Drain v. Kosydar, 77-612

• Decision Date: 19 April 1978
• Docket Number: No. 77-612,77-612
• Citation: 54 Ohio St.2d 49,374 N.E.2d 1253,8 O.O.3d 65
• Parties: , 8 O.O.3d 65 DRAIN et al., Appellees and Cross-Appellants, v. KOSYDAR, Tax Commr. et al., Appellants and Cross-Appellees.
• Court: Ohio Supreme Court

Page 49

54 Ohio St.2d 49

374 N.E.2d 1253, 8 O.O.3d 65

DRAIN et al., Appellees and Cross-Appellants, v. KOSYDAR, Tax Commr. et al., Appellants and Cross-Appellees.

No. 77-612.

Supreme Court of Ohio.

April 19, 1978.

Syllabus by the Court

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.

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, ¹ 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.

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. ² 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.

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, ³ for the failure of the corporation to remit the tax due.

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.

Drain & Drain and John M. Drain, Cleveland, for appellees and cross-appellants.

William J. Brown, Atty. Gen., and Gene W. Holliker, Asst. Atty. Gen., for appellants and cross-appellees.

I.

CELEBREZZE, Justice.

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. ⁴ 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, 44 N.E. 508.

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, 321 N.E.2d 885, 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)...