Photographic Creations, Ltd., Plaintiff-Appellant, v. MTMC Co., LLC, et al., Defendants-Appellees.
No. 16AP-256
IN THE COURT OF APPEALS OF OHIO TENTH APPELLATE DISTRICT
May 4, 2017
2017-Ohio-2670
BRUNNER, J.
(C.P.C. No. 10CV-8240) (REGULAR CALENDAR)
On brief: Peterson, Connors, Swisher & Peer, LLP, Istvan Gajary, and Gregory S. Peterson, for appellees. Argued: Gregory S. Peterson.
APPEAL from the Franklin County Court of Common Pleas
D E C I S I O N
BRUNNER, J.
{¶ 1} Plaintiff-appellant, Photographic Creations, Ltd. (“Photographic Creations“), appeals from a judgment of the Franklin County Court of Common Pleas, entered on March 3, 2016, denying reconsideration of an order filed on November 20, 2012 dismissing the complaint against defendants-appellees, MTMC Co., LLC (“MTMC“) and Michael Mignery, for want of subject-matter jurisdiction. Because lack of subject-matter jurisdiction is not the same as lack of standing and because a limited liability company, whatever the state of its membership, has capacity to sue and be sued in Ohio, we find the trial court erred as a matter of law in dismissing for lack of subject-matter jurisdiction. Accordingly, we reverse and remand.
{¶ 2} In July 2008, Photographic Creations filed a complaint against MTMC and Mignery asserting breach of contract and fraud and seeking to collect on a promissory note for $200,000 plus interest at the rate of 6 percent. (July 16, 2008 Compl. Case No. 08CV-10166.) The Franklin County Court of Common Pleas dismissed the case for want of subject-matter jurisdiction in what was apparently an oral ruling from the bench without an accompanying entry. After a request for reconsideration, the trial court reaffirmed that dismissal in a written entry on March 23, 2010. Photographic Creations Ltd. v. MTMC Co., LLC, Franklin C.P. No. 08CV-10166 (Mar. 23, 2010). The record does not reflect the basis for the trial court‘s initial decision and in denying reconsideration it said only this:
[D]efendant asserts that it is the plaintiff‘s burden to establish that subject matter jurisdiction has been properly asserted, and it failed to do so. Therefore, the court‘s ruling was proper. Finally, defendant argues that no evidence was ever produced by plaintiff by way of an operating agreement that discloses the proper dissolution procedure for the company. Furthermore, the Ohio Revised Code provides for winding up of company affairs, and plaintiff failed to provide evidence that it meets the necessary statutory requirements.
Id. at 2.
{¶ 3} Three months after the dismissal, in June 2010, Photographic Creations again filed a complaint against MTMC and Mignery asserting breach of contract and fraud in order to collect on a promissory note for $200,000 plus interest at the rate of 6 percent. (June 1, 2012 Compl. in passim.) This time, however, the complaint also alleged that the debt collection was part of the winding up of Photographic Creations by the managing members. Id. at ¶ 2. Attached to the complaint were, among other things, documents showing that Photographic Creations was incorporated on November 27, 1995 and later dissolved upon the authorized signature of Christopher Woods on October 1, 2002. (Exs. A, B, Compl.) Also attached to the complaint were Articles of Organization and an Operating Agreement, each of which was signed only by Christopher Woods and Kevin Rider. (Exs. A, E, Compl.)
{¶ 4} On July 7, 2010, MTMC and Mignery filed an answer, a counterclaim, and a motion to join necessary parties pursuant to
{¶ 5} MTMC and Mignery filed a motion to dismiss for lack of subject-matter jurisdiction and for an award of costs and attorney fees in October 2011. (Oct. 27, 2011 Mot. to Dismiss.) They argued that the trial court lacked subject-matter jurisdiction because Photographic Creations failed to provide evidence that its purported managers, Woods and Rider, complied with statutory requirements concerning the winding up of the company‘s affairs. Id. They also argued that Photographic Creations failed to produce evidence establishing the authority of Woods and Rider to collect the alleged debt. Id. In December 2011, the trial court denied MTMC and Mignery‘s motion to dismiss for lack of subject-matter jurisdiction and for an award of costs and attorney fees, noting that the operating agreement was attached to the complaint, provided for managing members of the company to wind up the company and collect on debts, and the Ohio Revised Code provides that dissolution does not prevent a company from suing or being sued. (Dec. 28, 2011 Entry Denying Mot. to Dismiss at 9-10.)
{¶ 6} On the first day of trial, July 30, 2012, the trial court sua sponte declared a mistrial when Photographic Creations’ witness revealed that there were other potential members of the company beyond the managing members. (July 30, 2012 Tr. at 16; Ex. A, Aug. 22, 2012 Memo Contra Mot. to Dismiss.) Following the mistrial, MTMC and Mignery filed a second motion to dismiss for lack of subject-matter jurisdiction and for an award of costs and attorney fees. (Aug. 8, 2012 Mot. to Dismiss.) MTMC and Mignery asserted that they learned on the first day of trial that there were undisclosed additional
{¶ 7} The trial court granted MTMC and Mignery‘s second motion to dismiss for lack of subject-matter jurisdiction. (Nov. 20, 2012 Decision & Entry.) It found no evidence of a valid operating agreement because it concluded that in order to be valid, an operating agreement must be signed by all members of a limited liability company and the only document that had been presented was signed only by Woods and Rider. Id. at 7-8. In the absence of a valid operating agreement, the trial court determined that state law governed and required the unanimous agreement of all members to dissolve the company. Id. The trial court reasoned that “since [Photographic Creations] has failed to show that it has fully complied with state law, or that Woods and Rider have the proper authority to act on behalf of [Photographic Creations], the Court finds that it does not have subject matter jurisdiction over [Photographic Creations‘] claims and [Photographic Creations‘] claims must be dismissed.” Id. at 9-10. The trial court deferred its ruling on MTMC and Mignery‘s request for costs and attorney fees under
{¶ 8} When final judgment did not enter, Photographic Creations filed a motion to reconsider in January 2013, alleging the trial court erred in finding it lacked subject-matter jurisdiction. (Jan. 22, 2013 Mot. to Recons.) Three years later, in March 2016, the trial court denied Photographic Creations’ motion to reconsider, and it entered judgment dismissing Photographic Creations’ complaint. (Mar. 3, 2016 Decision and Entry at 2-3.)
{¶ 9} Photographic Creations timely appeals from the trial court‘s judgment dismissing its complaint on reconsideration.
II. ASSIGNMENTS OF ERROR
{¶ 10} Photographic Creations assigns the following errors for our review:
- The trial court committed error when it dismissed the plaintiffs case because it determined it did not have jurisdiction of the subject matter because the court determined the default rules of
Ohio Revised Code 1705 et seq applied and the limited liability company was to be managed by all of its members as the operating agreement of Photographic Creations Ltd was ineffective as to all of its members because the court erroneously held Ohio law mandated all of the members of a limited liability company are required to sign the original operating agreement in order for it to be effective as to all of the members to operate under the provisions of the operating agreement. - The trial court committed error when it determined that the operating agreement of Photographic Creations was required to be signed by all of the members and since it was not signed by all of the members, the operating agreement was ineffective as to all of the members and therefore the named managing members in the operating agreement, ie Woods and Rider, did not have the authority to dissolve the company, nor the right to liquidate and wind up the affairs of the company per the default rules of
Ohio Revised Code 1705 et seq. and the limited liability company, Photographic Creations Ltd, was to be operating as a member managed company perOhio Revised Code 1705.24 and1705.25 not a managed member company perOhio Revised Code 1705.29(A) and thus the court lacked jurisdiction of the subject matter. - The Franklin County Courts of Common Pleas erred when it dismissed the appellants’ case because it ruled it did not have jurisdiction of the subject matter when the Ohio limited liability company, appellant Photographic Creations Ltd, commenced a lawsuit to collect a debt in excess of $15,000 which was evidenced by an unpaid promissory note. It does not matter whether the Ohio limited liability company is
organized as a managed member limited liability company or a member managed limited liability company pursuant to Ohio Revised Code 1705 et seq. for the Franklin County Court of Common Pleas to have jurisdiction of the subject matter when the limited liability company commences suit to collect on an unpaid debt in excess of $15000. - The trial committed error when it ordered a hearing held to determine if plaintiffs and or plaintiffs’ counsel had committed frivolous conduct per
Ohio Revised Code 2323.51 and what sanctions, if any were appropriate to be ordered against plaintiff-appellants.
III. DISCUSSION
A. First, Second, and Third Assignments of Error—Whether the Trial Court Erred in Dismissing the Case for Want of Subject-Matter Jurisdiction
{¶ 11} Subject-matter jurisdiction is a court‘s power to hear and decide a particular class of cases and does not relate to the rights of the individual parties involved in a particular case. Bank of Am., N.A. v. Kuchta, 141 Ohio St.3d 75, 2014-Ohio-4275, ¶ 19; Robinson v. Ohio Dept. of Rehab. & Corr., 10th Dist. No. 10AP-550, 2011-Ohio-713, ¶ 5. In ruling on a
{¶ 12} Here, the trial court dismissed Photographic Creations’ complaint for lack of subject-matter jurisdiction based on its findings regarding the company‘s management and dissolution. (Nov. 20, 2012 Decision & Entry at 7-10.) The trial court determined
{¶ 13} Contrary to the trial court‘s determination, the record demonstrates that it had subject-matter jurisdiction over Photographic Creations’ complaint. Ohio‘s common pleas courts have ” ‘original jurisdiction over all justiciable matters * * * as may be provided by law.’ ” Kuchta at ¶ 20, quoting
{¶ 14} Yet the trial court‘s error in conflating subject-matter jurisdiction with jurisdiction over the particular case would be harmless if it was nonetheless appropriate for the trial court to have dismissed the case due to failure by Photographic Creations to invoke the court‘s jurisdiction over its case. See
{¶ 15} “A limited liability company may sue and be sued.”
{¶ 16} Moreover, had there been real concern that Rider and Woods were directing the company to take action to collect on the debt without real authority for doing so, the members of Photographic Creations would have been the appropriate parties to challenge that because they are the ones who would be damaged by such an act. As the Ohio Revised Code provides:
No lack of authority or limitation upon the authority of a limited liability company shall be asserted in any action except as follows:
(a) By the state in an action by it against the company;
(b) By or on behalf of the company in an action against a manager, an officer, or any member as a member;
(c) By a member as a member in an action against the company, a manager, an officer, or any member as a member;
(d) In an action involving an alleged improper issue of a membership interest in the company.
{¶ 17} We sustain Photographic Creations’ first, second, and third assignments of error for the reasons and to the extent discussed herein.
B. Fourth Assignment of Error—Referral of Motion for Sanctions to a Magistrate
{¶ 18} Photographic Creations in its fourth assignment of error argues that the trial court erred in referring this matter to a magistrate for the purpose of determining whether Photographic Creations and its counsel engaged in frivolous conduct and what sanctions, if any, would be appropriate. This assignment of error, however, does not present an issue ripe for review. State ex rel. Elyria Foundry Co. v. Indus. Commn., 82 Ohio St.3d 88, 89 (1998) (“judicial machinery should be conserved for problems which are real or present and imminent, not squandered on problems which are abstract or hypothetical or remote“). Photographic Creations does not argue that the trial court lacked the authority to refer MTMC and Mignery‘s request for sanctions to a magistrate. Instead, Photographic Creations argues that the trial court already made a determination that Photographic Creations and its counsel engaged in some degree of frivolous conduct in referring the issue to a magistrate. Specifically, Photographic Creations’ argument goes to the merits of the issue of sanctions. Photographic Creations argues that the trial court erred in referring the matter to a magistrate for a hearing on sanctions because it presented a valid theory of recovery and neither it nor its counsel engaged in any frivolous conduct.
{¶ 19} Our review of the record shows that the trial court did not make a finding that Photographic Creations or its counsel engaged in frivolous conduct. It simply referred the issue to a magistrate for a hearing. See Nov. 20, 2012 Decision and Entry at 10; Mar. 3, 2016 Decision and Entry at 3. As such Photographic Creations’ fourth assignment of error does not present an issue ripe for review.
IV. CONCLUSION
{¶ 20} The trial court erred in dismissing this case. Whether a party successfully invokes the jurisdiction of the court is a question that goes to the jurisdiction over that particular case, not the court‘s subject-matter jurisdiction. Kuchta at paragraph three of
Judgment reversed and remanded with instructions.
HORTON, J., concurs.
LUPER SCHUSTER, J., concurs in judgment only.