State ex rel. Dann v. Tabacalera Nacional, S.A.A.

[Cite as State ex rel. Dann v. Tabacalera Nacional, S.A.A., 2012-Ohio-5300.]

Court of Claims of Ohio

The Ohio Judicial Center

65 South Front Street, Third Floor

Columbus, OH 43215

614.387.9800 or 1.800.824.8263

www.cco.state.oh.us

STATE OF OHIO, ex rel. ATTORNEY GENERAL MARC DANN

Plaintiff/Counter Defendant

v.

TABACALERA NACIONAL, S.A.A.

Defendant/Counter Plaintiff

Case No. 2008-09848-PR

Judge Clark B. Weaver Sr.

Magistrate Lewis F. Pettigrew

DECISION OF THE MAGISTRATE

{¶ 1} On May 20, 2011, the court granted summary judgment in favor of

defendant/counter plaintiff, Tabacalera Nacional, S.A.A. (Tanasa) on its counterclaim

against plaintiff/counter defendant, State of Ohio, ex rel. Attorney General Marc Dann

(the State). On March 12, 2012, this case was tried to a magistrate on the issue of

damages.

{¶ 2} This case concerns a settlement agreement between the State and Tanasa

relating to the sale of cigarettes in Ohio. Tanasa is a Peruvian tobacco manufacturer

which was engaged in the sale of cigarettes in Ohio. As such, Tanasa was required by

R.C. 1346.02 either to participate in a 1998 Master Settlement Agreement (MSA) or to

make deposits into a “qualified escrow fund” (escrow fund). Tanasa elected not to

participate in the MSA and began making deposits into the escrow fund. On June 20,

2003, the State brought suit against Tanasa alleging that Tanasa had failed to make

sufficient deposits. That suit was ultimately settled and dismissed by the parties

pursuant to the terms of a March 1, 2004 settlement agreement whereby Tanasa

Case No. 2008-09848-PR -2- DECISION

promised to make the appropriate deposits into the escrow fund and the State agreed to

dismiss the action and release Tanasa from further liability.

{¶ 3} On December 10, 2007, the State filed a complaint in the Franklin County

Court of Common Pleas alleging that Tanasa failed to deposit the required amount into

the escrow fund in violation of R.C. 1346.02. On August 29, 2008, Tanasa filed a

counterclaim seeking a declaratory judgment and alleging breach of contract. The

subsequent filing of a petition for removal effected the removal of the entire case to this

court. On December 3, 2008, the State filed an amended complaint seeking damages

for breach of settlement agreement.

{¶ 4} On May 20, 2011, the court granted Tanasa’s motion for summary judgment

as to the claim for breach of contract. Therein the court stated: “In short, the court

concludes that the language of the agreement does not require Tanasa to make 2003

escrow deposits beyond April 15, 2004. Accordingly, Tanasa cannot be held liable to

the State, as a matter of law, for its failure or refusal to make any such deposits. * * *

Turning to Tanasa’s claim, ‘“[w]hen a party breaches a settlement agreement to end

litigation and the breach causes a party to incur attorney fees in continuing litigation,

those fees are recoverable as compensatory damages in a breach of settlement claim.”’

Tejada-Hercules v. State Auto. Ins. Co., Franklin App. No. 08AP-150, 2008-Ohio-5066,

¶9, quoting Shanker v. Columbus Warehouse Ltd. Partnership (Mar. 31,1997), Franklin

App. No. 96APE09-1269. Having determined that the settlement agreement is valid

and enforceable as a matter of law, there is no question but that the State has breached

the agreement by filing suit herein.”

{¶ 5} The damages for breach of contract are those that “‘naturally flow from the

breach of contract, or such as may fairly be supposed to have been within the

contemplation of the parties, at the time the contract was made.’” Western Union Tel.

Co. v. Sullivan (1910), 82 Ohio St. 14, 21, quoting First Natl. Bank of Barnesville v.

Western Union Tel. Co. (1876), 30 Ohio St. 555. See also Patrick v. Western Union

Tel. Co. (1949), 86 Ohio App. 365; Rhodes v. Baird (1866), 16 Ohio St. 573; R & H

Case No. 2008-09848-PR -3- DECISION

Trucking, Inc. v. Occidental Fire & Cas. Co. (1981), 2 Ohio App.3d 269. As a general

rule, in an action upon a contract, a prevailing party who does not have the benefit of a

contractual right to attorney fees, is not entitled to such fees as costs in the absence of

a statute or bad faith on the part of the party against whom fees are to be taxed. See,

e.g., State ex rel. Durkin v. Ungaro (1988), 39 Ohio St.3d 191, 193; Gahanna v.

Eastgate Prop., Inc. (1988), 36 Ohio St.3d 65, 66.

{¶ 6} However, an exception to the general rule has been carved out for actions

alleging the breach of a settlement agreement. In Tejada-Hercules, supra, the Tenth

District Court of Appeals stated: “‘When a party breaches a settlement agreement to

end litigation and the breach causes a party to incur attorney fees in continuing

litigation, those fees are recoverable as compensatory damages in a breach of

settlement claim. Because defendant’s attorney fees are attributable to and were

incurred as the result of plaintiffs’ breach of the settlement agreement, defendant is

entitled to recover those fees in order to make whole and compensate him for losses

caused by plaintiffs’ breach.’” Id. at ¶9, quoting Shanker, supra. See also Dehoff v.

Veterinary Hosp. Operations of Cent. Ohio, Inc., Franklin App. No. 02AP-454, 2003-

Ohio-3334. (Recovery of attorney fees as compensatory damages for the breach of a

settlement agreement is limited to those circumstances where the agreement ends

pending litigation.)

{¶ 7} Accordingly, under the common law, Tanasa is entitled to attorney fees

inasmuch as the State has breached a settlement to end litigation and Tanasa has

incurred fees attributable to the breach. Western Union v. Sullivan, supra.

{¶ 8} In support of its claim for attorney fees and litigation expenses, Tanasa

presented the testimony of trial counsel Kimberly Doucher and its expert witness,

attorney John Mazza. Tanasa seeks to recover the fees and expenses generated by

local counsel, the law firm of Doucher & Doucher, LPA (Doucher firm) as well as those

generated by attorney J. Weis of Levin & Ginsburg, a Chicago based law firm.

Case No. 2008-09848-PR -4- DECISION

{¶ 9} Defendant objected to the expert testimony of attorney Mazza, pursuant to

L.C.C.R. 7(E), inasmuch as Tanasa had failed to timely provide a supplemental expert

report setting forth Mazza’s additional opinions regarding the legal fees generated by

Weis. The State also objected to opinion testimony regarding fees generated by the

Doucher firm subsequent to the issuance of Mazza’s report.

{¶ 10} L.C.C.R. 7(E) provides in relevant part:

{¶ 11} “(E) Expert witnesses.

{¶ 12} “Each trial attorney shall exchange with all other trial attorneys, in advance

of the trial, written reports of medical and expert witnesses expected to testify. The

parties shall submit expert reports in accordance with the schedule established by the

court.

{¶ 13} “A party may not call an expert witness to testify unless a written report

has been procured from said witness. It is the trial attorney's responsibility to take

reasonable measures, including the procurement of supplemental reports, to insure that

each such report adequately sets forth the expert's opinion. However, unless good

cause is shown, all supplemental reports must be supplied no later than thirty days prior

to trial. The report of an expert must reflect his opinions as to each issue on which the

expert will testify. An expert will not be permitted to testify or provide opinions on issues

not raised in his report.” (Emphasis added.)

{¶ 14} Tanasa acknowledges that a supplemental report was not provided to the

State. Therefore, the court sustains the State’s objection and shall not consider any

expert testimony regarding such fees.1 However, inasmuch as the Doucher firm has

continued to generate compensable legal fees and expenses in this case, up to and

including the day of trial, the court finds that strict compliance with L.C.C.R. 7(E) is

impractical and, accordingly, the court will consider Mazza’s opinions regarding such

fees in the absence of a supplemental expert report.

1

To preserve the record for review, Tanasa proffered both the trial testimony of attorney Weis and

the excluded expert testimony of attorney Mazza.

Case No. 2008-09848-PR -5- DECISION

{¶ 15} The State also objected to the presentation of any evidence by Tanasa on

the issue of attorney fees and litigation expenses on the grounds that Tanasa has

willfully failed to comply with both the Rules of Civil Procedure and the orders of this

court with regard to discovery. Tanasa has admitted that an itemized invoice regarding

the legal fees and expenses generated by attorney Weis was not provided to the State

until several months beyond the date when such discovery was due under the Rules of

Civil Procedure and the State maintains that such information was not made available

within the time required by the court’s September 26, 2011 order compelling such

discovery. Although the court has permitted Tanasa to supplement discovery with

respect to the Doucher fees and expenses, without penalty, Tanasa’s failures with

respect to the Weis fees are more egregious.2 The fact that two law firms in different

cities are representing a single client in one litigation raises the possibility of

redundancy. Tanasa has provided the court with no reasonable excuse for its failure to

timely provide such discovery and the court finds that Tanasa’s late production of a

Weis’ itemized invoice has unfairly prejudiced the State in its defense of Weis’ fees.

Thus, to the extent that a reviewing court may consider an award to Tanasa for the

Weis fees, without the aide of a corroborating expert opinion,3 the court finds that

2

On September 26, 2011, the court granted the State’s motion to compel production of

documents and ordered Tanasa to provide the State with complete and un-redacted responses to

pending discovery requests “within 10 days of the date of this entry.” Although itemized fee invoices from

the Doucher firm were provided, Tanasa did not timely provide discoverable information regarding Weis

fees.

3

“Although courts are deemed to be experts on the question of the reasonableness of an

attorney's fee and able to draw on their own knowledge and experience in determining a reasonable fee,

the testimony of duly qualified witnesses, given as expert opinion evidence, is admissible on the issue of

the value of an attorney's services. Generally the testimony of expert witnesses is not essential, but at

times a fair and reasonable compensation for the professional services of a lawyer can only be

ascertained by the opinion of members of the bar who have become familiar by experience and practice

with the character of such services; practicing lawyers occupy the position of experts on questions of this

nature. * * *

“The opinion evidence of expert witnesses as to the value of an attorney's services is not

conclusive or binding * * * on the court * * *. The services of an attorney, when rendered in litigation

before the same court that is passing on the value of such services, may, of themselves, constitute

evidence from which the court alone, unaided by opinion of others as to value, or even contrary to opinion

evidence, may reach a conclusion.” 7 American Jurisprudence 2d, Attorneys at Law, Sections 306-307.

Case No. 2008-09848-PR -6- DECISION

Tanasa’s failure to comply with both the Rules of Civil Procedure regarding discovery

and the spirit of the court’s orders regarding such discovery precludes an award of

Weis’ fees to Tanasa.

{¶ 16} With respect to the fees and expenses billed to Tanasa by the Doucher

firm, Kim Doucher testified that her firm agreed to represent Tanasa in this litigation in

2008 and that Tanasa and the Doucher firm entered into a fee agreement whereby she

would provide legal services at an hourly rate of $195. Although there are

correspondence regarding the arrangement, there is no written agreement.

{¶ 17} Attorney Doucher testified that the vast majority of the legal fees generated

by her firm were the result of her own work on the file at the rate of $195 per hour and

that a small amount of fees are attributable to a legal assistant whose services are billed

at a lower rate. Doucher testified that her work on this case began in 2008 when the

State filed its complaint against Tanasa in Franklin County Common Pleas Court and

that her work on the case has continued periodically through the date of trial. Doucher

identified and authenticated a number of invoices reflecting both the fees and expenses

generated by her firm on this case. (Defendant/Counter Plaintiff’s Exhibits B-K.)

Doucher estimated that an additional $5,850 in fees and expenses would be incurred by

Tanasa in connection with her work concerning the trial on the issue of damages.

{¶ 18} According to Doucher, the charges reflected in Defendant/Counter

Plaintiff’s Exhibits B through H have been paid by Tanasa in full, with the single

exception of an invoice which was reduced by $995 due to some duplication of effort.

Doucher testified that a total of $18,991.55 has been paid to date, that she fully expects

Tanasa to pay the remaining $13,211.75 in full, and that she intends to hold her client

responsible for the estimated $5,850 in fees and expenses which have yet to be

invoiced.

{¶ 19} John Mazza is an attorney licensed to practice law in Ohio since 1977.

According to Mazza, his legal practice has consisted almost exclusively of civil litigation.

Mazza reviewed the record in this case, the itemized invoices submitted by the Doucher

Case No. 2008-09848-PR -7- DECISION

firm, and some research produced by the firm. Based upon his knowledge, skill and 35

years of experience as a litigation attorney, Mazza opined that the hourly rate of $195

was reasonable and that legal work and expenses reflected in the invoices were

necessary in the competent prosecution of Tanasa’s case.

{¶ 20} Other than the State’s blanket objection to the presentation of any

testimony on the issue of damages, the State offered no evidence to rebut Mazza’s

opinions. Based upon the evidence submitted, the court finds that Tanasa has incurred

reasonable and necessary legal fees and expenses in the total amount of $38,053.30,

both in the defense of the complaint and in prosecution of its counterclaim. The State’s

contention that an unidentified third party has paid the legal fees and that such payment

constitutes a collateral source pursuant to R.C. 2743.02(D), is unsupported by the law

and the evidence.

{¶ 21} “It is axiomatic that a settlement agreement is a contract designed to

terminate a claim by preventing or ending litigation and that such agreements are valid

and enforceable by either party. * * * Further, settlement agreements are highly favored

in the law.” Continental W. Condominium Unit Owners Assn. v. Howard E. Ferguson,

Inc., 74 Ohio St.3d 501, 502, 1996-Ohio-158. (Citations omitted.) The award of

attorney fees against the state where the state has breached a settlement agreement is

consistent with both the policy favoring settlement and the waiver of state’s waiver of

immunity pursuant to R.C. Chapter 2743.

{¶ 22} Based upon the foregoing, judgment is recommended in favor of

defendant/counter plaintiff on its counterclaim in the total amount of $38,053.30.

{¶ 23} A party may file written objections to the magistrate’s decision within 14

days of the filing of the decision, whether or not the court has adopted the decision

during that 14-day period as permitted by Civ.R. 53(D)(4)(e)(i). If any party timely files

objections, any other party may also file objections not later than ten days after the first

objections are filed. A party shall not assign as error on appeal the court’s adoption of

any factual finding or legal conclusion, whether or not specifically designated as a

Case No. 2008-09848-PR -8- DECISION

finding of fact or conclusion of law under Civ.R. 53(D)(3)(a)(ii), unless the party timely

and specifically objects to that factual finding or legal conclusion within 14 days of the

filing of the decision, as required by Civ.R. 53(D)(3)(b).

_____________________________________

LEWIS F. PETTIGREW

Magistrate

cc:

Angela M. Sullivan Christopher P. Conomy

Assistant Attorney General Assistant Attorney General

Tobacco Enforcement Section 150 East Gay Street, 18th Floor

30 East Broad Street, 16th Floor Columbus, Ohio 43215-3130

Columbus, Ohio 43215

Kimberley A. Doucher

6385 Shier Rings Road, Suite 100

Dublin, Ohio 43016

006

Filed March 16, 2012

To S.C. Reporter November 15, 2012