State Ex Rel. DeWine v. S & R Recycling, Inc. , 195 Ohio App. 3d 744 ( 2011 )

[Cite as State ex rel. DeWine v. S&R Recycling, Inc., 195 Ohio App. 3d 744, 2011-Ohio-3371.]
STATE OF OHIO, COLUMBIANA COUNTY
IN THE COURT OF APPEALS
SEVENTH DISTRICT
STATE ex rel. DeWine, Atty. Gen., et al.,) CASE NO. 09 CO 45
)
)
APPELLANTS, )
)
v. ) OPINION
)
S&R RECYCLING, INC., et al., )
)
APPELLEES. )
CHARACTER OF PROCEEDINGS: Civil Appeal from the Court of Common
Pleas of Columbiana County, Ohio
Case No. 08 CV 792
JUDGMENT: Affirmed.
APPEARANCES:
For Plaintiff-Appellant: Mike DeWine, Attorney General,
State of Ohio and Amanda K. Sturm, James A. Carr,
and Brian Ball,
Assistant Attorneys General,
for appellant state of Ohio.
For Appellants Toalstons: Pelini, Campbell, Williams &
Traub, Craig G. Pelini, and Raymond C.
Mueller, for appellants Melvin and
Frances Toalston.
For Defendants-Appellees: Oldham Kramer, Matthew W. Oby,
S&R Recycling, Inc., and Caryn L. Peterson, for appellees.
DiPasquale and Romeo Maffei
JUDGES:
Hon. Cheryl L. Waite
Hon. Joseph J. Vukovich
Hon. Mary DeGenaro
Dated: June 30, 2011
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WAITE, Presiding Judge.
Summary
{¶ 1} Appellants, the state of Ohio and Melvin A. and Frances Toalston,
appeal the decision of the Columbiana County Court of Common Pleas granting
appellees’, Simone DiPasquale and Romeo Maffei’s, motion to quash service of
summons and motion to dismiss pursuant to Civ.R. 12(B)(2), lack of personal
jurisdiction. The main issue in this case is whether the trial court had competent,
credible evidence to find that the long-arm statute of Ohio did not confer jurisdiction
over these defendants. The record supports the trial court’s decision not to disregard
the corporate form and not to assert personal jurisdiction over DiPasquale and Maffei
for the alleged Ohio Environmental Protection Agency (“OEPA”) violations.
Accordingly, we affirm the lower court’s ruling.
Case History
{¶ 2} The property that is the subject of this litigation is a 30-acre parcel
located at U.S. Route 30 and State Route 644, Campbell Road, Kensington, County
of Columbiana. S&R Recycling, Inc. bought the property from Melvin and Francis
Toalston by a land contract on August 27, 2002. Prior to 2000, Tri-State Materials
owned the property and operated a hazardous-waste recycling landfill for a number
of years. S&R is a New York corporation authorized to do business in Ohio.
Appellees Simon DiPasquale and Romeo Maffei each own 50 percent of S&R. Both
DiPasquale and Maffei are residents of New York. DiPasquale is the president of
S&R; Maffei holds no official title.
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{¶ 3} S&R also owns a 120-acre parcel adjacent to the property at issue.
S&R obtained a permit from OEPA to operate a construction-debris landfill on the
120-acre parcel. S&R purchased the 30-acre property to allow for better highway
access to this 120-acre parcel.
{¶ 4} After purchasing the property, S&R hired Bowser-Morner, an
environmental consulting firm, to analyze it. Bowser-Morner informed S&R that the
property might be in violation of several of Ohio’s hazardous-waste and solid-waste
laws.
{¶ 5} OEPA conducted a complaint investigation at the property. The
inspection discovered several violations of R.C. Chapter 3734. OEPA informed S&R
of these violations by sending eight notices of violation to S&R and to appellee
DiPasquale between August 21, 2003, and August 26, 2005. OEPA then revoked
the permit previously issued for the adjacent 120-acre parcel. Because of this
revocation, S&R never began operating a landfill, did not conduct business on the
property, never hired any employees, and never made any profit as a result of its
ownership of the property.
Procedural History
{¶ 6} The attorney general, at the request of the OEPA, filed a complaint on
August 7, 2008, against S&R, Simone DiPasquale, and Romeo Maffei, for violations
of R.C. Chapter 3734. Appellees filed a motion to quash service of summons and to
dismiss pursuant to Civ.R. 12(B)(2), for lack of personal jurisdiction. An evidentiary
hearing was held and both appellants and appellees filed posthearing briefs. On
September 30, 2009, the court granted appellees’ motion to quash service, finding
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that DiPasquale and Maffei were not subject to personal jurisdiction under Ohio’s
long-arm statute. In the judgment entry, the court concluded that although the
corporate entity, S&R, was subject to personal jurisdiction under Ohio’s long-arm
statute, DiPasquale and Maffei were merely principals or shareholders in the
defendant corporation, had not personally conducted any business in Ohio, and were
therefore not subject to personal jurisdiction. The attorney general filed a motion
seeking a final, appealable order and then filed this timely appeal.
{¶ 7} Appellants Melvin A. and Frances Toalston also filed a notice of appeal,
but they do not raise any assignments of error or arguments. They rely on the
arguments made by the attorney general.
General Law
{¶ 8} When a trial court conducts an evidentiary hearing before ruling on a
motion to dismiss for lack of personal jurisdiction under Civ.R. 12 (B)(2), the
nonmoving party must establish the jurisdiction of the court by a preponderance of
the evidence. Giachetti v. Holmes (1984), 14 Ohio App. 3d 306, 308, 471 N.E.2d
165. We review the trial court’s ruling granting a motion to dismiss or vacate for lack
of personal jurisdiction under a de novo standard. Snyder Computer Sys., Inc. v.
Stives, 175 Ohio App. 3d 653, 2008-Ohio-1192, 888 N.E.2d 1117, ¶ 1.
{¶ 9} When making a determination whether a court has personal jurisdiction
over a defendant, the court applies a two-step test. First, the court determines
whether Ohio’s long-arm statute, R.C. 2307.382, and corresponding civil rule, Civ.R.
4.3(A)(1), confer personal jurisdiction. U.S. Sprint Communications Co. Ltd.
Partnership v. Mr. K’s Foods, Inc. (1994), 68 Ohio St. 3d 181, 183-184, 624 N.E.2d
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1048. If the court determines that the long-arm statute confers jurisdiction, the next
step is to determine whether granting personal jurisdiction would deprive the
defendant of the right to due process of law pursuant to the Fourteenth Amendment.
Id. Appellants’ first assignment of error addresses the two steps of this test as Issue
No. 1 and Issue No. 2.
Assignment of Error Number One
{¶ 10} “The trial court erred in dismissing defendants Dipasquale and Maffei
for lack of personal jurisdiction under ohio’s long-arm statute.”
{¶ 11} For the first part of the analysis in determining personal jurisdiction,
Ohio's long-arm statute, R.C. 2307.382, sets forth the requirements for findiing
personal jurisdiction over a nonresident defendant. The statute provides:
{¶ 12} “(A) A court may exercise personal jurisdiction over a person who acts
directly or by an agent, as to a cause of action arising from the person’s:
{¶ 13} “(1) Transacting any business in this state;
{¶ 14} “(2) Contracting to supply services or goods in this state;
{¶ 15} “(3) Causing tortious injury by an act or omission in this state;
{¶ 16} “(4) Causing tortious injury in this state by an act or omission outside
this state if he regularly does or solicits business, or engages in any other persistent
course of conduct, or derives substantial revenue from goods used or consumed or
services rendered in this state;
{¶ 17} “(5) Causing injury in this state to any person by breach of warranty
expressly or impliedly made in the sale of goods outside this state when he might
reasonably have expected such person to use, consume, or be affected by the goods
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in this state, provided that he also regularly does or solicits business, or engages in
any other persistent course of conduct, or derives substantial revenue from goods
used or consumed or services rendered in this state;
{¶ 18} “(6) Causing tortious injury in this state to any person by an act outside
this state committed with the purpose of injuring persons, when he might reasonably
have expected that some person would be injured thereby in this state;
{¶ 19} “(7) Causing tortious injury to any person by a criminal act, any element
of which takes place in this state, which he commits or in the commission of which he
is guilty of complicity.
{¶ 20} “(8) Having an interest in, using, or possessing real property in this
state.”
{¶ 21} The attorney general asserts that jurisdiction over appellees exists
under subdivisions (1), (3), and (8) of R.C. 2307.382(A).
Issue No. 1
{¶ 22} “Whether Defendants DiPasquale and Maffei are subject to Ohio’s long-
arm statute because they transacted business in Ohio or caused tortious injury or
used or possessed real property in this state.”
{¶ 23} Appellants challenge the trial court’s finding that it lacked personal
jurisdiction over the appellees, arguing statutory liability and personal participation in
wrongful acts and that the corporate veil should have been pierced. Appellants
circuitously assert that the same acts that constitute liability under these theories also
show that appellees should be subject to personal jurisdiction. Appellants provide no
further analysis of this argument other than to say that “Defendants’ actions
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maintaining the ongoing violations at the Facility also prove that they were
transacting business in the State of Ohio, causing tortious injury to the citizens of
Columbiana County and using or possessing real property in this state.”
{¶ 24} The trial court is able to exercise jurisdiction over S&R in this case
because the corporation owns land and transacts business in the state. However,
the issue here is whether appellees DiPasquale and Maffei, in their personal
capacities, fall under the jurisdiction of the court. Jurisdiction over officers, directors,
and shareholders of a corporation cannot be based solely on jurisdiction over the
corporation itself. In re Blue Flame Energy Corp., 171 Ohio App. 3d 514, 2006-Ohio-
6892, 871 N.E.2d 1227, ¶ 31; Dombroski v. WellPoint, Inc., 119 Ohio St. 3d 506,
2008-Ohio-4827, 895 N.E.2d 538, ¶ 16.
{¶ 25} There are three theories under which appellants claim that the court
should exercise personal jurisdiction over appellees. First, under the theory of
statutory liability, appellants assert that Ohio’s environmental statutes provide for
liability against the person committing the violation. Appellants further state that
these statutes define “person” to include both individuals and corporations.
Regardless whether these statutes provide a basis for liability, the grounds for
showing that a court can exercise personal jurisdiction under Ohio’s long-arm statute
are separate and unique. Although the statute may provide grounds for liability, it
does not automatically confer personal jurisdiction over out-of-state defendants.
Appellant cites no cases in which the corporate violation of one of Ohio’s
environmental statutes provided the basis for personal jurisdiction over corporate
officers, directors, and shareholders. Instead, in support of their argument,
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appellants cite State ex rel. Celebrezze v. Dearing & Northway Environmental Servs.,
Inc. (Nov. 1, 1986), 8th Dist. Nos. 51209, 51220, and 51221, 1986 WL 12853, *9.
The sole portion of that decision relevant to the question of personal civil liability
extends only so far as to state: “[A] trial court is authorized to impose a civil penalty
upon the person found to have violated Chapter 3734. See also Centennial Ins. Co.
v. Vic Tanny Intl. (1975), 46 Ohio App. 2d 137, 141, 346 N.E.2d 33 (noting that
corporate officers may be held personally liable for fraud even though the corporation
may also be liable [emphasis sic]).” Id. While that decision does state that liability
will extend to the individual as well as the corporation, in no way does it set out or
provide a basis for determining that personal jurisdiction exists over the individual.
{¶ 26} Similarly, appellants’ next argument sets out only another means for
extending liability beyond the corporation to the individual. Appellants state that the
“personal participation in wrongful acts” theory of liability extends personal liability
over the appellees in their individual capacity. Theoretically, appellants may very well
be correct. Once again, however, appellants cite cases that provide standards for
looking beyond the corporation to the individual when assigning liability. Each case
cited by appellants focuses solely on liability. None provide any basis to extend
personal jurisdiction to the individual corporate officers or shareholders based on this
theory of liability.
{¶ 27} The last argument put forth by appellants in an attempt to extend
personal jurisdiction rests on the theory of piercing the corporate veil. It is abundantly
apparent that this argument is really the basis on which appellants rest all of their
arguments here. The fiduciary-shield doctrine prevents the court from considering an
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individual’s acts done in an official capacity when analyzing whether the individual is
subject to personal jurisdiction in the forum state. Heritage Funding & Leasing Co. v.
Phee (1997), 120 Ohio App.3d, 422, 430. In certain cases, courts will disregard the
fiduciary shield and pierce the corporate veil so as to impose individual liability on
active shareholders for acts taken in their corporate capacity. This theory is
periodically used as a vehicle to obtain personal jurisdiction over an officer of a
corporation that cannot otherwise be reached in a certain state.
{¶ 28} The Ohio Supreme Court adopted a three-pronged test to determine
whether a court should pierce the corporate veil. Belvedere Condominium Unit
Owners’ Assn. v. R.E. Roark Cos., Inc. (1993), 67 Ohio St. 3d 274, 617 N.E.2d 1075.
The Belvedere test provides: “The corporate form may be disregarded and individual
shareholders held liable for wrongs committed by the corporation when (1) control
over the corporation by those to be held liable was so complete that the corporation
has no separate mind, will, or existence of its own, (2) control over the corporation by
those to be held liable was exercised in such a manner as to commit fraud or an
illegal act against the person seeking to disregard the corporate entity, and (3) injury
or unjust loss resulted to the plaintiff from such control and wrong.” Id. at paragraph
three of the syllabus. In Dombroski, the Ohio Supreme Court clarified that the
second prong of the Belvedere test refers specifically to fraud or an illegal act and
does not refer to mere unjust or inequitable acts that do not rise to the level of fraud
or illegality. Id., 119 Ohio St. 3d 506, 2008-Ohio-4827, 895 N.E.2d 538, ¶ 1-2.
{¶ 29} Because one of the purposes of incorporation is to limit the liability of
individual shareholders, the party seeking to have the corporate form disregarded
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bears the burden of proof. Starner v. Guardian Industries (2001), 143 Ohio App. 3d
461, 469, 758 N.E.2d 270; Univ. Circle Research Ctr. Corp. v. Galbreath Co. (1995),
106 Ohio App. 3d 835, 840, 667 N.E.2d 445. When determining whether to pierce the
corporate veil, a trial court must decide each case sui generis, on its own facts. Yo-
Can, Inc. v. Yogurt Exchange, Inc., 149 Ohio App. 3d 513, 2002-Ohio-5194, 778
N.E.2d 80, ¶ 45. “Because of the delicate judgments involved in assessing the
special facts in each case, and ultimately, in deciding whether the corporation has
been used to an end subversive to its policy or when it would be ‘unjust’ not to
disregard the corporate entity, ‘piercing the corporate veil’ is primarily a matter for the
trier of fact.” (Citations omitted.) Clinical Components, Inc. v. Leffler Industries, Inc.
(Jan. 22, 1997), 9th Dist. No. 95CA0085, *3. Thus, appellate review of the trial
court's decision is limited to finding whether competent, credible evidence supports
the trial court’s decision. Longo Constr., Inc. v. ASAP Tech. Serv., Inc. (2000), 140
Ohio App. 3d 665, 671, 748 N.E.2d 1164; Sanderson Farms, Inc. v. Gasbarro, 10th
Dist. No. 01AP-461, 2004-Ohio-1460, ¶ 25.
{¶ 30} The first prong of the Belvedere test “is a concise statement of the alter
ego doctrine; to succeed a plaintiff must show that the individual and the corporation
are fundamentally indistinguishable.” Belvedere, 67 Ohio St. 3d at 288, 617 N.E.2d
1075. In this case, DiPasquale and Maffei are S&R's sole shareholders. But this fact
alone does not prove that their control over S&R was “so complete that the
corporation has no separate mind, will, or existence of its own.” Id. at paragraph 3 of
the syllabus. “A corporation is a separate legal entity from its shareholder even
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where there is only one shareholder in the corporation.” Humitsch v. Collier (Dec. 29,
2000), 11th Dist. No. 99-L-099, 2001 WL 20733.*4.
{¶ 31} “[I]n applying the ‘instrumentality’ or ‘alter ego’ doctrine, the courts are
concerned with reality and not form, with how the corporation operated and the
individual defendant's relationship to that operation.” DeWitt Truck Brokers, Inc. v.
W. Ray Flemming Fruit Co. (C.A.4, 1976), 540 F.2d 681, 685. Ohio courts have
looked at various factors when determining whether a shareholder's control over a
corporation is “so complete that the corporation has no separate mind, will, or
existence of its own.” Belvedere, at paragraph three of the syllabus. These factors
include (1) the failure to observe corporate formalities, (2) shareholders holding
themselves out as personally liable for certain corporate obligations, (3) diversion of
funds or other property of the company for personal use, (4) absence of corporate
records, and (5) the fact that the corporation was a mere facade for the operations of
the dominant shareholders. LeRoux's Billyle Supper Club v. Ma (1991), 77 Ohio
App.3d 417, 422-423, 602 N.E.2d 685; see also Link v. Leadworks Corp. (1992), 79
Ohio App. 3d 735, 744, 607 N.E.2d 1140. In this case, there is competent, credible
evidence to support the trial court's conclusion that DiPasquale and Maffei “are
merely principals or shareholders in the Defendant Corporation.”
{¶ 32} On the one hand, the business practices of S&R are minimal and
involve only appellees DiPasquale and Maffei. The two would meet informally to
discuss the business and actions of S&R on a weekly basis. There was no formal or
written business plan, no written minutes, no written resolutions prior to corporate
actions, and no written bylaws, nor were there any written records aside from the
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checks that DiPasquale wrote to pay the bills and corporate taxes. S&R did not have
annual meetings or insurance for the protection of investments.
{¶ 33} On the other hand, although DiPasquale and Maffei did not observe all
or perhaps many corporate formalities, the two did meet weekly to discuss matters
regarding S&R. There is no allegation that either DiPasquale or Maffei held himself
or herself out to be personally liable for certain corporate obligations. Nothing in the
record indicates that either the property in question or the adjacent 120-acre parcel
owned by S&R was being used by DiPasquale or Maffei for personal purposes.
Because there were no profits and the land had not been used for personal
purposes, there is no evidence that there had been a diversion of funds or corporate
property for personal use. While it is clear that minimal corporate records exist for
S&R, DiPasquale did testify as to a corporate checking account, land contract,
contract for environmental consulting services, and bills paid for corporate taxes all
on behalf of S&R. In addition, there is no evidence that S&R was a mere facade for
the actions of either DiPasquale or Maffei.
{¶ 34} Neither appellee is a resident of Ohio, and neither maintains an office in
Ohio. In their personal capacity, neither DiPasquale nor Maffei transacts business,
solicits business, or engages in any other persistent course of conduct in Ohio.
Neither appellee has placed any product or goods into the stream of commerce that
flowed into Ohio.
{¶ 35} While evidence tending to support both positions does exist, the record
contains competent, credible evidence from which the trial court could determine that
the first prong of the Belvedere test had not been met. Therefore, the trial court’s
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decision is not against the manifest weight of the evidence. Because the three-prong
test of Belvedere requires that each prong be satisfied and because the trial court did
not make specific findings of fact or conclusions of law relating to the second or third
prongs, further analysis is unnecessary.
Issue No. 2
{¶ 36} “Whether granting personal jurisdiction over Defendants DiPasquale
and Maffei would deprive them of Due Process of Law under the Fourteenth
Amendment.”
{¶ 37} Because the state in its circular arguments has failed to establish that
Ohio’s long-arm statute confers personal jurisdiction over appellees DiPasquale and
Maffei and thus has failed to establish the first step of the personal-jurisdiction
analysis set out in U.S. Sprint Communications Co. Ltd. Partnership, we need not
address step two to determine whether granting jurisdiction under the statute and the
rule would deprive DiPasquale and Maffei of the right to due process of law pursuant
to the Fourteenth Amendment to the United States Constitution.
{¶ 38} Although another fact-finder might have come to a different conclusion
regarding the issue of whether to pierce the corporate veil in this case, this abstract
possibility is not a basis for reversing the trial court in this appeal. Gomez v. Gomez,
7th Dist. No. 06 NO 33, 2007-Ohio-1559, ¶ 42. There are sufficient competent,
credible facts in the record to support the trial court’s judgment, and appellants’ first
assignment of error is hereby overruled.
Assignment of Error Number Two
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{¶ 39} “The trial court erred in claiming defendants DiPasquale and Maffei are
merely shareholders in the defendant corporation.”
Issue No. 1
{¶ 40} “Whether being ‘mere shareholders’ is a defense to individual liability.”
{¶ 41} As earlier stated, there is competent, credible evidence to support the
trial court’s finding that DiPasquale and Maffei are merely shareholders in the
corporation. The state’s focus under the second assignment of error appears to be
that this status as a “mere shareholder” does not allow a person to escape individual
liability when that shareholder is the same person who violates the environmental
laws in the state of Ohio. Again, appellants focus on outcome: whether appellants
should be liable for violations of the state law. The trial court, in holding the
evidentiary hearing and issuing its judgment, was not making a finding of fact or
conclusion of law regarding liability. Rather, the focus of the evidentiary hearing and
the judgment of the court rested solely on the threshold issue of personal jurisdiction.
The case on which appellants rely discusses the extension of liability to an individual
but says nothing regarding the initial determination whether personal jurisdiction
exists. State ex rel. Petro v. Mercomp, Inc., 167 Ohio App. 3d 64, 2006-Ohio-2729,
853 N.E.2d 1193, at ¶ 27-31. Further, in the Mercomp case, the trial court found that
step one of the three-step Belvedere test had been met and thus the corporate veil
was pierced, whereas the trial court in this case found that appellants did not meet
their burden pursuant to Belvedere. Id. at ¶ 23, see also Belvedere Condominium
Unit Owners’ Assn., 67 Ohio St. 3d at 289, 617 N.E.2d 1075. Because this
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assignment of error argues the alleged liability of a defendant and not personal
jurisdiction over a given defendant, it is without merit and is hereby overruled.
Conclusion
{¶ 42} Each assignment of error advanced by appellants primarily focuses on
the extension of liability rather than on an analysis of personal jurisdiction. Although
appellants properly identify the three Belvedere factors that a court must use to
determine whether to pierce the corporate veil and allow for the extension of personal
jurisdiction, appellants have not established that any of the three factors have been
met. It is clear that the first factor, dealing with whether the corporate structure was
improperly maintained so that the shareholders are actually the alter ego of the
company, was not proven adequately to the trial court. The trial court found that
appellees were mere shareholders and was not persuaded to pierce the corporate
veil and confer personal jurisdiction over appellees. There is competent, credible
evidence from which the trial court could base this conclusion. Appellants have not
convinced us that any legal or factual error occurred rising to the level of reversible
error. Therefore, we overrule appellants’ assignments of error and affirm the
judgment of trial court quashing the service of summons due to lack of personal
jurisdiction.
Judgment affirmed.
VUKOVICH and DEGENARO, JJ., concur.