Ohio Kentucky Oil Corp. v. Nolfi

[Cite as Ohio Kentucky Oil Corp. v. Nolfi, 2013-Ohio-5519.]
COURT OF APPEALS
STARK COUNTY, OHIO
FIFTH APPELLATE DISTRICT
JUDGES:
OHIO KENTUCKY OIL : Hon. W. Scott Gwin, P.J.
CORPORATION, ET AL : Hon. William B. Hoffman, J.
: Hon. Patricia A. Delaney, J.
Plaintiffs-Appellees :
:
-vs- : Case No. 2013CA00084
:
GREGORY M. NOLFI, AS :
SUCCESSOR TRUSTEE, ET AL : OPINION
Defendants-Appellants
CHARACTER OF PROCEEDING: Civil appeal from the Stark County Court of
Common Pleas, Case No. 2006CV00078
JUDGMENT: Reversed and Remanded
DATE OF JUDGMENT ENTRY: December 16, 2013
APPEARANCES:
For Plaintiffs-Appellees For Defendants-Appellants
DAVID BUTZ ERIC LEVASSEUR
ALETHA CARVER STEVEN MINTZ
OWEN RARRIC DENNIS ROSE
Krugliak, Wilkins, Griffiths Hahn, Loeser & Parks LLP
and Dougherty, Co., L.P.A. 200 Public Square, Ste. 2800
4775 Munson Street N.W. Cleveland, OH 44114
Canton, OH 44735-6963
[Cite as Ohio Kentucky Oil Corp. v. Nolfi, 2013-Ohio-5519.]
Gwin, P.J.
{¶1} Appellants appeal the February 28, 2013 judgment entry of the Stark
County Common Pleas Court granting appellees’ motion for summary judgment in part
and dismissing appellants’ counterclaims one, three, four, five, six, seven, and eight
based on res judicata.
Facts & Procedural History
{¶2} Appellants are collectively referred to in this litigation as the “Nonneman
parties” and include: Gregory M. Nolfi as Successor Trustee of the Frederick E.
Nonneman (“Nonneman”) Declaration of Trust Dated August 19, 1994, as Amended;
Rena Nonneman, Frederick’s widow to whom he assigned a fifty percent interest in his
oil and gas investments, and Anita Nonneman, Frederick’s daughter and executrix of his
estate. Appellees are referred to as the “OKO parties” and include: Ohio Kentucky Oil
Corporation (“OKO”), Carol Campbell (“Campbell”) as President of OKO, and Carol
Campbell as executrix of the estate of William M. Griffith.
{¶3} OKO is an Ohio corporation engaged in oil and natural gas drilling in
Kentucky, Tennessee, and Pennsylvania. This case originated from a series of
investments made by Frederick E. Nonneman with OKO. Nonneman began investing
with OKO in 1986 in oil and gas partnerships and joint ventures. Nonneman invested
$6,520,995 with OKO between 1986 and 2001. In 2001, he substantially increased his
rate of investment with OKO and between 2001 and 2003 invested $8,383,046 with
OKO in his individual capacity. In 2003, Gregory Nolfi (“Nolfi”) assumed management
of Frederick Nonneman’s business affairs as successor trustee.
Stark County, Case No. 2013CA00084 3
{¶4} On December 22, 2004, the Nonneman parties filed suit in the Cuyahoga
County Common Pleas Court against the OKO parties alleging undue influence, breach
of contract, and common law fraud. The Nonneman parties voluntarily dismissed the
action on January 5, 2006. On January 6, 2006, the OKO parties filed a complaint in
the Stark County Court of Common Pleas, seeking declaratory judgment on the same
issues the Nonneman parties previously brought in the Cuyahoga County action. The
Nonneman parties asserted numerous counterclaims, including claims that the OKO
parties committed securities fraud by making false or misleading statements and/or
omissions of material fact when selling securities in their oil and gas drilling programs
and sold securities that were not registered or properly exempt from registration.
{¶5} On February 2, 2006, the Nonneman parties filed suit in the United States
District Court for the Northern District of Ohio, alleging the OKO parties committed
federal securities fraud under Section 10(b) of the Securities Exchange Act of 1934,
Rule 10b-5, and failed to properly register the securities pursuant to federal law. The
Nonneman parties amended their federal court complaint in July of 2006 to include state
law claims of securities fraud under Ohio law, sale of unregistered securities under Ohio
law, common law fraud, breach of fiduciary duty, and breach of contract. In July of
2006, the Nonneman parties filed a motion to stay the Stark County case pending the
resolution of the federal case. The OKO parties objected to the motion to stay. On
September 27, 2006, the Stark County trial judge granted the Nonneman parties’ motion
to stay and stayed the Stark County case pending the resolution of two consolidated
actions in federal district court captioned Gregory M. Nolfi, as Successor Trustee under
the Frederick E. Nonneman Declaration of Trust Dated August 19, 1994, as Amended,
Stark County, Case No. 2013CA00084 4
et al. v. Ohio Kentucky Oil Corp., et al., and Fencorp Co. v. Ohio Kentucky Oil Corp., et
al.
{¶6} The OKO parties filed a motion to dismiss for failure to state a claim and a
motion to dismiss first amended complaint in the federal court case. In their motions,
the OKO parties argued the Nonneman parties’ federal securities claims should be
dismissed for failure to state a claim and that the federal court should, pursuant to the
doctrine of abstention in Colorado River Water Conservation Dist. v. United States, 424
U.S. 800 (1976), dismiss or stay the federal case until the completion of the state court
proceeding. The Nonneman parties objected to the motion. In a September 28, 2007
judgment entry, the federal district judge stated as follows:
The Court will not decide the Ohio Blue Sky and Ohio
common law claims set forth in the Third through Tenth
claims for relief, which were added to the present action
when the first amended complaint was filed * * * These
claims were originally asserted as counterclaims in the Stark
County Action. Because the Court concludes that the
considerations of judicial economy, fairness, and
convenience do not require the Court to decide these
additional claims, the Court declines to exercise jurisdiction
in favor of their resolution by the Stark County, Ohio
Common Pleas Court.
{¶7} The federal district court thus partially granted the OKO parties’ motion to
dismiss amended complaint, dismissing the Nonneman parties’ state law claims. A
Stark County, Case No. 2013CA00084 5
separate party plaintiff, the Fencorp Company, also brought a separate lawsuit against
the OKO parties in federal court. The Fencorp action was consolidated with the
Nonneman action for trial in the federal district court. The federal district court agreed to
exercise jurisdiction over both Fencorp’s federal securities fraud claim and its Ohio-law
claims.
{¶8} The federal action proceeded to trial on May 29, 2008. The district court
found a rescission theory could provide a proper measure of damages for the
Nonneman parties’ § 10(b) claims. The jury found in favor of the Nonneman parties on
their federal securities claims and determined that rescission damages amounted to
$7,700,723 for the Nonneman parties. In a separate interrogatory, the jury also found
the amount of damages proximately caused by the OKO parties’ fraud was $1,777,909.
Despite having found rescissory damages of $7,700,723, the jury listed an award of
$1,777,909 on the verdict form. The district court denied the Nonneman parties’
subsequent motion to amend the judgment to award the full amount of rescissory
damages because the Nonneman parties waived the right to object by failing to file a
Fed.R.Civ.P. Rule 49(b) motion.
{¶9} Both parties appealed the district court’s judgment to the United States
Court of Appeals for the Sixth Circuit. In a decision dated April 4, 2012, the Sixth Circuit
affirmed the district court’s decision in Nolfi v. Ohio Kentucky Oil Corp., 675 F.3d 538
(6th Cir. 2012). The Sixth Circuit found that while the jury instructions did not mention
damages other than rescissory damages, the instructions also did not require the jury to
award rescissory damages in the event the jury decided the Nonneman parties were
entitled to damages on the their federal claims. Id. “The verdict form suggested in
Stark County, Case No. 2013CA00084 6
question 1-G that rescissory damages were the appropriate measure but then in
questions 1-H and 1-I gave the jury the opportunity to compute damages based on the
losses proximately caused by [OKO parties’] fraud – a measure that does not require
rescissory damages.” Id. at 551. The Sixth Circuit determined that “the jury availed
itself of the opportunity afforded by questions 1-H and 1-I and awarded lesser amounts
than the amount of rescissory damages.” Id. While the Sixth Circuit found the
interrogatories to be “arguably inconsistent with each other,” they also found the
Nonneman parties waived the right to object to this inconsistency by failing to file a
Fed.R.Civ.P. Rule 49(b) motion. Id. at 551-552.
{¶10} On April 26, 2012, the Nonneman parties filed a notice in the Stark County
action that the federal cases had been resolved. The parties renewed their original
motions for summary judgment filed in 2006 and supplemented their motions for
summary judgment. The Nonneman parties moved for summary judgment on
counterclaim three, the sale of unregistered securities, and counterclaim four, Ohio
securities fraud, on the basis of issue preclusion. The OKO parties moved for summary
judgment on all of the Nonneman parties’ counterclaims, arguing the doctrine of claim
preclusion barred the counterclaims because they arose out of the same transactions
as the federal securities claims that had been fully adjudicated in the federal district
court case.
{¶11} In a judgment entry dated February 28, 2013, the trial court granted
summary judgment to the OKO parties on each of the Nonneman parties’ counterclaims
except for counterclaim two for common law fraud. The trial court found that
counterclaims one, three, four, five, six, seven, and eight had been fully and fairly
Stark County, Case No. 2013CA00084 7
litigated in the federal court proceeding. The trial court also found that “collateral
estoppel” barred counterclaims one, three, four, five, six, seven, and eight. The trial
court found a genuine issue of material fact precluded summary judgment on
counterclaim two for common law fraud. Subsequently, the parties settled the
remaining issues in the case and the trial court entered its final judgment on April 26,
2013.
{¶12} Appellants appeal the February 28, 2013 judgment entry of the trial court
granting appellees’ motion for summary judgment on counterclaims one, three, four,
five, six, seven, and eight, and assign the following errors:
{¶13} “I. THE TRIAL COURT ERRED BY GRANTING SUMMARY JUDGMENT
IN FAVOR OF APPELLEES OHIO KENTUCKY OIL CORPORATION AND CAROL
CAMPBELL (JUDGMENT ENTRY DATED FEBRUARY 28, 2013).
{¶14} “II. THE TRIAL COURT ERRED BY DENYING APPELLANTS’ GREGORY
NOLFI, ANITA NONNEMAN, AND RENA NONNEMAN’S MOTION FOR SUMMARY
JUDGMENT ON TWO OF THEIR COUNTERCLAIMS (JUDGMENT ENTRY DATED
FEBRUARY 28, 2013).”
Summary Judgment Standard
{¶15} Civ.R. 56 states, in pertinent part:
“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 of material fact and that the moving party is entitled
to judgment as a matter of law. No evidence or stipulation may be considered
Stark County, Case No. 2013CA00084 8
except as stated in this rule. A summary judgment shall not be rendered unless it
appears from the evidence or stipulation, and only from the evidence or
stipulation, that reasonable minds can come to but one conclusion and that
conclusion is adverse to the party against whom the motion for summary
judgment is made, that party being entitled to have the evidence or stipulation
construed mostly strongly in the party’s favor. A summary judgment, interlocutory
in character, may be rendered on the issue of liability alone although there is a
genuine issue as to the amount of damages.”
{¶16} A trial court should not enter a summary judgment if it appears a material
fact is genuinely disputed, nor if, construing the allegations most favorably towards the
non-moving party, reasonable minds could draw different conclusions from the
undisputed facts. Hounshell v. Am. States Ins. Co., 67 Ohio St. 2d 427, 424 N.E.2d 311
(1981). The court may not resolve any ambiguities in the evidence presented. Inland
Refuse Transfer Co. v. Browning-Ferris Inds. of Ohio, Inc., 15 Ohio St. 3d 321, 474
N.E.2d 271 (1984). A fact is material if it affects the outcome of the case under the
applicable substantive law. Russell v. Interim Personnel, Inc., 135 Ohio App. 3d 301,
733 N.E.2d 1186 (6th Dist. 1999).
{¶17} When reviewing a trial court’s decision to grant summary judgment, an
appellate court applies the same standard used by the trial court. Smiddy v. The
Wedding Party, Inc., 30 Ohio St. 3d 35, 506 N.E.2d 212 (1987). This means we review
the matter de novo. Doe v. Shaffer, 90 Ohio St. 3d 388, 2000-Ohio-186, 738 N.E.2d
1243.
Stark County, Case No. 2013CA00084 9
Grava and the Restatement Approach to Claim Preclusion
{¶18} Res judicata can be divided into two separate subparts: claim preclusion
and issue preclusion. Grava v. Parkman Twp., 73 Ohio St. 3d 379, 381, 1995-Ohio-331,
653 N.E.2d 226 (1995). The Ohio Supreme Court analyzed the doctrine of claim
preclusion in the Grava decision in 1995. Id. In the syllabus of Grava, the Ohio
Supreme Court stated that “a valid, final judgment rendered upon the merits bars all
subsequent actions based upon any claim arising out of the transaction or occurrence
that was the subject matter of the previous action” and found that the “1 Restatement of
the Law 2d Judgments (1982), Sections 24 – 25 [are] approved and adopted.” Grava,
73 Ohio St.3d at syllabus. In Grava, a property owner filed an initial application for
zoning for a proposed business. Id. at 379. After his initial application was denied, the
property owner then filed a second application seeking zoning for the same building that
was the subject of his earlier application under a separate zoning ordinance regarding
nonconforming use. Id. at 379-380.
{¶19} The Ohio Supreme Court stated that they:
Expressly adhere to the modern application of the doctrine of
res judicata, as stated in 1 Restatement of the Law 2d,
Judgments (1982), Sections 24 – 25 and hold that a valid,
final judgment rendered upon the merits bars all subsequent
actions based upon any claim arising out of the transaction
or occurrence that was the subject matter of the previous
action.
Stark County, Case No. 2013CA00084 10
Id. at 382. The Ohio Supreme Court thus adopted the “transactional” approach to res
judicata. Id. The Court determined that Grava’s second zoning application was barred
by claim preclusion because the zoning applications for the same building derived from
the same transaction or the same “common nucleus of operative fact.” Id. at 382.
Grava had a “full and fair opportunity to present his case” during his first zoning
application where he did not appeal the denial of the zoning request and “simply failed
to avail himself of all available grounds for relief in the first proceeding.” Id. at 383.
Restatement Exceptions
{¶20} The parties differ in their interpretation of the Grava case. Appellees
contend the decision in Grava precludes the state claims of appellants and that the Ohio
Supreme Court adopted the transactional approach to res judicata as found in Sections
24 and 25 of the Restatement, but did not adopt the exceptions to claim preclusion
found in the Restatement. Appellants contend the Grava and Restatement approach to
claim preclusion includes the exceptions set forth in the Restatement which are integral
parts of the Restatement’s doctrine of claim preclusion. We agree with appellants.
{¶21} Restatement Section 24 sets forth the general rule of claim preclusion in
two subdivisions. 1 Restatement of the Law 2d, Judgments, Section 24 (1982). After
these two subdivisions and prior to the comments, Section 24 includes a sentence that
states, “The general rule of this Section is exemplified in § 25, and is subject to the
exceptions stated in § 26.” Thus, the language contained in Section 24 of the
Restatement, a section explicitly adopted by the Ohio Supreme Court, contemplates the
use of the exceptions found in Section 25 and Section 26. Further, Section 25, also a
section of the Restatement specifically adopted by the Ohio Supreme Court in Grava,
Stark County, Case No. 2013CA00084 11
contains a comment entitled “State and federal theories or grounds.” The comment
provides that the general rule of claim preclusion in Section 24 applies as to claims
between state and federal courts with the caveat that:
If however, the court in the first action would clearly not have
had jurisdiction to entertain the omitted theory or ground (or,
having jurisdiction, would clearly have declined to exercise it
as a matter of discretion), then a second action in a
competent court presenting the omitted theory or ground
should be held not precluded. See Illustrations 10-11.
1 Restatement of the Law 2d, Judgments, Section 25, Comment (e) (1982). This
exception is further explained in an illustration to the text of the Restatement.
Illustration 10 describes a situation in which a plaintiff attempts to bring a state antitrust
action in state court under a state law after losing a federal antitrust action in federal
court. Id. “Therefore unless it is clear that the federal court would have declined as a
matter of discretion to exercise that jurisdiction * * * the state action is barred.” Id. This
section of the Restatement comports with the Ohio Supreme Court’s holding that “[I]t
has been long recognized that the doctrine of res judicata applies in a proper case as
between federal court and state court judgments.” Rogers v. Whitehall, 25 Ohio St. 3d
67, 69, 494 N.E.2d 1387 (1986).
{¶22} Section 25, Comment (e) also refers to the exception contained in Section
26(1)(c). Section 26 provides that when any of the following circumstances exists, the
general rule of Section 24 of claim preclusion does not apply:
Stark County, Case No. 2013CA00084 12
(c) The plaintiff was unable to rely on a certain theory of the
case or to seek a certain remedy or form of relief in the first
action because of the limitations on the subject matter
jurisdiction of the courts or restrictions on their authority to
entertain multiple theories or demands for multiple remedies
or forms of relief in a single action, and the plaintiff desires in
the second action to rely on that theory or to seek that
remedy or form of relief * * *
1 Restatement of the Law 2d, Judgments, Section 26 (1982). Comment (c) to Section
26 of the Restatement explains that the general rule of claim preclusion in Section 24 is
based upon the assumption that the jurisdiction in which the first judgment was
rendered put “no formal barriers” to prevent their theories of recovery or claims for relief.
Id. at Comment (c). Thus, if “formal barriers” exist against a plaintiff in the first action, “it
is unfair to preclude him from a second action in which he can present those phases of
the claim which he was disabled from presenting in the first.” Id.
{¶23} In Grava, the Ohio Supreme Court did not indicate that it was adopting
only certain portions of Restatement Sections 24 and 25 or limit its holding to the
language of the Restatement sections to the exclusion of the detailed comments and
notes accompanying each section. In fact, in the Grava decision, the Ohio Supreme
Court quotes from the comments contained in the Restatement. 73 Ohio St. 3d at 381.
As noted above, the sections adopted by the Ohio Supreme Court in Grava (Sections
24 and 25) both refer to the exceptions contained in Section 26. While appellees cite to
Stanfield v. Osborne Indus., Inc., 949 P.2d 602 (Kan. 1997), in which the Kansas
Stark County, Case No. 2013CA00084 13
Supreme Court declined to recognize the pendent jurisdiction exception to claim
preclusion, this case represents a minority position and, as noted by a Wisconsin court,
“[m]ost state courts * * * have held that where it is clear that the federal court would
have declined jurisdiction over related state claims which could have been raised in the
federal action through pendent jurisdiction * * * a later action in state court on the state
claims is not barred by res judicata.” Parks v. City of Madison, 492 N.W.2d 365, 369
(Wis. App. 1992), citing as examples, Terrell v. City of Bessemer, 406 So. 2d 337 (Ala.
1981); Puckett v. City of Emmett, 747 P.2d 48, 51 (Idaho 1987); Jeanes v. Henderson,
688 S.W.2d 100 (Texas 1985); Sattler v. Bailey, 400 S.E.2d 220, 226-27 (W.Va. 1990).
{¶24} Ohio courts have generally accepted the principles set forth in the
Restatement in addressing res judicata issues. See, e.g., Marrone v. Phillip Morris
USA, Inc., 9th Dist. Medina No. 03CA0120-M, 2004-Ohio-4874, reversed on other
grounds in Marrone v. Philip Morris USA, Inc., 110 Ohio St. 3d 5, 850 N.E.2d 31, 2006-
Ohio-2869 (stating that because the Ohio Supreme Court approved and adopted
Sections 24 – 25 of the Restatement “this Court must presume that it would likewise
follow the exceptions to that rule which are set forth in 1 Restatement of the Law 3d,
Judgments (1982), Section 26”); Price v. Carter Lumber Co., 9th Dist. Summit No.
24991, 2010-Ohio-4328 (citing the exception in Restatement Section 26, but finding
plaintiff failed to show the federal court dismissed his state claims).
{¶25} Further, other courts of appeals have determined that when a federal court
declines to exercise pendent jurisdiction over state claims in a federal action, there is no
prior valid judgment on the merits as required for the utilization of claim preclusion.
Bush v. Dictaphone Corp., 10th Dist. Franklin No. 98AP-585, 1999 WL 178370 (stating
Stark County, Case No. 2013CA00084 14
that “under the well-established authority finding that a dismissal premised on a decision
not to exercise supplemental jurisdiction does not constitute a final judgment on the
merits so as to invoke the principles of res judicata, we similarly find that the federal
district court’s decision here did not reach a final decision on the merits”) Saha v.
Research Institute at Nationwide Children’s Hospital, 10th Dist. Franklin No. 12AP-590,
2013-Ohio-4203 (finding when plaintiff raised state law claims before the federal court
and the court declined to exercise jurisdiction over those claims there is no prior valid
judgment on the merits); Johnson v. Cleveland City School District, 8th Dist. Cuyahoga
No. 94214, 2011-Ohio-2778 (finding there was no final judgment on the merits in the
federal action as to state claims when a federal court declined to exercise pendent
jurisdiction over the remaining state claims).
{¶26} We find the instant case falls squarely within the exceptions contained in
Section 25 and Section 26 of the Restatement. Pursuant to Restatement Section 25,
the federal district court clearly declined to exercise its discretionary jurisdiction over the
state claims by stating that “the Court will not decide the Ohio Blue Sky and Ohio
common law claims set forth * * * the Court declines to exercise jurisdiction in favor of
their resolution by the Stark County Ohio Common Pleas Court.” Further, pursuant to
Restatement Section 26, “formal barriers” existed against appellants in the first action
which make it unfair to preclude them from a second action. The federal district court
specifically declined jurisdiction of the state court claims and appellants could not seek
the remedies of full rescissory damages or joint and several liability of the appellees as
contemplated by R.C. 1707.43(A), the Ohio code section detailing remedies for
violations of Ohio securities law.
Stark County, Case No. 2013CA00084 15
{¶27} In this case, the facts are not analogous to the Grava case in which the
plaintiff failed to avail himself of all available grounds for the zoning variance in his first
proceeding. Here, appellants did avail themselves of all the various grounds for relief in
the first proceeding. They asserted their claims in the federal action, as required by the
transactional doctrine of claim preclusion. Unlike the plaintiff in Grava, appellants could
not litigate their state claims in the first case through no fault of their own. The federal
district court had the power to hear the state law claims as a matter of pendent
jurisdiction. However, the exercise of this pendent jurisdiction is discretionary and the
federal district court specifically declined to entertain the pendent state claims raised in
appellants’ federal action. Instead, the district court dismissed the state law claims and
reserved appellants’ right to pursue the matter in the Stark County action. Appellants
did not have a full and fair opportunity to litigate the state law claims in federal court.
Single Recovery Argument
{¶28} Appellees argue that even if Ohio recognizes the exceptions to claim
preclusion contained the Restatement, the exceptions are not applicable because
appellants are entitled to only one recovery. Appellees contend appellants could obtain
the same relief in state court as they could in federal court, namely, rescissory
damages. Thus, appellants were not denied an available remedy when the federal
court declined to exercise pendent jurisdiction over appellants’ state law claims. We
disagree.
{¶29} In this case, the remedy of rescissory damages is available to appellants
in the Stark County action pursuant to R.C. 1707.43(A). In the federal case, the jury
found the amount of rescissory damages was $7,700,723 and found the amount of
Stark County, Case No. 2013CA00084 16
damages proximately caused by appellees’ misrepresentations to be $1,777,909.
However, in the jury verdict form, the jury awarded appellants a total of $1,777,909,
assessing appellee Carol Campbell liability of $296,318 and appellee OKO liability of
$1,481,591. As noted by the Sixth Circuit Court of Appeals, though rescissory damages
were included in the jury instructions as a permissible measure of damages for the
federal claims, the instructions “did not require the jury to award rescissory damages in
the event it decided plaintiffs were entitled to damages on the federal claims.” Nolfi, 675
F.3d 538 at 551. While Interrogatory I-G suggested rescissory damages was an
appropriate measure of damages “question 1-H and 1-I gave the jury the opportunity to
compute damages based on the losses proximately caused by defendants’ fraud – a
measure that does not require rescissory damages. The jury availed itself of this
opportunity afforded by questions 1-H and 1-I and awarded lesser amounts than the
amount of rescissory damages.” Id.
{¶30} As explained by the Sixth Circuit in Nolfi, both proximate cause damages
and, in some cases depending upon the facts, rescissory damages, are available as the
measure of damages for violations of federal securities law. Id. at 550, citing 15 U.S.C.
§ 78-u4(b)(4) and (f). Unlike the federal statute, Ohio state law permits only rescission
as the measure of damages for state securities fraud. R.C. 1707.43(A) (seller is liable
“for the full amount paid by the purchaser”). Further, under federal law, there is joint
and several liability only if there is a specific finding by the trier of fact that the violation
of securities law was done “knowingly.” 15 U.S.C. § 78-u(f)(2)(A). Otherwise, federal
securities law requires the jury to apportion liability between OKO, Campbell, and any
other person responsible for committing the fraud. Id. No such specific finding is
Stark County, Case No. 2013CA00084 17
required by Ohio law for joint and several liability. R.C. 1707.43(A). Accordingly, an
award for rescissory damages in the Stark County action would not be duplicative or
result in a double recovery for appellants. We also note that appellants have stipulated
that the proximate cause damages awarded by the federal judgment should be
subtracted from any recovery of rescissory damages in the Stark County action.
Waiver Exception
{¶31} Appellants argue the trial court also erred in not applying the waiver
exception contained in Section 26(1)(a) of the Restatement to the general rule of claim
preclusion. We agree. As noted above, Section 24 of the Restatement, specifically
adopted by the Ohio Supreme Court in Grava, states that “[t]he general rule of this
Section is exemplified in § 25, and is subject to the exceptions stated in § 26.” 1
Restatement of the Law, 2d, Judgments, Section 24 (1982). Section 26 of the
Restatement provides that:
(1) When any of the following circumstances exists, the general
rule of § 24 does not apply to extinguish the claim, and part
or all of the claim subsists as a possible basis for a second
section by the plaintiff against the defendant:
(a) The parties have agreed in terms or in effect that the plaintiff may split
his claim, or the defendant has acquiesced therein.
1 Restatement of the Law 2d, Judgments, Section 26 (1982). The comments to the
Restatement explain that the rule of § 24 is “not applicable where the defendant
consents, in express words or otherwise, to the splitting of the claim” and “the failure of
the defendant to object to the splitting of the plaintiff’s claim is effective as an
Stark County, Case No. 2013CA00084 18
acquiescence in the splitting of the claim.” Id. at Section 26, Comment (a). See also
Davis v. Sun Oil Co., 148 F.3d 606 (6th Cir. 1998) (finding that § 26 of the Restatement
adopted in Grava precludes claim-splitting except where “the parties have agreed in
terms or in effect that the plaintiff may split his claim, or the defendant has acquiesced
therein.”)
{¶32} In this case, appellees failed to object to the splitting of the state and
federal securities claims when the federal district court declined to exercise pendent
jurisdiction over appellants’ state law claims. Further, in their amended motion to
dismiss pursuant to Civil Rule 12(B)(2) filed in federal court, appellees requested the
federal court “dismiss or stay the subject case until completion of the state court
proceeding.” The district court thus granted appellees’ motion in part, declining to
exercise jurisdiction over appellants’ state law claims “in favor of their resolution by the
Stark County, Ohio Common Pleas Court” and dismissing appellants’ Ohio law claims.
We find appellees’ failure to object to the splitting of the claim and amended motion to
dismiss requesting a dismissal of the claims in federal court in favor of the Stark County
Common Pleas Court demonstrates that appellees acquiesced in the splitting of
appellants’ federal and state claims. Thus, the waiver exception found in § 26(1)(a) of
the Restatement applies to defeat the broad application of claim preclusion found in §
24 of the Restatement.
Collateral Estoppel
{¶33} The trial court also stated in its judgment entry that counterclaims one,
three, four, five, six, seven, and eight are barred by “collateral estoppel.” Collateral
estoppel, also known as issue preclusion, precludes relitigation of any “issue that has
Stark County, Case No. 2013CA00084 19
been actually and necessarily litigated and determined in prior action.” Fort Frye
Teachers Assn. v. State Emp. Rels. Bd., 81 Ohio St. 3d 392, 395, 1998-Ohio-435, 692
N.E.2d 140 (1998). In this case, the trial court fails to identify which issues were
actually litigated and determined in the federal case and appellees did not argue that
appellants’ counterclaims were barred by collateral estoppel in their summary judgment
motion and subsequent briefing. Accordingly, we reverse the trial court’s granting of
summary judgment in favor of appellees to the extent that the trial court granted
summary judgment based on collateral estoppel or issue preclusion.
{¶34} Based on the foregoing, appellants’ first assignment of error is sustained.
II.
{¶35} Appellants finally argue the trial court erred by denying their motion for
summary judgment on counterclaim three, sale of unregistered securities, and
counterclaim four, Ohio securities fraud, on the basis of issue preclusion.
{¶36} As discussed above, when a valid, final judgment on the merits is
rendered, all subsequent actions based upon any claim arising out of the transaction or
occurrence that was the subject matter of the previous action is barred. Grava, 73 Ohio
St.3d at 382. Issue preclusion or collateral estoppel “holds that a fact or a point that
was actually and directly at issue in a previous action, and was passed upon and
determined by a court of competent jurisdiction, may not be drawn into question in a
subsequent action between the same parties or their privies, whether the cause of
action in the two actions be identical or different.” Ft. Frye Teachers Assn, 81 Ohio
St.3d 392 at 395. While claim preclusion bars re-litigation of the same cause of action,
issue preclusion bars the re-litigation of an “issue that has been actually and necessarily
Stark County, Case No. 2013CA00084 20
litigated and determined in a prior action that was based on a different cause of action.”
Id.
{¶37} In this case, the trial court applied claim preclusion to completely bar the
adjudication of appellants’ counterclaims three and four. Thus, the trial court did not
examine the underlying factual issues or determine whether the issues in counterclaims
three and four were actually and necessarily litigated and determined in the federal
court action dealing with the federal securities violation claims. Accordingly, because
we sustained appellants’ first assignment of error and reversed the trial court’s decision
regarding claim preclusion, the trial court must now determine whether appellants can
offensively utilize issue preclusion against appellees in counterclaims three and four.
{¶38} Accordingly, the February 28, 2013 judgment entry of the Stark County
Common Pleas Court granting appellees’ motion for summary judgment and dismissing
counterclaims one, three, four, five, six, seven, and eight of appellants is reversed. We
remand the matter to the trial court for further proceedings in accordance with the law
and this opinion.
By Gwin, P.J.,
Hoffman, J., and
Delaney, J., concur
_________________________________
HON. W. SCOTT GWIN
_________________________________
HON. WILLIAM B. HOFFMAN
_________________________________
HON. PATRICIA A. DELANEY
WSG:clw 1121
[Cite as Ohio Kentucky Oil Corp. v. Nolfi, 2013-Ohio-5519.]
IN THE COURT OF APPEALS FOR STARK COUNTY, OHIO
FIFTH APPELLATE DISTRICT
OHIO KENTUCKY OIL
CORPORATION, ET AL :
:
Plaintiffs-Appellees :
:
:
-vs- : JUDGMENT ENTRY
:
GREGORY M. NOLFI, AS SUCCESSOR :
TRUSTEE, ET AL :
:
:
Defendants-Appellants : CASE NO. 2013CA00084
For the reasons stated in our accompanying Memorandum-Opinion, the February
28, 2013 judgment entry of the Stark County Common Pleas Court granting appellees’
motion for summary judgment and dismissing counterclaims one, three, four, five, six,
seven, and eight of appellants is reversed. We remand the matter to the trial court for
further proceedings in accordance with the law and this opinion. Costs to appellees.
_________________________________
HON. W. SCOTT GWIN
_________________________________
HON. WILLIAM B. HOFFMAN
_________________________________
HON. PATRICIA A. DELANEY