Med. Mut. of Ohio v. FrontPath Health CoalitionMed. Mut. of Ohio v. FrontPath Health Coalition
DECISION AND JUDGMENT
Decided: January 27, 2023
Richard M. Knoth, Scott C. Holbrook, Breaden M. Douthett, Sean E. McIntyre, and Hallie R. Israel, for appellants.
John J. McHugh, III, for appellee.
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PIETRYKOWSKI, J.
{¶ 1} Appellants, Medical Mutual of Ohio and Medical Mutual Services, L.L.C. (collectively “Medical Mutual“), appeal from the judgments of the Lucas County Court of Common Pleas, dismissing with prejudice two counts from their amended complaint, and later denying a motion to amend. For the reasons that follow, we reverse.
I. Facts and Procedural Background
{¶ 2} Medical Mutual and appellee, FrontPath Health Coalition (“FrontPath“) are competitors for public contracts to provide health benefit services to municipal corporations in northwest Ohio, in this case Wood County and the City of Toledo. At a very basic level, Medical Mutual alleged that FrontPath recruited to serve on its board, public officials who were the health benefit decision makers for the municipal corporations. FrontPath then encouraged and aided those public officials in using their influence and authority to steer public contracts for the provision of health benefit services to FrontPath.
{¶ 3} Medical Mutual initiated the present action on June 27, 2017, when it filed a four-count complaint against appellee, FrontPath Health Coalition. The first count sought a judgment declaring that the contracts between FrontPath and
{¶ 4} On November 5, 2018, Medical Mutual amended its complaint. The amended complaint added a fifth count alleging a violation of the Corrupt Practices Act under
{¶ 5} Shortly thereafter, FrontPath moved to dismiss the amended complaint pursuant to
{¶ 6} Following continued discovery, Medical Mutual moved for leave to file a second amended complaint on January 30, 2020. The second amended complaint sought to add as defendants, FrontPath‘s President and Chief Executive Officer, Susan Szymanski, and City of Toledo Health Care Cost Containment Committee member and FrontPath Board of Trustee member, Don Czerniak. In addition to the original five counts in the amended complaint, the proposed second amended complaint also sought to add three claims: Count VI, a civil Corrupt Practices Act claim premised upon alleged violations of the Defend Trade Secrets Act,
{¶ 7} On June 16, 2020, the trial court denied Medical Mutual‘s motion for leave to file a second amended complaint.
{¶ 8} Eventually, in September 2021, the matter proceeded to a jury trial on Count III, which was the claim for tortious interference with a contractual or business relationship. Following a month-long trial, the jury returned with a verdict award for Medical Mutual in the amount of $1,781,750.00. The jury declined to award punitive damages.
II. Assignments of Error
{¶ 9} Medical Mutual has timely appealed, and now asserts three assignments of error for our review:
- The trial court erred by dismissing with prejudice Count V of MMO‘s First Amended Complaint setting forth an Ohio Corrupt Practices Act claim (the “CPA claim“).
- The trial court erred by dismissing with prejudice Count II of MMO‘s First Amended Complaint setting forth a claim for civil liability for criminal acts (the “civil liability claim“).
- The trial court erred by denying MMO‘s motion for leave to amend its complaint to assert claims against new defendants Donald Czerniak and Susan Szymanski.
III. Analysis
{¶ 10} Medical Mutual‘s first and second assignments of error argue that the trial court erred when it dismissed with prejudice the Corrupt Practices Act violation claim and the civil liability for criminal acts claim, respectively. Because those assignments of error involve similar questions of law, we will address them together, beginning with the civil liability for criminal acts claim. We will then address Medical Mutual‘s
A. Civ.R. 12(B)(6) Dismissal of Claims
{¶ 11} “Ohio is a notice-pleading state.” Maternal Grandmother v. Hamilton Cty. Dept. of Job and Family Servs., 167 Ohio St.3d 390, 2021-Ohio-4096, 193 N.E.3d 536, ¶ 10. “This means that outside of a few specific circumstances * * * a party will not be expected to plead a claim with particularity. Rather, a ‘short and plain statement of the claim’ will typically do.” Id., quoting
{¶ 12} “A motion to dismiss for failure to state a claim upon which relief can be granted is procedural and tests the sufficiency of the complaint.” State ex rel. Hanson v. Guernsey Cty. Bd. of Commrs., 65 Ohio St.3d 545, 548, 605 N.E.2d 378 (1992). “In order for a trial court to dismiss a complaint under
{¶ 13} “Appellate review of a trial court‘s decision to dismiss a complaint pursuant to
1. Civil Liability for Criminal Acts Claim
{¶ 14} In its second assignment of error, Medical Mutual argues that the trial court erred in dismissing its claim for civil liability for criminal acts.
{¶ 15} In Jacobson v. Kaforey, 149 Ohio St.3d 398, 2016-Ohio-8434, 75 N.E.3d 203, ¶ 13, the Ohio Supreme Court held that ”
Anyone injured in person or property by a criminal act has, and may recover
full damages in, a civil action unless specifically excepted by law, may recover the costs of maintaining the civil action and attorney‘s fees if authorized by any provision of the Rules of Civil Procedure or another section of the Revised Code or under the common law of this state, and may recover punitive or exemplary damages if authorized by section 2315.21 or another section of the Revised Code.
{¶ 16} Relevant here, Medical Mutual alleged:
12. Over the course of several years, FrontPath has enlisted employees of the Governmental Employers to serve as directors/trustees of FrontPath and function on behalf of FrontPath and pursue its interests (collectively, “Government-Affiliated Trustees“). These Government-Affiliated Trustees played significant roles for FrontPath. For example, Ms. Pam Boyer, while performing duties as human resource/benefits manager for Wood County, served for years on the FrontPath Board, even serving the governance role as Board Chairperson. Ms. Boyer acted on behalf of FrontPath to thwart Plaintiff‘s business efforts in Northwest Ohio.
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14. Plaintiffs regularly submit bids, or would submit bids in an unconflicted offering environment, to the Governmental Employers and other public entities in response to solicitations for bids to provide health benefit services.
15. FrontPath also regularly submits competing bids or is a participant in the bidding process to the Governmental Employers in response to the same bid solicitations to which Plaintiffs respond, or would respond.
16. On multiple occasions, FrontPath has been selected as the successful bidder or was a successful participant in the bidding process with regard to bid solicitations as to which Plaintiffs were, or would have been, a competing bidder.
17. On multiple occasions, some of the Governmental Employers and other public entities have awarded contract extensions to FrontPath without soliciting competing bids from unconflicted health benefit service providers, including Plaintiffs.
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23. Government-Affiliated Trustees have used the authority or influence of their offices to secure authorization of the contracts between FrontPath, and the Governmental Employers or other public entities in violation of Ohio law.
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35. FrontPath solicited, procured or aided and abetted the Government-Affiliated Trustees in their violation of Ohio law and, thereby, FrontPath violated Ohio law.
36. By recruiting the Government-Affiliated Trustees as FrontPath board members, FrontPath and the Government-Affiliated Trustees joined in a malicious combination to injure the Plaintiffs in person or property, in a way not competent for one alone, resulting in actual damages.
37. The entry of FrontPath, and the Governmental Employers or other public entities into the contracts in violation of Ohio law has injured Plaintiffs.
38. Pursuant to Ohio law, Plaintiffs are entitled to compensatory damages, punitive or exemplary damages, and costs and attorney‘s fees from FrontPath for the injury suffered by Plaintiffs due to the violations of Ohio law.
{¶ 17} In its motion to dismiss, FrontPath argued that count two of the complaint did not state a claim for relief. In so arguing, FrontPath characterized count
{¶ 18} In response, Medical Mutual asserted that count two was a claim for civil liability for criminal acts under
{¶ 19} In its reply, FrontPath argued that Medical Mutual‘s subsequent explanation of the legal theory it was pursuing does not cure the deficiency caused by Medical Mutual‘s failure to plead the commission of an underlying criminal act. Furthermore, FrontPath argued that the complaint does not adequately plead the crime of complicity in that it did not allege that FrontPath met the required mens rea of knowingly.
{¶ 20} When the trial court granted FrontPath‘s motion to dismiss, it offered two justifications. First, the trial court reasoned, without further explanation, that ”
{¶ 21} On appeal, Medical Mutual argues that a criminal conviction is not required before liability may be imposed pursuant to
{¶ 22} Turning to the ultimate question of whether the motion to dismiss was properly granted, we hold that it was not. At the outset, we note that under the liberal requirements of notice pleading, Medical Mutual was not required to plead the specific legal theories or statutes upon which it relied. “A party is not required to plead the legal theory of recovery or the consequences which naturally flow by operation of law from the legal relationships of the parties. ‘The rules make clear that a pleader is not bound by any particular theory of a claim but that the facts of the claim as developed by the proof establish the right to relief.‘” Illinois Controls, Inc. v. Langham, 70 Ohio St.3d 512, 526, 639 N.E.2d 771 (1994), quoting McCormac, Ohio Civil Rules Practice (2 Ed.1992) 102, Section 5.01. Furthermore, even if Medical Mutual pleaded the wrong claim, “[a] complaint should not be dismissed for failure to state a claim merely because the allegations do not support the legal theory on
{¶ 23} Here, construing the allegations and reasonable inferences in Medical Mutual‘s favor, we find that Medical Mutual has adequately pleaded a cause of action under
{¶ 24} More so than arguing that the trial court properly dismissed the civil liability for criminal acts claim, FrontPath argues that the matter is moot. FrontPath explains that in its civil liability for criminal acts claim, Medical Mutual sought to recover damages for FrontPath‘s alleged criminal behavior in being complicit to a violation of
{¶ 25} Medical Mutual responds that the matter is not moot. Medical Mutual argues that a civil liability for criminal acts claim under
{¶ 26} “A case is moot when the issues presented are no longer ‘live’ or the parties lack a legally cognizable interest in the outcome.” State ex rel. Ames v. Summit Cty. Court of Common Pleas, 159 Ohio St.3d 47, 2020-Ohio-354, 146 N.E.3d 573, ¶ 8, quoting State ex rel. Gaylor, Inc. v. Goodenow, 125 Ohio St.3d 407, 2010-Ohio-1844, 928 N.E.2d 728, ¶ 10. “Conversely, if an actual controversy exists because it is possible for a court to grant the requested relief, the case is not moot, and
{¶ 27} Here, we agree with Medical Mutual that the matter is not moot. “A claim for tortious interference is subject to the four-year statute of limitations set forth in
{¶ 28} Accordingly, Medical Mutual‘s second assignment of error is well-taken.
2. Corrupt Practices Act Claim
{¶ 29} In its first assignment of error, Medical Mutual argues that the trial court erred when it dismissed its Corrupt Practices Act claim. The Ohio Corrupt Practices Act is patterned after the federal RICO statute, and provides that “[n]o person employed by, or associated with, any enterprise shall conduct or participate in, directly or indirectly, the affairs of the enterprise through a pattern of corrupt activity or the collection of an unlawful debt.”
{¶ 30} “To state a civil claim under the [Corrupt Practices Act], ‘a plaintiff must establish: (1) that conduct of the defendant involves the commission of two or more specifically prohibited state or federal criminal offenses; (2) that the prohibited criminal conduct of the defendant constitutes a pattern; and (3) that the defendant has participated in the affairs of an enterprise or has acquired and maintained an interest in or control of an enterprise.” Morrow at ¶ 27; Peirce v. Szymanski, 6th Dist. Lucas No. L-11-1298, 2013-Ohio-205, ¶ 23; Hall v. CFIC Home Mtg., 175 Ohio App.3d 587, 2008-Ohio-1016, 888 N.E.2d 469, ¶ 42 (12th Dist.). Unlike the civil liability for criminal acts claim, which is subject to notice pleading, the Corrupt Practices Act claim is subject to a higher pleading standard. “The failure to plead any of [the elements of a Corrupt Practices Act claim] with particularity results in a defective complaint that cannot withstand a
{¶ 31} Here, Medical Mutual alleged:
12. Over the course of several years, FrontPath has enlisted employees of the [City of Toledo and Wood County] to serve as directors/trustees of FrontPath and function on behalf of FrontPath and pursue its interests (collectively, “Government-Affiliated Trustees“). These Government-Affiliated Trustees played significant roles for FrontPath. For example, Ms. Pam Boyer, while performing duties as human resource/benefits manager for Wood County, served for years on the FrontPath Board, even serving the governance role as Board Chairperson. Ms. Boyer acted on behalf of FrontPath to thwart Plaintiffs’ business efforts in Northwest Ohio. * * *
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16. On multiple occasions, FrontPath has been selected as the successful bidder or was a successful participant in the bidding process with regard to bid solicitations as to which Plaintiffs were, or would have been, a competing bidder.
17. On multiple occasions, some of the Governmental Employers and other public entities have awarded contract extensions to FrontPath without soliciting competing bids from unconflicted health benefit service providers, including Plaintiffs.
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56. FrontPath is a person as that term is defined in Revised Code
2923.31(G) .57. FrontPath is and has been associated with an enterprise—an ongoing association-in-fact whose members functioned as a continuing unit for a common purpose of achieving the objectives of the enterprise—and conducts and participates in the affairs of that enterprise through a pattern of corrupt activity.
58. The enterprise consists of, among others, representatives of the Governmental Employers, third-party administrators, and other public officials, and exists to secure and control the market for health benefit services in Northwest Ohio.
59. Third-party administrators provide administrative services in conjunction with health benefit providers like FrontPath. FrontPath coordinates with certain third-party administrators, representatives of the Governmental Employers, and other public officials to steer business toward FrontPath and its third-party administrator partners. Among other things, FrontPath submits joint or coordinating bids with third-party administrators for government contracts, and representatives of the Governmental Employers and other public officials influence the selection of those bids by the Governmental Employers.
60. FrontPath has knowingly, intentionally, and maliciously engaged in, attempted to engage in, conspired to engage in, solicited others to engage in, and participated in, both directly and indirectly, the affairs of the enterprise through a pattern of corrupt activity.
61. That pattern of corrupt activity consists of at least two predicate acts, including, but not limited to, unlawfully, willfully, and knowingly, soliciting and
conspiring with others to violate R.C. 2921.42 ,
which makes it a crime for any public official to “[a]uthorize, or employ the authority or influence of the public official‘s office to secure authorization of any public contract in which the public official, a member of the public official‘s family, or any of the public official‘s business associates has an interest.”
R.C. 2921.42(A) .62. As further described above, the Government-Affiliated Trustees and other public officials use their access and influence to further the goals of the enterprise—specifically, to secure government contracts on behalf of FrontPath and the third-party administrators.
63. These predicate acts are related, in that they had the same or similar purposes, results, participants, victims, and methods of commission. The predicate acts were continuous and occurred over multiple years, although the acts were not so connected that they constitute a single event.
64. As a direct and proximate result of FrontPath‘s conduct of the affairs of the enterprise through a pattern of corrupt activity, including the above-listed predicate acts, Plaintiffs have been injured in their business and property. Plaintiffs’ injuries include, but are not limited to, suffering competitive injury, loss of business revenue, and other compensatory damages in excess of $25,000. Plaintiffs were intended targets of FrontPath‘s wrongful conduct.
{¶ 32} In its motion to dismiss, FrontPath argued that Medical Mutual did not plead its claim with specificity, noting that while Medical Mutual made sweeping generalizations that government-affiliated trustees used their access and influence to secure government contracts on behalf of FrontPath, it did not specify a single instance when the alleged “steering” took place regarding any particular bid or government contract. Furthermore, FrontPath argued that Medical Mutual failed to sufficiently plead the existence of an enterprise; FrontPath contends that the conclusory language of the complaint provides no facts to support an allegation that the unidentified third-party administrators and public officials ever held or maintained any interest or control in an ongoing enterprise that was separate and apart from the pattern of corrupt activity.
{¶ 33} In opposing the motion to dismiss, Medical Mutual first argued that the requirement of an enterprise separate and apart from the pattern of corrupt activity was eliminated by the Ohio Supreme Court in State v. Beverly, 143 Ohio St.3d 258, 2015-Ohio-219, 37 N.E.3d 116, syllabus (“The existence of an enterprise, sufficient to sustain a conviction for engaging in a pattern of corrupt activity under
{¶ 34} In its reply in support of the motion to dismiss, FrontPath argued that Medical Mutual misconstrued the holding in Beverly, and that nothing in Beverly eliminated the requirement to allege the existence both of an enterprise and the connected pattern of racketeering activity.
{¶ 35} Upon consideration of the parties’ arguments, the trial court granted FrontPath‘s motion to dismiss the Corrupt Practices Act claim. The trial court acknowledged that Medical Mutual sufficiently alleged a corrupt activity, but noted that the alleged corrupt activity was the use of a public position to obtain a personal benefit. However, the trial court found that Medical Mutual did not allege that any governmental actor benefited personally from his or her service on the FrontPath board. Therefore, the trial court granted FrontPath‘s motion to dismiss.
{¶ 36} On appeal, Medical Mutual focuses exclusively on the trial court‘s determination that the complaint must be dismissed because Medical Mutual did not allege that any government actor received a personal benefit. Medical Mutual argues that it is not required to allege a personal benefit, and that
{¶ 37} In response, FrontPath does not strenuously contest that the trial court erred when it determined that Medical Mutual‘s complaint failed to state a claim because it did not allege that the public officials received a personal benefit. Instead, FrontPath again suggests that Medical Mutual‘s complaint was not pled with sufficient specificity.
{¶ 38} Medical Mutual‘s argument on appeal addresses only the first of the three elements required to be alleged with particularity in order to survive a
a. Corrupt Activity
{¶ 39} Under the first element, Medical Mutual was required to allege with particularity that FrontPath was involved in a corrupt activity. “Corrupt activity” means engaging in, attempting to engage in, conspiring to engage in, or soliciting, coercing, or intimidating another person to engage in any of the following: * * * (2) Conduct constituting any of the following: (a) A violation of section * * *
{¶ 40} In this case, Medical Mutual alleged that FrontPath was involved in at least two instances of unlawfully, willfully, and knowingly, soliciting and conspiring with others to violate
b. Pattern of Corrupt Activity
{¶ 41} Under the second element, Medical Mutual was required to plead with particularity that FrontPath‘s conduct constituted a pattern of corrupt activity. “‘Pattern of corrupt activity’ means two or more incidents of corrupt activity, whether or not there has been a prior conviction, that are related to the affairs of the same enterprise, are not isolated, and are not so closely related to each other and connected in time and place that they constitute a single event.”
{¶ 42} To determine whether a complaint alleges a pattern, courts should consider various factors, including “the length of time the racketeering activity existed; the number of different schemes (the more the better), the number of predicate acts within each scheme (the more the better); the variety of species of predicate acts (the more the better); the distinct types of injury (the more the better); the number of victims (the more the better); and the number of perpetrators (the less the better).” Morrow at ¶ 34, quoting Columbia Natural Resources, Inc. v. Tatum, 58 F.3d 1101, 1110 (6th Cir.1995); Sun Bldg. Ltd. Partnership v. Value Learning & Teaching Academy, Inc., 2021-Ohio-2008, 175 N.E.3d 10, ¶ 61 (1st Dist.).
{¶ 43} Here, Medical Mutual alleged only that the corrupt activity occurred over the course of “several years,” and occurred on “multiple occasions.” Medical Mutual also broadly alleged that the “predicate acts are related, in that they had the same or similar purposes, results, participants, victims, and methods of commission,” and “[t]he predicate acts were continuous and occurred over multiple years, although the acts were not so connected that they constitute a single event.”
{¶ 44} Upon review, we find that Medical Mutual‘s allegations as to the existence of a pattern contain no operative facts, and are merely a recitation of the statutory language. Medical Mutual does not allege when any of the predicate acts occurred, other than to say that they occurred continuously over several years, but it does not identify which years. Likewise, Medical Mutual does not identify any particular contract for which it submitted a bid, but which was ultimately awarded to FrontPath. Therefore, we hold that Medical Mutual failed to plead the existence of a pattern of corrupt activity with specificity. See Fed. Land Bank Assn. v. Walton, 3d Dist. Wyandot No. 16-94-9, 1995 WL 359856, *4 (June 16, 1995) (upholding dismissal of RICO claim where the complaint asserted legal conclusions, “but no facts or time period to which [it] was referring“).
c. Enterprise
{¶ 45} For the third element, Medical Mutual was required to plead with specificity the existence of an enterprise. “‘Enterprise’ includes any individual, sole proprietorship, partnership, limited partnership, corporation, trust, union, government agency, or other legal entity, or any
{¶ 46} Here, we find that Medical Mutual satisfied its pleading requirement. Medical Mutual alleged that the enterprise consisted of FrontPath, representatives of the municipal corporations—at least one of whom was named—third-party benefits administrators, and other public officials, and existed to “secure and control the market for health benefit services in Northwest Ohio.” Medical Mutual further alleged that the enterprise operated by “FrontPath submit[ting] joint or coordinating bids with third-party administrators for government contracts, and representatives of the Governmental Employers and other public officials influenc[ing] the selection of those bids by the Governmental Employers.” Thus, Medical Mutual demonstrated the existence of a group of persons engaging in a course of conduct for a common purpose.
{¶ 47} In the trial court, FrontPath argued that an enterprise must have “a structure separate and apart, or distinct, from the pattern of corrupt activity,” citing Dixon v. Huntington Natl. Bank, 8th Dist. Cuyahoga No. 100572, 2014-Ohio-4079, ¶ 17. However, the Ohio Supreme Court implicitly rejected this reasoning in Beverly. In that case, the court held, “the existence of an enterprise, sufficient to sustain a conviction for engaging in a pattern of corrupt activity under
d. Dismissal without Prejudice
{¶ 48} Because we find that Medical Mutual did not plead the existence of a pattern of corrupt activity with particularity, we hold that the Corrupt Practices Act claim fails to state a claim upon which relief can be granted.
{¶ 49} Notwithstanding that, Medical Mutual alternatively argues that the trial court erred in dismissing its claim with prejudice and not allowing it to amend the complaint. We agree. “A trial court‘s grant of
{¶ 50} Here, the claim was capable of being pled with more particularity regarding the alleged pattern of corrupt activity, thereby curing the defect. Consequently, we hold that the trial court erred when it dismissed Medical Mutual‘s Corrupt Practices Act claim with prejudice and denied Medical Mutual leave to amend the complaint.
{¶ 51} Accordingly, Medical Mutual‘s first assignment of error is well-taken.
B. Denial of Leave to Amend the Complaint
{¶ 52} Finally, in its third assignment of error, Medical Mutual argues that the trial court abused its discretion when it denied Medical Mutual‘s motion for leave to file a second amended complaint.
{¶ 53} Relevant here,
{¶ 54} “A trial court‘s denial of a motion for leave to amend a pleading will not be reversed absent an abuse of discretion.” Leo v. Burge Wrecking, LLC, 2017-Ohio-2690, 89 N.E.3d 1268, ¶ 9 (6th Dist.), citing State ex rel. Askew v. Goldhart, 75 Ohio St.3d 608, 610, 665 N.E.2d 200 (1996). An abuse of discretion connotes that the trial court‘s attitude was unreasonable, arbitrary, or unconscionable. Blakemore v. Blakemore, 5 Ohio St.3d 217, 219, 450 N.E.2d 1140 (1983).
1. Trial Court‘s Judgment Denying the Motion for Leave to Amend
{¶ 55} On January 30, 2020, approximately two and one-half years after the original complaint was filed, Medical Mutual moved for leave to file its second amended complaint. Medical Mutual asserted that documents produced in discovery showed that FrontPath, along with proposed new defendants Don Czerniak and Susan Szymanski, obtained Medical Mutual‘s trade secret information in violation of state and federal trade secret statutes, including at times while the litigation was pending. Medical Mutual sought to add the two new defendants to all of the existing claims, and also sought to add three new claims against all defendants under the Ohio Corrupt Practices Act, Ohio‘s Trade Secrets Act, and the federal Defend Trade Secrets Act. In seeking to add the new defendants to the existing claims, Medical Mutual recognized that the trial court had already dismissed Counts I, II, IV, and V, but included those counts for
{¶ 56} In support of its motion, Medical Mutual argued that it had not acted in bad faith, and that the proposed amended complaint would not cause undue delay or prejudice. Medical Mutual noted that the active case management order did not provide a deadline to amend pleadings or add additional parties. Further, Medical Mutual recognized that discovery was stayed by the court for much of the lawsuit pending FrontPath‘s production of documents. Consequently, at the time of the motion for leave to amend, neither party had deposed a witness, identified potential experts, or submitted motions for summary judgment. Medical Mutual also argued that the defendants’ alleged wrongful conduct was only discovered—and could only have been discovered—after a careful review of the documents produced by FrontPath in 2019, including documents which showed that some of the alleged conduct occurred while the litigation was pending. Lastly, Medical Mutual argued that the amended complaint would not substantially alter the scope of discovery, which already included responsive documents regarding the claim that FrontPath conspired with third-party administrators, public officials, and others to secure and control the market for health benefit services in northwest Ohio. Medical Mutual asserted that the newly added defendants participated in the scheme, and the newly added claims elaborate on how the defendants accomplished the goals of the enterprise.
{¶ 57} After briefing by the parties, the trial court entered its judgment on June 16, 2020, denying Medical Mutual‘s motion for leave to file a second amended complaint. In reaching its decision, the trial court found that Medical Mutual‘s request to amend the complaint was untimely, and would be prejudicial to FrontPath and to the proposed additional defendants. The trial court reasoned that the case has been pending for nearly three years, and discovery has been ongoing since 2017. The court also noted that discovery oftentimes has been contentious, and the parties have been litigating and conducting discovery under a closed set of pleadings since June 14, 2019, when the trial court granted FrontPath‘s
{¶ 58} In addition, the trial court found that Medical Mutual certainly knew of the identities and alleged involvement of the proposed additional defendants prior to filing its motion for leave to file the second amended complaint. In support of this finding, the trial court referenced Medical Mutual‘s original claim that FrontPath had an informational advantage because certain governmental employees were allegedly “wearing two hats.” Finally, the court found that the prejudice to the proposed additional defendants would be severe as they would be thrust into the late stages of a case with a lengthy history, and would be given a very short time under the existing case schedule to prepare to take discovery, to participate in mediation, and to hire experts.
{¶ 60} As to the existence of a corrupt act and a pattern of corrupt activity, the trial court found that the second amended complaint generally alleged
at least two predicate acts, including but not limited to, unlawfully, willfully, and knowingly, soliciting and conspiring with others to violate
18 U.S.C. § 1832 , which makes it a crime for Defendants to steal, appropriate, take, carry away, copy, duplicate, sketch, draw, photograph, download, upload, alter, destroy, photocopy, replicate, transmit, deliver, send, mail, communicate, or convey Plaintiffs’ trade secrets in such a way that benefits anyone other than the Plaintiffs or causes harm to Plaintiffs.
However, the court found that the second amended complaint only specifically alleged two violations of
{¶ 61} As to the existence of an enterprise, the trial court found that Medical Mutual‘s allegations were vague in that they included no particularities about the identities of those in the alleged enterprise, nor did they describe the alleged enterprise‘s structure. Furthermore, the court found that Medical Mutual did not allege that there was an enterprise separate and apart from the corrupt activity.
2. Whether the Second Amended Complaint was Untimely or Unduly Prejudicial
{¶ 62} On appeal, Medical Mutual first argues that its request to file a second amended complaint was neither untimely nor prejudicial. Upon consideration of the record and litigation history, we agree.
{¶ 63} The trial court‘s decision emphasizes the fact that the litigation had been pending for almost three years, which we agree is an undesirably long time. But, when considering whether an attempt to amend a pleading is untimely, we find that the temporal relationship to the proceedings, rather than the absolute length of time, is of much greater importance. While prejudice and timeliness are related considerations, “prejudice is the most critical factor to be considered in determining whether to grant leave to
{¶ 64} In this case, the original complaint was filed on June 27, 2017, and after being granted an extension, FrontPath answered on August 28, 2017. An initial pretrial hearing was held on October 5, 2017, at which the parties were granted 60 days to submit a joint report defining the issues and scope of discovery in preparation of another pretrial hearing on December 12, 2017. The trial court stayed all discovery until the December 12, 2017 pretrial. Following the December 12, 2017 pretrial, discovery commenced subject to a joint stipulated protective order concerning confidential material. A subsequent pretrial was held on March 22, 2018, at which FrontPath was granted additional time until April 2018 to answer pending interrogatories and to produce responsive records.
{¶ 65} On May 22, 2018, the trial court held a pretrial at which it established a preliminary case management order. The preliminary order established a written discovery deadline of December 7, 2018, and a non-expert discovery deadline of June 3, 2019. The court further ordered that dispositive motions were to be filed by November 4, 2019.
{¶ 66} In August 2018, FrontPath moved for judgment on the pleadings. Ultimately, Medical Mutual moved to amend its complaint in October 2018, which FrontPath did not oppose. The trial court granted Medical Mutual‘s motion to file the amended complaint, and the amended complaint was filed on November 5, 2018, thereby rendering moot FrontPath‘s motion for judgment on the pleadings.
{¶ 67} Shortly after the amended complaint was filed, FrontPath moved to dismiss the amended complaint. The parties litigated the issue, resulting in the trial court‘s June 24, 2019 judgment entry dismissing all of Medical Mutual‘s claims except for tortious interference with a contractual or business relationship, which is discussed above in Medical Mutual‘s first and second assignments of error.
{¶ 68} Concurrent with the litigation on the motion to dismiss, on November 26, 2018, FrontPath filed an emergency motion for a protective order regarding Medical Mutual‘s November 20, 2018 subpoenas. The trial court held a hearing on the emergency motion a few days later, on December 7, 2018. At the December 7, 2018 hearing, the parties agreed to suspend compliance with all third-party subpoenas. The parties also recognized that FrontPath was still in the process of responding to additional discovery requests from Medical Mutual, and that upon such production, Medical Mutual would then either withdraw the third-party subpoenas, or elect to proceed with the third-party subpoenas, at which time the trial court would hear and decide the emergency motion for a protective order. The court ordered that all discovery was stayed pending the resolution of the emergency motion for a protective order, except for FrontPath‘s agreed-upon responses to Medical Mutual‘s additional request for documents. On January 7, 2019, FrontPath served its responses to Medical Mutual‘s second combined set of interrogatories and requests for production of documents.
{¶ 69} A further pretrial was held on April 5, 2019. At that pretrial, the case
{¶ 70} On June 27, 2019, another pretrial hearing was held. Because the trial court had just three days earlier granted, in part, FrontPath‘s motion to dismiss the amended complaint, the trial court invited the parties to submit post-hearing briefs to allow FrontPath to argue why the scope of discovery should be limited, to allow Medical Mutual to argue why the information it is seeking is relevant and discoverable, and to allow both parties to address the third-party subpoenas. Following the hearing, on October 1, 2019, the trial court ordered that Medical Mutual could seek information pertaining to the names of potential entities that it bid and lost to FrontPath within a five-year time period, and then discovery would be limited to those entities rather than all governmental employers for whom FrontPath has provided services. The court further ordered that FrontPath‘s provider pricing was in the nature of a trade secret, that it was not relevant at that time, and thus was not discoverable. Lastly, the trial court approved FrontPath‘s proposed disclosure process to lift the stay on certain third-party discovery.
{¶ 71} Approximately four months after the trial court‘s October 1, 2019 order regarding the scope of discovery, Medical Mutual moved for leave to file its second amended complaint on January 30, 2020. Subsequent to its motion for leave to file its second amended complaint, on March 26, 2020, the parties filed a stipulated amendment to the case management schedule, seeking to extend the existing deadlines by six months. On March 31, 2020, the trial court amended the case management schedule, setting a new discovery deadline of June 19, 2020, a mediation deadline of September 1, 2020, and a dispositive motion deadline of January 11, 2021. Trial was set for March 15, 2021.
{¶ 72} On June 2, 2020 the parties filed a joint status report and stipulation to amend the case management order. In their filing, the parties noted that they continued to engage in written discovery, and anticipated supplementing their prior responses to interrogatories. The parties also commented that although certain depositions had been previously scheduled, those depositions were cancelled in response to Covid-19. Recognizing that the current discovery deadline was June 19, 2020, the parties stipulated to a fact deposition discovery deadline of December 1, 2020. The parties also stipulated that additional third-party discovery may proceed.
{¶ 73} Two weeks later, the trial court denied Medical Mutual‘s motion for leave to file a second amended complaint.
{¶ 74} In its opposition to Medical Mutual‘s motion for leave to amend, FrontPath cited two cases in support of its argument that Medical Mutual‘s second amended complaint was untimely and prejudicial.
{¶ 75} In the first case, Turner v. Cent. Local Sch. Dist., 85 Ohio St.3d 95, 706 N.E.2d 1261 (1999), the Ohio Supreme Court held that the trial court abused its discretion when it allowed an untimely motion to amend the answer to assert an affirmative defense of immunity. In that case, Central moved for summary judgment on Turner‘s negligence claim, arguing that the injury to Turner was not foreseeable. Summary judgment was awarded to Central, but ultimately reversed on appeal on the grounds that questions of fact remained. Id. at 96. Upon remand, Central
{¶ 76} In the second case, Columbia Gas of Ohio, Inc. v. Toledo Edison Co., 6th Dist. Lucas No. L-14-1263, 2015-Ohio-3942, ¶ 27-28, this court held that the trial court did not abuse its discretion when it denied the plaintiff‘s motion for leave to amend its complaint. In that case, the motion for leave to amend was filed almost two years after the original complaint had been filed and after extensive discovery had been conducted, and one day after the trial court denied the plaintiff‘s motion to continue the trial date and set alternative cut off dates. Id. at ¶ 27. The plaintiff filed its leave to amend less than one week before the deadline for filing summary judgment motions, and after the deadlines for disclosing expert witnesses. Id. In affirming the trial court‘s denial of the plaintiff‘s motion for leave to amend, this court noted that the plaintiff offered no explanation for the delay other than vaguely stating that it was necessary to “update and refine the allegations to conform to the information revealed by discovery.” Id. at ¶ 28. This court also found that the defendant would be prejudiced because the defendant would have to file additional pleadings, further discovery would be needed, and the deadline for filing motions for summary judgment would have to be extended. Id.
{¶ 77} In addition to the cases cited by FrontPath, we have also addressed the issue of whether an amendment is untimely and unfairly prejudicial in two recent cases.
{¶ 78} In Musil, 6th Dist. Lucas No. L-19-1262, 2020-Ohio-3548, at ¶ 23-29, this court affirmed the trial court‘s denial of Musil‘s motion for leave to amend the complaint. In that case, the motion was filed more than a year after the original complaint, more than eight months after discovery was substantially completed, almost seven weeks after the defendant filed its motion for summary judgment, and just two months before the trial date. Id. at ¶ 28. This court reasoned that Musil knew of the facts giving rise to his amended complaint for more than eight months before filing his motion, and that “the costs of continued litigation, both in terms of time and resources, constitutes prejudice to [the defendant] where [Musil] waited to file a motion for leave to amend until after [the defendant] filed a meritorious motion for summary judgment.” Id. at ¶ 29.
{¶ 79} Similarly, in Zak, 6th Dist. Lucas No. L-21-1052, 2021-Ohio-4399, at ¶ 29-40, this court affirmed the denial of a motion for leave to amend the answer to plead statute of limitations as an affirmative defense. In Zak, the defendant did not raise the statute of limitations in his motion for summary judgment, and only raised it for the first time in his reply in support of his motion for summary judgment. The trial
{¶ 80} In contrast, in Christ v. Konski, 181 Ohio App.3d 682, 2009-Ohio-1460, 910 N.E.2d 520 (6th Dist.), this court reversed the trial court‘s judgment vacating its own prior order to grant the appellant‘s motion for leave to amend his complaint to add a new party defendant. In Christ, the original complaint was filed on August 9, 2005, then voluntarily dismissed, and re-filed on January 7, 2008. Id. at ¶ 5-6. The refiled complaint was intended “to reflect the intervening death of Christ, as well as to curtail the volume of defendants named in the refiled action.” Id. at ¶ 6. On June 11, 2008, the appellant deposed one of the defendant‘s medical expert witnesses, and based on that testimony sought to add an additional defendant. Id. at ¶ 7-8. The trial court initially granted the motion for leave to amend the complaint, and at the same time vacated the scheduled August 18, 2008 trial date. The defendant then sought relief from that judgment, arguing that the motion for leave to amend was untimely and unduly prejudicial, and asserting that vacating the trial date would adversely affect the defendant‘s patient care, ability to earn a living, and insurance status. Id. at ¶ 10. The trial court adopted the defendant‘s arguments without limitation, vacated its previous order, and struck the amended complaint from the record. However, the trial court affirmed its prior order vacating the trial date. Id. at ¶ 11.
{¶ 81} On appeal, this court reversed the decision of the trial court, finding that it was unreasonable and arbitrary. This court reasoned that the appellant‘s motion was not untimely, as it was filed within a week of the deposition where it learned of the basis for adding the new defendant. Furthermore, this court recognized that while adding a new defendant may involve inconvenience in the form of additional discovery and the continuation of the trial date, there was nothing in the record to establish undue, actual prejudice. Id. at ¶ 18. To the contrary, this court stated, “barring appellant from pursuing action against the pathologist whom appellee‘s own expert witness believes breached the standard of care with adverse consequences to decedent would constitute extreme actual prejudice.” Id. Thus, this court held that the trial court abused its discretion because neither unreasonable delay nor actual prejudice were shown, and because the trial court simply adopted the arguments of the defendant yet those arguments contradicted the portion of the judgment that vacated the trial date. Id. at ¶ 19.
{¶ 82} Upon review, the facts of this case are much more closely aligned to Christ, than to Turner, Columbia Gas, Musil, or Zak. Here, the motion for leave to amend was not filed on the eve of trial, after discovery had been completed, and either after dispositive motions had been made or were just about to be made. To the contrary, discovery was ongoing, and would later be extended by stipulation
{¶ 83} Nor do we find reasonable the trial court‘s conclusion that Medical Mutual knew of the identity and alleged involvement of the proposed additional defendants at the time of the original complaint. In so concluding, the trial court referenced Medical Mutual‘s general allegation that FrontPath had an informational advantage because some governmental employees were “wearing two hats.” However, a general allegation of an informational advantage does not mean that Medical Mutual knew or could have known that the proposed additional defendants were stealing Medical Mutual‘s trade secret pricing information as alleged in the second amended complaint. Furthermore, the trial court‘s conclusion that the proposed additional defendants would be unduly prejudiced by being added to the lawsuit is unreasonable. A new defendant is always prejudiced by having to defend against allegations in court, and such a defense would certainly be burdensome in complex cases. However, that prejudice is not unfair where the facts underlying the allegation were discovered, and motion for leave to amend was filed, at a relatively early stage of the litigation. Indeed, it would be monumentally more unfair to not allow a plaintiff to seek recovery against a defendant for wrongdoing simply because it would be expensive and burdensome for the defendant to have to defend himself or herself.
{¶ 84} Finally, while amending the complaint would have expanded the scope of discovery relative to FrontPath—although it is unclear to us how significantly it would have expanded the scope given that the proposed additional claims arose out of the same transactions as the claims in the original and amended complaints for which written discovery had been ongoing, and given that it would not have required a second round of depositions because no depositions had yet occurred—that expansion was largely due to the trial court‘s prior erroneous dismissal with prejudice of Medical Mutual‘s claims.
{¶ 85} Thus, while we recognize that the addition of new claims and defendants would result in the inconvenience and cost of additional pleadings and discovery, we hold that it is not unduly prejudicial to FrontPath, or the proposed additional defendants, where the information was learned during the course of the litigation, and the motion for leave to amend the complaint was made while the litigation was still in the discovery phase and months before any dispositive motions were due to be filed. Therefore, we hold that the trial court abused its discretion when it denied Medical Mutual‘s motion for leave to file its second amended complaint as untimely and unduly prejudicial.
3. Whether the Second Amended Complaint was Futile
{¶ 86} Alternatively, the trial court justified its denial of Medical Mutual‘s motion for leave to amend on the basis that the
{¶ 87} “Where a plaintiff fails to make a prima facie showing of support for new matters sought to be pleaded, a trial court acts within its discretion to deny a motion to amend the pleading.” Wilmington Steel Prods., Inc. v. Cleveland Elec. Illuminating Co., 60 Ohio St.3d 120, 573 N.E.2d 622 (1991), syllabus. This consideration “is meant to aid in determining whether the amendment is ‘simply a delaying tactic, [or] one which would cause prejudice to the defendant.‘” Darby v. A-Best Prods. Co., 102 Ohio St.3d 410, 2004-Ohio-3720, 811 N.E.2d 1117, ¶ 20. Because consideration of whether a proposed claim would survive a motion to dismiss is a legal issue, we review de novo the trial court‘s denial of the motion for leave to amend the complaint on this basis. Hollinghead v. Bey, 6th Dist. Lucas No. L-99-1351, 2000 WL 1005205, *8 (July 21, 2000), citing Marx v. Ohio State Univ. Coll. of Dentistry, 10th Dist. Franklin No. 95APE07-872, 1996 WL 87462, *3 (Feb. 27, 1996).
{¶ 88} Having already discussed the elements of a Corrupt Practices Act claim in Medical Mutual‘s first assignment of error, we will address the elements in a truncated fashion.
a. Corrupt Activity
{¶ 89} In its judgment entry, the trial court found that Medical Mutual only specifically alleged two corrupt activities, those being violations of the federal Defending Trade Secrets Act and its Ohio counterpart, but that one of the corrupt activities occurred before the Defending Trade Secrets Act was enacted. However, the trial court did not consider the other parts of the second amended complaint, which were incorporated by reference, and which alleged that the defendants also violated the Ohio ethics laws under
b. Pattern of Corrupt Activity
{¶ 90} As to the pattern of corrupt activity, the trial court found that Medical Mutual alleged a single scheme to exclude its competition in northwest Ohio, and that the scheme consisted of only one type of predicate act causing only one type of injury to only one victim. The trial court reasoned that this type of allegation was insufficient to constitute a pattern of corrupt activity. Again, the trial court did not consider the other allegations in the complaint.
{¶ 91} In this case, Medical Mutual alleged that FrontPath and others engaged in multiple acts violating
{¶ 92} Finally, the trial court found that the second amended complaint “include[d] no particularities about the identities of those in the alleged association-in-fact enterprise, nor do they describe the alleged enterprise‘s structure.” As with the other two elements, the trial court did not consider the entirety of the allegations in the second amended complaint.
{¶ 93} Medical Mutual alleged that the enterprise consisted of: “among others, representatives of the Governmental Employers, third-party administrators, other public officials, consultants and others and exists to secure and control the market for health benefit services in Northwest Ohio.” The factual allegations in the complaint, however, specifically name FrontPath, the proposed additional defendants, the third-party administrator HealthScope, and several other named individuals as being involved. Thus, we hold that the second amended complaint sufficiently alleged the existence of an enterprise.
{¶ 94} Therefore, because the second amended complaint alleged with particularity the existence of a corrupt activity, a pattern of corrupt activity, and an enterprise, we hold that the second amended complaint was not futile.
4. Relief Limited
{¶ 95} In sum, because the second amended complaint was not untimely or unduly prejudicial, and because it was not futile, we hold that the trial court abused its discretion when it denied Medical Mutual‘s motion for leave to amend.
{¶ 96} However, the scope of Medical Mutual‘s third assignment of error only pertains to the additional new defendants, Donald Czerniak and Susan Szymanski.
{¶ 97} Here, the third assignment of error asserts: “The trial court erred by denying MMO‘s motion for leave to amend its complaint to assert claims against new defendants Donald Czerniak and Susan Szymanski.” (Emphasis added.)
{¶ 98} Our decision is therefore confined to resolution of this assigned error.
{¶ 99} Accordingly, Medical Mutual‘s third assignment of error is well-taken.
IV. Conclusion
{¶ 100} For the foregoing reasons, we find that substantial justice has not been done the party complaining. The trial court erroneously dismissed with prejudice Medical Mutual‘s civil liability for a criminal act and Corrupt Practices Act claims. The trial court abused its discretion when it denied
Judgments reversed and remanded.
A certified copy of this entry shall constitute the mandate pursuant to
Mark L. Pietrykowski, J. JUDGE
Thomas J. Osowik, J. JUDGE
Christine E. Mayle, J. CONCUR. JUDGE
This decision is subject to further editing by the Supreme Court of Ohio‘s Reporter of Decisions. Parties interested in viewing the final reported version are advised to visit the Ohio Supreme Court‘s web site at: http://www.supremecourt.ohio.gov/ROD/docs/.