Title: Volbers-Klarich v. Middletown Mgt., Inc.

State: ohio

Issuer: Ohio Supreme Court

Document:

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as 
Volbers-Klarich v. Middletown Mgt., Inc., Slip Opinion No. 2010-Ohio-2057.] 
 
 
NOTICE 
This slip opinion is subject to formal revision before it is published in 
an advance sheet of the Ohio Official Reports.  Readers are requested 
to promptly notify the Reporter of Decisions, Supreme Court of Ohio, 
65 South Front Street, Columbus, Ohio 43215, of any typographical or 
other formal errors in the opinion, in order that corrections may be 
made before the opinion is published. 
 
SLIP OPINION NO. 2010-OHIO-2057 
VOLBERS-KLARICH, APPELLANT, v. MIDDLETOWN MANAGEMENT, INC. ET AL., 
APPELLEES. 
[Until this opinion appears in the Ohio Official Reports advance sheets, it 
may be cited as Volbers-Klarich v. Middletown Mgt., Inc.,  
Slip Opinion No. 2010-Ohio-2057.] 
Sales tax — Collection of nonexistent tax by vendor — Customer’s remedy is suit 
against vendor, not refund from supposed taxing authority — Fraud 
pleaded with sufficient particularity — Class-action allegations 
insufficient under R.C. 1345.09(B). 
(No. 2009-933 — Submitted January 26, 2010 — Decided May 18, 2010.) 
APPEAL from the Court of Appeals for Butler County, No. CA2008-07-160,  
2009-Ohio-1651 
__________________ 
SYLLABUS OF THE COURT 
When a vendor charges its customer a nonexistent tax, the funds collected are not 
a tax collected for the benefit of the taxing authority.  Consequently, under 
these limited circumstances, the customer need not seek a refund from the 
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government entity that purportedly imposed the tax, but may file suit 
directly against the vendor to recover those funds. 
__________________ 
LUNDBERG STRATTON, J. 
I. Introduction 
{¶ 1} The primary question before the court is when a vendor 
fraudulently charges its customer a nonexistent tax, must the customer attempt to 
recover those funds through a “refund” from the taxing authority, or may the 
customer attempt to recover those funds directly from the vendor?  We must also 
determine whether the appellant herein pleaded fraud with sufficient particularity 
and whether appellant’s claim seeking certification of a class action alleging a 
violation of the Ohio Consumer Sales Practices Act (“OCSPA”) stated a claim 
upon which relief could be granted. 
{¶ 2} We hold that a customer may proceed directly against the vendor 
under these circumstances.  We also hold that appellant’s complaint pleaded fraud 
with sufficient particularity under Civ.R. 9(B), but that her claim seeking 
certification of a class action alleging a violation of the OCSPA does not state a 
claim upon which relief can be granted.  Accordingly, we affirm in part and 
reverse in part the judgment of the court of appeals. 
II. Facts 
{¶ 3} Appellant, Julie Volbers-Klarich, filed an amended complaint 
against Middletown Management, an Indiana corporation that operates a Hampton 
Inn located at 430 Kolbe Drive in Butler County Ohio, and the corporate owner of 
the hotel.  The complaint alleged that that since 1999, the Hampton Inn has 
charged its customers a 12 percent tax on lodging, which included 5.5 percent for 
state sales tax with the remaining 6.5 percent being charged for a county tax and a 
municipal tax.  However, the complaint also alleged that no county or municipal 
tax existed from 1999 through September 30, 2003.  The complaint alleged that 
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Hampton Inn converted the funds it collected under the auspices of the supposed 
county and municipal taxes.  The complaint admitted that beginning on October 1, 
2003, Butler County began charging a 3 percent tax on lodging.  The complaint 
also alleged that the Hampton Inn charged appellant the 12 percent lodging tax 
when she was a guest in August 2002.  Consequently, she alleged that by 
collecting these nonexistent taxes, Hampton Inn engaged in fraud, breach of 
statutory duty to collect taxes, negligence, breach of contract, conversion, a 
violation of the Ohio Corrupt Practices Act, and a violation of OCSPA.  She also 
sought certification of a class action and prayed for compensatory and punitive 
damages in excess of $25,000, including treble damages and various costs and 
expenses. 
{¶ 4} The trial court held that the funds collected by the Hampton Inn, 
including those collected for the alleged nonexistent municipal and county taxes, 
were taxes that belong to the taxing entities.  The court also stated that it found no 
indication that the General Assembly intended to create a private cause of action 
by a consumer against a vendor for the improper collection of taxes.  Thus, the 
trial court reasoned that appellant should have sought a refund from Butler 
County and the municipality of Fairfield, as opposed to filing suit against the 
Hampton Inn. 
{¶ 5} The trial court also held that appellant did not plead her fraud 
claim with sufficient particularity.  Consequently, the trial court dismissed 
appellant’s complaint for failure to state a claim upon which relief could be 
granted. 
{¶ 6} The court of appeals held that “when a customer seeks a refund of 
taxes, even when they are nonexistent taxes, the customer must apply to the 
taxing authority for a refund.”  2009-Ohio-1651, ¶ 17, citing Parker v. Giant 
Eagle Inc., Mahoning App. No. 01 C.A. 174, 2002-Ohio-5212, at ¶ 29-30, and 
Bergmoser v. Smart Document Solutions, LLC (Feb. 22, 2007), N.D.Ohio, No. 
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1:05 CV2882, 2007 WL 634674.  The court of appeals went on to state, “Even 
though Butler County and Fairfield were not collecting excise taxes for lodging at 
the time of appellant’s stay, * * * they are entitled to those funds since they were 
collected by the Hampton Inn as trustee for Butler County and Fairfield.”  Id. at ¶ 
18.  Thus, the court concluded that appellant was required to seek a refund from 
Butler County and Fairfield, the taxing authorities, as opposed to filing suit 
against Middletown Management, the vendor.  Id. 
{¶ 7} The court of appeals also affirmed the dismissal of appellant’s 
claim for fraud and her class action alleging a violation of the OCSPA.  Id. at ¶ 
22-28.  Accordingly, the court of appeals affirmed the judgment of the trial court. 
{¶ 8} We accepted appellant’s discretionary appeal. 
III. Analysis 
{¶ 9} Appellant urges us to reverse the court of appeals, arguing that 
when a vendor collects money from a customer under the guise of a tax, the 
customer may file suit against the vendor to recover those funds rather than 
seeking a refund from the entity that purportedly imposed the tax.  She also 
claims that the trial court erred in dismissing her claims for fraud and her claim 
for a class action alleging a violation of the OCSPA. 
{¶ 10} In urging us to affirm, Middletown Management contends that any 
money collected as a tax in the name of the government entity belongs to that 
government entity, and therefore because only governments can collect taxes, 
only governments can be subject to the legal process to refund the taxes that were 
wrongly paid by the taxpayer. 
A. Standard of Review 
{¶ 11} A motion to dismiss for failure to state a claim upon which relief 
can be granted tests the sufficiency of the complaint. Assn. for the Defense of the 
Washington Local School Dist. v. Kiger (1989), 42 Ohio St.3d 116, 117, 537 
N.E.2d 1292.  Thus, the movant may not rely on allegations or evidence outside 
January Term, 2010 
5 
 
the complaint; such matters must be excluded, or the motion must be treated as a 
motion for summary judgment. Civ.R. 12(B); State ex rel. Natalina Food Co. v. 
Ohio Civ. Rights Comm. (1990), 55 Ohio St.3d 98, 99, 562 N.E.2d 1383. 
{¶ 12} “The factual allegations of the complaint and items properly 
incorporated therein must be accepted as true. Furthermore, the plaintiff must be 
afforded all reasonable inferences possibly derived therefrom. Mitchell v. Lawson 
Milk Co. (1988), 40 Ohio St.3d 190, 192, 532 N.E.2d 753, 756. It must appear 
beyond doubt that plaintiff can prove no set of facts entitling her to relief. O'Brien 
v. Univ. Community Tenants Union, Inc. (1975), 42 Ohio St.2d 242, 71 O.O.2d 
223, 327 N.E.2d 753, syllabus.”  Vail v. Plain Dealer Publishing Co. (1995), 72 
Ohio St.3d 279, 280, 649 N.E.2d 182. 
B. Taxpayers Can File Suit Against a Vendor to Recover  
Vendor’s Collection of a Nonexistent Tax 
{¶ 13} We can find no legal authority that squarely addresses the question 
of whether a customer may file suit against a vendor to recover the vendor’s 
collection of a nonexistent tax or whether the customer must instead seek a refund 
from the taxing authority.  However, we find that the law that addresses a 
vendor’s responsibilities in collecting taxes for the state, in particular R.C. 
5739.02(E), is instructive on this issue.  And although R.C. 5739.02(E) addresses 
the collection of taxes for the benefit of the state, the policy stated in this 
provision is also applicable to local taxes.  See Findley v. Hotels.Com L.P. 
(N.D.Ohio 2006), 441 F.Supp.2d 855, 861 (applying former R.C. 5739.01(H)).  
Accordingly, we begin our analysis by examining this body of law. 
{¶ 14} A vendor is required to collect tax from customers on all taxable 
transactions as a trustee for the state of Ohio pursuant to R.C. 5739.03(A).  “The 
tax collected by the vendor from the consumer under this chapter is not part of the 
price, but is a tax collection for the benefit of the state, and of counties levying an 
additional sales tax pursuant to section 5739.021 or 5739.026 of the Revised Code 
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and of transit authorities levying an additional sales tax pursuant to section 
5739.023 of the Revised Code. Except for the discount authorized under section 
5739.12 of the Revised Code and the effects of any rounding pursuant to section 
5703.055 of the Revised Code, no person other than the state or such a county or 
transit authority shall derive any benefit from the collection or payment of the tax 
levied by this section or section 5739.021, 5739.023, or 5739.026 of the Revised 
Code.”  R.C. 5739.02(E). 
{¶ 15} In Decor Carpet Mills, Inc. v. Lindley (1980), 64 Ohio St.2d 152, 
18 O.O.3d 376, 413 N.E.2d 833, a vendor charged its customers sales tax on the 
installation of carpeting pursuant to a construction contract, even though property 
installed pursuant to a construction contract was not subject to a sales tax.  The 
vendor had remitted to the state the use tax it owed on its own purchase of the 
carpeting, but it retained the proceeds from the wrongly collected sales tax.  Id. at 
153.  The tax commissioner levied an assessment on the vendor for the amount of 
the sales tax that it kept.  The vendor sought a refund of the use tax that it had 
paid in the form of a credit against its tax liability for the sales tax.  Id. at 153. 
{¶ 16} In affirming the tax commissioner’s denial of the refund, this court 
relied on former R.C. 5739.01(H) (now R.C. 5739.02(E)) in holding: “[T]he sales 
tax wrongfully collected by appellant as trustee for the state pursuant to R.C. 
5739.03 is a tax collection for the benefit of the state of Ohio.  To grant 
appellant’s request for a refund of the use tax in the form of a credit against its 
liability for the erroneously collected sales tax would impermissibly confer a tax 
benefit on appellant.” (Footnote omitted.)  Id. at 154-155. 
{¶ 17} Thus, Decor Carpet Mills stands for the proposition that even 
wrongfully collected taxes are a tax collected for the benefit of the taxing 
authority and that only the state can benefit from the payment or collection of 
taxes.  Id. at 152; see also Barker Furnace Co. v. Lindley (June 2, 1981), 
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Montgomery App. No. 6813, 1981 WL 2815 (involving almost identical facts and 
decided on the authority of Decor Carpet Mills). 
{¶ 18} Relying in part on the premise that taxes wrongfully collected by a 
vendor are nevertheless taxes collected “for the benefit of the state,” at least two 
courts have held that when a vendor wrongfully collects tax from a customer, the 
customer must attempt to recover the wrongfully collected taxes pursuant to a 
refund from the state, as opposed to filing suit against the vendor.  Parker v. Giant 
Eagle Inc., Mahoning App. No. 01 C.A. 174, 2002-Ohio-5212, at ¶ 29-30; and 
Bergmoser v. Smart Document Solutions, L.L.C. (Feb. 22, 2007), N.D.Ohio 2007, 
No. 1:05 CV2882, 2007 WL 634674, citing Parker at ¶ 29. 
{¶ 19} In this case, the court of appeals held that “when a consumer seeks 
a refund of taxes, even where they are nonexistent taxes, the consumer must apply 
to the taxing entity for a refund.”  2009-Ohio-1651, at ¶ 17, citing Parker and 
Bergmoser.  The court of appeals added that “[e]ven though Butler County and 
Fairfield were not collecting excise taxes for lodging at the time of appellant’s 
stay * * *, they are entitled to those funds since they were collected by the 
Hampton Inn as trustee for Butler County and Fairfield.”  Id. at ¶ 18, citing Decor 
Carpet Mills, 64 Ohio St.2d 152,18 O.O.3d 376, 413 N.E.2d 833; Barker 
Furnace, Montgomery App. No. 6813, 1981 WL 2815; and Findley v. 
Hotels.Com L.P. (N.D.Ohio 2006), 441 F.Supp.2d at 861. 
{¶ 20} The cases relied upon by the court of appeals involve almost 
exclusively the wrongful collection of an existing tax.  Decor Carpet Mills, 64 
Ohio St.2d 152, 18 O.O.3d 376, 413 N.E.2d 833 (vendor collected state sale tax 
on a nontaxable transaction);  Parker, Mahoning App. No. 01 C.A. 174, 2002-
Ohio-5212 (vendor collected excess state sales tax); Bergmoser, N.D.Ohio, No. 
1:05CV2882 (vendor collected excess state sales tax); and Barker Furnace Co., 
Montgomery App. No. 6813, 1981 WL 2815 (vendor collected state sales tax on a 
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nontaxable transaction).1   Therefore, because wrongfully collected taxes are 
nevertheless taxes that belong to the state, it only makes sense that a taxpayer 
would be required to file a refund with the taxing authority that imposed the tax to 
recover those funds, as was held in Parker and Bergmoser. 
{¶ 21} However, we find that a vendor’s wrongful collection of existing 
tax is distinguishable from vendor’s collection of a nonexistent tax, as explained 
in Barker Furnace Co. v. Lindley, Montgomery App. No. 6813, 1981 WL 2815.  
In arguing that it should not have to pay a sales tax assessment for the excess sales 
tax that it collected from a customer, the vendor in Barker argued that because it 
erroneously collected tax on a nontaxable transaction, the tax was not authorized 
by law, and therefore the funds did not belong to the state. Id. at *3.  In response, 
the court of appeals stated: “To characterize the assessment as creating tax for 
which no legislative authority exists is an oversimplification.  It concerns the 
remission to the State of an erroneously collected tax for which legislative 
authority does exist. The party's error in making the improper collection is no 
justification for avoiding assessment for non-remission, a duty which exists 
concommitant [sic] to the authority under which the collection is made. When the 
taxpayer undertook to charge and collect a sales tax on its transactions with its 
customers, it did as the Tax Commissioner argues, assume the responsibility for 
such collections and the duty to remit them to the State.”  (Emphasis added.) Id. at 
*4. 
{¶ 22} Following the reasoning in Barker, we hold that when a vendor 
collects funds (even those wrongly collected) pursuant to an existing tax, the 
funds constitute a tax authorized by law, which the vendor must remit to the 
                                                          
 
1.  The only case cited by the court of appeals that did not involve the wrongful collection of a tax 
was Findley v. Hotels.Com (N.D.Ohio 2006), 441 F.Supp.2d at 861.  In Hotels.Com, travel 
companies collected the proper amount of tax, but failed to remit the entire amount that it 
collected to the taxing authority.  Thus, Hotels.Com involves the proper collecting of an existing 
January Term, 2010 
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taxing authority.  Conversely then, when a vendor collects funds pursuant to a 
nonexistent tax, those funds are not a tax authorized by law, and the vendor has 
no authority to collect or remit those funds to the taxing authority.  To hold 
otherwise would in effect permit an entity to create and collect a tax when none 
has been authorized by the taxing authority.  We reject that proposition because 
the power to tax lies exclusively with the General Assembly.  Saviers v. 
Smith (1920), 101 Ohio St. 132, 128 N.E. 269, syllabus; see also Weed v. Franklin 
Cty. Bd. of Revision (1978), 53 Ohio St.2d 20, 21, 7 O.O.3d 63, 372 N.E.2d 338. 
{¶ 23} Accordingly, we hold that when a vendor charges its customer a 
nonexistent tax, the funds collected are not a tax collected for the benefit of the 
taxing authority.  Consequently, under these limited circumstances, the customer 
need not seek a refund from the government entity that purportedly imposed the 
tax, but may file suit directly against the vendor to recover the converted funds. 
{¶ 24} Our holding also comports with common sense and promotes 
judicial efficiency.  The lower court’s holding would require a customer who paid 
a nonexistent tax to proceed against the taxing entity that purportedly imposed the 
tax.  However, the taxing authority has no power to order the collection of a 
nonexistent tax.  Consequently, the customer will get no relief by seeking a refund 
from the taxing authority. 
{¶ 25} At best, the taxing authority would then need to initiate legal action 
against the vendor that collected the funds.  However, it is unclear under what 
theory the taxing authority could proceed.  Moreover, even if the taxing authority 
stated a claim upon which relief could be granted, it is unclear how the customer 
would recover those funds from the taxing authority because, as the court of 
appeals noted, unlike the state of Ohio, the county and municipality in this case do 
                                                                                                                                                              
 
tax.  Consequently, Hotels.Com provides no support for the proposition that funds collected 
pursuant to a nonexistent tax are a tax that belongs to the taxing entity.    
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not appear to have any refund procedure in place for the return of illegal or 
erroneous payments made to vendors. 2009-Ohio-1651, ¶ 20. 
{¶ 26} We find that applying the tax laws to require such a convoluted 
and inefficient method of recovery would defy common sense and waste 
resources of both the litigants and the courts. We refuse to interpret the tax laws to 
reach such an absurd result.  State ex rel. Asti v. Ohio Dept. of Youth Servs., 107 
Ohio St.3d 262, 2005-Ohio-6432, 838 N.E.2d 658, ¶ 28 (courts construe a statute 
and rule to avoid unreasonable or absurd results). 
C. Appellant’s Complaint Pleads Fraud with Sufficient Particularity 
{¶ 27} Civ.R. 9(B) provides: “In all averments of fraud or mistake, the 
circumstances constituting fraud or mistake shall be stated with particularity.”  
Fraud has various elements: (1) a representation (or concealment of a fact when 
there is a duty to disclose) (2) that is material to the transaction at hand, (3) made 
falsely, with knowledge of its falsity or with such utter disregard and recklessness 
as to whether it is true or false that knowledge may be inferred, and (4) with intent 
to mislead another into relying upon it, (5) justifiable reliance, and (6) resulting 
injury proximately caused by the reliance. Burr v. Stark Cty. Bd. of Commrs. 
(1986), 23 Ohio St.3d 69, 73, 23 OBR 200, 491 N.E.2d 1101. 
{¶ 28} In this case, the trial court determined that fraud allegations in the 
complaint were too general.  The court went on to note that no discovery had yet 
taken place and that plaintiff did not have any documentary evidence to support 
her claims. 
{¶ 29} The trial court erred in considering appellant’s lack of 
documentary evidence supporting her allegations and the parties’ lack of 
discovery in dismissing her fraud claim because a Civ.R. 12(B)(6) motion to 
dismiss tests only the sufficiency of the allegations.  Assn. for the Defense of the 
Washington Local School Dist., 42 Ohio St.3d at 117, 537 N.E.2d 1292. 
January Term, 2010 
11 
 
{¶ 30} Appellant’s complaint alleged that guests relied on the supposed 
validity of the Hampton Inn’s room charges, but that it nevertheless charged 
guests for nonexistent county and municipal taxes.  The complaint also alleged 
the amount of these charges and the time period during which the Hampton Inn 
imposed them.  We hold that appellant’s complaint pleaded fraud with sufficient 
particularity to satisfy Civ.R. 9(B). 
D. Appellant’s Class-Action Claim Alleging a Violation of the OCSPA  
Fails to State a Claim upon Which Relief Can Be Granted 
{¶ 31} The court of appeals held that appellant’s claim seeking 
certification of a class action alleging a violation of the OCSPA failed to state a 
claim upon which relief could be granted because it did not comply with R.C. 
1345.09(B).  2009-Ohio-1651, at ¶ 26. 
{¶ 32} “Under R.C. 1345.09(B) a class action is permitted under the Act if 
the plaintiff alleges that the substantive provisions of the Act have been violated, 
and (1) a specific rule or regulation has been promulgated under R.C. 1345.05 that 
specifically characterizes the challenged practice as unfair or deceptive, or (2) an 
Ohio state court has found the specific practice either unconscionable or deceptive 
in a decision open to public inspection.”  Johnson v. Microsoft Corp., 155 Ohio 
App.3d 626, 2003-Ohio-7153, 802 N.E.2d 712, ¶ 21.  In Marrone v. Philip Morris 
USA, Inc., 110 Ohio St.3d 5, 2006-Ohio-2869, 850 N.E.2d 31, plaintiffs filed a 
class-action complaint alleging a violation of the OCSPA.  In an attempt to 
comply with R.C. 1345.09(B), the plaintiffs in Marrone relied on Ohio Adm.Code 
109:4-3-10, which states that it is a deceptive act or practice for a supplier to 
make any representations in the absence of a reasonable basis in fact. Id. at ¶ 23.  
We held that “this rule is insufficient to provide prior notice under R.C. 
1345.09(B) because it does not refer to any particular act or practice.  A general 
rule is not sufficient to put a reasonable person on notice of the prohibition against 
a specific act or practice.  To permit a generic rule to constitute prior notice for 
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purposes of R.C. 1345.09(B) would allow any previous determination of a 
deceptive act or practice to qualify as prior notice for any subsequent alleged 
deceptive act or practice.” Id. (Emphasis sic.)  
{¶ 33} Appellant’s complaint alleged that Middletown Management “had 
prior notice that such actions were deceptive and unconscionable pursuant to Ohio 
Administrative Code section 109:4-3-10.”  Under Marrone, this provision is 
insufficient to satisfy the notice requirement of R.C. 1345.09(B).  Accordingly, 
we hold that appellant’s claim seeking certification of a class action alleging a 
violation of the OCSPA fails to state a claim upon which relief can be granted. 
IV. Conclusion 
{¶ 34} We hold that appellant’s complaint filed against Middletown 
Management states a claim upon which relief can be granted against the proper 
defendants.  We also hold that her complaint pleaded fraud with sufficient 
particularity under Civ.R. 9(B) but that her claim seeking class certification 
alleging a violation of the OCSPA does not state a claim upon which relief can be 
granted.  Therefore, appellant may proceed on her claim alleging a violation of 
the OCSPA only as an individual. 
{¶ 35} In dismissing appellant’s complaint, the trial court never 
specifically addressed the claims seeking certification of a class action alleging a 
breach of statutory duty to collect taxes, negligence, breach of contract, 
conversion, and violation of the Ohio Corrupt Practices Act.  In light of this 
reversal, these claims must now be addressed on remand, as well as her claim 
alleging fraud and her individual claim alleging a violation of the OCSPA. 
{¶ 36} Accordingly, we affirm in part and reverse in part the judgment of 
the court of appeals and remand the cause for proceedings not inconsistent with 
our opinion. 
Judgment affirmed in part 
and reversed in part, 
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and cause remanded. 
 
PFEIFER, O’CONNOR, O’DONNELL, LANZINGER, and CUPP, JJ., concur. 
 
BROWN, C.J., not participating. 
__________________ 
Dyer, Garofalo, Mann & Schultz and Kenneth J. Ignozzi, for appellant. 
 
James M. McDaniel, for appellee. 
______________________