Holloway v. Holloway Sportswear, Inc. , 2012 Ohio 2135 ( 2012 )

[Cite as Holloway v. Holloway Sportswear, Inc., 2012-Ohio-2135.]
IN THE COURT OF APPEALS OF OHIO
THIRD APPELLATE DISTRICT
SHELBY COUNTY
D’LORAH HOLLOWAY, ET AL.,
PLAINTIFFS-APPELLEES,
v. CASE NO. 17-11-24
HOLLOWAY SPORTSWEAR, INC., ET AL.,
DEFENDANTS-APPELLEES,
-and-
RANDALL W. HOLLOWAY, OPINION
DEFENDANT-APPELLANT,
[MARK VONDENHUEVEL, ET AL.,
- APPELLANTS].
Appeal from Shelby County Common Pleas Court
Trial Court No. 96CV000061
Judgment Reversed and Cause Remanded
Date of Decision: May 14, 2012
APPEARANCES:
Robert R. Furnier and Christopher L. Muzzo for Appellants
Neil F. Freund and Lindsay M. Johnson for Appellee Burton
Case No. 17-11-24
PRESTON, J.
{¶1} Defendants-appellants, Randall W. Holloway (“Randall”) and
ARAICH, Inc. (“ARAICH”) (formerly “Holloway Sportswear, Inc.”) (collectively
“defendants”), and appellant, Mark Vondenhuevel (“Vondenhuevel”), appeal the
Shelby County Court of Common Pleas’ judgment entry granting the motion to
enforce subpoena upon Vondenhuevel filed by appellee, M. David Burton, Esq.
(“Burton”). For the reasons that follow, we reverse.
{¶2} On April 12, 1996, J. Boyd Binning, Esq. (“Binning”) and Burton
filed a complaint against defendants alleging breach of contract and fraud and
requesting an accounting on behalf of their clients, D’Lorah A. Holloway, Lorinda
Jill Holloway, and others (collectively “plaintiffs”), in the Shelby County Court of
Common Pleas. (Doc. No. 1). On July 1, 1997, the first amended complaint was
filed adding additional causes of action, including: Counts I and V of
Misrepresentation/Concealment; Counts II and VI of Breach of Fiduciary Duty;
Count III of Fraud; Counts IV and VII of Abuse of Fiduciary Relationship; and
Count VIII Demand for Accounting. (Doc. No. 110).
{¶3} On November 3, 1998, the trial court granted defendants summary
judgment as to Counts I through VII but denied defendants summary judgment on
Count VIII, and the trial court certified its entry as a final order pursuant to Civ.R.
54(B). (Doc. No. 144). On May 20, 1999, plaintiffs filed a Civ.R. 60(B) motion
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for relief from judgment, which the trial court overruled on August 28, 2000.
(Doc. Nos. 160, 174). On June 7, 2001, this Court affirmed the trial court’s
judgments. Holloway v. Holloway Sportswear, Inc., 3d Dist. Nos. 17-98-20, 17-
2000-18. On October 10, 2001, the Ohio Supreme Court declined jurisdiction.
Holloway v. Holloway Sportswear, Inc., 93 Ohio St.3d 1451. (Doc. No. 182).
Thereafter, on April 19, 2002, the trial court granted defendants summary
judgment on the remaining claim (Count VIII). (Doc. No. 189).
{¶4} On May 10, 2002, defendants filed a motion for sanctions pursuant to
Civ.R. 11 and R.C. 2323.51 against plaintiffs D’Lorah and Lorinda Jill Holloway,
and their attorneys, Burton, Binning, and Lewis E. Williams, Esq. (“Williams”).
(Doc. No. 192).
{¶5} On February 6 and 10, 2004, defendants withdrew their motion for
sanctions against D’Lorah and Lorinda Holloway and Williams. (Doc. Nos. 238,
240).
{¶6} On March 22, 2004, Binning filed a motion to dismiss, arguing that
the motion for sanctions was untimely. (Doc. No. 244).
{¶7} On April 26, 2004, defendants filed a revised motion for attorney’s
fees and litigation costs as sanctions under Civ.R. 11 and R.C. 2323.51 against
Burton and Binning. (Doc. No. 249).
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{¶8} On July 21, 2004, the trial court dismissed defendants’ motion for
sanctions under R.C. 2323.51 on Counts I through VII as untimely. (Doc. No.
259). The trial court however determined that defendants’ motion for sanctions
under R.C. 2323.51 on Count VIII was timely. (Id.). The trial court also held that
defendants’ motion for sanctions under Civ.R. 11 were timely on all counts. (Id.).
{¶9} On July 26-27, 2004, December 2, 2004, and March 25, 2005, the trial
court held hearings on the motion for sanctions. (Doc. Nos. 282, 314). Thereafter,
the parties filed post-hearing briefs. (Doc. Nos. 287-289).
{¶10} On July 11, 2005, defendants filed a motion to substitute Peter
Binning, Administrator of the Estate of J. Boyd Binning, as the proper party
following Binning’s death. (Doc. No. 293). On December 20, 2005, the trial court
sustained the motion. (Doc. No. 301).
{¶11} On January 13, 2009, the trial court concluded that Burton and
Binning had committed frivolous conduct in violation of Civ.R. 11 for filing the
original and first amended complaints; and, Binning had committed frivolous
conduct in violation of Civ.R. 11 for filing the memo contra to defendants’ motion
for summary judgment dated March 13, 2002. (Doc. No. 314). The trial court
denied defendants’ motion for sanctions under R.C. 2323.51 as to Count VIII of
the amended complaint, as well as all defendants’ remaining grounds for sanctions
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under Civ.R. 11. (Id.). A hearing on the amount of sanctions was scheduled for
April 26-28, 2010. (Doc. No. 326).
{¶12} Following the trial court’s judgment entry granting sanctions, the
parties began mediating the amount of sanctions, along with the malpractice
claims set forth in Holloway Sportswear, Inc. et al. v. Binning, Case No. 05 CV
018. (Doc. No. 328).
{¶13} On March 18, 2010, Burton filed a motion to dismiss the sanctions
for failure to prosecute and failure to join a real party in interest. (Id.). Burton
alleged that defendants’ counsel failed to send him documentation necessary to
complete the mediation as ordered by the trial court. (Id.). Burton further alleged
that, on May 2, 2006, Holloway Sportswear, Inc. (“HSI”) was sold to Augusta
Sportswear, Inc.; and therefore, the former is no longer the real party in interest for
sanctions. (Id.). On March 29, 2010, Binning’s estate joined the motion to
dismiss. (Doc. No. 330).
{¶14} On April 2, 2010, defendants filed a response to the motions. (Doc.
No. 331). On April 5, 2010, the trial court overruled the motions. (Doc. No. 333).
The trial court ordered defendants’ counsel to provide all supporting documents
and a list of witnesses he intended to call at the April 26-28, 2010 hearing to
determine the amount of sanctions to Burton’s counsel by April 15, 2010. (Id.).
The trial court also instructed defendants’ counsel that the first day of the hearing
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to determine the amount of sanctions would be reserved to demonstrate the real
party in interest following the sale of HSI. (Id.).
{¶15} On April 7, 2010, Burton filed a motion to continue the hearing.
(Doc. No. 336). On April 8, 2010, the trial court held a telephone conference.
(Doc. No. 338). On April 19, 2010, the trial court amended its April 5, 2010
judgment entry, rescheduling the hearing to October 21-22, 2010. (Id.). The trial
court ordered defendants’ counsel to deliver all supporting documents and a
witness list for the rescheduled sanctions hearings and a real party in interest
hearing, scheduled for July 1, 2010, to opposing counsel by May 3, 2010. (Id.).
{¶16} On June 17, 2010, defendants filed a notice of name change and
motion for summary judgment on the real party in interest issue. (Doc. No. 340).
The motion for summary judgment alleged that, in 2006, HSI sold all of its assets
to Holloway Acquisition, Inc., except for the right to pursue claims against Burton
and Binning. (Id.). Attached to the motion was an “Acknowledgement and
Modification of Asset Purchase Agreement,” executed on April 30, 2010,
representing that the transfer of HSI’s assets to Holloway Acquisition, Inc. did not
include any rights of recovery in the actions against Burton and Binning in Case
Nos. 96CV000061 (sanctions) and 05CV000018 (malpractice claim). (Id.).
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{¶17} Also on June 17, 2010, Burton and Binning’s estate filed a joint
motion to continue the July 1, 2010 hearing for the purpose of conducting
discovery on the real party in interest issue. (Doc. No. 344, 346).
{¶18} On June 24, 2010, the trial court granted the motion to continue and
held defendants’ motion for summary judgment in abeyance until Burton and
Binning’s estate conducted discovery concerning the 2006 sale of HSI. (Doc. No.
349). The trial court scheduled a conference call for July 1, 2010. (Id.).
{¶19} On June 30, 2010, Burton filed a motion to continue the briefing and
decision on defendants’ motion for summary judgment. (Doc. No. 351). On July
7, 2010, the trial court granted the motion to continue the discovery deadline until
September 29, 2010. (Doc. No. 355). On July 16, 2010, the trial court granted
Burton’s Civ.R. 56(F) motion to extend the deadline for responding to defendants’
motion for partial summary judgment. (Doc. No. 356).
{¶20} On September 30, 2010, Burton filed another motion to continue
discovery until January 31, 2011 since HSI’s current president, Vondenhuevel,
failed to attend deposition and bring certain documents, even though he was
subpoenaed. (Doc. No. 361).
{¶21} On October 13, 2010, the trial court approved and filed an agreed
entry vacating both the October 12, 2010 status hearing and October 21, 2010 real
party in interest hearing. (Doc. No. 364).
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{¶22} On December 27, 2010, Burton filed a motion to enforce the
subpoena directed at Vondenhuevel and HSI. (Doc. No. 370). On January 10,
2011, the trial court held a hearing on the motion, and Vondenhuevel filed a
memorandum in opposition. (Doc. Nos. 371, 377).
{¶23} On February 16, 2011, the trial court granted Burton’s motion to
enforce the subpoena as revised by the trial court to allow Vondenhuevel an
opportunity to compile a privilege log for communications he believed were
protected under the attorney-client privilege. (Doc. No. 384). On February 24,
2011, a protective order governing the confidentiality of documents produced
concerning the 2006 sale of HSI was entered upon the record. (Doc. No. 388).
{¶24} On April 22, 2011, Burton filed a motion for in-camera review of the
documents subpoenaed from Vondenhuevel, which Vondenhuevel listed as
privileged communications. (Doc. No. 393). On April 27, 2011, defendants filed a
motion for a protective order and to quash the subpoena. (Doc. No. 395).
{¶25} On May 23, 2011, the trial court held a hearing on the pending
motions. (May 31, 2011 JE, Doc. No. 412). The trial court granted Burton’s
motion to enforce the subpoena of Vondenhuevel stating:
[Burton]’s counsel will be permitted to again subpoena and depose
Mark Vondenhuevel related to the real party in interest issue,
including but not limited to documents Mr. Vondenhuevel has
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executed and produced in this case, his knowledge of and
involvement in the 2006 asset purchase of [HSI] and the 2010
Acknowledgement and Modification of Asset Purchase Agreement.
Nothing in this Entry shall limit counsel’s ability to question Mr.
Vondenhuevel related to the issue of real party in interest. (Id.).
The trial court also granted defendants’ motion for in camera review of documents
and determined that the documents were, in fact, entitled to attorney-client
privilege and not helpful to the real party in interest issue. (Id.).
{¶26} On June 29, 2011, appellants Holloway, ARAICH, and
Vondenhuevel filed a notice of appeal from the trial court’s judgment entry. (Doc.
No. 419). Appellants raise a single assignment of error for our review.
ASSIGNMENT OF ERROR
THE TRIAL COURT ERRED BY DENYING THE JOINT
MOTIONS TO QUASH AND FOR PROTECTIVE ORDER OF
RESPONDENT MARK VONDENHUEVEL AND
DEFENDANTS RANDY HOLLOWAY AND ARAICH, INC.
[DOCKET NO. 412.]
{¶27} In their sole assignment of error, appellants argue that the trial court
erred by expanding the discovery process in a post-trial sanctions proceeding
absent extraordinary circumstances. Specifically, appellants contend that the
expansive discovery in this case will only reveal what is known by the parties
already—that HSI did not transfer the rights to Shelby County Case Nos.
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96CV000061 (sanctions) and 05CV000018 (malpractice) to Holloway
Acquisition, Inc. in 2006.
{¶28} Generally speaking, a trial court’s decision regulating the procedure
of a Civ.R. 11 sanctions proceeding should not be disturbed on appeal absent an
abuse of discretion. Stevens v. Kiraly, 24 Ohio App.3d 211, 214 (9th Dist.1985),
citing 2A Moore, Federal Practice (1985) 11-20, paragraph 11.02[2]. As the
Court of Appeals in Stevens v. Kiraly observed:
Civ.R. 11 is silent on the procedure to be followed in seeking
sanctions against an attorney for violations of the rule, but some
guidance may be found in the federal rule and case law. The federal
rule provides that sanctions may be invoked upon motion of either
the court or the aggrieved party. Once again, wide latitude is
granted the courts, according to the Advisory Committee Note:
“* * * [I]t is within the court’s discretion to decide the procedure,
timing and appropriateness of imposing a particular sanction. * * *”
24 Ohio App.3d at 214.
The Sixth and Tenth Districts have followed the Ninth District’s decision in
Stevens, supra, and, likewise, concluded that trial courts have discretion
concerning the procedure of Civ.R. 11 proceedings. Woods v. Savannah Foods
and Industries, Inc., 6th Dist. No. L-92-160, *7-9 (Feb. 26, 1993); Huntington
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Natl. Bank v. Abbot, 10th Dist. No. 89AP-432, *5 (Sept. 26, 1989). An abuse of
discretion implies more than a mere error in judgment; rather, it implies that the
trial court’s attitude was unreasonable, arbitrary, or unconscionable. Blakemore v.
Blakemore, 5 Ohio St.3d 217, 219 (1983).
{¶29} Neither Civ.R. 11 nor Ohio case law interpreting it addresses the
proper scope of discovery for sanction proceedings. Since Civ.R. 11 was adopted
nearly identical to Fed.R.Civ.P. 11 and has been amended over the years
consistent with Fed.R.Civ.P. 11, federal case law addressing this issue, while not
controlling, is instructive. Ceol v. Zion Indus., Inc., 81 Ohio App.3d 286, 290 (9th
Dist.1992), citing 2A Moore’s Federal Practice (1990), Paragraph 11.01[3], at 11-
3; Myers v. Toledo, 110 Ohio St.3d 218, 2006-Ohio-4353, ¶ 18, citing First Bank
of Marietta v. Mascrete, Inc., 79 Ohio St.3d 503, 508 (1997); Stevens, 24 Ohio
App.3d at 214, citing 2A Moore, Federal Practice (1985) 11-20, paragraph
11.02[2]. For purposes of Fed.R.Civ.P. 11, federal circuit courts have concluded
that trial courts “‘* * * must to the extent possible limit the scope of sanction
proceedings to the record. Thus, discovery should be conducted only by leave of
the court, and then only in extraordinary circumstances.”’ Amwest v. Mortg. Corp.
v. Grady, 925 F.2d 1162, 1165 (9th Cir.1991), quoting Fed.R.Civ.P. 11, Notes of
1983 Advisory Committee on Rules; Borowski v. DePuy, Inc., 876 F.2d 1339,
1341 (7th Cir.1989), citing Indianapolis Colts v. Mayor and City Council of
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Baltimore, 775 F.2d 177, 173 (7th Cir.1985); Donaldson v. Clark, 819 F.2d 1551,
1560-1561 (11th Cir.1987); McLaughlin v. Bradlee, 803 F.2d 1197, 1205 (D.C.
Cir.1986). Similarly, federal courts have noted that Rule 11 hearings are much
narrower in scope than civil proceedings and cautioned against allowing sanction
proceedings to expand into full-blown litigation. Amwest, 925 F.2d at 1165;
Faigin v. Kelly, 184 F.3d 67, 79 (1st Cir.1999) (“The scope of a Rule 11 hearing is
generally much more circumscribed than that of a trial or comparable
proceeding.”); McIntyre’s Mini Computer Sales Group Inc. v. Creative Synergy
Corp., 644 F.Supp. 589, 592 (E.D.Mich. 1986) (“The Advisory Committee
cautioned against allowing sanctions proceedings to expand into full-blown
litigation * * *.”); Klayman v. Barmak, 602 F.Supp.2d 110, 117 (D.D.C. 2009)
(“A motion for sanctions does not provide parties an opportunity to litigate fully—
conduct discovery, present and cross-examine witnesses * * *.”). The 1983
Advisory Committee on Rules noted that the limitation on discovery during
sanction proceedings was “[t]o assure that the efficiencies achieved through more
effective operation of the pleading regimen will not be offset by the cost of
satellite litigation over the imposition of sanctions * * *.” Fed.R.Civ.P. 11, 1983
Advisory Committee Notes.
{¶30} The trial court abused its discretion by allowing further discovery in
the Civ.R. 11 sanctions proceedings herein. Prior to the trial court’s order
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enforcing the subpoena served upon Vondenhuevel, defendants filed an
“Acknowledgement and Modification of Asset Purchase Agreement” in which the
original parties to the sale of HSI clarified that HSI, now ARAICH, did not
transfer any rights or liabilities related to litigation in the Shelby County Court of
Common Pleas against Burton and Binning in Case Nos. 96CV00061 (sanctions)
and 05CV000018 (malpractice) to Holloway Acquisition, Inc., now HSI. (Doc.
No. 342, attached). This document was signed by W. Randall Holloway, president
of ARAICH, and ARAICH Group, Inc., and Vondenhuevel, president of the newly
formed Holloway Sportswear, Inc. (Id.). Prior to the trial court’s order,
Vondenhuevel, president of both the former and newly formed HSI, submitted an
affidavit detailing the history of the parties’ original sale of former HSI’s assets
and the subsequent acknowledgment and modification agreement. (Doc. No. 404).
In relevant part, Vondenhuevel averred that the Shelby County litigation was
considered personal to Randall, and that Augusta management, the purchasers of
the former HSI, had approved the execution of the Acknowledgement and
Modification of Asset Purchase Agreement to that effect. (Id.). Despite these
filings indicating that Randall and ARAICH (former HSI) are the real parties in
interest herein, the trial court enforced the subpoena upon Vondenhuevel for
Burton and Binning to further investigate the real party in interest issue.
Consequently, this case failed to present any “extraordinary circumstance”
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meriting further discovery on this issue; and therefore, the trial court abused its
discretion in enforcing the subpoena upon Vondenhuevel.
{¶31} The trial court’s order granting further discovery on the real party in
interest issue is also unreasonable in light of the extreme delay that has already
occurred in the sanctions proceedings. This case was originally filed in 1996 and
was finally disposed of by summary judgment in 2002. Seven years later, the trial
court determined that Burton and Binning committed frivolous conduct under
Civ.R. 11. Now, more than three years later, the trial court has yet to determine
the amount of sanctions to impose. This case epitomizes the expression “justice
delayed is justice denied,” and the record demonstrates that the parties and the trial
court share the blame for the extreme delay in this case. Absent our intervention,
we fail to see this case coming to a much-needed, expeditious end. There is no
need to expand the sanctions proceedings into full-blown litigation contrary to the
intent of Civ.R. 11.
{¶32} Appellants’ assignment of error is, therefore, sustained.
{¶33} Having found error prejudicial to the appellants herein in the
particulars assigned and argued, we reverse the judgment of the trial court and
remand for further proceedings consistent with this opinion.
Judgment Reversed and
Cause Remanded
SHAW, P.J. and ROGERS, J., concur.
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