Illuminating Co. v. Bosemann

• Decision Date: 09 July 2020
• Docket Number: No. 108631,108631
• Citation: 2020 Ohio 3663,154 N.E.3d 1205
• Parties: ILLUMINATING COMPANY, Plaintiff-Appellee, v. Frederick A. BOSEMANN, Defendant-Appellant.
• Court: Ohio Court of Appeals

154 N.E.3d 1205

2020 Ohio 3663

ILLUMINATING COMPANY, Plaintiff-Appellee,

v.Frederick A. BOSEMANN, Defendant-Appellant.

No. 108631

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

RELEASED AND JOURNALIZED: July 9, 2020

Weltman, Weinberg & Reis Co., L.P.A., and Amanda Rasbach Yurechko, Cleveland, for appellee.

Gallagher, Gams, Tallan, Barnes & Littrell L.L.P., Mitchell M. Talan, and Lori E. Thomson, Columbus, for appellant.

JOURNAL ENTRY AND OPINION

MARY J. BOYLE, J.:

{¶ 1} 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.

{¶ 2} Finding no merit to his assignments of error, we affirm the trial court's judgment.

I. Procedural History and Factual Background

{¶ 3} 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.

{¶ 4} 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.

{¶ 5} 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, 2018 WL 3199383, 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."

{¶ 6} 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.

{¶ 7} 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.

{¶ 8} 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.

{¶ 9} 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."

{¶ 10} 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.

{¶ 11} 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.

{¶ 12} 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...