counsel for plaintiff-appellee counsel of record ... 2 hoskins v. aetna life ins. col., 6 ohio st.3d...
TRANSCRIPT
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IN THE SUPREME COURT OF OHIO
SST Bearing Corporation,
Plaintiff-Appellee,V.
Twin City Fan Companies, Ltd.,
Defendant-Appellant.
12-1221On Appeal from the Court of Appeals
First Appellate Judicial DistrictHamilton County, Ohio
Appeal No. C1100611
Memorandum in Support of Jurisdiction of Defendant-AppellantTwin City Fan Companies, Ltd.
John B. Nalbandian (0073033)Counsel of Record
Ryan C. Edwards (0075415)Taft Stettinius & Hollister, LLP425 Walnut Street, Suite 1800Cincinnati, Ohio 45202-3957(513) 381-2838(513) 381-0205 (fax)nalbandian(Ltaftlaw.comedwardsr@,taftlaw.com
Jonathan M. Bye (pro hac vice pending)
Kirstin D. Kanski (pro hac vice pending)LINDQUIST & VENNUM p.l.l.p.4200 IDS Center80 South Eighth StreetMinneapolis, MN 55402-2274(612) 371-3211(612) 371-3207 (facsimile)ib e [email protected]
Deborah R. Lydon, Esq.Robert M. Zimmerman, Esq.DINSMORE & SHOHL, LLP1900 Chemed Center255 East Fifth StreetCincinnati, Ohio 45202Phone: (513) 977-8200Fax: (513) 977-8141Counsel for Plaintiff-Appellee
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CLERK OF COURTSUPREME COURT UF OHI®
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TABLE OF CONTENTS
TABLE OF AUTHORITIES ............. ...................................................................ii
I. THIS CASE IS OF PUBLIC AND GREAT GENERAL INTEREST ............................... 1
II. STATEMENT OF THE CASE AND FACTS .. ................................................................. 5
III. ARGUMENT IN SUPPORT OF PROPOSITIONS OF LAW ........................................... 6
Proposition of Law No. 1: This Court Has Never Recognized an Exception tothe American Rule that Would Allow Attorney's Fees to be Awarded ina Breach-of-Contract Case Based Upon a Finding of Bad Faith Breach ................ 6
Proposition of Law No. 2: Extending the Bad Faith Exception to the AmericanRule to Breach of Contract Cases Contravenes this Court's Precedentthat Ohio Law Does Not Recognize A Cause of Action for Bad FaithBreach of Contract . ............. .................................................................................... 8
Proposition of Law No. 3: Extending the Bad Faith Exception to the AmericanRule to Breach of Contract Cases Contravenes Precedent of this Courtthat under Ohio law, Punitive Damages Can Not be Awarded in Breach
of Contract Cases . . .................................................................................................. 9
IV. CONCLUSION ................................................................................................................. 10
V. APPENDIX
Exhibit A Opinion of the Hamilton County Court of Appeals First Appellate District ofOhio, 2012-Ohio-2490 (June 8, 2012).
Exhibit B Opinion of the Hamilton County Court of Appeals Certifying Conflict
Exhibit C Letter Opinion of the Hamilton County Court of Common Pleas
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TABLE OF AUTHORITIES
Page(s)
FEDERAL CASES
Battista v. Lebanon TrottingAss'n,538 F.2d 111 (6th Cir. 1976) ...............................................................................................9, 10
Colonel's Inc. v. Cincinnati Milacron Mktg. Co.,No. 96-1243, 96-1244, 1998 WL 321061,149 F.3d 1182 (6th Cir. June 1, 1998) .......................................................................................2
Podlesnick v. Airborne Exp., Inc.,627 F. Supp. I 113 (S.D. Ohio 1986) .......................................................................................10
Shimman v. Int'l Union of Operating Eng'rs,744 F.2d 1226 (6th Cir. (Ohio) 1984) (en banc) ....................................................................5, 7
STATE CASES
Argrov Box Co. v. Jllini Four Co.,2nd Dist. No. CA 6947, 1981 WL 2827 (June 15, 1981) ....... ............................................... 3, 8
Capretta v. Goodson,Ohio Ct. App. 8th Distr. No. 76932,2000 WL 1876404 (Dec. 18, 2000) ...........................................................................................4
Coleman v. Brown,8th Dist. No. 60414, 1992 WL 95723 (May 7, 1992) ................................................................4
Columbus Fin., Inc. v. Howard,42 Ohio St.2d 178, 327 N.E.2d 654 (1975) ............ ...................................................................9
Columbus Med. Equip't Co. v. Watters,13 Ohio App.3d 149, 468 N.E.2d 343 (10th Distr. 1983) ..........................................................4
Davis v. Tunison,168 Ohio St. 471, 155 N.E.2d 904 (1959) .........................................................................3, 4, 9
Digital & Analog Design Corp. v. N. Supply Co.,63 Ohio St.3d 657, 590 N.E.2d 737 (1992) .........................................................................9, 10
Empire-Detroit Steel Div. Cyclops Corp, v. Pennsylvania Electric Coil, Inc.,5th Dist. No. CA-2903, 1992 WL 173313 (June 29, 1992) .......................................................3
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Hoskins v. Aetna Life Ins. Col.,6 Ohio St.3d 272, 452 N.E.2d 1315 (1983) ...............................................................................2
John G. Johnson & Sons Constr. Co. v. A-T-O, Inc.,8th Dist. No. 44900, 1983 WL 4673 (Sept. 1, 1983) .................................................................3
Ketcham v. Miller,104 Ohio St. 372, 136 N.E. 145 (1922) ...................................................................2, 3, 8, 9, 10
Kruse v. Vollmar,6th Dist. No. 92WD019, 83 Ohio App.3d 378,614 N.E.2d 1136 (Nov. 20, 1992) ..............................................................................................3
Mabry-Wright v. Zlotnik,165 Ohio App.3d 1, 844 N.E.2d 858 (3rd Dist. 2005) ..............:................................................4
Miller v. Kyle,85 Ohio St. 186, 97 N.E. 372 (1911) .........................................................................................2
Myers Services Inc. v. Costello,5th Distr. No. CA-946, 1990 WL 21428 (Mar. 2,1990) ............................................................4
Olbrich v. Shelby Mut. Ins. Co.,) ...........................................................13 Ohio App. 3d 423, 469 N.E.2d 892 (2nd Dist. 1983 4
Padgett v. Sanders,130 Ohio App.3d 117, 719 N.E.2d 636 (12th Dist. 1998) .....................................................3, 4
Roberts v. Mason(1859), 10 Ohio St. 277 ...................................................................................................:......2, 7
Saberton v. Greenwald,146 Ohio St. 414, 66 N.E.2d 224 (1946) ...................................................................................9
Scheetz v. Aho,) ...........................................5th Dist. No. 1997-CA-00335, 1998 WL 401088 (May 18, 1998 4
Shanker v. Columbus Warehouse Ltd.,10th Dist. No. 99AP-772, 2000 WL 726786 (June 6, 2000) .....................................................4
Sims v. Cleveland Blds. Corp.,8th Dist. No. 55153, 1989 WL 27760 (Mar. 23 1989) ..............................................................4
Sorin v. Bd of Educ. of Warrensville Hts. School Dist.,46 Ohio St.2d 177, 347 N.E.2d 527 (1976) .............................................................1, 2, 6, 7, 11
Sorenson v. Wise Mgmt. Servs., Inc.,8th Dist. No. 81627, 2003 WL 361286 (Feb. 20, 2003) ............................................................4
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SST Bearing Corp. v. Twin City Fan Cos.,1st Distr. No. C-110611, 2012-Ohio-2490 (June 8, 2012) ... ................................................. 1, 6
Stockdale v. Baba,153 Ohio App.3d 712, 795 N.E.2d 727 (10th Dist. 2003) .........................................................5
Tibbs v. Nat'l Homes Constr. Corp.,52 Ohio App.2d 281, 369 N.E.2d 1218 (1st Dist. 1977) ...........................................................4
Wakeman Oil Co., Inc. v. Citizens Nat'l Bank,6th Distr. No. H-95-045, 1996 WL 520060 (Sept. 13, 1996) ....................................................3
Williams v. Crawford,8th Dist. No. 72936, 1998 WL 767617 (Oct. 29, 1998) ........................................................ 3, 4
Worth v. Aetna Cas. & Sur. Co.,32 Ohio St.3d 238, 513 N.E.2d 253 (1987) ...............................................................................2
Zappitelli v. Miller,114 Ohio St.3d 102, 868 N.E.2d 968 (2007) .............................................................................9
Zoppo v. Homestead Ins. Co.,71 Ohio St.3d 552, 644 N.E.2d 397 (1994) ...........................................................................3, 9
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I. THIS CASE IS OF PUBLIC AND GREAT GENERAL INTEREST
This Article 2, Uniform Commercial Code breach of contract case presents the question
of whether a court can award attorney's fees to a plaintiff based on a supposed "bad faith" breach
of contract exception to the American Rule and even though no punitive damages were awarded
for the "bad faith" breach-a question that the First District Court of Appeals answered in the
affirmative. But that court recognized that the courts of appeals in Ohio are divided on this
question and certified its decision as being in conflict with two other court of appeals decisions
under Section 3(B)(4), Article IV of the Ohio Constitution on the following question:
The American Rule does not permit the prevailing party to recoverattorney's fees in the absence of a statutory authorization. DoesOhio recognize an exception to the American Rule for "bad faith"breach of contract in the absence of an award of punitive damages?
Defendant-Appellant Twin City Fan Companies, Ltd. filed a notice of the First District's
certification of conflict in this Court on July 18, 2012 to initiate this Court's review of the
certification. SST Bearing Corporation v. Twin City Fan Companies, Ltd., Case No. 2012-1197.
Twin City Fan files this Memorandum in Support of Jurisdiction to further explain the nature of
the case and the nature of the conflict that it presents.
The First District's "bad faith breach of contract" exception to the American Rule has
never been recognized by this Court. And as this Court has expressly held, "any departure" from
the "deeply-rooted policy" of the American Rule to exclude the recovery of attorney's fees as
costs "is a matter of legislative concern." Sorin v. Bd. ofEduc. of Warrensville Hts. School Dist.,
46 Ohio St.2d 177, 179-80, 347 N.E.2d 527 (1976). Ohio has long-followed the American Rule
that attolney's fees incurred by a prevailing party to a lawsuit are not recoverable absent
statutory authorization. See Sorin, 46 Ohio St.2d at 179. In contract cases, this Court has, with
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reticence, acknowledged only two narrow exceptions to that rule: (1) express contractual
provisions freely negotiated by both sides' and (2) where an insurance company is found to have
breached its duty to defend in bad faith.2 The public policy implications of an expansion beyond
these narrow exceptions is great because it has been recognized that in Ohio the recovery of
attorney's fees is said to be "repugnant to public policy." Colonel's Inc. v. Cincinnati Milacron
Mktg. Co., No. 96-1243, 96-1244, 1998 WL 321061, 149 F.3d 1182, at *4 (6th Cir. June 1,
1998). In addition, a "bad faith" breach of contract exception to the American Rule leads, as
happened here, to the conversion of a garden-variety breach of contract case focusing on whether
the contract was breached, into a "bad faith" case focusing on why the contract was breached.
The confusion in the courts of appeals appears to stem from the fact that this Court has
recognized the existence of a "bad faith" exception to the American Rule in tort cases where
punitive damages have been awarded due to a party having acted "in bad faith, vexatiously,
wantonly, obdurately, or for oppressive reasons" and in situations where the legal proceedings
themselves are conducted in bad faith. Sorin, 46 Ohio St.2d at 181, 347 N.E.2d at 530, citing
Roberts v. Mason (1859), 10 Ohio St. 277. However, this Court has never extended that
exception to apply to a "bad faith" breach of contract and any such extension would effectively
eviscerate (1) the holding of this Court in Ketcham v. Miller, 104 Ohio St. 372, 377-78, 136 N.E.
1 See Worth v. Aetna Cas. & Sur. Co., 32 Ohio St.3d 238, 243, 513 N.E.2d 253 (1987) (enforcingfee-shifting provision but reaffirming that one-sided contractual fee-shifting provisions operateas penalties and encourage litigation and are void as against public policy); Miller v. Kyle, 85Ohio St. 186, 192, 97 N.E. 372 (1911) ("contracts for payment of counsel fees upon default in
payment of a debt will not be enforced").
2 Hoskins v. Aetna Life Ins. Col., 6 Ohio St.3d 272, 276, 452 N.E.2d 1315 (1983) ("The liabilityof the insurer in such cases does not arise from its mere omission to perform a contractobligation, for it is well established in Ohio that it is no tort to breach a contract, regardless ofmotive. Rather, the liability arises from the breach of the positive legal duty imposed by law due
to the relationships of the parties.")
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145 (1922), that Ohio law does not recognize a bad faith breach of contract, (2) the holding of
this Court in Davis v. Tunison, 168 Ohio St. 471, 474, 155 N.E.2d 904 (1959) that "punitive
damages may be awarded only in reference to a tort and never in an action ex contractu," and (3)
the holding of this Court in Zoppo v. Homestead Ins. Co., 71 Ohio St.3d 552, 558, 644 N.E.2d
397 (1994) that attorney's fees may be awarded as compensatory damages only if punitive
damages are warranted.
Despite the above precedent of this Court, due to the lack of a specific holding by this
Court that there is no "bad faith breach of contract" exception to the American Rule, many civil
litigants, including SST in this case, cite generally to a "bad faith" exception as justifying an
award of fees in breach of contract cases. This has resulted in a three-way split in how various
panels of the appellate courts have analyzed the issue. Here, the First District certified that its
decision was in conflict with decisions in the Eighth and Twelfth Districts, Williams v.
Crawford, 8th Dist. No. 72936, 1998 WL 767617, at *4 (Oct. 29, 1998) and Padgett v. Sanders,
130 Ohio App.3d 117, 122, 719 N.E.2d 636 (12th Dist. 1998). But the conflict is even deeper.
Panels of the Second, Fifth, Sixth, and Eighth Districts have held that, pursuant to
Ketcham,a claim for bad faith breach of contract is not recognized in Ohio and thus cannot
support an award of attorney's fees 3 The underlying rationale for this line of authority is that:
3 See, e.g., Argrov Box Co. v. Illini Four Co., 2nd Dist. No. 6947, 1981 WL 2827, at *3-5 (June
15, 1981) (trial court erred in awarding punitive damages on tortious specific performance
claim); Empire-Detroit Steel Div. Cyclops Corp. v. Penn. Elec. Coil, Inc., 5th Dist. No. CA-
2903, 1992 WL 173313, at *4 (June 29, 1992) (trial court erred in awarding compensatory and
punitive damages on tortious breach of contract claim);Wakeman Oil Co., Inc. v. Citizens Nat'l
Bank, 6th Distr. No. H-95-045, 1996 WL 520060, at *4-5 (Sept. 13, 1996) (affirming dismissal
of tortious breach of duty of good faith); Kruse v. Vollmar, 6th Dist. No. 92WD019, 83 Ohio
App.3d 378, 387-88, 614 N.E.2d 1136 (Nov. 20, 1992) (trial court erred in awarding punitive
damages and fees); John G. Johnson & Sons Constr. Co. v. A-T-O, Inc., 8th Dist. No. 44900,
1983 WL 4673, at *4 (Sept. 1, 1983) ("Punitive damages are not recoverable in any Ohio court
3DOCS43708I29-0
[a] party to a contract is at liberty to breach that contract, beingliable only for damages proximately resulting from the breach....[T]he law generally does not distinguish between good and badmotives for breaching a contract. In traditional contract law, themotive of the breaching party generally has no bearing on thescope of damages that the injured party may recover for the breachof the implied covenant of good faith and fair dealing; theremedies are limited to contract damages. Varying personal oreconomic reasons motivate one to breach his contract, but thegeneral rule is that motives are immaterial and cannot be inquiredinto on the question of compensatory damages.
Sorenson v. Wise Mgmt. Servs., Inc., 8th Dist. No. 81627, 2003 WL 361286, ¶¶ 39-40 (Feb. 20,
2003).
Other panels of the First, Second, Third, Sixth, Eighth and Twelfth Districts have held
that attorney's fees may be awarded only if there is a basis to award punitive damages, (which,
however, under Davis are not authorized on contract claims).4 And, other panels of the First,
Fifth, and Tenth Districts have agreed with the First District here that attorney's fees CAN be
awarded in a breach of contract case through application of a "bad faith" exception to the
American Rule.5
on an action founded on breach of contract."); Capretta v. Goodson, Ohio Ct. App. 8th Distr. No.
76932, 2000 WL 1876404, at *5-7 (Dec. 18, 2000) (trial court properly vacated fee award when
no punitive damages were awarded); Sims v. Cleveland Blds. Corp., 8th Dist. No. 55153, 1989
WL 27760, at *3 (Mar. 23 1989) (error to award punitive damages on contract claim); Sorenson
v. Wise Mgmt. Servs., Inc., 8th Dist. No. 81627, 2003 WL 361286, ¶¶ 39-42 (Feb. 20, 2003).
4 See, e.g., Tibbs v. Nat'l Homes Constr. Corp., 52 Ohio App.2d 281, 288-89, 369 N.E.2d 1218
(1st Dist. 1977); Olbrich v. Shelby Mut. Ins. Co., 13 Ohio App. 3d 423, 425-26, 469 N.E.2d 892
(2nd Dist. 1983); Mabry-Wright v. Zlotnik, 165 Ohio App.3d 1, 7, 844 N.E.2d 858, ¶¶ 18-20 (3rd
Dist. 2005); Coleman v. Brown, 8th Dist. No. 60414, 1992 WL 95723, at *5 (May 7, 1992);
Williams v. Crawford, 8th Dist. No. 72936, 1998 WL 767617, at *4 (Oct. 29, 1998); Padgett v.
Sanders, 130 Ohio App.3d 117, 122, 719 N.E.2d 636 (12th Dist. 1998).
5 See, e.g., Columbus Med. Equip't Co. v. Watters, 13 Ohio App.3d 149, 152-53, 468 N.E.2d 343
(10th Distr. 1983) (bad faith breach of employment contract supported fee award); Scheetz v.
Aho, 5th Dist. No. 1997-CA-00335, 1998 WL 401088, at *4 (May 18, 1998) (bad faith breach of
purchase agreement supported fee award); Myers Servs. Inc. v. Costello, 5th Distr. No. CA-946,
1990 WL 21428, at *3, ¶ 5 (Mar. 2,1990) (bad faith breach of employment contract); Shanker v.
4DOCS43708129-v4
Granting review of this issue, and resolving the issue certified by the First District, will
put an end to the inconsistent manner by which the lower courts have addressed the ability of a
plaintiff in a contract case to recover attorney's fees.
And as the United States Court of Appeals for the Sixth Circuit has noted in analyzing the
conflicting decisions in Ohio on this issue, resolution of this issue in favor of an award would be
inconsistent with the American Rule and bad policy:
To allow an award of attorney fees based on bad faith in the actunderlying the substantive claim would not be consistent with therationale behind the American Rule regarding attorney fees. Byrefusing to penalize a litigant whose judgment concerning themerits of his position turns out to be in error, the American Ruleprotects the right to go to court and litigate a non-frivolous claimor defense. The unsuccessful litigant is not penalized even whenan injured party whose claim is upheld is not made completelywhole because of the cost of litigation.... a person who harmsanother in bad faith is nonetheless entitled to defend a lawsuit in
good faith.
Shimman v. Int'l Union of Operating Eng'rs, 744 F.2d 1226, 1232 (6th Cir. (Ohio) 1984) (en
banc). Resolution of the issue certified to this Court for determination will provide needed clarity
and guidance to the Ohio trial courts and civil litigants regarding the ability to be awarded
attorney's fees in contract disputes.
II. STATEMENT OF THE CASE AND FACTS
This case is a dispute over whether bearings that Plaintiff SST Bearing Corporation
("SST") sold to Defendant Twin City Fan Companies, Ltd. ("TCF") conformed to contract
specifications. (T.p. 508:12-16.) After TCF complained about the quality of the bearings SST
Columbus Warehouse Ltd., 10th Dist. No. 99AP-772, 2000 WL 726786, at *4 (June 6, 2000)
(bad faith breach of settlement agreement); Stockdale v. Baba, 153 Ohio App.3d 712, 795 N.E.2d
727, ¶¶ 117-118, 125 (10th Dist. 2003) (punitive damages can only be awarded on an
independent tort, which need not be separately pleaded).
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sold it and refused to pay for them, SST filed this lawsuit in the Hamilton County Court of
Common Pleas against TCF alleging breach of contract and fraud and seeking payment for the
bearings sold. (T.d. 2, Complaint.) TCF filed an answer denying liability and counterclaimed
against SST for breach of contract and breach of warranty, alleging that the products SST
delivered did not meet the contract specifications. (T.d. 10, Answer and Counterclaim.)
After a bench trial, the trial court found that SST failed to prove fraud and that there was
no basis to award punitive damages. (T.d. 108 at 3.) However, the trial court found that the
bearings were not defective and that TCF breached the parties' contract in "bad faith." (T.d. 108
at 1-3.) The trial court ordered that judgment be entered against TCF for $133,314.35 for the
bearings ordered by TCF, plus $69,323.46 in late fees, plus $303,698.83 in attorney's fees and
costs, more than double the amount in controversy.
TCF appealed and the First District Court of Appeals affirmed in part and reversed in
part. SST Bearing Corp. v. Twin City Fan Cos., 1st Distr. No. C-110611, 2012-Ohio-2490 (June
8, 2012). The Court held that because neither party's standard terms became a part of the
contract, there was no contractual basis to support the trial court's award of attorney's fees or
late fees, and, accordingly, it reversed the trial court's award of late fees. (Id. ¶ 25.) However,
the Court nonetheless affirmed the award of $303,698.83 in attorney's fees based solely upon the
trial court's finding that TCF breached the contract in "bad faith."
III. ARGUMENT IN SUPPORT OF PROPOSITIONS OF LAW
Proposition of Law No. 1: This Court Has Never Recognized an Exception to the
American Rule that Would Allow Attorney's Fees to be Awarded in a Breach-of-
Contract Case Based Upon a Finding of Bad Faith Breach.
In Sorin, this Court affirmed and upheld the American Rule and expressly held that "any
departure" from the "deeply-rooted policy" of the American Rule to exclude the recovery of
6DOCS-43708129-v4
attorney's fees as costs "is a matter of legislative concern." Sorin v. Bd. of Educ. of Warrensville
Hts. School Dist., 46 Ohio St.2d 177, 179-80, 347 N.E.2d 527 (1976). In Sorin, this Court
explicitly declined to extend the bad faith exception recognized by Roberts v. Mason to a cause
of action not sounding in tort, and fiirther found the exception inapplicable where there were no
allegations that the litigation itself was instituted in bad faith, vexatiously, wantonly, obdurately
or for oppressive reasons. Id. at 179-80.
The lack of clarity surrounding the bad faith exception of the American Rule under Ohio
law has been analyzed by the United States Sixth Circuit Court of Appeals, but has not yet been
decisively resolved by this Court. In Shimman v. Int'l Union of Operating Engineers, the Sixth
Circuit, applying Ohio law, explained the split of authority with respect to whether the bad faith
that can be considered for purposes of the exception to the American Rule consists of (1) bad
faith during the course of the litigation, (2) bad faith in bringing an action, or (3) bad faith giving
rise to the substantive claim. See 744 F.2d 1226, 1230 (6th Cir. 1984) (en banc) (collecting cases
around the country falling within each of the three categories). The Sixth Circuit held, applying
Ohio law, that "the bad faith exception to the American Rule does not allow an award of attorney
fees based only on bad faith in the conduct giving rise to the underlying claim." Id. at 1233.
This is because "fees awarded under the bad faith exception ... are designed to punish the abuse
of the judicial process, rather than the original wrong. The effect of a fee award based on bad
faith in the initial wrongdoing would be to punish that conduct." Id. at 1232 n.9.
In affirming the award of SST's attorney's fees based exclusively on a "bad faith"
exception to the American Rule, the First Appellate District expanded the exceptions to the
American Rule well beyond what this Court has ever authorized in light of Ohio's deeply rooted
public policy in support of the American Rule.
7DOCS-43708129-0
Proposition of Law No. 2: Extending the Bad Faith Exception to the American Ruleto Breach of Contract Cases Contravenes this Court's Precedent that Ohio LawDoes Not Recognize A Cause of Action for Bad Faith Breach of Contract.
Ohio law does not recognize a claim for bad faith breach of contract, and never has. See
Ketcham v. Miller, 104 Ohio St. 372, 136 N.E. 145 (1922). To the contrary, this Court has
expressly rejected not only the legal theory, but also the ability of a plaintiff to receive attorney's
fees as compensatory damages when based upon such a theory. When "the gravamen of the
complaint is the breach of the contract," the use of words to describe the motivation behind the
breach, such as "willfully, wantonly, [and] maliciously, add nothing thereto." Ketcham, 104
Ohio St. at 377. In Ketcham, although not directly addressing the scope of any bad faith
exception to the American Rule, this Court held that the trial court erred in awarding attorney's
fees and that punitive/exemplary damages may not be awarded in a breach of contract action
regardless of the breaching party's motivation or subjective intent behind the breach. Id. This
Court reasoned:
It is true the petition characterizes the breach as having beencommitted "unlawfully, forcibly, willfully, wantonly, maliciously,and without consent." . . . What do these words add to theaverment of a breach? Generally speaking, breaches are unlawfuland ejectments are forcible; most breaches are willful, andperhaps but few are wanton and malicious; but do the words"wanton" and "malicious" transform an exact averment of abreach of contract into an averment of the commission of a tort, ordo they not, in the connection here used, charge the plaintiff inen•or with the commission of a breach, and attempt to emphasizeit by averring that it was done in utter disregard of the rights ofthe defendants in error and with an evil and wicked purpose.
Ketcham, 104 Ohio St. at 376-77. Accordingly, under Ohio law it "is no tort to carry a feeling of
malice toward a person; it is no tort to breach a contract, regardless of motive. A tort exists only
if a party breaches a duty which he owes to another independently of the contract." Argrov Box
Co. v. Illini Four Co., 2nd Dist. No. CA 6947, 1981 WL 2827, at *4 (June 15, 1981); see also
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Battista v. Lebanon Trotting Ass'n, 538 F.2d 111, 117 (6th Cir. 1976) ("It is no tort to carry a
feeling of malice toward a person; it is no tort to breach a contract, regardless of motive. A tort
exists only if a party breaches a duty which he owes to another independently of the contract,
that is, a duty which would exist even if no contract existed.").
Because Ohio law does not recognize a claim for relief based upon a bad faith breach of
contract, the First District, as have other appellate district courts as described above, improperly
and effectively circumvented this Court's express rejection of that legal theory by awarding SST
attorney's fees as compensatory damages for a "bad faith" breach under the guise of an
exception to the American Rule.
Proposition of Law No. 3: Extending the Bad Faith Exception to the American Ruleto Breach of Contract Cases Contravenes Precedent of this Court that under Ohiolaw, Punitive.Damages Can Not he Awarded in Breach of Contract Cases.
This Court has repeatedly affirmed the principle stated in Ketcham that attorney's fees
can be awarded as compensatory damages only upon a determination that punitive damages are
warranted. See, e.g., Columbus Fin., Inc. v. Howard, 42 Ohio St.2d 178, 183, 327 N.E.2d 654
(1975); Zappitelli v. Miller, 114 Ohio St.3d 102, 103, 2007-Ohio-3251, 868 N.E.2d 968, ¶ 6
(2007) (citing and quoting Zoppo v. Homestead Ins. Co., 71 Ohio St.3d 552, 558, 644 N.E.2d
397 (1944) and Digital & Analog Design Corp. v. N. Supply Co., 63 Ohio St.3d 657, 662, 590
N.E.2d 737 (1992)). However, punitive damages based on the willful and malicious nature of
conduct giving rise to the claims "may be awarded only in reference to a tort and never in an
action ex contractu." Davis v. Tunison, 168 Ohio St. 471, 474, 155 N.E.2d 904 (1959) (citing
Ketcham v. Miller, 104 Ohio St. 372, 136 N.E. 145 (1922)); see also Saberton v. Greenwald, 146
Ohio St. 414, 425, 66 N.E.2d 224 (1946) ("As a general rule exemplary damages are not
recoverable in actions for the breach of contracts, irrespective of the motive on the part of
9DOCS-#3708129-v4
defendant which prompted the breach.") (quoting 25 Corpus Juris Secondum, Damages, § 120);
Podlesnick v. Airborne Exp., Inc., 627 F. Supp. 1113, 1115 (S.D. Ohio 1986) ("Under Ohio law,
punitive damages are not available for breach of contract.") As the Sixth Circuit has
summarized:
In view of the unbroken line of authority in Ohio that a breach ofcontract does not create a tort claim, regardless of the motive of thepromisor, and that no punitive damages are available for breach ofcontract, we find [the plaintiffJ had no claim ex delicto under the
law of Ohio. To hold otherwise would be to abandon thevenerable rule that the motive of the breaching party to a contractis irrelevant to the merit of the promisee's claim, and would allowparties to convert contract actions into actions in tort by attackingthe motive of the breaching party, a course of action precluded by
the rule of Ketcham.
Battista v. Lebanon Trotting Ass'n, 538 F.2d 111, 118 (6th Cir. 1976). This Court has clarified
that an award of attorney's fees, "although seemingly compensatory" does not in fact serve to
compensate, but rather is punitive in nature. Digital & Analog Design Corp. v. N. Supply Co., 63
Ohio St.3d 657, 662, 590 N.E.2d 737 (1992), superseded on other grounds.
Because this Court has held that attorney's fees may only be awarded as part of
compensatory damages in tort cases where punitive damages are warranted, and because the trial
court in this matter expressly found there was no basis to award punitive damages, the First
District improperly and effectively avoided this Court's precedent on the unavailability of
punitive damages on contract claims by awarding SST its attorneys' fees as compensatory
damages under the guise of an exception to the American Rule.
IV. CONCLUSION
Given the high cost of litigating most civil cases, the ability to recover attorney's fees is
a significant factor weighed by parties, and taken into account at all stages of a civil suit. This
Court should grant TCF's petition for review to clarify that Ohio does not recognize a "bad faith"
10DOCS-#3708129-v4
exception to the American Rule in breach of contract cases and to reaffirm that "any departure"
from the "deeply-rooted policy" of the American Rule to exclude the recovery of attomey's fees
as costs "is a matter of legislative concern," not for the courts. Sorin, 46 Ohio St.2d at 179-80.
To deny review will encourage civil plaintiffs, encouraged by the First District Court of
Appeals decision in this and other cases, to continue to convert contract cases into "bad faith"
cases in which they attack the motive of the breaching party and seek punitive damages and fee
awards despite this Court's holding that Ohio law does not recognize "bad faith" breach of
contract claims or punitive damages in contract cases.
Respectfully submitted,
Dated: July 23, 2012 ByJohn B albandian (0073033)
ounsel of RecordRyan C. Edwards (0075415)Taft Stettinius & Hollister, LLP425 Walnut Street, Suite 1800Cincinnati, Ohio 45202-3957(513) 381-2838(513) 381-0205 (fax)nalbandianA taftlaw.comedwardsrktaftlaw.com
Jonathan M. Bye (pro hac vice pending)
Kirstin D. Kanski (pro hac vice pending)LINDQUIST & VENNUM P.L.L.P.4200 IDS Center80 South Eighth StreetMinneapolis, MN 55402-2274(612) 371-3211(612) 371-3207 (facsimile)ibyenlindguist.comkkanskiklindquist.com
11DOCS-#3708129-v4
CERTIFICATE OF SERVICE
I hereby certify that on this 23d day of July, 2012, I served a copy of the foregoing via
electronic mail and U.S. First Class Mail, postage prepaid, upon:
Deborah R. Lydon, Esq.Robert M. Zimmerman, Esq.Dinsmore & Shohl, LLP1900 Chemed Center255 East Fifth StreetCincinnati, OH 45202
Attorneys for Plaintiff-AppelleeSST Bearing Corporation
B. Nalbandian
12DOCS-#3708129-0
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
SST BEARING CORPORATION, APPEAL NO. C-iio6LtTRIAL NO. A-ogo6751
Plaintiff-Appellee,OPIIVION.
vs,
TWINCITY FAN COMPANIES, LTD.,
Defendant-Appellant.
Civil Appeal From: Hamilton County Court of Common Pleas
Judgment Appealed From Is: Affirmed in Part and Vacated in Part
Date of Judgment Entry on Appeal: June 8, 2012
Dinsmore & Shoht, LLP, Deborah R. Lydon and Robert M. Zimmerman, for
PlaintifF Appellee,
Lindquist & Vennum, PLLP, Jonathan M. Bye and Kirstin D. Kanski, and Taft,
Stettinius, & IIollister, LLP, and Ryan C Edwards, for Defendant-Appellant.
Please note: This case has been removed from the accelerated calendar.
EXIIIBIT A
OHIO FIRST DISTRICT COURT OF APPEALS
SyLvin S. HENDON, Judge.
{¶I} This is a contract case. In this action, we must determine what terms
had become part of the contract executed between defendant-appellant Twin City
Fan CorYipanies ("Twin City") and plaintiff-appellee SST Bearing Corporation
("SST"), whether the terms of that contract had been breached, and whether the trial
court properly awarded attorney fees and late fees to SST based upon its
determination that Twin City had breached the parties' contract.
{$2} For the reasons that follow, we affirm the trial court's judgment
finding that Twin City had breached the parties' contract, and we affirm the court's
award of attorney fees to SST based on the court's finding that Twin City had acted in
bad faith. But we reverse that portion of the trial court's entry awarding late fees
because we hold that the provision allowing SST to recover late fees had not become
part of the parties' contract.
Factual Background
{¶3} Twin City manufactures and sells both industrial and commercial fans.
SST manufactures industrial components, such as bearings, that are used in various
industrial products. Twin City and SST entered into a contract for SST's production
of svc different sizes of pillow block bearings to be used in Twin City's fans. The exact
ternis of this contract are at issue on appeal, and will be discussed below. This
description of the pertinent facts explains the interactions between and documents
exchanged by the parties, and it is not a determination of the definite contractual
terms.
2
OHIO FIRST DISTRICT COURT OF APPF.e3LS
{¶4} In late February of 2008, Twin City sent SST a proposed contract
outlining the parties' agreement. The contract specified the quantity of each sized
bearing to be ordered, as well as the price per unit for each size of bearing. The
prices set forth in the contract were not the initial prices that had been quoted by
SST. After receiving SST's initial price per unit based on Twin City's provided
estimated annual usage per part, Twin City then increased its estimated annual usage
of particular bearings. Based on the increased quantity, SST lowered its price per
unit.
{¶5} The contract further specified that all bearings would be produced
with a particular swivel torque range, which was to be determined at a later date.
Swivel torque is the amount of force necessary to swivel or rotatea bearing within its
housing. The contract was deemed a blanket purchase order against which
shipments were not to be made. Rather, the parts would be shipped in installments
at a later date following separate purchase orders.
{¶6} The contract,sent to SST contained the following language "Please
formally accept this%order subject to Twin City Fan's terms and conditions per Form
No. 1-1113 Rev 6-2007." But the parties dispute whether this form containing Twin
City's terms and conditions had actually been sent along with the proposed contract.
The form is not contained in the document which both parties agree is an
embodiment of their final contract. An appendix was sent along with the contract,
and this appendix contained similar language stating that all sales by SST were
subject to Twin City's terms and conditions contained on order form 1-i113. SST
salesman David Lindberg signed the contract on March 20, 2008. When Lindberg
sent the signed contract to Twin City, he included a form containing SST's terms and
3
OHIO FIR9T DISTRICT COURT OF APPFALS
conditions. This form stated "seller hereby accepts, with thanks, your offer to
purchase the goods described on the reverse side hereof on the terms and conditions
specified thereon, and on the additional terms and conditions specified below."
SST's terms and conditions specified that any other terms and conditions would have
no force or effect.
{17} After receiving the signed contract Twin City did not object to SST's
inclusion of its own terms and conditions, and the parties began performance under
the contract. In July of 2oo8, the parties' determined the applicable swivel torque
ranges, and in the fall of 2oo8 Twin City approved samples of each sized bearing that
had been manufactured and shipped by SST. On November 14, 2008, Twin City
issued its first installment purchase order for approxirnately 1,8oo bearingssized 3/4
inch. This first production run of bearings was received by Twin City in March of
2009. In May of 2oo9, Twin City informed SST that it had concerns about the
bearings' looseness and that the swivel torque ranges of the bearings were not in
compliance. Twin City then canceled the entire purchase order for all sized bearings
without providing SST an opportunity to examine, cure, or replace the allegedly
defective bearings.
{¶8} Upon Twin' City's cancellation of the contract, SST commenced this
action. In a trial to the bench, both SST and Twin City argued that its own respective
terms and conditions governed the parties' dispute. Under 'Iwin Cit}^s terms and
conditions, it had a right to cancel the contract at any time and SST's recovery was
limited to actual costs incurred at the time of termination. Under SST's terms and
conditions, it had the right to repair or replace any defective goods, and it was also
entitled to receive late payment charges and attorney fees.
4
OHIO FIR.ST DISTRICT COURT OF APPi s
{19} The trial court found that Twin City had not canceled the contract for
good cause and that its objections to the bearings produced by SST were without
merit. The court held that Twin City was liable for the full contract price for all sized
bearings, including late fees. The court further held that Twin City must pay all
attorney fees and costs incurred by SST because such fees were provided for in SST's
terms and conditions and because Twin City had acted in bad faith. The trial court
awarded SST a total judgment of $5o6,336•65• This amount inclu(led $133,314.35
for the invoice amount of the contract following SST's mitigation efforts, $69,323.46
in monthly late fee payments, and $303,698.83 for SST's legal costs and fees.
{¶10} Twin City now appeals. In two assignments of error it argues that the
trial court erred in entering judgment in favor of SST and in awarding SSTlate fees
and attorney fees. Before considering these assignments of error, we must first
determine what terms were included in the parties' contract.
Contractual Terms
{111} Neither Twin City nor SST dispute the contract terms contained on
their blanket purchase order concerning quantity and price of the bearings. But each
party argues that its own respective terms and conditions had become part of the
contract and that the other parties' terms and conditions had no effect. Twin City
asserts that the contract's statement "Please formally accept this order subject to
Twin CiWs terms and conditions per Form No. 1-1113 Rev 6-2007" incorporated its
terms and conditions by reference and made the document a part of the contract.
But SST argues that its attachment of its own terms and conditions to the signed
contract, in the absence of an objection or response from Twin City, made those the
governing terms and conditions of the contract.
5
OHIO FIRST DISTRICT COURT OF APPEALS
{¶12} R.C. 1302.io, Ohio's version of UCC 2-207, governs resolution of the
parties' dispute. R.C. 1302.io addresses situations in which additional terms are
contained in an acceptance. It provides that "[a] definite and seasonable expression
of acceptance or a written confirmation that is sent within a reasonable time operates
as an acceptance even though it states terms additional or different from those
offered o'r agreed upon, unless acceptance is expressly made conditional on assent to
tho additional or different terms." R.C. i3o2.io(A).
{¶13} In this case, SSZ°s purported acceptance of Twin Citys contractual
offer included additional terms, namely its own terms and conditions. So we must
determine whether SST's acceptance was expressly made conditional upon Twin
City's assent to its additional terms. SST's terms and conditions stated
Seller hereby accepts, with thanks, your offer to purchase the goods
described on the reverse side hereof on the terms and conditions
specified thereon, and on the additional terms and conditions specified
below. This acceptance is conditioned expressly on buyer's assent that
any other terms and conditions shall have no force or effect and shall
not constitute any part of the agreementbetween seller and buyer.
Clearly, SST's acceptance was expressly conditioned on Twin City's assent to SS"rs
terms and conditions. As such, under R.C. 13o2.io(A), SST's response did not,
standing alone, operate as an expression of acceptance. But R.C. 13o2.1o(C)
provides that "[c]onduct by both parties that recognizes the existence of a contract is
sufficient to establish a contract for sale although the writings of the parties do not
otherwise establish such a contract. In such case, the terms of the particular contract
consist of those terms on which the writings of the parties agree."
6
OHIO FIRST DISTRICT COURT OF AI'P.EAIsS
{¶14} In this case, the parties' conduct undoubtedly recognized the existence
of a contract. Twin City approved sample bearings sent by SST and placed an
installment purchase order. SST shipped the bearings specified in that purchase
order. Because the parties' conduct created a contract, the terms of that contract
include only the terms upon which the parties agree. We hold that a contract was
formed between Twin City and SST based on the terms of the blanket purchase
order, and that neither parties' terms and conditions had become part of the
contraet.
The Contract is Breached
{115} In its first assignment of error, Twin City argues that the trial court
erred in entering judgment in favor of SST. Twin City specifically asserts that the
trial court's finding that SST had performed its contractual obligations was in error.
Twin City is essentially attacldng the weight of the evidence supporting the trial
court's decision.
{¶16} The Ohio Supreme Court has recently clarified and explained the
standard of review to be applied when assessing the manifest weight of the, evidence
in a civil case. Eastley v. Vollman, - Ohio St.3d -, 2012-Ohio-2179, _ N.E.2d -. In
Eastley, the court held that the standard of review for the manifest weight of the
evideri.ce established in State v. Thompkins, 78 Ohio St.3d 38o, 678 N.E.2d 541
(1997), is also applicable in civil cases. Id. at ¶ 17-19. Consequently, when reviewing
the weight of the evidence, our analysis must determine whether the trial court's
judgment was supported by the greater amount of credible evidence, and whether
the plaintiff met its burden of persuasion, which is by a preponderance of the
evidence. Id. at 119. We are mindful that, in a bench trial, "the trial judge is best
7
OHIO FIRST IIISTRICT COURT OF APPI3ALS
able to view the witnesses and observe their demeanor, gestures and voice
inflecfions, and use these observations in weighing the credibility of the proffered
testimony." Seasons Coal Co., Inc. v. Cleveland, 1o Ohio St.3d 77, 80, 461 N.E.2d
1273 (1984). It follows that, "[i]f the evidence is susceptible of more than one
construction, the reviewing court is bound to give it that interpretation which is
consistent with the verdict and judgment, most favorable to sustaining the verdict
and judgment." Id. at fn. 3, quoting 5 Ohio Jurisprudence 3d, Appellate Review,
Section 6o,at 191-192 (1978).
{117} To succeed on a claim for breach of contract, a plaintiff must establish
the existence of a contract, performance by the plaintiff, breach by the defendant,
and resulting damages incurred by the plaintiff. Brunsman v. W. Hills Country
Club,151 Ohio App.3d 718, 20o3-Ohio-891, 785 N.E.2d 794, 1 11 (1st Dist.). Twin
City contends that SST failed to establish that it performed its contractual obligations
because it proffered no evidence to demonstrate that the bearings it produced
complied with the required swivel torque ranges. Twin City's asserlion is incorrect.
{¶1$} First, Twin City approved the sample bearings sent by SST, indicating
that those bearings fell within the required swivel torque ranges. Further, varipus
SST witnesses testified concerning the procedure used by SST to test the swivel
torque ranges of its bearings. Doug Homan, general manager of SST, testified that
its product assemblers tested the swivel torque of the 18oo bearings shipped to Twin
City, Homan explained that SST's assemblers tested the bearings by hand to
determine if they fell within the applicable swivel torque range, and he described the
process used to do so. David Lindberg, the SST salesman involved in negotiating the
contract with Twin City, corroborated Homan's testimony. And SST president and
8
OHIO FII3ST DISTRICT COVRT OF APPEe1LS
owner Winfield Scott further explained the process used to test the swivel torque
range of a bearing by hand. Scott testified that SST had certified the swivel torque
ranges of the sample bearings sent to Twin City by testing them with a swivel torque
wreneh, and that it had checked by hand the swivel torque range of the first
shipment of bearings sent to Twin City.
{¶19} In addition to testimony from its own witnesses, SST produced at trial
an internal email exchanged between two Twin City employees that indicated that
SST's bearings had not been defective. Doug Homan identified an email sent from a
Twin City plant manager to Twin City employee Tony Mohr, a purchasing manager
that had been Twin City's main contact with SST. This email stated "FYI we have not
had any failures on the sst's we are rejecting them."
{+((20} To support the argument that SST failed to establish its own
performance, Twin City refers us to the testimony of its witnesses William Detweiler
andJoshua Schwantes. Detweiler had testified as an expert witness for Twin City
and had tested the swivel torque ranges of the bearings, although he did so after
Twin City had rejected the bearings and canceled its contract with SST. Detweiler
testified that a large majority of the bearings he tested had not fallen within the
applicable swivel torque ranges and were not suitable for use in Twin City's fans. But
the trial court found the testimony of Detweiler to lack all credibility. The court
found that Detweiler had committed his opinions to Twin City prior to conducting
any actual testing of the bearings. It further found that Detweiler had a personal
interest in displacing SST, and it cited Detweiler's testimony that he had told "a little
white lie" while worldng as an expert for Twin City. The trial court made a similar
finding with respect to the credibility of witness Joshua Schwantes, who had also
9
OHIO FIRST DISTRICT C4iTRT OF APPEALS
testified that the bearings did not possess the required swivel torque. The court
found that Schwantes was not an expert, and noted that Schwantes' testing had been
supervised by Detweiler.
{¶21) The trial court's findings that SST had performed under the contract
and that Twin City had breached the contract by rejecting a product with no defects
was supported by the greater amoaunt of credible evidence and was not against the
manifest weight of the evidence. We give great deference to the court's judgment on
matters of credibility, and it clearly found'ivin City's witnesses to be incredible. .
(¶22) Twin City next argues that the trial court erred in determining that it
had to pay for all bearings other than the 3/4 inch bearings that it had rejected. In
support, Twin City cites its terms and conditions, which provided that it could
terminate the contract at any time and that the seller's remedy was limited to actual
costs incurred at the point of termination. But Twin Cit/s terms and conditions had
not become part of the contract executed between the parties. Consequently, Twin
City cannot rely on its terms and conditions to justify its breach or limit its damages
owed to SST.
{¶23} Twin City additionally relies on R.C.13o2.7o to support its rejection of
the whole contract. R.C. 1302.70 concerns the breach of an installment contract, and
it provides in relevant part that "[w]henever non-conformity or default with respect
to one or more instalhnents substantially impairs the value of the whole contract
there is a breach of the whole." R.C.13o2.7®(C). Twin City's argument is misplaced.
This court has already upheld the trial court's finding that there had been no non-
conformity or defect with respect to the 3/4 inch bearings sent to Twin City. It
necessarily follows that, in the absence of impairment with the first installment, the
10
OHIO FIRST DISTRICT COURT OF APPEALS
value of whole contract had not been impaired. Twin City rejected the entire
contract after receiving shipment of only one sized bearing that was not actually
defective. Further, Twin City did not provide SST an opportunity to examine, cure,
or replace the goods that were allegedly impaired. The trial court correctly
determined that Twin City was liable for the entire contract and not just the portion
oftthe bearings that it had received and improperly rejected.
{¶24} In sununary, the trial court's determination that Twin City had
breached the contract with SST was not against the manifest weight of the evidence.
The court did not err in entering judgment in favor of SST, and the first assignment
of error is overruled.
Attorney Fees and Late Fees
{1125} In its second assignment of error, Twin City argues that the trial court
erred in awarding SST attorney fees and late fees.
{¶26} The trial court found that Twin City was liable for attorney fees and
late fees pursuant to SST's terms and conditions. But SST's terms and conditions
had not become part of the parties' contract and had no legal force or effect.
Consequently, the terms and conditions cannot be used to support an award of late
fees or attorney fees. However, a further analysis of the court's award of attorney
fees is necessary.
{127} The trial court additionally awarded SST attorney fees because it found
that Twin City had acted in bad faith. The court specifically stated that "[t]he breach
by ['Iwin City] was in bad faith. [Twin City] did not proceed in good faith when
rejecting product it had not tested, and as such it is liable for attorney fees." Twin
11
OHIO FIRST DISTRICT COURT OF APPF.AI.S
City argues that the trial court erred in awarding attorney fees on these grounds. It
contends that each partymust pay its own fees in a breach-of-contract action.
{¶28} With respect to attorney fees, Ohio has adopted the "American Rule,"
which provides that each party to an action must pay his or her own attorney fees,
fCeal v. Day, 164 Ohio App.3d 21, 2005-Ohio-5551, 84o N.E.2d 1139 115 (ist Dist.),
citing Sorin u. Warrensville Hts. School Dist. Bd. of Edn., 46 Ohio St.2d i77, r79, 347
N.E-4d 527(1976). But there are several exceptions to this general rule that allow for
fee-shifting and taxing attorney fees as costs, specifically "(1) if there has been a
finding of bad faith; (2) if a statute expressly provides that the prevailing party may
recover attorney fees; and (3) if the parties' contract provides for fee-shifting." Id.
See also 'Wright v. Fleming, 1st Dist. No. C-o7o121, aoo8-Ohio-1435, 9 5
(recognizing that an award of attorney fees may be granted in a contract action upon
a finding by the trial court of bad-faith conduct, but reversing the award ofattorney
fees because the trial court had not made such a finding).
{1129} Here, because SST's terms and conditions were not a part of the
parties' contract, the contract did not provide for fee-shifting. Nor is there an
applicable statute that authorizes an award of attorney fees in this case. But the trial
court made a fmding that Twin City had acted in bad faith. "When an award of
attorney fees is not authorized by statute or contract, the award is a matter of the
trial court's sound discretion." Id. at 7 7. The trial court was well within its
discretion to award attorney fees on bad faith grounds. With respect to bad faith, the
following findings by the trial court are relevant: that Twin City had used SST's price
to obtain leverage with other competitors; that Twin City had attempted to obtain
trade-secret information from SST; that Twin City had canceled the entire contract
12
01110 FIRST DISTRICT COURT OFAPPEALS
with SST prior to testing any of the bearings and had canceled orders for products for
which they could find no fault; and that Twin City had refused to give SST an
opportunity to cure any potential defects. The trial court's findings are accurate and
are supported by the record.
{¶30} The trial court did not err in awarding SST attorney fees after finding
that Twin City had acted in bad faith. But the court did err in awarding SST late fees,
as the terms and conditions authorizing such an award were not a part of the parties'
contract. The second assignment of error is sustained in part and overruled in part.
Conclusion
(If31) The trial court properly entered judgment in favor of SST on its claim
for breach of contract. And the court did not abuse its discretion in granting SST an
award of attorney fees based on its finding that Twin City had acted in bad faith. But
the court erred in granting late fees to SST because such an award was not
authorized by contract. Consequently, that portion of the trial court's entry awarding
SST $69,323.46 in monthly late fees is vacated. The trial court's judgment is
affirmed in all other respects.
Judgment accordingly.
SUNDExMANN, P.J., and DINKELP,cKER, J., concur.
Please note:
The court has recorded its own entry on the date of the release of this opiniona
13
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
SST BEARING CORPORATION, APPEAL NO. C-isa6tiTRIAL NO. A-o9o6751
Appellee,
Vs ENTRY GRANTING MOTIONTO CERTIFY CONFLICT
TWIN CITY FAN COMPANIES,LTD.,
Appellant,
This cause came on to be considered upon the motion of the appellant to
certify this appeal to the Ohio Supreme Court as being in conflict with Williams v.
Crawford, 8th Dist. No. 72936, 1998'WL-767617 ( 2na Dist,, oct, 29, 199$)
unreported and Padgett v. Sanders, 130 Ohio App.3d 117 at 122, 719 N.E.2d 636 at
639 (12th Dist. 1998), The Court also considered the memorandum in opposition and
the appellant's reply.The Court finds that the motion is well taken and is granted. The issue
certified to the Supreme Court of Ohio is as follows:
"The 'American Rule' does not permit the prevailing party to recover
attorueys' fees in the absence of a statutory authorization. Does Ohio
recognize an exception to the American Rule for 'bad faith' breach of
contract in absence of an award of punitive damages?"
To the clerk;
Enter upon the jttr €'the court on JUt 1 1 2012 per order of the court.
Hy. (Copies sent to all counsel)
i,r . Judge
EXHIBIT B iIIiiliIt l
JUDGE
STEVEN £:.MA:ftTIN
COURT OF COMMON PLEAS
HAMILTON COUNTY COURT HOUSECINCINNATI, OHIO 45202-12 1 7
Apri127, 2011
Jonathan M. Bye, Esq.KirstinD. Kaiiski, Esq.Llydqtiist & Vennum P.L.L.P.4200 IDS Center80 South Eiglith StreetMinneapolis, MN 55402-2274
Ryan C. Edwards, Esq.Taft Stettinius & Hollister, LLP425 Walnut Street, Suite 1800Ciricinnati, OH 45202-3957
Deborah R. Lydon, Esq.Robert M. Zimmerman, Esq:Dinsmore & Shohl, LLP1900 Chemed Center255 East Fifth StreetCincinnati, OH 45202
Rei SST Bearing Corporation v Twin City Fan Comuanies, Ltd.Case No. A0906751 11
ROOM 340(613) 948-8490
Fnz (513) 948-5792
Dear Counsel,
This case comes before the Court for a Decision following a Bench Trial and writtenclosing arguments. I would like to thank counsel for a well tried case. I have read and to someextent re-read the trial transcript. I have also gone through the exhibits admitted at trial.
SST agreed to sell pillowbloeks to Twin City Fan (TCF) as set forth in Exhibits 15 and624. Both SST and TCF had its own set of terms and conditions of sale. Neither SST or TCF'sterms and conditions were signed but I find that each knew of the other's terms and conditions.The purchase order was a blanket order that authorized production of all quantities specified. Itwas to be released to TCF as TCF requested. The quantities were necessary to get to the priceTCF wanted to pay and TCF knew this. TCF did have the right to cancel the contract for good
cause which was not proven at trial.
TCF ultimately raised objections to the'/<" pillowblock and then cancelled the entireorder. After weighing the evidence, these objections were without merit. There were no otherproblems with the other sizes set forth in the purchase order. On that record alone, TCF mustpay for all pillowhlocks except for the'/" pillowblock. There is simply no justification not to doso. I will deal with the '/a" pillowblock below. Mr. Mohr testified that TCF wanted a
EXHIBIT C
N4
consolidated supplier base meaning only one supplier for the pillowblocks, but that is nowhere to
be found in the purchase order.
This case like most rests on the credibility of the witnesses. I find Tony Mohr to have
very little credibility. He testified that he tried to make this deal work but the evidence showsotherwise. SST proved that he took SST's price to try and leverage competitors to give TCF abetter price. At the same time he was, without fail, attempting to get from S ST manufacturinginformation that is a trade secret. He admitted on the witness stand that neither he nor TCF hadany need for this information. The only reason for TCF to have this inforination was so that theycould deal with SST's partner in China directly thus cutting SST out of any future deal. All of
this does seriously taint his credibility.
William Detweiler has no credibility in this case. I have never in over 14 years as aJudge or in 14 years before that as a trial lawyer seen a witness like him. First, he committed tohis opinions to the satisfaction of TCF since they listed him and his opinions as an expert beforehe had done or supervised any testing on the SST product. Second, he works for SKF which is acompetitor of SST. He even wanted to displace SST and get the business for SKF. He claimedhe told a "little white lie" but that does not begin to do justice to his lack of credibility. Afterapparently committing to his opinion, only then did he supervise Joshua Schwantes in testing theSST product. Not surprisingly, his testing confirmed his opinion issued to TCF which he hadgiven when he had done no testing. Schwantes is not an expert. Given the bias shown by Mr.
Detweiler, any test he supervised in this case is not credible.
The other witnesses for both sides gave both credible and some incredible testimony.Judging each witness on his or her testimony when measured against the exhibits, I believe more
of SST's position than TCF's position.
I do not find by a clear and convincing standard that TCF had no intention of completingthe deal with SST at the time the contract was formed. However, the evidence shows clearly thatTCF used SST's price to get a better price from other vendors. TCF had no loyalty to thecontract with SST. TCF cancelled the deal witli SST before testing the swivel torque of any ofSST's product. TCF cancelled orders for product for which they could find no fault whatsoever.
I believe and find the following to betrue. The contract was entered into by both sides ingood faith. TCF ordered too many pillowblocks of various sizes which was a problem for them.This was exacerbated by the bad economy of late 2008 and into 2009. TCF claims to have foundproblems with the'/" pillowblocks. The'/a" pillowblocks reviewed by TCF were a very small
sample of that size pillowbiock.
Further, TCF refused to have its technical people meet SST's technical people. Therewas no opportunity given to SST to cure any defects. I find that the reason for all of this is thatthere really were no defects in the SST product. Again this is all concerning the'/<"pillowblocks. TCF has not proven there was any problem with the rest of the order. Timeschange as do the needs of a company but the legally correct thing to do is pay for what you
contracted.
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The allegations by SST that TCF entered into this contract fraudulently and with nointention of ever complying with the contract was not proven by a clear and convincing standardbut is not without some merit. Admissions by TCF that it was trying to get trade secretinformation from SST for which it had no need is evidence of this fraud. Having little if anyproof of defects and then relying onsubsequent testing by an expert who came to his conclusionsbcfore he did any testing and who works for a competitor is also proof of fraud. Still, there is alack of evidence that TCF fraudulently entered into the contract. Their later actions were lessthan honorable but these actions do not allow me to find fraud at the making of the contract.
My decision is that TCF must pay for the full contract plus late fees. TCF's breach offtscontract with SST was unreasonable and without legal or factual justification. The breach byTCF was in bad faith. TCF did not proceed in good faith when rejecting product it had not testedand as such it is liable for attomey fees. It is also liable for fees and costs pursuant to the SSTterms and conditions. This trial was, at least in part, over non-payment for product for whichthere was no defect or problem whatsoever.
The counterclaim of TCF is dismissed. I find that SST has mitigated its damages to the
extent possible.
In short, TCF must pay the entire invoice amount plus late fees, attorney fees and theother costs of SST in prosecuting this action. SST made the product it was contracted to make
and deserves to be paid.
I am not ordering punitive damages.
I agree with most of the findings of fact previously submitted by SST in draft form. Ialso find most of the arguments presented by SST in its written closing to be persuasive.
We need to schedule a hearing on the attorney fees and costs. Please call Jessica at 513-946-5791 to schedule this. Ms. Lydon, please transmit to opposing counsel your fees and thenames of any witnesses you will call by May 13, 2011. Mr. Bye, please identify any witnessesyou will call by June 6, 2011. 1 would like to have the hearing the last week in June.
SEM/jpw
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