Boedeker v. Rogers

• Decision Date: 08 May 2000
• Docket Number: No. 74929.,74929.
• Citation: 746 NE 2d 625,140 Ohio App.3d 11
• Parties: BOEDEKER, M.D., et al., Appellees, v. ROGERS, et al., Appellees; Duryee, Appellant.
• Court: Ohio Court of Appeals

140 Ohio App.3d 11

746 NE 2d 625

BOEDEKER, M.D., et al., Appellees, v. ROGERS, et al., Appellees; Duryee, Appellant.

No. 74929.

Court of Appeals of Ohio, Eighth District, Cuyahoga County.

Decided May 8, 2000.

Kaufman & Cumberland Co., L.P.A., Steven S. Kaufman, Frank R. Desantis, and Thomas L. Feher, for appellees James P. Boedeker et al.

McCarthy, Lebit, Crystal & Haiman Co., L.P.A., David A. Schaefer, and Joshua B. Nathanson, for appellee Herbert S. Bell, M.D. Calfee, Halter & Griswold, Mark I. Wallach, Christopher S. Williams, Tracy S. Johnson, and Alexandra M. Kowalski, for appellant Harold T. Duryee.

Martindale, Brzytwa Montgomery & Quick and John E. Martindale; Montgomery McCracken, Walker & Rhoads, L.L.P., John W. Frazier IV, and John E. Caruso; KPMG Peat Marwick L.L.P., and Frances J. DiSarro, for appellee KPMG Peat Marwick L.L.P. KARPINSKI, Judge.

This is an appeal by Harold T. Duryee, Superintendent of Insurance of the Ohio Department of Insurance, in his capacity as the liquidator of the P.I.E. Mutual Insurance Company. Duryee asks us to hold that the same Ohio law that explicitly authorizes the Superintendent of Insurance to assume responsibility over a liquidated insurer's affairs under Ohio Revised Code Chapter 3903 implicitly authorizes the Superintendent to be substituted as the plaintiff in this action in which shareholders of the insurer pleaded derivative claims on behalf of the corporation as well as individual claims on behalf of the shareholders. The shareholders opposed the Liquidator's bid for substitution as the plaintiff, and the trial court denied the Liquidator's request.

Because R.C. Chapter 3903 authorizes the liquidator of a covered insurer to prosecute any and all claims and other legal proceedings of the insurer, we believe that authority embraces claims asserted by shareholders derivatively on behalf of the insurer against the insurer's officers and directors. The authority conferred by R.C. Chapter 3903 is not so broad, however, as to require the liquidator to prosecute bona fide individual claims asserted by shareholders directly against the insurer's officers and directors. We therefore conclude that Duryee should have been substituted as the plaintiff as to the derivative claims asserted on the insurer's behalf by the shareholders, but not as to the individual claims asserted by the shareholders. Accordingly, we affirm in part, reverse in part, and remand the matter for further proceedings consistent with this opinion.

I

The circumstances giving rise to this appeal concern the collapse of the P.I.E. Mutual Insurance Company ("P.I.E."), which had been a not-for-profit mutual insurer owned and operated by its member/insured policyholders. We are told that a routine audit of P.I.E. conducted by the Ohio Department of Insurance in 1996 caused the department to investigate certain irregularities in P.I.E.'s finances. On December 10, 1997, Insurance Superintendent Duryee filed a complaint for rehabilitation in the Franklin County Common Pleas Court. This complaint sought an order under R.C. 3903.12 authorizing Duryee to rehabilitate P.I.E. and to protect P.I.E.'s policyholders, creditors, and the public. On December 15, 1997, the Franklin County Common Pleas Court entered an agreed order appointing Duryee as rehabilitator of P.I.E.

One week later, on December 22, 1997, P.I.E. policyholders James P. Boedeker, M.D., Barbara Walsh, M.D., and Blase Pignotti, M.D., filed this action against various P.I.E. officers and directors, P.I.E.'s affiliated law firm, and P.I.E.'s auditors in the Cuyahoga County Common Pleas Court. The plaintiffs asserted claims in their capacity as policyholders of P.I.E., for harms done to P.I.E. by the P.I.E. defendants, that is, "derivative" claims. The plaintiffs' derivative claims included counts for unauthorized payments and excessive compensation, breach of fiduciary duties, and professional malpractice. The plaintiffs also asserted claims in their capacity as individuals, for harms to them personally by the P.I.E. defendants, that is, individual claims. While somewhat duplicative of the counts asserted as derivative claims, the plaintiffs' individual claims additionally included counts for conversion, tortious interference with contractual relations, and violation of Ohio insurance laws. The P.I.E. defendants contested the derivative and individual claims asserted by the plaintiffs.

Meanwhile, on January 8, 1998, Duryee, still in his capacity as rehabilitator of P.I.E., filed a separate action in the Franklin County Common Pleas Court against P.I.E. officers Larry Rogers, James M. Marietta III, and Warren L. Udisky. On March 12, 1998, Duryee, as P.I.E.'s rehabilitator, moved to intervene in the plaintiffs' Cuyahoga County lawsuit. Before that motion was decided, on March 23, 1998, the Franklin County Common Pleas Court, presiding over the rehabilitation of P.I.E., entered an order of liquidation, placed P.I.E. in liquidation, and appointed Duryee as the statutory liquidator of P.I.E.

On April 3, 1998, Duryee, as liquidator, filed a motion in the Cuyahoga County action requesting an order of substitution by which the liquidator, as the real party in interest, would "assume sole control over the prosecution of the claims asserted herein by Plaintiffs." The plaintiffs opposed Duryee's request.

In its June 30, 1998 order, the Cuyahoga County Common Pleas Court granted Duryee's motion to intervene but denied his motion for an order substituting him as plaintiff. In the same order, the court dismissed the plaintiffs' individual claims, leaving only the derivative claims pending for disposition. The court further ordered that the surviving claims be transferred to the Franklin County Common Pleas Court for further proceedings. The court separately certified that there was no just reason for delay, pursuant to Civ.R. 54(B).

Duryee, in his capacity as Liquidator, filed this appeal, case No. 74929, from the judgment that denied his motion for substitution.¹ In a separate appeal, case No. 74963, the plaintiffs challenged the order dismissing their individual claims. This court consolidated those appeals for record, briefing, hearing, and disposition. In yet another appeal, case No. 74615, P.I.E. officer Marietta contested the order that denied his motion to stay proceedings and compel arbitration.

Following oral argument, we severed consolidated case No. 74929 from 74963 for disposition. We now decide Duryee's appeal in case No. 74929.²

II

Before addressing the merits of Duryee's appeal, we must first consider whether we have authority to entertain this appeal at all. While none of the parties questioned in their appellate briefs or in oral argument whether the order denying Duryee's motion for substitution was final and appealable, we are nevertheless obliged to satisfy ourselves that we have jurisdiction to proceed.

We have appellate jurisdiction as may be provided by law to review judgments or final orders of the courts of record inferior to our court within this appellate district. Section 3(B)(2), Article IV, Ohio Constitution; R.C. 2505.03(A). R.C. 2505.02(B) declares:

"An order is a final order that may be reviewed, affirmed, modified, or reversed, with or without retrial, when it is one of the following:

"* * *

"(2) An order that affects a substantial right made in a special proceeding;

"* * *

"(4) An order that grants or denies a provisional remedy and to which both of the following apply:

"(a) The order in effect determines the action with respect to the provisional remedy and prevents a judgment in the action in favor of the appealing party with respect to the provisional remedy. "(b) The appealing party would not be afforded a meaningful or effective remedy by an appeal following final judgment as to all proceedings, issues, claims, and parties in the action."

R.C. 2505.02(A)(1) defines "substantial right" to mean "a right that the United States Constitution, the Ohio Constitution, a statute, the common law, or a rule of procedure entitles a person to enforce or protect." R.C. 2505.02(A)(2) defines "special proceeding" as "an action or proceeding that is specially created by statute and that prior to 1853 was not denoted as an action at law or a suit in equity." R.C. 2505.02(A)(3) defines "provisional remedy" as "a proceeding ancillary to an action, including, but not limited to, a proceeding for a preliminary injunction, attachment, discovery of privileged matter, or suppression of evidence."

We are satisfied that the judgment that denied Duryee's motion for an order of substitution is a "final order" under R.C. 2505.02 because it functionally denied a provisional remedy available to the liquidator, conclusively determined the action with respect to the provisional remedy, and precluded Duryee from obtaining meaningful relief if appellate review were deferred until all proceedings were concluded. We reach this conclusion based on our review of the comprehensive statutory authority Ohio law confers upon liquidators by R.C. Chapter 3903, the scope of which we will consider in greater detail infra. But for present purposes, it is sufficient to note that Ohio law authorizes a liquidator to obtain provisional remedies that are consistent with its mission to protect "the interests of insureds, claimants, creditors, and the public generally * * *." R.C. 3903.02(D).

In particular, R.C. 3903.05(A) expressly authorizes a liquidator to obtain injunctive relief to forbid anyone from commencing or further prosecuting any legal actions or proceedings, or interfering with the liquidator or with proceedings under R.C. 3903.01 to 3903.59, or wasting the insurer's assets, or engaging in any other disruptive action. R.C. 3903.21 additionally confers broad powers that enable liquidators to do what is "necessary or appropriate" to vindicate the interests they are assigned by law to protect.

We conclude that the order denying...