Summary
In Drain v. Kosydar (1978), 54 Ohio St.2d 49, 8 O.O.3d 65, 374 N.E.2d 1253, the Ohio Supreme Court determined that R.C. Chapter 2743, which codifies the state's waiver of its sovereign immunity, does not permit the recovery of punitive damages against the state, unless those damages are specifically authorized by another statute.
Summary of this case from Rainey v. Lorain Correctional FacilityOpinion
No. 77-612
Decided April 19, 1978.
Courts of Claims — Action for conversion of funds maintainable — Punitive damages not awarded.
Pursuant to the provisions of R.C. Chapter 2743, the state has consented to be sued and have its liability determined in the Court of Claims, in accordance with the same rules of law applicable to suits between private parties.
APPEAL from the Court of Appeals for Franklin County.
On April 5, 1973, appellant Robert J. Kosydar (then Tax Commissioner), having determined that P. F. Enterprises, Inc., was delinquent in the payment of its sales taxes, caused an assessment to issue for the amount of $1,451.40. One year later appellant Kosydar caused a second assessment to issue, seeking thereby an additional $1,916.21 in allegedly delinquent sales taxes. Both tax assessments were made pursuant to R.C. 5739.13, both were directed to "Patricia Kuhar and John Drain, officers of P. F. Enterprises, Inc.," and both were mailed to the respective homes of the named officers.
At the time that the tax deficiency assessments were mailed R.C. 5739.13 provided, in pertinent part:
"If any vendor collects the tax imposed by or pursuant to section 5739.02 or 5739.021 of the Revised Code, and fails to remit the same to the state as prescribed * * *, he shall be personally liable for any amount collected which he failed to remit. The tax commissioner may make an assessment against such vendor based upon any information in his possession.
"If any vendor fails to collect the tax or any consumer fails to pay the tax imposed by or pursuant to section 5739.02 or 5739.021 of the Revised Code, on any transaction subject to the tax, such vendor or consumer shall be personally liable for the amount of the tax applicable to the transaction. The commissioner may make an assessment against either the vendor or consumer, as the facts may require, based upon any information in his possession.
"* * *
"In each case the commissioner shall give to the person assessed written notice of such assessment. Such notice may be served upon the person assessed personally or by registered or certified mail. * * *
"* * *
"Unless the vendor or consumer, to whom said notice of assessment is directed, files within thirty days after service thereof, either personally or by registered or certified mail a petition in writing, verified under oath by said vendor, consumer, or his authorized agent, having knowledge of the facts, setting forth with particularity the items of said assessment objected to, together with the reasons for such objections, said assessment shall become conclusive and the amount thereof shall be due and payable, from the vendor or consumer so assessed, to the treasurer of state. When a petition for reassessment is filed, the commissioner shall assign a time and place for the hearing of same and shall notify the petitioner thereof by registered or certified mail, but the commissioner may continue the hearings from time to time if necessary.
"* * *
"When any vendor or consumer files a petition for reassessment as provided in this section, the assessment made by the commissioner, together with penalties thereon, shall become due and payable within three days after notice of the finding made at the hearing has been served, either personally or by registered or certified mail, upon the party assessed.
"The vendor or consumer may appeal from an assessment after it is due and payable to the board of tax appeals in the same time and manner as that provided in section 5717.02 of the Revised Code. * * *" (Emphasis added.)
During August 1973, and August 1974, the two uncontested tax assessments were reduced to judgment. Thereafter, the two judgments were certified and transferred to the Cleveland Municipal Court, where execution proceedings were commenced on November 22, 1974, apparently by employees of appellant William J. Brown, Attorney General. The sources of the funds which were subsequently executed upon and released to the state of Ohio, on or about February 25, 1975, included a savings passbook account in the name of John M. Drain, a savings passbook account in the name of John M. Drain and his wife Ann C. Drain, a commercial account in the name of John M. Drain, and a partnership account in the name of Drain Drain (John M. Drain and his son John M. Drain, Jr.). The three above-named individuals and the partnership are appellees in the instant cause.
William T. Boukalik was named as one of three defendants in the complaint. Boukalik filed a motion to dismiss in the Court of Claims and such motion was subsequently sustained. Upon appeal Boukalik filed a separate brief in the Court of Appeals in which he concurred in the brief of the other defendants and, in addition, contended that he is not an officer or instrumentality of the state so as to be amenable to suit in the Court of Claims. The appellate court held, inter alia, that the complaint set forth a claim for relief against Boukalik, and that he could be joined as a party so long as a claim against the state has been alleged, but that "* * * defendant Boukalik may be entitled to a more definitive statement as to the alleged basis of his liability to plaintiffs * * *."
On May 17, 1977, Boukalik moved for a more definite statement in the Court of Claims, pursuant to Civ. R. 12(E). However, he has not filed a brief in the appeal to this court.
In November 1974, John M. Drain filed a motion in the Court of Common Pleas of Cuyahoga County to vacate the judgments entered upon the tax deficiencies, contending, inter alia, that he was not a vendor within the meaning of R.C. 5739.13, and therefore had no duty to appeal the assessment in the manner prescribed in that section. In addition, Drain argued that because he was not an officer responsible for filing the sales tax returns for P. F. Enterprises, Inc., he could not be made personally liable, under R.C. 5739.33, for the failure of the corporation to remit the tax due.
R.C. 5739.33 provides as follows:
"If any corporation required to file returns and to remit tax due to the state under the provisions of sections 5739.01 to 5739.31, inclusive, of the Revised Code, fails for any reason to make such filing or payment, any of its officers, or employees having control or supervision of or charged with the responsibility of filing returns and making payments, shall be personally liable for such failure. The dissolution of a corporation shall not discharge an officer's or employee's liability for a prior failure of the corporation to file returns or remit tax due. The sum due for such liability may be collected by assessment in the manner provided in section 5739.13 of the Revised Code." (Emphasis added.)
On May 20, 1975, the trial court, having found these arguments to be well taken, granted the motion to vacate the tax deficiency judgments. On August 5, 1976, the Court of Appeals for Cuyahoga County affirmed that judgment, and none of the parties prosecuted an appeal therefrom.
By a complaint filed in the Court of Claims on November 15, 1976, plaintiffs-appellees sought the recovery of the funds which defendants-appellants had allegedly caused to be released to the state, together with punitive damages. The Court of Claims, on January 10, 1977, issued an opinion granting defendants' motions to dismiss, in which it concluded that plaintiff-appellee John M. Drain's suit failed "* * * because he had a viable statutory refund procedure available and did not pursue the procedure."
In a decision rendered May 3, 1977, the Court of Appeals below reversed the judgment of the Court of Claims and remanded the cause to that court, holding that "* * * an action in conversion for recovery of such money can be maintained in the Court of Claims against the state under the circumstances of this case." However, the appellate court ruled that punitive damages could not be assessed against the state.
The cause is now before this court pursuant to the allowance of a motion and cross-motion to certify the record.
Messrs. Drain Drain and Mr. John M. Drain, for appellees and cross-appellants.
Mr. William J. Brown, attorney general, and Mr. Gene W. Holliker, for appellants and cross-appellees.
I.
R.C. 2743.03(A) delimits the jurisdiction of the Court of Claims, providing, in pertinent part, as follows:
"There is hereby created a court of claims. The court of claims is a court of record and has 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 * * *."
At the time this action was commenced R.C. 2743.02 provided, in part:
"(A) The state hereby waives its immunity from liability and consents to be sued, and have its liability determined, in the court of claims created in this chapter in accordance with the same rules of law applicable to suits between private parties, subject to the limitations set forth in this chapter. To the extent that the state has previously consented to be sued, this chapter has no applicability."
Appellants contend that, by the terms of the above two sections, the General Assembly has withheld from the jurisdiction of the Court of Claims all cases where the subject matter of the action constitutes a claim for which the state has previously consented to be sued. It is appellants' position that appellees had available to them at least two pre-existing avenues of redress within the administrative procedures set forth in R.C. Title 57, and that, under the present circumstances, the Court of Claims is an inappropriate forum in which to seek the recovery of improperly assessed sales taxes.
Appellants, in effect, suggest that, pursuant to R.C. 5739.13, appellee John M. Drain had a right to petition for reassessment within 30 days after receipt of the notices of tax assessment and, after a hearing on the matter, a right to appeal to the Board of Tax Appeals if the findings at such hearing were adverse. Appellants advance this contention despite the fact that they failed to appeal the related judgment of the Court of Appeals for Cuyahoga County, wherein it was held that because the disputed assessments were made pursuant to R.C. 5739.13, and in no manner indicated that John M. Drain was to be held personally liable therefor, under R.C. 5739.33, the trial court's granting of the motion to vacate the tax deficiency judgments would be affirmed.
Clearly, R.C. 5739.13 empowers the Tax Commissioner to make an assessment solely against a vendor or a consumer, whereas the Tax Commissioner must proceed under R.C. 5739.33 if he seeks to hold an officer or employee of the tax-delinquent corporation personally liable. In the instant cause the Court of Claims conceded that John M. Drain was not a vendor, and it has not been alleged that Mr. Drain was a tax delinquent consumer. It is therefore illogical to contend that appellee John M. Drain (the only appellee named in the assessments) should have exhausted an inapplicable administrative remedy before filing suit in the Court of Claims.
Appellants also suggest that, rather than bringing an action in the Court of Claims, appellee John M. Drain could have recovered the disputed funds by applying for a refund under the provisions of R.C. 5739.07, which reads, in pertinent part:
"The treasurer of state shall refund to vendors the amount of taxes paid illegally or erroneously or paid on any illegal or erroneous assessment where the vendor has not reimbursed himself from the consumer. When such illegal or erroneous payment or assessment was not paid to a vendor but was paid by the consumer directly to the treasurer of state, or his agent, he shall refund to the consumer. When such refund is granted for payment of an illegal or erroneous assessment issued by the department, such refund shall include interest thereon as provided by section 5732.132 of the Revised Code. * * *"
It is apparent that the administrative remedy set forth in the above section is as inappropriate as the remedy provided in R.C. 5739.13, since both statutes expressly refer to "vendors" or "consumers," terms which do not embrace any of the appellees under the facts presented herein. Moreover, we endorse the distinction drawn by the appellate court below, which concluded that R.C. 5739.07 was inapplicable because it concerns taxes paid illegally or erroneously, as opposed to funds seized upon execution of a tax-deficiency judgment.
In the opinion of this court appellants have failed to demonstrate that the subject matter of the instant cause constitutes a claim for which the state had previously provided an administrative remedy. Therefore, because the state has consented to be sued in accordance with the same rules of law applicable to suits between private parties (R.C. 2743.02[A]), appellees may maintain an action in the Court of Claims for the alleged conversion of their funds by appellants. Cf. Sammis v. Sly (1896), 54 Ohio St. 511.
In a statement of additional authorities, filed belatedly under Section 4, Rule V, Rules of Practice, appellants assert, for the first time in these proceedings, that appellee John M. Drain presently has an additional administrative remedy, viz., he may apply to the Tax Commissioner for a certificate of abatement, pursuant to R.C. 5703.05(B). In accordance with the general rule of appellate procedure this court will ordinarily refuse to consider questions which were not raised in the courts below. See 4 Ohio Jurisprudence 2d 534, Appellate Review, Section 1178. Nevertheless, a perusal of the cited statute does not reveal its relevancy, since the only additional authority granted therein to the Tax Commissioner is in regard to claimed overpayments of taxes to the Treasurer of State, a situation which is clearly distinguishable from the one presented in the cause at bar.
II.
By filing of a cross-appeal appellees contest the Court of Appeals' ruling that punitive damages should not be awarded against the state. In so deciding, the Court of Appeals extended this court's decision in Ranells v. Cleveland (1975), 41 Ohio St.2d 1, wherein it was held that in the absence of a statute specifically authorizing such recovery punitive damages could not be assessed against a municipal corporation.
"The reason generally advanced as the basis for denying the recovery of punitive damages against a municipal corporation or other political subdivision is that to permit such damages would be to contravene public policy, since the parties who must bear the burden of the punishment are the taxpayers and citizens who constitute the very persons who as a group are to benefit from the public example which the granting of such damages is supposed to make of a wrongdoer." 57 American Jurisprudence 2d 268-269, Section 319.
We believe the foregoing rationale applies with equal force in any instance where punitive or exemplary damages are sought to be assessed against the "state," which term is defined in R.C. 2743.01(A) to include, without limitation, the departments, boards, offices, commissions, agencies, institutions or other instrumentalities of the state of Ohio.
Appellees' complaint names, as defendants, Robert J. Kosydar, Tax Commissioner, William J. Brown, Attorney General, and William T. Boukalik. Upon remand to the Court of Claims, appellees should amend their complaint, so as to name the state department, board, office, commission, agency, institution, or other instrumentality whose actions are alleged as the basis of complaint. See R.C. 2743.13(A).
It is undeniable that the state can only act through its employees and officers. While the state has consented to be sued for the misconduct of its agents, it would appear that the General Assembly never intended that the state be held liable for other than compensatory damages. Where it is alleged that the acts of a state employee were motivated by actual malice, or were acts which exhibited a willful or wanton disregard for the health, safety and welfare of the general public, the usual prerequisites for assessment of exemplary damages (see 16 Ohio Jurisprudence 2d 178-181, Section 156), such conduct would certainly be outside the scope of state employment, and liability therefor will not be imputed to the state. Recently-enacted amendments to the Court of Claims Act serve to confirm our impressions of legislative intent in this regard.
In Am. Sub. H.B. No. 149, effective February 7, 1978, R.C. 2743.02(A) has been amended to read as follows:
"The state hereby waives, in exchange for the complainant's waiver of his cause of action against state officers or employees, its immunity from liability and consents to be sued, and have its liability determined, in the court of claims created in this chapter in accordance with the same rules of law applicable to suits between private parties, subject to the limitations set forth in this chapter. To the extent that the state has previously consented to be sued, this chapter has no applicability.
" Except in the case of a civil action filed by the state, filing a civil action in the court of claims results in a complete waiver of any cause of action, based on the same act or omission, which the filing party has against any state officer or employee. The waiver shall be void if the court determines that the act or omission was not within the scope of the officer's or employee's office or employment." (Emphasis supplied to indicate new language.)
R.C. 2743.02(E) has been added in the above-named Act, and reads, in pertinent part, as follows:
"The only defendant in original actions in the court of claims is the state. * * *"
Thus, the General Assembly has specified that the state intends to assume responsibility for, and thereby become potentially liable in damages for, those acts of a state officer or employee which were committed within the scope of the individual's employment. However, when a state employee acts outside the scope of his employment, e.g., when he is motivated by actual malice, liability for such conduct will not be imputed to the state.
Accordingly, the judgment of the Court of Appeals is hereby affirmed.
Judgment affirmed.
O'NEILL, C.J., HERBERT, W. BROWN, P. BROWN, SWEENEY and LOCHER, JJ., concur.