Rutherlan Enterprises, Inc. v. Zettler Hardware
700 F. App'x 398
| 6th Cir. | 2017Background
- Between 2002–2005, Rouse and Stratton formed Substruct Systems, LLC to develop a POS system; Nicholas Zettler contributed funds. Rutherlan purchased the POS system in December 2008 and later terminated the contract on September 30, 2009, citing defects that interfered with its business.
- Rutherlan sued Substruct in state court (2010) — dismissed for improper venue — then filed in federal court (2011) but voluntarily dismissed that action in 2013.
- In 2014 Rutherlan refiled in the Southern District of Ohio adding Substruct and individual defendants (Nicholas Zettler, Michailidis, Rouse, Stratton) alleging breach of contract, unjust enrichment, fraudulent misrepresentation, and breach of warranties.
- The district court granted partial summary judgment to defendants on fraud (statute-of-limitations/savings statute issue) in 2014; later (2016) it granted summary judgment dismissing all remaining claims against the individual defendants and Zettler Hardware.
- On appeal, Rutherlan argued the district court abused its discretion by denying a discovery-extension motion in the 2011 case and that summary judgment dismissal of its claims was erroneous; the Sixth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether denial of discovery-extension in 2011 prejudiced Rutherlan and is reviewable | Denial prevented discovery that would have allowed adding parties earlier and preserved fraud claim under Ohio savings statute | 2011 dismissal was voluntary; voluntary dismissal leaves plaintiff as if case never brought, so discovery denial in that voluntary case is not reviewable here | Denied — court will not consider the argument because the 2011 dismissal was voluntary and without prejudice |
| Whether Ohio savings statute preserves fraud claim against newly added defendants | Savings statute saved the time-barred fraud claim so it could proceed against individual defendants | Newly added individual defendants were not parties in the original action and had no notice; under Ohio law the savings statute does not apply when parties differ | Denied — savings statute inapplicable because refiled action added parties who were not in original action |
| Whether individual defendants can be held liable on breach of contract via alter-ego (piercing corporate veil) | Evidence (depositions, expert) shows Keeton factors (failure to observe formalities, inadequate capitalization, absence of records, insolvency) supporting alter-ego liability | Record undeveloped as to Keeton factors; plaintiff failed to timely seek discovery and cannot create facts now; testimony does not establish insolvency or lack of formalities shown by documentary proof | Denied — summary judgment for defendants because plaintiff failed to develop factual record to show alter-ego; Keeton factors not established |
| Whether unjust enrichment or breach of warranty claims survive summary judgment | Product defects and surrounding facts support unjust enrichment/breach of warranty and show fraud/bad faith to overcome contract defenses | No factual evidence of fraud, bad faith, or illegality; warranty argument not briefed on appeal (waived) | Denied — unjust enrichment dismissed for lack of factual support; warranty claim deemed waived |
Key Cases Cited
- Dearth v. Mukasey, 516 F.3d 413 (6th Cir. 2008) (voluntary dismissal without prejudice leaves plaintiff as if suit never brought)
- LeCompte v. Mr. Chip, Inc., 528 F.2d 601 (5th Cir. 1976) (treatment of plaintiff after voluntary dismissal)
- Children’s Hospital v. Ohio Dept. of Public Welfare, 433 N.E.2d 187 (Ohio 1982) (Ohio savings statute requires substantially same action and parties for refiled claim to be saved)
- Taylor Steel, Inc. v. Keeton, 417 F.3d 598 (6th Cir. 2005) (factors for piercing corporate veil/alter-ego analysis)
- Belvedere Condominium Unit Owners’ Ass’n v. R.E. Roark Cos., Inc., 617 N.E.2d 1075 (Ohio 1993) (corporate veil-piercing principles and equitable exception to limited liability)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (summary judgment standard regarding genuine issue of material fact)
- Erie R. Co. v. Tompkins, 304 U.S. 64 (1938) (federal courts apply state substantive law in diversity cases)