporation pays the monthly office
lease and equipment payments that the original corporation
previously paid. The original corporation’s employees were
employed by the new corporation and were compensated by the
new corporation for services rendered to the original
corporation.
{¶ 30} Finally, as to the fact that the original
corporation technically still exists, we have previously
held that the continued existence of the transferor
corporation does not defeat a claim for de facto merger
except if “the transferor retains sufficient assets to
satisfy the claims of its creditors.” Crislip v. Twentieth
Century Heating and Ventilating Co. (Feb. 15, 1989), 9th
Dist. No. 13721, at *4. As has been discussed above, the
original corporation retained no assets. Moreover, the
original corporation closed its corporate bank account,
changed the name on the profit sharing accounts and filed a
final tax return with the IRS, which effectively constituted
an end of the original corporation.
B. Continuation
{¶ 31} The continuation theory applies when “one
corporation sells its assets to another corporation with
the same people owning both corporations. Thus, the
acquiring corporation is just a new hat for, or
reincarnation of, the acquired corporation.” Welco, 67 Ohio
St.3d at 350 (internal citations omitted). Where a buyer
and seller share significant features such as the same
employees, a common name or the same management, the buyer
can be construed to be a mere continuation of the seller.
Flaugher, 30 Ohio St.3d at 64. As previously discussed,
both corporations were owned and operated by Dr. Klosterman
utilizing the same employees, in the same building, to
serve substantially the same patients.
C. Fraudulent transaction
{¶ 32} Finally, evidence was presented at trial that
the new corporation was formed to escape liability. The new
corporation was formed approximately one month after Dr.
Pottschmidt filed suit. Dr. Klosterman admitted that he
formed the new corporation to escape liability, although he
states that his concern was not the pending lawsuit but the
allegedly improper narcotics prescriptions that Dr.
Pottschmidt issued before he left. Mr. Cooper, however,
testified that he discussed the issue of Dr. Pottschmidt’s
lawsuit and claim for damages with Dr. Klosterman prior to
forming the new corporation. The trial court impliedly
found in its discussion of successor liability and piercing
the corporate veil, that the last exception to the doctrine
of successor liability was proven.
{¶ 33} Based on the foregoing, we find that there
was competent, credible evidence before the trial court to
find that the successor new corporation is liable for the
tortuous conduct of the original corporation. Appellants’
second assignment of error is overruled.
ASSIGNMENT OF ERROR III
“THE TRIAL COURT ERRED AS A MATTER OF LAW BY PIERCING THE
CORPORATE VEIL OF APPELLANTS KLOSTERMAN M.D., INC. AND
KLOSTERMAN FAMILY PRACTICE, INC., IN ORDER TO HOLD
APPELLANT DR. KLOSTRMAN [SIC] PERSONALLY LIABLE TO
APPELLEE IN THE AMOUNT OF $133,511, AND ITS FINDINGS ARE
AGAINST THE MANIFEST WEIGHT OF THE EVIDENCE.”
{¶ 34} Appellants assert that the trial court
erroneously pierced the corporate veil of the original
corporation and the new corporation to hold Dr. Klosterman
personally liable to Dr. Pottschmidt.
{¶ 35} “Generally, shareholders are not liable for
the debts of the corporation.” Frechette v. Kovanda (Apr.
18, 2001), 9th Dist. No. 20207, citing Belvedere
Condominium Unit Owners’ Assn. v. RE. Roark Cos., Inc.
(1993), 67 Ohio St.3d 274, 287. However, creditors of a
corporation may “pierce the corporation’s veil” and hold
individual shareholders liable when the following three
conditions are present:
“[T]he corporate form may be disregarded and individual
shareholders held liable for corporate misdeeds when (1)
control over the corporation by those to be held liable
was so complete that the corporation has no separate mind,
will, or existence of its own, (2) control over the
corporation by those to be held liable was exercised in
such a manner to commit fraud or an illegal act against
the person seeking to disregard the corporate entity, and
(3) injury or unjust loss resulted to the Appellees from
such control and wrong.” Frechette, at *3, citing
Belvedere, 67 Ohio St.3d at 289.
{¶ 36} We initially acknowledge the cases cited by
Appellants that a simple breach of contract is not
sufficient to pierce the corporate veil. The trial court
found more than a breach of contract here, however, and
held that each element of the Belvedere test had been met
thus allowing Dr. Pottschmidt to pierce the corporate veil
of the new corporation to find Dr. Klosterman personally
liable for the judgment rendered. We agree.
A. Alter Ego Doctrine
{¶ 37} The first prong of the Belvedere test is
basically the “alter ego doctrine.” See Willoway Nurseries
v. Curdes (Oct. 13, 1999), 9th Dist. No. 98CA007109, at *4.
In order to satisfy this requirement, a plaintiff must
prove that “the individual and the corporation are
fundamentally indistinguishable.” Belvedere, 67 Ohio St.3d
at 288. Some of the factors used to determine if this
standard has been met include: (1) whether corporate
formalities were observed; (2) whether corporate records
were kept; (3) whether corporate funds were commingled with
personal funds; and (4) whether corporate property was used
for a personal purpose. LeRoux’s Billyle Supper Club v. Ma
(1991), 77 Ohio App.3d 417, 422-423; Pikewood Manor, Inc.
v. Monterrey Concrete Constr., 9th Dist. No. 03CA008289,
2004-Ohio-440, at ¶ 15.
{¶ 38} The trial court found that Dr. Klosterman had
complete control over both corporations. He was the manager
and sole shareholder of both entities. He wrote the
paychecks, managed the retirement plan and worked with
counsel on all legal matters, including the drafting of
legal documents.
{¶ 39} The record demonstrates that neither Dr.
Klosterman nor either of the entities followed corporate
formalities in that they did not use the corporate name
either on signage or letterhead and did not consistently
bill patients or insurance companies in the name of either
entity, often issuing billing in the name of Dr.
Klosterman, individually.
{¶ 40} Evidence in the record also establishes that
the funds of each corporation and of Dr. Klosterman were
commingled. Dr. Klosterman purchased an automobile paying
$24,000 in personal funds while titling the vehicle in the
name of the original corporation and directing the original
corporation to make the car payments and allocate the amount
of the payments as income to Dr. Klosterman. The original
corporation also depreciated the automobile. After the new
corporation was formed, Dr. Klosterman transferred title to
the vehicle into his name. Finally, some of the income
earned by the original corporation was deposited into the
bank account of the new corporation and some of the expenses
of the new corporation were paid from the account of the
original corporation. Similarly, the original corporation
purchased and made payments for equipment and office
furniture, which payments were subsequently made by the new
corporation, despite the fact that the loan documents and
rental agreements related thereto only bound the original
corporation for the debt.[fn2]
{¶ 41} Finally, it is undisputed that the vehicle
was used by Dr. Klosterman personally, although titled in
the name of the original corporation.
B. Fraud in Disregard of the Corporate Entity
{¶ 42} It is undisputed that Dr. Klosterman formed
the new corporation one month after the original
corporation was sued by Dr. Pottschmidt. It is also
undisputed that Dr. Klosterman formed the new corporation
to avoid potential liability related to Dr. Pottschmidt’s
employment with the original corporation. Finally, it is
undisputed that neither the new corporation nor Dr.
Klosterman paid any consideration for the assets of the
original corporation. While it is not clear the value of the
assets of the original corporation, it is undisputed that
the original corporation had some accounts receivable that
were subsequently collected by the new corporation and that
the original corporation possessed equipment and office
furniture that is being used by the new corporation. As to
the latter, Dr. Klosterman asserts that the value of the
office equipment exceeded the debt thereon, which he
personally assumed. The appraisal Dr. Klosterman testified
that he obtained related to the equipment, however, is not
a part of the record.
C. Injury or Loss to Dr. Pottschmidt
{¶ 43} Finally, the trial court properly found that
the final element of the Belvedere test was satisfied
because the transfer of all of the original corporation’s
assets to the new corporation, without adequate
consideration being paid, left the original corporation
simply an empty shell and made it impossible for Dr.
Pottschmidt to collect the judgment rendered in his favor.
{¶ 44} Based on the foregoing, we find there was
competent, credible evidence before the trial court to
support a finding that the corporate veil of the new
corporation has been appropriately pierced, rendering Dr.
Klosterman liable for the judgment rendered in this action.
Appellants’ third assignment of error is overruled.
ASSIGNMENT OF ERROR IV
“THE TRIAL COURT ERRED AS A MATTER OF LAW IN DETERMINING
THE AMOUNT OF DAMAGES TO WHICH APPELLEE WAS ENTITLED FOR
THE ALLEGEDLY FRAUDULENT TRANSFER OF ASSETS FROM
APPELLANT KLOSTERMAN M.D., INC., TO APPELLANT KLOSTERMAN
FAMILY PRACTICE, INC., AND ITS FINDINGS ARE AGAINST THE
MANIFEST WEIGHT OF THE EVIDENCE.”
{¶ 45} Appellants assert that the measure of damages
awarded to Dr. Pottschmidt is erroneous given the dictates
of the FTA, which limits damages to the value of the asset
transferred, i.e., the value of the original corporation.
Appellants assert that the damages awarded to Dr.
Pottschmidt are in excess of 50 times greater than the value
of the original corporation at the time of transfer. We
find this argument to be without merit.
{¶ 46} The Judgment Entry at paragraph 10 states
that Dr. Klosterman is personally liable for the
obligations of the original corporation because his actions
in transferring all the assets to the new corporation
constituted a fraudulent conveyance. This finding of fact
relates to the fraud component at issue in the court’s
analysis of successor liability and piercing the corporate
veil, which allowed the court to render judgment against
Dr. Klosterman personally. The damages, however, were
awarded on Dr. Pottschmidt’s breach of contract claim as
set forth in the conclusions of law section at page 2 of
the Magistrate’s Report, which states that judgment should
be “granted in favor of Plaintiff on his claim for breach
of contract in the amount of $130,957.” There is no such
limitation on damages for a breach of contract claim.
Appellants’ fourth assignment of error is overruled.
III.
{¶ 47} There being competent credible evidence to
support the trial court’s Judgment Entry, Appellants’
assigned errors are without merit. The decision of the
Medina County Court of Common Pleas is affirmed.
Judgment affirmed.
The Court finds that there were reasonable grounds for this
appeal.
We order that a special mandate issue out of this Court,
directing the Court of Common Pleas, County of Medina,
State of Ohio, to carry this judgment into execution. A
certified copy of this journal entry shall constitute the
mandate, pursuant to App.R. 27.
Immediately upon the filing hereof, this document shall
constitute the journal entry of judgment, and it shall be
file stamped by the Clerk of the Court of Appeals at which
time the period for review shall begin to run. App.R.
22(E). The Clerk of the Court of Appeals is instructed to
mail a notice of entry of this judgment to the parties and
to make a notation of the mailing in the docket, pursuant
to App.R. 30.
Costs taxed to Appellants.
CARLA MOORE FOR THE COURT
BOYLE, J., CONCURS
[fn1] The other cases cited by Appellants in support of this
proposition are cases dealing with insurance policies and
coverage and are limited to that context.
[fn2] Dr. Klosterman testified that he personally assumed an
equipment loan to First Merit in the approximate amount of
$17,000; however, he also testified that the payments on
the First Merit Bank loan as well as rental payments to the
Klosterman Family Education Trust, the owner of other
equipment and furniture used in Dr. Klosterman’s practice,
were being paid by the new corporation.
SLABY, P. J., DISSENTS, SAYING:
{¶ 48} I would concur with the majority’s opinion as
to Assignments of Error I, II and IV. However, I
respectfully dissent from the majority opinion as to
Assignment of Error III. I would agree that the assets of
the new corporation can be followed from the original
corporation and those assets may be used to satisfy Dr.
Pottshmidt’s judgment; however, I disagree with the
analysis the majority used to pierce the corporate veil to
impose personal liability on Dr. Klosterman. The majority
opinion could be used to impose personal liability on the
sole shareholder of every solely owned corporation. The
majority places a significant emphasis on Dr. Klosterman’s
personal use of an automobile paid for by the corporation.
They seem to overlook the fact that these payments were
treated as income to Dr. Klosterman for tax purposes, which
is an indication of the separation of the corporation from
the individual.
{¶ 49} The majority seems to also focus on the
transfer of the assets of the new corporation to avoid
liability as a prima facia case for piercing the corporate
veil. There is no question that one of the purposes of the
corporate structure is to avoid personal liability. The
question here is whether the new corporation was established
to avoid future liability or liability related to Dr.
Pottschmidt’s lawsuit. Here, it is clear that the
litigation was commenced just prior to the formation of the
new corporation. Therefore, under the limited facts of this
case, I concur with the majority’s opinion as to Assignments
of Error I and II. Whatever the liability that existed
against the original corporation should be followed to the
new corporation and the new corporation cannot avoid the
liability to Dr. Pottschmidt. However, Dr. Klosterman
should not be held personally liable for either
corporations’ liabilities.