San Allen, Inc. v. Buehrer , 2014 Ohio 2071 ( 2014 )

[Cite as San Allen, Inc. v. Buehrer, 2014-Ohio-2071.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 99786
SAN ALLEN, INC., ET AL.
PLAINTIFFS-APPELLEES/
CROSS-APPELLANTS
vs.
STEPHEN BUEHRER, ADMINISTRATOR, OHIO
BUREAU OF WORKERS’ COMPENSATION
DEFENDANT-APPELLANT/
CROSS-APPELLEE
JUDGMENT:
AFFIRMED IN PART, REVERSED IN PART,
REMANDED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case Nos. CV-07-644950 and CV-689611
BEFORE: Rocco, P.J., E.A. Gallagher, J., and Kilbane, J.
RELEASED AND JOURNALIZED: May 15, 2014
ATTORNEYS FOR APPELLANT
Michael DeWine
Attorney General of Ohio
BY: Mark E. Mastrangelo
Jeffrey B. Duber
Assistant Attorneys General
615 West Superior Ave., 11th Floor
Cleveland, Ohio 44113-1899
John N. Childs
Robert A. Hager
Adam D. Fuller
Brennan, Manna & Diamond, L.L.C.
75 E. Market St.
Akron, Ohio 44308
ATTORNEYS FOR APPELLEES
James A. DeRoche
Stuart I. Garson
David L. Meyerson
David H. Krause
Seaman Garson, L.L.C.
1600 Rockefeller Building
614 West Superior Ave.
Cleveland, Ohio 44113
Patrick J. Perotti
Jonathan T. Stender
Darrin R. Toney
Nicole T. Fiorelli
Dworken & Bernstein Co., L.P.A.
60 South Park Pl.
Painesville, Ohio 44077
AMICI CURIAE
Attorneys for Ohio AFL-CIO
Marc J. Jaffy
Stewart R. Jaffy
Stewart Jaffy & Assoc. Co., L.P.A.
306 East Gay St.
Columbus, Ohio 43215
Attorneys for Ohio Chamber of Commerce and National Federation of Independent
Business/Ohio
John W. Zeiger
Stuart G. Parsell
Zeiger, Tigges & Little L.L.P.
41 South High St., Suite 3500
Columbus, Ohio 43215
Attorney for Cleveland Teachers Union, AFT Local 279, AFL-CIO
Susannah Muskovitz
Muskovitz & Lemmerbrock, L.L.C.
1621 Euclid Ave., Suite 1750
Cleveland, Ohio 44115
Attorney for Teamsters Local Union No. 416
Susan L. Gragel
Goldstein Gragel, L.L.C.
1040 Leader Building
526 Superior Ave.
Cleveland, Ohio 44114
Attorney for International Association of Bridge, Structural, Ornamental and
Reinforcing Iron Workers Local No. 17
James A. Marniella
Demer & Marniella, L.L.C.
2 Berea Commons, Suite 200
Berea, Ohio 44017
Attorneys for City of Cleveland
Barbara A. Langhenry
Director of Law
City of Cleveland
By: Joseph F. Scott
Chief Assistant Director of Law
City of Cleveland - Law Department
601 Lakeside Ave., Room 106
Cleveland, Ohio 44114
Mitchell G. Blair
Maura L. Hughes
Calfee Halter & Griswold L.L.P.
1405 East 6th St.
Cleveland, Ohio 44114
Attorney for The Council for Economic Opportunities in Greater Cleveland
Terence E. Copeland
The Council for Economic Opportunities in Greater Cleveland
1228 Euclid Ave., Suite 700
Cleveland, Ohio 44115
KENNETH A. ROCCO, P.J.:
{¶1} Reduced to its irreducible essence, this appeal is about a cabal of Ohio
Bureau of Workers’ Compensation (“BWC”) bureaucrats and lobbyists for group
sponsors who rigged workers’ compensation insurance premium rates so that for
employers who participated in the BWC’s group rating plan (“group-rated employers”), it
was “heads we win,” and for employers who did not participate in the group rating plan
(“nongroup-rated employers”), it was “tails you lose.” For more than 15 years, the BWC
allowed nongroup-rated employers to subsidize excessive, undeserved premium discounts
to group-rated employers who were handpicked by group sponsors to participate in the
BWC’s group rating plan. The temerity of the group sponsors, untempered by any
notions of equity from or of the BWC, exacted a heavy price for nongroup-rated
employers — over $859 million.
{¶2} The trial court correctly determined that the BWC was responsible for
developing and maintaining an unlawful rating system under which excessive premium
discounts were given to group-rated employers at the expense of nongroup-rated
employers. The BWC first failed to follow a legislative mandate to establish a
retrospective group rating plan, then set up a prospective group rating plan without
sufficient controls to address the plan’s susceptibility to manipulation by group sponsors
and the potential for premium inequity as a result of the generous discounts provided to
group-rated employers under the plan.
{¶3} Defendant-appellant/cross-appellee Stephen Buehrer, Administrator, BWC,
appeals the judgment of the Cuyahoga County Court of Common Pleas that awarded over
$859 million in equitable restitution to a class of employers who alleged that they had
been unlawfully charged inflated workers’ compensation insurance premiums in order to
subsidize discounts given to other employers participating in the BWC’s group rating
plan. Plaintiffs alleged that until 2009, when the BWC modified its premium rating
system, the BWC “undercharged,” from an actuarial standpoint, group-rated employers
and “overcharged,” from an actuarial standpoint, nongroup-rated employers in setting
workers’ compensation premiums. The trial court held that the BWC’s implementation
of its group rating plan and the resulting inequity between the premiums charged
group-rated and nongroup-rated employers under its rating system violated former R.C.
4123.29 and 4123.34(C). The trial court further held that the BWC was unjustly
enriched by the excessive premiums it received from nongroup-rated employers, entitling
class members to equitable restitution of the unlawful premium overcharges.
{¶4} Plaintiffs-appellees/cross-appellants San Allen, Inc., d.b.a. Corky and
Lenny’s, Timely Advertising Specialty Co., d.b.a. S.E. Bennett Company, Linderme
Tube Co., Cambridge Manufacturing Jewelers, Ltd., D&J Structural Contracting, Inc.,
Lifecenter Plus, Inc., and David W. Steinbach, Inc. (“plaintiffs”) have filed a cross
appeal, challenging the trial court’s determination that the BWC’s premium rating system
did not violate the Equal Protection Clause of the Ohio Constitution and claiming that the
trial court abused its discretion in failing to award plaintiffs an additional $330 million (or
more) in investment returns the BWC allegedly earned on the excessive premiums
collected from the class.
{¶5} For the reasons that follow, we affirm the trial court’s judgment in part,
reverse the trial court’s judgment in part, and remand the matter for further proceedings
consistent with this opinion.1
I. Factual Background
A. This Action
1. Plaintiffs’ Allegations
{¶6} This action was commenced on December 18, 2007, when
plaintiffs-appellees San Allen, Inc., d.b.a. Corky and Lenny’s, Timely Advertising
Specialty Co., d.b.a. S.E. Bennett Company, and Linderme Tube Co. filed their original
“class action complaint for equitable relief” against the BWC. On January 31, 2008, an
amended complaint was filed, adding as additional named plaintiffs, Cambridge
Manufacturing Jewelers, Ltd., D&J Structural Contracting, Inc., Lifecenter Plus, Inc., and
David W. Steinbach, Inc.
{¶7} In their amended complaint, plaintiffs asserted “a claim in equity for unjust
enrichment” on behalf of themselves and similarly-situated employers who had paid
nongroup-rated premiums for workers’ compensation insurance coverage, raising
statutory and constitutional challenges to the BWC’s group rating plan. Plaintiffs alleged
that the BWC’s group rating plan granted group-rated employers excessive discounts off
their workers’ compensation premiums, which were subsidized by charging
1
We acknowledge that this opinion is lengthy. The trial court in this case authored a
thorough and comprehensive, if not masterful, opinion. As such, we believe it is deserving of an
equally thorough and comprehensive review on appeal.
nongroup-rated employers “inflated” base premium rates. Plaintiffs claimed the BWC’s
prospective group rating plan exceeded the BWC’s rule-making authority under former
R.C. 4123.29 (which plaintiffs contended authorized only a retrospective group rating
plan) and that it denied plaintiffs and other class members equal protection of the law, in
violation of Article I, Section 2 of the Ohio Constitution, because it imposed burdens on
nongroup-rated employers in the plaintiff class that were not borne by identically situated
group-rated employers.2 Plaintiffs also claimed that, as a result of its collection and
retention of excessive premiums from plaintiffs and other class members, the BWC had
been unjustly enriched. Plaintiffs sought (1) a declaration that the BWC’s group rating
program violated state law and was unconstitutional, (2) repayment of the excessive
premiums they alleged had been wrongfully collected and retained by the BWC, and (3)
an award of pre-judgment and post-judgment interest, costs, and attorney fees.
2. The BWC’s Answer
{¶8} On February 28, 2008, the BWC filed its answer. The BWC denied most
of the allegations of plaintiffs’ amended complaint, but admitted that the group rating
plan affected the base rates of nongroup-rated employers and that studies had been
conducted that showed that the group discounts provided to group-rated employers did
not generate adequate premiums to cover the claims costs of group-rated employers. The
2
Plaintiffs also alleged in their amended complaint that the BWC’s group rating plan violated
Article II, Section 35 of the Ohio Constitution by apportioning workers’ compensation premiums
differently to identically-situated employers, based on their group membership or nongroup
membership, instead of their occupational classification. Plaintiffs appear to have abandoned this
argument.
BWC also asserted a variety of affirmative defenses, including lack of subject matter
jurisdiction, failure to exhaust administrative remedies, lack of ripeness, laches, and that
plaintiffs’ claims were barred by the applicable statute of limitations.
3. Preliminary Injunction
{¶9} On April 11, 2008, plaintiffs filed a motion for preliminary injunction,
seeking to enjoin the BWC from continuing its allegedly inequitable and unlawful group
rating plan. Concluding that plaintiffs had established a probability of success on the
merits that the group rating plan violated former R.C. 4123.29(A) and that plaintiffs
would suffer irreparable harm if preliminary relief was not granted, on November 18,
2008, the trial court granted plaintiffs’ motion, restraining the BWC from using its
prospective group rating plan for the policy year beginning July 1, 2009 and ordering the
BWC to enact a retrospective group rating plan for that year. San Allen, Inc. v. Ryan,
Cuyahoga C.P. No. CV-07-644950, 2008 Ohio Misc. LEXIS 333 (Nov. 18, 2008). Four
months later, after the General Assembly rewrote the statute to remove the language upon
which plaintiffs had relied for their argument that R.C. 4123.29(A) required a
retrospective group rating plan, rather than the prospective group rating plan implemented
by the BWC, the trial court vacated the preliminary injunction.3
3
Effective January 6, 2009, the General Assembly amended R.C. 4123.29(A)(4)(c),
substituting the word “group” for the word “retrospective” in the first sentence of R.C.
4123.29(A)(4)(c). As amended, the statute provided, in pertinent part: “In providing employer group
plans under division (A)(4) of this section, the administrator shall consider an employer group as a
single employing entity for purposes of group rating.” (Emphasis added.) Before the amendment,
this section of the statute stated: “In providing employer group plans under division (A)(4) of this
section, the administrator shall consider an employer group as a single employing entity for purposes
{¶10} On January 10, 2010, the trial court granted plaintiffs’ motion for class
certification, certifying the following plaintiff class:
Ohio private employers subscribing to the Ohio workers’ compensation
State Fund, for any policy year from July 1, 2001 through and including
policy year July 1, 2008, who in any of those policy years were rated on a
non-group basis and who reported payroll and paid premiums in a manual
classification for which the base rate was “inflated” due to experience
modifications under the group experience rating plan.
{¶11} The BWC appealed the class certification order. This court affirmed class
certification on April 7, 2011. San Allen, Inc. v. Buehrer, 8th Dist. Cuyahoga No. 94651,
2011-Ohio-1676.
B. The Trial
{¶12} A bench trial commenced on August 20, 2012. Prior to trial, the BWC
moved in limine to exclude the declarations and testimony of plaintiffs’ expert Allan
Schwartz under Evid.R. 702, Miller v. Bike Athletic Co., 80 Ohio St.3d 607, 687 N.E.2d
735 (1998), and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct.
2786, 125 L.E.2d 469 (1993). The BWC also moved to decertify the class on the
grounds that certain members of the plaintiff class had suffered no harm, that individual
issues predominated over common issues, and that the class was a “fail-safe class.” The
trial court denied both motions.
{¶13} During the trial, the trial court heard testimony from more than a dozen
witnesses, including current and former representatives of the BWC, several of the named
of retrospective rating.” (Emphasis added.)
plaintiffs, and various experts, and reviewed thousands of pages of exhibits. 4 The
following summary is based on the testimony and evidence presented.
1. Rate Setting by the BWC
a. The BWC’s Rate-Setting Authority
{¶14} The administrator of the BWC is charged, by statute, with managing Ohio’s
workers’ compensation system and, with the approval of its board of directors, setting the
premiums employers pay into the state insurance trust fund for workers’ compensation
coverage. The BWC is granted considerable discretion in setting premium rates,
provided it complies with statutory mandates and workers’ compensation insurance
principles.
{¶15} R.C. 4123.29 and 4123.34 set forth the BWC’s statutory rate-setting
obligations. These obligations include: “[c]lassify[ing] occupations or industries with
respect to their degree of hazard and determin[ing] the risks of the different classes,”
“[f]ix[ing] the rates of premium of the risks of the classes,” “set[ting] * * * rates at a level
that assures the solvency of the [state insurance] fund,” and the development of “fixed
and equitable rules controlling the rating system, which rules shall conserve to each risk
the basic principles of workers’ compensation insurance.”
4
This was in addition to the testimony and exhibits the parties previously offered into
evidence at the preliminary injunction hearing, held in August 2008. The evidence at the
preliminary injunction hearing included testimony from several of the named plaintiffs, several
representatives of the BWC, and various group sponsors and lobbyists.
b. The BWC’s Rate-Setting Process
{¶16} The BWC’s rate-setting process is complex. Numerous assumptions,
factors, and calculations go into setting annual premium rates. The final premium paid
by an employer typically involves a number of price adjustments and may also include
pre- or post-policy year discounts, rebates, or dividends that reduce the employer’s total
premium. Because we believe a general understanding of this process is helpful to our
review of the issues in this case, we provide a brief overview here.
{¶17} As Christopher Carlson (“Carlson”), the BWC’s chief actuarial officer, and
other BWC representatives testified, the BWC is designed to operate on a
“revenue-neutral” basis. This means that the BWC seeks to collect from employers
participating in Ohio’s workers’ compensation insurance program only the amount of
premiums necessary to cover the BWC’s projected claims costs and administrative
expenses and to maintain a reasonable surplus in the state insurance trust fund. Rates are
determined each year on a “top-down” basis. That is, each year the BWC estimates the
costs of claims and expenses expected to be incurred in the upcoming policy year. This
estimate considers all of the losses of employers insured through the workers’
compensation system over the last ten years and uses those losses to predict future costs.
Based on this estimate, the BWC’s current net asset position, and the general economic
climate (including investment income expected to be earned on premiums received), the
BWC determines its overall revenue needs for the year, and, with the assistance of
actuaries, sets a statewide rate. The BWC then allocates the total premiums it needs to
collect among the employers participating in the workers’ compensation system.
{¶18} Under Ohio’s workers’ compensation program, employers can be “base
rated” or “experience rated.” Employers are classified into one or more of more than 500
different occupational classifications (“manual classes”) based on the type of work in
which their employees are engaged, i.e., their “occupations or industries,” and the “degree
of hazard” associated with the work. For each manual class, the BWC performs
calculations based on historical data to come up with the projected value of losses for the
class in relation to payroll, which is then adjusted for catastrophic losses and certain other
items. The BWC assigns each manual class a base premium rate that is revised annually
based on the combined accident and occupational experience of the employers in each
manual class during the oldest four of the last five calendar years. This figure is then
adjusted by an “off-balance factor”5 assigned by the BWC to generate a base premium
rate for the class (“base rate”).
{¶19} After base rates are set, the BWC applies merit or “experience rating.” If
an employer has sufficient claims experience, the employer may qualify for individual
5
The off-balance factor is a factor that is applied at the manual class level in
determining base rates. The off-balance factor is used to offset a premium shortfall
or overage condition in the overall level of premiums collected from employers due
to experience rating (including both individual experience rating and group rating)
and discounts or rebates given to employers participating in the BWC’s discount
programs. Even if there had been no group rating, use of an off-balance factor
would still be necessary to account for discounts given as a result of individual
experience rating and the BWC’s other discount programs.
experience rating. Under experience rating, an employer’s past claims experience,
adjusted by a credibility factor based on the statistical reliability of the employer’s
experience, 6 is used to determine the employer’s premium. In the experience rating
process, the base rate may be adjusted up or down by applying an “experience
modification factor.” If an employer’s past claims experience is better than average, an
employer may be charged a lower premium rate; if an employer’s past claims experience
is worse than average, the employer may be charged a higher premium. Costs factors are
then added to the base rate or the experience-modified base rate, as applicable, to cover
administrative costs and the costs of paying cost-of-living increases to permanently and
totally disabled workers. The total of the premiums assessed for each manual class to
which the employer is assigned, less any rebates or discounts the employer receives based
on its participation in various programs offered by the BWC,7 is the employer’s total
workers’ compensation premium.
2. The BWC’s Group Rating Plan
6
Generally, the larger the employer (in terms of payroll and loss experience),
the greater the credibility accorded the employer’s past claims experience. Under
group experience rating, discussed in the following section, credibility is assigned based on the
combined payroll and expected losses of the members of the group. In most cases, the result is a
higher credibility factor (and larger premium discount) than if group members were individually rated
on their individual experiences.
7
During the class period, the BWC offered a number of programs under which qualifying
employers could receive post-policy period refunds of a portion of their premium payments if they
met certain performance measures, for example, a drug-free workplace program and a safety council
incentive program.
{¶20} In 1989, the General Assembly amended R.C. 4123.29 to require the BWC
to develop and implement a plan “that groups for rating purposes, employers, and pools
the risk of the employers within the group.” Am.Sub.H.B. No. 222.
{¶21} In response to this mandate, the BWC established a group rating plan for the
policy year beginning July 1, 1991. See Ohio Adm.Code 4123-17-61-4123-17-68.
Although, as amended, R.C. 4123.29(A)(4) stated that “[i]n providing employer group
plans * * * , the administrator shall consider an employer group as a single employing
entity for purposes of retrospective rating,”8 the BWC implemented only a prospective
group rating plan.9 Under a prospective rating plan, premium rates are based on past
8
According to Preston Garvin, a lobbyist for the Ohio Chamber of Commerce,
who was involved in the negotiation of H.B. 222 and who testified on behalf of the
BWC at the preliminary injunction hearing, H.B. 222 was an “agreed to workers’
compensation bill,” i.e., the result of negotiations between representatives of the
employer community (including the Ohio Chamber of Commerce, the Ohio
Self-Insured Association, and the Ohio Manufacturers’ Association) and
representatives of the labor community (including the AFL-CIO and other unions).
He testified that the legislation was intended to “get small employers in the game”
and to “provide them with [an] incentive” to become “involved and concerned about
their workers’ compensation claims.” He did not recall any discussions relating to
retrospective group rating during the negotiations and testified that he was
“surprised” when he later learned that, as enacted by the General Assembly, R.C.
4123.29(A)(4)(c) required that “in providing employer group plans * * * the administrator shall
consider an employer group as a single employing entity for purposes of retrospective rating.”
(Emphasis added.)
9
Following the 1989 amendments to R.C. 4123.29, the BWC adopted Ohio
Adm.Code 4123-17-61, setting forth the criteria for “group experience rating.” Ohio
Adm.Code 4123-17-61 was patterned after the language of R.C. 4123.29 with one
exception: it substituted the word “group” for the word “retrospective” used in R.C.
4123.29. Ohio Adm.Code 4123-17-61(C) stated, in relevant part: “In providing
employer group plans under section 4123.29 of the Revised Code, the bureau shall
consider an employer group as a single employing entity for purposes of group
rating.” (Emphasis added.)
claims experience, with premium discounts provided to those insureds with favorable past
claims experience. Under a retrospective rating plan, the employer (or, in the case of a
group plan, the group of employers) assumes some of the risk of actual losses during the
policy period, and the total premium is determined after the policy period has ended,
based on losses that have actually occurred during the policy period. In consideration for
sharing the risk of losses that may actually be incurred during the policy period, the
employer (or group) pays a lower up front premium. At the end of the policy period, the
premium is adjusted retrospectively, based on the actual losses incurred by the employer
(or group). If actual losses were higher than expected, the employer (or group) may pay
a surcharge; if actual losses were lower than expected, the employer (or group) may
receive a credit. During the class period, 2001-2008, the BWC offered only a
prospective group rating plan. The BWC did not offer a retrospective group rating plan
until 2009.
{¶22} Before group rating, employers could qualify for experience rating only on
an individual basis. Group experience rating allowed employers to group together their
claims history and receive experience-related premium discounts similar to larger
employers. Group rating thus enabled employers with good safety records, but who were
statistically too small to be individually experience-rated (i.e., too small qualify for
experience modification of their base premium rates based on their own claims
experience) and who would otherwise be base rated or experience rated with minimal
credibility, to group together with other employers to qualify for experience rating. By
combining the experience of all of the members of the group, totaling it up, and treating
the group as a single employer for rating purposes, the group could qualify for significant
premium discounts based on their combined claims experience.
{¶23} Group rating was believed to provide employers with an incentive to
improve safety and control claims costs because it was anticipated that group members
with good safety records would not allow employers with poor safety records to join or
remain in the group or would pressure those employers to improve their safety records to
avoid an adverse effect on the group’s rating. Because of the substantial discounts
employers received under the BWC’s group rating system, it was very popular.
Employers participating in the BWC’s group rating plan could qualify for discounts off
their base rates as high as 90%. A representative of one group sponsor, Phillip Parker,
president and CEO of the Dayton area Chamber of Commerce (“Parker”), testified that
800 of its member businesses saved $12 million annually from group rating. He testified
that the discounts from group rating were so significant that, in order to get into a group
or to retain their group status, certain members of his organization would just pay the
wages of an injured employee while he or she was off work rather than report a claim to
keep the claim off the employer’s experience for rating purposes.
{¶24} Because the BWC operates on a revenue-neutral basis, the loss in premiums
resulting from the significant discounts provided to employers under the BWC’s group
rating plan had to be redistributed. In other words, the premium obligations for
nongroup-rated employers needed to be increased in order to offset the substantial
discounts provided to employers participating in the group rating program. As Carlson
and Elizabeth Bravender (“Bravender”), director of the BWC’s actuarial department,
testified, this was achieved by increasing the off-balance factor used in calculating the
base rates for the manual classes. Increasing the off-balance factor increased the base
rate for all employers. Employers who were not part of a group (and did not receive the
significant discounts off base rates that group members received) thus, in effect, paid
“extra premiums” to make up for the discounts granted to group-rated employers under
the BWC’s group rating program.10
{¶25} A number of the employers in the plaintiff class, including several of the
named plaintiffs, “migrated” between group rating and nongroup rating during the class
period. For example, an employer in the plaintiff class might have been group rated
from 2001-2005, then nongroup rated from 2006-2008. Of the approximately 302,000
employers in the plaintiff class, 89,439 employers were, at times, group rated and, at other
times, nongroup rated during the class period. The remaining class members,
approximately 213,000 employers, were nongroup rated during the entire class period.
During the policy years in which class members were group rated, they, like other
group-rated employers, benefitted from the significant discounts group-rated employers
10
As an example of the disparity in premiums that resulted from the BWC’s group rating
plan, in a 2007 presentation, John Pedrick, who was then the BWC’s chief actuary, compared the
premiums paid by two carpenters under the BWC’s rating system, both of which had total payroll of
$500,000 and zero claims. Carpenter A, a new, nongroup-rated employer, paid $48,050 in annual
workers’ compensation premiums, and carpenter B, a group-rated employer receiving the maximum
group discount, paid $4,805 in annual workers’ compensation premiums.
received under the BWC’s rating system. During the policy years in which those class
members were not group rated, they, like other nongroup-rated employers, were charged
“extra premiums” in excess of the risk they presented to the workers’ compensation
system.
{¶26} The problem with the BWC’s group rating plan stemmed from the way in
which groups were formed and the manner in which employers’ experience was
accounted for under the plan. Group membership was determined on an annual basis,
and groups were permitted to change their member employers in each policy period. The
BWC gave group sponsors the right to control who was invited into a group and who was
kicked out of a group. Unlike individual experience rating, in which an individual
employer’s experience rating would be affected by a claim for five years,11 an employer’s
experience affected the experience rating of the group only so long as the employer was a
member of the group. See Ohio Adm.Code 4123-17-65 (“[I]f an individual employer is a
member of a group for group experience rating and leaves the group, the experience of
that individual employer shall be used in experience-rating calculations for the group to
impact only the rating years that the employer was a member of the group. * * * The
group shall not be liable for claims experience incurred by an individual employer for
claims occurring after the employer has left the group.”). In other words, there was no
shared risk among the employers in a group under the BWC’s group rating plan.
11
When experience rating an individual employer, the BWC considers the employer’s
individual loss experience during the oldest four of the latest five calendar years. See Ohio
Adm.Code 4123-17-03(A)(1).
{¶27} If an employer who was group rated had a claim during the policy period,
the group could avoid any adverse effect from that claim simply by excluding the
employer from the group the following policy year. If an employer was kicked out of a
group, its experience was no longer considered in rating the group. Because the
experience period used to determine the discounts granted group-rated employers under
the BWC’s group rating plan related to a time period before the group was even formed,
group sponsors could hand pick employers for groups to ensure the maximum discounts
for its group members each year. John Pedrick (“Pedrick”), the BWC’s former chief
actuary, testified that group sponsors would target an experience modifier, then design the
membership of the group to achieve that modifier. As one consultant described it, the
BWC’s group rating plan was like “having a fantasy league where the players are chosen
after the season has ended.”
{¶28} Pedrick testified that this “adverse selection” or “cherry picking” of
employers for group membership resulted in a significant understatement of the risk
presented by the employers remaining in the group. Group-rated employers did not have
the level of credibility that was being assigned to them under the BWC’s group rating
program. As a result, group-rated employers were being undercharged premiums
compared with the risk such employers presented to the workers’ compensation system,
and nongroup-rated employers were paying more than their fair share of premiums,
subsidizing the discounts provided to group-rated employers through inflated base rates.
3. Actuarial Consultants Evaluate the Group Rating Plan
{¶29} That nongroup-rated employers were subsidizing the large discounts the
BWC provided to group-rated employers under its group rating plan should have come as
no surprise to the BWC. The record reflects that even before the BWC’s prospective
group rating plan went into effect, concerns were raised by the BWC’s actuarial
consultants regarding the plan’s susceptibility to manipulation and the potential for
premium inequity between group-rated and nongroup-rated employers as a result of the
generous premium discounts provided to group-rated employers under the plan. In a
1990 report, actuary Robert Finger warned that the merit rating process and base rates
could be subject to manipulation by group rating and that this “would increase the
off-balance and the base rates; consequently, those employers not in the group would pay
more than they should.” A 1991 report similarly warned that the “potential for
manipulation” under the BWC’s proposed prospective group rating plan was
“considerable” and could cause “increases in base rates, which cause rate increases for
employers who are not members of a group.”
{¶30} Equity concerns continued to be raised once the group rating plan was
underway and throughout the class period. Beginning in October 1993 and continuing
through 2007, the BWC commissioned seven additional independent actuarial studies (in
1993, 1994, 1995, 2001, 2004, 2006, 2007) to evaluate the BWC’s rating program. Each
of these studies concluded that, as a result of the large discounts given to group-rated
employers, the BWC’s group rating plan was creating substantial premium inequity
between group-rated and nongroup-rated employers, i.e., group-rated employers were not
paying enough premiums to cover the risk they presented, and nongroup-rated employers
were paying too much in premiums, subsidizing the discounts given to the group-rated
employers. Each of these studies also recommended that changes be made to the group
rating plan to correct this inequity. In October 1993, for example, the BWC’s actuarial
consultant recommended that premiums for group-rated employers be increased and that
base rates and premiums for nongroup-rated employers be reduced “in order to restore
equity to the experience rating process.” In 1994, the BWC’s actuarial consultant
reported that nongroup-rated employers had at that time subsidized group-rated employers
by approximately $128 million and that similar subsidies were expected for subsequent
rating periods if the current group rating approach was continued. The BWC received
similar reports from its consultants in 1995 and 2001, each calling attention to the
premium overcharges of nongroup-rated employers resulting from the BWC’s group
rating plan and recommending that the plan be fixed or discontinued.
{¶31} In August 2004, the BWC asked its actuarial consultant to consider
whether its group rating plan was “fair.” The consultant advised the BWC that the loss
ratios (i.e., losses divided by premiums) for group-rated employers were “noticeably
higher” than for nongroup-rated employers under the BWC’s rating system and that “even
though group rating may have resulted in an overall reduction in losses for the fund,
group rated employers have enjoyed higher credits than can be supported by their actual
losses.” In a June 2007 report to the Ohio Workers’ Compensation Oversight
Commission, another actuarial consultant similarly reported that “group rating has had a
significant adverse effect on pricing equity — prices for various groups are not reflective
of underlying costs” and that “there exists substantial cross-subsidization,”12 resulting in
the payment of “exorbitantly high base rates” by nongroup-rated employers. The
consultant recommended that “[g]iven its current unfairness, the Group Rating Plan
should not continue in its current form.” As he explained:
While the general concept of group rating has merit, the program as
it currently exists does not produce rates that are actuarially sound
(reasonable and not excessive, inadequate, or unfairly discriminatory).
Group rated companies consistently produce loss ratios well in excess of
non-group rated companies, indicating that non-group rated companies are
subsidizing the group rated companies.
{¶32} In November 2006, a task force led by the Ohio Inspector General opened
an investigation into the methodology used by the BWC in calculating premium rates. In
its August 2007 report, the task force concluded that the BWC had committed an “act of
omission” in failing to follow the recommendations of its actuarial consultants with
regard to the “huge premium discounts” the BWC had given group-rated employers under
its group rating plan.
12
Cross-subsidies occur when rating classifications or processes result in premium levels for
one segment of insureds that are relatively greater than the insureds’ expected claims and expenses
and premiums for another segment of insureds that are relatively lower than their expected claims and
expenses.
{¶33} In 2007, the General Assembly enacted H.B. 100, which called for an
independent “comprehensive review” of the base premium rates paid by employers and
“all of the [BWC’s] rating programs.” 2007 Am.Sub.H.B. 100. In its 2009 report,
Deloitte Consulting L.L.P., the consultant engaged to perform this review, concluded that
the “pricing structure” under the BWC’s rating system “has created substantial inequity in
the premiums paid by different employers,” that the “primary driver of this inequity is the
[BWC’s] current approach to group rating,” and that the “performance results of the
group rating program indicate a substantial lack of actuarial soundness with respect to
equitable rating.” It further stated: “We are unaware of any other state that has a
program which functions as poorly as the existing group rating program does in Ohio.”
4. The BWC Acknowledges Problems with the Group Rating
Plan
{¶34} The record reflects that BWC representatives acknowledged the premium
inequity resulting from its group rating plan both publicly and privately, but, for many
years, did little or nothing to correct it. Base rates continued to rise, and nongroup-rated
employers continued to subsidize the excessive discounts given to group-rated employers
throughout the class period. In October 1993, then-BWC administrator Wes Trimble
reported in a memorandum to the BWC board of directors that for the rating year
beginning July 1, 1993, the “shift in premium payment caused by the group rating plan
increased the base rates by an average of 13.1%,” resulting in a $222,320,437 increase in
premiums to nongroup-rated employers “to offset the discounts given to group
employers.” Bravender testified that the BWC knew by at least 2001 that
nongroup-rated employers were paying more in premiums than they should have been
paying. Tracy Valentino, the BWC’s chief fiscal and planning officer, similarly
confirmed that from 2004 to 2008, the BWC knew that it was “shifting premium burden”
from group-rated employers to nongroup-rated employers under the rating system then in
effect.
{¶35} In a 2007 Powerpoint presentation, Pedrick, who was then the chief
actuarial officer of the BWC, expressly acknowledged that nongroup-rated employers
were “being hurt” by the BWC’s group rating system. He advised that nongroup-rated
employers were paying an average subsidy of $1,251, totalling over $200 million
annually, “to cover claims costs incurred by group-rated employers.” Employers who
were “eliminated from group rating” experienced an average premium increase of $8,600.
In a consumer advisory issued to employers in the fall of 2007, then-BWC administrator
Marsha Ryan reported that “[t]he premium inequity caused by the Ohio group-rating
program inflates base rates” and that actuarial “studies have determined that current group
discounts do not generate adequate premiums to cover claims costs for group employers.”
In February 2009, she acknowledged that under the BWC’s group rating plan,
“[s]imilarly situated employers were paying different premiums for the same product —
some far less than what their risk represents to the system, others more than their fair
share.” Later that year, she informed the Ohio Senate Insurance Committee that
“[a]ctuarial data indicates that group rated employers bring higher costs to the system
than they pay” and that “employers who were not in a group paid extra premium to make
up the shortfall left as an effect of the large group discount.”
{¶36} Efforts by the BWC to correct the premium inequity resulting from its group
rating program met with sharp resistance from the group sponsors. As a representative
from one group sponsor, Parker, testified, “we want the maximum discounts available * *
* to provide the lowest cost to our members.” “[A]nything reducing that”— even to
correct inequity in the rating system for nongroup-rated employers — “is incorrect, is a
flaw * * * head[ing] back to * * * that slippery slope we once were in in Ohio where
workers’ compensation was going to be * * * the silent killer of jobs in Ohio.” In other
words, the premium inequity resulting from the BWC’s group rating plan was simply not
a concern for many group sponsors:
Q. Now, do you believe that every employer in the State of Ohio has a
right to be charged a fair premium, a fair premium that’s based on
the risk that that employer brings to the system?
A. I believe that there are certain programs like group rating that allows
us to maximize the discounts. And that’s why I’m here. That’s the
opinion I have and that’s why I’m here.
Q. So I will take that as a no?
A. If you want to.
{¶37} Although at various points throughout the class period, the BWC
undertook certain steps to reduce premium costs, 13 it was not until the policy year
13
The BWC presented evidence that at various points throughout the class period, it took steps
to reduce overall premium rates (i.e., reducing premium costs for both group-rated and nongroup-rated
employers), including the issuance of dividends, lowering claims reserves, and the introduction of
beginning July 1, 2009, that the BWC began making significant changes to its rating
system to set more accurate (and equitable) premium rates for group-rated and
nongroup-rated employers. Instead of calculating separate off-balance factors for each
manual class, for the policy year beginning July 1, 2009, the BWC applied a constant
off-balance factor of 1.23 in setting rates for all manual classes, lowering the off-balance
factor for any class that had previously had an off-balance factor greater than 1.23 and
raising the off-balance factor for any class that had previously had an off-balance factor
less than 1.23. Pedrick testified that this method of calculating rates set “more accurate
rates” for nongroup-rated employers “than the prior system” and that if the 1.23
off-balance factor implemented in 2009 had been used to recalculate premium rates in
prior years, it would have resulted in a “more accurate rate” for nongroup-rated employers
then as well. The BWC made other changes to its rating system in 2009 as well,
including applying a “break-even factor” to group-rated employers that had the effect of
lowering the effective maximum discount received by nongroup employers. As a result
of these and other continuing changes to the BWC’s rating plans, the premium inequity
problems with the BWC’s group rating system were, by all accounts, slowly resolved.
new safety programs under which employers could qualify for premium discounts or rebates. The
BWC also presented evidence of several measures it implemented that were designed to provide
premium relief specifically to nongroup-rated employers. For example, from 2002-2006, the BWC
applied a nongroup discount factor to premium rates of nongroup-rated employers and, beginning in
2005, the BWC began reducing the maximum discount group-rated employers could receive under the
group rating program, thereby reducing the base rates and subsidy paid by nongroup-rated employers.
Even as a result of these efforts, however, the record reflects that substantial premium inequity
between group-rated and nongroup-rated employers continued.
5. The Experts
a. Plaintiffs’ Expert Allan Schwartz
{¶38} Plaintiffs retained actuarial expert Allan Schwartz (“Schwartz”) to support
their claim for equitable restitution. Schwartz opined that, based on actuarial principles of
rate-making, i.e., guidelines used by insurance companies to set actuarially sound rates,
the rates the BWC charged group-rated and nongroup-rated employers during the class
period “were not actuarially sound” and that the BWC’s rating system was “unfairly
discriminatory” and “actuarially inequitable” because nongroup-rated employers were
charged a rate that was higher than the expected value of future costs associated with the
risk they presented, and group-rated employers were charged a rate that was lower than
the expected value of future costs associated with the risk they presented.
{¶39} Schwartz developed a formula to determine the amount by which the BWC
had overcharged nongroup-rated employers during 2001-2008 (the “Schwartz formula”).
Under his formula, restitution was calculated on annual basis, based on whether, during a
given year or policy period, a class member was nongroup-rated in any manual classes
that included both group-rated and nongroup-rated employers and to which an off-balance
factor of 1.23 or greater had been applied in calculating base premium rates. Schwartz
opined that this formula produced “[a] reasonable value for the premium overcharge to a
reasonable degree of actuarial certainty.”
i. The Schwartz Formula
{¶40} Schwartz used a five-step process to calculate the restitution plaintiffs
claimed was owed the plaintiff class. First, an overcharge factor was calculated for each
of the “inflated” manual classes by comparing the base rate the BWC actually charged
nongroup-rated employers to a “corrected base rate” calculated by Schwartz, i.e., the rate
that should have been charged. To calculate the corrected base rate, the off-balance
factors the BWC had actually used in calculating rates for the relevant manual classes
during the class period were replaced with a “corrected” off-balance factor of 1.23 — the
uniform off-balance factor the BWC applied in policy year 2009 when attempting to
charge more accurate rates to nongroup-rated employers.14
{¶41} Second, the overcharge factors calculated in step one were applied to the
premiums charged nongroup-rated employers, by manual class, to determine the amount
of the overcharge. Schwartz excluded from his restitution calculation (1) manual classes
in which there were no group-rated employers 15 and (2) manual classes in which the
off-balance factor applied by the BWC during the class period was less than 1.23.16 The
14
The BWC criticizes Schwartz’s use of a single, constant off-balance factor in calculating
his “corrected” base rates, in part because the BWC used different off-balance factors for each manual
class during the class period. Schwartz claimed that if he applied different off-balance factors to
each manual class, it “would shift the amount of damages between classes, but it wouldn’t make a
difference in the overall issue that there were damages[.] * * * [T]he difference would be in terms of
different classes, how much you would say one was inflated relative to the other.”
15
Schwartz excluded manual classes in which there were no group-rated
employers from his restitution calculation, reasoning that if a manual class did not
have any group-rated employers, the base rate for that class could not have been
inflated by the BWC’s group rating plan.
16
Whereas the BWC applied a 1.23 off-balance factor to all manual classes,
overcharge factor was applied to the net premium charged the employer after deducting
dividends and other upfront discounts. Also included in Schwartz’s restitution
calculation were the amounts the BWC charged employers for administrative costs and
certain contributions to the disabled workers relief fund, which were also affected by the
inflated base rates.
{¶42} Third, the premium overcharges in each manual class were totaled by policy
number. In step four, adjustments were made to the restitution amount calculated for
each employer to account for any post-policy period discounts or rebates the employer
received. Finally, in step five, investment returns allegedly earned by the BWC on the
premium overcharges were calculated to determine the total restitution allegedly owed to
the plaintiff class.
{¶43} Because the BWC calculated and collected premiums on an annual basis,
Schwartz likewise calculated restitution on an annual basis. If, in a given policy year,
an employer was nongroup rated in a manual class that included both group-rated and
nongroup-rated employers and had an off-balance factor of 1.23 or higher, he included
lowering the off-balance factor for any class that was above 1.23 and raising the
off-balance factor for any class that had an off-balance factor less than 1.23, when it
modified its rating program in 2009, Schwartz used a zero restitution value for
manual classes in which the off-balance factor was less than 1.23. According to
Schwartz, because it had been established, based on testimony by Carlson and
others, that the manual classes that included group-rated employers had inflated
base rates during the class period, the fact that application of a uniform 1.23
off-balance factor resulted in negative numbers for some classes did not mean those
employers had been “undercharged” during the class period; it simply meant that
his formula did not capture all of the premium overcharges of nongroup-rated
employers in the plaintiff class.
the premium overcharge for that employer for that policy year in his restitution
17
calculation. No offset was provided under the Schwartz formula for any
cross-subsidies class members received during the years they were group rated; Schwartz
testified that he had no opinion regarding the migration of class members in and out of
groups. b. The BWC’s Expert
Richard Conger
{¶44} Robert Conger, an actuarial consultant with Towers Watson, testified on
behalf of the BWC. Both Conger’s methodology and conclusions differed significantly
from those of Schwartz. Conger proposed an alternative means of evaluating the equity
of the BWC’s group rating plan using a “net income analysis.” Under his net income
analysis, Conger compared the premiums class members paid to the BWC against the
claim costs, expenses, mandatory assessments, and “benefits,” i.e., dividends and
“cross-subsidy benefits,” received by the class in the aggregate. The two most
significant differences between Conger’s and Schwartz’s methodologies involved (1)
Conger’s recognition of cross-subsidy benefits and (2) the treatment of dividends class
members received from the BWC in 2001-2004.
{¶45} Conger, as part of his analysis, included a deduction from the restitution
amount for a “cross-subsidy benefit” class members who were group rated during part of
the class period received during the years in which they were group rated. Conger
described this “cross-subsidy benefit” as follows:
17
The trial court did not adopt step five of the Schwartz formula. See infra at ¶ 48.
If their premiums [i.e., the premiums of class members during the years in
which they were group rated] had been adequate to cover their claims and
their expenses at the same relative level as everybody else, * * * their
calculated premiums would have been higher by $1.8 billion. That’s what
we mean by a cross-subsidy benefit. * * * They paid less by this much than
they would have [paid] if there had been no cross subsidies in the system.
{¶46} Conger also treated dividends differently than Schwartz. Whereas
Schwartz, under his formula, deducted dividends upfront along with other premium
discounts in calculating the amount of premium overcharges, Conger deducted
dividends, in the aggregate, after applying his cross-subsidy modifier. Conger testified,
that based on his analysis, the class as a whole did not pay “inflated” premiums and was
not overcharged during the class period. Instead, Conger claimed that the class as a
whole benefitted from the BWC’s group rating program. Specifically, Conger testified
that when taking into account the $1.87 billion in dividends the BWC paid class members
in 2001-2004 and the “cross-subsidy benefits” those class members who migrated
between group and nongroup rating received during the class period, the BWC actually
experienced a net loss of $861 million from the class.
C. The Trial Court’s Ruling
{¶47} On December 28, 2012, the trial court issued its partial order and opinion,
holding that plaintiffs were entitled to restitution as a result of the BWC’s violation of
former R.C. 4123.29 and 4123.34(C). The trial court’s opinion is detailed, provides a
well-reasoned analysis of the applicable facts and law, and clearly identifies the testimony
and other evidence supporting its findings. With respect to the procedural challenges
raised by the BWC, the trial court held that because plaintiffs sought “the return of a
specific amount which they claim has been wrongfully collected by the BWC,” their
claim was “an equitable one for restitution” over which the common pleas court could
properly exercise jurisdiction pursuant to R.C. 2743.03(A)(2). The trial court further
determined that compliance with the administrative review process would have been
futile and that the plaintiff class, therefore, was not required to exhaust administrative
remedies before filing suit. With respect to the merits of plaintiffs’ claim, the trial court
determined that the BWC had “received and retained excess premiums charged to the
Plaintiff Class” during the class period and, in doing so, violated R.C. 4123.29 and
4123.34(C). The trial court further found that the BWC “must disgorge the excess
premiums” it had unlawfully collected and that the plaintiff class was entitled to
restitution of the amounts by which they were overcharged.
{¶48} As to the amount of restitution to be awarded, the trial court held that the
formula offered by plaintiffs’ actuarial expert, the Schwartz formula, was a “sufficiently
reliable method * * * based on actuarial [principles]” to determine the amount by which
the plaintiff class had been overcharged. The trial court, however, denied plaintiffs’
request to recover investment income the BWC had allegedly earned on the premium
overcharges, concluding that plaintiffs had failed to establish the value of the investment
income, if any, the BWC had earned on the overcharges. The trial court also rejected
plaintiffs’ claim that the BWC’s group rating plan violated the Ohio Constitution’s Equal
Protection Clause, concluding that the BWC’s classifications and differential treatment
were rationally related to promoting workplace safety, a legitimate state interest.
{¶49} Due to issues with the data that had been produced, the trial court held that
the specific amount of restitution owed the plaintiff class could not be determined based
on the evidence presented at trial. The trial court, therefore, reserved its determination of
the restitution amount and ordered the parties to use the Schwartz formula to calculate “a
final restitution figure.” On March 20, 2013, following a hearing on the final restitution
amount, the trial court issued its final judgment, awarding plaintiffs $859,440,258.79 in
restitution on their unjust enrichment claim. Although the trial court made no explicit
finding in its partial order and opinion that the BWC was unjustly enriched as a result of
its unlawful premium overcharges, in its final order and opinion, the trial court states:
“The Court issued a Partial Order and Opinion on December 28, 2012, which found the
Defendant collected premiums in violation of Ohio statute and, as a result, the Defendant
was unjustly enriched.”
{¶50} The BWC appealed, presenting the following nine assignments of error:
Assignment of Error 1
The trial court erred as a matter of law by holding that BWC abused its
rate-setting discretion and violated R.C. 4123.29 and R.C. 4123.34.
Assignment of Error 2
The trial court erred as a matter of law by holding that Plaintiffs were not
obligated to exhaust statutorily specified administrative remedies applicable
to Plaintiffs’ premium protest.
Assignment of Error 3
The trial court erred as a matter of law by holding that BWC was unjustly
enriched through an alleged violation of R.C. 4123.29 and an unalleged
violation of R.C. 4123.34.
Assignment of Error 4
The trial court abused its discretion by overruling BWC’s Motion for Leave
to File an Amended Answer to assert the additional affirmative defense of
set-off — a motion made over a year before trial and before any discovery
cut-off had been established.
Assignment of Error 5
The trial court erred as a matter of law by holding that Plaintiffs are entitled
to “equitable restitution” for unjust enrichment without taking into account
important equitable considerations relating to the totality of the
circumstances — including the undisputed fact that, far from benefitting
from policies provided to Plaintiffs, BWC incurred $861 million more in
claims costs than Plaintiffs paid in premiums on policies provided to
Plaintiffs over the Class Period.
Assignment of Error 6
The trial court abused its discretion by failing to decertify the Plaintiff Class
in light of new facts and circumstances not present at the time of class
certification.
Assignment of Error 7
The trial court abused its discretion by denying BWC’s Miller Bike/Daubert
Motion to exclude the “expert testimony” of Allan I. Schwartz, by adopting
the “Schwartz formula” to calculate restitution, and then by misapplying
that formula.
Assignment of Error 8
The trial court erred as a matter of law by holding that it had subject matter
jurisdiction over this case where the damages sought are a legal remedy
over which the Court of Claims has exclusive jurisdiction.
Assignment of Error 9
The trial court erred as a matter of law by failing to apply the statute of
limitations applicable to claims against the State of Ohio.
{¶51} Plaintiffs filed a cross-appeal, raising the following two cross-assignments
of error:
Cross-Assignment of Error 1
The Trial Court erred in holding that Defendant did not violate Plaintiffs’
right to equal protection guaranteed by Section 2, Article I of the Ohio
Constitution.
Cross-Assignment of Error 2
The Trial Court erred in holding that Defendant is not required to disgorge
the investment returns earned by Defendant on Plaintiffs’ funds that
Defendant wrongfully collected and retained.
II. Analysis
{¶52} For judicial clarity and ease of discussion, we consider the parties’
assignments of error out of order and together where appropriate. We address the
BWC’s eighth assignment of error first.
A. Subject Matter Jurisdiction
{¶53} In its eighth assignment of error, the BWC challenges the trial court’s
determination of subject matter jurisdiction. The BWC argues that the restitution sought
by plaintiffs is actually a claim for money damages, i.e., a legal remedy over which the
court of claims has exclusive jurisdiction, and that the trial court, therefore, erred as a
matter of law in determining that it had subject matter jurisdiction over the case.
“‘Subject-matter jurisdiction is the power conferred on a court to decide a particular
matter on its merits and render an enforceable judgment over the action.’” ABN AMRO
Mtge. Group, Inc. v. Evans, 8th Dist. Cuyahoga No. 96120, 2011-Ohio-5654, ¶ 5, quoting
Udelson v. Udelson, 8th Dist. Cuyahoga No. 92717, 2009-Ohio-6462. In evaluating
subject matter jurisdiction, we apply a de novo standard of review. Id.{¶54} The law is clear that the court of claims “has exclusive jurisdiction over civil
actions against the state for money damages that sound in law.” Measles v. Indus.
Comm. of Ohio, 128 Ohio St.3d 458, 2011-Ohio-1523, 946 N.E.2d 204, ¶ 7, citing R.C.
2743.02 and 2743.03. R.C. 2743.03 established the court of claims, granting it
“exclusive, original jurisdiction of all civil actions against the state permitted by the
waiver of immunity contained in section 2743.02 of the Revised Code.” However, R.C.
Chapter 2743 does not divest other courts of jurisdiction “to hear and determine a civil
action in which the sole relief that the claimant seeks against the state is a declaratory
judgment, injunctive relief, or other equitable relief.” Santos v. Ohio Bur. of Workers’
Comp., 101 Ohio St.3d 74, 2004-Ohio-28, 801 N.E.2d 441, ¶ 9; R.C. 2743.03(A)(2). A
suit that seeks only equitable relief may be brought against the state in the court of
common pleas. Thus, whether the trial court had subject matter jurisdiction over
plaintiffs’ claim turns on whether plaintiffs’ claim for restitution sounds in equity or in
law. To determine whether a claim for restitution seeks equitable or legal relief, we must
“look to the basis for the plaintiffs’ claim and the nature of the underlying remedies
sought.” Cristino v. Ohio Bur. of Workers’ Comp., 118 Ohio St.3d 151,
2008-Ohio-2013, 886 N.E.2d 857, ¶ 7.
{¶55} The BWC argues that plaintiffs seek the recovery of “unliquidated sums,”
rather than the return of specific, traceable funds, and that their restitution claim,
therefore, seeks “purely legal relief.” In Santos, supra, the Ohio Supreme Court
explained the difference between restitution claims sounding in law and those sounding in
equity as follows:
Restitution is available as a legal remedy when a plaintiff cannot “‘assert
title or right to possession of particular property, but in which nevertheless
he might be able to show just grounds for recovering money to pay for
some benefit the defendant had received from him.’” Great-West Life &
Annuity Ins. Co. v. Knudson, 534 U.S. 204, 213, 122 S.Ct. 708, 151 L.Ed.2d
635 (2002), quoting Dobbs, Law of Remedies Section 4.2(1), 571 (2d
Ed.1993). Restitution is available as an equitable remedy “where money or
property identified as belonging in good conscience to the plaintiff could
clearly be traced to particular funds or property in the defendant’s
possession.” Id. “Thus, for restitution to lie in equity, the action generally
must seek not to impose personal liability on the defendant, but to restore to
the plaintiff particular funds or property in the defendant’s possession.” Id.
at 214, 122 S.Ct. 708, 151 L.Ed.2d 635.
Santos, 101 Ohio St.3d 74, 2004-Ohio-28, 801 N.E.2d 441, at ¶ 13; see also Measles at ¶
9.
{¶56} Thus, not every claim for monetary relief constitutes a legal claim for money
damages. Interim HealthCare of Columbus, Inc. v. State Dept. of Admin. Servs., 10th
Dist. Franklin No. 07AP-747, 2008-Ohio-2286, ¶ 15. “Even when the relief sought
consists of the state’s ultimately paying money, a cause of action will sound in equity if
‘money damages’ is not the essence of the claim.” Id., citing Ohio Academy of Nursing
Homes v. Ohio Dept. of Job & Family Servs., 114 Ohio St.3d 14, 2007-Ohio-2620, 867
N.E.2d 400, ¶ 15. “Unlike a claim for money damages where a plaintiff recovers
damages to compensate, or substitute, for a suffered loss, equitable remedies are not
substitute remedies, but an attempt to give the plaintiff the very thing to which it was
entitled.” Interim HealthCare at ¶ 15, citing Santos, supra. “If the essence of a claim is
* * * restitution for the state’s unjust enrichment by withholding funds to which a worker
had a statutory right, then the ultimate relief sought is equitable restitution.” Measles at ¶
9, citing Ohio Academy of Nursing Homes at ¶ 15-19.
{¶57} In Santos, the Ohio Supreme Court considered whether the common pleas
court had subject matter jurisdiction over a restitution claim brought by injured workers
who sought to recover funds the BWC had collected pursuant to a subrogation statute that
was later declared unconstitutional. Santos, 101 Ohio St.3d 74, 2004-Ohio-28, 801
N.E.2d 441, at ¶ 3-8. Because the plaintiffs sought repayment of specific funds
wrongfully collected and held by the state, the court held that their claim sounded in
equity and could be addressed by the courts of common pleas. Id. at ¶ 17. As the court
explained:
This court held in [Holeton v. Crouse Cartage Co.], 92 Ohio St.3d 115,
2001-Ohio-109, 748 N.E.2d 1111, that the workers’ compensation
subrogation statute was unconstitutional. Accordingly, any collection or
retention of moneys collected under the statute by the BWC was wrongful.
The action * * * is not a civil suit for money damages but rather an action to
correct the unjust enrichment of the BWC. A suit that seeks the return of
specific funds wrongfully collected or held by the state is brought in equity.
Thus, a court of common pleas may properly exercise jurisdiction over the
matter as provided in R.C. 2743.03(A)(2).
Santos at ¶ 17.
{¶58} Other cases have similarly recognized that where, as here, a state agency
collects money to which it is not entitled, an action to recover those funds is generally
considered a claim for equitable restitution. See, e.g., Ohio Hosp. Assn. v. Ohio Dept. of
Human Servs., 62 Ohio St.3d 97, 104-105, 579 N.E.2d 695 (1991) (order to reimburse
Medicaid providers for amounts unlawfully withheld pursuant to administrative rules
improperly promulgated by the Ohio Department of Human Services was “not an award
of money damages, but equitable relief”); Interim HealthCare, 2008-Ohio-2286 at ¶ 17
(“Cases in which a plaintiff claims a state agency has wrongfully collected certain funds
are characterized generally as claims for equitable restitution.”), citing Morning View
Care Center-Fulton v. Ohio Dept. of Job & Family Servs., 10th Dist. Franklin No.
04AP-57, 2004-Ohio-6073, ¶ 19; Dunlop v. Ohio Dept. of Job & Family Servs., 10th Dist.
Franklin No. 11AP-929, 2012-Ohio-1378, ¶13-16 (claim for reimbursement of child
support payments that child support agency allegedly wrongly collected in excess of child
support payments ordered by the common pleas court was a claim for equitable
restitution).
{¶59} Plaintiffs’ claim in this case is not a claim for general money damages to
compensate the plaintiff class for the losses they sustained as a result of the BWC’s
alleged unlawful premium overcharges. Rather, plaintiffs seek to recover a specific
amount of money they claim has been wrongfully collected from the class due to the
BWC’s alleged violation of R.C. 4123.29 and 4123.34(C). In other words, plaintiffs
have asserted a claim for the return of the very thing to which the class was allegedly
entitled in the first place — the amount of workers’ compensation insurance premiums
collected by the BWC in excess of the premiums the class allegedly should have been
charged. The fact that plaintiffs seek to recover only a portion of the premiums paid, i.e.,
the portion of premiums paid that exceeded the amount they should have been charged, or
that a calculation must be made to determine the amount by which class members were
overcharged, does not change the nature of the relief sought nor does it transform
plaintiffs’ claim from a claim seeking equitable relief into one seeking money damages.
{¶60} The BWC argues that because Schwartz’s restitution calculation is based
upon a “reasonable value for the premium overcharge,” plaintiffs’ claim is necessarily
one for money damages, i.e., a claim for legal restitution, rather than a claim for the return
of specific funds in equity. We disagree. Simply because the amount of an overcharge
may be difficult to calculate or there may be a disagreement as to the specific amount by
which a plaintiff was overcharged, does not mean the plaintiff loses his or her right to
equitable restitution of the overcharge (assuming other requirements for equitable
restitution have been met). The amount of the overcharge is simply a factual issue to be
resolved by the trier of fact.18 It was, therefore, sufficient that plaintiffs’ expert’s
calculations generated a “reasonable valuation” of the amount of the BWC’s premium
overcharges during the class period.
18
The amount of the overcharge, i.e., the difference between the premium payments the BWC
actually received from each class member during the class period under the BWC’s allegedly
inequitable rating system and the premium payments the BWC would have received from that class
member if the BWC had implemented a lawful rating system, cannot be calculated with absolute
certainty because there is a range of rating systems that the BWC, in its discretion, could have
implemented during the class period that would have complied with R.C. 4123.29 and 4123.34(C).
Under each such rating system, nongroup-rated employers would have likely paid slightly different
premium rates. Indeed, Schwartz expressly acknowledged that his formula failed to capture all of
the premium overcharges to class members in the class period. See supra at ¶ 41, fn. 16. Because
the restitution calculation generated under his formula was less than the total subsidies calculated by
the actuarial experts the BWC had previously retained to evaluate its group rating plan, Schwartz
opined that his formula resulted in a “conservative” approximation of the amount by which
nongroup-rated employers were overcharged during the class period.
{¶61} Nor, as the BWC contends, does the fact that the BWC distributed the
funds after the excessive premiums were allegedly wrongfully collected from the class —
such that the specific funds constituting plaintiffs’ overpayments may no longer be readily
traceable — transform plaintiffs’ claim from one sounding in equity into one in law. See
Dunlop, 2012-Ohio-1378 at ¶13-16 (merely because child support agency might have
eventually distributed the allegedly improperly collected child support to the child support
obligee, the state government, or the federal government did not transform plaintiff’s
claim seeking restitution of those funds from one sounding in equity to one sounding in
law; what child support agency “might have subsequently done with the funds is not
relevant to the determination of subject-matter jurisdiction”). Because plaintiffs seek the
return of the specific premiums they claim were unlawfully collected by the BWC, their
claim is one for equitable restitution. Santos, 101 Ohio St.3d 74, 2004-Ohio-28, 801
N.E.2d 441, at ¶ 14, 17. Accordingly, the trial court did not err in determining that it had
subject matter jurisdiction in this case. 19 The BWC’s eighth assignment of error is
overruled.
19
The BWC also argues that plaintiffs’ claim should be regarded as a claim
for legal restitution because the plaintiff class was certified under Civ.R. 23(B)(3) as
a Civ.R. 23(B)(3) “damages” class. Civ.R. 23(B)(3) is the broadest provision under
which classes may be certified under Civ.R. 23 and often includes classes in which
the class seeks the recovery of money damages. However, nothing in Civ.R.
23(B)(3) limits classes certified under that provision to classes seeking the recovery
of money damages or otherwise precludes the certification of classes seeking
equitable relief under Civ.R. 23(B)(3). See, e.g., In re Cordis Corp. Pacemaker Prod.
Liab. Litigation v. Cordis Corp., S.D.Ohio No. C-3-86-543, 1992 U.S. Dist. LEXIS
22612, *34, fn. 21 (Dec. 23, 1992) (“When appropriate, a court can grant equitable
relief in a class action certified under Rule 23(b)(3).”), citing In re Asbestos School
B. Exhaustion of Administrative Remedies
{¶62} In its second assignment of error, the BWC contends that the trial court
erred as a matter of law in failing to dismiss plaintiffs’ complaint for failure to exhaust
administrative remedies. The BWC claims that plaintiffs were required to comply with
the administrative review process set forth in R.C. 4123.291 and Ohio Adm.Code
4123-14-06 for challenges to risk premium matters before seeking relief in the court of
common pleas. The BWC maintains that because plaintiffs did not protest their premium
rates through the administrative process, they are not entitled to judicial relief.
{¶63} The determination of whether a complaint should be dismissed for failure to
exhaust administrative remedies presents a question of law that we review de novo.
Martin v. Ohio Dept. of Rehab. & Corr., 140 Ohio App.3d 831, 835, 749 N.E.2d 787 (4th
Dist.2001). “It is a ‘long settled rule of judicial administration that no one is entitled to
judicial relief for a supposed * * * injury until the prescribed administrative remedy has
been exhausted.’” State ex rel. Teamster Local Union No. 436, 132 Ohio St.3d 47,
2012-Ohio-1861, 969 N.E.2d 224, ¶ 19, quoting Myers v. Bethlehem Shipbuilding Corp.,
303 U.S. 41, 50-51, 58 S.Ct. 459, 82 L.Ed. 638 (1938). Thus, a party must generally
“exhaust any administrative remedy that could provide him with the relief he seeks”
before seeking judicial intervention. Driscoll v. Austintown Assocs., 42 Ohio St.2d 263,
Litigation, 104 F.R.D. 422, 439 (E.D. Pa. 1984) (“It is * * *well settled that
certification under 23(b)(3) does not preclude the granting of appropriate equitable
relief.”), citing 7A C. Wright and A. Miller, Federal Practice and Procedure, Section
1784, 127 (1972).
273, 328 N.E.2d 395 (1975). Exhaustion of remedies is required to avoid “‘premature
interference with agency processes, so that the agency may function efficiently and so that
it may have an opportunity to correct its own errors, to afford the parties and the courts
the benefit of its experience and expertise, and to compile a record which is adequate for
judicial review.’” State ex rel. Teamster Local Union No. 436 at ¶ 19, quoting
Weinberger v. Salfi, 422 U.S. 749, 765, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975).
Exhaustion of administrative remedies is an affirmative defense, which the BWC bore the
burden of proving. AMM Property Invest., Inc. v. Cleveland, 8th Dist. Cuyahoga No.
99848, 2014-Ohio-821, ¶ 3; Cleveland Constr., Inc. v. Kent State Univ., 10th Dist.
Franklin No. 09AP-822, 2010-Ohio-2906, ¶ 48.
{¶64} Where an administrative agency has no power to afford the relief sought or
an administrative appeal would otherwise be futile, exhaustion of administrative remedies
is not a prerequisite to seeking judicial relief. State ex rel. Teamsters Local Union No.
436 at ¶ 23-24; see also Kaufman v. Newburgh Hts., 26 Ohio St.2d 217, 219, 271 N.E.2d
280 (1971) (“‘failure to exhaust administrative remedies available’ may be a defense * *
* only if interposed * * *, and if a remedy exists which is effectual to afford the relief
sought”). In determining futility for exhaustion of remedies purposes, it does not matter
that it may be improbable that the claimant will receive the requested relief. “‘The focus
is on the power of the administrative body to afford the requested relief, and not on the
happenstance of the relief being granted.’” (Emphasis omitted.) State ex rel. Teamsters
Local Union No. 435 at ¶ 24, quoting Nemazee v. Mt. Sinai Med. Ctr., 56 Ohio St.3d 109,
115, 564 N.E.2d 477 (1990); see also McNally v. Cleveland, 8th Dist. Cuyahoga No.
92697, 2010-Ohio-512, ¶ 12 (“‘[a] vain act is defined in the context of lack of authority to
grant administrative relief and not in the sense of lack of probability that the application
for administrative relief will be granted’”), quoting Gates Mills Invest. Co. v. Pepper
Pike, 59 Ohio App.2d 155, 167, 392 N.E.2d 1316 (8th Dist.1978). A plaintiff cannot
escape the exhaustion of remedies requirement by bringing claims as a class action. See,
e.g., State ex rel. Davis v. Pub. Emps. Retirement Bd., 10th Dist. Franklin No.
04AP-1293, 2005-Ohio-6612, ¶ 45, 53.
{¶65} The trial court held that plaintiffs’ challenges to the “lawfulness and
constitutionality” of the BWC’s rules and regulations were “outside the scope of the
Adjudicating Committee’s power,” as set forth in Ohio Adm.Code 4123-14-06(F).
Because the adjudicating committee “lacked the jurisdictional authority to address the
[p]laintiffs’ claims,” the trial court held that plaintiffs were not obligated to exhaust any
administrative remedies prior to filing suit because “administrative remedies would have
been futile.”
{¶66} The BWC contends that the premium rate dispute in this case falls squarely
within the types of decisions employers can — and must — pursue through the
administrative review process and that the trial court erred in concluding otherwise. The
BWC’s exhaustion of administrative remedies defense thus turns on whether the
adjudicating committee had the authority to address plaintiffs’ claim and whether the
wrongs alleged by the plaintiff class could have been corrected by the administrative
review process.
{¶67} Under R.C. 4123.291(A), any employer “desiring to file a request, protest,
or petition” regarding certain categories of matters specified in the statute must file the
request, protest or petition with the adjudicating committee within 24 months after the
administrator sends notice of the determination that is the subject of the request, protest,
petition. Relevant to this case, the specified matters that the adjudicating committee has
the authority to address includes “[a]ny decision relating to any other risk premium
matter under Chapters 4121., 4123., 4131. of the Revised Code.” R.C. 4123.291(B)(6).
Similarly, Ohio Adm.Code 4123-14-06(F) provides, in relevant part:
The administrator may authorize the adjudicating committee to consider the
following matters:
(6) Any other risk or premium matters as authorized and delegated by the
administrator under Chapters 4121., 4123., and 4131. of the Revised Code.
{¶68} If an employer does not prevail before the adjudicating committee, the
employer may appeal the decision of the committee to the administrator or the
administrator’s designee. R.C. 4123.291(B); Ohio Adm.Code 4123-14-06(E).
{¶69} Amici curiae urge us to reverse the trial court’s ruling that plaintiffs were
not required to exhaust administrative remedies based on Brown v. Levin, 10th Dist.
Franklin No. 11AP-349, 2012-Ohio-5768. In Brown, the plaintiff brought a class action
against the Ohio Tax Commissioner seeking equitable restitution of sales tax he
contended was improperly collected on the value of vehicles traded-in as part of the
“Cash for Clunkers” program. Id. at ¶ 2. Brown had been charged (and paid) Ohio
sales tax on the total purchase price of a new vehicle he had purchased, which included
the $3,500 value of his trade-in vehicle. Id. at ¶ 4. Brown alleged that, under R.C.
5739.01(H)(2), the trade-in value should have reduced the purchase price of the vehicle
for sales tax purposes and that he and other members were, therefore, unlawfully charged
Ohio sales tax on their vehicles’ trade-in values. Id. at ¶ 11, fn. 1. The tax commissioner
moved to dismiss Brown’s complaint on, among other grounds, that Brown and the class
failed to exhaust administrative remedies prior to seeking judicial intervention. Id. at ¶ 7.
Brown argued that because the tax commissioner had previously issued an “information
release,” “an ‘official statement’ declaring the policy of the Tax Commissioner,” which
was adverse to the claims of Brown and the putative class, it was “certain that any
application filed under R.C. 5739.07 would be rejected” and that, therefore, an
application for refund under R.C. 5739.07 would be “futile.” Id. at ¶ 20, 37-38. He
further argued that, based on the information release, filing an application for refund
would necessarily require an appeal to the BTA, which was not cost-effective, and that
the administrative remedy was therefore inadequate. Id. at ¶ 37. Citing its prior decision
in Telsat, Inc. v. Micro Ctr., Inc., 10th Dist. Franklin No. 10AP-229, 2010-Ohio-5628, the
Tenth District rejected Brown’s arguments and held that Brown was required to exhaust
the administrative remedies set forth in R.C. 5739.07 prior to pursuing an action in
common pleas court:
In Telsat, we rejected the assertion the statutory remedy in R.C.
5739.07 is inadequate simply based upon speculation that the Tax
Commissioner would deny all refunds requested under the statute. We noted
that if the Tax Commissioner denied a refund, the applicant could still
appeal the decision to the BTA and eventually to the Supreme Court of
Ohio. Thus, even if the Tax Commissioner denied the requested refund,
the plaintiff still had additional avenues for relief pursuant to the
administrative process.
We also rejected Telsat, Inc.’s argument that the potential lack of
cost-effectiveness made the remedy inadequate. Despite acknowledging
that the costs of pursuing a small sales tax claim to the BTA and the
Supreme Court of Ohio may substantially exceed the amount of the refund,
we nevertheless found the administrative remedy to be adequate in Telsat.
“The General Assembly * * * was aware that sales tax issues typically
involve small amounts but nonetheless prescribed the process set forth in
R.C. 5739.07, presumably because the initial cost of seeking a refund
through the administrative process is less than if litigation were to be
initiated to collect the illegal or erroneous tax.” Id. at ¶ 27. We further
found that, should the appeal of an adverse decision rendered by the Tax
Commissioner result in a decision that is favorable to the applicant, that
decision would likely resolve the claims of all of the remaining class
members when the Tax Commissioner implemented the appellate court’s
determination. Id. at ¶ 27. This provided further support for the adequacy
of the statutory remedy.
Brown, 2012-Ohio-5768 at ¶ 33-34.
{¶70} Brown is, however, distinguishable from this case. Under the
administrative review process at issue in Brown, the tax commissioner had express
authority to refund funds to a taxpayer who has paid “illegal or erroneous taxes.” R.C.
5739.07. A taxpayer who believed sales tax had been “illegally or erroneously” collected
could file an application for a refund. R.C. 5739.07(A) and (D). The tax commissioner
would then have to determine the amount of refund to which the applicant is entitled, if
any. R.C. 5739.07(E). If the taxpayer was dissatisfied with the commissioner’s final
determination, he or she could appeal the decision to the Ohio Board of Tax Appeals and
then to the court of appeals or the Ohio Supreme Court. R.C. 5717.02, 5717.04.
{¶71} In this case, however, there is nothing to suggest that the adjudicating
committee (or, upon further review, the administrator or his designee) had the authority to
address plaintiffs’ claim that the BWC’s group rating plan, the method by which the
BWC set premiums as a result of that rating plan, and the excessive premiums
nongroup-rated employers were allegedly charged as a result of the group rating plan,
were unlawful and unconstitutional. Tracy Valentino, the BWC’s chief fiscal and
planning officer, testified that in deciding matters brought before it, the adjudicating
committee follows the administrative rules that have been adopted by the BWC and
determines whether the BWC followed those rules, not whether those rules are lawful.
She further testified that the adjudicating committee had no authority to invalidate an
administrative regulation adopted by the BWC or to determine that an administrative
regulation violated the Ohio Constitution or the Ohio Revised Code.
{¶72} Since constitutional challenges are not within an administrative agency’s
jurisdiction, courts have long held that failure to exhaust administrative remedies is not a
prerequisite to an action raising a constitutional challenge to agency action. See, e.g.,
Roosevelt Properties Co. v. Kinney, 12 Ohio St.3d 7, 8, 465 N.E.2d 421 (1984); Herrick
v. Kosydar, 44 Ohio St.2d 128, 130, 339 N.E.2d 626 (1975); Driscoll, 42 Ohio St.2d 263,
328 N.E.2d 395, at paragraph two of the syllabus. “Because administrative bodies have
no authority to interpret the Constitution, requiring litigants to assert constitutional
arguments administratively would be a waste of time and effort for all involved.” Jones
v. Chagrin Falls, 77 Ohio St.3d 456, 460-461, 674 N.E.2d 1388 (1997).
{¶73} Although exhaustion of administrative remedies is not generally required
before a constitutional challenge may be raised, a party raising a constitutional challenge
must still exhaust any applicable administrative remedies for any non-constitutional
claims. Silverberg v. State Bd. of Pharmacy, 8th Dist. Cuyahoga No. 51777, 1987 Ohio
App. LEXIS 6905, *6-8 (Apr. 2, 1987) (failure to exhaust administrative remedies
applied to bar non-constitutional arguments that could have been considered through
administrative review process). With respect to plaintiffs’ non-constitutional arguments,
this case is materially different from a case such as Brown, in which a taxpayer challenges
a particular application of a tax provision, or one in which an individual employer
challenges a premium it has been assessed, based on a particular application of the
BWC’s rules, classifications, or calculations. Compare Arth Brass & Aluminum
Castings, Inc. v. Conrad, 104 Ohio St.3d 547, 2004-Ohio-6888, 820 N.E.2d 900; State ex
rel. Cafaro Mgt. Co. v. Kielmeyer, 113 Ohio St.3d 1, 2007-Ohio-968, 862 N.E.2d 474;
State ex rel. RMS of Ohio, Inc. v. Ohio Bur. of Workers’ Comp., 113 Ohio St.3d 154,
2007-Ohio-1252, 863 N.E.2d 160. In such cases, any “errors” impacting an individual
employer (or even multiple employers) are fully correctable in the normal course upon
administrative review. Because of the BWC’s expertise in administering its own rules
and regulations, it ordinarily should be given the opportunity to review the application of
those rules and regulations to a particular factual context.
{¶74} Plaintiffs’ challenges to their rates, however, do not involve individualized
decisions concerning particular employers’ risk accounts, but rather, a system-wide
challenge to the manner in which premium rates were set by the BWC and a request for
system-wide relief. Although the adjudicating committee (or, upon further review, the
administrator or his designee) may have had the authority to make individual, manual
premium rate adjustments under certain circumstances, nothing in the record (or the
applicable rule and statute) suggests that the plaintiff class had an administrative remedy
pursuant to which it could have required the BWC to change the manner in which it set
premium rates. See, e.g., AMM Peric Property Invest., Inc. v. Cleveland, 8th Dist.
Cuyahoga No. 99848, 2014-Ohio-821, ¶ 4, 6, 12 (where administrative agency lacks
power to grant relief sought, administrative remedy may be inadequate); Bowen v. New
York, 476 U.S. 467, 484-485, 106 S.Ct. 2022, 90 L. Ed.2d 462 (1986) (exhaustion of
administrative remedies would have been futile and, therefore, was not required where
challenged agency action involved a “systemwide, unrevealed policy” that was
inconsistent with established regulations and did not “depend on the particular facts of the
case before it”); New Mexico Assn. for Retarded Citizens v. New Mexico, 678 F.2d 847,
851 (10th Cir.1982) (plaintiff class was not required to exhaust administrative remedies
before filing lawsuit where the “gravamen” of the lawsuit was that “the entire special
education service system offered by the State is infirm” and the remedies offered at the
administrative level did not include “a restructuring of the State’s system” as sought by
the class); see also Espinoza-Gutierrez v. Smith, 94 F.3d 1270, 1273 (9th Cir.1996)
(exhaustion of administrative remedies doctrine did not bar review of a question
concerning the validity of an INS regulation due to conflict with a statute).
{¶75} Because adjudication of the lawfulness and constitutionality of the BWC’s
rating system and the relief sought by the plaintiff class were outside the scope of the
administrative review process set forth in R.C. 4123.291, the trial court committed no
error in concluding that plaintiffs were not obligated to exhaust administrative remedies
prior to filing their complaint. The BWC’s second assignment of error is overruled.
C. The Trial Court’s Determination that the BWC’s Violations of
Former R.C. 4123.29 and 4123.34(C) Warrant Equitable
Restitution
{¶76} We now turn to the merits of plaintiffs’ claim. In its first assignment of
error, the BWC challenges the trial court’s interpretation of the BWC’s statutory
rate-setting obligations under former R.C. 4123.29 and 4123.34(C) and its determination
that the BWC’s violation of those statutes warranted an award of equitable restitution to
the plaintiff class. Because the parties offer conflicting interpretations of these statutes,
determining whether the BWC violated former R.C. 4123.29 or 4123.34(C) necessarily
involves an issue of statutory interpretation.
{¶77} “The primary goal in construing a statute is to ascertain and give effect to
the intent of the legislature.” In re M.W., 133 Ohio St.3d 309, 2012-Ohio-4538, 978
N.E.2d 164, ¶ 17, citing State v. Hairston, 101 Ohio St.3d 308, 2004-Ohio-969, 804
N.E.2d 471, ¶ 11. We examine the plain language of the statute, “read words and
phrases in context[,] and construe them according to the rules of grammar and common
usage.” R.C. 1.42. In doing so, we attempt to give effect to “every word, phrase,
sentence, and part of the statute” and to avoid an interpretation that would “restrict,
constrict, qualify, narrow, enlarge, or abridge the General Assembly’s wording” or that
would otherwise render a provision meaningless or superfluous. State ex rel. Carna v.
Texas Valley Local School Dist. Bd. of Edn., 131 Ohio St.3d 478, 2012-Ohio-1484, 967
N.E.2d 193, ¶ 18-19. Words and phrases that have acquired a technical or particular
meaning, whether by legislative definition or otherwise require “a technical interpretation
in the light of the statutory purpose.” State v. Rentex, Inc., 51 Ohio App.2d 57, 60, 365
N.E.2d 1274 (8th Dist.1977), paragraph one of the syllabus, citing R.C. 1.42. If a
statutory term is not defined, and is not shown to have a relevant “technical or particular
meaning,” it is “‘accorded its plain and ordinary meaning.’” State ex rel. Data Trace
Information Servs., L.L.C. v. Cuyahoga Cty. Fiscal Officer, 131 Ohio St.3d 255,
2012-Ohio-753, 963 N.E.2d 1288, ¶ 49, quoting Rhodes v. New Philadelphia, 129 Ohio
St.3d 304, 2011-Ohio-3279, 951 N.E.2d 782, ¶ 17.
1. Violation of Former R.C. 4123.29
{¶78} Former R.C. 4123.29(A)(4)(c) stated, in relevant part:
In providing employer group plans under division (A)(4) of this section, the
administrator shall consider an employer group as a single employing entity
for purposes of retrospective rating.
{¶79} Plaintiffs argue that this provision, specifically the mandatory language “the
administrator shall consider an employer group as a single employing entity for the
purposes of retrospective rating” (emphasis added), required the BWC to implement a
retrospective group rating plan and only a retrospective group rating plan. Because there
is no dispute that the BWC implemented only a prospective group rating plan during the
class period, plaintiffs maintain the BWC violated former R.C. 4123.29(A)(4)(c). The
trial court agreed. Concluding that there was nothing in the statute that authorized the
BWC to implement a prospective group rating plan, the trial court held that the BWC’s
implementation of its prospective group rating plan “was in direct and clear violation of
[R.C. 4123.29], not within their agency discretion, and therefore unlawful.”
{¶80} The BWC contends that the trial court’s ruling was based on a misreading of
former R.C. 4123.29(A)(4)(c), and that, under a proper reading of the statute, the BWC
was not precluded from implementing a prospective group rating plan. The BWC
contends that former R.C. 4123.29(A)(4)(c) should be read only to require the BWC to
consider an employer group as a single employing entity for the purposes of retrospective
rating if it, in its discretion, chose to offer a retrospective group rating plan.
{¶81} Considering the plain and ordinary meaning of the language used in former
R.C. 4123.29(A)(4) and giving effect to every phrase and word in that part of the statute,
we agree with the trial court that former R.C. 4123.29(A)(4)(c) “reflects the General
Assembly’s conscious choice to require the BWC to use a retrospective plan, and sets
forth that requirement in clear, unambiguous, and mandatory language.” The statute
directs that “[i]n providing employer group plans under division (A)(4)” — the section of
the statute that required the BWC to implement a group rating plan — “the administrator
shall consider an employer group as a single employing entity for purposes of
retrospective rating.” (Emphasis added.) It is undisputed that the word “shall” is
mandatory. The General Assembly is presumed to mean what it said. Where, as here, a
statute is clear on its face, we must apply the statute as written. Had the General
Assembly intended former R.C. 4123.29(A)(4)(c) to authorize the BWC to implement any
form of group rating system, it would not have mandated that the BWC consider an
employer group as a single group entity specifically “for purposes of retrospective
rating,” but rather, generally, for any form of “group rating.”
{¶82} The BWC was constrained by the statutory authority granted to it by the
General Assembly. See, e.g., Taber v. Ohio Dept. of Human Servs., 125 Ohio App.3d
742, 750, 709 N.E.2d 574 (10th Dist.1998) (“‘[A]n administrative agency may not
legislate by enacting rules which are in excess of legislative policy, or which conflict with
the enabling statute.’”), quoting P.H. English v. Koster, 61 Ohio St.2d 17, 19, 399 N.E.2d
72 (1990). The BWC’s administrative rules and practices “cannot add [to] or subtract
from the legislative enactment.” Amoco Oil Co. v. Petroleum Underground Storage
Tank Release Comp. Bd., 89 Ohio St.3d 477, 483-484, 733 N.E.2d 592 (2000), citing
Cent. Ohio Joint Vocational School Dist. Bd. of Edn. v. Ohio Bur. of Emp. Servs., 21
Ohio St.3d 5, 10, 487 N.E.2d 288 (1986). Because former R.C. 4123.29(A)(4)(c)
expressly required that employers be grouped “for purposes of retrospective rating,” and
there is no language in former R.C. 4123.29 authorizing the BWC to implement a
prospective group rating plan, we find no error in the trial court’s determination that the
BWC’s prospective group rating plan violated former R.C. 4123.29.
{¶83} The BWC also argues the trial court’s restitution award should be reversed
because “the restitution awarded has no causal connection to whether [the] BWC
retrospectively rated group plans.” The BWC claims that to award restitution to the
plaintiff class based on a violation of former R.C. 4123.29, the trial court would have had
to “reset premium rates and calculate restitution under a methodology that retrospectively
rated group plans during the Class Period.” We disagree.
{¶84} Although the difference between (1) the premium rates class members were
charged by the BWC during the class period and (2) the
premium rates class members would have been charged
during that time period under a rating system that complied
with former R.C. 4123.29(A)(4)(c) is one way the amount of
the premium overcharges to the plaintiff class could have
been calculated, it was not the only way. Contrary to the
BWC’s assertion, the trial court did not award restitution
“based on a group-experience rating methodology” that it
found “‘was in direct and clear violation’ of R.C. 4123.29.”
The trial court awarded restitution based on the Schwartz
formula. The Schwartz formula is not a “rating
methodology.” The Schwartz formula calculated a
“reasonable value” for the premium overcharges to the
plaintiff class by substituting the inflated off-balance factors
the BWC had used in calculating base rates for the affected
manual classes during the class period with a “corrected”
off-balance factor of 1.23 — an off-balance factor the BWC’s
former chief actuary acknowledged would have resulted in a
“more accurate” premium rates for nongroup-rated employers
had it been used during the class period. The BWC’s “no
causal connection” argument is, therefore, meritless.
2. Violation of R.C. 4123.34
a. Plaintiffs Sufficiently Pled a Violation of R.C.
4123.34(C)
{¶85} With respect to the trial court’s finding that it violated R.C. 4123.34, the
BWC first argues that the trial court’s judgment should be reversed because plaintiffs
never specifically pled a violation of R.C. 4123.34 in their amended complaint and did
not move for leave to further amend their complaint to conform to the evidence at the
close of trial. The BWC’s argument is meritless.
{¶86} During the many years this case has been pending, plaintiffs have
consistently argued that the excessive discounts, subsidies, and inflated premiums
allegedly resulting from the implementation of the BWC’s group rating plan violated both
R.C. 4123.29 and 4123.34(C). Although plaintiffs’ amended complaint specifically
references only R.C. 4123.29, and not R.C. 4123.34, it also expressly includes allegations
that the BWC’s group rating plan exceeded the BWC’s rule-making authority and
violated state law “because it accords group discounts of such an excessive magnitude
that it requires non-group employers in the same occupational classification as
group-rated employers to pay a premium subsidy to cover the cost of excessive
discounts.” It also alleges that as a result of its collection and retention of excessive
premiums from plaintiffs and other members of the class, the BWC has been unjustly
enriched.
{¶87} The Ohio Civil Rules require only notice pleading, i.e., (1) “a short and
plain statement of the claim showing that the party is entitled to relief” and (2) a “demand
for judgment for the relief to which the party claims to be entitled” that will give the
defendant fair notice of what the plaintiff’s claim is and the grounds upon which it rests.
Civ.R. 8. R.C. 4123.29 and 4123.34 together set forth the BWC’s rate-setting authority
and obligations. See, e.g., R.C. 4123.34 (“The administrator, in the exercise of the
powers and discretion conferred upon the administrator in section 4123.29 of the Revised
Code, shall * * *.”). Based on a careful reading of plaintiffs’ amended complaint, we
conclude that plaintiffs’ claim that the BWC violated R.C. 4123.34 is fairly encompassed
within the allegations of the amended complaint. Plaintiffs were not required to plead a
legal theory of recovery. They were required to allege sufficient facts to give the BWC
notice of their claim. See, e.g., Thatcher v. Lauffer Ravines, LLC, 10th Dist. Franklin
No. 11AP-851, 2012-Ohio-6193, ¶ 43-48 (although claim was “not spelled out in the
complaint by explicit reference to the appropriate statutory sections,” case could
nevertheless proceed on the theory that defendant violated various statutory provisions if
the allegations in the complaint “provided fair notice to the defendants that the action
could proceed on this theory”), citing Mounts v. Ravotti, 7th Dist. Mahoning No. 07 MA
182, 2008-Ohio-5045, ¶ 25-26 (although complaint did not reference R.C. 5321.04,
allegations of complaint that defendant had a duty to maintain the stairs, knew or should
have known about the condition of the stairs, and failed to abate the condition of the stairs
could be seen to assert both a common law premises liability cause of action and a cause
of action under R.C. 5321.04(A)(2) for failing to repair the steps). Plaintiffs did that
here.
b. Requirements of R.C. 4123.34(C) and the Role of
Deference to the BWC
{¶88} The BWC next argues that the trial court’s judgment should be reversed on
the ground that the trial court’s finding that the BWC violated R.C. 4123.34 “is not
supported by the law or the facts.” We disagree.
{¶89} When reviewing a civil appeal from a bench trial, we apply a manifest
weight standard of review. Revilo Tyluka, L.L.C. v. Simon Roofing & Sheet Metal Corp.,
193 Ohio App.3d 535, 2011-Ohio-1922, 952 N.E.2d 1181, ¶ 5 (8th Dist.2011), citing
App.R. 12(C) and Seasons Coal v. Cleveland, 10 Ohio St.3d 77, 461 N.E.2d 1273 (1984).
Judgments supported by some competent, credible evidence going to all the material
elements of the case must not be reversed as being against the manifest weight of the
evidence. Domaradzki v. Sliwinski, 8th Dist. Cuyahoga No. 94975, 2011-Ohio-2259, ¶
6; C.E. Morris Co. v. Foley Constr. Co., 54 Ohio St.2d 279, 376 N.E.2d 578 (1978),
syllabus. If the evidence is susceptible to more than one interpretation, we must construe
it consistently with the lower court’s judgment. Id. In addition, we are mindful that the
weight to be given the evidence and the credibility of the witnesses are primarily for the
trial court. Kalain v. Smith, 25 Ohio St.3d 157, 162, 495 N.E.2d 572 (1986). “The
underlying rationale of giving deference to the findings of the trial court rests with the
knowledge that the trial judge is best able to view the witnesses and observe their
demeanor, gestures and voice inflections, and use these observations in weighing the
credibility of the proffered testimony.” Seasons Coal at 80. “A finding of an error of
law is a legitimate ground for reversal, but a difference of opinion on credibility of
witnesses and evidence is not.” Id. at 81.
{¶90} Review of the trial court’s determination that the BWC violated R.C.
4123.34 involves a mixed question of law and fact. As to the trial court’s factual
findings, we are “guided by a presumption” that the fact finder’s findings are correct. Id.
at 79-80. The interpretation of R.C. 4123.34, however, presents a legal issue that we
review de novo. Lang v. Dir., Ohio Dept. of Job & Family Servs., 134 Ohio St.3d 296,
2012-Ohio-5366, 982 N.E.2d 636, ¶ 12.
{¶91} R.C. 4123.34 sets out various requirements that the BWC “shall observe” in
setting rates. As it relates to this case, R.C. 4123.34 provides, in relevant part:
It shall be the duty of the bureau of workers’ compensation board of
directors and the administrator of workers’ compensation to safeguard and
maintain the solvency of the state insurance fund * * * . The administrator,
in the exercise of the powers and discretion conferred upon the
administrator in section 4123.29 of the Revised Code, shall fix and
maintain, with the advice and consent of the board, for each class of
occupation or industry, the lowest possible rates of premium consistent with
the maintenance of a solvent state insurance fund and the creation and
maintenance of a reasonable surplus, after the payment of legitimate claims
* * * . In establishing rates, the administrator shall take into account the
necessity of ensuring sufficient money is set aside in the premium payment
security fund to cover any defaults in premium obligations. The
administrator shall observe all of the following requirements in fixing the
rates of premium for the risks of occupations or industries:
***
(C) The administrator may apply that form of rating system that
the administrator finds is best calculated to merit rate or individually rate
the risk more equitably, predicated upon the basis of its individual industrial
accident and occupational disease experience, and may encourage and
stimulate accident prevention. The administrator shall develop fixed and
equitable rules controlling the rating system, which rules shall conserve to
each risk the basic principles of workers’ compensation insurance.
(Emphasis added.)
{¶92} Based on the evidence presented at trial, including reports from numerous
independent actuarial experts highlighting the premium inequity problems created by the
BWC’s group rating plan and admissions by current and former BWC representatives that
its group rating plan was causing nongroup-rated employers to pay “extra premium,”
substantial and inequitable subsidies, and “an additional ‘off-balance’ premium” on top of
the amounts they should have paid, the trial court found that the BWC was “charging
excessive premiums to non-group employers during the class period.” The trial court
further held that by knowingly overcharging nongroup-rated employers, the BWC
“violated the very purpose of [R.C. 4123.34(C)]” and thus violated R.C. 4123.34(C). As
the trial court explained:
In reviewing [R.C. 4123.34], the Court finds that the statute’s purpose is to
achieve a result; equity and fairness in the merit rating system. It is
accurate that the specific method of achieving that equity is not explicitly
prescribed, and therefore left to the BWC’s discretion so long as it comports
with workers’ compensation [principles.] However, the evidence that has
been established * * * displays that the BWC: was aware of the inequity in
the system; was aware it was violating the statutory mandate; and was
aware that the non-group employers were being charged excessive
premiums back to 1991. * * * By charging non-group employers excess
premiums that the BWC [knew] created inequity[,] the BWC engaged in a
course of conduct that it knew violated the very purpose of the statute. * * *
[T]he statute is devoid of any language affording the BWC the discretion to
completely disregard the statute’s purpose. * * * Therefore, the Court finds
that the Defendant violated [R.C. 4123.34(C).]
{¶93} Relying on State ex rel. Cafaro Mgt. Co. v. Kielmeyer, 113 Ohio St.3d 1,
2007-Ohio-968, 862 N.E.2d 474, ¶ 8, and State ex rel. RMS of Ohio, Inc. v. Ohio Bur. of
Workers’ Comp., 113 Ohio St.3d 154, 2007-Ohio-1252, 863 N.E.2d 160, ¶ 6, the BWC
maintains that R.C. 4123.34 grants the BWC authority to implement whatever “form of
rating system” the BWC, in its discretion, finds rates risks “more equitably” or “may
encourage and stimulate accident prevention.” The BWC argues that it, therefore, acted
lawfully, i.e., within its discretion under R.C. 4123.34, in implementing and continuing its
group rating plan to promote workplace safety, notwithstanding that the group rating plan
created substantial premium inequity in the rating system. The BWC further argues that
the trial court could not properly “intervene” in the BWC’s rate-setting decisions without
first finding that the BWC acted in an “arbitrary, capricious, or discriminatory manner”
— a finding that it contends the trial court never made. The BWC also disputes the trial
court’s finding that the plaintiff class paid “inequitable premiums,” claiming that the
evidence shows that the class paid “appropriate premiums” and that the rating system
implemented by the BWC, in fact, rated risks “more equitably” within the meaning of
R.C. 4123.34(C). Once again, we disagree.
{¶94} Courts have long recognized the importance of granting the BWC deference
in premium rate setting. Rate setting involves numerous complexities that courts are
ill-equipped to address. As a result, courts generally have a narrow role in reviewing the
rate-setting decisions of the BWC:
Setting premium rates for workers’ compensation coverage is one of the
bureau’s most challenging responsibilities. As early as 1928, we
acknowledged the difficulty of this task, and we have repeatedly affirmed
the deference due the agency in these matters. State ex rel. Reaugh Constr.
Co. v. Indus. Comm., 119 Ohio St. 205, 209, 162 N.E. 800 (1928); State ex
rel. McHugh v. Indus. Comm., 140 Ohio St. 143, 149, 42 N.E.2d 774(1942); State ex rel. Minutemen, Inc. v. Indus. Comm., 62 Ohio St.3d 158,
161, 580 N.E.2d 777 (1991); State ex rel. Progressive Sweeping Contrs.,
Inc. v. Ohio Bur. of Workers’ Comp., 68 Ohio St.3d 393, 395, 627 N.E.2d
550 (1994). Deference is required “in all but the most extraordinary
circumstances,” with judicial intervention warranted only when the agency
has acted in an “arbitrary, capricious or discriminatory manner.” Id. at
395-396, 627 N.E.2d 550.
Cafaro at ¶ 8.
{¶95} In Cafaro, supra, a real estate management firm objected to the BWC’s
reclassification of its clerical workers and security personnel in setting its premium rates
for workers’ compensation coverage, which resulted in higher basic premium rates. Id.
at ¶ 2-4. Cafaro appealed, arguing that the BWC’s reclassification of its workers placed
its workers in classifications with other positions for which the risk was not equivalent.
Id. The BWC’s adjudicating committee rejected Cafaro’s arguments, and the
administrator’s designee affirmed the adjudicating committee’s decision, leading Cafaro
to file a writ of mandamus with the Ohio Supreme Court. Id. at ¶ 5-7.
{¶96} Specifically, Cafaro objected to (1) the BWC’s placement of its clerical
employees working at corporate headquarters into the same classification as its clerical
employees working in shopping malls and (2) the BWC’s placement of both Cafaro’s
maintenance and security personnel into the same classification. Id. at ¶ 14-16. Cafaro
argued, based on its own claims history, that mall clerical workers have a more hazardous
job than corporate clerical workers and that maintenance workers were more injury prone
than security personnel and that the BWC’s classification of these disparate workers into
the same groups, therefore, violated the BWC’s directive to classify workers according to
hazard. Id. at ¶ 15, 19. The court disagreed. The court held that Cafaro’s individual
claims experience did not establish that, industrywide, the hazard to clerical workers in a
mall office was sufficiently greater than the hazard to other clerical workers to support
Cafaro’s claims that its employees were not classified according to hazard and that
Cafaro’s employees reasonably fell within the classifications to which they had been
reassigned by the BWC. Id. at ¶ 15-17, 19. Because neither of the occupational
reclassifications was shown to be arbitrary, capricious, or discriminatory, the court denied
the writ. Id. at ¶ 20.
{¶97} Similarly, in RMS, supra, the BWC reclassified the plaintiff’s employees
into a classification that required payment of a higher workers’ compensation premium.
RMS, 113 Ohio St.3d 154, 2007-Ohio-1252, 863 N.E.2d 160, at ¶ 2. RMS provided
in-home care services to mentally handicapped and developmentally disabled individuals.
Id. Although RMS conceded that it did not provide services to individuals in a
group-home setting and was not a charitable institution — the businesses explicitly
covered by the classifications to which its employees had been previously assigned — it
argued that reclassification was unwarranted because the duties (and risks) of employees
within those classifications were similar to those of its employees. Id. at ¶ 8-20. After
an unsuccessful appeal to the BWC, RMS filed a mandamus action in the Tenth District.
The Tenth District denied the writ, and RMS appealed to the Ohio Supreme Court. Id. at ¶
4-5. In affirming the denial of the writ, the Ohio Supreme Court discussed the
challenges involved in establishing workers’ compensation premium rates and the
deference, therefore, accorded the BWC “in these matters”:
The rate-making process starts with “classif[ying] occupations or industries
with respect to their degree of hazard.” R.C. 4123.29(A)(1). The goal is to
“assign the one basic classification that best describes the business of the
employer within a state.” Ohio Adm.Code 4123-17-08(D). It is an
undertaking, however, in which “absolute precision * * * is often
impossible.” Progressive Sweeping, 68 Ohio St.3d at 395, 627 N.E.2d
550. Accordingly, we are “reluctant to find an abuse of discretion merely
because the employer’s actual risk does not precisely correspond with the
risk classification assigned.” Id. at 396, 627 N.E.2d 550.
RMS at ¶ 7.
{¶98} Because RMS had not established a clear legal right to inclusion in the
original classifications to which its employees had been assigned, the court held that the
BWC’s reclassification of its employees was not an abuse of discretion. Id. at ¶ 25.
{¶99} This case, however, is different. The BWC has no discretion to violate a
statute in setting premium rates. See, e.g., State ex rel. Minutemen, 62 Ohio St.3d at 161,
580 N.E.2d 777 (notwithstanding the “considerable deference generally afforded to the
commission to set rates[,] * * * [t]his “rate-setting expertise * * * cannot supersede a
statutory mandate”); Arth Brass, 104 Ohio St.3d 547, 2004-Ohio-6888, 820 N.E.2d 900,
at ¶ 37 (although BWC policy of immediately charging employer’s risk account for
amounts paid for employee’s medical expenses may have seemed “reasonable as a way of
doing business,” BWC could not act “contrary to law”). Given that the trial court
determined that the BWC violated R.C. 4123.34(C), it was not also required to make an
explicit determination that the BWC had acted in an “arbitrary, capricious or
discriminatory manner” in setting premium rates.
c. Interpretation of R.C. 4123.34(C)
{¶100} In interpreting R.C. 4123.34(C), we apply the principles of statutory
construction set forth above. We are also mindful that“‘if a statute provides the authority
for an administrative agency to perform a specified act, but does not provide the details
by which the act should be performed, the agency is to perform the act in a reasonable
manner based upon a reasonable construction of the statutory scheme.’” Frisch’s
Restaurants, Inc. v. Ryan, 121 Ohio St.3d 18, 2009-Ohio-2, 901 N.E.2d 777, ¶ 16,
quoting Northwestern Ohio Bldg. & Constr. Trades Council v. Conrad, 92 Ohio St.3d
282, 287, 750 N.E.2d 130 (2001); see also State ex rel. V&A Risk Servs. v. State Bur. of
Workers’ Comp., 10th Dist. Franklin No. 11AP-742, 2012-Ohio-3583, ¶ 23 (When
interpreting statutes, “[c]ourts generally must give due deference to an administrative
interpretation formulated by an agency that has accumulated substantial expertise and that
has responsibility for implementing a legislative command.”). Nonetheless, we agree
with the trial court that the BWC’s group rating plan “does not result from a reasonable
interpretation” of R.C. 4123.34.
{¶101} Under the first sentence of R.C. 4123.34(C), the BWC has discretion to
implement the rating system the administrator determines is best calculated to merit rate
or individually rate the risk “more equitably.” The statute also provides that the BWC
may also consider the state’s interests in “encourag[ing] and stimulat[ing] accident
prevention” in deciding which form of rating system to use. However, the exercise of
discretion granted in the first sentence of R.C. 4123.34(C) is expressly constrained by the
second sentence of R.C. 4123.34(C) — which the BWC completely ignores in its
interpretation of the statute. Under the second sentence of R.C. 4123.34(C), the BWC
“shall” develop “fixed and equitable rules controlling the rating system that conserve to
each risk the basic principles of workers’ compensation insurance.” This, as is clear
from the record, the BWC did not do.
{¶102} The terms “equitable” and “conserve” and the phrases “more equitably”
and “basic principles of workers’ compensation insurance” are not defined by the
statute. 20 Black’s Law Dictionary defines “equitable,” in relevant part, as “[j]ust;
conformable to the principles of justice and right.” Black’s Law Dictionary 537 (6th
Ed.1990). The Webster’s New World Dictionary similarly defines “equitable” as
20
While we respect the General Assembly’s desire not to unduly constrain the rate-setting
process, perhaps much of the litigation surrounding this issue could have been avoided if the General
Assembly had provided more specific guidance to the BWC as to what should be deemed to constitute
“equitable” rules or how to evaluate whether a particular rating system rates risk “more equitably.”
“characterized by equity; fair; just.” Webster’s New World Dictionary 383 (3d College
Ed.1988). The Webster’s New Collegiate Dictionary defines “equitable” as “having or
exhibiting equity” and “dealing fairly and equally with all concerned.” Webster’s New
Collegiate Dictionary 363 (1980). “Conserve” means “[t]o save and protect from loss or
damage” or to “keep,” “guard,” “observe.” Black’s Law Dictionary at 306; Webster’s
New Collegiate Dictionary at 239. The “basic principles of workers’ compensation”
have been generally recognized to include protecting injured workers and employers from
losses that result from workplace accidents, compensating injured workers and their
beneficiaries, promoting workplace safety and accident prevention, and ensuring that each
employer participating in the workers’ compensation system pays an amount in premiums
that reasonably corresponds with the risk that employer presents to the system. See, e.g.,
State ex rel. Crystal Tissue Co. v. Indus. Comm. of Ohio, 129 Ohio St. 320, 322, 195 N.E.
546 (1935); State ex rel. Powhatan Mining Co. v. Indus. Comm. of Ohio, 125 Ohio St.
272, 275-277, 181 N.E. 99 (1932); State ex rel. Superior Foundry, Inc. v. Indus. Comm.
of Ohio, 168 Ohio St. 537, 542, 156 N.E.2d 742 (1959).
{¶103} The BWC argues that, as used in R.C. 4123.34(C), the phrase “more
equitably” should be interpreted as matching “the right rate for the right risk.”
Bravender, the director of the BWC’s actuarial department, testified that she interpreted
“equitable” to mean “not necessarily equal” and “to set rates in a manner that provides
premium to cover the insurance exposure that’s presented by the insured.” She further
testified that she believed R.C. 4123.34(C) required the BWC to charge an “appropriate
premium” to an employer or group of employers “based on the costs they bring to the
system.” The BWC’s former chief actuary, Pedrick, testified that there is no common
actuarial definition of what it means to charge “equitable rates” but that the BWC
generally interpreted R.C. 4123.34(C) as requiring rates that are reasonable and not
excessive, inadequate, or unfairly discriminatory. He further testified that equity is not a
fixed goal, that there are “levels of equity,” and that “loss ratio” is often a “principal
means of measuring equity.”
{¶104} Accordingly, we interpret R.C. 4123.34(C) as requiring the BWC to
implement a premium rating system with set rules that fairly and reasonably allocate the
total premiums to be collected among all employers participating in Ohio’s workers’
compensation system based on the risk each employer presents to the workers’
compensation system, resulting in rates that are fair and reasonable and not excessive,
inadequate, or unfairly discriminatory.
{¶105} There are undoubtedly countless ways the BWC could design an
experience rating plan to merit rate or individually rate risk “more equitably” or to
“encourage and stimulate accident prevention.” The specific method of achieving that
result is not prescribed in the statute and is, therefore, left to the discretion of the BWC,
provided the BWC otherwise complies with the statute. What the BWC did not have the
authority to do under the statute — and what the trial court found that it did — was adopt
an experience rating system that was grossly inequitable, i.e., that rated employers’ risks
in a way that was significantly more inequitable than without that system.21
{¶106} The BWC argues that whether the BWC matched the right rate to the right
risk should be determined solely through a “net income analysis” that compares the “net
premiums” collected from the plaintiff class with the “ultimate claims costs” and
expenses attributable to employees of the plaintiff class, considering “both the benefits
and detriments of the group rating plan on class members.”
{¶107} There is, however, no evidence that the General Assembly intended that
the “equitableness” of the BWC’s rating system be determined by such a net income
analysis, that it is a measure commonly used in the industry to evaluate the
“equitableness” of rating systems, or that the BWC, any of its actuarial consultants, or
anyone else ever used such a net income analysis outside the context of this litigation to
evaluate the “equitableness” of the BWC’s rating system. As the BWC points out, the
Insurance rate setting is not an exact science. R.C. 4123.34(C) does not
21
require an exact correlation between premiums and risk. See, e.g., State ex rel.
Progressive Sweeping Contrs., Inc. v. Ohio Bur. of Workers’ Comp., 68 Ohio St.3d
393, 396, 627 N.E.2d 550 (1994) (“we have been — and will continue to be —
reluctant to find an abuse of discretion merely because the employer’s actual risk
does not precisely correspond with the risk classification assigned”). Equity is a
range. Within that range, what is “more equitable” or “less equitable” is often in
the eye of the beholder. However, there is a point at which conduct falls outside
that range and becomes inequitable. That is what the trial court found occurred
here. Although the BWC had discretion under R.C. 4123.34(C) to implement a
rating system that incorporated premium discounts to promote accident prevention
and workplace safety, the problem in this case was that the discounts provided to
group-rated employers were so substantial and so disproportionate to the risks
group-rated employers presented to the workers’ compensation system, the system
was inequitable and, therefore, violated R.C. 4123.34(C).
only person who ever performed such a net income analysis was its expert, Richard
Conger, who performed the analysis strictly for purposes of this litigation.
{¶108} The BWC argues, based on Conger’s analysis, that the plaintiff class did
not pay premiums in excess of their claims, expenses, and “other benefits received”
during the class period and that because its actuarial experts testified at trial that the group
rating program and overall premium rates during the class period were actuarially sound
“when considering the workers’ compensation system in the aggregate,” the plaintiff class
did not pay “‘inequitable’ premiums,” and the BWC did not violate R.C. 4123.34(C).
{¶109} The BWC does not attempt to reconcile Conger’s conclusions with those of
the many actuaries previously hired by the BWC to evaluate its group rating program —
all of whom concluded unequivocally that nongroup-rated employers were paying more
than they should have been fairly paying and group-rated employers were paying less than
they should have been fairly paying under the BWC’s rating system.
{¶110} Furthermore, the plain language of the statute suggests that the
“equitableness” of rates should be evaluated, not, as the BWC now suggests, in the
aggregate, i.e., considering the plaintiff class as a whole, but at the level of the individual
risk. Under the statute, “[t]he administrator may apply that form of rating system that the
administrator finds is best calculated to merit rate or individually rate the risk more
equitably, predicated upon the basis of its individual industrial accident and occupational
disease experience.” (Emphasis added.) The statute further provides that the
administrator “shall develop fixed and equitable rules controlling the rating system, which
rules shall conserve to each risk the basic principles of workers’ compensation
insurance.” (Emphasis added.)
{¶111} Plaintiffs’ evidence, as detailed above, included reports from numerous
actuaries hired by the BWC to evaluate its group rating program, each of whom
concluded that nongroup-rated employers were paying well more than their fair share of
premiums under the BWC’s rating system. Plaintiffs also presented evidence that the
BWC admitted both publicly and privately that, during the class period, base rates paid by
nongroup-rated employers were inflated as a result of the group rating plan and resulted
in premium inequity. Elizabeth Bravender, the director of the BWC’s actuary division,
testified that “the [BWC] knew that nongroup-rated employers were paying higher rates
than they should,” when the rates were set. John Pedrick, former chief actuary for the
BWC, confirmed that nongroup-rated employers paid “an additional ‘off-balance
premium’” on top of the amounts they should have been charged for workers’
compensation coverage during the class period. He testified that the BWC’s rating
system did not rate risk “more equitably” and that the BWC had violated the mandate to
develop equitable rules controlling its rating plan, conceding that “the rules, while they
were fixed, weren’t equitable.” Then-BWC administrator Marsha Ryan similarly
acknowledged, when testifying before the Ohio Senate Insurance Committee in October
2009, that “employers who were not in a group paid extra premium to make up the
shortfall left as an effect of the large group discounts.”
{¶112} The trial court, as the trier of fact, was in the best position to evaluate the
witnesses’ credibility and weigh the evidence, including the parties’ conflicting loss ratio
calculations and other claimed means of measuring of equity. Based on a careful review
of the record, we find that competent, credible evidence supports the trial court’s finding
that the BWC knowingly maintained an inequitable rating system, resulting in excessive
premiums payments by nongroup-rated employers, during the class period. Based on the
trial court’s factual findings, our review of the evidence, and a plain reading of the
statute, we agree with the trial court’s determination that the BWC violated R.C.
4123.34(C). Accordingly, the BWC’s first assignment of error is overruled.
D. Unjust Enrichment
1. In General
{¶113} In its third and fifth assignments of error, the BWC contends that the trial
court’s determination that the BWC was unjustly enriched was against the manifest
weight of the evidence and that the trial court erred as a matter of law in holding that the
plaintiff class was entitled to equitable restitution for unjust enrichment without taking
into account “important equitable considerations relating to the totality of the
circumstances.”
{¶114} Unjust enrichment occurs where “‘a person has and retains money or
benefits which in justice and in equity belong to another.’” Smith v. Vaughn, 174 Ohio
App.3d 473, 2007-Ohio-7061, 882 N.E.2d 941, ¶ 10 (1st Dist.2007), quoting Johnson v.
Microsoft Corp., 106 Ohio St.3d 278, 2005-Ohio-4985, 834 N.E.2d 791, ¶ 20; Hummel v.
Hummel, 133 Ohio St. 520, 528, 14 N.E.2d 923 (1938). The purpose of an unjust
enrichment claim is not to compensate the plaintiff for loss or damage suffered by the
plaintiff, but to enable the plaintiff to recover the benefit he has conferred on the
defendant under circumstances in which it would be unjust to allow the defendant to
retain it. Johnson at ¶ 21, citing Hughes v. Oberholtzer, 162 Ohio St. 330, 335, 123
N.E.2d 393 (1954). Restitution is the remedy provided upon proof of unjust enrichment
“to prevent one from retaining property to which he is not justly entitled.” Keco
Industries, Inc. v. Cincinnati & Suburban Bell Tel. Co., 166 Ohio St. 254, 256, 141
N.E.2d 465 (1957); see also Santos, 101 Ohio St.3d 74, 2004-Ohio-28, 801 N.E.2d 441 at
¶ 11 (“restitution [is] available as the remedy for an unjust enrichment of one party at the
expense of another”), citing Restatement of the Law, Restitution, Section 9 (1937).
{¶115} To prevail on a claim for unjust enrichment, a plaintiff must prove by a
preponderance of the evidence that: (1) the plaintiff conferred a benefit upon the
defendant, (2) the defendant had knowledge of such benefit, and (3) the defendant
retained that benefit under circumstances in which it would be unjust for him to retain
that benefit. Johnson at ¶ 21; Hambleton v. R.G. Barry Corp., 12 Ohio St.3d 179, 183,
465 N.E.2d 1298 (1984). The BWC contends that plaintiffs failed to establish the first
and third elements of their unjust enrichment claim.
2. Benefit Conferred
{¶116} The BWC first argues that there was no evidence that the BWC benefitted
at the expense of class members. The BWC contends that the plaintiff class could not
have conferred any benefit on the BWC because: (1) the BWC is revenue-neutral, i.e., the
BWC takes in only enough premiums to cover claims paid on behalf of injured workers
and related administrative costs; (2) the premiums received from the class were used to
pay administrative costs and deposited into the state insurance “to pay the costs of injuries
incurred by Ohio workers”; (3) the “extra” premium payments paid by the class to
“subsidize” group employers benefitted the group employers, not the BWC; and (4) the
BWC paid more in claims costs related to class members’ employees than class members
paid the BWC in premiums during the class period.
{¶117} Based on our review of the record, we do not agree that plaintiffs failed to
prove the plaintiff class conferred a benefit on the BWC. As discussed above, plaintiffs
established that nongroup-rated employers paid excessive premium costs to the BWC for
their workers’ compensation coverage. If nongroup-rated employers had not paid these
premiums, the BWC would have experienced a shortfall in the total premiums collected
due to the large discounts it gave group-rated employers under its group rating plan.
There would have then been insufficient funds in the state insurance fund to cover all of
the costs of claims and expenses and to retain a reasonable surplus. Accordingly, the
BWC clearly benefitted from the excessive premiums paid by the nongroup-rated
employers in the plaintiff class.
{¶118} Even assuming that certain class members (or class members in the
aggregate) may have paid the BWC less in premiums than the BWC incurred in claims
costs related to those class members does not mean that a benefit was not conferred by
nongroup-rated employers on the BWC. The purpose of having insurance is to offset the
risk of potential claims. Insurers charge premiums to a pool of insureds based on their
expected risk, recognizing that some insureds will have losses within the policy period,
including losses that may exceed the cost of coverage, and others will not. Insureds
would have little need to purchase insurance if premiums were calculated, after the fact,
based solely on their actual claims costs. We find that there was competent, credible
evidence in the record that the plaintiff class conferred a benefit on the BWC.
3. Unjust Enrichment and the Totality of the Circumstances
{¶119} The BWC also contends that the trial court’s judgment should be reversed
and the case remanded on the ground that the trial court failed to consider the totality of
the circumstances in determining that the BWC was unjustly enriched and awarding
equitable relief to the plaintiff class.
{¶120} “‘Enrichment alone’” is insufficient to “‘invoke the remedial powers of a
court of equity.’” Chestnut v. Progressive Cas. Ins. Co., 166 Ohio App.3d 299,
2006-Ohio-2080, 830 N.E.2d 751, ¶ 30 (8th Dist.), quoting Directory Servs. Group v.
Staff Builders Internatl., 8th Dist. Cuyahoga No. 78611, 2001 Ohio App. LEXIS 3108(July 12, 2001). Because the plaintiffs are seeking equitable relief based upon a claim of
unjust enrichment, they “‘must go further and show that under the circumstances,’” they
have “‘superior equity’” so that, as against the plaintiff class, “‘it would be
unconscionable for [the BWC] to retain the benefit.’” United States Health Practices,
Inc. v. Blake, 10th Dist. Franklin No. 00AP-1002, 2001 Ohio App. LEXIS 1291,*6-7
(Mar. 22, 2001), quoting Katz v. Banning, 84 Ohio App.3d 543, 552, 617 N.E.2d 729(10th Dist.1992). The trial court, therefore, was required to consider “the sum of the
circumstances, as well as the equities involved in the case” in determining whether it
would unjust to permit the BWC to retain the benefit conferred upon it by the plaintiff
class and, if so, the appropriate relief to be awarded as a result of its unjust enrichment.
U.S. Health Practices, 2001 Ohio App. LEXIS 1291 at *8.
{¶121} As noted above, the trial court’s partial order and opinion is
comprehensive. In 28 pages, the trial court clearly sets out its findings of fact and
conclusions of law on each of the issues raised by the pleadings and the various pretrial
motions filed by the parties. The trial court goes to great lengths to identify the evidence
supporting its factual findings (including attaching 25 exhibits to its opinion) and
thoroughly explains the analysis behind each of its legal conclusions. However, notably
absent from either the trial court’s partial order and opinion or its final order and opinion
is any discussion of the trial court’s court’s consideration of the “totality of the
circumstances” and “sum of the * * * equities involved in the case” in determining that
the BWC “was unjustly enriched” because it “collected premiums in violation of [an]
Ohio statute” and awarding millions in equitable restitution to the plaintiff class.
a. Statutory Violation as a Basis for Unjust
Enrichment
{¶122} Relying on State ex rel. Zone Cab Corp. v. Indus. Comm., 132 Ohio St.
437, 8 N.E.2d 438 (1937), and Arth Brass & Aluminum Castings, Inc. v. Conrad, 104
Ohio St.3d 547, 2004-Ohio-6888, 820 N.E.2d 900, the trial court held that the BWC was
unjustly enriched because it “collected premiums in violation of [an] Ohio statute.” The
BWC contends that the trial court improperly applied a “strict liability standard for
unjust enrichment” in reaching this conclusion and that the trial court’s judgment should
be reversed because a statutory violation is an insufficient basis upon which to conclude
that a defendant has been unjustly enriched.22
{¶123} Ohio courts have long recognized that persons from whom funds have been
unlawfully collected and retained by the state may be entitled to equitable restitution. In
State ex rel. Zone Cab Corp., supra, the Ohio Supreme Court determined that employers
were entitled to a refund of workers’ compensation premium “overpayments” paid on
behalf of workers who were later determined to be independent contractors rather than
employees. State ex rel. Zone Cab Corp., 132 Ohio St. at 444, 8 N.E.2d 438. As the
court explained in granting a writ of mandamus ordering a refund of the premiums that
had been overpaid:
The hazards which warrant the retention of premiums collected are those
which arise out of the relation of employer and employee. When premiums
have been paid to protect the State Insurance Fund pending litigation, and it
is finally determined that collection has been made based on casualties
suffered by those who were independent contractors and not employees, the
excess of premiums paid acquires a new legal aspect. The fact that the
statutes do not expressly provide for a refund is not controlling. If rates are
imposed and collection made to provide for a contingency which may result
22
The BWC also contends that the trial court’s judgment should be reversed because R.C.
4123.29 and 4123.34 do not provide a private right of action. Plaintiffs, however, have brought a
claim for equitable restitution to recover excessive premium payments wrongfully collected and
retained by the BWC in violation of R.C. 4123.29 and 4123.34(C). Plaintiffs have not sought to
enforce R.C. 4123.29 or 4123.34(C) by means of a civil suit for money damages asserting a private
right of action.
in liability for compensation and the eventuality discloses that there is not
and never could have been any liability because the claims grew out of an
independent contractual relation, the overpayment should be refunded. The
rationale of this concept is that the excess payments never did in reality
belong in the State Insurance Fund and could be required in the first
instance only for the purpose of meeting a possible adjudication requiring
payment of compensation on the claims. The adjudication having been
otherwise the excess is no longer properly a part of the fund and should be
restored to the rightful owner.
The relator is entitled to a refund covering excessive payments under merit
rating, and a writ of mandamus will be awarded commanding the refund * *
*.
Id. at 443-444.
{¶124} In Arth Brass, the Ohio Supreme Court found the BWC was responsible
for increased premiums paid by an employer where the BWC, in violation of a statute,
assigned medical payments to an employer’s risk account prior to the final resolution of
the case, resulting in the employer being transferred into a group whose employers paid
higher premiums. As the court explained:
[I]n this case, the bureau has acted contrary to statute by assigning medical
payments to an employer’s risk account prior to the final resolution of the
case. * * * Arth alleges that as a direct result of the actuarial information
the bureau forced the employer’s group to rely on, its group sponsor placed
it in a group with higher premiums. Further, the bureau prevented Arth from
amending its status until a year passed. Arth thus paid increased premiums,
with no process available to have refunded the amount of overpayments
required to be paid by the acts of the bureau.
As it stands, Arth has no way of recovering the increased premiums it paid
to the bureau because of the bureau’s reliance on illegally calculated and
inaccurate data. The bureau has no system in place for the calculation of a
refund.
The bureau’s policy thus fails on constitutional grounds, violating the right
to remedy guaranteed by Section 16, Article I of the Ohio Constitution:
“The right to a remedy guaranteed by Section 16, Article I of the Ohio
Constitution ‘requires an opportunity [for remedial action] granted at a
meaningful time and in a meaningful manner.’” * * * State ex rel. Sysco
Food Serv. of Cleveland, Inc. v. Indus. Comm., 89 Ohio St.3d 612, 614, 734
N.E.2d 361 (2000), quoting Burgess v. Eli Lilly & Co., 66 Ohio St.3d 59,
62, 609 N.E.2d 140 (1993).
Arth Brass, 104 Ohio St.3d 547, 2004-Ohio-6888, 820 N.E.2d 900, at ¶ 50-52.
{¶125} The court held that the employer “should have the opportunity to prove”
that the BWC’s unlawful actions in prematurely assigning medical payments to the
employer’s risk account was the proximate cause of the increase in group premiums the
employer paid when those medical payments were charged toward its experience. The
court further held that the BWC “should be liable to credit [the employer] * * * to the
extent that the premiums [the BWC] received exceeded those [the employer] would have
made had the medical benefits not been charged to its risk account” and remanded the
case for further proceedings. Id. at ¶ 53; see also Santos, 101 Ohio St.3d 74,
2004-Ohio-28, 801 N.E.2d 441 at ¶ 3-8, 17 (where injured workers brought a restitution
claim to recover funds the BWC had wrongfully collected pursuant to a subrogation
statute that was later declared unconstitutional, “[t]he action seeking restitution by Santos
and his fellow class members [was] an action to correct the unjust enrichment of the
BWC”); Judy v. Ohio Bur. of Motor Vehicles, 100 Ohio St.3d 122, 2003-Ohio-5277, 797
N.E.2d 45 (affirming decision requiring the BMV to refund excess license reinstatement
fees collected as a result of an erroneous interpretation of R.C. 4591.191(L)); State ex rel.
Minutemen, 62 Ohio St.3d 158, 580 N.E.2d 777 (1991) (unlawful premium overcharges
resulting from the BWC’s implementation of new manual classifications developed for
administrative convenience must be reimbursed); In the Matter of an Increase in Fees by
the New Jersey State Bd. of Dentistry, 84 N.J. 582, 587, 423 A.2d 640 (1980) (concluding
that a refund of fees “followed naturally” from the determination that they were illegally
collected because to “hold otherwise would allow the [agency] to enrich itself unjustly as
the expense of [the persons paying the fees]” and “would violate one of the cardinal
principles of the common law, requiring restitution to prevent unjust enrichment”).
{¶126} We do not read these cases as holding that a plaintiff is entitled to equitable
restitution, as a matter of law, whenever funds are unlawfully collected and retained by
the state, without regard to whether the state was unjustly enriched. Rather, we read
these cases as holding that where the state collects and retains funds to which the state is
not lawfully entitled, those funds must be returned as the equities require. Restatement
of the Law 3d, Restitution and Unjust Enrichment, Section 19(1) (2011) (“payment of a
tax that is erroneously or illegally assessed or collected, gives the taxpayer a claim in
restitution against the taxing authority as necessary to prevent unjust enrichment”)
(Emphasis added.). In certain cases, the unlawful collection and retention of funds by
the state may, in and of itself, constitute a sufficient basis for an award of equitable
restitution, i.e., where the only issue is whether the collection and retention of funds by
the state was unlawful and there is no dispute, once the state’s conduct is determined to
be unlawful, that (1) the state was unjustly enriched by its unlawful collection and
retention of funds and (2) the equities require return of the funds. See, e.g., State ex rel.
Minutemen, 62 Ohio St.3d at 161, 580 N.E.2d 777; Arth Brass, 104 Ohio St.3d 547,
2004-Ohio-6888, 820 N.E.2d 900; Judy, 100 Ohio St.3d 122, 2003-Ohio-5277, 797
N.E.2d 45. In others, such as this case, where there are a number of equitable
considerations bearing on whether the state was unjustly enriched and, if so, the extent to
which it was unjustly enriched, those considerations must be weighed and a determination
of unjust enrichment made before a court may properly award equitable restitution on a
unjust enrichment claim.
{¶127} The parties presented evidence at trial of a number of circumstances that
are properly considered in determining whether, under the “totality of the circumstances,”
the BWC was unjustly enriched at the expense of the plaintiff class.
{¶128} It is undisputed that the BWC was responsible for developing and
maintaining the unlawful rating system that granted excessive premium discounts to
group-rated employers at the expense of nongroup-rated employers. Not only did the
BWC fail to follow the legislative mandate to establish a retrospective group rating plan,
it set up a prospective group rating plan without sufficient controls to address the plan’s
susceptibility to manipulation by group sponsors and the potential for premium inequity
as a result of the generous discounts provided to group-rated employers under the plan.
The BWC allowed group sponsors, on an annual basis, to self-select group members for
their groups and to jettison, without consequence, those employers from the group who
presented a higher risk, exacerbating the problems associated with the overly generous
discounts provided to group-rated employers under the BWC’s group rating plan.
{¶129} The record also reflects that the BWC continued to maintain its inequitable
rating system long after actuarial consultants warned the BWC that the group rating plan
was creating substantial premium inequity between group-rated and nongroup-rated
employers and should, therefore, be changed. We appreciate that rate setting is complex
and involves many elements. We also appreciate that it takes time to determine whether
a rating system is operating equitably and time to develop and implement measures to fix
a rating system that is operating less equitably than it should. However, the only
reasonable conclusion that can drawn from the record in this case is that the BWC failed
to take reasonable measures to correct its rating system once it learned its group rating
plan was creating substantial premium inequity between group-rated and nongroup-rated
employers.
{¶130} On the other hand, although the BWC benefitted from the excessive
premiums it charged nongroup-rated employers (in that the excessive premiums avoided a
shortfall in the overall premiums collected by the BWC), the BWC did not “profit” from
its unlawful conduct per se, i.e., because the BWC is revenue-neutral, it collected the
same amount of total premiums under the rating system at issue as it would have collected
under a more equitable rating system.
{¶131} The source of the funds that would be used to pay a restitution award and
the probable impact of such an award on the workers’ compensation system are also
factors to be considered. See Restatement of the Law 3d, Restitution and Unjust
Enrichment, Section 19(2) (2011) (“If restitution * * * would disrupt orderly fiscal
administration or result in severe public hardship, the court may on that account limit the
relief to which the taxpayer would otherwise be entitled.”). In this case, the funds would
come from the state insurance fund — “a trust fund for the benefit of employers and
employees” to pay for medical care and to compensate injured workers and their
beneficiaries when an employee is injured in a workplace accident. R.C. 4123.30.
Although there was no evidence that the restitution award sought by plaintiffs in this case
would render the state insurance fund insolvent or otherwise result in “severe public
hardship,” the evidence was less clear as to whether today’s employers would have to be
charged more in premiums to pay for a restitution award or to ensure a reasonable surplus
was maintained in the state insurance fund after payment of such an award.
{¶132} Consideration of the “totality of the circumstances” and “sum of the
equities” also required the trial court to consider that class members who were group
rated during part of the class period themselves received substantial benefits, as a result of
the unlawful subsidies charged nongroup-rated employers, during the policy years in
which they were group rated. It is undisputed that it was the group-rated employers
(including, for the years in which they were group rated, class members who participated
in the BWC’s group rating plan) who truly benefitted under the BWC’s group rating plan,
receiving a windfall in the form of substantially reduced premiums subsidized by
nongroup-rated employers. Although there is no evidence in the record to suggest any
wrongful conduct on the part of the group-rated employers themselves that led to their
receipt of these unlawful benefits (at least as it relates to members of the plaintiff class)
— i.e., the group-rated employers appear to have simply paid the workers’ compensation
premiums they were charged by the BWC — because plaintiffs have come into court
seeking relief in equity, the court must do what is equitable in light of all of the relevant
considerations.
{¶133} Citing R.C. 4123.35, the trial court determined that, because the BWC was
required to calculate and collect premiums on an annual basis, “[r]estitution should
coincide with the BWC’s statutory mandate, and be calculated based on a per-year basis”
as well. Accordingly, the trial court held that if, in any given year, an employer was
nongroup-rated in a manual class that had both nongroup-rated and group-rated
employers and an off-balance of 1.23 or higher, the employer was entitled to restitution
for that year, without regard to whether that employer benefitted in other policy years
within the class period from the BWC’s inequitable group rating plan. It is here we
believe the trial court erred.
{¶134} Although R.C. 4123.35 states that premiums are to be fixed annually by the
BWC and paid semi-annually by employers, we do not agree that R.C. 4123.35
constitutes a “statutory mandate” that each policy year “must stand on its own” in
weighing the equities in this case. R.C. 4123.34(B) provides, in relevant part, that
“[r]evisions of basic rates shall be in accordance with the oldest four of the last five
calendar years of the combined accident and occupational disease experience of the
administrator in the administration of this chapter.”
{¶135} Plaintiffs have come into court seeking equitable relief over the class
period, 2001-2008. As such, the totality of the circumstances and sum of the equities
must be considered over that period. There is an abundance of competent, credible
evidence in the record supporting the trial court’s determination that the BWC was
unjustly enriched by the premium overcharges it received from class members who were
nongroup rated throughout the class period. Considering the totality of the
circumstances, such class members clearly have “superior equity” so that “it would be
unconscionable” for the BWC to retain the “benefits” it received at their expense.
United States Health Practices, 2001 Ohio App. LEXIS 1291 at *6-7. However, the
same cannot be said with respect to class members who migrated between nongroup
rating and group rating during the class period — at least not without accounting for the
subsidy benefits those class members received under the group rating system during the
years within the class period in which those class members were group rated.
{¶136} Accordingly, we hold that the trial court erred in awarding equitable
restitution to the plaintiff class without accounting for any of the subsidy benefits class
members who were group-rated for part of the class period received during the years in
which they were group-rated. Based on the record in this case, we conclude that equity
requires that the restitution calculation for class members who were group rated during
part of the class period include an offset for the subsidy benefits those class members
received under the group rating plan during the years within the class period in which
they were group rated. We do not prescribe a particular methodology for valuing the
offset to be provided (and offer no opinion as to whether Conger’s valuation of the
cross-subsidies received by class members is an accurate or appropriate means of valuing
that offset), but leave that matter to the discretion of the trial court, mindful that “equity
requires that the trial court be granted flexibility to achieve a just result.” Barker v.
Jarrell, 9th Dist. Lorain No. 07CA009126, 2007-Ohio-7024, ¶ 16.
{¶137} The BWC’s third assignment of error is overruled. The BWC’s fifth
assignment of error has merit and is sustained in part. We remand the case
for recalculation of the portion of the restitution award relating to class
members who were group rated during part of the class period to include an
offset for the subsidy benefits those class members received under the
group rating plan during the years within the class period in which they
were group rated. E. Use of the Schwartz Formula to Calculate
Restitution Awarded the Class
{¶138} In its seventh assignment of error, the BWC contends that the trial court
abused its discretion in (1) denying the BWC’s Miller Bike/Daubert Motion to exclude
the testimony of plaintiffs’ expert Allan Schwartz, (2) adopting the formula offered by
Schwartz to calculate restitution, and (3) misapplying that formula in calculating the
restitution awarded to the plaintiff class.
{¶139} A trial court’s decision to admit or exclude expert testimony will not be
reversed absent an abuse of discretion. Herzner v. Fischer Attached Homes, Ltd., 12th
Dist. Clermont No. CA2007-08-090, 2008-Ohio-2261, ¶ 7, citing State v. Jones, 90 Ohio
St.3d 403, 414, 739 N.E.2d 300 (2000). An abuse of discretion means more than a mere
error of law or judgment; it implies an arbitrary, capricious, or unconscionable attitude on
the part of the trial court. Blakemore v. Blakemore, 5 Ohio St.3d 217, 219, 450 N.E.2d
1140 (1983).
{¶140} It is undisputed that Schwartz’s testimony related to matters beyond the
knowledge or experience of laypersons and that Schwartz has the qualifications necessary
to testify as an actuarial expert. Evid.R. 702(A) and (B). At issue is the reliability of
Schwartz’s testimony, specifically the reliability of the formula he developed to calculate
the restitution owed to the plaintiff class. See Evid.R. 702(C). Plaintiffs, as the party
offering the expert, had the burden of establishing the reliability of Schwartz’s testimony.
See, e.g., Marcus v. Rusk Heating & Cooling, Inc., 12th Dist. Clermont No.
CA2012-03-026, 2013-Ohio-528, ¶ 27 (“the party offering the expert opinion and
testimony bears the burden of proof in establishing its admissibility”); State v. Ream, 3d
Dist. Allen No. 1-12-39, 2013-Ohio-4319, ¶ 82 (“The proponent of the expert testimony
has the burden to prove the admissibility of the testimony under Evid.R. 702.”).
{¶141} Evid.R. 702(C) provides that where expert testimony involves “the result
of a procedure, test, or experiment,” the testimony “is reliable only if all of the following
apply”:
The theory upon which the procedure, test or experiment is based is
objectively verifiable or is validly derived from widely accepted knowledge,
fact or principles;
The design of the procedure, test or experience reliably implements the
theory;
The particular procedure, test or experiment was conducted in a way that
will yield an accurate result.
{¶142} Miller v. Bike Athletic Co., 80 Ohio St.3d 607, 611, 687 N.E.2d 735(1998), and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 593-594, 113
S.Ct. 2786, 125 L.E.2d 469 (1993), further provide that in “evaluating the reliability of
scientific evidence, several factors are to be considered”:
(1) whether the theory or technique has been tested, (2) whether it has been
subjected to peer review, (3) whether there is a known or potential rate of
error, and (4) whether the methodology has gained general acceptance.
Miller at 611, citing Daubert at 595.
{¶143} In determining whether an expert’s opinions are reliable under Evid.R.
702(C), the court’s focus is on whether the principles and methods the expert employed to
reach his opinions are reliable, rather than whether the conclusions are correct. See, e.g.,
State Farm Fire & Cas. Co. v. Holland, 12th Dist. Madison No. CA2007-08-025,
2008-Ohio-4436, ¶ 21, citing Miller at 611.
{¶144} The trial court held that the Schwartz formula was a “sufficiently reliable
method * * * based on actuarial principles” to determine the amount by which the
plaintiff class had been overcharged and that “[i]t accurately determines a precise
overcharged figure for each policy year for each class member.” The BWC claims that
Schwartz’s opinions and methodology are unreliable and should have been excluded
because: (1) his methodology was not shown at trial have been tested, subjected to peer
review, to have an acceptable rate of error, or to have achieved general acceptance in the
field of actuarial science; (2) the fluctuating “group-rated” and “nongroup-rated”
employer segments used in the Schwartz formula lacked actuarial separation and were not
proper actuarial classifications; (3) the Schwartz formula relied on a number of
assumptions that the BWC claims were not supported by actuarial principles; and (4) if
the Schwartz formula had been used by the BWC in 2001-2008, it would have resulted in
more than a $2.5 billion revenue shortfall.
{¶145} Giving due consideration to the parties’ arguments and following a careful
review of the record, we conclude that the trial court properly performed its gate-keeping
function and considered all of the relevant, required factors in determining that
Schwartz’s testimony was admissible. We find that the BWC’s arguments regarding the
claimed deficiencies in Schwartz’s methodology and formula go to the weight to be given
his testimony, not its admissibility. Accordingly, the trial court did not abuse its
discretion in permitting Schwartz to testify regarding his methodology and formula for
calculating restitution.
{¶146} As to whether the trial court abused its discretion in adopting the Schwartz
formula or misapplied that formula in calculating the restitution awarded to the plaintiff
class, we conclude, for the reasons explained above, that the trial court erred in awarding
restitution based on the Schwartz formula without providing an offset for the unlawful
subsidy benefits class members who were group rated during part of the class period
received during the time in which they were group rated. Accordingly, the BWC’s
seventh assignment of error is overruled in part and sustained in part.
F. Motion for Leave to Amend Complaint to Assert Affirmative
Defense of Setoff
{¶147} In its fourth assignment of error, the BWC contends that the trial court
abused its discretion in denying it leave to amend its answer to assert an affirmative
defense of setoff. Given our determination that the trial court erred in awarding
equitable restitution to the plaintiff class on their unjust enrichment claim without
accounting for any of the subsidy benefits received by migrating class members, and our
decision to remand the case for recalculation of the portion of the restitution award
relating to those migrating class members, the BWC’s fourth assignment of error is moot.
G. Motion to Decertify the Class
{¶148} In its sixth assignment of error, the BWC asks this court to revisit the issue
of class certification. The BWC contends that new facts and evidence, not present at the
time of class certification, demonstrate that class certification is no longer proper and that
the trial court, therefore, abused its discretion in denying the BWC’s motion to decertify
the plaintiff class. Specifically, the BWC argues that because 28,909 class members will
not receive restitution under the Schwartz formula, the class lacks a class-wide injury.
The BWC also argues that “individualized inquiries” are necessary to identify the
non-injured class members, to determine the amount of restitution owed to each, and to
apply “defenses of mitigation, estoppel, laches, and setoff.” Finally, the BWC contends
that the class should be decertified because it “has proved to be” an improper “fail-safe
class.”
{¶149} The trial court granted class certification on January 10, 2010. This court
affirmed class certification on April 7, 2011. More than year later, on July 13, 2012, the
BWC filed a motion for class decertification. The trial court denied BWC’s request for
decertification, “fail[ing] to see any new facts or circumstances” that would support
decertification. We agree.
{¶150} First, this court previously considered, and rejected, the BWC’s arguments
regarding the need for “individualized inquiries” and the fact that certain class members
might not receive restitution in the BWC’s 2011 appeal of the trial court’s class
certification order. As we stated previously:
A class action is not defeated solely because of some
factual variations among class
members. Further, that some
members may not be entitled to
relief because of some particular
factor will not bar the class action.
San Allen, 2011-Ohio-1676 at ¶ 20.
{¶151} The BWC’s lack-of-a-class-wide-injury argument is based on Schwartz’s
restitution calculation. Under the Schwartz formula, restitution was calculated only for
class members who were rated in a manual class that (1) included both nongroup-rated
and group-rated employers and (2) had an off-balance factor of 1.23 or higher. The fact
that certain class members receive no restitution under Schwartz’s formula does not mean
they sustained no injury. See supra at ¶ 41, fn. 16. The fact that plaintiffs’ expert has
now confirmed that certain class members will not receive restitution under his restitution
formula does not warrant decertification of the class.
{¶152} We also reject the BWC’s argument that the class should be decertified
because it “has proved to be” an improper “fail-safe” class. As with its other arguments,
the BWC has made no showing this argument is based on any new facts or evidence.
The class definition has not changed since the trial court certified the class in 2010.
Accordingly, the BWC’s argument regarding the existence of a “fail-safe” class should
have been raised before the class was originally certified.
{¶153} In any event, we do not agree that the class at issue is an improper
“fail-safe class.” A fail-safe class is a class “defined by reference to the merits of the
claim.” Stammco, LLC v. United Tel. Co. of Ohio, 136 Ohio St.3d 231, 2013-Ohio-3019,
994 N.E.2d 408, ¶ 8, fn. 2, quoting Melton ex rel. Dutton v. Carolina Power & Light Co.,
283 F.R.D. 280, 288 (D.S.C.2012), citing Messner v. Northshore Univ. HealthSystem,
669 F.3d 802, 826 (7th Cir. 2012), and Manual for Complex Litigation (Fourth) Section
21.222 (2004). It is a class whose members cannot be determined until after liability is
found on the merits, and, then, the class includes only persons who are entitled to relief.
See, e.g., Stammco at ¶ 8, fn. 2; Miller v. Volkswagen of Am., Inc., 6th Dist. Erie No.
E-07-047, 2008-Ohio-4736, ¶ 28. As the United States Court of Appeals for the Sixth
Circuit explained in Young v. Nationwide Mut. Ins. Co., 693 F.3d 532 (6th Cir.2012),
such a class is prohibited because
it would allow putative class members to seek a remedy but not be bound by
an adverse judgment—either those “class members win or, by virtue of
losing, they are not in the class” and are not bound. [Randleman v. Fidelity
Natl. Title Ins. Co., 646 F.3d 347, 352 (6th Cir. 2011)]. Such a result is
prohibited in large part because it would fail to provide the final resolution
of the claims of all class members that is envisioned in class action
litigation.
Young at 538; see also Stammco at ¶ 8, fn. 2 (“‘Such a class definition is improper
because a class member either wins or, by virtue of losing, is defined out of the class and
is therefore not bound by the judgment.’”), quoting Melton at 288, quoting Messner at
826.
{¶154} The BWC asserts that the plaintiff class is a “fail-safe class” because “the
merit issue of base rate ‘inflation’” was included within the class definition. We
disagree. There was no need for the court to decide the merits in order to determine who
was in the class in this case. Class members, i.e., those employers “rated on a non-group
basis * * * who paid premiums in a manual classification for which the base rate was
‘inflated’ due to experience modifications under the group experience rating plan,” could
be readily identified from the BWC’s records.
{¶155} Further, the fact that members of the plaintiff class were charged “inflated”
premium rates was not determinative of the BWC’s liability, nor did it establish a right to
restitution. The BWC’s liability was based on whether the BWC violated its statutory
obligations in imposing “inflated” premium rates and whether the BWC was unjustly
enriched as a result of its collection and retention of those “inflated” premiums. The
BWC argued that even if the plaintiff class was charged inflated premiums, the class was
not entitled to equitable restitution because the BWC (1) did not violate any laws and (2)
was not unjustly enriched. This argument “proves the point” that the class at issue “is
not a proscribed fail-safe class.” See, e.g., Young at 538 (class definition that included
persons “who were charged local government taxes on their payment of premiums which
were either not owed, or were at rates higher than permitted” was not a fail-safe class
where defendants argued that they would not liable even if class members were
overcharged). The class, therefore, is not a “fail-safe class.”
{¶156} The trial court did not abuse its discretion in denying the BWC’s motion to
decertify the class. BWC’s sixth assignment of error is overruled.23
H. Statute of Limitations
{¶157} In its ninth assignment of error, the BWC contends that the trial court erred
as a matter of law by failing to apply to plaintiffs’ claim the two-year statute of limitations
applicable to civil actions against the state under R.C. 2743.16(A).
{¶158} R.C. 2743.16(A) is part of Chapter 2743, entitled “Court of Claims State
Liability.” R.C. 2743.16(A), provides, in relevant part:
[C]ivil actions against the state permitted by sections 2743.01 to
2743.20 of the Revised Code shall be commenced no later than two years
after the date of accrual of the cause of action or within any shorter period
that is applicable to similar suits between private parties.
23
In light of our determination that the restitution calculation for class members who were
group-rated during part of the class period should include an offset for the subsidy benefits such class
members received during the years within the class period in which they were group rated, this may
be a case in which subclasses of plaintiffs may be appropriate, e.g., a subclass of employers who were
nongroup-rated throughout the class period and a subclass of employers who migrated between group
rating and nongroup rating during the class period. We leave that determination to the discretion of
the trial court.
{¶159} The BWC has not cited a single case, and we are aware of none, in which it
has been held that the statute of limitations set forth in R.C. 2743.16(A) applies to claims
for equitable relief filed in the court of common pleas.
{¶160} Equitable claims were available against the state before the passage of the
Court of Claims Act. See, e.g., Harris v. Grafton Corr. Inst., Ct. of Cl. No.
2009-075363-AD, 2010-Ohio-5217, ¶ 10 (acknowledging that “[t]he state consented to be
sued for equitable claims prior to the enactment of the Court of Claims Act”). As such,
plaintiffs’ unjust enrichment claim for equitable restitution is not a claim “permitted by
sections 2743.01 to 2743.20 of the Revised Code,” and R.C. 2743.16(A) does not apply to
plaintiffs’ claim. See R.C. 2743.16(A); Simmons v. Ohio Rehab. Servs. Comm., 10th
Dist. Franklin No. 09AP-1034, 2010-Ohio-1590, ¶ 5 (“The limitation period in R.C.
2743.16 is more specific because it applies only to the limited number of claims that are
filed against the state of Ohio, in the Court of Claims. * * * Chapter 2743 of the Revised
Code is in fact entitled ‘COURT OF CLAIMS,’ and is exclusive to practice therein.”).
Therefore, the trial court did not err in refusing to apply the two-year statute of limitations
set forth in R.C. 2743.16(A) to plaintiffs’ claim. The BWC’s ninth assignment of error is
overruled.
I. Equal Protection
{¶161} Turning to plaintiffs’ cross-assignments of error, in its first
cross-assignment of error, plaintiffs argue that the trial court erred in holding that the
BWC did not violate plaintiffs’ right to equal protection under Article I, Section 2 of the
Ohio Constitution. We disagree.
{¶162} The Equal Protection Clause “require[s] that individuals be treated in a
manner similar to others in like circumstances.” McCrone v. Bank One Corp., 107 Ohio
St.3d 272, 2005-Ohio-6505, 839 N.E.2d 1, ¶ 6. Plaintiffs’ equal protection claim is
premised on the fact that nongroup-rated employers and group-rated employers in the
same manual class were charged different rates based on their group or nongroup status.
Plaintiffs contend that, under the Ohio Constitution’s Equal Protection Clause, employers
in the same occupational classification must be charged workers’ compensation premiums
using the same rating factors, based on the risk of the occupation, not based on whether
they were part of a group.
{¶163} A classification that involves neither a suspect class nor a fundamental
right does not violate the Ohio Constitution’s Equal Protection Clause if it bears a rational
relationship to a legitimate governmental interest. Menefee v. Queen City Metro, 49
Ohio St.3d 27, 29, 550 N.E.2d 181 (1990). Because there is no assertion in this case that
any suspect class or fundamental right is involved in the classification at issue, the
rational relationship test applies.
{¶164} To satisfy the rational relationship test, (1) there must be a legitimate state
interest and (2) the means chosen by the state to advance that interest must be rational.
McCrone at ¶ 9. As the Ohio Supreme Court explained in State ex rel. Powhatan Mining
Co. v. Indus. Comm. of Ohio, 125 Ohio St. 272, 181 N.E. 99 (1932):
“A classification having some reasonable basis does not offend against [the
Equal Protection Clause] merely because it is not made with mathematical
nicety, or because in practice it results in some inequality. * * * When the
classification in such a law is called in question, if any state of facts
reasonably can be conceived that would sustain it, the existence of that state
of facts at the time the law was enacted must be assumed.” Lindsley v.
Natural Carbonic Gas Co., 220 U.S. 61, 78, 31 S.Ct. 337, 55 L.Ed. 369.
State ex rel. Powhatan Mining Co. at 279.
{¶165} In State ex rel. Powhatan Mining Co., supra, the Ohio Supreme Court
addressed a similar claim of discrimination in considering whether experience rating
violated the Equal Protection Clause of the Ohio Constitution. The court held that, even
though it resulted in certain employers in a manual classification receiving discounts
based on their “individual industrial accident experience” and other employers in the
same manual classification with less favorable accident experience paying higher
premiums, experience rating did not violate equal protection because the differential
treatment of employers in the same manual class was related to the legitimate state
interest in “encourag[ing] and stimulat[ing] accident prevention,” promoting workplace
safety. Id. at 278-279. The same conclusion is warranted here.
{¶166} Instead of challenging experience rating at the individual level as was done
in State ex rel. Powhatan Mining Co., plaintiffs challenge the constitutionality of
experience rating in the group context. The trial court determined that the BWC’s
differential treatment of group-rated and nongroup-rated employers within the same
manual class was rationally related to promoting workplace safety, a legitimate state
interest. As the trial court explained:
The group/non-group classifications within the same manual class
encourage employers to get into and stay in a group by offering lower
premiums to group rated employers. In order to get into a group, the
employer must not have claims filed against them, and have maintained a
good safety record. Workplace safety is a legitimate government interest,
and offering lower premiums to those with a good safety record is
relationally related to achieving that interest.
{¶167} The trial court’s determination is supported by the record. The rational
relationship test is a very low standard. The BWC presented evidence that group-rated
employers had 20% lower claims costs than the average employer and that
nongroup-rated employers had 30% higher claims costs than the average employer. The
BWC also presented evidence, including testimony from several of the named plaintiffs,
demonstrating that the discounts provided to group-rated employers under the group
rating system created significant incentives for employers to improve or maintain their
level of workplace safety because employers needed a favorable safety record to get into
and remain in a group. Accordingly, the trial court did not err in ruling against plaintiffs
on their equal protection claim. Plaintiffs’ first cross-assignment of error is overruled.
J. Failure to Include Investment Returns in Restitution Award
{¶168} In their second cross-assignment of error, plaintiffs claim that the trial
court erred in failing to include, as part of its restitution award, the value of the
investment returns the BWC allegedly earned on the funds it had wrongfully collected
from the plaintiff class. Plaintiffs claim that the trial court improperly imposed a
“traceability requirement” on plaintiffs’ recovery of investment earnings, requiring that
the investment earnings be traceable to the amount of premiums unjustly collected and
retained by the BWC. We disagree.
{¶169} The trial court denied plaintiffs’ request to recover investment income the
BWC had allegedly earned on the excess premiums charged to the plaintiff class as part
of its restitution award because it concluded that plaintiffs had failed to present evidence
establishing the value of the investment income — if any — that the BWC had actually
earned on the overcharged premiums.
{¶170} The Restatement of the Law 3d of Restitution and Unjust Enrichment,
Section 53 (2011) — upon which both plaintiffs rely in seeking “disgorgement of the
investment returns” allegedly earned by the BWC and the trial court relied in holding that
plaintiffs had failed to meet their burden of proving investment income was earned on the
excessive premiums charged the plaintiff class — provides in relevant part: “A person
who is liable to make restitution of property * * * is liable for supplemental enrichment in
the form of interest * * * to the extent that such further enrichment is * * * realized in
fact * * *.” (Emphasis added.) See also Sogg v. Zurz, 192 Ohio App.3d 22,
2011-Ohio-81, 947 N.E.2d 1256, ¶ 11, 13 (interpreting the Ohio Supreme Court’s
decision in Sogg v. Zurz, 121 Ohio St.3d 449, 2009-Ohio-1526, 905 N.E.2d 187, as
requiring the Ohio Department of Commerce “to disgorge the interest actually earned by
the state of Ohio, no more and no less,” on unclaimed funds owned by the plaintiff class)
(Emphasis added.); United States v. $277,000 United States Currency, 69 F.3d 1491,
1498 (9th Cir.1995) (government “must disgorge benefits that it has actually and
calculably received from an asset that it has been holding improperly”) (emphasis added).
{¶171} Upon our review of the record, we cannot say that the trial court erred in
denying plaintiffs’ request for restitution of investment earnings allegedly earned by the
BWC on the premium overcharges. Jeffrey Dahl, plaintiffs’ primary witness on the
issue of interest, testified that he had no opinion as to whether the BWC had actually
earned interest on the premium overcharges to the plaintiff class and could not explain the
methodology behind plaintiffs’ interest calculation. Schwartz testified that interest on
the premium overcharges was calculated by using the investment returns reported in the
BWC’s financial records for the total state insurance fund. However, as the trial court
observed, there was no evidence that the premium overcharges at issue actually generated
any of the investment returns reported for the total state insurance fund or that the
premium overcharges were invested by the BWC as opposed being used to pay
administrative costs or other items such as dividends, discounts, refunds, etc., that may
not have been provided but for the excess funds generated by the premium overcharges.
{¶172} Moreover, the trial court had discretion to exclude investment income from
the equitable restitution awarded to the plaintiff class based on the sum of the equities and
the totality of the circumstances underlying plaintiffs’ unjust enrichment claim.
Accordingly, plaintiffs’ second cross-assignment of error is overruled.
III. Conclusion
{¶173} In this case, the BWC violated one of the most basic principles of workers’
compensation insurance, i.e., that every employer participating in Ohio’s workers’
compensation system be charged a reasonable, accurate, and equitable premium rate that
corresponds to the risk the employer presents to the workers’ compensation system. The
record reflects that for more than fifteen years, the BWC ignored the criticisms and
recommendations of its actuarial consultants and maintained an unlawful and inequitable
rating system under which it knowingly overcharged nongroup-rated employers workers’
compensation insurance premiums in order to subsidize massive, undeserved premium
discounts for group-rated employers. There were both clear winners and clear losers
under the BWC’s rating system. The clear winners were group-rated employers and their
group sponsors; the clear losers — the nongroup-rated employers.
{¶174} In cases such as this, it is not easy for a court to craft an equitable remedy.
A court cannot turn back the clock; it cannot “put the genie back in the bottle”; it has no
means by which to “claw back” and redistribute all of the years of undeserved subsidy
benefits group sponsors secured for group-rated employers at the expense of those
excluded from groups.24 Both the record and applicable law provide ample support for
the trial court’s decision to order the BWC, through its restitution award, to refund the
24
For this reason, perhaps the best remedy in this case would have been for the legislature to
have more promptly intervened, to have conducted a thorough investigation as to how this situation
came about — i.e., was it mere negligence on the part of the BWC or was there some form of
collusion between the BWC and group sponsors that resulted in the BWC’s implementation of such
an inequitable rating program — and to have fashioned a timely and equitable legislative remedy.
premium overcharges the BWC unlawfully and unjustly collected from class members
during the class period. Equity, however, demands that, in fashioning an equitable
remedy, the court look at the full picture. In this case, that includes accounting for the
subsidy benefits class members who were group rated during part of the class period
received during the years in which they were group rated. Accordingly, we remand this
case to the trial court for recalculation of the portion of the restitution award relating to
class members who were group rated during part of the class period. On remand, the
trial court should determine the value of the subsidy benefits each migrating class
member received during the year(s) within the class period in which the class member
was group rated and offset that amount against the total premium overcharges the class
member paid during the year(s) within the class period in which the class member was
nongroup rated.
{¶175} Judgment affirmed in part, reversed in part, and remanded for further
proceedings consistent with this opinion.
It is ordered that appellant and appellee share the costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment into
execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
__________________________________________
KENNETH A. ROCCO, PRESIDING JUDGE
EILEEN A. GALLAGHER, J., and
MARY EILEEN KILBANE, J., CONCUR