CUYAHOGA COUNTY CASE MANAGEMENT, ET AL. v. CLARK INDUSTRIAL INSULATION COMPANY
No. 109218
COURT OF APPEALS OF OHIO, EIGHTH APPELLATE DISTRICT, COUNTY OF CUYAHOGA
April 22, 2021
2021-Ohio-1405
KATHLEEN ANN KEOUGH, J.
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
CUYAHOGA COUNTY CASE :
MANAGEMENT, ET AL., :
Plaintiffs-Appellees, :
v. : No. 109218
CLARK INDUSTRIAL INSULATION :
COMPANY, :
Defendant-Appellant. :
JOURNAL ENTRY AND OPINION
JUDGMENT: REVERSED
RELEASED AND JOURNALIZED: April 22, 2021
Civil Appeal from the Cuyahoga County Court of Common Pleas
Case No. SD-97-073958
Appearances:
Kelley & Ferraro, L.L.P., Shawn M. Acton, and Edward J. Kelley, III; for appellees All Kelley & Ferraro, L.L.P. Asbestos Cases.
McDermott & Hickey, L.L.C., Anthony Gallucci, Christopher J. Hickey, and Kevin E. McDermott, for appellees All McDermott & Hickey, L.L.C., Asbestos Cases.
Bevan & Associates, L.P.A., Inc. and Thomas W. Bevan, for appellees All Bevan & Associates L.P.A., Inc. Asbestos Cases.
KATHLEEN ANN KEOUGH, J.:
Defendant-appellant, Clark Industrial Insulation Co. (“Clark”), appeals the trial court’s decision extending the five-year statutory time under
I. Factual Background and Procedural History
Clark was generally in the business of selling and installing thermal insulation and related products, some of which contained asbestos. Due to the hazardous nature of asbestos to human health, Clark has been actively defending itself for several decades in Ohio asbestos personal injury litigation. In 1996, Clark ceased doing business and its assets were sold. In 2005, Clark filed for bankruptcy; the action was subsequently dismissed. Clark voluntarily dissolved effective October 30, 2014, and it has no noninsurance assets of any kind. However, it has insurance policies with Cincinnati Insurance Company that have historically covered Clark’s asbestos-related liabilities.
R.C. 1701.88 allows individuals and entities to submit claims and commence litigation against a dissolved corporation for five years after its dissolution. For the past five years, Clark has actively defended lawsuits and settled claims, including actions filed under the Cuyahoga County’s Specialized Asbestos
According to the appellees, R.C. 1701.88 and 1701.89 authorized the trial court to extend the time to wind-up Clark’s corporate affairs for the purposes of “allow[ing] [existing] claims against Clark to proceed,” and “anticipated * * * additional claims [that] will arise against Clark after” the expiration of the five-year statutory period. After extensive briefing and a hearing, the trial court granted appellees’ motions, and extended the period for commencing actions against Clark from October 30, 2019 to October 30, 2024. The trial court also appointed a receiver to oversee Clark’s unexhausted insurance policies and manage its affairs related to the ongoing product liability suits. In addition to other duties, the court ordered the
Clark now appeals, raising four assignments of error, which will be addressed out of order and together where appropriate.
II. Extension of Time
In its third assignment of error, Clark contends that the trial court erred in extending the five-year statutory period that allows Clark to continue acting as a corporation for winding-up its affairs following a voluntary dissolution. It contends that the trial court improperly applied the provisions of R.C. 1701.88 and 1701.89.
Whether a trial court has properly applied a statute is a question of law that an appellate court reviews de novo. State v. Brown, 161 Ohio St.3d 276, 2020-Ohio-4623, 162 N.E.3d 769, ¶ 7, citing State v. Straley, 139 Ohio St.3d 339, 2014-Ohio-2139, 11 N.E.3d 1175, ¶ 9.
A. Jurisdiction
R.C. 1701.88(A) provides that when a corporation voluntarily dissolves, it shall continue as a corporation for a period of five years from dissolution for the purposes of winding-up its affairs. This five-year period may be extended, however, by “a court acting pursuant to section 1701.89 of the Revised Code.”
Without limiting the generality of its authority, the court of common pleas of the county in this state in which the principal office of a voluntary dissolved corporation is located, in which the principal office was to be located, or in which the principal office of a corporation whose articles have been canceled or whose period of existence has expired is located, upon the complaint of the corporation, a majority of the directors, or a creditor or claimant, and upon such notice to all the directors and such other persons interested as the court considers proper, at any time may order and adjudge in respect to all of the following matters: * * *.1
Under R.C. 1701.89, the first jurisdictional consideration is whether the trial court is the “court of common pleas of the county in this state in which the principal office of a voluntary dissolved corporation is located, in which the principal office was to be located, or in which the principal office of a corporation whose articles have been canceled or whose period of existence has expired is located.” (Emphasis added.)
R.C. 1701.86(F)(4) provides that the certificate of dissolution shall set forth “the place in this state where the principal office is or is to be located.” (Emphasis added.) By also including the phrase “is to be,” the General Assembly contemplated that the principal office of a corporation during the winding-up
Clark was incorporated in 1920. According to the Articles of Incorporation filed with the secretary of state, Clark’s principal office was located in Cuyahoga County. In 1996, Clark ceased operations, and it formally dissolved effective October 30, 2014. Clark’s certificate of dissolution, which the appellees attached to their motion to appoint a receiver, reported that Clark’s “principal office” is located in Chesterland, Ohio, which is in Geauga County. Additionally, the “Notice of Dissolution to Creditors and Claimants against Corporation (pursuant to
Despite Clark’s notification that its principal office is located in Geauga County, the record could cause some confusion as to Clark’s principal office during dissolution. The responses to the interrogatories attached to each appellee’s motion with the trial court do not specifically identify that Clark’s principal office is located in Geauga County. Specifically, in Interrogatory 2, David Welty, secretary of Clark, was asked to identify “(c) The address of your principal place of business.” Welty responded: “(c) Clark Industrial Insulation Co. currently has no principal place of business. Historically, its principal place of business had been 1893 East 55th Street, Cleveland, OH 44103.” It must be remembered, however, that these
Although Cuyahoga County is the county in which Clark’s principal office or place of business was located when it operated as a corporation,
Changes to division (A) establish an outside date of five years for a corporation to complete its winding-up or obtain reinstatement of its articles. The time period can be extended by a court that is overseeing a dissolution under Section 1701.89. Division (B) clarifies the right of the corporation to pursue claims and establishes an outside date of five years after the dissolution for claimants to bring claims against the corporation. Division (D)(15) delineates the directors’ obligation to make provision for claims that have not been made known to the corporation or have not arisen but that, based on facts then known to the corporation, are likely to arise. See comment to Section 1701.86.
(Emphasis added.) Accordingly, pursuant to the authority cited by the appellees,’ the authority to extend the statutory time period is granted to “a court that is overseeing a dissolution under [R.C.] 1701.89.” See also 1 Ohio Real Property Law and Practice, Section 6.14 (1)(c) (“For purposes of winding-up its affairs, a dissolved corporation shall continue as a corporation for a period of five years from the date of dissolution, subject to extension by the court that is overseeing the dissolution under [R.C. 1701.89].”).
The relevant case law demonstrates that where courts were overseeing the affairs of a voluntarily dissolved corporation, an action for judicial supervision was filed under a separate complaint. See, e.g., Schalmo Constr., Inc. v. Bonamase Contracting, 5th Dist. Stark No. 2009-CA-00037, 2009-Ohio-4953
Our review of the relevant case law yields no results where a claimant or creditor filed a motion or request under an existing cause of action to invoke the jurisdiction of the common pleas court pursuant to
As previously discussed, the appellees filed a motion to appoint a receiver and passively requested in that motion that the trial court extend the statutory period under
We agree with the appellees that the General Assembly has granted courts of common pleas broad authority through
B. Application of R.C. 1701.88
Even if this court were to find that the jurisdictional requirements of
First, it must be noted that the parties do not direct this court to any prior instance in which the specialized asbestos court, or any court for that matter, extended the five-year statutory period for the purposes of allowing potentially injured parties to file actions against a voluntarily dissolved corporation. Our review of the relevant statutes and case law also do not lead to the discovery of any court extending the statutory period for these purposes.
Additionally, there is no dispute that
[A]ny action, suit, or proceeding begun by or against the corporation within the time limits established in (B) of this section shall not abate, and the corporation shall, solely for the purposes of such action, suit, or proceeding, be continued as a body corporate beyond the five-year
period until any judgments, orders, or decrees are fully executed, without the necessity for any court order required under division (A) of this section.
The disputed issue is whether the trial court properly extended the statutory period to file actions that will or may arise against Clark after the initial five-year period but before the maximum ten-year period.
“A corporation may sue and be sued,” but the legal ability to sue is dependent upon the legal existence of the corporation.
The voluntary dissolution of a corporation * * * or other action to dissolve a corporation under this chapter shall not eliminate or impair any remedy available to or against the corporation * * * for any right or claim existing, or liability incurred prior to the dissolution, if [any other person] brings such an action * * * before five years after the date of dissolution or within the time limits otherwise required by section 1701.881 * * * or any other provision of law, whichever is less.4
What is noticeably absent is any mention of the extension of the five-year period authorized under
The five-year period set forth in division (A) of
When a corporation is dissolved voluntarily * * * the corporation shall cease to carry on business and shall do only such acts as are required to wind up its affairs * * * and for such purposes it shall continue as a corporation for a period of five years from the dissolution, expiration, or cancellation. A court acting pursuant to section 1701.89 of the Revised Code may extend the five-year period allowed under this division.
The express language of division (A) of
Division (B) of
Appellees argue on appeal, as they did in the trial court, that
According to the appellees,
R.C. 1701.88(D)(15) provides, in relevant part:
(D) The directors of the corporation and their successors shall act as a board of directors in accordance with the articles and regulations until the affairs of the corporation are completely wound up. Subject to the orders of the courts of this state having jurisdiction over the corporation acting pursuant to [R.C. 1701.89], the directors shall proceed as speedily as practicable to a complete winding-up of the affairs of the corporation. For that purpose, the directors may exercise all the authority of the corporation. Without limiting the generality of such authority, they may do all of the following:
* * *
(15) Distribute the remainder of the assets either in cash or in kind among the shareholders according to their respective rights and interests after paying or adequately providing for the payment of all known obligations of the corporation under section 1701.882 of the Revised Code and for claims that have not been made known to the corporation or that have not arisen but that, based on facts known to the corporation, are likely to arise or to become known to the corporation within five years after the date of dissolution or such longer period of time as the directors or a court acting under section 1701.89 of the Revised Code may determine, not to exceed ten years after the date of dissolution.
This language only allows the directors or the court, acting pursuant to
(2) The presentation and proof of all claims and demands against the corporation and of all rights, interests, or liens in or on any of its property including property described in division (F) of section 1701.88 of the Revised Code; the fixing of the time within which and the manner in which such proof shall be made and the person to whom such presentation shall be made; and the barring from participation in any distribution of assets of all persons failing to make and present proofs as required by the order of the court;
* * *
(4) The settlement or determination of all claims of every nature against the corporation or any of its property; the determination of the assets required to be retained or insurance to be obtained to pay or provide for the payment of such claims or any claim; the determination of the assets available for distribution among shareholders; and the making of new parties to the proceeding so far as the court considers proper for the determination of all matters.
These subsections discuss the court’s authority over “claims”; they do not permit the court to extend the time within which to bring “an action” against the corporation under
Accordingly, the trial court misapplied the extension provision contained in
Clark’s third assignment of error is sustained.
III. Appointment of a Receiver
In its first and second assignments of error, Clark contends that the trial court abused its discretion in appointing a receiver because (1) the appellees failed to show by clear and convincing evidence that appointment was necessary; and (2) Clark has no assets or affairs for the receiver to manage. It also asserts in its fourth assignment of error that it was an abuse of discretion to order the receiver to be compensated through the Cincinnati Insurance policy.
In its first assignment of error, Clark contends that the trial court abused its discretion by appointing a receiver where the appellees failed to produce clear and convincing evidence of the necessity of a receiver to protect appellees’ rights from irreparable harm. Appellees contend that they were not required to demonstrate that the appointment of a receiver was necessary. Rather, they maintain that a trial court can appoint a receiver under its broad discretion “to
Appellees requested that the trial court appoint a receiver pursuant to
Although the trial court acknowledged its authority to appoint a receiver under
R.C. 2735.01 permits a court to appoint a receiver under certain circumstances. In this case, the appellees requested that a receiver be appointed pursuant to
(6) When a corporation, limited liability company, partnership, limited partnership, or other entity has been dissolved, is insolvent, is in imminent danger of insolvency, or has forfeited its corporate, limited liability company, partnership, limited partnership, or other entity rights.
Although not specifically requested by appellees in their motion, the trial court also cited to
The trial court is vested with sound discretion to appoint a receiver. State ex rel. Celebrezze v. Gibbs, 60 Ohio St.3d 69, 73, 573 N.E.2d 62 (1991). A trial court’s authority to appoint a receiver under
In this case, the appellees asked the court to appoint a receiver and asserted that Clark had assets in the form of unexhausted insurance policies with Cincinnati Insurance. However, the appellees offered no further explanation as to why a receiver was appropriate or necessary; the motion merely recited the relevant statutory authority for the appointment of a receiver. In response, Clark contended that the appellees failed to demonstrate that a receiver was necessary. It further maintained that its only “assets” are unexhausted liability insurance proceeds, and pursuant to relevant case law, those proceeds are not subject to receivership.
In order to be entitled to the appointment of a receiver, the appellees were required to first show that they met the criteria of
On appeal, the appellees cite to Clark’s counsel’s statement at the motion hearing as support that the trial court’s decision was proper and that irreparable harm may occur, because Clark’s counsel indicated that Clark would no longer participate in litigation after the five-year statutory period expired. (Tr. 33-34.) Our review of counsel’s isolated statement demonstrates that it appears to have been taken out of context. The comment was directly related to counsel’s assertion that there was no basis for appointing a receiver because Clark had no assets for a receiver to administer, the claims were currently being presented through Clark’s statutory agent, and the five-year winding-up period expired on October 30, 2019. Counsel was correct — unless the statutory period of time was extended by the trial
The crux of this case is the court’s decision to extend the statutory period under
I don’t necessarily disagree with [counsel] that it’s not the only remedy. I ask the Court to take a look at Revised Code 1701.89. One of the remedies is appointment of a receiver. The other is to set timeframes in the manner in which claims can be brought so that the statutory period doesn’t necessarily — it can be extended without necessarily appointing a receiver, in other words.
I think the statutory period can be extended, but we submit that a receiver is necessary to fairly and adequately insure the administration of all future and pending claims.
(Tr. 35-36.)
Accordingly, the trial court erred in appointing a receiver because the appellees failed to withstand their burden of demonstrating that the appointment of a receiver was necessary for the preservation of appellees’ rights and to protect them from irreparable harm. Finding merit to Clark’s first assignment of error, its second assignment of error also challenging the trial court’s appointment of a receiver for unexhausted liability insurance proceeds is rendered moot. Clark’s fourth assignment of error regarding the receiver’s compensation is also moot.
Judgment reversed.
It is ordered that appellant recover from appellees costs herein taxed.
The court finds there were reasonable grounds for this appeal.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure.
KATHLEEN ANN KEOUGH, JUDGE
SEAN C. GALLAGHER, P.J., and
LISA B. FORBES, J., CONCUR