Gracetech, Inc. v. Perez

2020 Ohio 3595, 154 N.E.3d 1123

• Court: Ohio Court of Appeals
• Decided: July 2, 2020
• Docket: 108948
• Status: Published

Opinion

[Cite as Gracetech, Inc. v. Perez, 2020-Ohio-3595.]

COURT OF APPEALS OF OHIO

EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA

GRACETECH INC., ET AL., :

Plaintiffs, : No. 108948 v. :

THEODORE A. PEREZ, ET AL., :

Defendants. :

JOURNAL ENTRY AND OPINION

JUDGMENT: REVERSED AND REMANDED RELEASED AND JOURNALIZED: July 2, 2020

Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-07-633275

Appearances:

Goodwin & Bryan, L.L.P., and Elizabeth A. Goodwin, as appellee receiver.

Michael P. Harvey Co., L.P.A., and Michael P. Harvey, for appellant.

MARY J. BOYLE, P.J.:

Appellant, Michael P. Harvey Co., L.P.A. (the “Law Firm”), appeals

the trial court’s denial of its creditor’s application for examination. It raises three

assignments of error for our review: 1. The lower court erred as a matter of law in denying a Creditor’s R.C. 2735.05 Request for Examination.

2. The lower court’s denial of the Creditor’s Request for Examination is against the manifest weight of the evidence.

3. The word “may” found in [a] statute does not give a Court unlimited discretion to deny the Request for Examination.

Finding merit to the Law Firm’s first and second assignments of error,

we reverse the trial court’s judgment and remand for further proceedings.

I. Factual Background and Procedural History

This case stems from a 2007 lawsuit in which plaintiffs, Gracetech,

Inc. and Marjorie Dorr, brought claims against defendants, Theodore Perez and

Precision Security Agency (“Precision”), for tortious interference with business

relations or contract, tortious interference with noncompete agreements,

conversion of Gracetech’s assets, Ohio trade secrets violations, and breach of

fiduciary duty. After a jury trial, an appeal, and a second jury trial, in February 2015,

judgment was entered in favor of Gracetech and Dorr, and against Perez and

Precision, for $1,100,451, including punitive damages and attorney fees.

Throughout 2015, the parties engaged in postjudgment motion practice, including

motions to stay the proceedings to enforce judgment, to tax costs, for judgment

notwithstanding the verdict, for remittitur on the damages award, for attorney fees

and sanctions, and for prejudgment interest. Throughout the case, the Law Firm

represented Perez and Precision.

In December 2015, Perez filed a notice of bankruptcy proceeding and

automatic stay of the case as against him, and the court applied the stay. In March 2016, Gracetech and Dorr filed an emergency motion to appoint a receiver over

Precision, to which Perez and Precision objected, and the trial court denied. In

December 2017, Gracetech and Dorr filed a second emergency motion to appoint a

receiver over Precision, to which Perez and Precision objected. In March 2018,

Gracetech and Dorr filed a notice of relief from stay, and in May 2018 they filed a

renewed second emergency motion to appoint a receiver, to which Perez and

Precision objected. In August 2018, Gracetech and Dorr filed a third emergency

motion to appoint a receiver, to which Perez and Precision objected. In September

2018, Gracetech and Dorr sent garnishment notices to multiple banks. In October

2018, Gracetech and Dorr moved for a judgment debtor exam of Perez, which Perez

and Precision opposed and the trial court granted, and the exam took place in

December 2018.

In February 2019, the trial court denied Gracetech’s and Dorr’s

second and renewed second emergency motions as moot and, after a hearing,

granted Gracetech’s and Dorr’s third emergency motion to appoint a receiver over

Precision. In March 2019, the trial court appointed Elizabeth Goodwin (the

“Receiver”) as the receiver over Precision and added her as a party to this case.

The Order of Powers of Authority of Receiver (the “Receivership

Order”) states that “[t]he Court finds Defendant [Precision] owes the Plaintiff the

sum of $1,106,682.21.” The Receivership Order provides that the Receiver is “under

the control of the Court,” “shall take control of the operations and management” of

Precision, and “is hereby ordered to take possession of the goods, equipment, real estate, revenues, chattels, and other assets of [Precision] and thereafter to operate

said business or to sell and convey all of the assets of [Precision] to fulfill the above

referenced Judgment subject to the approval of this Court.” The Receiver’s powers

under the Receivership Order include “[c]ontrol[ing] all operations of [Precision] as

a going business including but not limited to procuring licensure, procuring

insurance, hiring, firing, and other management activities,” “[t]racing and acquiring

of all assets of [Precision],” and “[t]he performance of any and all acts deemed

necessary in the opinion of the Receiver to fully protect the Plaintiffs herein and to

preserve, protect, and maximize the highest dollar benefit from said assets including

the operation of the business.”

On July 15, 2019, the Law Firm filed a “Creditor’s Statutory

Application for Examination.” In the application, the Law Firm requested that Perez

be examined pursuant to R.C. 2735.05 regarding Perez’s “property, trade, dealings

and other accounts and debts due or claimed” and regarding all matters “for which

the Receiver has been appointed.” The application also requested to examine the

Receiver, “with a full set of up-to-date books and records” of Perez and Precision,

including “all accounts payable, receivable, [and] a log of all activities taken since

the Receiver has been appointed[.]”

The Receiver opposed the application, asserting that an examination

was not warranted because she was only recently appointed as Precision’s receiver

and was still in the process of assessing the entity’s finances. She maintained that

both Perez and Precision had “significant judgments against them,” and she was not aware that the Law Firm had such a judgment or any priority for payment. The Law

Firm filed a reply, attaching letters it had sent to the Receiver regarding unpaid legal

fees and other matters, claiming that the letters “have gone unanswered.” The Law

Firm also asserted that although it had been handling Precision’s litigation “for

many years,” the Receiver moved Precision’s legal work from the Law Firm to her

legal partner.

On August 1, 2019, the trial court denied the Law Firm’s application,

finding “that there is no evidence demonstrating that the applicant is a ‘creditor’ for

purposes of R.C. 2735.05.” The Law Firm moved for reconsideration, arguing that

R.C. 2735.05 does not require proof of a creditor’s status and does not define

“creditor.” The Law Firm attached to its motion a statement of legal fees that Perez

and Precision owed it and claimed that neither the Receiver nor Perez disputed the

amount of unpaid fees.

On August 23, 2019, the trial court denied the Law Firm’s motion for

reconsideration, stating, “In its discretion as provided for in R.C. 2735.05, the court

does not find good cause under the circumstances to grant the requested

examination.”

On August 29, 2019, the Law Firm appealed only the trial court’s

August 1, 2019 judgment denying the examination application.

II. The Law Firm’s First Assignment of Error

The Law Firm contends in its first assignment of error that the trial

court erred as a matter of law in denying the application because (1) R.C. 2735.05 does not require the applicant to establish that he or she is a creditor or a judgment

creditor; (2) “there is no dispute” that the Law Firm is a creditor of both Perez and

Precision; (3) the purpose of the General Assembly in enacting R.C. 2735.05 is to

disclose receivers’ actions; and (4) the Law Firm sought to examine the Receiver to

determine why Perez and Precision stopped paying their legal bills.1

“The interpretation of a statute is a question of law that we review de

novo.” State v. Neville, 8th Dist. Cuyahoga No. 106885, 2019-Ohio-151, ¶ 25.

A court’s main objective when interpreting a statute is to determine

and give effect to the legislative intent. State ex rel. Solomon v. Bd. of Trustees of

the Police & Firemen’s Disability & Pension Fund, 72 Ohio St.3d 62, 65, 647 N.E.2d

486 (1995). We first look to the language of the statute itself to determine the intent

of the General Assembly. Stewart v. Trumbull Cty. Bd. of Elections, 34 Ohio St.2d

129, 130, 296 N.E.2d 676 (1973). When a statute’s meaning is clear and

unambiguous, we apply the statute as written. Provident Bank v. Wood, 36 Ohio

St.2d 101, 105-106, 304 N.E.2d 378 (1973). If a legislative definition of a term or

phrase is available, we construe the words of the statute accordingly. R.C. 1.42. If a

term or phrase is undefined in a statute, we accord it the common, everyday

meaning. Id.

1 The Law Firm also seems to argue that it is entitled to examine the Receiver because

her appointment as receiver itself was improper. As this appeal concerns only the Law Firm’s examination application, the issue of the Receiver’s appointment is not before us on appeal, and we will not address it. See Coryell v. Bank One Trust Co. N.A., 101 Ohio St.3d 175, 2004-Ohio-723, 803 N.E.2d 781, ¶ 2, fn. 1. R.C. 2735.05 states:

On application of the receiver or of a creditor, the court appointing such receiver as provided in section 2735.01 of the Revised Code may, upon reasonable notice, require any person, or officer or director of a corporation, or member of a partnership for which a receiver has been appointed, to attend and submit to an examination on oath as to its property, trade, dealings with others, accounts, and debts due or claimed from it, and as to all other matters concerning the property and estate of the person, partnership, or corporation for which such receiver has been appointed.

The Revised Code does not define the term “creditor.” As such, we

must accord it the common, everyday meaning. The common, everyday meaning of

the term “creditor” is “a person to whom a debt is owing by another person who is

the debtor.” Black’s Law Dictionary 368 (6th Ed.1990); see also Bouvier Law

Dictionary (2012) (“One to whom payment or performance is owed.”).

The trial court denied the Law Firm’s application for examination

because “there is no evidence demonstrating that the applicant is a ‘creditor’ for

purposes of R.C. 2735.05.” However, the Law Firm submitted with its reply in

support of the examination application letters it had sent to the Receiver regarding

unpaid legal fees that Precision owed to the Law Firm. The Receiver did not dispute

that Precision owes the Law Firm legal fees. Based on the common, everyday

meaning of “creditor,” the Law Firm is a creditor of Precision. The trial court’s

reasoning shows that it misapplied the meaning of “creditor” in R.C. 2735.05.

Accordingly, we sustain the Law Firm’s first assignment of error. III. The Law Firm’s Second Assignment of Error

We also find merit in the Law Firm’s second assignment of error. The

Law Firm argues in the alternative in its second assignment of error that the trial

court’s denial of the examination application “is against the manifest weight of the

evidence” for the same reasons as in its first assignment of error. Despite the

manner in which the Law Firm titles this assignment of error, it cites the abuse of

discretion standard and argues that the trial court abused its discretion, as opposed

to making a manifest-weight-of-the-evidence argument.

We must review the trial court’s denial of the examination application

for abuse of discretion. R.C. 2735.05 is a permissive statute because it provides that

the trial court “may” require a person to submit to an examination. Since the

determination of whether to grant an application for examination is vested within

the trial court’s discretion, we review the trial court’s decision for abuse of discretion.

See In re Chrosniak, 2017-Ohio-7408, 96 N.E.3d 1083, ¶ 14 (8th Dist.) (applying an

abuse-of-discretion standard to review a trial court’s determination pursuant to

R.C. 2923.14(D) because the statute used the term “may,” signifying a permissive

statute).

A trial court abuses its discretion if it enters an order that is

“unreasonable, arbitrary, or unconscionable,” if it “applies the wrong legal standard,

misapplies the correct legal standard, or relies on clearly erroneous findings of fact,”

or if its order is “unsupported by competent, credible evidence.” In re M.C.M., 8th

Dist. Cuyahoga No. 106040, 2018-Ohio-1307, ¶ 17. An abuse of discretion “connotes that the court’s attitude is unreasonable, arbitrary, or unconscionable.” Marketing

Assocs. v. Gottlieb, 8th Dist. Cuyahoga No. 92292, 2010-Ohio-59, ¶ 47.

The Receiver argues that the trial court did not abuse its discretion

because (1) the Law Firm did not state why it wanted the examination, (2)

Gracetech’s and Dorr’s judgment against Precision “dwarfs” the legal fees that

Precision owes to the Law Firm, (3) the Law Firm has no secured judgment against

Precision, and (4) the Receiver had been Precision’s receiver for only four months.

However, the Law Firm’s reply in support of the examination application explained

the reasons for requesting the examination. As previously discussed, the Law Firm

is a creditor of Precision based on the common, everyday meaning of the term. The

amount Precision owes the Law Firm and the fact that the Law Firm is not a secured

creditor are irrelevant. Moreover, the Receiver’s argument that she had been the

receiver only four months is unpersuasive because Loc.R. 26(A) and (B) of the Court

of Common Pleas of Cuyahoga County, General Division, require the Receiver to

have filed an inventory of all property and assets within thirty days after taking

possession of the property and to have filed reports of “receipts and disbursements

with supporting documentation” of her acts and transactions as receiver within

three months after appointment.

A receiver “is a trustee or ministerial officer representing the court[.]”

State ex rel. Celebrezze v. Gibbs, 60 Ohio St.3d 69, 73, 573 N.E.2d 62 (1991), fn. 4,

quoting Black’s Law Dictionary 1268 (6th Ed.1990). A receiver does not have

“unbridled” authority. Hummer v. Hummer, 8th Dist. Cuyahoga No. 96132, 2011- Ohio-3767, ¶ 18. The receiver “is the arm of the court and is at all times subject to

the court’s order and direction.” Id. R.C. 2735.04(B) mandates that trial courts

exercise “control” over the receivers they appoint. “A trial court must be mindful of

its duty to independently monitor and evaluate the conduct of the receiver in

relation to the duties assigned.” Id.

Loc.R. 26(A) of the Court of Common Pleas of Cuyahoga County,

General Division provides that “[a]s soon as practical after his [or her] appointment,

and not more than thirty (30) days after taking possession of property, a receiver

shall file an inventory of all property and assets in his [or her] possession unless

otherwise ordered by the Court.” Loc.R. 26(B) further states:

A receiver shall file reports of receipts and disbursements with supporting documentation of his [or her] acts and transactions as receiver within three (3) months after the date of appointment and at regular intervals every three (3) months thereafter until discharged or at such other times as the Court may direct. Failure to file any report within thirty (30) days after the report is due or ordered shall be grounds for removal without notice and without compensation. Any persons removed as receiver shall be ineligible for any subsequent appointment.

A review of the court docket in this case reveals a lack of compliance

with the local rules. The court docket does not reflect that the Receiver filed an

inventory or report in over a year since her appointment. Moreover, the docket does

not reflect that the trial court issued an order or judgment requiring the Receiver to

file an inventory or report. Nor does the docket show that the trial court stayed the

Receiver’s obligations during the pendency of this appeal. Considering the lack of compliance with the local rules and the Law

Firm’s allegations of Precision’s failure to pay the Law Firm outstanding legal fees,

the trial court should have allowed the Law Firm to examine the Receiver and Perez

to confirm that the Receiver had been acting within her authority. See Hummer,

8th Dist. Cuyahoga No. 96132, 2011-Ohio-3767, at ¶ 25 (“In light of the allegations

herein * * * the trial court should, prior to trial, require an accounting and conduct

a hearing to ensure that the parties’ rights are being adequately protected by the

receiver in this matter. The court should review the receivers’ actions, including the

liquidation of the life insurance policy, and consider whether the receiver has acted

within the authority he has been given.”).

The trial court, in denying the Law Firm’s application, stated “that

there is no evidence demonstrating that the applicant is a ‘creditor’ for purposes of

R.C. 2735.05.” The Law Firm submitted with its reply in support of the application

documents showing that it was a creditor of Precision within the common, everyday

meaning of “creditor.” The trial court applied the wrong legal standard in

interpreting the term “creditor” and erroneously determined that the Law Firm is

not a creditor. Combined with the lack of inventory or report as required by Loc.R.

26(A) and (B), the trial court’s denial of the Law Firm’s application connotes that

the court’s attitude was unreasonable and arbitrary. We therefore find that the trial

court abused its discretion in denying the Law Firm’s examination application.

Accordingly, we sustain the Law Firm’s second assignment of error,

rendering its third assignment of error moot. Judgment reversed and remanded to the trial court for further

proceedings consistent with this opinion.

It is ordered that appellant recover from appellee 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.

MARY J. BOYLE, PRESIDING JUDGE

ANITA LASTER MAYS, J., and MARY EILEEN KILBANE, J., CONCUR