Photographic Creations, Ltd. v. MTMC Co., L.L.C. , 2017 Ohio 2670 ( 2017 )

[Cite as Photographic Creations, Ltd. v. MTMC Co., L.L.C., 2017-Ohio-2670.]
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
Photographic Creations, Ltd., :
Plaintiff-Appellant, :
No. 16AP-256
v. : (C.P.C. No. 10CV-8240)
MTMC Co., LLC, et al., : (REGULAR CALENDAR)
Defendants-Appellees. :
D E C I S I O N
Rendered on May 4, 2017
On brief: Dale M. Musilli, for appellant. Argued: Dale M.
Musilli.
On brief: Peterson, Connors, Swisher & Peer, LLP, Istvan
Gajary, and Gregory S. Peterson, for appellees. Argued:
Gregory S. Peterson.
APPEAL from the Franklin County Court of Common Pleas
BRUNNER, J.
{¶ 1} Plaintiff-appellant, Photographic Creations, Ltd. ("Photographic
Creations"), appeals from a judgment of the Franklin County Court of Common Pleas,
entered on March 3, 2016, denying reconsideration of an order filed on November 20,
2012 dismissing the complaint against defendants-appellees, MTMC Co., LLC ("MTMC")
and Michael Mignery, for want of subject-matter jurisdiction. Because lack of subject-
matter jurisdiction is not the same as lack of standing and because a limited liability
company, whatever the state of its membership, has capacity to sue and be sued in Ohio,
we find the trial court erred as a matter of law in dismissing for lack of subject-matter
jurisdiction. Accordingly, we reverse and remand.
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I. FACTS AND PROCEDURAL HISTORY
{¶ 2} In July 2008, Photographic Creations filed a complaint against MTMC and
Mignery asserting breach of contract and fraud and seeking to collect on a promissory
note for $200,000 plus interest at the rate of 6 percent. (July 16, 2008 Compl. Case No.
08CV-10166.) The Franklin County Court of Common Pleas dismissed the case for want
of subject-matter jurisdiction in what was apparently an oral ruling from the bench
without an accompanying entry. After a request for reconsideration, the trial court
reaffirmed that dismissal in a written entry on March 23, 2010. Photographic Creations
Ltd. v. MTMC Co., LLC, Franklin C.P. No. 08CV-10166 (Mar. 23, 2010). The record does
not reflect the basis for the trial court's initial decision and in denying reconsideration it
said only this:
[D]efendant asserts that it is the plaintiff's burden to establish
that subject matter jurisdiction has been properly asserted,
and it failed to do so. Therefore, the court's ruling was proper.
Finally, defendant argues that no evidence was ever produced
by plaintiff by way of an operating agreement that discloses
the proper dissolution procedure for the company.
Furthermore, the Ohio Revised Code provides for winding up
of company affairs, and plaintiff failed to provide evidence
that it meets the necessary statutory requirements.
Id. at 2.
{¶ 3} Three months after the dismissal, in June 2010, Photographic Creations
again filed a complaint against MTMC and Mignery asserting breach of contract and fraud
in order to collect on a promissory note for $200,000 plus interest at the rate of 6
percent. (June 1, 2012 Compl. in passim.) This time, however, the complaint also alleged
that the debt collection was part of the winding up of Photographic Creations by the
managing members. Id. at ¶ 2. Attached to the complaint were, among other things,
documents showing that Photographic Creations was incorporated on November 27, 1995
and later dissolved upon the authorized signature of Christopher Woods on October 1,
2002. (Exs. A, B, Compl.) Also attached to the complaint were Articles of Organization
and an Operating Agreement, each of which was signed only by Christopher Woods and
Kevin Rider. (Exs. A, E, Compl.)
{¶ 4} On July 7, 2010, MTMC and Mignery filed an answer, a counterclaim, and a
motion to join necessary parties pursuant to Civ.R. 19(A). (July 7, 2010 Answer,
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Countercl., and Mot. to Join.) MTMC and Mignery asserted that Woods and Rider were
necessary parties to the lawsuit because they executed the purchase agreement (in
connection with a related promissory note) as managers of Photographic Creations and
separately in their individual capacities. Id. at ¶ 16-191; see also Exs. C,D, Compl. In their
counterclaim, MTMC and Mignery asserted breach of contract and fraud claims. MTMC
and Mignery alleged that Photographic Creations, Woods, and Rider made numerous
misrepresentations in connection with the sale of Photographic Creations' assets to
MTMC. (Answer, Countercl., and Mot. to Join at ¶ 22-34.) The trial court granted MTMC
and Mignery's motion to join Woods and Rider as necessary parties pursuant to Civ.R.
19(A). (Dec. 28, 2010 Order on Joinder.)
{¶ 5} MTMC and Mignery filed a motion to dismiss for lack of subject-matter
jurisdiction and for an award of costs and attorney fees in October 2011. (Oct. 27, 2011
Mot. to Dismiss.) They argued that the trial court lacked subject-matter jurisdiction
because Photographic Creations failed to provide evidence that its purported managers,
Woods and Rider, complied with statutory requirements concerning the winding up of the
company's affairs. Id. They also argued that Photographic Creations failed to produce
evidence establishing the authority of Woods and Rider to collect the alleged debt. Id. In
December 2011, the trial court denied MTMC and Mignery's motion to dismiss for lack of
subject-matter jurisdiction and for an award of costs and attorney fees, noting that the
operating agreement was attached to the complaint, provided for managing members of
the company to wind up the company and collect on debts, and the Ohio Revised Code
provides that dissolution does not prevent a company from suing or being sued. (Dec. 28,
2011 Entry Denying Mot. to Dismiss at 9-10.)
{¶ 6} On the first day of trial, July 30, 2012, the trial court sua sponte declared a
mistrial when Photographic Creations' witness revealed that there were other potential
members of the company beyond the managing members. (July 30, 2012 Tr. at 16; Ex. A,
Aug. 22, 2012 Memo Contra Mot. to Dismiss.) Following the mistrial, MTMC and
Mignery filed a second motion to dismiss for lack of subject-matter jurisdiction and for an
award of costs and attorney fees. (Aug. 8, 2012 Mot. to Dismiss.) MTMC and Mignery
asserted that they learned on the first day of trial that there were undisclosed additional
1 The document contains two paragraphs numbered "16." This reference refers to the second.
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members of Photographic Creations and that no evidence showed that those additional
members bestowed authority on Woods and Rider to wind up the company's affairs. As in
its first motion to dismiss for lack of subject-matter jurisdiction, MTMC and Mignery
challenged the court's subject-matter jurisdiction based on Photographic Creations'
alleged lack of authority to sue MTMC and Mignery. According to MTMC and Mignery,
this lack of authority to sue was demonstrated by Photographic Creations' failure to
establish that the company was properly dissolved or that Woods and Rider were
authorized to wind up the company's affairs.
{¶ 7} The trial court granted MTMC and Mignery's second motion to dismiss for
lack of subject-matter jurisdiction. (Nov. 20, 2012 Decision & Entry.) It found no
evidence of a valid operating agreement because it concluded that in order to be valid, an
operating agreement must be signed by all members of a limited liability company and the
only document that had been presented was signed only by Woods and Rider. Id. at 7-8.
In the absence of a valid operating agreement, the trial court determined that state law
governed and required the unanimous agreement of all members to dissolve the
company. Id. The trial court reasoned that "since [Photographic Creations] has failed to
show that it has fully complied with state law, or that Woods and Rider have the proper
authority to act on behalf of [Photographic Creations], the Court finds that it does not
have subject matter jurisdiction over [Photographic Creations'] claims and [Photographic
Creations'] claims must be dismissed." Id. at 9-10. The trial court deferred its ruling on
MTMC and Mignery's request for costs and attorney fees under Civ.R. 11 and R.C.
2323.51, referring the matter to a magistrate to determine the propriety of sanctions
against Photographic Creations and its counsel. Id. at 11. The trial court also directed
counsel for MTMC and Mignery to submit the appropriate judgment entry to the trial
court for its signature and filing. Id. However, MTMC and Mignery's counsel did not
submit a proposed judgment entry.
{¶ 8} When final judgment did not enter, Photographic Creations filed a motion
to reconsider in January 2013, alleging the trial court erred in finding it lacked subject-
matter jurisdiction. (Jan. 22, 2013 Mot. to Recons.) Three years later, in March 2016, the
trial court denied Photographic Creations' motion to reconsider, and it entered judgment
dismissing Photographic Creations' complaint. (Mar. 3, 2016 Decision and Entry at 2-3.)
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It included Civ.R. 54(B) language in the entry. Id. Additionally, consistent with its
November 2012 decision, the trial court referred MTMC and Mignery's motion for
sanctions to a magistrate, noting that it retained jurisdiction to "hear and resolve the
motion." Id.
{¶ 9} Photographic Creations timely appeals from the trial court's judgment
dismissing its complaint on reconsideration.
II. ASSIGNMENTS OF ERROR
{¶ 10} Photographic Creations assigns the following errors for our review:
1. The trial court committed error when it dismissed the
plaintiffs case because it determined it did not have
jurisdiction of the subject matter because the court
determined the default rules of Ohio Revised Code 1705 et seq
applied and the limited liability company was to be managed
by all of its members as the operating agreement of
Photographic Creations Ltd was ineffective as to all of its
members because the court erroneously held Ohio law
mandated all of the members of a limited liability company
are required to sign the original operating agreement in order
for it to be effective as to all of the members to operate under
the provisions of the operating agreement.
2. The trial court committed error when it determined that the
operating agreement of Photographic Creations was required
to be signed by all of the members and since it was not signed
by all of the members, the operating agreement was
ineffective as to all of the members and therefore the named
managing members in the operating agreement, ie Woods and
Rider, did not have the authority to dissolve the company, nor
the right to liquidate and wind up the affairs of the company
per the default rules of Ohio Revised Code 1705 et seq. and the
limited liability company, Photographic Creations Ltd, was to
be operating as a member managed company per Ohio
Revised Code 1705.24 and 1705.25 not a managed member
company per Ohio Revised Code 1705.29(A) and thus the
court lacked jurisdiction of the subject matter.
3. The Franklin County Courts of Common Pleas erred when
it dismissed the appellants' case because it ruled it did not
have jurisdiction of the subject matter when the Ohio limited
liability company, appellant Photographic Creations Ltd,
commenced a lawsuit to collect a debt in excess of $15,000
which was evidenced by an unpaid promissory note. It does
not matter whether the Ohio limited liability company is
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No. 16AP-256
organized as a managed member limited liability company or
a member managed limited liability company pursuant to
Ohio Revised Code 1705 et seq. for the Franklin County Court
of Common Pleas to have jurisdiction of the subject matter
when the limited liability company commences suit to collect
on an unpaid debt in excess of $15000.
4. The trial committed error when it ordered a hearing held to
determine if plaintiffs and or plaintiffs' counsel had
committed frivolous conduct per Ohio Revised Code 2323.51
and what sanctions, if any were appropriate to be ordered
against plaintiff-appellants.
III. DISCUSSION
A. First, Second, and Third Assignments of Error—Whether the Trial
Court Erred in Dismissing the Case for Want of Subject-Matter
Jurisdiction
{¶ 11} Subject-matter jurisdiction is a court's power to hear and decide a particular
class of cases and does not relate to the rights of the individual parties involved in a
particular case. Bank of Am., N.A. v. Kuchta, 141 Ohio St.3d 75, 2014-Ohio-4275, ¶ 19;
Robinson v. Ohio Dept. of Rehab. & Corr., 10th Dist. No. 10AP-550, 2011-Ohio-713, ¶ 5.
In ruling on a Civ.R. 12(B)(1) motion to dismiss for lack of subject-matter jurisdiction, the
trial court determines whether the claim raises any action cognizable in that court.
Brown v. Ohio Tax Commr., 10th Dist. No. 11AP-349, 2012-Ohio-5768, ¶ 14. "Although
standing is required in order to invoke the jurisdiction of the court of common pleas over
a particular action, lack of standing does not affect the subject-matter jurisdiction of the
court." Kuchta at paragraph three of the syllabus; Natl. City Bank v. Skipper, 9th Dist.
No. 24772, 2009-Ohio-5940, ¶ 11 ("Capacity to sue or be sued does not equate with the
jurisdiction of a court to adjudicate a matter."). In short, "an inquiry into a party's ability
to invoke a court's jurisdiction speaks to jurisdiction over a particular case, not subject-
matter jurisdiction." (Emphasis added.) Kuchta at ¶ 22. Because subject-matter
jurisdiction is a question of law, we review de novo a trial court's ruling on a Civ.R.
12(B)(1) motion to dismiss. Foreman v. Ohio Dept. of Rehab. & Corr., 10th Dist. No.
14AP-15, 2014-Ohio-2793, ¶ 10; Brown at ¶ 14.
{¶ 12} Here, the trial court dismissed Photographic Creations' complaint for lack of
subject-matter jurisdiction based on its findings regarding the company's management
and dissolution. (Nov. 20, 2012 Decision & Entry at 7-10.) The trial court determined
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No. 16AP-256
that, in the absence of an effective agreement governing the operations of Photographic
Creations, the company was not properly dissolved, pursuant to R.C. 1705.43, because
there was no unanimous written agreement of all company members to dissolve it. Id. at
8-9. The trial court further determined that Woods and Rider were not vested with the
authority to dissolve and wind up the company affairs. Id. at 8-10. Based on these
determinations, the trial court concluded that it lacked subject-matter jurisdiction over
Photographic Creations' complaint. Id. at 7-10.
{¶ 13} Contrary to the trial court's determination, the record demonstrates that it
had subject-matter jurisdiction over Photographic Creations' complaint. Ohio's common
pleas courts have " 'original jurisdiction over all justiciable matters * * * as may be
provided by law.' " Kuchta at ¶ 20, quoting Ohio Constitution, Article IV, Section 4(B).
Pursuant to R.C. 2305.01, courts of common pleas have "original jurisdiction in all civil
cases in which the sum or matter in dispute exceeds the exclusive original jurisdiction of
county courts." Photographic Creations' complaint set forth claims of breach of contract
and fraud—claims that are clearly cognizable in the trial court. Further, "the sum or
matter in dispute" in this case exceeded the $500 threshold where the original jurisdiction
of the county courts ceases to be exclusive. See R.C. 1907.03. Thus, the trial court had
subject-matter jurisdiction over Photographic Creations' complaint against MTMC and
Mignery.
{¶ 14} Yet the trial court's error in conflating subject-matter jurisdiction with
jurisdiction over the particular case would be harmless if it was nonetheless appropriate
for the trial court to have dismissed the case due to failure by Photographic Creations to
invoke the court's jurisdiction over its case. See Civ.R. 61. Thus, we must consider
whether the trial court correctly concluded that Photographic Creations did not
successfully invoke the jurisdiction of the court over its case.
{¶ 15} "A limited liability company may sue and be sued." R.C. 1705.03(A).
"Dissolution of a limited liability company does not * * * [p]revent commencement of a
proceeding by or against the company in its name." R.C. 1705.45(B)(2). There is no
suggestion that Photographic Creations was not a limited liability company or that the
Ohio Secretary of State erred in 1995 when he designated it as such. See Ex. A, Compl.
Thus, whether Photographic Creations was successfully dissolved or not, it could sue and
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No. 16AP-256
be sued. Hence, it was capable of bringing suit in its own name against MTMC and
Mignery who executed a promissory note in favor of Photographic Creations for
$200,000 plus interest at 6 percent. (Ex. C, Compl.)
{¶ 16} Moreover, had there been real concern that Rider and Woods were directing
the company to take action to collect on the debt without real authority for doing so, the
members of Photographic Creations would have been the appropriate parties to challenge
that because they are the ones who would be damaged by such an act. As the Ohio
Revised Code provides:
No lack of authority or limitation upon the authority of a
limited liability company shall be asserted in any action
except as follows:
(a) By the state in an action by it against the company;
(b) By or on behalf of the company in an action against a
manager, an officer, or any member as a member;
(c) By a member as a member in an action against the
company, a manager, an officer, or any member as a member;
(d) In an action involving an alleged improper issue of a
membership interest in the company.
R.C. 1705.03(E)(1). MTMC and Mignery improperly asserted the potential rights of
Photographic Creations' members, and the trial court was distracted from the issue of
their own alleged nonpayment of a debt to the company. MTMC and Mignery
sidestepped whether the debt was owed and argued that Woods and Rider were
"attempting to invoke the power of this Court for their own personal gain with no
accountability or responsibility to the remaining members [of Photographic Creations]."
(Aug. 8, 2012 Mot. to Dismiss at 4.) Any accountability of Woods and Rider to the
remaining members of Photographic Creations is an issue among the members of
Photographic Creations, not MTMC and Mignery, who were not members of
Photographic Creations and whose relationship to Photographic Creations was as
purchasers of its assets. R.C. 1705.03(E)(1) is explicit in that "no lack of authority or
limitation upon the authority of a limited liability company shall be asserted in any action
except" by the State or those associated with the limited liability company through
membership. MTMC and Mignery were simply purchasers of assets of Photographic
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No. 16AP-256
Creations. Essentially, in their status as debtors, they impermissibly raised what
amounted to a red herring that derailed this litigation over the course of the past nine
years.
{¶ 17} We sustain Photographic Creations' first, second, and third assignments of
error for the reasons and to the extent discussed herein.
B. Fourth Assignment of Error—Referral of Motion for Sanctions to a
Magistrate
{¶ 18} Photographic Creations in its fourth assignment of error argues that the
trial court erred in referring this matter to a magistrate for the purpose of determining
whether Photographic Creations and its counsel engaged in frivolous conduct and what
sanctions, if any, would be appropriate. This assignment of error, however, does not
present an issue ripe for review. State ex rel. Elyria Foundry Co. v. Indus. Commn., 82
Ohio St.3d 88, 89 (1998) ("judicial machinery should be conserved for problems which
are real or present and imminent, not squandered on problems which are abstract or
hypothetical or remote"). Photographic Creations does not argue that the trial court
lacked the authority to refer MTMC and Mignery's request for sanctions to a magistrate.
Instead, Photographic Creations argues that the trial court already made a determination
that Photographic Creations and its counsel engaged in some degree of frivolous conduct
in referring the issue to a magistrate. Specifically, Photographic Creations' argument goes
to the merits of the issue of sanctions. Photographic Creations argues that the trial court
erred in referring the matter to a magistrate for a hearing on sanctions because it
presented a valid theory of recovery and neither it nor its counsel engaged in any frivolous
conduct.
{¶ 19} Our review of the record shows that the trial court did not make a finding
that Photographic Creations or its counsel engaged in frivolous conduct. It simply
referred the issue to a magistrate for a hearing. See Nov. 20, 2012 Decision and Entry at
10; Mar. 3, 2016 Decision and Entry at 3. As such Photographic Creations' fourth
assignment of error does not present an issue ripe for review.
IV. CONCLUSION
{¶ 20} The trial court erred in dismissing this case. Whether a party successfully
invokes the jurisdiction of the court is a question that goes to the jurisdiction over that
particular case, not the court's subject-matter jurisdiction. Kuchta at paragraph three of
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the syllabus. Whether properly dissolved or not, Photographic Creations retained power
to sue and be sued and thus was within its rights to have brought suit to collect on a debt
owed in the winding up of its affairs. R.C. 1705.03(A); R.C. 1705.45(B)(2). The debtor, in
this case, a purchaser of Photographic Creations' assets, cannot assert the potential rights
of other members of the limited liability company in order to defend against Photographic
Creations' claims. R.C. 1705.03(E)(1). We sustain Photographic Creations' first, second,
and third assignments of error on the grounds expressed herein. We find that
Photographic Creations' fourth assignment of error is unripe. We reverse and remand to
the Franklin County Court of Common Pleas for proceedings consistent with this opinion.
Judgment reversed and
remanded with instructions.
HORTON, J., concurs.
LUPER SCHUSTER, J., concurs in judgment only.