Hope Academy Broadway Campus v. White Hat Mgt., L.L.C.Hope Academy Broadway Campus v. White Hat Mgt., L.L.C.
Rendered on March 12, 2013
Shumaker, Loop & Kendrick, LLP, James D. Colner and Adam M. Galat; Dinsmore & Shohl LLP, and Karen S. Hockstad, for plaintiffs-appellees.
Taft, Stettinius & Hollister LLP, Charles R. Saxbe, Donald C. Brey and James D. Abrams, for defendants-appellants.
Michael DeWine, Attorney General, Todd R. Marti and Jeannine R. Lesperance, for defendant-appellee.
Jones Day, Chad A. Readler and Kenneth M. Grose, for amicus curiae Ohio Coalition for Quality Education.
Ulmer & Berne, LLP, and Donald J. Mooney, Jr., for amicus curiae Ohio School Boards Association.
APPEAL from the Franklin County Court of Common Pleas
{¶ 1} Defendants-appellants White Hat Management, LLC (“White Hat Management“); WHLS of Ohio, LLC (“WHLS“); HA Broadway, LLC; HA Lincoln Park, LLC; HA Chapelside, LLC; HA University, LLC; HA Cathedral, LLC; HA Brown Street, LLC; LS Cleveland, LLC; LS Akron, LLC; LS Lake Erie, LLC; and HA West, LLC (collectively “appellants“), appeal from a decision of the Franklin County Court of Common Pleas addressing the scope of the court‘s jurisdiction and ordering the production of certain materials in discovery. Because we conclude that the trial court did not abuse its discretion by ordering the materials to be produced in discovery and that we lack jurisdiction over the remaining assignments of error raised in the appeal, we dismiss several of appellants’ assignments of error and affirm in part the trial court‘s decision.
Relationship of the Parties
{¶ 2} Plaintiffs-appellees Hope Academy Broadway Campus, Hope Academy Chapelside Campus, Hope Academy Lincoln Park Campus, Hope Academy Cathedral Campus, Hope Academy University Campus, Hope Academy Brown Street Campus, Life Skills Center of Cleveland, Life Skills Center of Akron, Hope Academy West Campus, and Life Skills Center of Lake Erie (collectively “appellees“), are the governing boards for ten community schools organized under
{¶ 3} In May 2010, appellees filed a complaint against appellants and defendant-appellee, Ohio Department of Education (“ODE“), asserting claims for declaratory judgment, breach of contract, an accounting, injunctive relief, and breach of fiduciary duties. ODE filed counterclaims against appellees and cross-claims against appellants. The EMOs also filed counterclaims seeking a declaratory judgment that
{¶ 4} Appellants moved to dismiss ODE‘s cross-claims, arguing that ODE lacked standing to invoke the trial court‘s jurisdiction, failed to join a necessary party, and failed to state a claim upon which relief could be granted. Appellees moved for partial summary judgment on their claims, and ODE moved for partial summary judgment on its counterclaims and cross-claims. On October 7, 2011, the trial court issued a decision denying appellants’ motion to dismiss ODE‘s cross-claims and granting in part and denying in part the motions for summary judgment filed by appellees and ODE (the “October decision“). In the October decision, the trial court concluded that, because a community school is a public office, any officer, employee, or duly authorized representative or agent of the school is a “public official.” The court also stated that the funds a management company receives from a community school are “public funds” because they are received or collected under color of office. In the context of the present appeal, appellants acknowledge that the October decision was an interlocutory order.
Trial Court‘s Jurisdiction and Discovery Rulings
{¶ 5} As part of the pre-trial discovery process, appellees requested information related to the assets and liabilities of appellants. Appellants have taken the position that they are not required to produce any financial information beyond what is required under the management agreements or
{¶ 6} After receiving briefs from the parties, the trial court entered a decision on December 23, 2011, concluding that it had jurisdiction in this context over the case (the “December decision“). In the December decision, the trial court once again concluded that appellees were public offices and, therefore, appellants were “public officials” because they acted as agents on behalf of public offices. The court also reiterated its conclusion from the October decision that appellants were entrusted with “public funds” in order to operate the community schools. Additionally, the court concluded that
{¶ 7} Appellants submitted a motion for reconsideration of the December decision, arguing that it contained factual errors. The trial court denied appellants’ motion for reconsideration. Appellees then submitted their modified discovery requests, and appellants submitted their response and objections to those discovery requests, pursuant to the schedule contained in the December decision. The trial court conducted a hearing on appellants’ objections to the discovery requests; at the hearing, the court also addressed appellants’ motion for reconsideration. Following the hearing, on February 6, 2012, the trial court issued an amended decision on jurisdiction and discovery (the “amended decision“). The court acknowledged that the December decision contained errors; therefore, the court vacated its prior decision denying the motion for reconsideration.
{¶ 8} In the amended decision, the trial court once again reiterated its conclusions that appellants were “public officials” because they operated community schools as duly authorized representatives or agents of appellees and that appellants received “public money” for which they were accountable because they were public
{¶ 9} Appellants appeal from the amended decision, assigning nine errors for this court‘s review:
Assignment of Error No. 1: The trial court erred in its construction of
R.C. 3314.024 .Assignment of Error No. 2: The trial court erred in holding that the White Hat Defendants are “public officials.”
Assignment of Error No. 3: The trial court erred in holding that public monies retain their character as public monies after they are used to pay fees for legitimate services to a non-governmental third-party.
Assignment of Error No. 4: The trial court erred in holding that a “for profit” business entity does not have confidential and proprietary records.
Assignment of Error No. 5: The trial court erred in holding that the White Hat Defendants must produce confidential and proprietary business records related to transactions with third parties.
Assignment of Error No. 6: The trial court erred in holding that the White Hat Defendants are required to produce confidential and proprietary business records without a protective order.
Assignment of Error No. 7: The trial court erred in holding that the White Hat Defendants must produce federal and state income tax returns when their financial condition is not at issue in this case.
Assignment of Error No. 8: The trial court erred in, in effect, granting summary judgment on Plaintiffs’ accounting claim contrary to the standards of Civil Rule 56. Assignment of Error No. 9: The trial court erred in failing to apply the relevancy standards of Civil Rule 26(B)(1) to the requested discovery.
Appellate Jurisdiction over Discovery Orders
{¶ 10} We begin by considering whether this court has jurisdiction over this appeal. Under the
{¶ 11} The trial court issued the amended decision in the context of discussing jurisdiction as well as pre-trial discovery between the parties. We also note that the trial court first reached some of its conclusions in the context of ruling on dispositive motions in the October decision. However, as noted, appellants concede that the October decision was an interlocutory order. Generally, discovery orders are not final and appealable. See Concheck v. Concheck, 10th Dist. No. 07AP-896, 2008-Ohio-2569, ¶ 8. However, discovery orders requiring a party to produce privileged or confidential information are final and appealable orders. See Mason v. Booker, 185 Ohio App.3d 19, 2009-Ohio-6198, ¶ 11 (10th Dist.). In this appeal, appellants raise multiple assignments of error pertaining to different portions of the amended decision. In analyzing the appeal, we will consider whether each relevant portion of the amended decision constitutes a final and appealable order in order to determine whether we have jurisdiction over that portion of the appeal.
Objections to Statutory Interpretation and Construction
{¶ 12} Appellants’ first, second, and third assignments of error assert that the trial court erred in its construction of the statutory framework governing community schools.
{¶ 13} As explained above, we begin by considering whether the portions of the amended decision that are challenged in appellants’ first, second, and third assignments of error constitute final and appealable orders. In relevant part,
{¶ 14} Appellants appear to argue that the court has jurisdiction over these portions of the amended decision because they are interrelated with the court‘s decision to order the production of materials that appellants argue are confidential and proprietary. However, upon review of the December decision and the amended decision, we disagree. Regarding its holding on
{¶ 15} In this case, the trial court has not ruled on the merits of all of appellees’ claims for relief. If the portion of the amended decision construing
{¶ 16} Accordingly, we dismiss appellants’ first, second, and third assignments of error for lack of a final, appealable order that would confer jurisdiction upon this court with respect to the portions of the amended decision objected to in those assignments of error.
Objections to Order to Produce Documents and Denial of Protective Order
{¶ 17} Appellants’ fourth, fifth, sixth, and eighth assignments of error relate to the portions of the amended decision ordering appellants to produce materials that they assert contain confidential and proprietary information and denying appellants’ request for a protective order. Because these assignments of error all relate to similar claims regarding confidential and proprietary information, we address them together.
{¶ 18} Once again, we begin by considering whether the portions of the trial court‘s amended decision ordering the production of allegedly confidential and proprietary information and declining to issue a protective order related to that information constitute final, appealable orders.
{¶ 19} After determining that these portions of the amended decision constitute final orders under
{¶ 20} In appellants’ fourth and fifth assignments of error, they argue that the trial court erred by ordering them to produce records that they assert contain confidential and proprietary information. In appellants’ sixth assignment of error, they argue that the trial court erred by declining to issue a protective order providing limited disclosure of the materials alleged to contain confidential and proprietary information. Appellants objected to appellees’ modified discovery requests, arguing in part that the information requested was proprietary and confidential. Although appellants did not file a written motion requesting a protective order, they objected to the lack of a protective order in their objections to the discovery requests and referred to the need for a protective order at the hearing.
{¶ 21} The rules governing discovery afford protections for privileged and confidential materials.
{¶ 22} The appropriate standard of review for a privilege claim depends on whether it presents a question of law or a question of fact. MA Equip. Leasing I, L.L.C. v. Tilton, 10th Dist. No. 12AP-564, 2012-Ohio-4668, ¶ 18. When it is necessary to interpret and apply statutory language to determine whether certain information is confidential and privileged, a de novo standard applies. Id. When a claim of privilege requires review of factual questions, an abuse-of-discretion standard applies. Id.
{¶ 23} “In Ohio, the burden of showing that testimony or documents are confidential or privileged rests upon the party seeking to exclude it.” Covington at ¶ 24. A claim of privilege “must rest upon some specific constitutional or statutory provision.” State ex rel. Grandview Hosp. & Med. Ctr. v. Gorman, 51 Ohio St.3d 94, 95 (1990). In their objections to the discovery requests and at the hearing on those objections, appellants did not assert a statutory or constitutional privilege but, rather, argued that the materials sought were proprietary and confidential. Because this appeal does not require us to interpret a constitutional or statutory provision, we apply an abuse-of-discretion standard to appellants’ claim that the trial court erred by ordering them to produce confidential and proprietary materials. See Tilton at ¶ 18. Similarly, we review the trial court‘s denial of a protective order under an abuse-of-discretion standard. See Med. Mut. of Ohio v. Schlotterer, 122 Ohio St.3d 181, 2009-Ohio-2496, ¶ 23 (“Whether a protective order is necessary remains a determination within the sound discretion of the trial
{¶ 24} With respect to the fourth and fifth assignments of error, we conclude that the trial court did not abuse its discretion in finding that the materials sought in discovery were not proprietary and confidential. On appeal, appellants point to
{¶ 25} In this case, the only evidence appellants offered in support of their claims that the materials were confidential and proprietary was the testimony of Joseph Weber, vice president and treasurer for some of the appellants. A review of Weber‘s testimony indicates that he provided the trial court with few specific details and generally made
Q: Okay. I want to go back to the Judge‘s question about why it needs to be protected. If I can, let me just ask. Is the White Hat model a propriety [sic] model?
A: We believe it‘s propriety [sic].
THE COURT: Why?
THE WITNESS: We have developed it, Your Honor. We have, since nineteen-ninety-seven we have developed our systems and our process. We have developed our curriculum, we have developed our way of doing business. It‘s our recipe on how we do things. It‘s what we do in business.
Sometimes when you sell a business, part of the business is the know-how, how to do things, okay. This is our know-how. This is our propriety [sic] thing. We know how to contact people to, you know, solve the question on funding, we know how to write a grant. We know how to procure an occupancy permit. We know the standards that are required to operate a facility, have a facility meet the standards.
It‘s, it‘s our know-how, it‘s our knowledge based on how we run the schools. Other people may run them differently, okay, but this is our model, how we run our schools, and how we deliver our educational content, where we buy our computers at, and, you know, what software programs are used to educate the children. It‘s our good will and our business. It‘s what makes us a business, and it‘s our propriety [sic] information. We have developed this from scratch, okay, and we have spent a lot of money developing, our money on this. It‘s why we exist, we‘re in this business.
THE COURT: Proceed.
* * *
Q: You have indicated that you‘re worried that the disclosure of the information we‘re seeking will undermine the propriety [sic] model for the schools, correct?
A: Yes.
Q: How would financial transparency reveal anything about the model, the curriculum, the methods, the teaching system that you use?
A: It‘s a recipe or forumula [sic]. Any one item doesn‘t mean anything but when you put everything together it‘s a formula, the method of delivery, and it‘s our process. It‘s our process that we‘ve developed through a lot of sweat equity, a lot of effort, and a lot of years of hard work.
(Tr. 94-95; 130-31.)
{¶ 26} In his testimony, Weber broadly referred to the sort of elements that might establish that the materials were confidential and proprietary, such as the cost to appellants to develop the information and the value to potential competitors. However, Weber offered few specifics to meet appellants’ burden of demonstrating the confidential and proprietary nature of the materials in question. Further, appellants did not request or offer to provide an in camera inspection of the documents, which would have given the trial court an opportunity to review and evaluate appellants’ claims that the information was confidential and proprietary.
{¶ 27} After reviewing appellants’ objections to the discovery requests and the record of the hearing on those objections, we find that the trial court did not act in an unreasonable, arbitrary or unconscionable manner by concluding that appellants failed to meet their burden of showing that the materials appellees sought in discovery were confidential or proprietary.
{¶ 28} In appellants’ sixth assignment of error, appellants argue that the trial court erred in holding that they were required to produce certain records without a protective order. Under
{¶ 29} Courts in other appellate districts have cited Doe and applied a balancing test when considering whether a protective order should be issued. See Northeast Professional Home Care, Inc. v. Advantage Home Health Servs., Inc., 188 Ohio App.3d 704, 2010-Ohio-1640 (5th Dist.); Blackburn v. Coon Restoration & Sealants, Inc., 5th Dist. No. 2006-CA-0037, 2007-Ohio-558; Alpha Benefits Agency, Inc. v. King Ins. Agency, Inc., 134 Ohio App.3d 673 (8th Dist.1999). In Alpha Benefits, the appellate court reversed a trial court‘s order granting a complete protective order. Id. at 680. The court concluded that the information sought in discovery was indispensable to proof of the plaintiff‘s claims for relief and that the information was within the defendant‘s exclusive knowledge and control. Id. at 682-83. Under these circumstances, the potential harm resulting from disclosure was outweighed by the plaintiff‘s need for the information. Id. at 683. We also note the decision in Koval v. Gen. Motors Corp., 62 Ohio Misc.2d 694 (Cuyahoga C.P.1990). Although this decision of the Cuyahoga County Court of Common Pleas is not binding on us, we find it helpful regarding how trial courts apply the balancing test for a protective order. The Koval court noted the basic principle of open courts and concluded that, to modify this standard, a party requesting a protective order “must demonstrate that disclosure of allegedly confidential information will work a clearly defined injury to the requesting party‘s business.” Id. at 697. In Koval, the court denied a protective order, concluding that the materials sought in discovery were not competitively valuable and that the request for a protective order had more to do with avoiding other litigation and bad publicity than protecting sensitive documents. Id. at 699.
{¶ 30} Consistent with these principles, we begin by considering the interests served by allowing discovery to proceed. As noted in Koval and Doe, the civil rules generally encourage open courts, liberal discovery, and free exchange of information before trial. In addition to that general interest, this case involves the management of
{¶ 31} Next, we consider the harm that may result from allowing discovery to proceed.
{¶ 32} We note that the Board of Tax Appeals (“BTA“) has frequently applied the Koval decision in evaluating requests for protective orders. Although those decisions are not binding on us in this case, we find them to be instructive. The BTA applies both
{¶ 33} Appellants assert that they will be harmed through the release of confidential and proprietary information. However, as discussed above, we conclude that the trial court did not err in finding that the materials were not confidential and proprietary. Moreover, Weber‘s testimony and statements by appellants’ counsel at the hearing indicated that appellants’ assertions of confidentiality may have been motivated as much by a desire to avoid public criticism as to prevent the loss of information to competitors:
THE WITNESS: [I]t comes down to, you know, how the information is going to be used. We‘re under a constant community school attack. The community school entities as an industry are under attack.
* * *
THE COURT: You don‘t want to disclose what one of your entities pays to another entity?
THE WITNESS: That‘s correct.
THE COURT: Because you‘re afraid the public is going to be concerned about that?
THE WITNESS: It is very private information, Your Honor.
THE COURT: Why is it private?
THE WITNESS: It‘s private. We have a fixed fee contract that we entered into with the boards that were negotiated.
THE COURT: Thank you.
* * *
THE COURT: I‘m asking you why does it need to be protected?
* * *
[APPELLANTS’ COUNSEL]: Okay, Your Honor, because it will disclose information that these Plaintiffs have exhibited an ability to disclose out of context of this Court‘s pleadings improperly.
THE COURT: You don‘t make any sense.
[APPELLANTS’ COUNSEL]: And for the wrong purpose.
THE COURT: What‘s the wrong purpose here?
[APPELLANTS’ COUNSEL]: To convince someone, Your Honor, you read the press, to convince someone that the White Hat Management Companies are doing something improper.
(Tr. 90-92.)
{¶ 34} The trial court granted a protective order with respect to the production of appellants’ tax returns, ordering that they be produced under seal for attorneys’ eyes only and strictly prohibiting disclosure in any form without written leave of court. The trial court denied appellants’ request for a protective order with respect to the other materials sought in appellees’ discovery requests. The court concluded that appellants’ “business model,” based on affiliated corporate entities was in no way proprietary and was unrelated to providing a quality education to children enrolled in schools that appellees operated. The court stated that “[t]he idea that somehow this information is going to make [appellants] look bad to the public is not the basis for a protective order.” (Tr. 184.) As explained above, Weber‘s testimony referred to some potential harm due to the loss of information to competitors, but that testimony provided few specific details to demonstrate a clearly defined and serious injury that would result from production of the requested materials. See, e.g., CP Cleveland Holdings, LLC v. Cuyahoga Cty. Bd. of Revision, BTA No. 2005-A-402 (July 15, 2005) (“But CP Cleveland has failed to demonstrate ‘good cause’ as required by
{¶ 35} Accordingly, appellants’ fourth, fifth, and sixth assignments of error are without merit and are overruled.
{¶ 36} In appellants’ eighth assignment of error, they argue that, by ordering production of certain documents, the trial court effectively granted summary judgment on appellees’ claim for an accounting. Appellants claim that the trial court erred by not applying the appropriate standard for a summary judgment motion under
{¶ 37} ” ‘An action for an accounting seeks a determination by a court of what may be due the respective parties as a result of the relationship between them.’ ” Fontbank, Inc. v. Compuserve, Inc., 138 Ohio App.3d 801, 814 (10th Dist.2000), quoting Moore v. Sweda, 27 Ohio App.3d 38, 38-39 (9th Dist.1985). Appellants argue that, if they are ordered to produce certain documents, appellees will be able to ascertain some of the same information that they would obtain under their claim for an accounting. However, a claim for an accounting involves a determination by the court of the financial relationship between the parties. The fact that appellees may be able to uncover some of the information they would obtain under the accounting claim is not equivalent to having the court grant summary judgment on that claim.
{¶ 38} Moreover, we conclude that, even if the amended decision effectively granted partial summary judgment on the accounting claim, that aspect of the decision would not constitute a final, appealable order. Under
{¶ 40} Accordingly, we dismiss appellants’ eighth assignment of error for lack of jurisdiction.
Objections to Relevance of Items Requested in Discovery
{¶ 41} Appellants’ seventh and ninth assignments of error assert that the trial court erred by ordering them to produce documents that are not relevant. In the seventh assignment of error, appellants assert that the trial court erred by ordering them to produce tax returns when their financial condition is not at issue in the case. Similarly, in the ninth assignment of error, appellants assert that the trial court erred by failing to apply the relevance standard under
{¶ 42}
{¶ 43} With respect to discovery orders, this court has previously stated that “[t]o the extent an order pertains to matters other than those concerning discovery of privileged matters, the order is deemed interlocutory and therefore not final and appealable.” Legg at ¶ 16. Consistent with this reasoning, appellate courts have declined
{¶ 44} For the foregoing reasons, appellants’ first, second, third, seventh, eighth, and ninth assignments of error are dismissed for lack of subject-matter jurisdiction. Appellants’ fourth, fifth, and sixth assignments of error are overruled. We affirm the portions of the decision of the Franklin County Court of Common Pleas ordering the production of the documents in response to appellees’ discovery requests.
Judgment affirmed in part.
BRYANT and BROWN, JJ., concur.