Estate of Mikulski v. Centerior Energy Corp.

[Cite as Estate of Mikulski v. Centerior Energy Corp., 2019-Ohio-983.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 107108
ESTATE OF JEROME R. MIKULSKI, ET AL.
PLAINTIFFS-APPELLEES
vs.
CENTERIOR ENERGY CORPORATION, ET AL.
DEFENDANTS-APPELLANTS
JUDGMENT:
REVERSED AND REMANDED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-01-457866
BEFORE: Boyle, P.J., E.A. Gallagher, J., and Sheehan, J.
RELEASED AND JOURNALIZED: March 21, 2019
ATTORNEYS FOR APPELLANTS
Mitchell G. Blair
Tracy S. Johnson
Ronald M. McMillan
Calfee, Halter & Griswold, L.L.P.
The Calfee Building
1405 East Sixth Street
Cleveland, Ohio 44114
Zachary Faigen
Allen L. Lanstra
Peter B. Morrison
Douglas A. Smith
Skadden, Arps, Slate, Meagher, & Flom
300 S. Grand Avenue
Los Angeles, California 90071
FOR APPELLEES
Attorneys for Elzetta C. Mikulski
William Craig Bashein
Bashein & Bashein Co., L.P.A.
35th Floor Terminal Tower
50 Public Square
Cleveland, Ohio 44113
Eric H. Zagrans
Zagrans Law Firm, L.L.C.
5077 Waterford Drive, Suite 302
Sheffield, Ohio 44035
Subodh Chandra
Chandra Law Firm, L.L.C.
1265 West 6th Street, Suite 400
Cleveland, Ohio 44113
Joshua R. Cohen
Cohen, Rosenthal & Kramer, L.P.A.
3208 Clinton Avenue
1 Clinton Place
Cleveland, Ohio 44113
Steven M. Goldberg
Steven M. Goldberg Co., L.P.A.
31300 Solon Road, Suite 12
Solon, Ohio 44139
Daniel R. Karon
Karon, L.L.C.
700 West St. Clair Avenue, Suite 200
Cleveland, Ohio 44113
James M. Kelley, III
Elk & Elk Co., Ltd.
6105 Parkland Boulevard, Suite 200
Mayfield Heights, Ohio 44124
Robert E. Kennedy
Daniel P. Goetz
Weisman, Kennedy & Berris Co., L.P.A.
1600 Midland Building
101 Prospect Avenue, West
Cleveland, Ohio 44115
Jack Landskroner
Landskroner Grieco Merriman, L.L.C.
1360 West 9th Street, Suite 200
Cleveland, Ohio 44113
Dennis R. Lansdowne
Spangenberg, Shibley & Liber, L.L.P.
1001 Lakeside Avenue, East, Suite 1700
Cleveland, Ohio 44114
Eben O. McNair IV
Schwarzwald McNair & Fusco, L.L.P.
1215 Superior Avenue, Suite 225
Cleveland, Ohio 44114-3527
David M. Paris
Nurenberg Paris Heller & McCarthy
600 Superior Avenue, East, Suite 1200
Cleveland, Ohio 44114
Patrick J. Perotti
Dworken & Bernstein Co., L.P.A.
60 South Park Place
Painesville, Ohio 44077
Adam Savett
Savett Law Offices, L.L.C.
6100 Oak Tree Boulevard, Suite 200
Independence, Ohio 44131
Michael F. Becker
The Becker Law Firm, L.P.A.
134 Middle Avenue
Elyria, Ohio 44035
Thomas R. Theado
Gary, Naegele & Theado, L.L.C.
401 Broadway Avenue, Unit 104
Lorain, Ohio 44052-1745
Dennis P. Barron
582 Torrence Lane
Cincinnati, Ohio 45208
Attorneys for Jerome R. Mikulski
Robert D. Gary
Jori Bloom Naegele
Gary Naegele Theado, L.L.C.
Duane Building
401 Broadway Avenue, Unit 104
Lorain, Ohio 44052-1745
Joseph M. Sellers
Michelle C. Yau
1100 New York Avenue, N.W.
Suite 500, West Tower
Washington, D.C. 20005
For Charlotte Beck
Charlotte Beck, pro se
501 E. Orangethorpe
27 Magnolia Via
Anaheim, California 92801-0000
MARY J. BOYLE, P.J.:
{¶1} Defendants-appellants, Centerior Energy Corporation and First Energy
Corp., as successor-in-interest to Centerior Energy Corporation (collectively
“defendants”), appeal from the trial court’s order granting class certification. They
raise six assignments of error for our review:
1. The trial court erred by certifying the Subclass under Rule 23(B)(3).
2. The trial court erred by considering whether to certify the Class.
3. The trial court erred by certifying the Class due to lack of standing.
4. The trial court erred by certifying the Class under Rule 23(B)(3).
5. The trial court erred by certifying the Class under Rule 23(B)(2).
6. The trial court erred by certifying the Class under Rule 23(B)(1)(a).
{¶2} Finding merit to defendants’ first and third assignments of error, we
reverse and remand.
I. Procedural History and Factual Background
{¶3} In December 2001, plaintiffs-appellees, Elzetta C. Mikulski and the
estate of Jerome R. Mikulski 1 (“plaintiffs” or “the Mikulskis”), filed four separate
actions against defendants for breach of contract in the following cases:
1. Estate of Jerome R. Mikulski v. Cleveland Elec. Illum. Co., Cuyahoga
C.P. No. 02-CV-490019;
2. Estate of Jerome R. Mikulski v. The Toledo Edison Co., Lucas C.P.
No G-4801-CI-200206364-000;
1
Jerome R. Mikulski passed away during the lower court proceedings. Plaintiffs moved to
substitute his estate as a party, and the trial court granted that motion in February 2008.
3. Estate of Jerome R. Mikulski v. Centerior Energy Corp., Cuyahoga
C.P. No. 01-CV-457866 (“Centerior I”); and
4. Mikulski v. Centerior Energy Corp., Cuyahoga C.P. No.
02-CV-490020 (“Centerior II”).2
In their actions, the Mikulskis alleged that they “owned shares of common stock of
Centerior and both of its predecessor companies, The Toledo Edison Company * * *
and The Cleveland Electric Illuminating Company[.]” As this court explained in a
previous appeal from Centerior II, plaintiffs asserted
that in the mid-1980’s, Centerior began improperly manipulating its
corporate earnings to appear more profitable. Centerior made
payments to shareholders that it purported were dividend payments,
which caused appellants to pay taxes on those payments as ordinary
income. [Plaintiffs] argue these payments largely consisted of returns of
capital, which were not taxable or taxable only at the lower rate
applicable to capital gains. According to [plaintiffs], this resulted in
substantial overpayment of state and federal taxes for many years.
Id. at ¶ 2. Plaintiffs alleged that Centerior’s misstatement
occurred because of Centerior’s improper use of construction loan debt
servicing costs in calculating its earning and profits (“E&P”). The
calculation of E&P is important because any payment to shareholders
up to E&P is accounted as a dividend and taxed as ordinary income, but
amounts that exceed E&P are classified as a return of capital, which
reduces the shareholder’s basis in the stock — resulting in no current
tax liability — or is taxed as a capital gain to the extent that the
payments exceed the shareholder’s basis.
Id. at ¶ 3.
{¶4} In Centerior I — the instant case — plaintiffs’ complaint set forth a
claim for breach of a written contract and alleged that defendants “over-reported the
amount or percentage of the 1986 distributions that was taxable as a dividend for
2
While the instant appeal only concerns Centerior I (Case No. CV-01-457866), some reference
to and discussion of Centerior II is necessary for background purposes.
income tax purposes” and provided “materially incorrect” information “with respect to
the division between dividend and return of capital.” Plaintiffs alleged that by
“misreporting” the taxable dividends of the 1986 distributions, defendants breached the
contract that they had with their shareholders. Plaintiffs’ complaint stated that they
were bringing the instant action on behalf of
all common shareholders of Centerior (including without limitation to
its predecessor entities) and beneficial owners of Centerior common
shares, who in 1987 received a Form 1099-DIV or substitute therefor
from Centerior or its agents reporting the tax status of distributions
made by Centerior during the calendar year 1986, and the communities
comprised of them and their spouses, if any.
{¶5} In January 2002, plaintiffs filed an amended class action complaint,
which contained the same class definition as above and added a claim for fraudulent
misrepresentation. Defendants filed a joint answer and set forth defenses. Defendants
denied that the Form 1099-DIVs “over-reported the estimated amount or percentage of
the 1986 distributions that was taxable as a dividend for income tax purposes” and
“under-reported the estimated amount or percentage of the 1986 distribution that was a
return of capital[.]” 3 Defendants also wholly denied that it provided its common
shareholders any materially incorrect information.
{¶6} In May 2002, plaintiffs filed a motion for class certification.
{¶7} Between 2002 and 2003, defendants removed all of plaintiffs’ actions to
the United States District Court of the Northern District of Ohio, rendering all of the
motions before the court of common pleas moot by the removal.
{¶8} Between 2008 and 2009, the United States District Court remanded the
3
In their appellate brief, defendants call plaintiffs’ merits action “preposterous” and state that
their “theory of liability has never been accepted by any court.” (Emphasis sic.)
cases back to their respective court of common pleas for lack of jurisdiction. As a
result, the cases proceeded to discovery and motion practice regarding class
certification.
A. The Trial Court Denies Class Certification in Centerior II
{¶9} The first of plaintiffs’ cases to decide the class-certification issue was
Centerior II. The class definition that plaintiffs set forth in that case was nearly
identical to that in Centerior I, except it covered the shareholders and beneficial owners
of Centerior and its common shares who were issued Form 1099-DIVs from 1988
through 1998.4 In December 2009, the trial court in that case denied class certification
to plaintiffs, finding that “liability as to each plaintiff’s claim could not be ascertained
on a class-wide basis in a single adjudication[.]”
{¶10} In January 2010, plaintiffs appealed the trial court’s decision. In
February 2011, we reversed and remanded the trial court’s decision in Estate of
Mikulski v. Centerior Energy Corp., 8th Dist. Cuyahoga No. 94536, 2011-Ohio-696(“the First Mikulski Appeal”). Foremost, we agreed with the trial court and found that
4
In Centerior II, plaintiffs defined their class as “[a]ll common shareholders of * * * Centerior,
and all beneficial owners of Centerior common shares, who in any year beginning in 1988 and continuing
through 1998, inclusive, were issued a Form 1099-DIV or substitute therefor by Centerior or its agents
reporting the tax status of distributions made by Centerior during any of the calendar years from 1987
through 1997, inclusive, and the communities comprised of them and their spouses, if any, excluding
therefrom: (i) common shareholders and beneficial owners who sold such shares (which had by that time
been converted to shares of FirstEnergy) on or after January 1, 2005; (ii) shareholders identified by a
federal taxpayer identification number other than a social security number, excepting nominees which
held shares of Centerior common stock for or on behalf of beneficial owners who are identified for tax
purposes by a social security number; (iii) Defendants, their predecessors and successors; (iv) the officers
and directors of Defendants, their predecessors and successors; (v) counsel of record in this action and
their respective parents, spouses and children; and (vi) judicial officers who enter an order in this action
and their respective parents, spouses and children.” Estate of Mikulski v. Centerior Energy Corp., 8th
Dist. Cuyahoga No. 94536, 2011-Ohio-696, ¶ 4-5.
“liability could not be determined on a class-wide basis for the class as defined by
appellants.” Id. at ¶ 15. We explained that
Centerior’s misstatements could only have been harmful if they affected
the plaintiffs’ tax liability. Those class members who did not pay taxes
in any relevant year in which they received a 1099-DIV from Centerior
could not have suffered any actual damage from the misstatement. The
individual question of whether the class member paid taxes and, if so,
how Centerior’s misstatement affected their tax liability, would
predominate over common questions. The trial court did not abuse its
discretion by finding that, for the class as defined by appellants,
individual questions predominate.
Id. As a result, we found that the trial court did not abuse its discretion in denying
class certification for lack of predominance. Id. at ¶ 16.
{¶11} In that same appeal, we also considered whether the trial court abused its
discretion in failing to amend the proffered class. Specifically, plaintiffs argued that
the trial court should have redefined the class to include “only those individuals who
filed tax returns for any of the years in question[.]” Id. at ¶ 20. We found that it was
“unclear” if that amendment would “cure the predominance defect and preserve
Centerior’s due process rights.” Id. We found that “a redefinition of the class could
resolve the predominance problem because the fact of damage could be shown on a
class-wide basis, leaving only the amount of damages to be determined.” Id. We
therefore remanded the case “[b]ecause the record is unclear regarding [plaintiffs’]
assertion that the fact of damage can be demonstrated simply by showing that a putative
class member filed a tax return in any given year[.]” Id. at ¶ 21.
{¶12} In April 2015, however, plaintiffs voluntarily dismissed their claims
without prejudice in Centerior II.
{¶13} While Centerior II was on appeal, Centerior I, the instant case, proceeded
in the lower court. In July 2013, the trial court granted plaintiffs’ leave to file a second
amended complaint, which amended their class definition as follows (amendments
italicized):
All common shareholders of [Centerior], and all beneficial owners of
Centerior common shares, who in any year beginning in 1987 and
continuing through 1994, inclusive, were issued a Form 1099-DIV or
substitute therefor by Centerior or its agents reporting the tax status of
distributions made by Centerior during any of the calendar years of
1986 through 1993, inclusive, and who paid a state or federal income
tax for that year, and the communities comprised of them and their
spouses, if any, excluding therefrom:
(i) common shareholders and beneficial owners who sold such
shares (which had by that time been converted to shares of
FirstEnergy) on or after January 1, 2010;
(ii) shareholders identified by a federal taxpayer identification
number other than a social security number, excepting nominees
which held shares of Centerior common stock for or on behalf of
beneficial owners who are identified for tax purposes by a social
security number;
(iii) Defendants, their predecessors and successors;
(iv) the officers and directors of Defendants, their predecessors and
successors;
(v) Counsel of record in this action and their respective parents,
spouses and children; and
(vi) any judicial officer who enters an order in this action and their
respective parents, spouses, and children.
The amended class definition “expand[ed] the same claims originally brought against
Defendants for 1986 to the subsequent years 1987 through 1993[.]”5
5
Plaintiffs requested leave to file a second amended complaint in October 2002.
{¶14} The same day, the trial court also granted plaintiffs’ motion for class
certification in part. Considering Centerior II and the holding in the First Mikulski
Appeal, the trial court found that plaintiffs satisfied the identifiability, membership,
numerosity, commonality, typicality, and adequacy requirements under Civ.R. 23(A).
The trial court then ordered the parties to brief the “final two remaining requisite
criteria for class certification — predominance and superiority.” The trial court
concluded its entry, stating,
Bearing in mind the Eighth District’s instructions that “defining the
class to include only those individuals who filed a tax return in any of
the given years would appear to solve the predominance problem if this
was indicative of injury,” Estate of Mikulski v. Centerior Energy Corp.,
8th Dist. Cuyahoga No. 94536 (Feb. 17, 2011), at ¶ 21, because, as the
Court explained, if “any individuals who filed a return in any of the
included years would suffer some damages,” then restricting the Class
to such individuals “could resolve the predominance problem because
the fact of damage could be shown on a class-wide basis,” id. at ¶ 20,
the Court specifically directs the parties to address whether (and, if so,
how) the definition of the Class asserted in this action may be further
amended to satisfy those criteria. See, e.g., Plaintiff’s Second Notice
of Amended Class Definition filed Oct. 21, 2002.
{¶15} The parties both filed briefs addressing the two remaining
class-certification prerequisites. In their brief, plaintiffs stated that those prerequisites
“are satisfied by restricting the class to shareholders actually damaged by Centerior’s
misrepresentations. Restricting the class to shareholders actually damaged by
Centerior’s misrepresentations is accomplished by defining the class to include only
those shareholders who paid taxes.” (Emphasis added.)
{¶16} In January 2015, plaintiffs filed a revised class definition, that they stated
“fulfill[ed] the Court of Appeals’ instructions for satisfying the remaining two class
certification requisites — predominance and superiority — set forth in Estate of
Mikulski v. Centerior Energy Corp., 8th Dist. Cuyahoga No. 94536, 2011-Ohio-696.”
Plaintiffs’ motion defined the class as (changes italicized):
All common shareholders of [Centerior] and all beneficial owners of
Centerior common shares, from April 1986 through December 1993,
inclusive, who were issued, in any calendar year beginning in 1987 and
continuing through 1994, inclusive, a Form 1099-DIV or substitute
therefor by Centerior or its agents reporting the tax status of
distributions made by Centerior during any of the calendar years from
1986 through 1993, inclusive, and the communities comprised of them
and their spouses, if any, excluding therefrom:
(a) Registered shareholders identified by a federal taxpayer
identification number other than a social security number,
excepting nominees which held shares of Centerior common
stock for or on behalf of beneficial owners who are identified for
tax purposes by a social security number;
(b) Defendants, their predecessors and successors;
(c) The officers and directors of Defendants, their predecessors and
successors;
(d) Counsel of record in this action and their respective parents,
spouses and children; and
(e) Judicial officers who enter an order in this action and their
respective parents, spouses and children.6
Plaintiffs’ motion also defined a newly added subclass, which included
All members of the Class who were issued, in any of the calendar years
1987, 1992, 1993 or 1994, a Form 1099-DIV or substitute therefor by
Centerior or its agents reporting the tax status of distributions made by
Centerior during any of the calendar years 1986, 1991, 1992 or 1993,
and who paid a state or federal income tax for any such year, excluding
therefrom common shareholders and beneficial owners who sold such
shares during the three full tax-reporting years immediately preceding
the date of the entry of the Court’s ruling certifying the Class (which
had by that time been converted to shares of FirstEnergy Corp.), that is,
6
The amended class definition omitted the following from the previous definition: “(i) common
shareholders and beneficial owners who sold such shares (which had by that time been converted to
shares of First Energy) on or after January 1, 2010[.]”
on or after [here insert the date corresponding to the full
three-reporting-year exclusion].7
Plaintiffs stated that they added the Subclass “in response to the opinion and remand
instructions of the Eighth District Court of Appeals[.]”
{¶17} In addition to the revised definitions, plaintiffs requested the “equitable
remedy of disgorgement of the benefits Defendants received as the result of the
misconduct.” In a supplemental briefing to that motion, plaintiffs also for the first time
sought certification under Civ.R. 23(B)(1)(a) and 23(B)(2), which were not pleaded in
their second amended complaint.
{¶18} In October 2015, defendants moved to strike plaintiffs’ revised class
definition, but the trial court denied defendants’ motion.
{¶19} In April 2017, the parties presented oral arguments to the trial court
concerning class certification. Both parties also submitted proposed findings of fact
and conclusions of law concerning class certification. The trial court denied
defendants’ request for an evidentiary hearing related to class certification.
B. The Trial Court Certifies Plaintiffs’ Proposed Class
{¶20} In March 2018, the trial court adopted plaintiffs’ proposed findings of fact
and conclusions of law. In the trial court’s entry, it found that the Shareholder Class
and Subclass satisfied the Civ.R. 23(A) requirements. It noted that defendants did not
“challenge Plaintiffs’ proof of the membership, numerosity, or commonality
requirements, nor [did] they challenge the adequacy of Plaintiffs’ counsel.”
{¶21} The trial court next addressed Civ.R. 23(B). It found that the Shareholder
For ease of discussion, we will refer to the class as the “Shareholder Class” and the
7
Class was certifiable under Civ.R. 23(B)(1)(a), (2), and (3) and that the Subclass was
certifiable under Civ.R. 23(B)(3). The trial court found that plaintiffs “raised several
common questions applying to all members of the Shareholder Class”:
i. Whether Centerior had a fiduciary and/or statutory duty to provide
its shareholders with truthful and accurate information during the
years in question;
ii. Whether Centerior misrepresented the tax status of cash
distributions on Forms 1099-DIV issued during the years in
question in violation of its fiduciary and/or statutory duties and in
breach of its contract with Shareholders;
iii. Whether receiving a false and fraudulent Form 1099-DIV from a
fiduciary is a sufficient injury to establish claims of fraudulent
misrepresentation and/or breach of contract under Ohio law. If the
answer to that question is “no,” as Defendants contend, then such
claims would fail on their merits, but that prospect as a merits
determination does not defeat class certification at this stage of the
case but rather demonstrates the class-wide predominance of such
a question;
iv. Whether an accounting of Defendants’ E&P books and records is
an appropriate remedy for Centerior’s alleged wrongdoing; and
v. Whether disgorgement of any benefits Defendants obtained as a
result of Centerior’s alleged wrongdoing is an appropriate
remedy.
{¶22} The trial court agreed with plaintiffs that “[t]he injury allegedly suffered
by all [Shareholder] Class members in common * * * is Centerior’s alleged failure to
make truthful and accurate disclosures mandated by law” and that that failure, “if true,
constitutes injury even without monetary loss having been suffered * * * because the
inability to obtain information itself can constitute an injury.”
subclass as the “Subclass” throughout the remainder of this opinion.
{¶23} The trial court found that the Shareholder Class and the Subclass both
suffered that “misrepresentation injury” and “[t]he only difference between the
Shareholder Class and the Taxpayer Subclass is that the Subclass members allegedly
suffered the additional injury of overpaying their federal and state income taxes as a
result.”
{¶24} As to the Subclass, the trial court stated that the Subclass “shares the
same common issues as the Shareholder Class” and that those issues predominate over
any “purely individual issues[.]” It noted that the Subclass “presents additional
questions common to the Subclass but not to the [Shareholder] Class”:
(i) Whether overpaying taxes based on allegedly false and fraudulent
Forms 1099-DIV * * * is sufficient injury to establish * * *
fraudulent misrepresentation and breach of contract[;] and
(ii) Whether the damages from overpayment of state and federal
income taxes by the members of the Subclass can be calculated
using the class-wide formula and methodology used by Plaintiffs’
experts.
{¶25} It is from this judgment that defendants now appeal.
II. Law and Analysis
A. Standard of Review
{¶26} Trial courts have broad discretion in determining whether a class action
may be maintained, and we will not disturb that determination unless a party shows that
the trial court abused its discretion. Marks v. C.P. Chem. Co., 31 Ohio St.3d 200, 509
N.E.2d 1249 (1987). “This ‘is grounded not in credibility assessment, but in the trial
court’s special expertise and familiarity with the case-management problems and its
inherent power to manage its own docket.’” Cantlin v. Smythe Cramer Co., 8th Dist.
Cuyahoga No. 106697, 2018-Ohio-4607, ¶ 15, quoting Gattozzi v. Sheehan, 8th Dist.
Cuyahoga No. 103246, 2016-Ohio-5230, 57 N.E.3d 1187. A trial court abuses its
discretion when its decision was unreasonable, arbitrary, or unconscionable. Wilson v.
Brush Wellman, Inc., 103 Ohio St.3d 538, 2004-Ohio-5847, 817 N.E.2d 59, ¶ 30.
{¶27} A trial court’s discretion in deciding whether to certify a class action,
however, is not unlimited, and must comply with the requirements and framework set
forth in Civ.R. 23. Lingo v. State, 8th Dist. Cuyahoga No. 97537, 2012-Ohio-2391, ¶
16. In fact, a trial court must “carefully apply the class action requirements and
conduct a rigorous analysis into whether the prerequisites of Civ.R. 23 have been
satisfied.” Hamilton v. Ohio Savs. Bank, 82 Ohio St.3d 67, 70, 694 N.E.2d 442 (1998).
B. Class Action Certification
{¶28} The class action is an invention of equity. Amchem Prods., Inc. v.
Windsor, 521 U.S. 591, 613, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). Class
certification in Ohio is based upon Rule 23 of the Ohio Rules of Civil Procedure, which
is identical to Rule 23 of the Federal Rules of Civil Procedure.
The policy at the very core of the class action mechanism is to
overcome the problem that small recoveries do not provide the
incentive for any individual to bring a solo action prosecuting his or her
rights. A class action solves this problem by aggregating the relatively
paltry potential recoveries into something worth someone’s (usually an
attorney’s) labor.
Ritt v. Billy Blanks Ents., 171 Ohio App.3d 204, 2007-Ohio-1695, 870 N.E.2d 212, ¶
32-33 (8th Dist.), citing Amchem.
{¶29} Civ.R. 23 sets forth seven requirements for class certification:
(1) an identifiable class must exist and the definition of the class must be
unambiguous;
(2) the named representatives must be members of the class;
(3) the class must be so numerous that joinder of all members is
impracticable;
(4) there must be questions of law or fact common to the class;
(5) the claims or defenses of the representative parties must be typical of
the claims or defenses of the class;
(6) the representative parties must be typical of the claims or defenses of
the class; and
(7) one of the three Civ.R. 23(B) requirements must be met.
Hamilton at 71. Civ.R. 23(B) provides that a class action may be maintained if Civ.R.
23(A) is satisfied and,
(1)(a) prosecuting separate actions by or against individual class
members would create a risk of inconsistent or varying adjudications
with respect to individual class members that would establish
incompatible standards of conduct for the party opposing the class; * *
*
(2) the party opposing the class has acted or refused to act on grounds
generally applicable to the class, thereby making appropriate final
injunctive relief or corresponding declaratory relief with respect to the
class as a whole; or
(3) the court finds that the questions of law or fact common to the
members of the class predominate over any questions affecting only
individual members, and that a class action is superior to other
available methods for the fair and efficient adjudication of the
controversy.
{¶30} “The party seeking to maintain a class action has the burden of
demonstrating that all factual and legal prerequisites to class certification have been
met.” Linn v. Roto-Rooter, Inc., 8th Dist. Cuyahoga No. 82657, 2004-Ohio-2559,
citing Gannon v. Cleveland, 13 Ohio App.3d 334, 469 N.E.2d 1045 (8th Dist.1984).
“Before certifying the class, the trial court must find that the party seeking certification
has proven by a preponderance of the evidence that each of the seven requirements for
class certification are met.” Ford Motor Credit Co. v. Agrawal, 8th Dist. Cuyahoga
No. 103667, 2016-Ohio-5928, ¶ 11, citing Ritt.
{¶31} Further, “[w]hen a trial court considers a motion to certify a class, it must
assume the truth of the allegations in the complaint, without considering the merits of
those allegations and claims.” Nagel v. Huntington Natl. Bank, 179 Ohio App.3d 126,
2008-Ohio-5741, 900 N.E.2d 1060, ¶ 10 (8th Dist.). The only examination a trial court
may perform as to the underlying claims when determining class certification is to
determine “whether common questions exist and predominate[.]” Id. at ¶ 12, citing
George v. Ohio Dept. of Human Servs., 145 Ohio App.3d 681, 763 N.E.2d 1261 (10th
Dist.2001). However, the class-certification analysis “will frequently ‘overlap with the
merits of the plaintiff’s underlying claim’ because a ‘class determination generally
involves considerations that are enmeshed in the factual and legal issues comprising the
plaintiff’s cause of action.’” Comcast Corp. v. Behrend, 569 U.S. 27, 27-28, 133 S.Ct.
1426, 185 L.Ed.2d 515 (2013), quoting Gen. Tel. Co. of the S.W. v. Falcon, 457 U.S.
147, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982).
{¶32} “‘Any doubts a trial court may have as to whether the elements of the
class certification have been met should be resolved in favor of upholding the class[.]’”
Nagel at ¶ 10, quoting Rimedio v. Summacare, 172 Ohio App.3d 639,
2007-Ohio-3244, 876 N.E.2d 986 (9th Dist.).
{¶33} With these principles in mind, we will address defendants’ assignments of
error, although out of order for ease of discussion and disposition.
1. Our 2011 Decision and Remand in Estate of Mikulski v. Centerior
Energy Corp., 8th Dist. Cuyahoga No. 94536, 2011-Ohio-696, was
not a Mandate.
{¶34} In their second assignment of error, defendants argue that the trial court
erred in considering and lacked the jurisdiction to certify the Shareholder Class because
the trial court failed to follow our decision in the First Mikulski Appeal concerning
Centerior II. Specifically, defendants argue that our previous decision “mandated”
plaintiffs “to amend their class definition to include only those who overpaid their
taxes” and that the trial court did not follow that mandate and instead “improperly
permitted Plaintiffs to reinvent their case, adding a new disgorgement-based Class that
asserts a new injury, requests new remedies, and seeks certification under additional
prongs of Rule 23(B).” We disagree.
{¶35} Defendants’ arguments rest on principles related to “the mandate rule”
and the law-of-the-case doctrine. The mandate rule is “a corollary of the
law-of-the-case doctrine” and “requires a [trial] court on remand to effect [an appellate
court’s] mandate and to do nothing else.” United States v. Castillo, 179 F.3d 321, 329
(5th Cir.1999). Relatedly, the law-of-the case doctrine “provides that the decision of a
reviewing court in a case remains the law of that case on the legal questions involved
for all subsequent proceedings in the case at both the trial and reviewing levels.”
Hawley v. Ritley, 35 Ohio St.3d 157, 160, 519 N.E.2d 390 (1988). The doctrine “is
necessary to ensure consistency of results in a case, to avoid endless litigation by
settling the issues, and to preserve the structure of the superior and inferior courts as
designed by the Ohio Constitution.” Id. To meet those goals, the doctrine “compel[s]
trial courts to follow the mandates of reviewing courts[,]” and trial courts are “without
authority to extend or vary the mandate given.” Id. As a result, “where at a rehearing
following a remand a trial court is confronted with substantially the same facts and
issues as were involved in the prior appeal, the court is bound to adhere to the appellate
court’s determination.” (Emphasis added.) Id.{¶36} In support of their argument, defendants cite to a number of cases —
Hawley; State ex rel. Heck v. Kessler, 72 Ohio St.3d 98, 647 N.E.2d 792 (1995);
Baumer v. United States, 685 F.2d 1318 (11th Cir.1982); and Castillo — discussing the
“mandate rule” and the “law of the case doctrine.” All of those cases are distinguishable
from the instant matter because none of them involved the certification of a class action.
{¶37} We find that one of our previous cases, Konarzewski v. Ganley, Inc.,
2017-Ohio-4297, 82 N.E.3d 1191 (8th Dist.), is more analogous instead because it also
concerned a class action and an argument that a prior decision by our court controlled
the ongoing proceedings in the trial court. We rejected that argument in Konarzewski,
stating,
[W]e reject any contention by plaintiffs that we are somehow bound by
the determinations made in Konarzewski I, 8th Dist. Cuyahoga No.
92623, 2009-Ohio-5827. In that appeal, the Civ.R. 23 requirements
were considered with regard to the proposed class then before the court.
That proposed class was never certified, nor was a mandate issued for
class certification. Rather, the case was remanded for modification of
the class definition, albeit to comport with the requirement of actual
damages found in R.C. 1345.09(B). That decision has no effect upon
the review of a subsequently certified class. We find nothing in the
doctrine of the law of the case that would preclude a court from
revisiting the class certification requirements with regard to a modified
or revised class definition. Class certification cannot be granted unless
all requirements for class certification have been met, and the court is
required to conduct a rigorous analysis in making its determination.
Cullen [v. State Farm Mut. Auto Ins. Co., 137 Ohio St.3d 373,
2013-Ohio-4733, 999 N.E.2d 614] at ¶ 16.
Id. at ¶ 10.
{¶38} We reach the same conclusion in this case. Foremost, we never
definitively ruled on class certification in the First Mikulski Appeal. Instead, we
stated, “a redefinition of the class could resolve the predominance problem because the
fact of damage can be demonstrated simply by showing that a putative class member
filed a tax return in any given year, this cause must be remanded to the trial court for
further consideration.” (Emphasis added.) Mikulski, 8th Dist. Cuyahoga No. 94536,
2011-Ohio-696, at ¶ 21. The only thing that language “mandated” was for the trial
court to further consider the predominance requirement. We did not affirm or reverse
any other part of the trial court’s decision or findings as to the class-certification
prerequisites, and we did not state that the trial court could not reconsider a newly
proposed class of plaintiffs.
{¶39} Further, the trial court was not confronted with the same facts and issues
that our court reviewed in the First Mikulski Appeal. See Baumer, 685 F.2d 1318, at
1320, quoting White v. Murtha, 377 F.2d 428 (5th Cir.1967) (“‘[A] decision of a legal
issue or issues by an appellate court * * * must be followed in all subsequent
proceedings * * * unless the evidence on a subsequent trial was substantially
different[.]’”). After remanding the issue, the parties engaged in several years of
discovery and motion practice, which included the filing of multiple expert reports.
The trial court then followed our instructions on remand and upheld its responsibility of
performing a “rigorous analysis” of the newly presented evidence, factual disputes, and
class-certification prerequisites. Cullen at paragraph one of the syllabus. Therefore,
while the case still has precedential value, it is not a mandate that deprived the trial
court of jurisdiction as defendants argue.
{¶40} Accordingly, we overrule defendants’ second assignment of error.
2. The Subclass Should Not Be Certified Because Determining
Whether All Members of the Subclass Were Injured Would Result
in Individual Inquiries That Would Not Satisfy the Predominance
Requirement.
{¶41} In their first assignment of error, defendants argue that the trial court
erred when it certified the Subclass under Civ.R. 23(B)(3).8
{¶42} Class certification under Civ.R. 23(B)(3) is appropriate when “the court
finds that the questions of law or fact common to the members of the class predominate
over any questions affecting only individual members, and that a class action is superior
to other available methods for the fair and efficient adjudication of the controversy.”
The common questions of law or fact “must present a significant aspect of the case * *
* [and] must be capable of resolution for all members in a single adjudication.”
Marks, 31 Ohio St.3d at 204, 509 N.E.2d 1249. To put simply, Civ.R. 23(B)(3) has
two elements: predominance and superiority.
{¶43} Civ.R. 23(B)(3) lists factors that are pertinent to a finding of
predominance:
(a) the interest of members of the class in individually controlling the
prosecution or defense of separate actions;
(b) the extent and nature of any litigation concerning the controversy
already commenced by or against members of the class;
8
Civ.R. 23(C)(5) allows a class to “be divided into subclasses that are treated as a class[.]”
(c) the desirability or undesirability of concentrating the litigation of the
claims in the particular forum;
(d) the difficulties likely to be encountered in the management of a class
action.
“The list in the rule is not exhaustive, so other pertinent factors may be considered.”
State ex rel. Davis v. Pub. Emp. Retirement Bd., 111 Ohio St.3d 118, 2006-Ohio-5339,
855 N.E.2d 444, ¶ 28.
{¶44} As we recognized before, there are
a number of standards that the courts have used to determine
predominance: the substantive elements of class members’ claims
require the same proof for each class member; the proposed class is
bound together by a mutual interest in resolving common questions
more than it is divided by individual interests; the resolution of an issue
common to the class would significantly advance the litigation; one or
more common issues constitute significant parts of each class member’s
individual cases; the common questions are central to all of the
members’ claims; and the same theory of liability is asserted by or
against all class members, and all defendants raise the same basic
defenses.
Westgate Ford Truck Sales v. Ford Motor Co., 8th Dist. Cuyahoga No. 86596,
2007-Ohio-4013, ¶ 80, citing 5 Moore, Federal Practice (3d Ed.1977).
{¶45} Nevertheless, “‘a proposed class action requiring the court to determine
individualized fact of damages does not meet the predominance standards of Rule
23(b)(3).’” Felix v. Ganley Chevrolet, Inc., 145 Ohio St.3d 329, 2015-Ohio-3430, 49
N.E.3d 1224, ¶ 34, quoting Gonzales v. Comcast Corp., E.D.Cal. No.
10-cv-01010-LJO-BAM, 2012 U.S. Dist. LEXIS 196 (Jan. 3, 2012). “If the class
plaintiff fails to establish that all of the class members were damaged (notwithstanding
questions regarding the individual damages calculations for each class members), there
is no showing of predominance under Civ.R. 23(b)(3).” Id. at ¶ 35.
{¶46} In Felix, the Ohio Supreme Court vacated the trial court’s order certifying
the plaintiffs’ proposed class of consumers who purchased vehicles from particular car
dealerships and signed purchase contracts that allegedly contained an unconscionable
arbitration clause. The Ohio Supreme Court held that
the class, as certified, fails because there is no showing that all class
members suffered an injury in fact. The broadly defined class
encompasses consumers who purchased a vehicle at Ganley through a
purchase contract that contained the unconscionable arbitration
provision. But there is absolutely no showing that all of the consumers
who purchased vehicles through a contract with the offensive arbitration
provision were injured by it or suffered any damages.
Id. at ¶ 37.
{¶47} There are also a number of decisions from our court that have recognized
a plaintiff-class’s failure to satisfy the predominance requirement. In Hoang v.
E*trade Group, 151 Ohio App.3d 363, 2003-Ohio-301, 784 N.E.2d 151 (8th Dist.), we
reversed the trial court’s order granting class certification, stating,
Although all of the plaintiffs’ claims arise out of the same Customer
Agreement and a “common course of conduct,” the trial court ignores
the fact that liability as to each individual plaintiff’s claims cannot be
established in a single adjudication. Each of the plaintiff’s claims
requires proof of actual injury caused by the alleged wrongdoing before
liability can be established.
Id. at ¶ 19. We recognized that while “some of the plaintiffs have suffered damages as
a result of E*Trade’s system interruptions[,] * * * others have not.” Id. at ¶ 24. We
found that “[t]he trading of customers who were impacted by the system interruptions
would have to be analyzed on a ‘trade by trade’ basis to determine what price the
customer might have obtained had the system interruption not occurred” and that that
analysis would be
complex because it requires consideration of each individual transaction,
other transactions in the same security that occurred in the market, as
well as the market conditions at the time, including the number of orders
waiting to be executed in the market, the size and type of those orders,
and other factors.
Id. at ¶ 25. We also noted that “some customers who were impacted by the system
interruptions may have actually benefitted from the interruption, in which case they
have no claims.” Id.
{¶48} Similarly, in Agrawal, 8th Dist. Cuyahoga No. 103667, 2016-Ohio-5928,
we reversed the trial court’s certification of the plaintiffs’ class of car lessees, finding
that class certification was “barred by the requirement that Agrawal demonstrate
through common evidence that all class members were in fact injured by Ford Credit’s
actions” as the predominance requirement under Civ.R. 23(B)(3) requires. Id. at ¶ 27.
We found that “[i]ndividualized inquiry is * * * necessary to determine whether these
lessees suffered any injury, even if the dealer imposed an incorrect inspection standard.”
Id. at ¶ 30. The individualized inquiry was necessary because a number of factors,
such as the different assessments from and labor rates between the auction house and
dealer, would need to be analyzed “to determine whether the lessee was actually injured
under Agrawal’s theory.” Id. at ¶ 32. We concluded that “determining the ‘fact of
injury’ under Agrawal’s theories requires examination of the VCRs for every vehicle; it
is not susceptible to common class[-]wide proof, but requires highly individualized
inquiry.” Id. at ¶ 34.
{¶49} Plaintiffs argue that Hoang is distinguishable because unlike the plaintiffs
in Hoang, they can show “injury by common evidence[,]” namely, the Forms
1099-DIV. Plaintiffs also cite to Ritt, 171 Ohio App.3d 204, 2007-Ohio-1695, 870
N.E.2d 212, in which this court distinguished our holding in Hoang. In Ritt, we stated,
The case at hand is not the complex case this court was faced with
in Hoang. Rather, the facts show that when persons called a toll-free
number to purchase a Tae-Bo video, they were all read a scripted, thirty
second upsell, emphasizing that they were being given a “RISK FREE”
membership, for which they “WON’T BE BILLED.” Subsequently,
their credit cards were charged for an annual membership. An
individualized inquiry is not necessary to determine liability here as it
was in Hoang.
Id. at ¶ 60.
{¶50} We find this case is more akin to Hoang and Agrawal than it is to Ritt.
Like Hoang and Agrawal, there is no common proof that will establish injury for each
class member. The Forms 1099-DIV that Centerior distributed to its shareholders in
the relevant years are not sufficient alone to show a class-wide injury. Instead, to
determine whether a person was injured and can be included in the Subclass, a court
would have to apply and consider a number of factors, such as the individual’s tax-rate
bracket, how the individual filed (individually or jointly), the amount of other dividends
the member received from Centerior, the length of time that the member held stock in
Centerior, the type of stock ownership, and the amount of state income taxes paid in
one year and deductible of federal income taxes that or the next year. Unlike Ritt, the
facts of this case do not in any way suggest that all of the plaintiffs received identical
information, filed identical tax returns, and paid identical amounts to the Internal
Revenue Service. Further, like Hoang, the application and consideration of those
factors could result in a finding that a particular member was not injured, but instead
benefitted from Centerior’s alleged misrepresentations. Applying United States federal
income tax law to each member of the Subclass to determine whether that member was
actually injured (i.e., overpaid his or her taxes in the relevant years) requires an
individualized inquiry that fails to satisfy the predominance requirement under Civ.R.
23(B)(3).
{¶51} The Subclass fails to fix the issues that we recognized in the First
Mikulski Appeal. There, we stated, “[t]he individual question of whether the class
member paid taxes and, if so, how Centerior’s misstatement affected their tax liability,
would predominate over common questions.” Mikulski, 8th Dist. Cuyahoga No.
94536, 2011-Ohio-696, at ¶ 15. While we remanded the case for the parties to “cure
the predominance defect[,]” plaintiffs have once again failed to cure that defect. The
issue of how the alleged misstatement affected each individual’s tax liability still
predominates over the questions common to the Subclass members.
{¶52} Quoting the trial court’s order granting class certification, plaintiffs also
argue that “‘the fact that some Subclass members may have zero dollars of damages
does not prevent certification.’” In setting forth that proposition, the trial court cited to
Musial Offices, Ltd. v. Cuyahoga, 8th Dist. Cuyahoga No. 99781, 2014-Ohio-602, and
stated that Musial “revers[ed] the denial of class certification and [held] that
predominance was satisfied even though some members of a taxpayer class may not
have actually overpaid their taxes or may not be entitled to recover any tax
overpayments.” Trial court’s order, p. 33. After a thorough review, we find that
Musial said nothing of the sort. The paragraph in Musial that the trial court cites for
that proposition states,
Furthermore, the class members are not disputing the facts individual to
each member, such as when the taxpayer was notified of a reduction,
when each complaint against valuation was filed, or whether the Board’s
reduced valuation was properly reflected in the subsequent tax bills.
These facts are readily ascertainable from the county’s Fiscal Officer’s
computer system. Even each plaintiff’s damages are easily identified
without litigation. Since there is no need to litigate these facts, there
would be no need for mini trials to establish them. In this case,
common legal issues that relate to the county’s liability to the class
members predominate, even though some individualized inquiry is
required to determine damages. Therefore, Musial satisfied the
commonality and predominance requirements of both Civ.R. 23(A)(2)
and 23(B)(3).
Id. at ¶ 36. The above passage instead shows that because each plaintiff’s damages
could be calculated with relative ease and litigation over each plaintiff’s damages was
unnecessary, we found an individualized inquiry was not necessary. That passage did
not say or hold, however, that class certification was proper even though some members
of the class did not actually overpay their taxes. Further, Musial is clearly
distinguishable from this case as, here, individualized inquiry will be necessary to
determine whether an individual was damaged by Centerior’s alleged misreporting and
predominates over issues common to the Subclass.
{¶53} Therefore, we find that the Subclass fails to satisfy Civ.R. 23(B)(3)’s
predominance requirement, and we sustain defendants’ first assignment of error.
3. The Shareholder Class Should Not Be Certified Because
Shareholder Class Members Did Not Suffer an Injury and,
Therefore, Lack Standing.
{¶54} In their third, fourth, fifth, and sixth assignments of error, defendants
argue that the trial court erred in certifying the class because the class members lack
standing because they cannot show they suffered an injury recognized by Ohio case law
and the Shareholder Class cannot satisfy any of the Civ.R. 23(B) prerequisites.
{¶55} We will turn to the issue of standing first, because we find it dispositive
of the remaining assignments of error concerning the Shareholder Class. Defendants
argue that plaintiffs and “absent class members lack standing because they did not
suffer a concrete injury.” Defendants contest the trial court’s finding that “receiving
inaccurate Forms 1099, in supposed derogation of the federal tax code and a ‘fiduciary
relationship’ between a corporation and its shareholders, constitutes a concrete
‘injury-in-fact.’” They argue that “the mere failure to receive accurate information,
even information mandated by law, is not injury-in-fact sufficient to confer standing.”
They also point out that “[t]he overpayment of taxes is the only alleged concrete injury
resulting from the statutory violation, but the Class does not allege that injury; only the
Subclass does.”
{¶56} In response, plaintiffs argue that they “have suffered several forms of
injury, including informational injury, increased tax liability (not limited to tax
overpayments), and monetary harm in the form of the overpayment of their income
taxes.” They also argue that the “standing requirement only applies to the named
Plaintiffs, not to absentee class members.” Finally, plaintiffs argue that “Centerior had
a contractual, fiduciary and statutory duty to provide only truthful and accurate
information to Shareholders on the Forms 1099-DIV[,]” and the breach of that duty
standing alone is enough to constitute an injury and confer standing on the class
members.
{¶57} Foremost, a review of the record shows that the trial court only certified
the class based on the informational injury plaintiffs alleged. In fact, the trial court’s
order granting class certification included the following statements:
Page 12: Centerior’s alleged failure to provide accurate dividend
statements, as statutorily mandated by 26 U.S.C. 6042(c)(2) and as
required by Centerior’s fiduciary relationship vis-a-vis every Class
member, constitutes actionable injury-in-fact as to each Class member[.]
Pages 14-15: [T]his misrepresentation injury was suffered by both the
Class and the Subclass. The only difference between the Shareholder
Class and the Taxpayer Subclass is that the Subclass members allegedly
suffered the additional injury of overpaying their federal and state
incomes taxes as a result.
Page 26: Plaintiffs maintain that predominance is satisfied because they
have alleged an injury common to the Class members
(misrepresentations regarding the nature of shareholder distributions and
the E&P accounts of the corporation) demonstrated by proof common to
the Class members (Forms 1099-DIV and Centerior accounting records)
for which they seek common, class-wide remedy in the form of
injunctive relief (accounting and disgorgement).
Page 27: The injury allegedly suffered by all Class members in common,
that can be proved by the common evidence of the Forms 1099-DIV they
were issued, is Centerior alleged failure to make truthful and accurate
disclosures mandated by law. Despite Defendants arguments to the
contrary, this allegation, if true, constitutes injury even without monetary
loss having been suffered by the Class members because the inability to
obtain information itself can constitute an injury.
Page 28: Here, whether the breach of Centerior fiduciary and statutory
duties to tell the truth is an injury sufficient to sustain claim for
fraudulent misrepresentation or breach of contract is question common
to the Class, and Plaintiffs have demonstrated they will be able to
introduce class-wide proof of the existence of such an injury.
{¶58} It is clear from those statements in the trial court’s order that it certified
the Shareholder Class based on its alleged “informational injury” and that only the
Subclass alleged the overpayment-of-taxes injury. Therefore, the trial court did not
certify the Shareholder Class based on the injuries of increased tax liability and
monetary harm as plaintiffs allege, and as a result, we will only review whether the
informational injury that plaintiffs allege is sufficient to confer standing for the
Shareholder Class.
{¶59} To have standing, plaintiffs must show that they have suffered an injury
that is fairly traceable to the defendants’ allegedly unlawful conduct and that is likely to
be redressed by the requested relief. Moore v. Middletown, 133 Ohio St.3d 55,
2012-Ohio-3897, 975 N.E.2d 977, ¶ 22, citing Lujan v. Defenders of Wildlife, 504 U.S.
555, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). “‘Perhaps the most basic requirement to
bringing a lawsuit is that the plaintiff suffer some injury. Apart from a showing of
wrongful conduct and causation, proof of actual harm to the plaintiff has been an
indispensable part of civil actions.’” Felix, 145 Ohio St.3d 329, 2015-Ohio-3430, 49
N.E.3d 1224, at ¶ 36, quoting Schwartz & Silverman, Common Sense Constr. of
Consumer Protection Acts, 54 U.Kan.L.Rev. 1 (2005).
{¶60} “The fact that a plaintiff seeks to bring a class action does not change this
standing requirement. Individual standing is a threshold to all actions, including class
actions.” Woods v. Oak Hill Community Med. Ctr., 134 Ohio App.3d 261, 269, 730
N.E.2d 1037 (4th Dist.1999), citing Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410(6th Cir.1998). Only the representatives of the class need to have proper standing,
which requires those representatives to “possess the same interest and suffer the same
injury shared by all members of the class that [they seek] to represent.” Hamilton, 82
Ohio St.3d at 74, 694 N.E.2d 442.
Plaintiffs in class action suits must demonstrate that they can prove,
through common evidence, that all class members were in fact injured by
the defendant’s actions. * * * Although plaintiffs at the
class-certification stage need not demonstrate through common evidence
the precise amount of damages incurred by each class member, * * *
they must adduce common evidence that shows all class members
suffered some injury.
Felix at ¶ 33.
{¶61} While plaintiffs allege and the trial court found that Shareholder Class
members suffered an “informational” injury sufficient to confer standing, we find that
such an injury has no support in case law and is not sufficient to constitute an injury for
standing or class-certification purposes.
{¶62} Foremost, the elements of breach of fiduciary duty show that the breach
of the duty cannot constitute the injury itself; the breach of duty and injury are two
separate elements. We have recognized the fact that the breach of a fiduciary duty and
injury are separate elements on many occasions. See Dueck v. Clifton Club Co., 8th
Dist. Cuyahoga Nos. 103868 and 103888, 2017-Ohio-7161, ¶ 70, quoting Scanlon v.
Scanlon, 2013-Ohio-2694, 993 N.E.2d 855 (8th Dist.) (“‘To prove a breach of fiduciary
duty, appellants must demonstrate: (1) the existence of a duty arising from a fiduciary
relationship; (2) a failure to observe the duty; and (3) an injury resulting proximately
therefrom.’”). For example, in Hardwood v. Pappas & Assocs., 8th Dist. Cuyahoga
No. 84761, 2005-Ohio-2442, we held that the plaintiff “failed to present any evidence
that the alleged breaches of duty proximately caused him an injury” and affirmed the
trial court’s order granting a directed verdict to the defendant “because there [was] no
evidence that the breach proximately caused injury.” Id. at ¶ 26-27. Compare Yackel
v. Kay, 95 Ohio App.3d 472, 482, 642 N.E.2d 1107 (8th Dist.1994) (“Yackel also
presented evidence from which a reasonable jury could have concluded he suffered
actual damages in the amount of $194,000 due to Kay’s breach of fiduciary duty.”).
{¶63} The requirement that there be an injury in addition to the breach of a
fiduciary duty is not unique to our appellate district either. Many appellate districts
have recognized that the misrepresentation or breach of duty itself is not the injury.
See Huffman v. Groff, 4th Dist. Athens No. 10CA54, 2013-Ohio-222, ¶ 43 (affirming
the trial court’s dismissal of the plaintiff’s claim for breach of fiduciary duty because
“there [was] no evidence that Ray or the Hollar have suffered, or will suffer, any
damages as a result of Roxanne’s alleged misconduct.”); Kademian v. Marger, 2d Dist.
Montgomery No. 24256, 2012-Ohio-962, ¶ 64-66 (“[T]he appropriate consideration in
breach of fiduciary duty is not whether the alleged wrongdoer benefitted — it is
whether an injury proximately resulted from the breach. * * * [T]he focus should be on
the damages sustained by Kademian as a result of Marger’s alleged breach of fiduciary
duty.”); KMA Acquisitions Corp. v. Coleman, 10th Dist. Franklin No. 92AP-1635, 1993
Ohio App. LEXIS 5108, 7 (Oct. 19, 1993) (affirming dismissal of the case because the
plaintiff’s complaint failed “to allege any injury to plaintiff”). Compare Camp St.
Mary’s Assoc. of the W. Ohio Conference of the United Methodist Church, Inc. v.
Otterbein Homes, 176 Ohio App.3d 54, 2008-Ohio-1490, 889 N.E.2d 1066, ¶ 19 (3d
Dist.) (“[T]his cause of action arises based on the parties’ actions when Otterbein
Homes allegedly made its representations to the Association and the land and money
were transferred to Otterbein Homes. Should the Association prove its claims, it will
have suffered injury, and therefore, it has individual standing to bring a claim for breach
of fiduciary duty.”).
{¶64} Even further, to hold that an informational injury is concrete enough to
confer standing would create a conflict with our previous decision in Mikulski, 8th Dist.
Cuyahoga No. 94536, 2011-Ohio-696. There, we stated that “Centerior’s
misstatements could only have been harmful if they affected the plaintiffs’ tax liability.
Those class members who did not pay taxes in any relevant year in which they received
a 1099-DIV from Centerior could not have suffered any actual damage from the
misstatement[.]” Id. at ¶ 15. Put simply, we recognized that the overpayment of
taxes, not the misstatement, was the injury. To find that the misstatement was the
injury in this case would create a conflict of law in our appellate district.
{¶65} Plaintiffs cite to case law from Ohio and federal courts in support of their
argument that the misrepresentation is the injury. We find that the Ohio cases to which
plaintiffs cite — Strickler v. First Ohio Banc & Lending, Inc., Lorain C.P. No.
07-CV-151964 (Sept. 13, 2010 and Oct. 12, 2011); Myer v. Preferred Credit, Inc., 117
Ohio Misc.2d 8, 766 N.E.2d 612 (C.P. 2001); Hill v. Moneytree, Lorain C.P. No.
06-CV-148815 (Jan. 11, 2012) — are both noncontrolling and distinguishable as they
concern broker disclosure requirements specifically set forth by statutes. Myer
concerned a “secret profit” rule or secret fee-splitting agreement between brokers. Id.
at ¶ 32. Strickler and Hill both concerned a bank’s alleged violation of the Ohio
Mortgage Broker Act and R.C. Chapter 1322, which sets forth disclosure obligations
for mortgage brokers. Further, it appears that Hill was subsequently overturned on
appeal to the Ninth District, which reversed and remanded the trial court’s decision
because it found the trial court improperly reviewed the merits of the class action
instead of the appropriateness of class certification. Hill v. Moneytree of Ohio Inc., 9th
Dist. Summit No. 08CA009410, 2009-Ohio-4614, ¶ 13-14.
{¶66} We also find the federal jurisprudence cited by plaintiffs to be
distinguishable. Plaintiffs cite Fed. Elec. Comm. v. Akins, 524 U.S. 11, 118 S.Ct.
1777, 141 L.Ed.2d 10 (1998); Pub. Citizen v. United States Dept. of Justice, 491 U.S.
440, 109 S.Ct. 2558, 105 L.Ed.2d 377 (1989); and Havens Realty Corp. v. Coleman,
455 U.S. 363, 102 S.Ct. 1114, 71 L.Ed.2d 214 (1982), in support of their argument that
deprivation of truthful information alone constitutes injury. They argue that those
cases, which all concerned “the deprivation of a statutory right to receive truthful
information,” are similar to the instant case because “26 U.S.C. 6042(c)(2), which
requires truthful disclosures on Forms 1099-DIV, is meant to protect shareholders from
false information, especially given that shareholders are themselves subject to criminal
liability for the incorrect information on their own tax returns[.]”
{¶67} In Akins, the court stated:
The “injury in fact” that respondents have suffered consists of their
inability to obtain information[.] * * * Respondents’ injury
consequently seems concrete and particular. Indeed, this Court has
previously held that a plaintiff suffers an “injury in fact” when the
plaintiff fails to obtain information which must be publicly disclosed
pursuant to a statute. Public Citizen v. Department of Justice, 491 U.S.
440, 449, 105 L.Ed.2d 377, 109 S.Ct. 2558 (1989) (failure to obtain
information subject to disclosure under Federal Advisory Committee
Act “constitutes a sufficiently distinct injury to provide standing to
sue”). See also Havens Realty Corp. v. Coleman, 455 U.S. 363,
373-374, 71 L.Ed.2d 214, 102 S.Ct. 1114 (1982) (deprivation of
information about housing availability constitutes “specific injury”
permitting standing).
Id. at 20.
{¶68} Like Akins, Pub. Citizen concerned the Federal Advisory Committee Act
(“FACA”), a federal statute that required the American Bar Association (“ABA”)
Committee to “make its minutes, records, and reports available to the public.” Id. at
syllabus. The appellants sued the committee after it refused the appellants’ request for
disclosure of the reports, and the committee alleged that the appellants lacked standing.
The court found that
refusal to permit appellants to scrutinize the ABA Committee’s activities
to the extent FACA allows constitutes a sufficiently distinct injury to
provide standing to sue. Our decisions interpreting the Freedom of
Information Act have never suggested that those requesting information
under it need show more than that they sought and were denied specific
agency records.
Id. at 449.
{¶69} Likewise, in Havens, the Supreme Court recognized that a realty
company’s failure to provide “truthful housing information” to one of the respondents
satisfied Article III’s injury-in-fact requirement because Section 804 of the Fair
Housing Act of 1968 (42 U.S.C.S. 3604) intended to guard against such discriminatory
misrepresentations. Id. at 374-375. In other words, Havens concerned a plaintiff’s
statutory “enforceable right to truthful information concerning the availability of
housing” under a federal statute that was designed to specifically protect against
discriminatory representations. Id. at 374.
{¶70} Those federal cases are distinguishable from the instant case because the
statutes in those cases were specifically meant to protect against the harm that the
plaintiffs suffered. We find that plaintiffs’ comparison to the tax code in the instant
case is unlike the statutes in the federal cases because Congress did not set forth or
imply a private cause of action under the tax code for misinformation alone. In fact,
plaintiffs admitted in the proceedings below that they “are not relying on Centerior’s
violations of [the tax code] as the basis for their claims or recovery against Centerior”
and that “those provisions do not state or imply a private cause of action.” See
“plaintiffs’ supplemental brief in support of certification of the class and subclass
identified in plaintiffs’ revised class definition filed on January 28, 2015,” filed October
11, 2016, at 26. Therefore, plaintiffs’ class action is entirely distinguishable from the
federal cases that they cite in support of their argument that their “informational injury”
is sufficient to confer standing.
{¶71} Further, those cases were all decided before Spokeo, Inc. v. Robins, 578
U.S. ___, 136 S.Ct. 1540, 194 L.Ed.2d 635 (2016), in which the Supreme Court found
that an allegation that an alleged consumer reporting agency violated the Fair Credit
Reporting Act by reporting inaccurate consumer information was insufficient to
establish injury-in-fact because “not all inaccuracies cause harm or present any material
risk of harm.” Id. at 1550. While Spokeo did not expressly overturn Akins, Pub.
Citizen, or Havens, it clarified the injury-in-fact requirement under Article III. Id. at
syllabus. The court stated that while “[t]he violation of a procedural right granted by
statute can be sufficient in some circumstances to constitute injury in fact[, and] in such
a case, a plaintiff need not allege any additional harm beyond the one identified by
Congress[,]” a “bare procedural violation” is insufficient to satisfy Article III’s injury
requirement. Id.{¶72} We find Smith v. Bank of Am., N.A., 679 Fed. Appx. 549 (9th Cir.2017),
cited by defendants to be on point. In Smith, which was decided post-Spokeo, the court
affirmed the district court’s dismissal of the plaintiffs’ class action. The court found
that the district court lacked subject matter jurisdiction over the case because the
plaintiffs did not satisfy Article III’s standing requirements, particularly the
injury-in-fact requirement. Id. at 550. The court stated:
Plaintiffs fail to allege injury-in-fact via “an invasion of a legally
protected interest which is * * * concrete and particularized” and “actual
or imminent.” Id. at 561[.] * * * Although Plaintiffs allege that Bank of
America, N.A. (“BofA”) provided them with a Form 1098 that did not
comply with the requirements of 26 U.S.C. § 6050H, Plaintiffs do not
allege that they filed erroneous tax returns in reliance on the allegedly
erroneous form or received a smaller tax deduction as a result. Mere
receipt of an erroneous form, without more, is insufficient to establish
injury-in-fact. See Gonzales v. Gorsuch, 688 F.2d 1263, 1269 (9th
Cir.1982); see also Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1549-50, 194
L. Ed. 2d 635 (2016). Because Plaintiffs failed to establish Article III
standing, the district court lacked subject matter jurisdiction and was
required to dismiss on that ground. See Steel Co. v. Citizens for a Better
Env’t, 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210(1998) (rejecting the doctrine of hypothetical jurisdiction).
Id.{¶73} We agree with the Ninth Circuit’s reasoning in Smith and find that the
Shareholder Class members’ receipt of allegedly incorrect Forms 1099-DIV is not
sufficient to confer standing. The Shareholder Class members did not suffer injury
because, like the plaintiffs in Smith, they did not “file[] erroneous tax returns in reliance
on the allegedly erroneous form or receive[] a smaller tax deduction as a result[.]”
Therefore, they have not suffered a concrete and particular injury as is required for
standing.
{¶74} Accordingly, we find that the Shareholder Class as defined lacks a
sufficient injury to confer standing and warrant class certification and sustain
defendants’ third assignment of error. Based on that resolution, we find that
defendants’ fourth, fifth, and sixth assignments of error concerning the Shareholder
Class are moot.
{¶75} Our review of the record reveals that the Shareholder Class lacks standing
and individual issues overwhelm and predominate the questions common to the
Subclass, and the trial court therefore abused its discretion in certifying the Shareholder
Class and the Subclass.
{¶76} Judgment reversed and remanded to the lower court for further
proceedings consistent with this opinion.
It is ordered that appellants recover from appellees costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment
into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
MARY J. BOYLE, PRESIDING JUDGE
EILEEN A. GALLAGHER, J., and
MICHELLE J. SHEEHAN, J., CONCUR