On December 3, 2020, in Reister v. Gardner, Slip Opinion No. 2020-Ohio-5484
, the Ohio Supreme Court definitively rejected an attempt to invoke the “litigation privilege” as a bar to claims against a corporation’s directors stemming from actions
they took, as opposed to statements
they made, during the course of litigation.
Appellant ClarkWestern Dietrich Building Systems, L.L.C. (ClarkDietrich), sued the Certified Steel Stud Association, Inc. (the Association), and its member companies, alleging that the Association made defamatory statements about ClarkDietrich’s products in a trade publication. ClarkDietrich settled with the individual members of the Association and offered to dismiss the Complaint against the Association. The Association’s board of directors rejected the offer, apparently in part due to concerns about related litigation. Well, as the Ohio Supreme Court noted, “be careful what you wish for”: the case proceeded to trial and the jury returned a unanimous verdict in favor of ClarkDietrich along with a $49.5 million judgment.
Not surprisingly, the Association filed breach-of-fiduciary duty claims against the directors who insisted on going forward with the lawsuit. The directors moved for judgment on the pleadings claiming that the actions they took in connection with the ClarkDietrich litigation were protected by the “litigation privilege”—a long-established rule that provides absolutely immunity to parties, witnesses, lawyers and judges from civil lawsuits for statements
made during judicial proceedings. The trial court agreed with the directors’ reasoning that this rule extends to also shield actions
taken by directors during the course of litigation and dismissed the lawsuit. The Twelfth District Court of Appeals affirmed.
In Reister v. Gardner,
the Ohio Supreme Court rejected the directors’ argument and reversed the Twelfth District’s decision. Instead, the Court held that the litigation privilege does not provide immunity with respect to actions
taken during judicial proceedings. Importantly, the Supreme Court noted that the litigation privilege is separate and distinct from the “business-judgment rule.” The business-judgment rule is a rebuttable presumption that, in making a business decision, the directors of a corporation acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company. Unlike the litigation privilege, which is designed to protect the integrity of the judicial process and help “ascertain the truth,” the business-judgment rule is designed to prevent courts from second-guessing decisions made by directors while managing the affairs of a corporation. The Court explained that, while the Association’s directors’ decision to proceed to trial should be analyzed under the business-judgment rule, the lawsuit was not subject to dismissal at the pleadings stage as the Complaint included allegations that would rebut the presumption. Accordingly, the Court ruled that judgment on the pleadings was improper and remanded the case to the trial court.