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Tuesday, February 1, 2011

Larry Engel, Jr. v. University of Toledo College of Medicine, Case no. 2009-1735
10th District Court of Appeals (Franklin County)

State ex rel. Robert Merrill, Trustee, et al. v. State of Ohio, Department of Natural Resources, et al., Case no. 2009-1806
11th District Court of Appeals (Lake County)

Barbara Zumwalde v. Madeira and Indian Hill Joint Fire District and Stephen Ashbrock, Case no. 2010-0218
1st District Court of Appeals (Hamilton County)

Powell Measles et al. v. Industrial Commission of Ohio et al., Case no. 2010-0393
8th District Court of Appeals (Cuyahoga County)

Flagstar Bank, FSB v. Airline Union's Mortgage Company et al., Case nos. 2010-0508 and 2010-0511
1st District Court of Appeals (Hamilton County)

Is Volunteer Medical School Instructor Immune from Personal Liability for Negligence as 'State Officer?'

When Injury to Private Patient Occurs During Surgery Observed By Student

Larry Engel, Jr. v. University of Toledo College of Medicine, Case no. 2009-1735
10th District Court of Appeals (Franklin County)

ISSUE: The Ohio Court of Claims Act, Section 9.86 of the Revised Code, generally immunizes “officers and employees” of the state from personal liability for injuries caused by the negligent performance of their job duties. Rather than seeking recovery from the individual worker who allegedly caused injury, the law authorizes persons harmed  by state employees’ acts or omissions to recover damages by filing suit against the state in the Court of Claims. In this case, the Supreme Court is asked to decide whether R.C. 9.86 confers personal immunity on a private-practice physician who serves as a volunteer faculty member of a public medical school for injuries the physician caused to one of his own private patients during  an operation performed in a non-university hospital while he was being  observed by a university medical student.

BACKGROUND:  Patient Larry Engel Jr. suffered injuries as a result of alleged malpractice by Dr. Marek Skoskiewicz during the performance of two vasectomy surgeries on Engel at the Henry County Hospital in Napoleon. Engel was a patient of Dr. Skoskiewicz’ private medical practice, and the hospital is a private, non-profit facility that is not affiliated with the University of Toledo or any other state agency. The surgeries were observed by a third-year medical student at the University of Toledo College of Medicine (UTCM) who was “shadowing” Dr. Skoskiewicz  at the time as part of a program in which private physicians across the state serve as volunteer “clinical faculty members” of the state’s six medical schools by allowing medical students to observe the day-to-day operation of their private medical practices.

In May of 2006, Engel filed a malpractice lawsuit against Dr. Skoskiewicz in the Henry County Court of Common Pleas. In February 2008, while Engel’s suit against him remained pending in Henry County, Dr. Skoskiewicz entered a motion to dismiss or postpone proceedings in the common pleas court. He argued that because he was being observed by a medical student at the time he operated on Engel, he was acting within his capacity as an appointed member of the UTCM faculty.  Accordingly, the doctor claimed he was immune from personal liability for Engel’s injuries, and Engel must pursue recovery for his damages by suing UTCM in the Court of Claims. The common pleas court postponed further proceedings pending a ruling by the Court of Claims on whether or not the doctor qualified for personal immunity under R.C. 9.86.

In order to obtain such a ruling, Engel filed suit against UTCM in the Court of Claims. The Court of Claims held that Dr. Skoskiewicz’s position as a Clinical Assistant Professor at UTCM entitled him to personal immunity under the circumstances of this case, and agreed to commence legal proceedings in which Engel could pursue recovery for his injuries from the state rather than from Dr. Skoskiewicz’s malpractice insurer.  In its decision, the Court of Claims indicated that it was following the Supreme Court of Ohio’s 2006 ruling in Theobald v. Univ. of Cincinnati.  In Theobald, this Court held that medical professionals who were employees of a university hospital and whose job duties included educating medical students were entitled to immunity from personal liability for malpractice damages when the alleged malpractice occurred while they were being observed by medical students.

UTCM appealed. On review, the 10th District Court of Appeals affirmed the Court of Claims decision. The court of appeals held that because Dr. Skoskiewicz received a letter from UTCM stating that he had been “appointed” by the university’s trustees to serve as volunteer faculty member, the doctor was “serving in an elected or  appointed office or position with the state” when he was being observed by a medical student, and therefore fell within the legal definition of a “state officer” entitled to personal immunity under R.C. 9.86. UTCM sought and was granted Supreme Court review of the 10th District’s ruling.

Attorneys for the medical school argue that the language of the Court of Claims Act allowing lawsuits against the state for harm caused by “state officers or employees” must be interpreted in light of the legislative intent underlying that law. They say the legislature’s intent in enacting the law was to provide some source of  recovery for persons who were injured by the actions of a state agency or worker and who were previously barred by the doctrine of sovereign immunity from receiving any compensation from the state for such damages. They contend that both the Court of Claims and the 10th District interpreted the statute much too broadly in extending its grant of “state officer” immunity to Dr. Skoskiewicz and other volunteer physicians across the state who merely allow medical students to observe their treatment of their own private patients.

Arguing that the lower courts erred by basing their decisions on the mere appearance of the word “appointment” in the letter formalizing a doctor’s service as an unpaid volunteer, the state urges the Supreme Court to follow a line of  prior decisions holding that the key factor in determining whether a person is acting as an “officer or employee of the state” at the time an injury occurs is the degree to which that person was performing work on behalf of or under a contract with a state agency, and whether the worker was acting under the control or supervision of a state agency when the injury occurred. In this case, they assert, Engel’s claim against Dr. Skoskiewicz is based  on alleged medical negligence that occurred while the doctor was acting as a private physician treating his own private patient in a private medical facility, without any payment, oversight, control or supervision of that treatment by the medical school. The medical school also contends that, because thousands of Ohio physicians serve as volunteer “faculty members” by allowing medical students to observe their private practices, applying the Court of Claims Act to cases like this one will result in a shifting of malpractice liability from private physicians and their insurance companies to the state’s taxpayers.

Attorneys for Dr. Skoskiewicz urge the Court to affirm the 10th District’s holding that the plain language of R.C. 109.36(A)(1)(a) defines an officer of the state as “(a) person who, at the time a cause of action arises, is serving in an elective or appointive office or position with the state ... ”  They argue that the doctor’s appointment as a Clinical Assistant Professor in the Department of Surgery at  UTCM  placed him within that definition, and point out that as a volunteer faculty member, Dr. Skoskiewicz was required to comply with all academic rules and regulations applicable to fulltime medical school faculty members, including the requirement that he complete and file a clinical competency evaluation on each student who was assigned to  observe his practice. 

Because it is undisputed that Dr. Skoskiewicz was being observed by a medical student during Engel’s surgery, they contend, the lower courts correctly followed this Court’s decision in Theobald and held that he was acting in his capacity as a medical school faculty member and was therefore entitled to personal immunity under the Court of Claims Act. With regard to the public policy argument that the state should not assume liability for malpractice committed by private physicians while treating their own private patients, Dr. Skoskiewicz asserts that the current language of the  law places that liability on the state, and it is the legislature, not the courts, which must change the law if it disagrees with that policy.

Benjamin C. Mizer, 614.466.8980, for the state and University of Toledo College of Medicine.

Susan H. Zitterman, 313.965.7905, for Dr. Marek Skoskiewicz.

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Does State's Public Trust Authority over Lake Erie Extend to High Water Mark, or End at Water's Edge?

Case Also Asks Whether Attorney General Has Independent Authority to Appeal a Judgment Adverse to the State Without Direction from Governor or Legislature

State ex rel. Robert Merrill, Trustee, et al. v. State of Ohio, Department of Natural Resources, et al., Case no. 2009-1806
11th District Court of Appeals (Lake County)


BACKGROUND:  This case involves lawsuits initiated by two groups of Lake County property owners whose properties immediately adjoin Lake Erie. The cases were consolidated and subsequently certified as a class action on behalf of all owners of private property directly adjoining Lake Erie within the borders of Ohio.

In their complaint, the plaintiff landowners named three defendants: the Ohio Department of Natural Resources (ODNR), ODNR director Sean Logan, and the state of Ohio. The complaint asked the Lake County Court of Common Pleas to issue a declaratory judgment defining the furthest landward boundary of the territory of Lake Erie over which the state exercises “public trust” authority. Under that authority, transferred by the federal government to the state when Ohio achieved statehood, the state is empowered as a custodian to regulate the use of the waters of Lake Erie and the land underlying the lake to preserve those resources for the public use and enjoyment of all Ohioans.

The class action plaintiffs specifically asked the trial court to declare invalid regulations adopted by ODNR that sought to enforce the state’s public trust authority not only over the waters of the lake, but also over land on the Ohio shore up to the lake’s “ordinary high water point,” which ODNR identified as 573.4 feet above sea level based on a 1985 survey by U.S. Army Corps of Engineers. The plaintiffs’ complaint also asserted claims against the state based on an alleged unconstitutional “taking” without compensation of their shoreline property from the water line up to the ordinary high-water mark. The trial court stayed proceedings on the plaintiffs’ “taking” claims pending resolution of the declaratory judgment action to determine the proper boundary between the state’s public trust area and the plaintiffs’ private property.

Both sides entered motions for summary judgment in the declaratory judgment action. While those motions were pending, ODNR and the attorney general decided to pursue different legal courses. ODNR stipulated that it was changing its regulatory procedures to recognize the presumptive deed rights of lakeside property owners to use their property below the ordinary high water point without entering into a previously required lease agreement with the department. The department noted that its change in regulatory policy was subject to future revision based on a final determination by the courts regarding where the state’s public ownership and trust authority over the lake ended and lakefront property owners’ rights began. The case proceeded in the trial court without further participation by ODNR, but with the attorney general continuing to argue on behalf of the state that its public trust authority extends to the ordinary high water mark on shore. Two nature conservation organizations, the National Wildlife Foundation (NWF) and Ohio Environmental Council (OEC), jointly sought and were granted permission to intervene in the case as interested parties. They filed briefs supporting the attorney general’s positions.

The trial court granted summary judgment in favor of the plaintiff property owners. In its decision, the court held that: 1) the most landward boundary of the state’s public trust authority is at the water’s edge at any given moment, regardless of any objective or historic high water or low water point; 2) the state was barred from exercising public trust authority over any property landward of the water’s edge; 3) private owners could legally “exclude others from using the shore down to the water’s edge;” and 4) private owners’ property deeds were not enforceable beyond the point where the water touched the shore at the time their deed was filed, and private ownership rights to shoreline property could not be extended beyond that original location by any subsequent receding of the lake’s waters or deposit of artificial fill into the lake bed.

Both sides appealed the portions of the trial court’s judgment unfavorable to them. The 11th District Court of Appeals sua sponte (on its own initiative) refused to address the assignments of error or consider the legal arguments advanced by the attorney general seeking reversal of the trial court’s decision. The court of appeals held that, pursuant to R.C. 109.02, the attorney general may take legal action only at the behest of the Governor or General Assembly, and therefore, after ODNR agreed to abandon the regulatory practice underlying the plaintiffs’ claims against the department, the attorney general no longer had standing to participate in the case.

Addressing only the arguments advanced by NWF-OEC and by the plaintiffs, the 11th District affirmed the trial court’s ruling that the state has no ownership of or public trust authority over any of the shoreland of Lake Erie within the boundaries of Ohio beyond the land actually submerged under the waters of the lake at any given time. The court of appeals also affirmed that the rights of  private property owners extend to the actual water’s edge, wherever it is located at any given time, and vacated the trial court’s ruling limiting the lakeward extent of an owners’ property to the location of the water’s edge at the time the deed to that property was registered. 

The state, represented by the attorney general, sought and was granted Supreme Court review of the 11th District’s holdings that: 1) the attorney general lacked independent standing to pursue an appeal of the trial court’s judgment on behalf of the state, and 2) the state’s public trust authority over Lake Erie terminates at the current water’s edge rather than at the ordinary high water mark on shore.

Attorney General’s Standing: Attorneys for the state argue that language in R.C. 109.02 cited by the 11th District requires the attorney general to represent the state in a legal matter whenever his representation is requested by either the legislature or the governor, but does not restrict the attorney general from representing the state under his own independent constitutional and statutory authority in other cases where the state is a party to a legal action. In this case, they contend,  the plaintiff property owners’ complaint specifically named both ODNR and the State of Ohio as defendants, and therefore neither the state’s status as a party nor the attorney general’s standing to appeal the trial court’s decision was dependent on the continuing participation of ODNR in the litigation. They also point to other statutory provisions that they say empower the attorney general to take whatever legal actions he deems necessary to protect the interests of the state, its departments, and other elected state officials and agencies. They argue that it would be impossible for the attorney general to represent the state effectively in legal disputes if he were barred by law from immediately  filing or responding to opposing parties’ motions, seeking timely court orders or filing timely appeals in ongoing legal proceedings without first obtaining approval for such actions from the governor or legislature.

Attorneys for the plaintiff land owners point out that in 1989 the General Assembly adopted R.C. 1506.10, which grants exclusive authority to ODNR “in all matters pertaining to the care, protection and enforcement of the state’s rights” over the territory of Lake Erie and its submerged lands. They argue that this specific grant of authority to ODNR over legal matters involving the lake and its boundaries supersedes the attorney general’s general authorization to act as the state’s legal representative, and gives the attorney general’s office standing to act on behalf of the state in lake-related litigation only to the extent that it is acting under the authority and direction of ODNR. In this case, they assert, ODNR entered into stipulations with the plaintiffs discontinuing the regulatory conduct to which they objected and acknowledging their ownership rights to lakefront property down to the water line, and elected not to appeal the trial court’s judgment affirming those agreements. Because ODNR, and not the attorney general, was the party authorized by law to act as the state’s agent in lake-related disputes, they argue, ODNR’s acquiescence waived the state’s right to appeal the trial court’s decision, and the 11th District correctly held that the attorney general did not have independent standing to appeal on behalf of the state.

Boundary of State’s Public Trust Authority: Attorneys for the state assert that when Ohio became a state in 1803, it assumed public trust authority over the same “territory” of Lake Erie as had previously been under the public trust authority of the federal government. They cite the U.S. Supreme Court’s rulings in Shively v. Bowlby (1894) and Illinois Central R.R. Co. v. Illinois (1892) which held that the authority conveyed to the states extended not only to the waters of the Great Lakes and the land submerged under those waters at any given  moment, but also to the land bordering the lakes up to the normal or “ordinary” high-water mark where the water usually met the shore under non-flood and non-drought conditions.

They note that in Sloan v. Biemiller (1878), the Supreme Court of Ohio adopted for private property bordering Lake Erie the same boundary standard set by the Illinois Supreme Court for property bordering Lake Michigan in Seaman v. Smith (1860).  In both cases, they assert, the boundary line of the lake territory falling under the state’s public trust authority was set at the “ordinary high-water mark” on shore. In this case, they contend, the 11th District erred by ignoring these historical precedents and instead terminating the state’s public trust authority over any portion of the lake shore and extending the private rights of lakeside property owners all the way to the water’s edge, wherever that might be at any given moment in time. 

Attorneys for the plaintiffs argue that the court decisions cited by the state and legislation enacted by the General Assembly in 1917 terminates the state’s authority over Lake Erie at the “natural shoreline” and recognizes a public trust only over “subaqueous” land, which means land that is actually submerged under the waters of the lake. They urge the Court to affirm the 11th Districts’ holding that ODNR has no legal authority to interfere with the right of lakefront property owners to the control and enjoyment of their land down to the water’s edge, including the right to exclude others from the use of their shoreline property for fishing, landing of boats and other recreational purposes.

NOTE: Multiple amicus curiae (friend of the court) briefs have been submitted by various individuals and interest groups supporting both the position of the state and the position of the property owners.  Those briefs, along with the pleadings of the parties summarized above, may be accessed online by visiting http://www.supremecourt.ohio.gov/Clerk/ecms/searchbycasenumber.asp and entering the eight-digit case number for this case: 2009-1806.

Benjamin C. Mizer, 614.466.8980, for the State of Ohio.

James F. Lang, 216.622.8563, for Robert Merrill and Ohio Lakefront Group.

Intervening Co-Plaintiff Homer S. Taft, pro se: 440.333.1333.

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Does Exclusion from Immunity for Employment Related Claims Apply to Employee of Political Subdivisions?

Barbara Zumwalde v. Madeira and Indian Hill Joint Fire District and Stephen Ashbrock, Case no. 2010-0218
1st District Court of Appeals (Hamilton County)

ISSUE:  Does a provision in Ohio’s sovereign immunity statute that excludes from immunity “civil actions by an employee … against a political subdivision … that arise out of the employment relationship”  remove not only the immunity of a political subdivision itself, but also the immunity of an employee of a political subdivision who is named as a codefendant in a fellow employee’s employment-related complaint? 

BACKGROUND: R.C. Chapter 2744, Ohio’s “sovereign immunity” statute, confers general immunity from civil liability on the state, political subdivisions of the state such as county and city governments and school districts, and on employees of government agencies for damages they may cause to third parties in the course of lawfully performing their governmental duties. The statute provides a number of exceptions to this general grant of immunity. One such exception, set forth in R.C. 2744.09(B), excludes from immunity “civil actions by an employee or the collective bargaining representative of an employee, against his political subdivision relative to any matter that arises out of the employment relationship between the employee and the political subdivision.”

In this case Barbara Zumwalde, a firefighter employed by the Madeira/Indian Hill Joint Fire District (JFD), filed a lawsuit against the JFD and its fire chief, Stephen Ashbrock, alleging that a disciplinary suspension imposed against her violated the Ohio Civil Rights Act because the suspension was in retaliation for Zumwalde’s earlier filing of an age and gender discrimination suit against the JFD and Ashbrock, and her subsequent filing of a worker’s compensation injury claim.  Ashbrock moved for summary judgment dismissing him as a defendant in the case based on his general immunity from personal liability arising from the performance of his official duties. The trial court denied the summary judgment motion, finding that there was a material question of fact regarding whether Ashbrock was entitled to immunity.

Ashbrock appealed the trial court’s ruling denying his claim of immunity under R.C. Chapter 2477.  On review, the 1st District Court of Appeals affirmed the trial court’s ruling, holding that the provision in R.C. 2477.09(B) precluding immunity from liability for employment-related claims filed by government employees, can be read to preclude not only institutional immunity from such claims by a political subdivision itself, but also to preclude personal immunity for an employee of a political subdivision. Ashbrock sought and was granted Supreme Court review of the 1st District’s ruling that the exception to immunity set forth in R.C. 2477.09(B) can be applied not only to a political subdivision, but also to its employee.

Attorneys for Ashbrock assert that in enacting R.C. Chapter 2477, the legislature indicated its intent to create a broad presumption that public agencies and their employees are immune from civil liability for claims that arise from the performance of their official duties unless those claims fall within specific  and carefully crafted exceptions set forth in the statute. 

They point out that the plain language of the exception to immunity set forth in R.C. 2477.09(B) addresses only employment-related lawsuits brought by an employee “against a political subdivision,” and makes no reference to claims asserted against an employee of a subdivision. They assert that this choice of wording was both deliberate and significant, and point to the immediately preceding paragraph of the same statue, R.C. 2477.09(A), which specifically precludes immunity for “civil actions that seek to recover damages from a political subdivision or any of its employees for contractual liability.” In comparing the two provisions, they contend, it is clear that the legislature knew what language to use when it wanted to preclude immunity for claims asserted against either a subdivision or individual employees, and that lawmakers chose not to use that same language in the next paragraph of the statute when they limited immunity for employment related claims such as Zumwalde’s. Because exceptions to a general rule of law must be interpreted narrowly and limited to the specific language adopted by the legislature, they argue, the 1st District erred by judicially expanding the limited exception to immunity set forth in R.C. 2477.09(B) for suits “against a political subdivision” to also allow Zumwalde to pursue individual claims against Ashbrock.

Attorneys for Zumwalde argue that the clear legislative purpose of R.C. 2477.09 was to identify various types of civil lawsuits from which the General Assembly did not wish to shield political subdivisions or their employees with immunity. They point out that R.C. 2477.09(B) bars the application of immunity to exactly the type of suit filed by Zumwalde, a “civil action by an employee” asserting employment-related claims. They contend that Zumwalde’s complaint, which specifically alleges retaliation by Ashbrock based on her earlier lawsuit in which both he and the JFD were defendants, asserts personal claims against Ashbrock and institutional claims against the fire district that are integral parts of the same  “civil action.”  Accordingly, they urge the Court to affirm the ruling of the 1st District that R.C. 2744.09(B) precludes both JFD and Ashbrock from asserting governmental immunity against Zumwalde’s claims.

Wilson G. Weisenfelder Jr., 513.381.9200, for Stephen Ashbrock.

Marc D. Mezibov, 513.621.8800, for Barbara Zumwalde.

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Must Suit Claiming Improper Withholding from Workers Compensation Benefits be Brought In Court of Claims?

Powell Measles et al. v. Industrial Commission of Ohio et al., Case no. 2010-0393
8th District Court of Appeals (Cuyahoga County)

ISSUE: When a workers’ compensation claimant has been granted lifetime Permanent Total Disability (PTD) benefits by the Industrial Commission, and the claimant receives a Lump Sum Advancement (LSA) in which he accepts a partial lump sum advance of benefits in exchange for an agreed reduction in subsequent bi-weekly payments he will receive from the state, if the claimant later sues alleging that the state unlawfully withheld benefits after it had recovered the full value of the LSA plus interest, is that suit a contract law claim seeking money damages which must be brought in the Ohio Court of Claims, or is such a complaint one that seeks only “equitable relief” and therefore may be brought in a court of common pleas?

BACKGROUND: A group of permanently and totally disabled workers including Powell Measles, Vada Measles and Ann Pocaro of Cleveland filed a class action lawsuit against the Ohio Industrial Commission and Bureau of Workers Compensation in the Cuyahoga County Court of Common Pleas.

In their complaint, the plaintiffs stated that they had each been awarded PTD benefits payable bi-weekly for the remainder of their lives, and that subsequent to those awards, they had each sought and been granted a partial lump sum advancement of benefits in return for their agreement to accept reductions in their subsequent bi-weekly benefit checks. The plaintiffs alleged that, over a period of years following their receipt of an LSA, the cumulative amounts withheld from their benefit checks had more than repaid the full amounts of their LSAs plus reasonable interest, but that the state had not restored their bi-weekly benefits to the original amounts to which they were entitled under the PTD statute, and instead had continued to withhold the amounts set forth in the LSA agreement.

The complaint asked the trial court to: 1) declare that the Industrial Commission and Bureau of Workers’ Compensation were acting contrary to law by continuing to withhold from claimants’ benefits after they had fully repaid the their LSAs plus interest; 2) issue an injunction barring the commission and bureau from engaging in such withholding in the future; and 3) order the commission and bureau to disgorge (pay out) to each claimant all amounts the state had improperly withheld from that person’s  benefits after the state had recovered the full amount of that person’s LSA plus interest. 

The state filed a motion to dismiss the plaintiffs’ claims, arguing that the recovery they sought was an award of money damages based on alleged violation of their LSA agreements, and that contract-based claims against the state may only be brought in the Court of Claims. The common pleas court granted the motion to dismiss, holding that it lacked jurisdiction to hear the case and that the plaintiffs’ suit could only be pursued in the Court of Claims. The plaintiffs appealed that ruling.  On review, the 8th District Court of Appeals reversed and remanded the case to the common pleas court for further proceedings.  In a 2-1 decision, the court of appeals held that the claims advanced by the plaintiffs were equitable rather than legal in nature (i.e., they sought only declarative and injunctive relief and recovery of funds to which the plaintiffs were already entitled), and therefore the common pleas court had jurisdiction to adjudicate the case.

The state appealed the 8th District’s decision, and the Supreme Court has agreed to review the case.

Attorneys for the state argue that the plaintiffs’ claims are based on disputed interpretation of language in LSA agreements that authorizes the state to make deductions from a claimant’s statutory bi-weekly PTD award “for the life of the claim.”  Since PTD benefits are awarded for the duration of a claimant’s life, the state contends that this language entitles it to continue making the deductions specified in an  LSA agreement for the remainder of the claimant’s life, while the plaintiffs argue that the contract language authorizes withholding from a claimant’s benefits only until the cumulative amounts withheld equal the amount of the lump sum advancement received by that claimant plus reasonable interest. Because the economic claims asserted by the plaintiffs against the state are based on the language of a contract, they assert, the plaintiffs’ lawsuit  may only be pursued in the Court of Claims.

Attorneys for the claimants respond that once their awards of PTD were approved by the Industrial Commission, each of them was entitled by law to receive a bi-weekly benefit equal to 66.67 percent of his or her average wages during employment. While the plaintiffs entered into LSA agreements with the state in which they agreed to withholding from those statutory benefits, they point to a 1994 Supreme Court of Ohio decision, State ex. rel. Shively v. Murphy Motor Freight, in which they say this Court held that the state could not lawfully continue such withholding after a claimant had repaid the full LSA amount he or she had received plus interest.  Accordingly, they contend, the plaintiffs’ claims against the state in this case are not based on alleged breach of a LSA contract and do not seek money damages based on other alleged tortious conduct, but merely seek equitable disgorgement of amounts the state unlawfully withheld  from their PST payments after their LSAs had been fully repaid.

Benjamin C. Mizer, 614.466.8980, for the Industrial Commission of Ohio and Bureau of Workers’ Compensation.

Patrick J. Perotti, 440.352.3391, for Powell Measles and other class action plaintiffs.

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When Does Statute of Limitations Begin to Run For Claim Alleging Negligent Real Estate Appraisal?

Flagstar Bank, FSB v. Airline Union's Mortgage Company et al., Case nos. 2010-0508 and 2010-0511
1st District Court of Appeals (Hamilton County)

ISSUE:  Does a cause of action for professional negligence under R.C. 2305.09(D) accrue on the date the negligent act is committed, or on the date the negligent act causes actual damages?

BACKGROUND: Chapter 2305 of the Ohio Revised Code sets forth time limits, called “statutes of limitations,” within which a plaintiff (a party who claims to have suffered financial loss or other injury) may file a civil lawsuit against a defendant (a party allegedly responsible for the plaintiff’s loss or injury) in order to recover damages. Claims based on different “causes of action” (types of alleged harmful conduct … for example, breach of a written contract and negligent performance of a professional service) are subject to different statutes of limitations. Under most statutes of limitations, if a plaintiff fails to file suit within a specified number of years after the defendant’s alleged harmful conduct took place, the plaintiff is thereafter permanently barred from suing the defendant based on that conduct.

In this case Flagstar Bank of Cincinnati purchased three mortgage loans from another lender, Airline Union’s Mortgage Company (AUM) in 2001 and 2002. Prior to completing each of those purchases, Flagstar had the property securing that loan appraised by a licensed real estate appraiser, John Reinhold. In each case, Reinhold’s appraisal stated that the  property had sufficient value to support the loan, i.e., that if the borrower defaulted, Flagstar or a subsequent purchaser of the mortgage could sell the property for enough money to recover the unpaid balance of the note. Flagstar later re-sold two of the mortgages to secondary buyers and kept the third as part of its own asset portfolio.

The borrowers on all three mortgages subsequently defaulted. In September 2004 and May 2005 respectively, the two secondary lenders who had purchased notes from Flagstar foreclosed and the properties were sold at foreclosure sales. Neither property was sold for an amount sufficient to cover the unpaid balance of the mortgage. Under the terms of their purchase agreements with Flagstar, the secondary lenders forced Flagstar to pay them the deficiency balances of the notes and reimburse their foreclosure-related expenses. The home securing the third loan burned down in 2003. In June 2007, Flagstar received approximately $471,000 from insurance proceeds, leaving a deficiency balance and losses of over $390,000.

In April 2008, Flagstar filed suit against Reinhold, alleging that he had been negligent in appraising the properties Flagstar had purchased from AUM and seeking recovery from him for the losses Flagstar had incurred as a result of its reliance on those appraisals. Reinhold moved for summary judgment dismissing Flagstar’s claims, asserting that the statute of limitations set forth in R.C. 2305.09(D) for civil suits based on professional negligence was four years, and Flagstar had not filed suit against him within four years after he performed the allegedly defective appraisals in 2001 and 2002. The trial court agreed that Flagstar’s claims were barred by the statute of limitations, and granted summary judgment in favor of Reinhold. 

Flagstar appealed, arguing that its cause of action against Reinhold did not accrue, and therefore the four-year statute of limitations did not begin to run,  until the bank suffered actual damages as a result of the negligent appraisals. The 1st District Court of Appeals rejected Flagstar’s argument and affirmed the judgment of the trial court that the statute of limitations began to run at the time the appraisals were conducted.  The 1st District certified, however, that its holding with regard to when a plaintiff’s cause of action for professional negligence accrues was in conflict with decisions of several other court of appeals districts. The Supreme Court agreed to review the case to resolve the conflict among appellate districts.

Attorneys for Flagstar urge the Court to follow its own holding in Kunz v. Buckeye Union Ins. Co. (1982), and decisions of the Fifth, Sixth, Ninth and Eleventh Districts addressing when a cause of action for professional negligence accrues. In all those cases, they assert, the courts have held that because a plaintiff did not have an actionable negligence claim against a defendant until it could show an actual loss or injury thatwas caused by that negligence, the plaintiff’s cause of action did not accrue − and the applicable statute of limitations did not begin to run − until the plaintiff incurred actual damages.  In this case, they assert, Flagstar would never have had an actionable claim against Reinhold no matter how defective his appraisals were if the original borrowers had paid off their mortgages, or if the sale of the two foreclosed properties and the  insurance settlement on the third had generated enough money to pay off the outstanding balances of those loans. Because Flagstar had no actual loss to recover until the first foreclosure sale in September 2004 resulted in a deficiency balance, they say, the four-year statute did not begin to run until that date, and therefore Flagstar’s April 2008 complaint should not have been dismissed as untimely.

Attorneys for Reinhold urge the Court to affirm the 1st District’s ruling that the “delayed damages” theory asserted by Flagstar is contrary to the general rule that a plaintiff’s cause of action against a defendant accrues  − and the statute of limitations for bringing a civil action begins to run − on the date the alleged wrongful conduct was committed unless the legislature has provided a specific exception that tolls (stops the running of) the statutory time limit for certain types of claims until the plaintiff “discovers” injurious conduct.  They argue that the 1st District correctly based its ruling in this case on the Supreme Court of Ohio’s 1989 decision in Investors REIT One v. Jacobs. In that case, they say, the Court specifically held that in drafting the statute of limitations applicable to this case, R.C. 2305.09(D), the legislature did not include a “discovery rule” exception for professional negligence claims, and therefore a plaintiff advancing such a claim must file suit within four years of the date of the alleged tortuous conduct. Because Reinhold completed his appraisals of the three properties at issue in this case in 2001 and 2002, they say, the four year time limit for filing suit  began to run at that time, and the trial court and 1st District correctly found that Flagstar’s April 2008 complaint was not filed within the statute.

Scott A. King, 937.443.6560, for Flagstar Bank.

Robert J. Gehring, 513.784.1525, for John Reinhold.

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