San Allen, Inc. v. Buehrer, No. 99786.

• Court: United States Court of Appeals (Ohio)
• Writing for the Court: KENNETH A. ROCCO
• Citation: 11 N.E.3d 739
• Parties: SAN ALLEN, INC., et al., Plaintiffs–Appellees/Cross–Appellants v. Stephen BUEHRER, Administrator, Ohio Bureau of Workers' Compensation, Defendant–Appellant/Cross–Appellee.
• Docket Number: No. 99786.
• Decision Date: 15 May 2014

11 N.E.3d 739

SAN ALLEN, INC., et al., Plaintiffs–Appellees/Cross–Appellants
v.
Stephen BUEHRER, Administrator, Ohio Bureau of Workers' Compensation, Defendant–Appellant/Cross–Appellee.

No. 99786.

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

May 15, 2014.

[11 N.E.3d 747]

Michael DeWine, Attorney General of Ohio by Mark E. Mastrangelo, Jeffrey B. Duber, Assistant Attorneys General, Cleveland, OH, John N. Childs, Robert A. Hager, Adam D. Fuller, Brennan, Manna & Diamond, L.L.C., Akron, OH, for appellant.

James A. DeRoche, Stuart I. Garson, David L. Meyerson, David H. Krause, Seaman Garson, L.L.C., Cleveland, OH, Patrick J. Perotti, Jonathan T. Stender, Darrin R. Toney, Nicole T. Fiorelli, Dworken & Bernstein Co., L.P.A., Painesville, OH, for appellees.

Marc J. Jaffy, Stewart R. Jaffy, Stewart Jaffy & Assoc. Co., L.P.A., Columbus, OH, for Ohio AFL–CIO.

John W. Zeiger, Stuart G. Parsell, Zeiger, Tigges & Little L.L.P., Columbus, OH, for Ohio Chamber of Commerce and National Federation of Independent Business/Ohio.

Susannah Muskovitz, Muskovitz & Lemmerbrock, L.L.C., Cleveland, OH, for Cleveland Teachers Union, AFT Local 279, AFL–CIO.

Susan L. Gragel, Goldstein Gragel, L.L.C., Cleveland, OH, for Teamsters Local Union No. 416.

James A. Marniella, Demer & Marniella, L.L.C., Berea, OH, for International Association of Bridge, Structural, Ornamental and Reinforcing Iron Workers Local No. 17.

Barbara A. Langhenry, Director of Law, City of Cleveland by Joseph F. Scott, Chief Assistant Director of Law, Mitchell G. Blair, Maura L. Hughes, Calfee Halter & Griswold L.L.P., Cleveland, OH, for City of Cleveland.

Terence E. Copeland, The Council for Economic Opportunities in Greater Cleveland, Cleveland, OH, for The Council for Economic Opportunities in Greater Cleveland.

Before: ROCCO, P.J., E.A. GALLAGHER, J., and KILBANE, J.

KENNETH A. ROCCO, P.J.

{¶ 1} Reduced to its irreducible essence, this appeal is about a cabal of Ohio Bureau of Workers' Compensation (“BWC”) bureaucrats and lobbyists for group sponsors who rigged workers' compensation insurance

[11 N.E.3d 748]

premium rates so that for employers who participated in the BWC's group rating plan (“group-rated employers”), it was “heads we win,” and for employers who did not participate in the group rating plan (“nongroup-rated employers”), it was “tails you lose.” For more than 15 years, the BWC allowed nongroup-rated employers to subsidize excessive, undeserved premium discounts to group-rated employers who were handpicked by group sponsors to participate in the BWC's group rating plan. The temerity of the group sponsors, untempered by any notions of equity from or of the BWC, exacted a heavy price for nongroup-rated employers—over $859 million.

{¶ 2} The trial court correctly determined that the BWC was responsible for developing and maintaining an unlawful rating system under which excessive premium discounts were given to group-rated employers at the expense of nongroup-rated employers. The BWC first failed to follow a legislative mandate to establish a retrospective group rating plan, then set up a prospective group rating plan without sufficient controls to address the plan's susceptibility to manipulation by group sponsors and the potential for premium inequity as a result of the generous discounts provided to group-rated employers under the plan.

{¶ 3} Defendant-appellant/cross-appellee Stephen Buehrer, Administrator, BWC, appeals the judgment of the Cuyahoga County Court of Common Pleas that awarded over $859 million in equitable restitution to a class of employers who alleged that they had been unlawfully charged inflated workers' compensation insurance premiums in order to subsidize discounts given to other employers participating in the BWC's group rating plan. Plaintiffs alleged that until 2009, when the BWC modified its premium rating system, the BWC “undercharged,” from an actuarial standpoint, group-rated employers and “overcharged,” from an actuarial standpoint, nongroup-rated employers in setting workers' compensation premiums. The trial court held that the BWC's implementation of its group rating plan and the resulting inequity between the premiums charged group-rated and nongroup-rated employers under its rating system violated former R.C. 4123.29 and 4123.34(C). The trial court further held that the BWC was unjustly enriched by the excessive premiums it received from nongroup-rated employers, entitling class members to equitable restitution of the unlawful premium overcharges.

{¶ 4} Plaintiffs-appellees/cross-appellants San Allen, Inc., d.b.a. Corky and Lenny's, Timely Advertising Specialty Co., d.b.a. S.E. Bennett Company, Linderme Tube Co., Cambridge Manufacturing Jewelers, Ltd., D & J Structural Contracting, Inc., Lifecenter Plus, Inc., and David W. Steinbach, Inc. (“plaintiffs”) have filed a cross appeal, challenging the trial court's determination that the BWC's premium rating system did not violate the Equal Protection Clause of the Ohio Constitution and claiming that the trial court abused its discretion in failing to award plaintiffs an additional $330 million (or more) in investment returns the BWC allegedly earned on the excessive premiums collected from the class.

{¶ 5} For the reasons that follow, we affirm the trial court's judgment in part, reverse the trial court's judgment in part, and remand the matter for further proceedings consistent with this opinion.¹

[11 N.E.3d 749]

I. Factual Background

A. This Action
1. Plaintiffs' Allegations

{¶ 6} This action was commenced on December 18, 2007, when plaintiffs-appellees San Allen, Inc., d.b.a. Corky and Lenny's, Timely Advertising Specialty Co., d.b.a. S.E. Bennett Company, and Linderme Tube Co. filed their original “class action complaint for equitable relief” against the BWC. On January 31, 2008, an amended complaint was filed, adding as additional named plaintiffs, Cambridge Manufacturing Jewelers, Ltd., D & J Structural Contracting, Inc., Lifecenter Plus, Inc., and David W. Steinbach, Inc.

{¶ 7} In their amended complaint, plaintiffs asserted “a claim in equity for unjust enrichment” on behalf of themselves and similarly-situated employers who had paid nongroup-rated premiums for workers' compensation insurance coverage, raising statutory and constitutional challenges to the BWC's group rating plan. Plaintiffs alleged that the BWC's group rating plan granted group-rated employers excessive discounts off their workers' compensation premiums, which were subsidized by charging nongroup-rated employers “inflated” base premium rates. Plaintiffs claimed the BWC's prospective group rating plan exceeded the BWC's rule-making authority under former R.C. 4123.29 (which plaintiffs contended authorized only a retrospective group rating plan) and that it denied plaintiffs and other class members equal protection of the law, in violation of Article I, Section 2 of the Ohio Constitution, because it imposed burdens on nongroup-rated employers in the plaintiff class that were not borne by identically situated group-rated employers.² Plaintiffs also claimed that, as a result of its collection and retention of excessive premiums from plaintiffs and other class members, the BWC had been unjustly enriched. Plaintiffs sought (1) a declaration that the BWC's group rating program violated state law and was unconstitutional, (2) repayment of the excessive premiums they alleged had been wrongfully collected and retained by the BWC, and (3) an award of pre-judgment and post-judgment interest, costs, and attorney fees.

2. The BWC's Answer

{¶ 8} On February 28, 2008, the BWC filed its answer. The BWC denied most of the allegations of plaintiffs' amended complaint, but admitted that the group rating plan affected the base rates of nongroup-rated employers and that studies had been conducted that showed that the group discounts provided to group-rated employers did not generate adequate premiums to cover the claims costs of group-rated employers. The BWC also asserted a variety of affirmative defenses, including lack of subject matter jurisdiction, failure to exhaust administrative remedies, lack of ripeness, laches, and that plaintiffs' claims were barred by the applicable statute of limitations.

3. Preliminary Injunction

{¶ 9} On April 11, 2008, plaintiffs filed a motion for preliminary injunction, seeking to enjoin the BWC from continuing its allegedly inequitable and unlawful group rating plan. Concluding that plaintiffs had

[11 N.E.3d 750]

established a probability of success on the merits that the group rating plan violated former R.C. 4123.29(A) and that plaintiffs would suffer irreparable harm if preliminary relief was not granted, on November 18, 2008, the trial court granted plaintiffs' motion, restraining the BWC from using its prospective group rating plan for the policy year beginning July 1, 2009 and ordering the BWC to enact a retrospective group rating plan for that year. San Allen, Inc. v. Ryan, Cuyahoga C.P. No. CV–07–644950, 2008 Ohio Misc. LEXIS 333 (Nov. 18, 2008). Four months later, after the General Assembly rewrote the statute to remove the language upon which plaintiffs had relied for their argument that R.C. 4123.29(A) required a retrospective group rating plan, rather than the prospective group rating plan implemented by the BWC, the trial court vacated the preliminary injunction.³

{¶ 10} On January 10, 2010, the trial court granted plaintiffs' motion for class certification, certifying the following plaintiff class:

Ohio private employers subscribing to the Ohio workers' compensation State Fund, for any policy year from July 1, 2001 through and including policy year July 1, 2008, who in any of those policy years were rated on a non-group basis and who reported payroll and paid premiums in a manual classification for which the base rate was “inflated” due to experience modifications under the group experience rating plan.

{¶ 11} The BWC appealed the class certification order. This...