Miller v. Miller

Cite as Miller v. Miller, 132 Ohio St.3d 424, 2012-Ohio-2928.]

MILLER ET AL., APPELLEES, v. MILLER, APPELLANT.
Cite as Miller v. Miller, 132 Ohio St.3d 424, 2012-Ohio-2928.]
Corporations—Directors—R.C. 1701.13(E)—Corporation’s duty to advance
expenses to director for costs incurred in litigation to which director is
party by reason of position with corporation—Corporation cannot escape
duty to advance expenses by claiming director’s alleged misconduct
violated fiduciary duties—Corporation’s duty to advance expenses arises
when director executes undertaking described in R.C. 1701.13(E)(5)(a)—
Duty to advance may be avoided by specific statement in corporation’s
articles or regulations that R.C. 1701.13(E) does not apply.
(No. 2011-0024—Submitted November 2, 2011—Decided July 3, 2012.)
APPEAL from the Court of Appeals for Trumbull County,
No. 2009-T-0061, 190 Ohio App.3d 458, 2010-Ohio-5662.
__________________
SYLLABUS OF THE COURT
1. A corporation cannot avoid its duty to advance expenses to a director under
R.C. 1701.13(E)(5)(a) by claiming that the director’s alleged misconduct,
if proven, would amount to a violation of his or her fiduciary duties and
would therefore foreclose indemnification.
2. When a corporation has received from a director the undertaking described in
R.C. 1701.13(E)(5)(a), the corporation is required to advance expenses to
the director unless the corporation’s articles or regulations specifically
state that R.C. 1701.13(E) does not apply to the corporation.
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O’CONNOR, C.J.
{¶ 1} In this appeal, we decide whether appellant Samuel M. Miller is
entitled to the advancement of expenses from Trumbull Industries, Inc. pursuant
to R.C. 1701.13(E)(5)(a), which governs the advancement of litigation expenses
by a corporation to one of its directors. For the reasons set forth below, we hold
that appellant Miller is entitled to the advancement of expenses. Accordingly, we
reverse the judgment of the court of appeals and remand the cause.
RELEVANT BACKGROUND
Facts
{¶ 2} Plaintiff-appellee Trumbull Industries, Inc. (“Trumbull”) is an
Ohio corporation that sells plumbing supplies. Plaintiff-appellees Murray A.
Miller and Samuel H. Miller (“Sam H.”) are shareholders of Trumbull.
Defendant-appellant Samuel M. Miller (“Sam M.”) is also a shareholder of
Trumbull. Sam M. is the sole trustee of the Samuel M. Miller Revocable Living
Trust, which owns 25 percent of the outstanding voting shares of Trumbull. Sam
M. is also vice president of sales and marketing and serves as Trumbull’s
plumbing-products manager.
{¶ 3} Daniel R. Umbs is the former chief executive officer and president
of Briggs Plumbing Products, Inc., a supplier to Trumbull. In early 2002, Briggs
entered into a contract to supply plumbing products to Jacuzzi, Inc. Later in
2002, Umbs, acting either alone or in concert with Sam M., negotiated a contract
to sell plumbing products to Jacuzzi on terms more favorable than those in the
contract between Briggs and Jacuzzi.
{¶ 4} Sometime during 2002, and without informing appellees, Sam M.
became involved with Umbs in his efforts to sell plumbing products to Jacuzzi.
On December 4, 2002, Sam M. sent a memorandum to appellees and shareholders
of Trumbull, informing them of a business opportunity involving a company that
would market private-brand plumbing products for sale to manufacturers and

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possibly other wholesalers, including Jacuzzi. Sam M. called this business
opportunity the “Brand Company Project.”
{¶ 5} Appellees immediately objected to Sam M.’s involvement and
demanded that he cease and desist. According to appellees, Sam M. did not
comply with the demand to cease and desist and has continued to work with
Umbs in the Brand Company Project.
Procedural history
{¶ 6} In February 2003, Murray and Sam H., individually and as
shareholders, directors, and/or officers of Trumbull, filed a complaint for
injunctive relief and damages against Sam M. and Umbs.
{¶ 7} On September 26, 2005, Sam M. sent a memorandum to Murray
and Sam H., informing them that he had reimbursed himself for his legal
expenses. In support of his right to reimbursement, he attached a copy of his
September 13, 2005 “undertaking” executed pursuant to R.C. 1701.13(E)(5)(a).
The undertaking stated that it had been entered into by Sam M. “pursuant to Ohio
Revised Code Section 1701.13(E)(5)(a).” The undertaking also incorporated
statutory language requiring repayment of any amounts paid to a director if the
director’s act or omission was committed with a deliberate intent to injure or with
reckless disregard for the corporation’s best interests and further requiring
reasonable cooperation with the corporation in the suit or proceeding. See R.C.
1701.13(E)(5)(a)(i) and (ii). The undertaking also expressly provided that Sam
M. agreed to abide by those subsections.
{¶ 8} On December 15, 2006, both sides moved for declaratory
judgment on the issue of Sam M.’s right to indemnification of attorney fees.
Appellees argued that “Trumbull Industries should not be required to pay, much
less advance,” legal fees to Sam M. They also argued that Sam M. “acting
without the knowledge or authority of Trumbull Industries, Inc. removed from the
company vault some eleven company checks” and used them to pay attorney fees

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to the law firm Manchester, Bennett, Powers & Ullman in the amounts of
$171,497.30 and $49,900 and to the law firm Guarnieri & Secrest in the amount
of $98,693.75. They asserted that even if Sam M. were entitled to
indemnification, which appellees deny, much of the funds were incorrectly used
to pay attorney fees and expenses for Umbs, Private Brand Organization, L.L.C.,
and United States Private Brand Company, Inc., who are not directors of
Trumbull. Thus, appellees argued, the trial court should order Sam M. to return
the funds that were wrongfully taken from Trumbull or, in the alternative, order
the return of any fees not associated with the defense of Sam M.
{¶ 9} On January 22, 2007, the trial court issued an opinion regarding
the parties’ cross-motions for declaratory judgment on the issue of
indemnification for attorney fees. The trial court ordered Sam M. to reimburse
Trumbull in the amount of $240,068.29. That amount represented “seventy-five
per cent of the aggregate sum of $320,091.05,” which, appellees allege, is the
total amount that Sam M. wrongfully took from Trumbull and paid to the two law
firms. The trial court “determined tentatively that of the total moneys advanced
for the payment of the defendants’ fees to date, 25% is attributable to the defense
of [Sam M.], since there are four defendants in this case.” The trial court also
ordered that Sam M. “is entitled to have his, and only his, attorneys’ fees
reimbursed from time to time by [Trumbull], subject, however, to his
reimbursement obligations under the corporate charter.” (Emphasis sic.)
{¶ 10} On February 6, 2007, Sam M. filed a motion for reconsideration
and request for clarification of the trial court’s January 22, 2007 judgment entry.
Sam M. argued that the trial court’s order requiring him to repay 75 percent of the
defense fees incorrectly assumed that 25 percent of the total defense costs can be
attributed to each of the four defendants. The legal invoices, he contended, prove
that 99.9 percent of the legal fees are solely attributable to him. He also argued
that by executing the September 13, 2005 undertaking, he has “already agreed, in

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writing, to repay any fees to which he is not entitled at the end of this litigation.”
The trial court denied this motion on May 18, 2007.
{¶ 11} From that judgment, Sam M. filed an appeal with the Eleventh
District Court of Appeals, which was dismissed for lack of a final, appealable
order. Miller v. Miller, 11th Dist. No. 2007-T-0065, 2007-Ohio-5212.
{¶ 12} After both sides requested clarification regarding the trial court’s
January 22, 2007 judgment entry, on June 30, 2008, the trial court ordered that “as
of March 25, 2008, Ulmer & Berne LLP only represents the interests of Sam M.,”
and “all of Ulmer & Berne’s fees and costs incurred beginning on March 25,
2008, shall be promptly paid by Trumbull * * *.” The trial court also ordered that
all of Sam M.’s attorney fees “incurred before March 25, 2008 shall be paid in
accordance with the January 22, 2007 Order.”
{¶ 13} On July 24, 2008, Sam M. moved for an order requiring Trumbull
to pay his counsel or, in the alternative, for an order requiring appellees to show
cause why they should not be held in contempt for refusing to abide by the court’s
June 30, 2008 order.
{¶ 14} On the same day, Sam M. again moved the court to reconsider or
to clarify its January 22, 2007 order as it applies to $240,000 that he was required
to reimburse to Trumbull and his legal expenses owed to the law firm Ulmer &
Berne through March 24, 2008. Sam M. argued that “99% of all fees relate to
[himself] because this suit is solely the result of [Sam M.’s] role as an officer and
director of Trumbull.” Furthermore, Sam M.’s counsel stated in the motion that
“85% [of] the attorneys’ fees incurred from February 1, 2008 (when Ulmer &
Berne’s representation of [Sam M.] began) through March 24, 2008 were devoted
to issues related solely to [Sam M.]”
{¶ 15} The trial court held a hearing and on July 24, 2008, found
Trumbull in contempt of its January 22, 2007 judgment. The trial court allowed
Trumbull to purge itself of contempt by paying all amounts due for the legal bills

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incurred on behalf of Sam M. in the amount of $138,972.51 by 3:00 p.m. that day.
In the event that Trumbull failed to purge itself of contempt by the specified date
and time, the trial court would impose a sanction against Trumbull in the amount
of $5 per business day commencing July 25, 2008.
{¶ 16} Appellees appealed the trial court’s July 24, 2008 judgment entry
to the Eleventh District. The Eleventh District again dismissed the appeal for lack
of a final, appealable order because there was no finding by the trial court that the
contemnor had failed to purge itself and no actual imposition of a penalty or
sanction. Miller v. Miller, 11th Dist. No. 2008-T-0076, 2009-Ohio-2092, at ¶ 32.
{¶ 17} On May 11, 2009, to obtain a final order from which it could
appeal, Trumbull moved to impose sanctions upon itself. On May 29, 2009, the
trial court sustained Trumbull’s motion to impose sanctions and issued an order
finding that Trumbull had not purged itself of contempt and imposing sanctions
for contempt upon Trumbull in the amount of $5 per business day. Appellees
appealed this order to the Eleventh District.
{¶ 18} In a divided decision, the Eleventh District held that the trial court
improperly ordered Trumbull to pay the attorney fees of Sam M. Miller v. Miller,
190 Ohio App.3d 458, 2010-Ohio-5662, 942 N.E.2d 438, ¶ 59.
{¶ 19} We accepted the cause as a discretionary appeal. Miller v. Miller,
128 Ohio St.3d 1444, 2011-Ohio-1618, 944 N.E.2d 694. The four propositions of
law before us are:

[1] R.C. 1701.13(E)(2) and (E)(5) provide, respectively, for
(a) the post-litigation reimbursement and (b) the current
advancement of attorneys fees incurred by a corporate director
who has been sued by the corporation or by any of the
corporation’s shareholders and directors. Contrary to the holding
of the Court of Appeals, those statutory provisions are not limited

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to—and, indeed, have no application to—a lawsuit filed by a
director to secure a benefit for the corporation.
[2] The mandatory duty of advancement imposed on Ohio
corporations by division (E)(5) of R.C. 1701.13 is not limited to
cases in which a director is alleged to have committed acts or
omissions on behalf of the corporation.
[3] In order for a corporation to avoid the mandatory duty
imposed by [R.C.] 1701.13(E)(5), the corporation must include in
its articles of incorporation or code of regulations a specific
statement that the provisions of [R.C.] 1701.13(E)(5) do not apply
to that corporation.
[4] A corporation’s mandatory duty under [R.C.]
1701.13(E)(5) to advance the legal fees of a director who has been
sued for breach of fiduciary duty is not limited to directors who are
alleged to have engaged in conduct protected by the business
judgment rule.

{¶ 20} For the reasons that follow, we reverse the appellate court’s
judgment finding that the trial court improperly ordered Trumbull to pay the
attorney fees of Sam M. We reinstate the trial court’s judgment finding Trumbull
in contempt for refusing to pay Sam M.’s expenses pursuant to R.C.
1701.13(E)(5)(a) and remand the cause to the trial court for further proceedings
consistent with this opinion.
ANALYSIS
Sam M. is seeking advancement and not indemnification
{¶ 21} We find it necessary at the outset to clarify that advancement of
legal funds is the remedy sought by Sam M. in this case. Clarification is
necessary because throughout this litigation, the parties and the trial court have

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used the terms “advancement” and “indemnification” interchangeably. However,
as explained more fully in this opinion, these terms, although related, are not the
same and should not be used as synonyms. After reviewing the record and the
procedural posture of the case, it is clear that Sam M. is seeking advancement of
his legal funds, not indemnification as set forth by the trial court and the parties.
Advancement is a remedy separate and distinct from indemnification
{¶ 22} The General Assembly amended R.C. 1701.13 in 1986 to provide
for the advancement of expenses by a corporation to a director. 141 Ohio Laws,
Part III, 6115. Until now, this court has not had an occasion to review the statute.
In contrast, courts in Delaware have often reviewed cases involving the
advancement of fees. In fact, Judge Posner from the United States Seventh
Circuit Court of Appeals has stated that “ ‘advancement’ is rather a Delaware
specialty.” Internatl. Airport Ctrs., L.L.C. v. Citrin, 455 F.3d 749, 752 (7th
Cir.2006). Because this is a case of first impression for this court and because
advancement is considered a “Delaware specialty,” we find it proper to turn to our
sister, the Delaware Supreme Court, for insight.
{¶ 23} The Delaware Supreme Court holds that “[a]dvancement provides
corporate officials with immediate interim relief from the personal out-of-pocket
financial burden of paying the significant on-going expenses inevitably involved
with investigations and legal proceedings.” Homestore, Inc. v. Tafeen, 888 A.2d
204, 211 (Del.2005). The Delaware court explains that “[a]dvancement is an
especially important corollary to indemnification as an inducement for attracting
capable individuals into corporate service.” Id. Similarly, “[i]ndemnification
encourages corporate service by capable individuals by protecting their personal
financial resources from depletion by the expenses they incur during an
investigation or litigation that results by reason of that service.” Id.
{¶ 24} Although advancement and indemnification are corollaries, they
are not one and the same. As the Ohio Tenth District Court of Appeals described

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aptly, “Advancement of litigation expenses for corporate officers and directors,
while related to (and often a precursor of) indemnification, is a distinct remedy.”
MD Acquisition, L.L.C. v. Myers, 173 Ohio App.3d 247, 2007-Ohio-3521, 878
N.E.2d 37, ¶ 6 (10th Dist.). The Tenth District’s holding is supported by the fact
that the General Assembly provided for both the advancement of expenses and the
indemnification of expenses in R.C. 1701.13(E), but set forth different procedures
for each. See R.C. 1701.13(E)(1), (2), and (3) (providing for the indemnification
of expenses) and 1701.13(E)(5)(a) (providing for the advancement of a director’s
expenses).
{¶ 25} Other courts also recognize that advancement and indemnification
are not one and the same. In Kaung v. Cole Natl. Corp., 884 A.2d 500
(Del.2005), the Delaware Supreme Court held, “Section 145 of the DGCL
[Delaware General Corporation Law] expressly contemplates protection for
corporate officials from the risks of legal proceedings not only by way of
reimbursement (i.e., indemnification) but also by the pre-indemnification
advancement of certain litigation-related expenses.” Id. at 509. Similarly, the
United States District Court for the Southern District of New York also holds that
advancement and indemnification proceedings are different:

[T]he critical point about advancement of defense costs—as
distinguished from, among other things, claims for indemnification
after the fact—is that its value “is that it is granted or denied while
the underlying action is pending.” It protects the “ability [of the
employee] to mount * * * a defense * * * by safeguarding his
ability to meet his expenses at the time they arise, and to secure
counsel on the basis of such assurance.”

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(Footnote omitted, brackets and ellipses sic, and emphasis added.) United States
v. Stein, 452 F.Supp.2d 230, 271-272 (S.D.N.Y.2006), quoting United States v.
Stein, 435 F.Supp.2d 330, 335 (S.D.N.Y.2006).
{¶ 26} Keeping the definition of advancement and its distinction from
indemnification in mind, we now turn to the facts of the present case.
R.C. 1701.13(E)(5)(a) requires the advancement of expenses
by a corporation to a director
{¶ 27} The parties disagree as to how R.C. 1701.13(E)(5)(a) should be
interpreted and applied. Therefore, our analysis must begin with a review of that
statute, which provides:

Unless at the time of a director’s act or omission that is the
subject of an action, suit, or proceeding referred to in division
(E)(1) or (2) of this section, the articles or the regulations of a
corporation state, by specific reference to this division, that the
provisions of this division do not apply to the corporation and
unless the only liability asserted against a director in an action,
suit, or proceeding referred to in division (E)(1) or (2) of this
section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney’s fees, incurred by a director in
defending the action, suit, or proceeding shall be paid by the
corporation as they are incurred, in advance of the final disposition
of the action, suit, or proceeding, upon receipt of an undertaking by
or on behalf of the director in which he agrees to do both of the
following:
(i) Repay such amount if it is proved by clear and
convincing evidence in a court of competent jurisdiction that his
action or failure to act involved an act or omission undertaken with

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deliberate intent to cause injury to the corporation or undertaken
with reckless disregard for the best interests of the corporation;
(ii) Reasonably cooperate with the corporation concerning
the action, suit, or proceeding.

{¶ 28} The court of appeals held that “R.C. 1701.13(E)(5)(a) is mandatory
in its application * * *.” Miller v. Miller, 190 Ohio App.3d 458, 2010-Ohio-5662,
942 N.E.2d 438, ¶ 49. We agree. “ ‘Ordinarily, the word “shall” is a mandatory
one, whereas “may” denotes the granting of discretion.’ ” Dorrian v. Scioto
Conservancy Dist., 27 Ohio St.2d 102, 108, 271 N.E.2d 834 (1971), quoting
Dennison v. Dennison, 165 Ohio St. 146, 149, 134 N.E.2d 574 (1956). R.C.
1701.13(E)(5)(a) states that a director’s expenses “shall” be paid by the
corporation, evidencing an intent by the legislature to make advancement of a
director’s expenses by a corporation mandatory. R.C. 1701.13(E)(5)(a) contains
the critical word “shall,” making the advancement of a director’s fees mandatory.
{¶ 29} Despite the mandatory language in R.C. 1701.13(E)(5)(a), the
Eleventh District held that the statute “is not applicable under the factual scenario
as alleged in [appellees’] complaint.” Miller at ¶ 49. First, the appellate court
reasoned that advancement was not required because “Sam M. has not been sued
as a result of any ‘act or omission’ on behalf of the corporation. Instead, as
outlined in [their] complaint, [appellees] claim that Sam M. is liable for those acts
done on behalf of a separate corporation, allegedly in contravention of his
fiduciary duties as a director of Trumbull Industries.” Id. at ¶ 50. Second, the
Eleventh District held that because R.C. 1701.13(E)(5)(a) “refers to the
indemnification division in (E)(1) and (2)[,] * * * the litigation must be ‘an action,
suit, or proceeding referred to in division (E)(1) or (2).’ ” Id. at ¶ 51.
{¶ 30} R.C. 1701.13(E)(1) and (E)(2) pertain to indemnification of
expenses. R.C. 1701.13(E)(1) provides:

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A corporation may indemnify or agree to indemnify any
person who was or is a party * * * to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the
right of the corporation, by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or
was serving at the request of the corporation as a director, trustee,
officer, employee, member, manager, or agent of another
corporation, * * * against expenses * * * actually and reasonably
incurred by him in connection with such action, suit, or
proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of
the corporation * * *.

{¶ 31} R.C. 1701.13(E)(2) provides:

A corporation may indemnify or agree to indemnify any
person who was or is a party * * * to any threatened, pending, or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor, by reason of the fact that he is or
was a director, officer, employee, or agent of the corporation, or is
or was serving at the request of the corporation as a director,
trustee, officer, employee, member, manager, or agent of another
corporation, * * * against expenses * * * actually and reasonably
incurred by him in connection with the defense or settlement of
such action or suit, if he acted in good faith and in a manner he

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reasonably believed to be in or not opposed to the best interests of
the corporation * * *.

{¶ 32} After reviewing these provisions, the court of appeals held:

Based on the facts as alleged in the instant case, it is
evident that (E)(2) is inapplicable, as that section relates to
reimbursement for a director who seeks to procure a judgment in
favor of the corporation.
Similarly, (E)(1) is inapplicable to this case, as that section
applies to cases “other than an action by or in the right of the
corporation.” Based on the allegations in the complaint, this case is
clearly contemplated by the exclusionary language contained in
R.C. 1701.13(E)(1). * * * The complaint alleges harm to the
corporation as a result of a violation of [Sam M.’s] duties to the
corporation. This is inapposite to an “act or omission” on behalf of
the corporation.

(Emphasis sic.) Miller, 190 Ohio App.3d 458, 2010-Ohio-5662, 942 N.E.2d 438,
¶ 52-53.
{¶ 33} According to the court of appeals, Sam M.’s entitlement to the
benefits of this statute hinges on whether the litigation was “an action, suit, or
proceeding” within the meaning of R.C. 1701.13(E)(1) or (2). Id. at ¶ 49. The
Eleventh District held that in order for the advancement of fees to be mandatory,
“the litigation must be” of the type described in R.C. 1701.13(E)(1) or (2). Id.
For that reason, the appellate court turned to the allegations in appellees’
complaint to determine whether the litigation involved a suit described in either
R.C. 1701.13(E)(1) or (2), because those sections apply only if the director “acted

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in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation.” Id. at ¶ 51. The court of appeals concluded
that the present action was not one described in R.C. 1701.13(E)(1) or (2),
because appellees were not suing Sam M. for any “act or omission” he committed
on behalf of the corporation. Instead, appellees were suing Sam M. for acts done
on behalf of a separate corporation in alleged breach of his fiduciary duties as a
director of Trumbull Industries. Id. at ¶ 50. Thus, appellees allege that the
actions at issue were not taken in Sam M.’s capacity as a director of Trumbull,
and Trumbull was therefore not required to advance expenses to Sam M.
{¶ 34} Similarly, appellees argue that R.C. 1701.13(E)(2) is not applicable
because Sam M.’s acts or omissions were not “in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation,” otherwise known as the “business-judgment rule,” which is codified
in R.C. 1701.59(B). Appellees also argue that Sam M. is not entitled to
advancement of expenses because his actions were not taken as a result of his role
as a director, but rather, as an officer of the corporation.
{¶ 35} We find the analysis of the Eleventh District and the argument of
appellees flawed because the advancement of fees is neither determined by nor
dependent upon whether a director is entitled to indemnification. As the court in
Stein recognized,

the scope of an advancement proceeding “is limited to determining
‘the issue of entitlement according to the corporation’s
advancement provisions.’ ” “Neither indemnification nor
recoupment of sums previously advanced are appropriate for
litigation” in such a proceeding. They necessarily are reserved for
subsequent determination.

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Stein, 452 F.Supp.2d at 271-272, quoting Kaung, 884 A.2d at 509, quoting
Homestore, Inc. v. Tafeen, 886 A.2d 502, 503 (Del.2005).
{¶ 36} The court in Stein also addressed the issue of whether advancement
may be refused when the underlying litigation alleges misconduct that, if proven,
would bar indemnification. The court held:

The fundamental principle is that a company that undertakes to
advance defense costs may not avoid that obligation by claiming
that the litigation against its former employee for which the
employee seeks advancement of defense costs accuses the
employee of conduct that, if proved, would foreclose
indemnification or establish a breach of the employment contract
or of a fiduciary or other duty owed to the company. Nor may the
company try the merits of its claims against an employee “in order
to assert a set-off or recomponent [sic, recoupment] as an
advancement defense.”

(Brackets sic.) Id. at 272, quoting Reddy v. Electronic Data Sys. Corp.,
Del.Chancery No. CIV.A. 19467, 2002 WL 1358761, *9 (June 18, 2002), fn. 26.
{¶ 37} The analysis in Stein is instructive to our analysis in the present
case. The issue of whether Sam M. violated his fiduciary duties and, therefore, is
not entitled to indemnification is not appropriate for our review. The only issue
that is properly before this court now is whether Sam M. is entitled to
advancement of expenses. Likewise, that is the only issue that should have been
decided by the appellate court.
{¶ 38} Furthermore, appellees may not avoid their statutory obligation of
advancement of expenses by claiming, as they do here, that Sam M.’s conduct, if
proven, would foreclose indemnification due to an alleged breach of his fiduciary

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duties. Allowing corporations to avoid advancement by asserting that a director
breached his fiduciary duty would make the advancement statute pointless. As
Stein explains,

If a right to advancement of defense costs exists, the inherent
nature of the right is to receive the funds as the defense costs are
incurred. Postponement of determination whether such a right
exists would render the right meaningless. By the time a decision
were reached, the underlying proceeding would be over—the
occasion for advancing defense costs would have passed and its
purpose would have been defeated. In consequence, determination
of a claim for advancement cannot wait until the underlying case is
over, when an employee’s right to indemnification may be
determined. Nor can it wait until an employer decides whether to
pursue any independent claims that it may have against the
employee or, if it has brought such claims, until the employer’s
claims are determined.

Stein, 452 F.Supp.2d at 272-273.
{¶ 39} Thus, we hold that a corporation cannot avoid its duty to advance
expenses to a director under R.C. 1701.13(E)(5)(a) by claiming that the director’s
alleged misconduct, if proven, would amount to a violation of his or her fiduciary
duties and would therefore foreclose indemnification.
{¶ 40} We also reject appellees’ argument that Sam M. was acting as an
officer and was therefore not entitled to advancement of expenses, a right limited
to directors under R.C. 1701.13(E)(5)(a). On appeal to the Eleventh District,
appellees presented two issues in their merit brief:

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[1] Sam M. Miller violated his corporate duties and did not
act in the best interests of Trumbull Industries. The trial court
failed to address any aspect of R.C. 1701.13. Does a trial court
abuse its discretion by ordering a corporation to pay legal fees of
an offending director with no legal analysis to support its decision?
[2] Trumbull Industries’ Articles of Incorporation do not
envision reimbursement of a director’s attorney fees while a
litigation is pending.

(Emphasis added.)
{¶ 41} As shown by the issues framed by appellees on appeal, throughout
this litigation appellees have focused on whether Sam M. is entitled to the
advancement of fees for his role as a director. Now, for the first time, appellees
assert to this court that “Trumbull is not obligated to advance defense costs for
Sam M.’s misconduct as an officer of Trumbull.” The assertion is disingenuous.
Moreover, appellees waived the issue because this argument was not presented
before the court of appeals. See State ex rel. DeGroot v. Tilsley, 128 Ohio St.3d
311, 2011-Ohio-231, 943 N.E.2d 1018, ¶ 9 (party waived argument “by failing to
raise it in the court of appeals”).
{¶ 42} We hold that when a corporation has received the undertaking
described in R.C. 1701.13(E)(5)(a), the corporation is required to advance
expenses to a director unless the corporation’s articles or regulations specifically
state that R.C. 1701.13(E) does not apply to the corporation.
{¶ 43} Simply alleging that a director would not be entitled to
indemnification because of his alleged violations of a director’s fiduciary duties is
insufficient. Entitlement to indemnification of expenses is an entirely different
issue, separate and apart from entitlement to advancement of expenses.

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A corporation may opt out of the mandatory advancement
requirement by following the clear terms set forth in R.C. 1701.13(E)(5)(a)
{¶ 44} Although R.C. 1701.13(E)(5)(a) requires advancement of a
director’s expenses, it also gives a corporation a way to opt out of that
requirement. The pertinent language of R.C. 1701.13(E)(5)(a) provides:

Unless at the time of a director’s act or omission that is the
subject of an action, suit, or proceeding referred to in division
(E)(1) or (2) of this section, the articles or the regulations of a
corporation state, by specific reference to this division, that the
provisions of this division do not apply to the corporation * * *,
expenses * * * shall be paid by the corporation as they are
incurred, in advance * * *.

(Emphasis added.) Thus, if Trumbull’s articles of incorporation specifically
stated that R.C. 1701.13(E)(5)(a) did not apply at the time of Sam M.’s alleged
acts or omissions, Trumbull would not be required to advance expenses to Sam
M. Thus, our review turns to Trumbull’s articles of incorporation at the time of
Sam M.’s alleged acts and omissions.
{¶ 45} Article Six of Trumbull’s articles of incorporation states:

Any person who at any time shall serve, or shall have
served, as director, officer or employee of the corporation, or of
any other business or firm at the request of the Board of Directors
or management of this corporation * * * shall be saved harmless
and indemnified by this corporation of all costs and expenses,
including but not limited to counsel fees, amounts paid in
settlement, judgments and interest on judgment and court costs,

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 January Term, 2012

reasonably incurred in connection with the defense of any claim,
action, suit or proceeding * * * in which he or they may be
involved by virtue of such position with or by direction of this
corporation * * *.

Although the articles of incorporation do provide for indemnification as shown
above, they do not provide for advancement.
{¶ 46} The Eleventh District rejected Sam M.’s argument that “in the
absence of an advancement provision in the articles of incorporation, as
contemplated by R.C. 1701.13(E)(5)(a), the advancement of fees is mandatory.”
Miller, 190 Ohio App.3d 458, 2010-Ohio-5662, 942 N.E.2d 438, at ¶ 57. But in
rejecting Sam M.’s argument, the court of appeals relied on James River Mgt. Co.
v. Kehoe (E.D.Va.2009), 674 F.Supp.2d 745. In Kehoe, the corporation’s bylaws
“did not provide advancement or indemnification rights to its officers.” Id. at
753. The court held that “advancement is mandated only when the corporation
has exercised the underlying right to make indemnification available.” Id.
{¶ 47} Kehoe is distinguishable from the present case because the
corporation in Kehoe did not provide for either advancement or indemnification in
its bylaws. Trumbull, however, did provide for indemnification of expenses in its
articles of incorporation. Therefore, even if this court followed the reasoning set
forth in Kehoe, which we do not, advancement would be mandatory because
Trumbull exercised its underlying right to make indemnification available.
{¶ 48} We hold that when a corporation has received from a director the
undertaking described in R.C. 1701.13(E)(5)(a), the corporation is required to
advance expenses to the director unless the corporation’s articles or regulations
specifically state that R.C. 1701.13(E) does not apply to the corporation. “ ‘The
preeminent canon of statutory interpretation requires us to “presume that [the]
legislature says in a statute what it means and means in a statute what it says

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there.” ’ ” State ex rel. Lee v. Karnes, 103 Ohio St.3d 559, 2004-Ohio-5718, 817
N.E.2d 76, ¶ 27, quoting BedRoc Ltd., L.L.C. v. United States, 541 U.S. 176, 183,
124 S.Ct. 1587, 158 L.Ed.2d 338 (2004), and Connecticut Natl. Bank v. Germain,
503 U.S. 249, 253-254, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992). R.C.
1701.13(E)(5)(a) explicitly sets forth the process for a corporation to avoid
mandatory advancement. Trumbull did not opt out of the mandatory
advancement requirement, because its articles of incorporation failed to include
the necessary language set forth in R.C. 1701.13(E)(5)(a).
The corporate duty to advance expenses arises only upon receipt
of the director’s undertaking pursuant to R.C. 1701.13(E)(5)(a)(i) and (ii)
{¶ 49} Advancement is not automatic. The advancement of expenses
arises only

upon [the corporation’s] receipt of an undertaking by or on behalf
of the director in which he agrees to do both of the following:
(i) Repay such amount if it is proved by clear and
convincing evidence in a court of competent jurisdiction that his
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;
(ii) Reasonably cooperate with the corporation concerning
the action, suit, or proceeding.

R.C. 1701.13(E)(5)(a). Therefore, advancement was required only if Sam M.
complied with the terms of R.C. 1701.13(E)(5)(a)(i) and (ii).
{¶ 50} It is undisputed that on September 13, 2005, Sam M. executed the
requisite undertaking to comply with the terms of R.C. 1701.13(E)(5)(a) and that
in that undertaking, Sam M. agreed to abide by the duties set forth in R.C.

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 January Term, 2012

1701.13(E)(5)(a)(i) and (ii). It is also undisputed that appellees received Sam
M.’s undertaking. Yet appellees argue that Sam M.’s agreement to “reasonably
cooperate” with the corporation was “a sham.” Appellees point to Sam M.’s
deposition testimony as evidence that “he would not cooperate with Trumbull in
this litigation unless ordered to do so by a majority of the Trumbull Board.”
{¶ 51} The cited testimony does not support appellees’ argument. First,
appellees fail to point to any specific evidence showing that Sam M. has actually
failed to reasonably cooperate with the corporation. Second, when, as here, a
director is being sued by his corporation, any duty to “reasonably cooperate”
should not require the director to surrender his right to defend himself.
{¶ 52} Even when the parties are at odds in litigation, the duty to advance
expenses often “requires companies to advance the cost of defending claims that
allege wrongs to the companies, even lawsuits brought by companies themselves
against former officers and directors.” Stein, 452 F.Supp.2d at 272; see also
Ridder v. CityFed Fin. Corp., 47 F.3d 85 (3d Cir.1995) (advancement required for
defense of bank employees sued by the federal government, as receiver, to
recover alleged damages to the bank); Citadel Holding Corp. v. Roven, 603 A.2d
818 (Del.1992) (ordering advancement of cost of defending action brought by
company itself).
{¶ 53} Here, Sam M. executed the requisite undertaking described in R.C.
1701.13(E)(5)(a)(i) and (ii). When appellees received the undertaking, their
statutory duty to advance Sam M.’s expenses arose. Thus, appellees are required
by statute to advance Sam M.’s expenses pursuant to R.C. 1701.13(E)(5)(a).
CONCLUSION
{¶ 54} Based upon the unambiguous language of R.C. 1701.13(E)(5)(a),
we hold that Trumbull is required by law to advance expenses to Sam M.
Trumbull’s articles of incorporation do not state by specific reference that R.C.
1701.13(E)(5)(a) does not apply to Trumbull. Thus, we hold that appellees failed

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to show that Trumbull opted out of the mandatory advancement requirement.
Finally, we hold that Trumbull’s statutory duty to advance Sam M.’s fees arose
upon receipt of Sam M.’s undertaking.
{¶ 55} For these reasons, we reverse the appellate court’s judgment
finding that the trial court improperly ordered Trumbull to pay the attorney fees of
Sam M., reinstate the trial court’s judgment finding Trumbull in contempt for
refusing to pay Sam M.’s expenses pursuant to R.C. 1701.13(E)(5)(a), and
remand the cause to the trial court for further proceedings consistent with this
opinion.
Judgment reversed
and cause remanded.
PFEIFER, LUNDBERG STRATTON, LANZINGER, CUPP, and MCGEE BROWN,
JJ., concur.
O’DONNELL, J., dissents.
__________________
O’DONNELL, J., dissenting.
{¶ 56} I respectfully dissent.
{¶ 57} This case concerns whether a director of a closely held corporation
who has fraudulently usurped a corporate opportunity for personal benefit in
breach of a fiduciary duty may compel the corporation to advance expenses,
including attorney fees, to defend a lawsuit brought to recover damages for that
misconduct.
{¶ 58} Although R.C. 1701.13(E)(5)(a) requires a corporation to advance
these expenses to a director made a party to an action, suit, or proceeding by
reason of serving as a director of the corporation, it is limited to claims arising out
of service as a director. Thus, a corporation has no statutory duty to advance
expenses if the director acted in an individual capacity or as an officer, employee,
or shareholder of the corporation.

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 January Term, 2012

{¶ 59} The statute also provides that the duty to advance expenses does
not exist unless the director undertakes to repay the advances if a court determines
that the director deliberately intended to cause injury to the corporation or
recklessly disregarded its best interests. It further obliges the director to
cooperate with the corporation in the litigation. R.C. 1701.13(E)(5)(a)1 provides:

Expenses, including attorney’s fees, incurred by a director in
defending the action, suit, or proceeding shall be paid by the
corporation as they are incurred, in advance of the final disposition
of the action, suit, or proceeding, upon receipt of an undertaking by
or on behalf of the director in which the director agrees to do both
of the following:
(i) Repay that amount if it is proved by clear and
convincing evidence in a court of competent jurisdiction 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;
(ii) Reasonably cooperate with the corporation concerning
the action, suit, or proceeding.

(Emphasis added.)
{¶ 60} Thus, a director who receives an advancement of expenses has a
duty to reasonably cooperate with the corporation concerning the action, suit, or
proceeding, but a director who is a party opponent sued by the corporation cannot

1. In Sub.H.B. No. 48, the General Assembly amended R.C. 1701.13(E)(5)(a) effective May 4,
2012, but the amendments are not substantive and do not affect the analysis employed here.

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reasonably cooperate with the corporation and therefore cannot compel payment
of expenses including attorney fees.
{¶ 61} In view of the corporate duty to advance litigation costs to a
director, the first question becomes whether the acts here occurred in that
capacity. Although the complaint alleges that Samuel M. Miller acted as a
director, testimony confirms that he acted as an officer of the corporation when he
usurped the opportunity from Trumbull Industries and purloined it to his own
personal advantage. Miller served as vice president overseeing sales and
marketing, and in that capacity he solicited business from Trumbull Industries’
customers, including Jacuzzi, which eventually gave its vitreous china business to
Miller’s Private Brand Company notwithstanding Miller’s recognition that “it was
a Trumbull opportunity.”
{¶ 62} The second question presented is whether any duty exists to
advance litigation expenses when the director cannot cooperate with the
corporation because the director is being sued by the corporation. In my view, the
advancement statute has been misconstrued; it does not apply in these kinds of
circumstances where a corporation is suing one of its own directors. Notably, the
defendant director has a duty to cooperate with the plaintiff corporation and
cannot do so. To require advancement of expenses in this situation is
unwarranted and fails to carry out legislative intent.
{¶ 63} The General Assembly thus did not intend to require a corporation
suing one of its directors for fraud and for usurping a corporate opportunity to
advance the costs of defending the action against itself. When the director and
the corporation are adverse parties in litigation, the director simply cannot
reasonably cooperate in the manner required by the statute, and the circumstances
of this case demonstrate the futility of expecting a director to fully and honestly
assist the corporation’s suit against him. Notably, even though the president of
Trumbull Industries sought his cooperation, Miller has refused, asserting that only

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 January Term, 2012

a majority of the divided and deadlocked board of directors could request
cooperation.
{¶ 64} Here, Trumbull Industries moved for a declaration that R.C.
1701.13(E)(5) did not require it to advance Samuel M. Miller the costs of
defending this litigation, but the trial court concluded that it could not relieve it of
the duty of advancing expenses until the ultimate issues in the case had been
decided at trial, even though the court found that “on its face,” Samuel Miller’s
conduct was “ultra vires” and “he isn’t entitled to that protection.”
{¶ 65} I agree with the principle that a corporation cannot avoid the duty
to advance expenses by making the mere allegation that the director committed
fraud or breached a fiduciary duty. But in my view, it is not necessary for a
corporation to await final judgment in the action before seeking a declaration that
it has no duty to advance the costs of the litigation to an adverse party. Rather,
when a circumstance arises, as here, where the director did not act in the capacity
of a director or reasonably cooperate in the litigation, the corporation has no duty
to advance expenses.
{¶ 66} The evidence shows that Trumbull Industries had no duty to
advance litigation expenses to Miller because he acted in his capacity as an officer
when he breached his fiduciary duties to it. Further, the statute does not apply in
these kinds of circumstances, in which a corporation sues a director and the
director fails to reasonably cooperate with the corporation. Accordingly, I would
affirm the judgment of the court of appeals, and because the majority of the court
fails to recognize the director’s duty to reasonably cooperate with the corporation
concerning actions, suits, or proceedings, I urge the General Assembly to
reexamine this statute and further clarify that when the corporation is suing the
director and there can be no such cooperation, no fees need be advanced in such
circumstances.
__________________

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Tucker Ellis, L.L.P., Irene C. Keyse-Walker, Harry D. Cornett, and
Benjamin C. Sassé; Comstock, Springer & Wilson Co., L.P.A., Marshall D. Buck,
and Megan M. Graff; and Charles L. Richards, for appellees.
Ulmer & Berne, L.L.P., Marvin L. Karp, Michael N. Ungar, Lawrence D.
Pollack, and Brad A. Sobolewski, for appellant.
Eugene P. Whetzel; and Jones Day, Chad A. Readler, Lyle G. Ganske,
Jeanne M. Rickert, Louis A. Chaiten, and Amanda R. Parker, urging reversal for
amicus curiae, Ohio State Bar Association.
______________________

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