Polikoff v. Adam

• Decision Date: 11 August 1993
• Docket Number: Nos. 92-1116,s. 92-1116
• Citation: 616 N.E.2d 213,67 Ohio St.3d 100
• Parties: POLIKOFF et al., Appellees, v. ADAM et al., Appellants. to 92-1119.
• Court: Ohio Supreme Court

Page 100

67 Ohio St.3d 100

616 N.E.2d 213

POLIKOFF et al., Appellees, v. ADAM et al., Appellants.

Nos. 92-1116 to 92-1119.

Supreme Court of Ohio.

Submitted May 18, 1993.

Decided Aug. 11, 1993.

SYLLABUS BY THE COURT

Orders that are entered in actions that were recognized at common law or in equity and were not specially created by statute are not orders entered in special proceedings pursuant to R.C. 2505.02. (Amato v. Gen. Motors Corp. [1981], 67 Ohio St.2d 253, 21 O.O.3d 158, 423 N.E.2d 452, overruled.)

On July 12, 1991, plaintiff-appellee Harry Polikoff, trustee under the will of Marjorie L. Polikoff, filed a shareholder derivative suit against defendants-appellants TRW, Inc. ("TRW"), members of TRW's board of directors, and officers of TRW. ¹ An essentially identical complaint was filed by plaintiff-appellee Libiro DeFillippis on July 30, 1991. Both complaints were filed in the Cuyahoga County Court of Common Pleas.

The complaints alleged the following. TRW is an Ohio corporation with its principal executive offices in Cleveland, Ohio. One principal segment of TRW, Information Systems and Services, gathers and disseminates information regarding consumer credit, real estate, target marketing and business credit, and provides services related to systems integration and engineering and debt collection. Products and services from this segment are sold primarily to commercial entities.

Appellants moved for dismissal of the Polikoff suit on September 11, 1991. ² On September 17, 1991, appellants moved for consolidation of the Polikoff and DeFillippis cases. The trial court granted the motion for consolidation on October 30.

On December 20, 1991, appellees filed an amended complaint. The complaint alleged, inter alia, that appellants had violated various sections of the Fair Credit Reporting Act, Section 1681 et seq., Title 15, U.S. Code, by secretly rating consumers' creditworthiness and by distributing inaccurate and misleading credit material. The amended complaint also set forth eleven reasons supporting appellees' contention that a Civ.R. 23.1 ³ demand on the board of directors would be futile and was therefore excused.

On January 31, 1992, appellants made or renewed motions to dismiss. Appellants argued that the case should be dismissed because appellees failed to make the requisite demand under Civ.R. 23.1 that the directors bring the action themselves or properly plead that such a demand would have been futile.

The trial court denied the motions to dismiss on March 10, 1992, and appellants appealed to the Cuyahoga County Court of Appeals.4 On April 8 and April 9, 1992, the court of appeals dismissed the appeals pursuant to R.C. 2505.02. Appellants requested reconsideration on April 20, 1992. Reconsideration was denied on May 5, 1992.

This cause is now before this court pursuant to the allowance of a motion to certify the record. ⁵

Gallagher, Sharp, Fulton & Norman, James F. Koehler, D. John Travis and Timothy J. Fitzgerald, Cleveland, for appellees.

Jones, Day, Reavis & Pogue, Patrick F. McCartan, Hugh R. Whiting and Jefferey D. Ubersax, Cleveland, for appellants Robin W. Adam, Charles T. Duncan, Martin Feldstein, John S. Foster, Jr., Clifton C. Garvin, Jr., Joseph T. Gorman, Karen N. Horn, E. Bradley Jones, William F. Kieschnick, William S. Kiser, Ruben F. Mettler, P. Roy Vagelos, D.V. Skilling, Martin Abrams and John McGee.

Peter S. Levine, Cleveland, for appellant TRW, Inc.

Murray & Murray, Co., L.P.A., Dennis E. Murray, Sr. and Dennis E. Murray, Jr., Sandusky, urging affirmance for amicus curiae, Murray & Murray, Co., L.P.A.

Squire, Sanders & Dempsey and Stacy D. Ballin, Cleveland, urging reversal for amici curiae, Ohio Chamber of Commerce and the Ohio Mfrs' Ass'n ALICE ROBIE RESNICK, Justice.

In deciding this case, we are once again asked to define the characteristics of a final, appealable order. R.C. 2505.02 defines a "final order" as "[a]n order that affects a substantial right in an action which in effect determines the action and prevents a judgment, an order that affects a substantial right made in a special proceeding or upon a summary application in an action after judgment, or an order that vacates or sets aside a judgment or grants a new trial."

Generally, an order denying a motion to dismiss is not a final order. Appellants, however, assert that the order denying their motion to dismiss is an order that was made in a special proceeding and affects a substantial right. Our analysis begins with the question of whether the order was entered in a special proceeding.

Over the past twelve years, the question of whether a particular order was entered in a special proceeding has been determined by the application of a balancing test which was first set forth in Amato v. Gen. Motors Corp. (1981), 67 Ohio St.2d 253, 21 O.O.3d 158, 423 N.E.2d 452. Formulating the test, this court stated that the balancing test "weighs the harm to the 'prompt and orderly disposition of litigation,' and the consequent waste of judicial resources, resulting from the allowance of an appeal, with the need for immediate review because appeal after final judgment is not practicable." Id. at 258, 21 O.O.3d at 161, 423 N.E.2d at 456. Applying the newly adopted balancing test, the Amato court concluded that a decision certifying a class action is an order entered in a special proceeding and is, therefore, final and appealable. Id. at 258-259, 21 O.O.3d at 161-162, 423 N.E.2d at 456. See, also, Dayton Women's Health Ctr. v. Enix (1990), 52 Ohio St.3d 67, 555 N.E.2d 956, certiorari denied (1991), 498 U.S. 1047, 111 S.Ct. 753, 112 L.Ed.2d 773.

Notwithstanding this court's use of the balancing test, the test itself and the inconsistent application thereof have come under increased criticism in recent years. See, e.g. Stewart v. Midwestern Indemn. Co. (1989), 45 Ohio St.3d 124, 127-128, 543 N.E.2d 1200, 1203-1204 (Douglas, J. dissenting).

Accordingly, a review of the historical development of what constitutes a "special proceeding" is in order. One of the earliest cases to confront the concept of special proceedings was William Watson & Co. v. Sullivan (1855), 5 Ohio St. 42. In Watson, this court held: "An order of the court of common pleas, discharging an attachment against a resident as to the whole of the property attached, is an order affecting a substantial right made in a special proceeding, which may be reversed, pending the action in which the order of attachment was made." Id. at syllabus.

Watson & Company had filed an action against Sullivan and at the same time secured an order attaching Sullivan's property. The attachment was discharged by the court of common pleas and Watson & Company sought review of the discharge order in the district court. Sullivan moved the district court to dismiss the appeal on the ground that it could not be entertained until after determination of the underlying action.

This court found that Section 3 of the former Code of Civil Procedure in the State of Ohio, 51 Ohio Laws 57 et seq., "abolishes the distinction between actions at law and suits in chancery, and substitutes in their place but one form of action, called a civil action. The commissioners, in their report to the legislature upon this section, say: 'A civil action, under this code, will comprehend every proceeding in court heretofore instituted by any and all the forms hereby abolished. Every other proceeding will be something else than an action--say, "a special proceeding." ' By section 604 of the code, it is provided that the code shall not affect any special statutory remedy not heretofore obtained by action. The legislature seems to regard all proceedings not theretofore obtained by suit or action, as a special proceeding or special statutory remedy; and it would seem to follow, that a provision in the code providing a proceeding not by action would be a special proceeding." (Emphasis sic.) Id. at 44. ⁶

In Missionary Soc. of M.E. Church v. Ely (1897), 56 Ohio St. 405, 47 N.E. 537, this court was asked to determine whether an application to the probate court to admit an alleged will was a special proceeding and whether the order refusing to admit the will was a final order. Answering in the affirmative, the court stated: "As to the first inquiry, it seems to us there can be but little difficulty. Our code does not, as does the code of New York, specify that every remedy which is not an action is a special proceeding, nor does [sic ] our statutes give any definition of an action or a special proceeding. But we suppose that any ordinary proceedings in a court of justice, by which a party prosecutes another for the enforcement or protection of a right, the redress or prevention of a wrong, or the punishment of a public offense, involving the process and pleadings, and ending in a judgment, is an action, while every proceeding other than an action, where a remedy is sought by an original application to a court for a judgment or an order, is a special proceeding." Id. at 407, 47 N.E. at 538.

In In re Estate of Wyckoff (1957), 166 Ohio St. 354, 357-358, 2 O.O.2d 257, 259-260, 142 N.E.2d 660, 663-664, this court stated:

"We think it can accurately be said that the term, 'civil action,' as used in our statutes embraces those actions which, prior to the adoption of the Code of Civil Procedure in 1853 abolishing the distinction between actions at law and suits in equity, were denoted as actions at law or suits in equity; and that other court proceedings of a civil nature come, generally at least, within the classification of special proceedings.

"The proposition is simply and cogently put as follows in the case of Schuster v. Schuster [1901], 84 Minn., 403, 407, 87 N.W., 1014, 1015:

" 'Where the law confers a right, and authorizes a special application to a court to enforce it, the proceeding is special, within the ordinary meaning of the term "special proceedings." '

"Therefore, the proceeding...