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Michael K. Cundall, Individually, and Michael K. Cundall, Successor Trustee v. U.S. Bank, N.A., Predecessor Trustee, et al., Case no. 2008-0314
1st District Court of Appeals (Hamilton County)
Trans Rail America, Inc. v. James J. Enyeart, M.D., Health
Commissioner, Trumbull County Health Department, Case no. 2008-0359
10th District Court of Appeals (Franklin County)
Sheet Metal Workers’ International Association, Local Union No. 33
v. Gene’s Refrigeration, Heating & Air Conditioning, Inc., Case no. 2008-0780
9th District Court of Appeals (Medina County)
Disciplinary Counsel v. John Joseph Chambers, Case no. 2008-1991
Sister’s Heirs Seek Recovery of Trust Proceeds Based on Alleged Self-Dealing by Trustee Brother
Michael K. Cundall, Individually, and Michael K. Cundall, Successor Trustee v. U.S. Bank, N.A., Predecessor Trustee, et al., Case no. 2008-0314
1st District Court of Appeals (Hamilton County)
ISSUES:
- May provisions of the Ohio Trust Code (OTC) that took effect in 2007 be applied retroactively to confer personal jurisdiction on an Ohio common pleas court to hear an unjust enrichment claim against out-of-state residents whose only contact with Ohio was their receipt of payments from an Ohio trust?
- When an unjust enrichment claim is based on alleged acts of fraud and breach of fiduciary duty by a trustee, does the plaintiffs’ cause of action against other beneficiaries of the trust arise at the time of the fraudulent transaction, or is their cause of action deferred to the date the offending trustee ceased to serve in that capacity?
- When a trust beneficiary sues a trustee alleging breach of fiduciary duty, and attempts to rescind a transaction in which the beneficiary obtained consideration from the trustee and signed a release, is the plaintiff required to first “tender” (return) the consideration he received from the defendant in the original transaction?
BACKGROUND: This case involves a complex dispute between the heirs of a brother, John F. (Bud) Koons III and his sister, Betty Cundall, over the proceeds of a trust established by their parents, John F. and Ethel Koons of Cincinnati in 1976 for the benefit of Bud’s and Betty’s children and grandchildren. The Grandparents’ Trust was divided into two equal parts, Fund A for the benefit of Koons’ heirs and Fund B for the benefit of Cundall’s heirs. Bud was named trustee of the trust, which was funded with 6,309 shares of Central Investment Corporation (CIC), a closely held business owned by the Koons family. Bud Koons was also majority stockholder and CEO of CIC.
Betty Cundall died in 1977, leaving two sons and a daughter as her heirs and beneficiaries of the Fund B portion of the Grandparents’ Trust. In 1984, acting in his capacity as trustee of the Grandparents’ Trust, Bud Koons sold all of the Fund B shares back to CIC for $210 per share, yielding a total sale price of $3.1 million. The Cundall children were represented by a separate attorney in the transaction, which was not reviewed by a court. As part of the transaction, the Cundall heirs signed releases waiving any future claims against Bud Koons based on the share sale. The Fund A shares were not sold back to CIC, but remained in the Grandparents’ Trust for the future benefit of Bud’s heirs.
In January 2005, all of the shares of CIC including the shares still held in Fund A of the Grandparents’ Trust were sold to an outside buyer for approximately $3,010 per share. Total proceeds of the sale were approximately $340 million. Following the death of Bud Koons in March 2005, a successor trustee was appointed. After reviewing documents and financial records of the 1984 repurchase of the Fund B shares by Bud Koons and CIC, the successor trustee filed a civil suit in the Hamilton County Court of Common Pleas on behalf of the Cundall heirs asserting claims for fraud and breach of fiduciary duty against the estate of Bud Koons and U.S. Bank, and for unjust enrichment against the Koons children and grandchildren who were the beneficiaries of Fund A. U.S. Bank was subsequently dismissed as a defendant.
The remaining defendants filed pretrial motions for dismissal, which were granted by the common pleas court in a judgment issued Jan. 5, 2007. The trial court ruled that it did not have personal jurisdiction over the out-of-state Koons beneficiaries, because they did not have the required minimum contact with Ohio. It also held that the Cundall heirs’ claims against Bud Koons’ estate were barred by the fact that before filing suit they had not refunded the $3.1 million dollars they were paid in 1984 as consideration for their stock and releases immunizing Koons from future liability for the stock sale.
On review, the 1st District Court of Appeals reversed the trial court’s rulings, reinstated the Cundalls’ claims and remanded the case for further proceedings. The appellate panel ruled that new provisions of Ohio trust law that took effect Jan. 1, 2007, gave Ohio courts personal jurisdiction over any dispute involving an Ohio trust regardless of the residency of a defendant. It also held that the breach of claim advanced by the Cundalls did not require them to “tender” the proceeds of the 1984 stock purchase as a precondition to filing suit against Bud Koons’ estate. The Koons heirs sought and were granted Supreme Court review of the 1st District’s decision.
Attorneys for the Koons argue that the 1st District erred in applying new Ohio trust laws that took effect Jan. 1, 2007, to this case because the state constitution bars courts from retroactive application of a law when doing so affects a substantive right of a party. In this case, they assert, the applicable state law at the time of the 1984 stock repurchase and at the time the Cundalls filed suit limited the personal jurisdiction of Ohio trial courts to persons with at least “minimum contacts” with this state. They assert that the Koons heirs named as defendants are longtime residents of another state, and that under the law in effect prior to Jan. 1, 2007, they could not be sued in an Ohio court when their only “contact” with Ohio was receiving periodic payments from an Ohio trust. They also cite prior court decisions that agree with the trial court’s ruling that plaintiffs like the Cundalls in this case who have released another party from future liability for a specified transaction must first return the proceeds of that transaction before they attempt to rescind it through a lawsuit.
Attorneys for the Cundall heirs respond that Ohio is the only jurisdiction in which their claims against Bud Koons’ estate and the Fund A beneficiaries can reasonably be litigated. They argue that, even without retroactive application of the 2007 Ohio Trust Code, the Ohio “long arm” statute in force at the time their suit was filed gave Ohio courts personal jurisdiction over claims by Ohio plaintiffs based on fraud by the trustee of an Ohio trust that was funded with the shares of an Ohio corporation. They contend that the court decisions cited by the defendants in which a plaintiff was required to return the proceeds of a prior transaction before filing suit involved tort or contract claims, rather than a claim for breach of fiduciary duty that violated the express terms of a trust agreement. They also argue that there is no basis to require a “tender” of the $3.1 million the plaintiffs received for their shares in 1984, because the defendants do not dispute that the Cundall heirs were entitled to at least that amount as payment for their Plan B shares, regardless of the outcome of the current litigation.
Contacts
Richard G. Ward, 513.621.8210 and William H. Blessing, 513. 621.9191, for the Cundall heirs.
Donald J. Mooney Jr., 513.698.5070 and Peter L. Cassady, 513.621.2100, for the Koons heirs.
May Environmental Appeals Commission Review Rejection of Landfill Application as ‘Incomplete?’
Trans Rail America, Inc. v. James J. Enyeart, M.D., Health
Commissioner, Trumbull County Health Department, Case no. 2008-0359
10th District Court of Appeals (Franklin County)
ISSUE: Does the Ohio Environmental Review Appeals Commission have legal authority to hear an appeal of a county health department’s determination that an application for a license to operate a construction debris landfill is “incomplete” and therefore cannot be considered by the health department?
BACKGROUND: Trans Rail America Inc. filed an application with the Trumbull County Health Department seeking a license to open and operate a construction/demolition debris landfill in the county. The health department returned the application to Trans Rail with a notice that it could not be considered unless Trans Rail submitted specified additional information. Trans Rail resubmitted its application twice more with additional information, but on both occasions was advised that the information it had supplied was still insufficient for the health department to consider the application and grant or deny the requested license.
Trans Rail attempted to appeal the health department’s rejection of its application as incomplete to the Ohio Environmental Review Appeals Commission (ERAC). ERAC dismissed the appeal, stating that it only has subject matter jurisdiction to review “final actions” of a county health department granting or denying a license or permit, and finding that Trumbull County’s refusal to consider Trans Rail’s application as “incomplete” was not a final action, and therefore was not reviewable. Trans Rail exercised its right to appeal ERAC’s ruling to the 10th District Court of Appeals. The 10th District voted 2-1 to reverse and remand the case to ERAC, holding that the commission had jurisdiction to consider whether Trumbull County’s rejection of the Trans Rail application as incomplete was reasonable and lawful, and ordering ERAC to make that determination.
The Trumbull County Health Department sought and was granted Supreme Court review of the 10th District’s ruling. Attorneys for the department, supported by an amicus curiae (friend of the court) brief submitted by the Ohio Attorney General’s Office, urge the Court to reverse the 10th District and affirm ERAC’s reading of the applicable statute, R.C. 3745.04, as limiting ERAC’s jurisdiction to reviewing cases in which either the EPA director or a local health department has taken a final “action” by granting or denying an application or permit. By reading the statute to authorize ERAC review of a license application before any final action has been taken on it, they assert, the 10th District’s decision in this case abandons an established line of case law and raises the prospect of numerous premature appeals of environmental license applications that will significantly increase the review commission’s caseload and result in redundant appeals of the same applications after a licensing agency has made a final determination to grant or deny them.
Attorneys for Trans Rail, supported by amicus briefs from the National Solid Waste Management Association and the Construction and Demolition Association of Ohio, point to language in R.C. 3745.04 cited by the 10th District that authorizes ERAC to hear appeals seeking: “(A)n order vacating or modifying the action of the director or local board of health, or ordering the director or board of health to perform or act.” They argue that the 10th District correctly interpreted that language as authorizing the commission to review the legality and reasonableness of a health department’s repeated refusals to “act” on Trans Rail’s license application on the pretext that it was “incomplete.” Without the right to appeal to ERAC when a county agency improperly refuses to act on an application, they argue, local officials can effectively deny an applicant its right to open and operate a lawful business without ever following the procedures specified by law for approving or disapproving an application.
Contacts
Robert C. Kokor, 330.448.1133 , for
Trumbull County Health Commissioner James J. Enyeart.
Michael A. Partlow, 216.621.4244, for Trans Rail America Inc.
Is Off-Site Fabrication of Materials Used in a Public Building Subject to Ohio ‘Prevailing Wage’ Law?
Sheet Metal Workers’ International Association, Local Union No. 33
v. Gene’s Refrigeration, Heating & Air Conditioning, Inc., Case no. 2008-0780
9th District Court of Appeals (Medina County)
ISSUES:
- Does Ohio’s “prevailing wage” law require a contractor to pay prevailing wages to an employee who works in an off-site production shop that fabricates metal ducting that is subsequently installed in a public works project?
- When a single worker authorizes a union to file an “interested party” complaint against a contractor alleging that work on a public project was not paid at the prevailing wage, does the union have standing to represent only the worker who authorized the representation, or does it have standing to assert claims on behalf of all workers in all trades who worked on the project?
BACKGROUND: Ohio’s “prevailing wage” law, set forth in Ohio Revised Code Sections 4115.03 through 4115.16, generally requires that workers employed in the construction of government buildings and other public works projects must be paid according to a wage scale that approximates the hourly rates received by union workers doing similar work in that geographic area of the state.
In this case, Gene’s Refrigeration, Heating and Air Conditioning was awarded a contract to install the HVAC system in a new fire station being constructed in Medina County. The fire station project qualified as a public works improvement subject to the prevailing wage law.
Elie Cherfan was an employee of Gene’s who worked in a fabrication shop not located at or adjacent to the fire station site. His primary job was to fabricate sheet metal into various lengths and shapes of duct work that were subsequently installed by construction crews in buildings for which Gene’s served as the heating and air conditioning contractor, including the fire station. Gene’s paid Cherfan and other employees at its off-site fabricating shop at hourly rates that were lower than the prevailing wage rates the company paid other employees for work they performed at the fire station site.
In July 2005, Cherfan signed a form authorizing Sheet Metal Workers’ Union Local 33 to file a prevailing wage complaint on his behalf with the Ohio Department of Commerce. In the complaint, the union alleged that Gene’s had violated the law by failing to pay Cherfan at the prevailing wage rate for the hours he worked at the off-site shop fabricating duct work that was subsequently installed at the fire station. Pursuant to state law, when there was no disposition of the administrative complaint after 60 days, Local 33 filed a prevailing wage lawsuit in the Medina County Court of Common Pleas. The trial court granted a motion for summary judgment in favor of Gene’s. It based its ruling on findings that: 1) the off-site fabrication of building materials for a public works project is not work for which an employer is required to pay the prevailing wage, and 2) Local 33 did not have standing to file a prevailing wage claim against Gene’s as an “interested party” in this case because the only employee of Gene’s who had authorized the union to intervene (Cherfan) had never worked at the fire station building site and therefore was not covered by the prevailing wage statute.
The union appealed the trial court’s ruling. On review, the 9th District Court of Appeals issued a 2-1 decision in which it: 1) reversed the summary judgment in favor of Gene’s and remanded the case to the trial court for further proceedings, 2) affirmed the standing of Local 33 to file a prevailing wage claim not only on behalf of Cherfan but also on behalf of “any and all” employees of Gene’s who worked on the fire station project, and 3) held that language added to the prevailing wage statute in 1935 and included in current R.C. 4115.05 requires that workers engaged in the off-site manufacture or fabrication of “any material” that is intended to be used “in or in connection with” a public works project must be paid the applicable construction industry prevailing wage for that work.
Attorneys for Gene’s sought and were granted Supreme Court review of the 9th District’s decision. Supported by amicus curiae (friend of the court) briefs from multiple building trade associations and business groups including the Ohio Contractor’s Association, Associated General Contractors of Ohio and Ohio Chamber of Commerce, they argue that the 9th District’s decision is contrary to the Supreme Court of Ohio’s definitive 1934 holding in Clymer v. Zane that the Ohio prevailing wage law does not apply to workers who manufacture or fabricate building materials at an off-site location, but rather applies only to construction work performed on or at the site of a public works project.
They assert that, in the 74 years since Clymer was decided, no administrative agency and no Ohio court before the 9th District in this case has ever interpreted the prevailing wage statute to require payment of prevailing wages to workers engaged in the off-site production of materials used in a public works project. They urge the Court to read the single sentence referring to “work upon materials” cited by the 9th District in context with the rest of the 13-section prevailing wage statute, which they say makes it clear that the legislature intended the statute to apply only to work that performed “at” “upon” or “on” the jobsite of a public improvement. They contend that, if the court of appeals’ decision is affirmed, Ohio contractors will be forced to dramatically increase the wages they must pay to off-site manufacturing workers who have never before been considered covered by the prevailing wage law, and say this added expense would inevitably be passed on to taxpayers in the form of dramatically higher costs for constructing public improvements.
In disputing the 9th District’s holding that Cherfan’s authorization of Local 33 to represent him also authorized the union to represent every other worker on the fire house project for prevailing wage claims, Gene’s attorneys point out that those other workers include plumbers, electricians, carpenters and others who are members of other trade and craft unions whose collective bargaining agreements give those unions the exclusive right to pursue any work-related claims on behalf of their members. They argue that, because applying the 9th District’s ruling on this question would empower Local 33 to unlawfully interfere with pre-existing labor contracts, and would result in the union’s representation of other workers without their consent or authorization, the court of appeals holding is wrong as a matter of law and must be reversed.
Attorneys for Local 33 are supported by amicus briefs filed by labor organizations including the AFL-CIO Ohio Building Trades Council and two Ohio sheet metal and air conditioning union locals. They argue that the 9th District’s decision properly relies on the plain language of R.C. 4115.05, initially adopted in the year after Clymer v. Zane was decided, which requires that contractors must pay prevailing wages not only for on-site construction work but also for work “upon any material to be used in or in connection with a public work.”
With regard to Local 33’s standing to represent Cherfan and other workers on the fire house project who may have prevailing wage claims, they argue that the section of the prevailing wage statute that provides for the filing of complaints, R.C. 4115.03, gives independent standing to any labor organization that represents a class of workers employed on a public works project even if no worker on the project requests or authorizes that union to intervene. After an interested party has made an authorized appearance in a prevailing wage complaint, they say, nothing in the statute or in Ohio’s rules of civil procedure limits that party from advancing general legal arguments that may or may not apply to the specific employee or group of employees who signed an authorization card.
Contacts
Joseph M. D’Angelo, 419.244.8989, for
Sheet Metal Workers Int’l Assn. Local Union No. 33.
Alan G. Ross, 216.447.1551, for Gene’s Refrigeration, Heating & Air Conditioning.
Attorney Discipline
Disciplinary Counsel v. John Joseph Chambers, Case no. 2008-1991
The Board of Commissioners on Grievances & Discipline has recommended that Fairview Park attorney John J. Chambers be suspended from the practice of law for one year, with six months of that term stayed on conditions, for violations of state attorney discipline rules and for failing to answer the grievances filed against him or to otherwise cooperate with disciplinary authorities investigating his misconduct.
The board found that in soliciting one of the complainants against him to dismiss his grievance as a condition of receiving a civil settlement, and threatening to sue the complainant for defamation if his grievance was reinstated later, Chambers engaged in conduct prejudicial to administration of justice and conduct that adversely reflects on his fitness to practice law, and also violated several other provisions of the Rules of Professional Conduct.
Chambers has filed objections to the disciplinary board’s findings and recommendations. He asks the Court to consider several mitigating factors not considered during the board’s review of his case, including the facts that he was suffering from diagnosed depression and chemical dependence at the time of his misconduct and that he has since admitted and expressed remorse for his wrongful acts and has entered into psychiatric treatment and a recovery contract with the Ohio Lawyers Assistance Program.
The Office of Disciplinary Counsel has also filed objections to the board’s recommended sanction. They argue that in light of Chambers’ repeated and prolonged refusals to cooperate with disciplinary authorities, and his attempt to escape the consequences of his misconduct by inducing or intimidating a complainant into withdrawing his grievance, he should be subject to an indefinite license suspension.
Contacts
Jonathan Coughlan, 614.461.0256, for
the Office of Disciplinary Counsel.
Mary L. Cibella, 216.344.9220, for John J. Chambers.
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