A Direct Versus Derivative Distinction; Allegations of Excess Compensation

A Direct Versus Derivative Distinction; Allegations of Excess Compensation

      Last fall, in a decision by the Ohio Court of Appeals, it held that the claims by a shareholder/partner to the effect that he was being “oppressed” by being deprived of dividends because the company earnings were being siphoned off as excess compensation was held to constitute a derivative, and not a direct claim. Kirila v Kirila Contractors, Inc., No. 2015-T-0108, 2016 WL 4426409 (Ohio App. Aug. 22, 2016).

      Involved in this case were a collection of corporations and partnerships in which the plaintiff Kirila was either a minority partner or a minority shareholder. Perhaps tellingly in a dispute such as this, the person controlling the corporations and the partnerships was the plaintiff's father. Essentially, the plaintiff alleged that he was being “oppressed” and his claims were ultimately boiled down to an assertion that he was being injured because the corporation was making excess payments to various employees, as well as retirement plans, thereby depriving him of any return on his equity position in the various ventures. The complaint would ultimately be dismissed on the basis that, if injury resulted from these overpayments, that injury was first suffered by the corporation, and then only speculatively by a shareholder. For that reason, the claims needed to be brought as a derivative action. In this case, they were not.