Ridge Corporation v. Altum LLC

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF OHIO

EASTERN DIVISION

RIDGE CORPORATION,

Plaintiff,

Civil Action 2:21-cv-5915

Judge Sarah D. Morrison

v. Magistrate Judge Elizabeth P. Deavers

ALTUM LLC, et al.,

Defendants.

OPINION AND ORDER

This matter is before the Court for consideration of Defendant Dominic Grandominico’s

Motion for Advancement of Litigation Expenses. (ECF No. 42 (the “Motion”).) For the reasons

discussed below, the Motion (ECF No. 42) is GRANTED IN PART.

I. BACKGROUND.

Defendant Dominic Grandominico (“Grandominico”) is a former director of Plaintiff

Ridge Corporation (“Ridge”). In this action, Ridge generally alleges that Grandominico, along

with Defendants Kyle Thomas Gaines (“Gaines”) and Greg Karst (“Karst”), “orchestrated the

formation of [Defendant Altum LLC (“Altum”)], which is a competitor of [Ridge], and which is

marketing a product improperly using proprietary information and technology created while all

three individual defendants were employed at [Ridge].” (ECF No. 1 at PAGEID # 2.) Ridge’s

Complaint asserts six causes of action against Defendants as follows:

 Count One (against all Defendants): Misappropriation and Use of Trade Secrets

Under The Federal Defend Trade Secrets Act, 18 U.S.C. § 1836, et seq.;

 Count Two (against all Defendants): Misappropriation and Use of Trade Secrets

Under The Ohio Uniform Trade Secrets Act, R.C. 1333.61, et seq.;

 Count Three (against Defendants Grandominico, Gaines, and Karst): Breach of

Patent Assignment;

 Count Four (against all Defendants): Conversion;

 Count Five (against Defendant Grandominico): Breach of Fiduciary Duty; and

 Count Six (against Defendants Grandominico, Gaines, and Karst): Conspiracy.

(ECF No. 1 at PAGEID ## 13-20.)

On December 22, 2022, Grandominico moved for an order directing Ridge to pay his

expenses, including attorney’s fees, incurred in defending this action pursuant to Ohio Revised

Code (“O.R.C.”) Section 1701.13(E)(5)(a). (ECF No. 42.) Grandominico argues that “[a]s a

former director being sued for actions allegedly taken while acting in that capacity . . . [he] is

entitled to advancement of all of his legal expenses.” (Id.) In response, Ridge maintains that

“there is no obligation for a corporation to subsidize the litigation expenses of a competitor

corporation against whom it is in litigation.” (ECF No. 53.) Ridge argues that Grandominico

“fails to meet the three statutory requirements for advancing litigation expenses to a former

director,” because “he has not personally incurred any litigation expenses and there is also no

evidence that he has personally paid the expenses.” (Id.) Ridge maintains that because Altum is

paying for the defense of this lawsuit, Grandominico’s request “runs far afoul of the intent of the

statute, which is supposed to ensure that directors are not financially penalized for legal matters

that they are pulled into due to their role as a director.” (Id.) Alternatively, Ridge also disputes

the allocation of fees Grandominico seeks. (Id.) In his Reply brief, Grandominico argues that

“there is absolutely no support for Ridge’s position,” and that courts “routinely reject” Ridge’s

position about whether Grandominico or Altum ultimately pays the legal bills which

Grandominico has incurred. (ECF No. 54.) The matter is thus fully briefed and ripe for judicial

review.

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II. ANALYSIS.

Ridge requests the advancement of litigation expenses under O.R.C. § 1701.13(E)(5)(a),

which provides as follows:

(5)(a) 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

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.

O.R.C. Code. § 1701.13(E)(5)(a) (emphasis added). The Supreme Court of Ohio has interpreted

this to mean that “when a corporation has received the undertaking described in O.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 O.R.C. § 1701.13(E) does not apply to

the corporation.” Miller v. Miller, 2012-Ohio-2928, ¶ 42, 132 Ohio St. 3d 424, 435, 973 N.E.2d

228, 238-239.

Here, Grandominico has produced undisputed evidence which confirms that Ridge’s

regulations require “[e]xpenses, including attorney’s fees . . . may be paid by [Ridge] as they are

incurred.” (ECF No. 42 at PAGEID # 343.) Thus, Ridge’s regulations clearly permit the

application of O.R.C. § 1701.13(E)(5)(a). Miller, 132 Ohio St. 3d at 435; see also Tafeen v.

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Homestore, Inc., No. CIVA. 023-N, 2004 WL 556733, at *10 (Del. Ch. Mar. 22, 2004), aff'd,

888 A.2d 204 (Del. 2005) (“[T]there is no case precedent, nor good reason, to interfere with the

decision of the bylaw drafters simply because the bylaws might cause the company financial

hardship.”). The only remaining issue is therefore whether Ridge “has received the undertaking

described in O.R.C. § 1701.13(E)(5)(a).” Miller, 132 Ohio St. 3d at 435. If so, then it “is

required to advance expenses.” Id. And the record is clear on this point, as Ridge affirmatively

concedes that Grandominico “provided [the] undertaking.” (ECF No. 53 at PAGEID # 417; see

also ECF No. 42-3 at PAGEID # 373 (“Undertaking of Dominic Grandominico”).)

This should end the analysis, but Ridge tries to add a roadblock by arguing that “[t]here is

no evidence . . . that [Grandominico] has incurred any expenses,” because Altum has paid

Defendants’ attorney fees to date. (Id. at PAGEID ## 417-419.) This argument is not well

taken. While Ridge wants the Court to focus on who is paying for the litigation expenses, the

statute does not impose such a requirement. Indeed, as discussed above, the statute merely

requires that “expenses, including attorney’s fees . . . shall be paid by the corporation as they are

incurred[.]” Ohio Rev. Code. § 1701.13(E)(5)(a). The statute does not require, as Ridge

suggests, Grandominico to demonstrate that he has paid any attorney fees – it only requires that

he incurred such fees.1 Id. Ohio courts have refused recent attempts to read in language to

O.R.C. § 1701.13(E)(5) that does not exist, and this Court will not do so either. See Schmitt v.

Schmitt, 2022-Ohio-1685, 2022 WL 1584683, at ¶¶ 15-21.

Having concluded that Grandominico is entitled to the advancement of his legal

expenses, the next question becomes how much. On this issue, counsel for Altum has provided a

1 As Altum’s counsel correctly advised Ridge’s counsel during the underlying meet-and-confer

correspondence, “[t]he statute is an ‘advancement’ statute, not a ‘reimbursement’ statute.” (ECF

No. 42-8 at PAGEID # 386.)

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copy of Defendants’ engagement letter, which confirms that Defendants retained the law firm of

Arnold & Clifford LLP “as counsel to [Altum] and each of [the individual Defendants]

individually.” (ECF No. 53-1 at PAGEID # 423.) But because one law firm is representing all

four Defendants, the parties dispute how much of that work is attributable to Grandominico. On

one hand, Grandominico argues that “[a]s one of the three members of the LLC, [Grandominico]

is entitled to share in 1/3 of the costs and 1/3 of the profits of the LLC, so if Altum incurs costs

in defending Ridge’s lawsuit, [Grandominico] pays his 1/3 share, entitling him to a full 1/3 share

of advancement of those legal expenses incurred in defending Counts 1, 2, and 4.” (ECF No. 54

at PAGEID # 436.) Grandominico therefore submits that he should be advanced his expenses as

follows:

 100% of the fees/expenses incurred in negotiating and litigating the request

for advancement;

 100% of the fees/expenses incurred in defending Count 5, asserted solely

against [Grandominico];

 1/3 of the fees/expenses incurred in defending Counts 3 and 6, asserted

solely against the Individual Defendants; and

 1/3 of the fees/expenses incurred in defending Counts 1, 2, and 4, asserted

against all Defendants.

(Id. at PAGEID # 437.)

On the other hand, Ridge argues that “if advancement is required, the appropriate portion

of litigation expenses for advancement is one-fourth [1/4] of all legal expenses, not a task-by-

task allocation to one bucket or the other.” (ECF No. 53 at PAGEID # 421.) Ridge submits that

this allocation is “the only workable and equitable solution,” because “[w]hile there are six

separate claims, the claims are all intertwined” and “Defendants’ counsel should not be granted

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pure discretion to decide which work should be apportioned solely to Count 5 . . . and what work

should be apportioned to the other counts[.]” (Id. at PAGEID ## 420-421.)

Ridge’s concerns on this point are well taken. First, notwithstanding Defendants’

retention agreement which states that each Defendant “agrees to be responsible for all of our

fees, costs, and expenses,” the Court is not sympathetic to Grandominico’s arguments that “he

could, by all rights, seek advancement of all of the legal fees incurred in the defense of all the

litigation.” (ECF No. 53-1 at PAGEID # 426; ECF No. 54 at PAGEID # 435.) Ironically, in

making this argument it was Grandominico’s turn to conflate the incurrence of fees with the

payment of such fees. Grandominico does not submit that he incurred all of Defendants’ fees,

but rather that he may be financially responsible for all of them under his retention agreement.

But, again, O.R.C. 1701.13(E)(5)(a) only addresses those fees and expenses incurred by

Grandominico. If, for example, Ridge dismissed Grandominico from this action, then

Grandominico would have no basis on which to petition the Court for the advancement of the

other Defendants’ fees, simply because he may be responsible for paying them as a member of

Altum. For this reason, the Court also will not divide up any fees incurred by Altum.

Given the overlapping nature of Ridge’s claims, the Court agrees that it would be

impractical and unworkable to divide every expense and attorney fee based on how much time

Defendants’ counsel devoted to any one claim. But some division may still be proper.

Accordingly, given that there are four defendants, the Court finds it appropriate to award

Grandominico ONE-FOURTH (1/4) of the reasonable fees and expenses incurred by

Defendants’ counsel in litigating this action as a default position, with two limited exceptions.

First, if Defendants’ counsel can establish that certain work is ONLY applicable to Count 5, then

Grandominico will be entitled to the advancement of ALL such reasonable fees and expenses.

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Similarly, if Defendants’ counsel can establish that certain work is (or was) ONLY applicable to

Counts 1, 2, and/or 4,2 then Grandominico will be entitled to the advancement of ONE-THIRD

(1/3) of such reasonable fees and expenses. To be clear, the Court expects that most of the work

performed by Defendants’ counsel will qualify for advancement at the default rate of one-fourth

(1/4) of what is billed to Defendants’ counsel.3

III. CONCLUSION.

For these reasons, Defendant Dominic Grandominico’s Motion for Advancement of

Litigation Expenses, ECF No. 42, is GRANTED IN PART. The Court DIRECTS Plaintiff

Ridge Corporation to advance the expenses, including reasonable attorney’s fees, incurred by

Defendant Dominic Grandominico in defending against the claims against him, as set forth

below:

 ALL the reasonable fees and expenses incurred in litigating the subject Motion;

and

 ONE-FOURTH (1/4) of the reasonable fees and expenses incurred in litigating

the rest of this action, EXCEPT as set forth below:

o ALL the reasonable fees and expenses incurred in defending ONLY

Count 5; or

2 On February 3, 2023, the Court granted in part Defendants’ Motion to Dismiss, ECF No. 24,

and dismissed Count 4. (ECF No. 55.) That decision notwithstanding, the Court understands

that Defendants, including Grandominico, incurred fees and expenses to defend against Count 4.

The Court therefore finds it appropriate to order the advancement of fees and expenses

associated with Count 4, even though the Court dismissed that claim, so long as counsel can

demonstrate how certain work applied only to Count 4.

3 Counsel for Defendants is advised that the Court will not look favorably on unnecessary filings

or other legal work which is designed or framed specifically to qualify for advancement at a

higher rate pursuant to this Order (e.g., filing multiple dispositive motions, hiring an expert as to

only certain claims, or framing a dispute as only limited to certain claims).

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o ONE-THIRD (1/3) of the reasonable fees and expenses incurred in

defending ONLY Counts 1, 2, and/or 4.

Counsel are DIRECTED to MEET AND CONFER regarding the advancement of these

fees and expenses on a regular basis, consistent with O.R.C. 1701.13(E)(5)(a). See Ohio Rev.

Code § 1701.13(E)(5)(a) (“[E]xpenses, including attorney’s fees . . . shall be paid by the

corporation as they are incurred.”) (emphasis added). Should they reach impasse regarding

whether certain fees or expenses are reasonable, or whether certain fees or expenses were

incurred in defending only certain claims, then they are DIRECTED to contact the Court for an

informal telephone conference.

IT IS SO ORDERED.

Date: July 5, 2023 /s/ Elizabeth A. Preston Deavers

ELIZABETH A. PRESTON DEAVERS

UNITED STATES MAGISTRATE JUDGE

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