Harris v. Rossi

2016 Ohio 7163

FRED HARRIS, et al., Plaintiffs-Appellants, v. MICHAEL D. ROSSI, et al., Defendants-Appellees.

CASE NO. 2016-T-0014

COURT OF APPEALS ELEVENTH APPELLATE DISTRICT TRUMBULL COUNTY, OHIO

September 30, 2016

OPINION

Civil Appeal from the Trumbull County Court of Common Pleas, Case No. 2014 CV 01442.

Judgment: Affirmed in part; reversed in part and remanded.

James D. Falvey, Miller, Stillman & Bartel, 1422 Euclid Avenue, Suite 800, Cleveland, OH 44115 (For Plaintiffs-Appellants).

Randi J. Rudloff, Guarnieri & Secrest, P.L.L., 151 East Market Street, P.O. Box 4270, Warren, OH 44482 (For Defendants-Appellees).

THOMAS R. WRIGHT, J.

{¶1} Appellants, Fred Harris, Forest Glen Properties, LLC (Forest), and their counsel, James Falvey, Esq., appeal the trial court's decision adopting the magistrate's decision and awarding appellees, Michael D. Rossi and Guarnieri & Secrest PLL, $18,974 in attorney fees and $524 in costs. For the following reasons, we affirm in part and reverse and remand in part.

{¶2} In 2005, Harris contacted Rossi to pursue an action on behalf of Forest Glen Properties, LLC against the United States Department of Housing and Urban Development. Appellees filed the action in the federal court of claims on behalf of Forest Glen Properties, LLC. The case was ultimately dismissed in 2013 based on lack of subject matter jurisdiction. Harris was not a party plaintiff, but was one of two member owners of Forest. Harris advised Rossi that he wanted to appeal, but the time to appeal had passed.

{¶3} In July 2014, Harris and Forest filed a malpractice suit against appellees based on their alleged failure to timely notify appellants of the dismissal and their right to appeal. The malpractice complaint also asserted a breach of fiduciary duty claim.

{¶4} Appellees moved for summary judgment against Harris only arguing that Harris was not its client, and as such, he had no cause of action. Appellees did not argue that Forest lacked capacity to sue in Ohio in its summary judgment motion or in its supplemental motion for summary judgment. Appellants eventually responded to the summary judgment motion and subsequently voluntarily dismissed the lawsuit without prejudice before the trial court addressed the merits of appellees' motions.

{¶5} Appellees moved for attorney fees under Civ.R. 11 and R.C. 2323.51. The trial court magistrate held a hearing and awarded attorney fees and costs under R.C. 2323.51 only. She found Harris, Forest and their counsel jointly and severally responsible for appellees' fees and costs. Appellants filed objections and supplemental objections, but the trial court agreed with the magistrate and adopted her decision in full.

{¶6} Appellants assert four assigned errors:

{¶7} "[1] The trial court erroneously concluded Plaintiff-Appellant Forest Glen Properties, LLC cannot maintain an action in Ohio courts because the foreign limited liability company did not register with the Ohio Secretary of State.

{¶8} "[2] The trial court erroneously concluded Plaintiff-Appellant Harris was not personally represented by Defendants.

{¶9} "[3] The trial court erred by making no finding regarding the Complaint's allegations that Defendant-Appellee owed fiduciary duties to Plaintiff-Appellant Harris.

{¶10} "[4] The trial court erred in failing to apply the correct standard for awarding sanctions under R.C. 2323.51."

{¶11} R.C. 2323.51(B) provides in part:

{¶12} "[A]ny party adversely affected by frivolous conduct may file a motion for an award of court costs, reasonable attorney's fees, and other reasonable expenses incurred in connection with the civil action or appeal. The court may assess and make an award to any party to the civil action or appeal who was adversely affected by frivolous conduct * * *."

{¶13} R.C. 2323.51(A)(2) defines "frivolous conduct," in relevant part, as:

{¶14} "(a) Conduct of [a] party to a civil action, * * * that satisfies any of the following:

{¶15} "* * *

{¶16} "(ii) It is not warranted under existing law, cannot be supported by a good faith argument for an extension, modification, or reversal of existing law, or cannot be supported by a good faith argument for the establishment of new law."

{¶17} As explained by the Ohio Supreme Court, {¶18} "Frivolous conduct is not proved merely by winning a legal battle or by proving that a party's factual assertions were incorrect. Ohio Power Co. v. Ogle, 4th Dist. Hocking No. 12CA14, 2013-Ohio-1745, ¶29-30 ('"A party is not frivolous merely because a claim is not well-grounded in fact. * * * [R.C. 2323.51] was designed to chill egregious, overzealous, unjustifiable, and frivolous action. * * * [A] claim is frivolous if it is absolutely clear under the existing law that no reasonable lawyer could argue the claim"'), quoting Hickman v. Murray, 2d Dist. Montgomery No. CA-15030, 1996 Ohio App. LEXIS 1028, 1996 WL 125916, *5 (Mar. 22, 1996)." State ex rel. DiFranco v. City of S. Euclid, 144 Ohio St.3d 571, 2015-Ohio-4915, 45 N.E.3d 987, ¶15.

{¶19} R.C. 2323.51 uses an objective standard in determining whether sanctions may be imposed for frivolous conduct. Kester v. Rogers, 11th Dist. Lake Nos. 93-L-056 and 93-L-072, 1994 Ohio App. LEXIS 1949, *10 (May 6, 1994). Thus, a finding of frivolous conduct under R.C. 2323.51 is decided without inquiry as to what the individual knew or believed, and instead asks whether a reasonable lawyer would have brought the action in light of existing law. Omerza v. Bryant & Stratton, 11th Dist. Lake No. 2006-L-147, 2007-Ohio-5216, ¶15, citing City of Wauseon v. Plassman (Nov. 22, 1996), 6th Dist. No. F-96-003, 1996 Ohio App. LEXIS 5168, 8.

{¶20} This court's standard of review is dependent upon which of the four R.C. 2323.51(A)(2)(a) subsections the trial court based its decision. Here, the trial court decided under R.C. 2323.51(A)(2)(a)(ii), that appellants' decision to file suit was frivolous because the claims were "not warranted under existing law, cannot be supported by a good faith argument for an extension, modification, or reversal of existing law, or cannot be supported by a good faith argument for the establishment ofnew law." This subsection in particular invokes de novo review requiring an appellate court to determine whether the suit was either not warranted by existing law or supported by a good-faith argument for an extension or modification of existing law. Weaver v. Pillar, 5th Dist. Tuscarawas No. 2012-CA-32, 2013-Ohio-1052, ¶20, citing Riston v. Butler, 149 Ohio App.3d 390, 2002-Ohio-2308, 777 N.E.2d 857, ¶27; (1st Dist.); Mainsource Bank v. Winafeld, 5th Dist. Stark No. 2008-CA-00001, 2008-Ohio-4441, ¶7. However, we must defer to the trial court's factual determinations in support of a sanctions order under R.C. 2323.51 where the record contains competent, credible evidence supporting its findings. Id.

{¶21} Upon finding frivolous conduct, the decision to impose sanctions under R.C. 2323.51 rests in the sound discretion of the court, which we will not reverse absent an abuse of that discretion. State ex rel. Striker v. Cline, 130 Ohio St.3d 214, 2011-Ohio-5350, 957 N.E.2d 19, ¶11; Ron Scheiderer & Assocs. v. London, 81 Ohio St.3d 94, 98, 1998 Ohio 453, 689 N.E.2d 552.

{¶22} "'[T]he term "abuse of discretion" is one of art, connoting judgment exercised by a court, which does not comport with reason or the record.' State v. Underwood, 11th Dist. No. 2008-L-113, 2009 Ohio 2089, ¶30, citing State v. Ferranto, 112 Ohio St. 667, 676-678, 3 Ohio Law Abs. 187, 3 Ohio Law Abs. 332, 148 N.E. 362 (1925). * * * an abuse of discretion is the trial court's 'failure to exercise sound, reasonable, and legal decision-making.' * * * When an appellate court is reviewing a pure issue of law, 'the mere fact that the reviewing court would decide the issue differently is enough to find error (of course, not all errors are reversible. Some are harmless; others are not preserved for appellate review). By contrast, where the issueon review has been confined to the discretion of the trial court, the mere fact that the reviewing court would have reached a different result is not enough, without more, to find error.' [State v. Beechler, 2d Dist. Clark No. 09-CA-54, 2010-Ohio-1900,] at ¶67." Ivancic v. Enos, 2012-Ohio-3639, 978 N.E.2d 927, ¶70 (11th Dist.).

{¶23} Thus, absent an abuse of discretion, this court must affirm.

{¶24} The trial court determined that appellants' claims were baseless and frivolous for two reasons. First, it found Harris, as a member owner of Forest, did not have an individual cause of action against Attorney Rossi or his law firm, Guarnieri and Secrest PLL. Second, it found that Forest lacked capacity to sue in Ohio based on two reasons, i.e., it was a foreign limited liability company not registered to transact business in Ohio, and its status as a Delaware limited liability company was canceled at the time this lawsuit was commenced.

{¶25} A motion for sanctions under R.C. 2323.51 requires a three-step determination. First, did an individual engage in frivolous conduct. Second, if the conduct was frivolous, was another party adversely affected by it. And third, the amount of award, if any. Tipton v. Directory Concepts Inc., 5th Dist. Richland App. No. 13CA61, 2014-Ohio-1215, ¶32, citing Ferron v. Video Professor Inc., 5th Dist. Delaware No. 08-CAE-09-0055, 2009-Ohio-3133.

{¶26} Appellants' first assignment of error claims that the trial court erroneously found that a foreign limited liability company cannot maintain a cause of action in Ohio unless it registers with the Ohio Secretary of State. Appellants argue the trial court ignored applicable case law recognizing that a foreign LLC does not need to register with Ohio's Secretary of State unless it regularly conducts business in the state.

{¶27} As appellants contend, the magistrate's decision concludes in part, "there were no good grounds to support the filing of the action because Plaintiff Forest failed to register with the Secretary of...