Columbus Steel Castings Co. v. Transp. & Transit Assocs., L.L.C. , 2014 Ohio 272 ( 2014 )

[Cite as Columbus Steel Castings Co. v. Transp. & Transit Assocs., L.L.C., 2014-Ohio-272.]
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
Columbus Steel Castings Company, :
Plaintiff-Appellee, : No. 12AP-970
(C.P.C. No. 04CV-13504)
v. :
(REGULAR CALENDAR)
Transportation & Transit Associates, :
LLC,
:
Defendant-Appellant.
:
D E C I S I O N
Rendered on January 28, 2014
Yarger Radel & Pentz, LLC, Jonathon M. Yarger, Victor D.
Radel and Andrew J. Yarger, for appellee.
Luper Neidenthal & Logan, David M. Scott and Melissa A.
Izenson, for appellant.
APPEAL from the Franklin County Court of Common Pleas
O'GRADY, J.
{¶ 1} Defendant-appellant, Transportation & Transit Associates, LLC, appeals
from the February 9 and October 18, 2012 judgments of the Franklin County Court of
Common Pleas in favor of plaintiff-appellee, Columbus Steel Castings Company. For the
reasons that follow, we affirm.
I. FACTS AND PROCEDURAL HISTORY
{¶ 2} This matter stems from a September 2000 purchase order where Buckeye
Steel Castings Company, Inc. ("Buckeye Steel") agreed to manufacture, sell, and deliver
truck components to Transportation & Transit Associates, LLC ("TTA") for the
No. 12AP-970 2
manufacture of train cars.1 Buckeye Steel made 155 separate deliveries of parts to TTA,
and sent TTA invoices for each delivery and associated freight costs. TTA accepted and
paid for 134 deliveries, but failed to pay Buckeye Steel for 21 deliveries and freight charges
made between September 3, and November 11, 2002.
{¶ 3} In December 2002, Buckeye Steel commenced Chapter 11 bankruptcy
proceedings. After approval from the bankruptcy court, Buckeye Steel then entered into
an asset purchase agreement with Columbus Steel Castings Company ("CSC") under the
U.S. Bankruptcy Code. Under the agreement, CSC would buy the assets, including
accounts receivable, "whether created prior or subsequent to the filing of the * * *
[c]hapter 11 case[s]." (R. 7, Complaint, ¶ 17.) This agreement included the purchase of an
account receivable allegedly owed to Buckeye Steel by TTA. The sale order enjoined all
persons from taking any action against CSC for recovery on any claim they might have
against Buckeye Steel in respect to the assets sold.
{¶ 4} After the sale was final, CSC demanded payment from TTA of the account
receivable. TTA refused, contending it had a right of recoupment that exceeded the
account receivable at issue. Specifically, TTA indicated Buckeye Steel breached its
contract to supply parts and TTA suffered damages as a result. TTA filed a proof of claim
in the bankruptcy proceeding for breach of contract to recoup this amount, less the
amount of the receivable owed to Buckeye Steel. In re Buckeye Steel Castings Co., Inc.,
306 B.R. 186, 188 (6th Cir.BAP Ohio 2004).
{¶ 5} CSC filed a motion in the bankruptcy court to enforce the sale
orderspecifically, to prohibit TTA from seeking recovery on a claim that arose out of
TTA's relationship with Buckeye Steel. CSC also moved the bankruptcy court to compel
TTA to pay the account receivable. At the motion hearing, CSC withdrew its demand for
payment and, instead, sought a determination that the sale order enjoined TTA from
enforcing its defense to the account receivable. TTA indicated it applied the recoupment
amount in its proof of claim and waived its right to increase the amount of its claim if the
defense of recoupment was denied in any court. In July 2003, the bankruptcy court
dismissed CSC's motion for lack of subject-matter jurisdiction. CSC appealed the
1For a detailed recitation of the factual history, please refer to our previous opinion. Columbus Steel
Castings Co. v. Transp. & Transit Assocs., LLC, 10th Dist. No. 06AP-1247, 2007-Ohio-6640.
No. 12AP-970 3
bankruptcy court's dismissal. In affirming, the United States Bankruptcy Appellate Panel
for the Sixth Circuit ("Bankruptcy Appellate Panel") determined that the dispute between
CSC and TTA had no bearing on the bankruptcy estate, since "TTA had waived its right to
amend its proof of claim upwards in the event its claim of recoupment were later rejected
by a court." Id. at 191.
{¶ 6} In December 2004, CSC filed a complaint against TTA in the Franklin
County Court of Common Pleas to collect on the account receivable it purchased from
Buckeye Steel. In its answer, TTA admitted the bankruptcy court's February 2003 sale
order authorized CSC to purchase the account receivable owed by TTA to Buckeye Steel.
TTA filed an answer and counterclaim, and raised recoupment as an affirmative defense.
In its counterclaim, TTA alleged that Buckeye Steel breached its contract to supply parts
and TTA suffered damages in an amount greater than it owed on the account receivable.
{¶ 7} The trial court denied the parties' motions for summary judgment and
granted CSC's motion in limine to preclude TTA from asserting the affirmative defense of
recoupment or from asserting a counterclaim. The court found that the entry constituted
a final order, since "[p]reventing TTA from asserting its defense of recoupment affects a
substantial right of TTA and effectively determines the action in favor of Plaintiff
Columbus Steel Casting[s] Company." (R. 111, Nov. 15, 2006 Judgment Entry, 1-2.) TTA
appealed from this judgment. On appeal, we reversed the judgment and remanded the
cause to the trial court for further proceedings. We found, pursuant to the parties'
agreement, New York substantive law and Ohio procedural law applied to resolve the
issues in this case. We determined, in part, that the trial court erred in precluding TTA
from asserting the defense of recoupment and in entering final judgment in favor of CSC.
Columbus Steel Castings Co. v. Transp. & Transit Assocs., LLC, 10th Dist. No. 06AP-
1247, 2007-Ohio-6640 ("CSC I"). In CSC I, we held that "the trial court incompletely
applied the 'integrated transaction test' when it precluded TTA from asserting
recoupment as a defense, and * * * as a consequence, the trial court therefore erred as a
matter of law by granting summary judgment in favor of [CSC]." Id. at ¶ 48.
{¶ 8} On remand, CSC and TTA renewed their motions for summary judgment on
the recoupment defense. On February 9, 2012, the court granted CSC's motion and held
that TTA had no right of recoupment. The trial court determined that, consistent with
No. 12AP-970 4
New York substantive law, the "integrated transaction test" applied to an analysis of TTA's
recoupment defense. (R. 167, Feb. 9, 2012 Decision on Remand, 14.) The trial court
found TTA's claim did not satisfy the integrated transaction test because the parties'
purchase agreement allowed TTA to reject individual deliveries and terminate individual
orders or parts of orders. (Feb. 9, 2012 Decision, 18.) The trial court further determined
that it would be inequitable for TTA to enjoy the benefits of the completed transactions
without meeting its obligations by paying for the parts delivered to and accepted by it
because TTA's recoupment claim was limited to deliveries that were never made by
Buckeye Steel after the deliveries and acceptance of goods that are the subject of CSC's
action.
{¶ 9} In June 2012, TTA sought leave to amend its 2004 answer and counterclaim
to raise a new claim that the account receivable at issue was never properly assumed by
nor assigned to CSC. The trial court denied the motion as untimely and concluded TTA
did not provide reasonable justification in support of its motion for leave and, if granted at
that late stage of the proceedings, would be unduly prejudicial to CSC.
{¶ 10} After a bench trial, on October 18, 2012, the trial court issued a decision
finding CSC properly pleaded and proved the essential elements of an account stated. The
trial court granted judgment in favor of CSC on its complaint and against TTA in the
amount of $2,008,969.06 as of July 25, 2012, plus interest thereafter at a rate of 3 percent
per annum, and court costs.2
II. ASSIGNMENTS OF ERROR
{¶ 11} On appeal, TTA assigns the following errors:
1. Error in holding that the transaction at issue amounts to an
account stated.
2. Error in granting summary judgment in favor of
Plaintiff/Appellee and precluding Defendant/Appellant from
asserting the defense of recoupment.
3. Error in holding that Plaintiff/Appellee acquired an
enforceable interest in the purchase order from which the
purported "account receivable" issued.
2 The trial court also entered judgment in favor of CSC and against TTA on TTA's counterclaim, but that
portion of the judgment is not the subject of this appeal.
No. 12AP-970 5
III. DISCUSSION
{¶ 12} As noted in CSC I, we will apply New York law to substantive issues and
Ohio law to procedural matters based on the choice-of-law provision in the purchase
order. CSC I at ¶ 18-19. Additionally, due to the nature of the assignments of error, we
elect to address them out of order.
{¶ 13} In its third assignment of error, TTA contends CSC did not acquire an
enforceable interest in the account receivable between TTA and Buckeye Steel. TTA
asserts that the account receivable was an excluded asset and, therefore, not purchased by
CSC under the bankruptcy sale. In response, CSC asserts that the Bankruptcy Appellate
Panel's decision was premised on the fact that CSC was the owner of the account
receivable. CSC argues that TTA should have raised any challenge to the sale order in the
bankruptcy proceedings and is therefore precluded from litigating this issue here. We
agree.
{¶ 14} In Mickowski v. Visi-Trak Worldwide, LLC, 321 F.Supp.2d 885, 898
(N.D.Ohio 2004), Mickowski challenged as fraudulent a purchase of assets approved by
the bankruptcy court under the U.S. Bankruptcy Code. Mickowski participated in the
hearing held by the bankruptcy court on the public sale and raised no objection.
Mickowski took no appeal from the order confirming the sale and did not seek to vacate it;
instead, he filed a separate suit based on fraud seeking "heavy damages" from the
purchaser of the assets. The United States District Court for the Northern District of Ohio
dismissed the claim, concluding it was a " 'thinly disguised collateral attack on the
judgment confirming the sale.' " Id., citing In re Met-L-Wood Corp., 861 F.2d 1012 (7th
Cir.1988) ("the order confirming the sale of assets under § 363 of the Bankruptcy Code
was a final appealable order that could not be attacked by a separate suit"). See also In re
Parker, 368 B.R. 86 (6th Cir.BAP Ky.2007); In re PC Liquidation Corp., 383 B.R. 856,
867 (E.D.N.Y. 2008).
{¶ 15} While TTA filed a proof of claim in the bankruptcy proceedings, it did not
object to the bankruptcy sale order of Buckeye Steel's assets or appeal from the order
confirming the sale. Instead, TTA is now challenging the bankruptcy court's sale order in
this case, by stating that CSC never properly assumed the account receivable at issue.
Had TTA objected to the bankruptcy court's sale order to raise its claim that Buckeye Steel
No. 12AP-970 6
did not sell the account receivable to CSC, the claim would have impacted the bankruptcy
estate, and the bankruptcy court would have retained jurisdiction over the matter. The
consummation of the sale order between Buckeye Steel and CSC, which included the
account receivable, served as the foundation for the Bankruptcy Appellate Panel's finding
that it did not have jurisdiction to enforce CSC's demand for payment. Buckeye Steel at
191. Therefore, TTA's challenge to the sale order constitutes an impermissible collateral
attack on the bankruptcy court's sale order between Buckeye Steel and CSC.
{¶ 16} Finally, TTA claims that whether CSC obtained the account receivable is a
legal determination that we need to reach and not a factual issue that can be admitted by a
party. While not specifically assigned as error, TTA also contends the trial court erred in
excluding evidence related to its claims that: (1) CSC did not obtain an enforceable
interest in the account receivable, and (2) Buckeye Steel had breached the purchase order
involving the invoices for unpaid deliveries because those deliveries were not made on
time. We need not reach these issues because of the preclusive effect of the bankruptcy
court proceedings.
{¶ 17} TTA's third assignment of error is overruled.
{¶ 18} In its first assignment of error, TTA asserts the trial court erred in granting
judgment in favor of CSC because CSC failed to plead or prove the essential elements of an
account stated. CSC contends that TTA had fair notice of the cause of action;
alternatively, CSC asserts that TTA waived the defense that the complaint failed to state a
claim.
{¶ 19} Generally, a defendant must serve an answer within 28 days after service of
the complaint. Civ.R. 12(A). Civ.R. 12(B) provides for an exception whereby certain
defenses may be made by motion, including the "failure to state a claim upon which relief
can be granted." Civ.R. 12(B)(6). A Civ.R. 12(B)(6) motion "shall be made before
pleading," i.e., before filing an answer. Civ.R. 12(B); Patton v. Risner, 3d Dist. No. 16-09-
14, 2010-Ohio-191, ¶ 9. TTA never filed a Civ.R. 12(B)(6) motion regarding CSC's
complaint. While TTA claims it could not "waive the right to challenge a claim that was
never asserted," TTA actively participated in years of litigation and trial. (Appellant's
reply brief, 3.) In general, a party waives the right to raise an argument on appeal that it
could have raised, but did not, in earlier proceedings. Cristino v. Bur. of Workers' Comp.,
No. 12AP-970 7
10th Dist. No. 12AP-60, 2012-Ohio-4420, ¶ 23; Niskanen v. Giant Eagle, Inc., 122 Ohio
St.3d 486, 2009-Ohio-3626, ¶ 34. Since TTA's argument concerning CSC's complaint was
not raised before the trial court, we need not address it here.
{¶ 20} TTA next claims that CSC failed to prove the essential elements of an
account stated. Specifically, TTA contends that CSC did not provide evidence that the
parties agreed that a specific balance was owed.
{¶ 21} An appellate court cannot reverse a judgment supported by some
competent, credible evidence on all the essential elements of the case as being against the
manifest weight of the evidence. C.E. Morris Co. v. Foley Constr. Co., 54 Ohio St.2d 279,
280 (1978). "[I]n reviewing a judgment under the manifest-weight standard, a court of
appeals weighs the evidence and all reasonable inferences, considers the credibility of
witnesses, and determines whether in resolving conflicts in the evidence, the finder of fact
clearly lost its way." Judson v. Lyendecker, 10th Dist. No. 12AP-615, 2013-Ohio-1060,
¶ 17, citing Eastley v. Volkman, 132 Ohio St.3d 328, 2012-Ohio-2179, ¶ 20.
{¶ 22} Under New York law, in order to establish an account stated, a plaintiff
must prove that a defendant manifested an express or implied " 'promise [as] a debtor to
pay a stated sum of money which the parties had agreed upon as the amount due.' "
David R. Maltz & Co., Inc. v. Wachovia Bank, N.A., E.D.N.Y. No. 07 CV 1049 (WDW),
2010 WL 1286308 (Mar. 31, 2010), quoting White Diamond Co., Ltd. v. Castco, Inc., 436
F.Supp.2d 615, 623 (S.D.N.Y.2006); see also Kramer, Levin, Nessen, Kamin & Frankel v.
Aronoff, 638 F.Supp. 714, 719 (S.D.N.Y.1986). See Eastman Kodak Co. v. W.H. Henken
Industries, Inc., W.D.N.Y. No. 05-CV-6425, 2007 WL 1726472 (June 14, 2007), quoting
LeBoeuf, Lamb, Greene & MacRae, L.L.P. v. Worsham, 185 F.3d 61, 64 (2d Cir.1999)
(citation and internal quotation marks omitted) ("To recover under a theory of an
'account stated,' a plaintiff must demonstrate 'an agreement between the parties to an
account based upon prior transactions between them.' "); see also Abbott, Duncan &
Wiener v. Ragusa, 214 A.D.2d 412, 413, 625 N.Y.S.2d 178 (1995) ("An account stated is an
account, balanced and rendered, with an assent to the balance either express or implied.
There can be no account stated where no account was presented or where any dispute
about the account is shown to have existed.") (internal citations omitted).
No. 12AP-970 8
{¶ 23} Acceptance of the account as correct and a promise to pay may be implied if
" 'a party receiving a statement of account keeps it without objecting to it within a
reasonable time' or 'if the debtor makes partial payment.' " Worsham at 64, quoting
Chisholm-Ryder Co., Inc. v. Sommer & Sommer, 70 A.D.2d 429, 421 N.Y.S.2d 455, 457
(1979). Under a claim for an account stated, " '[e]ven though there may be no express
promise to pay, yet from the very fact of stating an account, a promise arises by operation
of law as obligatory as if expressed in writing.' " Leepson v. Allan Riley Co., Inc., S.D.N.Y.
No. 04 Civ. 3720 (LTS)(AJ), 2006 WL 2135806 (July 31, 2006), quoting Aronoff at 719.
Interman Indus. Prods., Ltd. V. R.S.M. Electron Power, Inc., 37 N.Y.2d 151, 332 N.E.2d
859, 861 (1975); see also Law Offices of Kleinbaum v. Shurkin, 88 A.D.3d 659, 931
N.Y.S.2d 879 (2011); Manhattan Telecommunications Corp. v. Best Payphones, Inc., 299
A.D.2d 178, 749 N.Y.S.2d 246 (2002).
{¶ 24} Further, receipt and retention of invoices seeking payment without
objection within a reasonable time raises an actionable account stated. Jim-Mar Corp. v.
Aquatic Constr., Ltd., 195 A.D.2d 868, 600 N.Y.S.2d 790, 791-92 (1993); Whiteman,
Osterman & Hanna, LLP v Oppitz, 105 A.D.3d 1162, 1163, 963 N.Y.S.2d 432(2013) ("[P]laintiff demonstrated its entitlement to judgment [on an account stated] as a
matter of law by tendering evidence that it generated invoices for services rendered on a
monthly basis, mailed those invoices to defendant and did not receive any specific
objection in response thereto until after the commencement of this action."); Marino v.
Watkins, 112 A.D.2d 511, 490 N.Y.S.2d 917 (1985).
{¶ 25} In its complaint, CSC alleges details of the purchase order between Buckeye
Steel and TTA, whereby Buckeye Steel agreed to deliver truck components to TTA. The
complaint further alleged that TTA accepted deliveries from Buckeye Steel, but failed to
pay for certain deliveries and freight charges. CSC detailed the amount due in the
complaint and attached the invoices that Buckeye Steel sent to TTA in support of this
amount. TTA presented no evidence that it objected to the amount listed on any of the
invoices within a reasonable time after receipt. Further, at trial, John R. Downes, vice-
president of engineering for CSC, testified he had been employed as a director for Buckeye
Steel before it went bankrupt. Downes indicated the invoices that are the subject of CSC's
civil action reflected Buckeye Steel's delivery of goods under the contract that were
No. 12AP-970 9
accepted by TTA, with associated freight charges, but were not paid for. TTA provided no
evidence to refute this testimony that this balance was not paid. Therefore, TTA impliedly
accepted the amount due as correct and promised to pay it.
{¶ 26} For these reasons, we find CSC proved its claim for an account stated and
the trial court's judgment is supported by competent, credible evidence on the essential
elements of that claim. TTA's first assignment of error is overruled.
{¶ 27} In its second assignment of error, TTA asserts the trial court erred by
granting summary judgment in favor of CSC and precluding TTA from asserting its
defense of recoupment.
{¶ 28} We review a summary judgment motion de novo. Cashlink, L.L.C. v. Mosin,
Inc., 10th Dist. No. 12AP-395, 2012-Ohio-5906, ¶ 14. When an appellate court reviews a
trial court's disposition of a summary judgment motion, it applies the same standard as
the trial court and conducts an independent review, without deference to the trial court's
determination. Id. We must affirm the trial court's judgment if any grounds the movant
raised in the trial court support it. Id.{¶ 29} Pursuant to Civ.R. 56(C), summary judgment "shall be rendered forthwith if
the pleadings, depositions, answers to interrogatories, written admissions, affidavits,
transcripts of evidence, and written stipulations of fact, if any, timely filed in the action,
show that there is no genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law." Accordingly, summary judgment is appropriate
only under the following circumstances: (1) no genuine issue of material fact remains to
be litigated, (2) the moving party is entitled to judgment as a matter of law, and
(3) viewing the evidence most strongly in favor of the nonmoving party, reasonable minds
can come to but one conclusion, that conclusion being adverse to the nonmoving party.
Harless v. Willis Day Warehousing Co., 54 Ohio St.2d 64, 66 (1978).
{¶ 30} CSC's motion for summary judgment surrounded TTA's defense of
recoupment. In general, " 'recoupment' may be defined as, among other things, '[t]he
right of a defendant to have the plaintiff's claim reduced or eliminated because of the
plaintiff's breach of contract or duty in the same transaction.' " CSC I at ¶ 34, quoting
Black's Law Dictionary 1302 (8th Ed.2004). The crucial question in most recoupment
cases is whether the pertinent duties are part of the "same transaction." Courts have
No. 12AP-970 10
generally applied one of two approaches to make this determination: (1) the "logical
relationship" test, in which courts permit different obligations to be recouped against each
other as long as the obligations are sufficiently interconnected so that it would be unjust
to require one party to fulfill its obligation without requiring the other party to do so, or
(2) the "integrated transaction" test, in which the obligations at issue must arise out of a
single integrated transaction so that it would be inequitable for the debtor to enjoy the
benefits of the transaction without also meeting its obligations. Id. at ¶ 43, quoting Collier
on Bankruptcy (15th Ed.2007), 553-103 to 553-104.
{¶ 31} TTA first claims that the trial court erred by applying the "integrated
transaction test" instead of the "logical relationship test" when considering TTA's defense
of recoupment. In CSC I, at ¶ 47, although we observed that the trial court had not
mentioned the "logical relationship test," we did not require the court on remand to apply
that test. As noted previously, New York law governs substantive issues in this case.
CSC I at ¶ 22, 37. New York has repeatedly adopted the more restrictive "integrated
transaction test" when considering the asserted defense of recoupment. In re
Malinowski, 156 F.3d 131, 133 (2d Cir.1998); Westinghouse Credit Corp. v. D'Urso, 278
F.3d 138, 147 (2d Cir.2002); In re Delta Airlines, 359 B.R. 454, 466 (S.D.N.Y.2006) ("The
second approach, adopted by the Second Circuit, incorporates a more restrictive 'single
integrated transaction test.' "); Developmental Disabilities Inst., Inc. v Chancellor, New
York City Dept. of Edn., 2010 N.Y. Misc. LEXIS 4296 (N.Y.Sup.Ct. Aug. 11, 2010)
Therefore, TTA's first claim under this assignment of error lacks merit.
{¶ 32} TTA next claims that, even if the integrated transaction test was proper, the
trial court failed to consider that Buckeye Steel did not meet its obligations under the
purchase order. TTA again contends it should have been allowed to present evidence in
support of its claim that Buckeye Steel failed to timely deliver items and components
pursuant to the purchase order. As a result, TTA concludes the trial court's failure to
consider Buckeye Steel's obligations, or to allow TTA to present evidence of its
recoupment defense at trial, warrants reversal.
{¶ 33} When considering TTA's recoupment defense, the trial court determined
that the purchase order between Buckeye Steel and TTA created "separate and distinct
remedies for discrete portions of the transactions":
No. 12AP-970 11
Specifically, the purchase agreement allowed TTA to reject
individual deliveries and terminate individual orders or parts
of orders upon notice. (See Purchase Agreement, Sections 5,
12(A)-(B).) As such, the parties' obligations arose from
discrete and independent units.
(Feb. 9, 2012 Decision, 18.) See Westinghouse Credit at 147, quoting Malinowski at 135
("[E]ven where the parties' claims arise from a single contract, if 'the contract itself
contemplates the business to be transacted as discrete and independent units,'
recoupment may not be applied.").
{¶ 34} On remand, the trial court held that because TTA's recoupment defense was
limited to "deliveries that were never made" rather than any "deficiency with the
deliveries it received but for which it did not pay," "it would be inequitable for TTA to
enjoy the benefits of the discrete transactions that were completed without also meeting
its obligations as to those deliveries." (Feb. 9, 2012 Decision, 18.) We discern no error in
the trial court's conclusion. TTA accepted the delivered goods and used them without
paying for them and the associated freight charges. Equity demanded that Buckeye Steel's
successor-in-interest for those discrete transactions (CSC) be paid by TTA.
{¶ 35} Moreover, as previously discussed, TTA's argument about its inability to
present additional evidence in support of its recoupment defense is not properly before
this court.
{¶ 36} For these reasons, TTA's second assignment of error is overruled.
IV. CONCLUSION
{¶ 37} For the foregoing reasons, TTA's assignments of error are overruled, and
the judgments of the Franklin County Court of Common Pleas are affirmed.
Judgments affirmed.
BROWN and DORRIAN, JJ., concur.