[Cite as Illum. Co. v. Bosemann, 2020-Ohio-3663.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA
ILLUMINATING COMPANY, :
Plaintiff-Appellee, : No. 108631 v. :
FREDERICK A. BOSEMANN, :
Defendant-Appellant. :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED RELEASED AND JOURNALIZED: July 9, 2020
Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-16-871849
Appearances:
Weltman, Weinberg & Reis Co., L.P.A., and Amanda Rasbach Yurechko, for appellee.
Gallagher, Gams, Tallan, Barnes & Littrell L.L.P., Mitchell M. Talan, and Lori E. Thomson, for appellant.
MARY J. BOYLE, J.:
Defendant-appellant, Frederick A. Bosemann, appeals from the trial
court’s judgment in favor of plaintiff-appellee, Cleveland Electric Illuminating
Company (“CEI”), after a bench trial. He raises two assignments of error for our
review: 1. The Trial Court erred when it held the average life expectancy of Appellee’s poles did not apply to Appellee’s damaged utility pole and held the replacement cost should not be depreciated as a matter of law.
2. The Trial Court erred when it held Appellee proved its indirect costs with reasonable certainty and in accordance with sound accounting principles.
Finding no merit to his assignments of error, we affirm the trial
court’s judgment.
I. Procedural History and Factual Background
In November 2016, CEI initiated this case against Bosemann, alleging
that in 2015 Bosemann negligently damaged CEI’s wooden utility pole in a motor
vehicle accident in South Euclid. CEI sought to recover $2,042.92 from Bosemann.
State Farm Insurance Company provided counsel to represent Bosemann and other
defendants (William Cochran, William Flynn, and Eugene Williams) facing similar
claims by CEI. The trial court consolidated Bosemann’s case with CEI’s cases
against Cochran, Flynn, and Williams. None of the defendants disputed liability,
and the sole issue was the amount of damages.
CEI moved for summary judgment against the defendants, including
in its calculation of damages both direct and indirect, overhead costs. The
defendants opposed CEI’s motion and filed a cross-motion for summary judgment,
arguing that CEI’s calculation of damages was flawed because it ignored
depreciation of the poles’ values and included indirect costs. The defendants
supported their motion for summary judgment with an affidavit from CPA Keith
Hock, who opined that depreciation should factor into the replacement cost and that CEI’s indirect costs were not calculated with reasonable certainty. The trial court
granted CEI’s motion for summary judgment and denied the defendants’ cross-
motion, finding that the defendants presented no evidence to create a genuine
dispute of material fact as to the replacement costs of the utility poles, that the
replacement costs should be depreciated, and that CEI calculated its indirect costs
to a reasonable degree of certainty.
In June 2017, the defendants appealed the trial court’s judgment,
arguing that the trial court ignored Hock’s affidavit, erred in holding that the
replacement costs should not be depreciated, and erred in finding that the indirect
costs were calculated to a reasonable degree of certainty. In Illum. Co. v. Cochran,
8th Dist. Cuyahoga Nos. 105887, 105888, 105889, and 105890, 2018-Ohio-2514,
this court reversed the trial court’s order, finding that although it was unclear
whether the trial court considered Hock’s affidavit, there was a genuine issue of
material fact regarding indirect costs. We found that a lack of information regarding
the calculation of indirect costs and a disparity in replacement costs among utility
poles created a genuine issue of material fact regarding the indirect costs. We also
held that “an issue of fact exists as to whether the defendants are entitled to deduct
depreciation, if any, from the respective amount of damages owed to CEI.”
On remand, the trial court unconsolidated the cases, and Bosemann’s
case proceeded to a bench trial in February 2019. Before trial, the parties stipulated
to the following: Bosemann was liable for damages proximately caused by his
negligence; a utility pole has an average service life of 80 years; the pole at issue in this case was set in 1993 and had been in service for 22 years when Bosemann
damaged it; CEI’s direct cost to repair the pole (what CEI paid for its crew, materials,
and vehicle time to repair the pole) was $1,595.72; and CEI had added indirect costs
in the amount of $447.20 to reach the total alleged repair cost of $2,042.92. The
issues for trial were (1) the calculation of CEI’s indirect costs and whether Bosemann
is responsible for them, and (2) whether the depreciation in value of the utility pole
should reduce Bosemann’s damages for direct and indirect costs.
CEI called two witnesses: John Klaben and Eric Weaver. Klaben, an
engineer for FirstEnergy Service Corporations (“FirstEnergy”), the umbrella
organization that provides services to CEI, testified regarding FirstEnergy’s
inspection program to assess the structural integrity of utility poles. He testified that
utility poles generally do not show signs of age and must be tested by digging at the
pole’s base to check for rot or by drilling into the pole to look for voids. He explained
that a third-party inspector tests the poles and determines their strength. Klaben
testified that if a pole’s design strength is reduced to less than two-thirds of its
original strength, then the pole must be replaced or remediated by applying a
fiberglass wrap or steel truss. Klaben stated that he did not know how long the
remediation typically lasts and that poles are routinely inspected to assess their
strength. He testified that there is no certain age at which a pole is replaced, and
nothing special is done when a pole has been in service for 80 years if the pole
continues to pass inspections. CEI introduced as evidence the inspection records created by third-
party inspector, Osmose, for the pole that Bosemann damaged. Klaben testified that
the reports show that the pole was inspected in 2007 and 2014 and that it had no
outward signs of decay or other deficiencies. He explained that the 2007 report
reflected a sound inspection and that Osmose did not dig to assess the base of the
pole at that time. Klaben testified that the 2014 report was based on a circuit
inspection that assessed the attachment of the lines to the pole rather than the pole
itself. He stated that based on the pole’s condition, CEI would not have scheduled
to replace it within the next few years. He explained that when the pole was
damaged in 2015, CEI needed to replace it or else the conductor would lay on the
ground and cause a safety hazard.
Eric Weaver, an analyst for FirstEnergy, testified that he works with
FirstEnergy’s operating companies like CEI to help them understand their monthly
finances. He explained that he reviews invoices from the FirstEnergy claims
department and works with the FirstEnergy accounting department to evaluate the
calculation of overhead costs, also called indirect costs. Weaver testified that the
calculations of these indirect costs are important to comply with guidelines from the
Federal Energy Regulatory Commission (“FERC”), which governs interstate energy
transmission, and the Public Utilities Commission of Ohio (“PUCO”), which governs
intrastate activity. Weaver explained that the indirect costs provide the true cost for
each activity that FirstEnergy completes and provides a way, “since we are regulated
by FERC and the Utility Commission, to put those fully loaded costs onto a project.” Weaver testified that indirect costs include “administrative and
general costs,” which include the following: Information technology support for the
dispatch system and the mobile data terminal in each vehicle (through which crews
enter their time and vehicle and material usage for each job); human resources
support for training employees; accounting support to make sure “all the costs are
flowing correctly based on the jobs that they are charging”; executive leadership
support; and internal legal costs. Weaver explained that internal legal costs include
general corporate expenses and not litigation, but he stated that his time in trial for
this matter would be factored into the overall allocation of indirect costs. Weaver
testified that indirect costs also include pension costs and other post-employment
benefits. He explained that pension costs are calculated based on an annual study
by FirstEnergy’s actuaries in accordance with FERC and PUCO guidelines. He
stated that other post-employment benefits include medical coverage and life
insurance for employees and are calculated and apportioned according to FERC and
PUCO guidelines.
Weaver testified that FirstEnergy calculates administrative costs by
reviewing the costs across all ten of its operating groups, apportioning a percentage
of those costs specifically to CEI, and allocating those costs over all of the budgeted
work that the construction crews perform. He explained that the apportionment is
based on the accounting department’s annual study of historical actuals, customer
accounts, and the current budget. Weaver testified that based on the study,
FirstEnergy will determine a multiplier to use to allocate costs among its operating companies and construction projects. He stated that the multiplier consists of a
numerator and a denominator: the numerator is the total amount of projected
indirect costs to be allocated, and the denominator is the total amount of the
projected direct costs for a particular operating company for the upcoming year. He
further testified that FirstEnergy’s internal and external audit groups review the
annual study and work with FERC and PUCO to make sure FirstEnergy complies
with their guidelines.
For the claim at issue in Bosemann’s case, CEI introduced the
following three exhibits: (1) the CREWS work summary; (2) the claim department’s
invoice; and (3) the analysts’ costs summary. Weaver testified that FirstEnergy uses
the CREWS system to estimate the quantity of material that line crews will need for
a particular job. He explained that the CREWS summary shows the equipment,
material, labor, and vehicle charges entered into the mobile data terminal in the
vehicle on the repair site. He explained that the claims department invoice
summarizes the material, labor, equipment, labor, and miscellaneous costs, both
direct and indirect charges. Weaver testified that the analyst summary includes all
direct charges from the mobile data terminal as well as administrative charges for
labor, transportation, and material.
Weaver testified that the direct labor costs charged to the subject
utility pole were $991.70, and the indirect charges for labor were $296.91. Based on
the annual study to determine the multipliers that Weaver had described, the
indirect charges were calculated by multiplying the direct labor costs by 12.3% for “administrative and general” costs, by 17.4% for pension costs, and by .50% for other
post-retirement benefits, which values were then added together. Weaver testified
that for transportation and equipment, the direct costs were $294.30, and the
indirect charges were $36.20. He explained that the indirect charges were
calculated by multiplying the direct costs by 12.3% for “administrative and general”
costs. Weaver testified that for materials, the direct costs (the materials plus
warehouse storage) were $377.39 and the indirect costs (the “administrative and
general” costs) were $46.42, which was calculated by multiplying the direct costs by
12.3%.1 He testified that the total amount of the claim, including both direct and
indirect costs, was $2,042.92.
Weaver testified that there is no market for used utility poles and that
CEI could not purchase a utility pole with only 58 years of life expectancy remaining.
He explained that the utility poles are 100% useful to CEI until they are damaged,
and regardless of the age of the pole, CEI charges the tortfeasor to recover the full
cost of the pole. Therefore, he explained, CEI does not subtract depreciation of value
based on the age of the pole on its claims. Weaver testified that for accounting
purposes, CEI uses a 40-year depreciable life and depreciates the pole’s value on its
1 Based on Weaver’s testimony and CEI’s exhibits, the total direct costs are $1,663.39 ($67.67 higher than the $1,595.72 to which the parties stipulated) and the total indirect costs are $379.53 ($67.67 lower than the $447.20 to which the parties stipulated). The CREWS work summary lists a materials line item of $67.67 for “Material Handling Expense.” Weaver testified that this expense represents the cost that CEI incurs to store the utility pole “so that it can be sourced out at a moment’s notice.” accounting books. Weaver testified that any costs CEI does not recover from the
tortfeasor are passed to the customers who pay for the utility.
Bosemann called one witness, Keith Hock, who was designated as an
expert in forensic accounting. Hock opined that the value of the subject utility pole
should be $1,156.90 — the direct costs as provided by CEI minus depreciation. Hock
testified that he did not include indirect costs in his valuation because he did not
find any evidence in the documents that he reviewed that established how
administrative personnel “contributed in any way to the specific replacement of the
pole on that particular day.” Hock explained that CEI’s multiplier method for
allocating costs “is a perfectly fine way for them to manage their business. I just
don’t think it’s the right way to calculate damages.” He testified that damages must
be calculated with reasonable certainty and have been caused by the event in
question. He opined that accounting regulations like FERC’s do not inform how to
calculate damages.
Hock testified that to calculate the direct costs, he started with the
replacement cost, $1,595.72, because it represents the value of the new pole. He
then used the parties’ stipulation that the average life expectancy of the pole was 80
years, subtracted the 22 years that the pole had already been in service, and
determined that the pole had 58 years of remaining life at the time when it was
damaged. Hock testified that Bosemann needed to compensate CEI for the value of
those 58 remaining years. He explained that he then multiplied 58/80, representing
the remaining 58 years, with the $1,595.72 replacement cost to determine the damages to be $1,156.90. He testified that in other words, the pole had depreciated
by 22/80 of its life, and that value (22/80 multiplied by the $1,595.72 replacement
cost) was subtracted from the replacement cost. On cross-examination, Hock
conceded that his opinions are not based on Ohio damages law, and he had not
reviewed case law regarding indirect costs or depreciation of utility poles.
After the trial, both parties submitted proposed findings of fact and
conclusions of law as well as trial summations. The trial court entered judgment in
favor of CEI and against Bosemann for the full claimed amount of $2,042.92. As to
indirect costs, the trial court concluded,
[CEI] has proven that the indirect charges billed to Boseman [sic] were determined in accordance with the accounting principles of FERC and PUCO. The indirect expenses were shown with reasonable certainty to be directly related to efforts of the support groups to allow the construction group to perform its job. Based on the evidence and legal standard before it, the court can find no appropriate way to apportion the indirect costs other than by the method advanced by [CEI].
As to depreciation, the trial court found,
[CEI] has proven that there is no reason to believe that this pole would have been replaced after 80 years, and remediation methods may exist at that time to extend the useful life of the pole. Further, the court is loathe to pass these expenses to consumers when such expenses were incurred through the acts of a tortfeasor. Based on the evidence and legal standard before it, the court finds that it is impractical to attempt to apply a rule regarding the applicability of depreciation to the cost of repair for this utility pole. The costs to determine the useful life of the poles would likely outweigh the replacement cost and would be borne by consumers. Indeed, it would involve considerable speculation to state when the utility pole damaged by Bosemann would have been replaced but for his tortious action. Courts in many other states have reached the same conclusion as the court in Ohio Power. [] This approach is the least complicated in application and the most likely to make [CEI] whole. Such approach also is efficient and provides the most certainty to the parties involved.
It is from this judgment that Bosemann now appeals.
II. Law and Argument
The parties agree that the appropriate measure of damages is the cost
to repair the utility pole, but they disagree on what cost would make CEI whole
without overcompensating it. Bosemann contends that the trial court erred in not
subtracting depreciation from the replacement cost of the pole and in allowing CEI
to recover indirect costs.
“The purpose of a damage award is to make the injured party whole.”
Illum. Co. v. Burns, 8th Dist. Cuyahoga No. 100235, 2014-Ohio-502, ¶ 6, citing
Columbus Fin., Inc. v. Howard, 42 Ohio St.2d 178, 327 N.E.2d 654 (1975). “An
injured party ‘should be neither undercompensated nor overcompensated,’ and
bears the burden of proving the pecuniary value of the injury.” Ohio Edison Co. v.
Royer, 2018-Ohio-75, 92 N.E.3d 912, ¶ 11 (9th Dist.2018), quoting Howard. “When
property has no real market value, ‘damages [can] be awarded based on the
reasonable cost of restoration, with consideration of the condition of the property
prior to the damage.’” Royer at ¶ 11, quoting Martin v. Design Constr. Servs., 121
Ohio St.3d 66, 2009-Ohio-1, 902 N.E.2d 10.
A. Depreciation
Bosemann divides his first assignment of error into two parts. First,
Bosemann argues that the trial court’s ruling that depreciation should not be applied
because no evidence was presented as to the life expectancy of the pole was against the manifest weight of the evidence. Second, Bosemann contends that trial court
should have subtracted depreciation as a matter of law.
1. The Trial Court’s Ruling
Bosemann first argues that the trial court’s determination that “there
was no evidence the average life expectancy was applicable to the damaged pole, and
as a result, that depreciation should not be considered in calculating damages” is
against the manifest weight of the evidence. He contends that the trial court’s
finding was inconsistent with the parties’ stipulation, the evidence presented at trial,
and this court’s prior decision in this case.
We first note that Bosemann’s characterization of the trial court’s
determination is inaccurate. The trial court found that CEI “has proven that there
is no reason to believe that this pole would have been replaced after 80 years” – not
that “there was no evidence” of life expectancy.
As the Ohio Supreme Court explained in Eastley v. Volkman, 132
Ohio St.3d 328, 2012-Ohio-2179, 972 N.E.2d 517, ¶ 12, quoting State v. Thompkins,
78 Ohio St.3d 380, 678 N.E.2d 541 (1997):
Weight of the evidence concerns “the inclination of the greater amount of credible evidence, offered in a trial, to support one side of the issue rather than the other. It indicates clearly to the [trier of fact] that the party having the burden of proof will be entitled to their verdict, if, on weighing the evidence in their minds, they shall find the greater amount of credible evidence sustains the issue which is to be established before them. Weight is not a question of mathematics, but depends on its effect in inducing belief.”
When deciding whether a judgment is against the manifest weight of
the evidence, we examine the entire record, weigh the evidence and all reasonable inferences, consider the witnesses’ credibility, and determine whether, in resolving conflicts in the evidence, the trier of fact clearly lost its way and created such a manifest miscarriage of justice that the verdict must be overturned and a new trial ordered.
Gerston v. Parma VTA, L.L.C., 8th Dist. Cuyahoga No. 105579, 2018-Ohio-2185,
¶ 58. “In weighing the evidence, we are guided by a presumption that the findings
of the trier of fact are correct.” Id. at ¶ 59.
Bosemann first argues that the trial court’s finding contradicts the
parties’ stipulation that “a utility pole has an average useful life in the field of 80
years.” However, the parties did not stipulate to the life expectancy of the specific
pole at issue. There was no expert testimony or other evidence presented to show
that the utility pole at issue had an average useful life of 80 years.
Bosemann next argues that the trial court’s finding that CEI has
proven that there is no reason to believe that this pole would have been replaced
after 80 years is inconsistent with evidence presented at trial. Bosemann contends
that, although the trial court relied on Klaben’s testimony that “there was no reason
to assume that the Bosemann pole would need to be replaced at 80 years,” Klaben
did not actually testify to that. Bosemann further points out that Klaben testified
that the inspection reports indicated only that there were no outward signs of rot,
not that there was no internal or sub-surface rot. Bosemann argues that Klaben
agreed that CEI does not expect its poles to last indefinitely and that the pole at issue
was consistent with the condition he would expect for a pole of that age. Bosemann
further contends that Weaver acknowledged that he had no information that the pole would have outlasted the average life expectancy. Lastly, Bosemann argues that
the existence of remediation methods is irrelevant considering the parties’
stipulation that the average life for a utility pole in the field is 80 years.
However, the trial court weighed the witness’s credibility,
acknowledged the parties’ stipulation, and heard testimony regarding the subject
utility pole. On a manifest-weight standard, we must presume that the fact finder’s
determinations are correct unless we find that the factfinder “clearly lost its way and
created such a manifest miscarriage of justice that the verdict must be overturned
and a new trial ordered.” Gerston, 2018-Ohio-2185, at ¶ 58-59. Here, CEI presented
inspection reports reflecting that the pole showed no signs of deterioration and that
remediation measures existed to show that the pole would not automatically need
to be replaced at 80 years. Klaben testified that there is no certain age at which a
pole is replaced, and nothing special is done when a pole has been in service for 80
years if the pole continues to pass inspections. Even though the trial court misstated
part of Klaben’s testimony, we cannot find that the trial court clearly lost its way in
finding that CEI “has proven that there is no reason to believe that this pole would
have been replaced after 80 years.”
Bosemann further argues that the trial court’s finding that CEI has
proven that there is no reason to believe that this pole would have been replaced
after 80 years contradicted this court’s opinion reversing the trial court’s grant of
summary judgment. He points to paragraph 19 of our prior decision, where we
stated, [T]here was no evidence by CEI that the pole inspections demonstrated the utility poles would outlast their expected life. Therefore, an issue of fact exists as to whether the defendants are entitled to deduct depreciation, if any, from the respective amount of damages owed to CEI.
Cochran, 8th Dist. Cuyahoga Nos. 105887, 105888, 105889, and 105890, 2018-
Ohio-2514, at ¶ 19. Bosemann therefore contends that CEI needed to present
affirmative evidence that the utility pole would have exceeded the anticipated 80-
year life expectancy. He maintains that this standard is consistent with wrongful
death cases where an average life expectancy is used unless either party presents
evidence of why the average is not applicable to the decedent.
Under the law-of-the-case doctrine, “the decision of a reviewing court
in a case remains the law of that case on the legal questions involved for all
subsequent proceedings in the case at both the trial and reviewing levels.” Nolan v.
Nolan, 11 Ohio St.3d 1, 3–4, 462 N.E.2d 410 (1984). The law-of-the-case doctrine
applies only to legal issues “that have been decided with finality.” Williams v.
Matthews, 8th Dist. Cuyahoga No. 103501, 2016-Ohio-3461, ¶ 7. In paragraph 19 of
our prior decision in this case, we remanded for the determination of a factual
question. We did not decide a legal issue or determine the standard or burden of
proof that CEI must meet on remand. Moreover, as previously discussed, CEI did
present affirmative evidence at trial that the utility pole may not need to be replaced
after 80 years. Thus, the trial court did not err in determining facts inconsistent
with our prior decision. 2. Application of Depreciation
Bosemann also argues that the trial court should have subtracted
depreciation from the replacement cost of the utility pole to determine damages.
CEI contends that we should employ a manifest-weight standard to
evaluate whether the trial court erred when it declined to subtract depreciation,
pointing to Gerston, 2018-Ohio-2185, at ¶ 57-59. In Gerston, we stated that we
apply a manifest-weight standard when reviewing factual determinations from a
bench trial. Id. But even for appeals arising from a bench trial, we review de novo
the application of law to facts. Cook Rd. Invest., LLC v. Bd. Of Cuyahoga Cty.
Commrs., 194 Ohio App.3d 562, 565, 2011-Ohio-2151, 957 N.E.2d 330 (8th Dist.).
Moreover, “the determination of whether depreciation applies to the utility’s full
replacement costs or just the cost of the pole is a question of law that we review de
novo, not a question of fact to be resolved from a determination of the credibility of
competing experts.” Illum. Co. v. Wiser, 2018-Ohio-2248, 114 N.E.3d 240, ¶ 27
(11th Dist.). “Therefore, we consider the question of law without deference to the
trial court’s decision, while affording due deference to the findings of fact in the trial
court’s judgment.” Royer, 2018-Ohio-75, 92 N.E.3d 912, at ¶ 7.
Bosemann contends that Ohio appellate courts that have considered
the issue “have all found that when determining damages, the replacement cost
must be reduced to account for the depreciated condition of the damaged pole.”
Bosemann cites to Ohio Power Co. v. Zemelka, 19 Ohio App.2d 213, 251 N.E.2d 2
(7th Dist.1969); Ohio Edison v. Houser, 6th Dist. Erie No. E-17-063, 2018-Ohio- 4156; Ohio Edison Co. v. Soule, 6th Dist. Sandusky No. S-17-052, 2018-Ohio-4624;
Royer, 2018-Ohio-75, 92 N.E.3d 912; and Wiser, 2018-Ohio-2248, 114 N.E.3d 240
(11th Dist.). The appellate courts in these cases subtracted depreciation to
determine damages for utility pole replacement, but we do not find their holdings
create a bright-line rule that we must follow.
Based upon our review of the case law, there is no bright-line rule as
to whether to subtract depreciation from the replacement cost to determine
damages for a utility pole. See Royer at ¶ 17 (“Upon due consideration, this Court
deems it impractical to attempt to apply a one-size-fits-all rule regarding the
applicability of depreciation to the cost of repair for the negligent destruction of a
utility pole[.]”). “Applying the proper measure of damages in a case of this nature
turns on the unique facts and circumstances of the case, and may depend upon the
evidence and expert testimony presented in a case.” Id. at ¶ 16. In Zemelka, the
Seventh District recognized that,
A careful reading of the cases indicates that the differences between the various cases are of fact rather than principle in many instances. One of the problems that concerns courts in deciding this issue is whether the life expectancy of an individual pole can be ascertained with reasonable certainty; and the facts in the various cases vary in establishing the life expectancy of the utility pole.
Zemelka at 215.
In Royer and Zemelka, the appellate courts found that the life
expectancy of the utility pole at issue had been established with reasonable certainty,
and they therefore applied depreciation to calculate damages. Royer at ¶ 17; Zemelka at 215. As to the other cases on which Bosemann relies, in Wiser, the
Eleventh District faced the issue of what costs specifically to apply depreciation and
found that CEI had waived its right to argue that the trial court erred in applying
depreciation at all. Wiser at ¶ 25. Thus, Wiser is not helpful to our analysis. Houser
and Soule rely on Toledo Edison v. Teply, 6th Dist. Erie No. E-02-022, 2003-Ohio-
1417, for a bright-line rule to apply depreciation. But Teply relies on Zemelka and
Ohio Edison Co. v. Cutright, 11th Dist. Portage No. 90-P-2238, 1991 Ohio App.
LEXIS 4296 (Sept. 13, 1991), which also relies on Zemelka and does not apply
depreciation.
The lack of a bright-line rule is consistent with the case to which CEI
directs us: Ohio Power Co. v. Johnston, 18 Ohio Misc. 55, 247 N.E.2d 338
(C.P.1968). In Johnston, the trial court could not determine the value of the
damaged pole without putting it into the context of the entire electrical system. Id.
at 59. The trial court declined to subtract depreciation, holding, “[w]here the
measure of damages is determined by cost of repair, depreciation as to the damaged
property is applicable only to the extent that the repairs increase the value of
plaintiff’s property, and where the cost of repairs do no more than make the plaintiff
whole, depreciation need not be applied.” Id. at 55. CEI also points to jurisdictions
outside of Ohio that have reached conclusions similar to Johnston. As the Ninth
District explained in Royer, at ¶ 14,
Ohio Edison also cites to courts outside of this state to demonstrate that other jurisdictions have reached conclusions similar to Johnston. Such cases include an array of considerations inherent in determining the appropriate damage award for negligent destruction of a utility pole. However, each involves a review of specific facts particular to each case, none of which are relevant to our review. See, e.g. Zemelka, 19 Ohio App.2d at 215, (acknowledging “[o]ther courts hold that there is not a discernible life expectancy of an individual pole; that a court can not [sic] say with reasonable assurance that the installation of a new pole did more than remedy the wrong done, and, therefore, that it is impractical to attempt to apply a measure of damages based on the difference in value before and after the accident.”), citing Johnston, supra; New Jersey Power & Light Co. v. Mabee, 41 N.J. 439, 197 A.2d []; Carolina Power & Light Co. v. Paul, 261 N.C. 710, 136 S.E.2d 103 (1964); Southwestern Electric Power Co. v. Canal Ins. Co., 121 So.2d 769 (La.App. 1960).
Here, the trial court determined that CEI proved that the average 80-
year life expectancy did not apply to the utility pole at issue, and we have determined
that this finding is not against the manifest weight of the evidence. Applying this
fact to the law from Johnston, Zemelka, and Royer, we determine that the life
expectancy of the pole that Bosemann negligently damaged was not established, and
the trial court therefore did not err in declining to subtract depreciation from the
damages that Bosemann owes to CEI. We therefore need not address Bosemann’s
arguments regarding whether depreciation should apply to labor and indirect costs.
Accordingly, we overrule Bosemann’s first assignment of error.
B. Indirect Costs
In his second assignment of error, Bosemann argues that the trial
court erred in holding that CEI proved its indirect costs with reasonable certainty
and in accordance with sound accounting principles. He maintains that even though
CEI presented evidence that it calculated indirect costs in compliance with FERC
and PUCO regulations, such compliance does not satisfy the “reasonable certainty” requirement. He contends that CEI’s evidence of its internal accounting practices
and compliance with regulations does not demonstrate a causal nexus between the
indirect costs and the repair project at issue in this case.
Bosemann frames the issue as a question of law requiring a de novo
review: “whether the trial court properly applied the facts to the applicable legal
standard[.]” CEI contends that we should determine whether the trial court’s ruling
was against the manifest weight of the evidence. We will follow Royer in applying a
de novo review where the Ninth District likewise faced the issue of whether a utility
established indirect costs to a reasonable degree of certainty:
We consider whether the trial court correctly applied the law to the facts of the case as a question of law, which we review de novo. See Copley Twp. [v. Fairlawn, 9th Dist. Summit Nos. 27010, 27012, and 27040], 2015-Ohio-1121 at ¶ 16. We refrain from disturbing the factual findings of the trial court’s judgment unless those findings are against the manifest weight of the evidence. Id. An appellate court will not substitute its judgment for that of the trial court, or disturb the judgment so long as the factual findings are supported by competent, credible evidence. Seasons Coal Co. v. Cleveland, 10 Ohio St.3d 77, 80, 10 Ohio B. 408, 461 N.E.2d 1273 (1984). An appellate court is “guided by a presumption that the findings of the trier-of-fact were indeed correct.” Id.
Royer, 2018-Ohio-75, 92 N.E.3d 912, at ¶ 24.
Under Ohio law, “[d]amages include both direct and indirect costs.
Direct costs are the expenses incurred as a result of the actual project and include
materials, labor, mileage, and equipment costs.” Burns, 2014-Ohio-502, at ¶ 6.
“Indirect costs are the expenses involved in running a business and are not
attributable to any one project.” Id. “Indirect costs may include salaries of executive or administrative personnel, general insurance, rent, utilities, telephone, * * *
professional fees, legal and accounting expenses, advertising, and interest on loans.”
Id. “Indirect costs of repairs ‘are a proper element of damage for which recovery
may be had, where such costs can be proved with reasonable certainty and have been
correctly made in accordance with sound accounting principles.’” Id., quoting
Warren Tel. Co. v. Hakala, 105 Ohio App. 459, 460, 152 N.E.2d 718 (11th Dist.1957).
To establish that CEI calculated its indirect costs in accordance with
sound accounting principles, CEI points to its compliance with FERC and PUCO
regulations. Bosemann does not dispute that CEI satisfied its burden to
demonstrate sound accounting principles but contends that compliance with
regulations is insufficient to meet the second requirement — that CEI calculated
indirect damages with reasonable certainty. Bosemann cites to CG&E Co. v. Brock,
1st Dist. Hamilton No. C830187, 1983 Ohio App. LEXIS 11225, 9-10 (Dec. 21, 1983)
to highlight the distinction between the concepts of accounting and damages. We
agree with Bosemann that CEI’s compliance with sound accounting principles does
not also satisfy its burden to establish indirect costs with reasonable certainty. See
Royer at ¶ 31 (“[S]imply proving that its indirect costs were calculated in compliance
with FERC and PUCO regulations does not, in itself, satisfy Ohio Edison’s burden of
proof.”). Thus, we must look to evidence other than compliance with FERC and
PUCO when reviewing whether CEI established its indirect costs with reasonable
certainty. Bosemann argues that CEI failed to establish its indirect costs with
reasonable certainty because Weaver was not familiar with FERC or Ohio damages
law and could not testify that compliance with FERC “results in indirect costs
calculated with reasonable certainty.” Bosemann further argues that Weaver’s
testimony as to how CEI calculates its indirect costs does not demonstrate
reasonable certainty. Bosemann points out that Weaver assumed that a project with
higher direct cost requires more indirect support but that he was not aware of any
studies to confirm that assumption. Bosemann thus contends that CEI presented
no evidence to show that its allocation of indirect costs “bears any accuracy to the
costs truly incurred as a result of that project.” Bosemann’s expert witness, Hock,
also opined that CEI’s approach to calculating indirect costs is appropriate for
general accounting purposes but is insufficient for calculating damages because CEI
did not provide sufficient information to determine whether Bosemann’s negligence
proximately caused the indirect damages included in CEI’s claim. Lastly, Bosemann
maintains that CEI’s indirect costs include attorney fees that are not recoverable
under Ohio law because administrative costs include CEI’s legal support group,
Weaver acknowledged that no legal support was necessary to replace the utility pole
at issue other than this litigation, and Weaver’s time spent testifying at trial would
be included in the accounting department’s indirect costs.
As an initial matter, we are not persuaded by Bosemann’s attorney-
fees argument. No evidence shows that the attorney fees CEI incurred from this
lawsuit were included in the administrative costs or that CEI was attempting to charge Bosemann directly for its legal fees. Likewise, there was no evidence that
Weaver’s time at trial is being charged directly to Bosemann. Weaver testified that
CEI’s internal legal expenses are included in the indirect costs, including his time
testifying at trial. “Legal and accounting expenses” may be included in indirect
costs, which are proper damages if they are proven with reasonable certainty and
are in accordance with sound accounting principles. Burns, 2014-Ohio-502, at ¶ 6,
quoting Complete Gen. Constr. Co. v. Ohio DOT, 94 Ohio St.3d 54, 760 N.E.2d 364
(2002).
The Second, Sixth, Ninth, and Eleventh Districts have found that the
multiplier method did not determine indirect costs with reasonable certainty. See
Dayton Power & Light Co. v. Puterbaugh, 2d Dist. Miami No. 79 CA 13, 1980 Ohio
App. LEXIS 13648, 8 (Mar. 7, 1980) (finding no connection between the damaged
utility pole and the salaries of clerks, superintendents of construction, and other
personnel); Soule, 6th Dist. Sandusky No. S-17-052, 2018-Ohio-4624, ¶ 35 (finding
no direct and proximate causal nexus between the utility’s indirect costs of running
its business with the damage actually caused to the utility pole); Houser, 6th Dist.
Erie No. E-17-063, 2018-Ohio-4156, at ¶ 23-25 (utility did not present evidence that
it tracked the actual indirect costs for the specific utility pole at issue); Toledo Edison
Co. v. Czajka, 6th Dist. Lucas No. L-02-1393, 2003-Ohio-3684, ¶ 7 (utility’s witness
had assumed without support that there was a direct relationship between the
indirect costs attributed to overhead expenses and the direct costs for labor per
construction project); Teply, 6th Dist. Lucas No. E-02-022, 2003-Ohio-1417, ¶ 33 (utility’s accountant did not know the amount of overhead costs that were required
for the pole replacement at issue); Royer, 2018-Ohio-75, 92 N.E.3d 912, at ¶ 31-32
(utility did not establish indirect costs with reasonable certainty because the annual
study from which the percentage was determined considered construction projects
outside of utility pole repairs); Ohio Edison Co. v. Beavers, 11th Dist. Trumbull No.
96-T-5568, 1997 Ohio App. LEXIS 2830 (June 27, 1997) (utility’s accountant could
not state what support services had been used for the particular job at issue).
However, this court has held that evidence like what CEI presented at
trial here was sufficient to prove indirect costs to a reasonable degree of certainty.
Burns, 8th Dist. Cuyahoga No. 100235, 2014-Ohio-502, at ¶ 13. In Burns, the trial
court granted summary judgment in favor of CEI and awarded indirect costs for the
replacement of the utility pole that Burns had damaged. Id. at ¶ 3. On appeal, Burns
argued that CEI failed to prove its damages to a reasonable degree of certainty. Id.
at ¶ 5. CEI submitted a CREWS work summary and claim invoice that showed the
equipment, material, and labor costs to repair the pole, which values were
substantiated by a CEI accountant and a CEI construction supervisor. Id. at ¶ 10.
The CEI accountant testified at his deposition that a multiplier charge is added to all
invoices to represent support functions including information technology, human
resources, accounting, and legal. Id. at ¶ 12. He explained that the accounting
department determines the multiplier for support groups based on cost data from
the year before, which is reviewed annually and audited by internal and external
auditors. Id. at ¶ 13. This court held that CEI’s evidence was “sufficient to demonstrate that the total repair costs listed in [CEI’s] invoice were determined to
a reasonable degree of certainty.” In a nearly identical case, the Eleventh District
relied on Burns to hold that CEI met its burden on summary judgment that it was
entitled to recover its indirect damages. Wiser, 2018-Ohio-2248, 114 N.E.3d 240,
¶ 46 (11th Dist.).
Here, CEI submitted as evidence a CREWS work summary showing
the equipment, material, labor, and vehicle charges; an invoice from the claims
department showing the material, labor, equipment, and miscellaneous costs, both
direct and indirect charges; and an analyst costs summary showing direct charges
from the mobile data terminal as well as administrative charges for labor,
transportation, and material. Even though Weaver was not actually familiar with
FERC guidelines or Ohio damages law, Weaver testified that CEI determines
indirect costs by a study measuring the cost of operating FirstEnergy’s business,
including support services from information technology, human resources,
executive leadership, and accounting and legal support groups. Weaver testified
that the indirect costs are applied to the direct cost of each construction job. To
calculate CEI’s overhead, FirstEnergy takes the total cost of its support groups and
divides it by the total cost of all construction work. FirstEnergy multiplies the
resulting percentage, which in this case was 12.3 percent, by the direct costs for a
specific project to determine the overhead costs for that project. That amount is
then added to the cost of the project. Weaver testified that the cost data used to
determine indirect costs is reviewed annually and audited internally and externally. Weaver further testified that support services used for utility pole
repairs cannot be separated from that for other types of construction projects. The
employees who replace utility poles are part of FirstEnergy’s general construction
services department and are not dedicated solely to pole repair. He testified that
FirstEnergy’s human resources department does not provide separate training to
employees performing pole repairs as opposed to other construction services. The
information technology department performs the same support services whether
the construction crew is replacing a pole or working on another construction job.
Despite cases in other districts that found the evidence insufficient to
establish indirect costs with reasonable certainty, we must follow the precedent of
this court. In Burns, we found that evidence nearly identical to the evidence in this
case was sufficient to prove indirect costs to a reasonable degree of certainty. We
therefore find that here, CEI proved its indirect costs to a reasonable degree of
certainty, and the trial court did not err in holding so. Accordingly, we overrule
Bosemann’s second and final assignment of error.
Judgment affirmed.
It is ordered that appellee recover from appellant 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, JUDGE
EILEEN T. GALLAGHER, A.J., and RAYMOND C. HEADEN, J., CONCUR