IN THE SUPREME COl?RT OF OHIO

NORTHPOINT PROPERTIES, INC.,

Plaintiff-Appellee,

V.

CHARTER ONE BANK, F.S.B., et al.,

Defendants-ApPeilants.

Case No. 2014-0812

OR^^^

^4Z

Appeal from the Cuyahoga County Courtof Appeals, Eighth Appellate District

Curt of Appeals Case No. 100210

MEMORANDUM OF AMIeI CURIAE OHIO CHAMBER OF COMMERCE ANDAMERICAN BANKERS ASSOCIATION IN SUPPORT OF JURISDICTION

Diane E. Citrino (0062832)Mark I. Wallach (0010948)Marquettes D. Robinson (0074268)Ryan J. Sears (0076113)THACKER MARTINSEK L. P.A.2330 One Cleveland Center1375 East 9th StreethCleveland, Ohio 44114Telephone: 216.456.3840Facsimile: 216.456. 3 850clcitrino a^tmlpa.commwallach^tmlpa.commrobinson@tmlpa.comrsears,'q')tm.Ipa.com

Cvtcnsel far A1)Bellants Charter One Bank,F. S B., and Thriftco.. Inc.

Yvette McGee Brown (0030642)Chad A. Readier (0068394)

(:ounsel of RecoYdKenneth M. Grose (0084305)JONES DAY325 John lI. McConnell Boulevard, Suite 600P.O. Box 165017Columbus, OH 43216.5017Telephone: 614,469.3939Facsimile: 614.461.4198ymcgeebrown cx,jonesday.comcareadler@j one.sday.comkmgrose@jonesday.com

Counselfor A mici Cz.criae Ohio Charnber ofCarninerce and American Bankers. Association

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Richard C. Haber (0046788)HABER POLK KABAT L.L.P.737 Bolivar RoadSuite 4400Cleveland, Ohio 44115Telephone: 216.241.0700Facsimile: 216.241.0739rhaber(ahaberpolk.com

Angelo F. Lonardo (0032274)YELSKY & LONARDO75 Public SquareSuite 800Cleveland, Ohio 44113Telephone: 216.781.2550F acsimile: - 216.781.6688aflonardo^yelskylanardo.com

CounsPl f "of° Appellee Alor•thpoant .PropeYties,Inc.

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ....................................................................................................... ii

STATEMENT OF INTEREST OF AMICI CURIAE......................... . .......................................... 1

EXPLANATION OF WHY THIS CASE IS OF PUBLIC OR GREAT GENERALINTEREST .............. ..............,.,...................................................................... ......... ..........1

A Principal Can Be Liable For Punitive Damages Based On Its Agent's ConductOnly If It Approved Or Ratified That Conduct ... ......... ......... ....................,.....................2

Whether A Parent Company Forms A Subsidiary To Limit Its Liability IsIrrelevant To Whether The Subsidiary's Corporate Veil Should Be Pierced,.. ....:.............5

Ohio's Statutory Cap On Punitive Damages Applies 1'o Any Judgment F?ntered InAny Case That Goes To Trial After The Statute's Effective Date .....................................6

Punitive Damages Of Nine Times The Compensatory Award For A Business TortWith Only Economic Injury Violates Both Federal And Ohio I,aw ................................8

STATEMENT OF TI-IE CASE AND FACTS .............................................................................10

ARGUMENT IN SUI'PC)R'I' OFPROPOSITIONS OF LAW ........... ........ .. .............>...............10

Proposition of Law No. 1: R.C. 2315.21(C)(1), like its predecessor, R.C.2315.21(B), does not permit imposition of punitive damages on aprincipal for the acts of its agent, even if the agent's acts were egregious. ......... 14

Proposition of Law No. 2: Whether a subsidiary holding company wasformed, in part, to insulate the parezlt company from some forms ofliability is irrelevant to a determination whether to pierce the company'scorporate veil . .... ................. ....... ............ .. . . ............................ ......... ..........11

Proposition of Law No. 3: The statutory cap on punitive damage awards,R.C. 2315.21(1))(2), applies prospectively to all awards of punitivedamages entered after the effective date of the statute....... .............. .................... 12

Proposition of Law No. 4: An award of punitive damages of nine times theamount of compensatory damages, made to a non-vulnerable plaintiff thatsuffered only economic injury, violates the due process clauses of theOhio and United States Constitutions ........... ................. . ... ................13

CONCLUSION ....................... .... ............... ............... ... . ...........................................15

CERTIFICATE OF SERVICE................................................................................. ...................17

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TABLE OF AUTHORITIES

CASES

Anousheh v. Planet Ford, Inc.,2d Dist. No. 21960, 2007-Ohio-4543 .....................................................

Bach v. First Union 1Vat'l Bank,486 F.3d 150 (6th Cir.2007) ............. .......................................

Barnes v. I1niv: Hosps. of Cleveland,119 Ohio St.3d 173, 2008-Ohio-3344, 893 N.L.2d 142.,......................

Blair v. A1cDonagh,177 Ohio App.3d 262, 2008-Ohio-3698, 894 N.E.2d 377 (ist Dist.) ....

Page

..... ....................... 3

................. . .... 14

............................ 8

........... ...... ............ 7

Blust v. Lamar Adver. Co.,

157 Ohio App.3d 787, 2004-Ohio-2433, 813 N,E.2d 902 (2d Dist,) ...................................... 14

B1L1ff1'o, f.V. Am. v. Cios°e,517 U.S. 559, 116 S.Ct. 1589 (1996) ......:...............................................................................10

Boyd v. Smith,S.D.Ohio No. 2:12-cv-814, 2014 U.S. Dist, LEXIS 33456 (Mar. 14, 2014) ............................3

.I3us°ns v. Prudential Securities,167 Ohio App.3d 809, 2006-Ohio-3550, 857 N.E.2d 621 (3d Dist.) ....... ..........................9, 14

Chicago 7itle Ins. v. Allagnuson,487 F.3d 985 (6th Cir.2007) ............................................................................... ... .....9 , 14

Clark v. Chrysler Corp.,436 F.3d 594 (6th Cir.2006) ................... .. .............. ............................................, ..14

Colurnbus Ry., Power & Light Co. v. Ilarrison,109 Ohio St. 526, 14' ) N.E. 32 (1924) ...................................................... ................................4

Dardinger v. Anthern Blue Cross &$lue Shield,

98 Ohio St.3d 77, 2002-Ohio-7113, 781 N.E.2d 121 ................................................................8

Davis v. Majj Dept. Stores Co.,9th Dist. No. 20396, 2001-Ohio-1362, 2001 Ohio App. LEXIS 4321 (Sept. 26, 2001)...........3

Denicola v. Providence Hosp.,57 Ohio St.2d 115, 387 N.E.2d 231 (1979) ............. .............................. .. ............12, 13

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TABLE OF CONTENTS(continued)

Page

Dombroski v. Wellpoint,Inc.,119 Ohio St.3d 506, 2008-Ohio-4827, 895 i^,r.E.2d 538 ............................ .......................5, 6

Estate of Beavers v. Knapp,175 Ohio App.3d 758, 2008-Ohio-2023, 889 N.E.2d 181 (10th Dist.) .... ......... ..................3; 4

Estate ofJohnson v. Randall Smith, Inc.,135 Ohio St.3d 440, 2013-Ohio-1507, 989 N.E.2d 35 .................. .......................................7, 13

Exxon Shipping Co. v. Baker,554 U.S. 471, 128 S.Ct. 2605 (2008) .................. ................ .. ..... ...................................8

Fulwiler v. Schneider,104 Ohio App.3d 398, 662N.E.2d 82 (1 st Dist. 1995) ............................. ................................3

ln re Application of Columbus S; Power Co.;- Ohio St.3d _, 2014-Ohio-462 ..... .... ................................................................................. I 1

Kramer Consulting, Inc. v. McCarthy,S.D.Ohio ?Vo. C2-02-116, 2006 U.S. Dist. LEXIS 12857 (Mar. 8, 2006) .........>......... ,..........7

Morgan v. i'Vew YorkLife Ins. Co.,559 F.3d 425 (6th Cir.2009) ............................................................................. ........... ...

Moskovitz v. Ht. Sinai Hed. Ctr.,69 Ohio St.3d 638, 635 N.E.2d 331 (1994) .................................... ........................................11

Xorthpoint 1'roperties, Inc, v. Charter One Bank,8th Dist. No. 100210, 2014-Ohio-1430....... ..................... ................,...................>...........passinl

Facific 1Vlir.t. .Lzfe In.s. Co. v. Haslip,499 U.S. 1, 111 S.Ct. 1032 (1991) ............................................................................................4

Paramount Farrns Internatl., LLC v. Ventilex B. V.,12th Dist. No. CA2013-04-060, 2014-Ohio-986 ................. .5, 6

Philip 1Vlorris USA v. Williams,549 U.S. 346, 127 S.Ct. 1057 (2007)..................................................................................9, 14

Siuda v. Howar4,1 st Dist. ?oios. C-000656, C-000687, 2002-Ohio-2292 ..............................................................3

State ex rel. A7ty. Gen. v. Std. Oil Co.,49 Ohio St. 137, 30 N.E. 279 (1892) ......................... ................... ................... .....:......... 5, 12

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TABLE OF CONTENTS(continued)

Page

State Farm 11 fiit. Auto Ins, Co. v. Campbell,538 IJ.S. 408, 123 S.Ct. 1513 (2003) .......... .... .................. ......... .................................passim

State v. Arnold,61 Ohio St.3d 175, 573 N.E.2d 1079 (1991) . ..... .......... ................................... ...... .....4

Strickland v. Cleveland Pneumatic Co.,8th Dist. No. 49945, 1985 Ohio App. Lp;X.IS 9743 (Dec. 19, 1985) ..................................6, 12

Tracy v, Athens & PUrnerQy Coal & Land Co.,115 Ohio St. 298, 152 N.E. 641 (1926) .....................................................................................4

STA'TUTES

R.C. 2315.21..... ...... . .......... .... . .... .. ....... ................... .. .... ........................ . ......... ........... . pas sim

R.C. 2317.43 .......................................................... ............. .............. .. ........ ... ..13

R.C. 2744.07 .................................. ............................................... ................................................. 11

R.C. 2907.35 ..................................... ......... ...... . ......... ... .... .... ................11

OTHER AUTkI(.^RITIES

Ohio Constitution, Article 1, § 16 ............... ..... ... ........................ .........................................13

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STATEMENT OF INTEREST OF AMICI CURIAE

Founded in 1893, the Ohio Chamber of Commerce is Ohio's largest and most diverse

statewide business advocacy organization. The Chamber works to promote and protect the

interests of its more than 8,000 business tnembers and the thousands of Ohioans they employ

while building a more favorable Ohio business climate. As an independent point of contact for

government and business leaders, the Chamber formulates policy positions on a range of issues.

The advocacy efforts of the Ohio Chamber of Commerce are dedicated to the creation of a strong

pro-jobs environment-an Ohio business climate responsive to expansion and growth.

The American Bankers Association ("ABA") is the country's largest national banking

trade associatiort. It represents banks and holding companies otall sizes in each of the fifty

states and the District of Columbia. The ABA also represents savings associations, tiust

companies, and savings banks. ABA members hold approximately 95% of the United States

banking industry's domestic assets. The ABA frequently appears in litigation, either as a party

or anzicu,s curiae, to address the interests of the banking industry and its members.

EXPLANATION OF WHY THIS CASE IS O:FPUBLIC OR GREAT GENERAL INTEREST

In approving a punitive damages award of over S2.5 million, the court below

dramatically expanded the grounds for punitive damages liability in Ohio. In recent years, both

the Ohio General Assembly and the U.S, Supreme Court have established limits on punitive

damages awards to protect parties from unfair and overwhelming liability. Critical to amici

curiae, these measures provide some certainty in a time of otherwise growing economic

uncertainty. Yet the decision below undoes these legislative and judicial efforts, authorizing,

among other things. potentially devastating liability for such common business practices as

forming subsidiaries and using agents.

The Eighth District's decision is troubling in many respects. First, the court, furthering a

split among the courts of appeal, held that punitive damages mav be awarded against a principal

for the egregious conduct of its agent even absent evidence that the conduct was authorizea'.

Next, the court dealt a blow to the corporate form itself, piercing a subsidiary's corporate veil in

part because the parent formed the subsidiary to limit its liability-the very reason the corporate

form exists in thefirst place, The court compounded those errors by finding Ohio's legislative

cap on punitive damages inapplicable, despite the statute's plain language to the contrary. The

court then disregarded constitutional due process limits on punitive damages, awarding nine

tirnes the compensatory award for a business tort with only economic injury.

In the end, the Eighth District authorized new, troubling theories for pursuing punitive

damages against Ohio businesses based on the conduct of another entity. This Court's

intervention is needed to establish clear standards for when punitive damages awards are

appropriate in the agency context, to say nothing of the amounts permissible under Ohio law.

^-^ Principal Can Be Liable For Punitive Damages Based On Its Agent's Conduct Onlv If ItApproved (?r Ratified That Conduct

As thecourt below correctly articulated, former R.C. 2315.21(B)-essentially identical to

current R.C. 23 15.21(C)-permitted punitive damages awards only if (1) the defendant's actions

"dernonstrate... egregiolYs fraud," or (2) the defendant"as principal or master authorized,

participated in, or ratified [such] actions ... of an agent orservant," Northpoint Properties, Inc.

v. Charter One Bank, 8th Dist, No. 100210, 2014-Ohio-1430, ^ 77. The question in this case, on

which the courts of appeal have split, is whether an agent or employee's actions are "authorized"

merely because the agent/employee was acting within the scope of her agency or employment.

The Eighth District concluded that Charter One and Thriftco were liable for punitive

damages based on their agent's egregious fraud "irrespectiveof u,hetheN theyy authorized,

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participated in, or Natified" the agent's conduct. (Emphasis added.) Id. at ^, 79. At least three

other districts have likewise eschewed the authorization requirement for employees acting within

the scope of employment, reasoning that the employee's conduct is impliedly authorized by the

employer. See, e.g., Anousheh v, Planet Ford. Inc., 2d Dist. Nos. 21960, 21967, 2007-Ohio-

4543, ¶ 45 (holding that "acts committed within the scope of employment will be authorized,

either expressly or impliedly, by the employer" and "the plaintiff need not prove ratification to

hold the employer liable" for punitive damages) (quotation omitted); Siudav. Howard, 1 st Dist,

Nos. C-000656, C-000687, 2002-Ohio-2292, 57 (same); Fulwiley v. Schneider, 104 Ohio

App3d 398, 406, 662 N.E.2d 82 (1 st Dist. 1995) (saine); Davis v. May Dept. Stores Co., 9th

Dist. No. 20396, 2001-Ohio-1362, 2001 Ohio App. LEXIS 4321, *20-22 (Sept. 26, 2001)

(liolding same even though employees "failed to follow routinely enforced procedures").

Other courts, including the Tenth District and the Southern District of Ohio, have reached

the opposite conclusion: the statute requires evidence of authorization even if the employee was

acting within the scope of employment. See, e.g., Estate of Beavers v. Knapp, 175 Ohio App.3d

758, 2008-Ohio-2023, 889 N.E.2d 181,60 (10th Dist.) (expressly disagreeing with opposing

case law and explaining that "imposition of vicarious liability upon an employer for the unlawful

acts of its agent or employee does not include imposition of punitive datnages unless the

corporation authorized, ratified or participated in the unlawful acts") (quotation and brackets

omitted); Boyd v. Snaith, S.D.Ohio No. 2:12-cv-814, 2014 U.S. Dist> LEXIS 33456, *27

(Mar. 14, 2014) ("[A]n employer is not liable for punitive damages merely because the employee

committed the alleged acts while acting within the scope of his employment.'°). This

interpretation is faithful to the statute's plain langtiage; requiring that the "principal or master ,..

authorized, participated in, or ratified" the conduct. R.C. 2315,21(C)(1). The Eighth District's

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conclusion, however, renders the statutory language superfluous, contrary to settled

interpretative principles. See AState v. Arnold, 61 Ohio St.3d 175, 178, 573 N.E.2d 1079 (1991)

(statutes niust be interpreted "to give some effect to every part"). The Eighth District's reading

likewise runs afoul of the common law rule requiring evidence of aathorization for employer

liability, a rule the Court repeatedly articuldted before R.C. 2315.21(I3)s enactment, kSee .Estate

of Beavers atIi 37-45, citing Trauthv. Dunbar, 5 Ohio St.3d 68, 70, 448 N.E.2d 1368 (1983),

Tracy v. Athens & Pomeroy Coal & Land Co., 115 Ohio St. 298, 302-03, 152Iv`.E. 641 (1926),

Columlaus Ry., Power & Light Co. v. Harri:son, 109 Ohio St. 526, 531, 143 N.E. 32 (1924).

The decision below furthers a conflict among Ohio's courts of appeal. In four districts,

egregious conduct by an employee or agent now exposes companies to punitive damages even

absent direct uuthorizatiosz, as Iong as the conduct was within the scope of the employment or

agency. The decision not only conflicts with the analysis of the Tenth District and the federal

courts, but it also significantly expands punitive damages liability for Ohio businesses from the

long-standing common law rule of this Court. Such a dramatic expazision of punitive dainages

liability deserves the Court's attention. After all, "[p]unitive damages are a powerful weapon.

ln-iposed wisely and with restrain[t], they have the potential to advance legitimate state interests.

Imposed indiscriminately, however, they have a devastating potential for harrn." Pacif c Mut.

Life Itas. C. v. Haslip, 499 U.S. 1, 42, 111 S.Ct. 1032 (1991) (O'Connor, J., dissenting).

As it stands today, geography dictates a company's vicarious liability for punitive

damages in Ohio. Depending on its place of business, a company could face "devastating"

damage awards absent any Imowledge of its agent's actions. This Court should resolve this

confliet, one that creates uncertainty in our business climate, and restore the statutory limitations

on punitive damages rewritten by the Eighth District.

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Whether A Parent Lom any Forms A Subsidiary To Limit Its Liability Is Irrelevant To WhetherThe Subsidiary's Corporate Veil Should Be Pierced

The Eighth District's decision also threatens the fundamental corporate form and the

ubiquitous use of subsidiary corporations. A tenet of American corporate law is that

corporations are formed to protect their owners from liability. Parent companies likewise form

subsidiaries to protect the parent's assets. Banks, like Charter One, routinely use holding

companies to shield their primary assets-consumer deposits and loans-from additional risk.

In particular, it is a common practice for financial institutions to transfer foreclosed properties to

holding companies for purposes ofmanagemnt and marketing, which is precisely what Charter

One did in this case. See ?Vorthpoint Properties, 2014-Ohio-1430, at3, 7.

Remarkably, the court below characterized these established practices as reflecting a

nefarious intent to support piercing the corporate veil and holding owners personally liable. That

reasoning not only defeats the very purpose of incorporatizig, but it also rewrites Ohio law. "The

principle that shareholders, officers, and directors of a corporation are generally not liable for the

debts of the corporation is ingrained in Ohio law." Do7rrbraski v. Welipoint, Inc., 119 Ohio St.3d

506, 2008-Ohio-4827, 895 N.E.2d 538, 1; 16. As has long been recognized, the corporate form

was "introduced ... to preserve the limited liability of the stockholders," State ex ret. Atty. Gera,

v. Std. Oil Co., 49 Ohio St, 137, 177, 30 N.E. 279 (1892), and is "useful primarily because it

creates a division between shareholders and their business concerns," Dornbr•oski at ^ 16.

Indeed, "[i]t is a certain rule" that the corporate form "shall never be contradicted so as to defeat

the end for which it was invented." (Quotation omitted.) Std. Oil at ].77.

It follows from these settled principles that a parent company cannot be held liable for

creating a subsidiary to shield itself from liabil'rty. See, e.g., Paranzount Fartns Internatl., LLC v

Ventilex B. V, 12th Dist. No. CA2013-04-060, 2014-Ohio-986,1; 45 ("The creation of

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subsidiaries to limit liability to a parent company is a common business practice," which cannot

be used as "evidence of fraud"), Strickland v, Cleveland Pnezimatic Co., 8th Dist. No. 49945,

1985 Ohio App. LEXIS 9743, *8-9 (Dec. 19, 19$5) ("A party is not wronged or defrauded by the

formation or purchase of a subsidiary for the purpose of limiting shareholder liability, this is a

legitimate objective of iilcorporation.") (quotation omitted). That a party invoked settled

corporate-law principles is thus irrelevant in determining whether to pierce the subsidiary's

corporate veil to hold the parent liable, especially when piercing is "'a rare exception, to be

applied only in ... exceptional circumstances." (Quotation omitted.) l7ombroski at ¶ 17.

Nonetheless, the Eighth District pierced Thrifco's corporate veil based, in part, on

"evidence[] that Charter One was going to use Thriftco to shield itself from liability."

Northpoint Properties, 2014-Ohio-1 43C1, at 1T 61. In other words, Charter One's liability was

rriore likely simply because it followed the "common business practice" of creating a subsidiary.

Paramount Far-rns at ¶ 45. Countless parent-subsidiary corporate structures exist in Ohio's

business community. And all, no doubt, are set up, in part, to limit the parent company's

liability. If that very intent now potentially exposes the parent company to liability, no parent

company in Ohio can be confident that its corporate structure will be respected by our coui-ts.

In this way, the ramifications of the decision below cannot be understated. Many of

Ohio's largest employers suddenly face exponentially greater risk and uncertainty in deterznining

their legal liabilities, The Court should accept jurisdiction to clarify that an intent to insulate a

corporation's owners from liability is irrelevant to the veil-piercing test.

Ohio's Statutory Cap On Punitive Dania ^.^sApplies To Any Judgment Entered In Anv CaseThat Goes To Trial After I'he Statute's Effective Date

Having erroneously held Charter One and Thriftco liable for punitive damages, the

Eighth District then compounded its error by refusing to apply Ohio's statute capping punitive

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damages at twice the amount of cnmpensatorv damages. Northpoint Properties at ^ 76; see R.C.

2315.21(D)(2)(a). In other words, not only did its agency and corporate veil rulings expose more

Ohio businesses to punitive damages, but the Eighth District also removed the statutory limit on

the amount of those damages.

The Eighth District reasoned that Ohio's statutory cap articulated in R.C. 2315.21(D)(2)

does not apply here because the "cause of action ... arose before the statute's effective date,"

and the statute"may not be applied retroactively." NNthpoint Properties, 2014-Ohio-1430, at

^,,, 75. Other courts have reached the same conclusion. See, e;g., Blair v: jVcDonagh, 177 Ohio

App.3d 262, 2008-Ohio-3698, 894 N.E.2d 377, T 67 (1stDist.); Kramer Consatlting, Inc. v,

iVcCai°thy; S.D.Ohio No. C2-02-116, 2006 U.S. Dist. LEXIS 12857, *20-21 (Mar. 8; 2006).

This line of lower court decisions both violates this Court's rules for retroactivity and

improperly impedes the General Assembly's intent to restrict punitive damages liabili.ty. The

2008 trial here came after the statute took effect in 2005. See 1Vorthpoint Properties at'(r 74;

(Journal Entry (June 4, 2008)). And because the statutory cap is a procedural law, it can be

applied prospectively to any case (including this one) that went to trial after the statute's

effective date, regardless of when the cause of action accrued or was filed. E;state ofJohnson v.

Randall Srnith, Inc., 135 Ohio St.3d 440, 2013-Ohio-1507, 9891v.I;.2d 35, T 20.

Given that the statute can be applied prospectively, the question becomes whether it does

applv. The plain language "determines the application of the statut Estate Uf Johnson at ^ 15

(holding statute's language, providing that it applied to "any civil action brought" by prescribed

persons, prospectively applied to any action "brought"---i, e., filed-after the statute's effective

date) (emphasis added). The punitive damages cap statute, which provides that "[t]he court shall

not enter judgment" exceeding the cap, by itsterm.s applies to any judgment entered after the

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statute's effective date. (Emphasis added.) R.C. 2315.21(D)(2)(a). Yet the Eighth District (like

other appellate courts) will not apply the cap in cases where the cause of action arose before the

statute's effective date. Accordingly, a number of defendants could be subject to large damage

awards that the General Assembly intended to prohibit. Here too, the Eighth District's ruling

cultivates uncertainty in the legal liability of Ohio businesses.

Pumtzve Damages Of Nine "I'imes The Compensatory Award For A Business Tort With OnlyEconomic Injury Violates Both Federal And Ohio Law

To complete its rewriting of Ohio punitive damages law, the Eighth District disregarded

the constitutional due process limits on punitive awards. This area of law has long awaited the

Court's guidance. No case from the Court in recent memory has engaged in a comprehensive

constitutional analysis of punitive damages in the non-personal injury, business tort context. The

last notable case came more than a decade ago in Dardinger v. Ajztheni Blue C'f°Uss & Blue

Shield, 98 Ohio St.3d 77, 2002-Ohio-7113, 781 N.E.2d 121. And Dardinger was a personal

injury case, where the Court upheld a 20:1 ratio between punitive and compensatory damages.

In the ensuing decade, the United States Supreme Court has dramatically heightened the

due process limits on punitive damages, suggesting that a maximum ratio of 1:1 is appropriate in

business tort easeswhere no physical harm occurred. See State Fai°m Mut Auto Ins, Co. v.

Caarpbell, 538 U.S. 408, 425, 123 S.Ot. 1513 (2003) (in business tort case, "[w]hen

compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory

damages, can reach the outermost limit of the due process guarantee"); Exron Shipping Co. v.

Baker, 554 U.S. 471, 513-515, 128 S.Ct. 2605 (2008) (imposing bright-line 1:1 maximum ratio

for tnaritimecases). This Court, save for reiterating that federal due process limits apply to Ohio

punitive damages awards, has not addressed the force of State Farfn and Exxon Shipping, as have

other Ohio courts. Compare, e, g., Barnes v. Univ. Hosps. of Cleveland, 119 Ohio St.3d 173,

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2008-Ohio-3 344, 893 N.E.2d 142, ^, 40 (noting only that due process guideposts apply to

punitive damages), with Burns v. Prudential Securities, 167 Ohio App.3d 809, 2006-Ohio-3550,

857 N.E.2d 621, at ¶ 162 (3d Dist.) (per majority opinion by then-Judge Cupp, reducing punitive

award to 1:1 ratio where harm "was wholly economic"); Chicago Title Ins. v. Magnuson, 4 87

F.3d 985, 999-1001 (6th Cir.2007) (applying Ohio and federal law in holding that no ptlnitive

damages were warranted for business tort with economic harm). Today's case is an appropriate

vehicle for reviewing due process limits in business tort cases, with the court below upholding a

9 : 1 ratio for a business tort with economic injury.

Although the General Assembly has capped punitive dainages awards at a 2:1 ratio, due

process limits still warrant attention. For one thing, the cap does not apply to many cases, such

as non-tort actions. R.C. 2315.21(D)(2); see also R.C. 2315.21(D)(6), (I;) (listing additional

exceptions). In addition, the statutory cap serves only as a ceiling for punitive damages. Due

process may impose a stricter limit, particularly in business tort cases with only economic injury

where "a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost

limit of the due process guarantee." State Faym at 425. Without guidance, Ohio courts may

incorrectly view the statutory cap as sufficiently protective of due process.

The Eighth District's due process analysis also warrants review to ensure Ohio courts are

not considering unconstitutional factors in awarding punitive damages, as occurred here. For

instance, the court below jtistified the award based on potential harm to third parties. While

harm to others is relevant to the reprehensibility analysis, punitive damages cannot be used "to

punish a defendant directly on account of harms it is alleged to have visited on nonparties."

Philip Morr-is USA v. g'illiains, 549 U.S. 346, 355, 127 S.Ct. 1057 (2007). And this case goes

even further, punishing the defendants forpotential harm to nonparties (that never materialized).

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Likewise, the Eighth District further justified this award under the third due process

guidepost by referencing potential liability in a civil suit. But in analyzing that guidepost-a

comparison of the punitive damages award to civil penalties imposed in similar cases-courts

may consider comparable "civil sanetion[s]," meaning legislative penalties such as "fne[s]," or

"criminal penalties." State Fartn, 538 U. S. at 428; see also BtVIW of 'N Am. v. Gore, 517 U.S.

559, 583, 116 S.Ct. 1589 (1996) (explaining third guidepost is intended to "accord substantial

deference to legislative judgments coneerning appropriate sanctions for the conduct at issue")

(emphasis added) (quotation omitted). Here, the Eighth District used an inflated comparison to

"the potential civil damage award in a lawsuit for personal injury" by a third party, relying on

this Court's pre-State Farm precedent. Nnrthpoint Properties, 2014-Ohio-1430, at ^ 96, citing

Wightman v. CC}NRAIL, 86 Ohio St.3d 431, 441, 715 N.E.2d 546 (1999).

STATEMENT OF TIHE CASE AND FACTS

Amici curiae adopt the statement of the case and facts in Appellants' memorandum.

ARGUMENT IN SUPPORT OF PROPOSITIONS OF LAW

Proposition of Law No. 1: R.C. 2315.21(C)(1), like its predecessor, R.C. 2315.21(B), doesnot permit imposition of punitive damages on a principal for the acts of its agent, even ifthe agent's acts were egregious.

Former R.C. 2315.21(B), applicable here and essentially identical to current R.C.

2315.21(C), allows punitive damages only where (1) the defendant commits egregious fraud, or

(2) the defendant "as principal or master authorized, participated in, or ratified [such] actions ...

of an agent or servant." Northpoint Properties, 2014-Ohio-1430, at r; 77. A defendant can thus

be held vicariously liable for punative damages only if it "signed off" on the agent's conduct.

Without any such evidence, the court below nonetheless found Charter One and Thriftco

liable for their agent's conduct. It concluded that "the trial court's finding that the fraud was

egregious was supported by competent, credible evidence." Id. at^! 79. "The fraud" referenced

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was "ENIG's withholding of the Kaczinar Report." (Emphasis added.) Id. Based on EMG's

egregious fraud, the court then held that "Charter One and Thriftco can be held liable irrespective

of whether they authorized, participated in, or ratified EMG's" actions. Id. Though not ftilly

explained in the opinion, the court's reasoning seemingly follows the line of Ohio appellate cases

deeming an agent or employee's conduct within the scope of the agency or employment to be

authorized by virtue of the agency or employment itself. See supra at 3.

That analysis, however, is contrary to R.C. 2315.21's plain language, which mandates

that the agent's conduct be "authorized, participated in, or ratified." Morthpoint Properties at

T., 77. Under the Eighth District's reading, that language becomes meaningless for conduct within

the scope of agency, If the General Assembly had intended to allow punitive damages for any

agency conduct, it would have said so. See In re Application of"C'olurnbus S. Power Co., _

Ohio St.3d -, 2014-Ohio-462,''26 ("When interpreting a statute, a coutL must first examine the

plain language of the statute to determine legislative intent."), Indeed, several sections of the

Revised Code include such "scope" language, see, e.g., R.C, 2907.35(E); R.C. 2744.07(A),

including one that refers to both the "scope of ... employment" and "authoriz[ing] or ratif[ying]

the conduct," R.C. 2907.35(E), demonstrating that the legislature distinguishes the two terms.

Liability based solely on the scope of agency would also run counter to the dual purposes

of punitive damages: deterrence and punishment. See Moskovitz v. Mt. Sinai Il!fect' Ctr., 69 Ohio

St.3d 638, 651, 635 N.E.2d 331 (1994). If the employer or principal did not authorize the

egregious conduct, there is no wrongful behavior that warrants deterrence or punishment.

Proposition of Law No. 2: Whether a subsidiary holding company was formed, in part, toinsulate the parent company from some forms of liability is irrelevant to a determinationwhether to pierce the company's corporate veil.

Like the owners of any corporation, Charter One forrned the subsidiary Thriftco in part to

shield itself from liability. That fact is neither surprising nor legally relevant. "A party is not

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wronged or defrauded by the formation >.. of a subsidiary for the purpose of limiting

shareholder liability, this is a legitimate objective of incorporat.ion." (Quotation omitted.)

Strickland, 1985 Ohio App. LEXIS 9743, at *8-9. `I'he corporate form "shall never be

contradicted so as to defeat the end for which it was invented." (Quotation omitted.) Std. Oil, 49

Ohio St, at 177, 30 N.E. 279. But that is precisely what the Eighth District did here.

In deciding to pierce Thriftco's corporate veil and hold Charter One liable, the Eighth

District relied on the fact that Thriftco was formed to limit Charter One's liability. See

Northpoint .t'r^operties, 2014-Ohio-1430, at ^61. Although that was not the only factor, the court

clearly viewed Charter One's intent as significant. The court cited to internal company

memoranda discussing the formation of Thriftco "to help shield the bank from potential

liabilities." 7d. at ^ 59-61. But piercing the corporate veil because the subsidiary was formed to

limit liability defeats the very purpose of the corporate form, It was blatant legal error for the

court below to consider that fact.

Proposition of Law No. 3: The statutory cap on punitive damage awards, R.C.2315.21(D)(2), applies prospectively to all awards of punitive damages entered after theeffective date of the statute.

Effective April 2005, the General Assembly capped punitive damages at twice the

amount of compensatory damages, Northpoint Properties at ^ 74; R.C, 2315.21(D)(2)(a).

Although the claim in this case arose prior to that date, and the complaint was filed in 2003, the

statutory cap still applies because the case did not go to trial until 2008 and judgment for

punitive damages was not entered until 2012. S'ee1Vorthpoint Properties at'1[ 17, 34; (Journal

Entry (June 4, 2008)).

Laws "of a remedial or procedural nature ... are applicable to any proceedings conducted

after the adoption of such laws." (Quotation omitted.) Denicola v. Providence Hosp.; 57 Ohio

St.2d 115, 117-18,387 N.E.2d 231 (1979). "[P]rocedural law describes the methods of ...

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obtaining redi•ess." Id. at 117 fn.2. A procedural "statute is properly applied prospectively if it

has been enacted after the cause of action but before the trial of the case." Estate of Johnson,

135 Ohio St.3d 440, 2013-Ohio-1507, 989 N.E.2d 35, at T. 20. R.C. 2315.21(D)(2)(a) isa

procedural law that merely alters the methods of obtaining redress for substantive rights. It can

thus apply prospectively to any case that went to trial after its enactment, including this one.

Given that the statute can apply, the question is whether it does apply, which is

determined by its plain language. Id. at^1, 15. In Estate ofJohnson, the Court addressed the

applicability of a statute governing evidence admissibility: "By its express terms, R.C. 2317.43

applies to 'any civil action brought' by persons described in the statute. This means that the

statute applies to a civil lawsuit filed after the effective date of the statute." (Emphasis added.)

Id at '11; 16. The plain language of the punitive damages cap statute is different; it applies not to

"civil action[s] brought," but to "Judgment[s]" "enter[ed]": "°The court shall not enter judgment

for punitive... damages" exceeding the cap. R.C. 2315.21(D)(2)(a). Accordingly, the cap's

applicability depends on the date judgment is entered. I-Iere, because that occurred on December

21, 2012, NorthPoint Properties, 2014-Ohio-1430, at ^ 34, long after the cap statute becanie

effective in 2005, punitive damages should have been limited to twice the compensatory awarci.

Proposition of Law No. 4: An award of punitive damages of nine times the amount ofcompensatory damages, made to a non-vulnerable plaintiff that suffered only economicinjury, violates the due process clauses of the Ohio and United States Constitutions.

The federal Due Process Clause "prohibits the imposition of grossly excessive" punitive

datnages awards. State Farm, 538Li.S, at 416. In ,5tate Far•nt, the Court affirmed and ainplified

the three "guideposts" of excessiveness set forth in GoYe-(1) the degree of reprehensibility; (2)

the disparity between the plaintiff's harm and the punitive award; and (3) the difference between

the punitive award and the civil or criminal sanctions for coniparable niisconduct. Id. at 419-28;

see also Ohio Constitution, Article I, Section 16 ("due course of law").

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Under the second guidepost, due process restricts punitive damages in economic injury

cases to near a 1:1 ratio where substantial compensatory damages are awarded, Strrte Farm at

425 ("When compensatory damages are substantial, then a lesser ratio, perhaps only equal to

compensatory damages, can reach the outermost limit of the due process guarantee."). The

nature of the plaintiff s injury is important in determining the appropriate ratio. See id at 419

(noting harm arose from economic transaction in reversing punitive award); Chicago Title, 487

F.3d at 999-1001 (noting harm was purely economic in concluding that no punitive damages

were warranted); see also Blust v. Lamar Adver. Co., 157 Ohio App.3d 787, 2004-Ohio-2433,

813 N.E.2d 902, at44 (2d Dist.) (notingharm was economic in reversing punitive award and

granting new trial). Accordingly, the Sixth Circuit Court of Appeals has routinely reduced

punitive damages awards in economic-injury cases to an approximate 1:1 ratio, See Morgan v.

New York Life Ins. Co,, 559 F.3d 425, 443 (6th Cir.2009); Bach v. First Uyiiofi IVat'l Bank, 486

F.3d 150 (6th Cir.2007); Clark v. Chrysler Corp., 436 F.3d 594 (6th Cir.2006). Ohio courts have

followed suit. See, e.g.,l3urns, 167 Ohio App.3d 809, 2006-Ohio-3550, 857 N.E.2d 621.

Against this backdrop, the court below approved an unconstitutional puriitiveaward at a

9:1 ratio: $2,520,000 against $280,000 in compensatory damages. Northpoint Properties, 2014-

Ohio-1430, at Ij 114. Because this case involves a business tort with economic injury and

substantial compensatory damages, no greater than a 1:1 ratio is constitutionally permissible.

The court's excessive award stemmed from its faulty guidepost analysis. The law is clear

that punitive damages cannot be used "to punish a defendant directly on account of harms it is

alleged to have visited on nonparties." YVilliams., 549 U.S. at 355; see also State Farm, 538 U.S.

at 423 ("A defendant should be punished for the conduct that harmed the plaintiff, not for being

an unsavory individual or business. Due process does not permit courts, in the calculation of

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punitive damages, to adjudicate the merits of other parties' hypothetical claims against a

defendant under the guise of the reprehensibility analysis."). Here, however, after analyzing the

reprehensibility guidepost-where harm to others is relevant-the Eighth District went on to

consider evidence of the risk to nonparty building tenants from water contanlination and the

faulty fire suppression system in connection witli the second and third guideposts. See

Northpoint PYopeNties• at ¶ 91-96. Despite the fact that no tenants were actually harnied, the

court approved a massive punitive damages award, even citing testimony that those who drank

the water could "possibly die." Id, at T 92. That potential harm to others was improperly used to

punish the defendants is even more evident upon review of the trial court's decision awarding

punitive damages. (See Journal Entry and Opinion at 10 (Dec. 21, 2012) (finding puxiitive

damages award was "appropriate based on: (1) the reprehensible nature of the Defendants'

conduct; ... as well as (4) the potential harm of the Defendants[] conduct.").)

The third guidepost requires the court to compare the punitive award with comparable

civil penalties------i: e., legislative penalties such as fines. See,State FaNm at 428; Gore, 517U.S. at

583. The idea is to defer "to legislative judgments concerning the appropriate sanctions for the

conduct at issue." Gore at 583. But here, instead of comparing the $2.5 million punitive award

to, for example, a$25,0Q0 fine imposed for theft by deception, the court below compared it to

the potential damages recoverable in a personal injury lawsuit brought by one of the nonparty

tenants (even though no tenants were ever harmed). Northpoint Properties at ^11 96. That

improper comparison defeats the purpose of the third due process guidepost.

Unsurprisingly, the court's improper analysis produced an unconstitutionally excessive

punitive damages award. On numerous grounds, that award deserves the court's attention.

CONCLUSION

For the foregoing reasons, the Court should accept jurisdiction over this case.

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Dated: May 19, 2014 Respectfully submitted,

Yvette McGee Brown (0030642)Chad A. Readler (0068394)I£ernnethM.Grose(0084305)JONES. DAY325 John H. McConnell BoulevardSuite 600P.O. Box 1.65017Columbus, OH 43216:5017Telephone: 614.469.3939Facsimile: 614.461.4198careddler(a;JoncsDay.comkmgrosenJonesIIay.com

Attorneys for Amici Curiae Ohio ChafnberQf Commerce and Atnerican BankersAssociation

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CERTIFICATE OF SERVICE

I hereby certify that a copy of this Memorandum of Amici Curiae Ohio Chamber of

Commerce and American Bankers Association in Support of Jurisdiction was served by regular

U.S. mail, on May 19, 2014, on the following:

Diane E. Citrino (0062832)Mark I. Wallach (0010948)Marquettes D. Robinson (0074268)Ryan J, Sears (0076113)THACKER MARTINSFK L.F.A.2330 One Cleveland Center1375 East 9th StreethCleveland, Ohio 44114

Cvunsel for Appellants Charter One Bank,F.S. B., and Thriftco, Inc.

bv^°

Richard. C. Haber (0046788)I IABER POLK KABA"t'L.L.p.737 Bolivar RoadSuite 4400Cleveland, Ohio 44115

Angelo F. Lonardo (0032274)YELSKY & LONARDO75 Public SquareSuite 800C'leveland, Oliio 44113

Counsel, for Appellee zVorthpoint Properties,Inc.

One of the Attorneys for Amici Curiae OhioChamber of Commerce and American BankersAssociation

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