Court Opinion

ID: 6792830
Source: CourtListenerOpinion
Date Created: 2022-07-21 01:13:26.37502+00
Date Added: 2024-06-11T16:03:04.676867
License: Public Domain

Pfeifer, J.,
dissenting.
{¶ 32} Because this court never intended in Belvedere Condominium, Unit Owners’ Assn. v. R.E. Roark Cos., Inc. (1993), 67 Ohio St.3d 274, 617 N.E.2d 1075, to narrowly define the types of injustices that could satisfy the element of “fraud or an illegal act” required for piercing the corporate veil, because the vast majority of Ohio’s appellate districts have effectively applied a less rigid standard to that part of the Belvedere test, because the majority’s modification of the Belvedere test adds words to the test but no clarification, and because the violation of an insurer’s duty of good faith satisfies even the majority’s distortion of the Belvedere test to “fraud, an illegal act, or a similarly unlawful act,” I dissent.
I
{¶ 33} In Belvedere, this court found that “the Sixth Circuit’s approach [in Bucyrus-Erie Co. v. Gen. Prods. Corp. (C.A.6, 1981), 643 F.2d 413] to piercing the corporate veil strikes the correct balance between the principle of limited shareholder liability and the reality that the corporate fiction is sometimes used by shareholders to protect themselves from liability for their own misdeeds.” Belvedere, 67 Ohio St.3d at 289, 617 N.E.2d 1075. This court quoted the test enunciated in Bucyrus-Erie Co.:
{¶ 34} “In Bucyrus-Erie, the Sixth Circuit applied Ohio law in reviewing jury instructions in a veil-piercing case. It held that the corporate form may be disregarded when ‘(1) domination and control over the corporation by those to be held liable is so complete that the corporation has no separate mind, will, or existence of its own; (2) that domination and control was used to commit fraud or wrong or other dishonest or unjust act, and (3) injury or unjust loss resulted to the plaintiff from such control and wrong.’ Id. at 418.” (Footnote omitted; emphasis added.) Belvedere, 67 Ohio St.3d at 288, 617 N.E.2d 1075.
*515{¶ 35} In restating the Bucyrus-Erie test in Belvedere, this court expressed no intent to restrictively redefine what types of acts would satisfy the second element of the test enunciated in Bucyrus-Erie. Instead, this court truncated Bucyrus-Erie’s phrase “fraud or wrong or other dishonest or unjust act” to “fraud or an illegal act.” Nothing in Belvedere indicates that this court felt that Bucyrus-Erie was overly expansive in setting forth what kind of corporate misdeeds might be necessary to pierce the corporate veil. Indeed, the court made clear that it was the injustice of the underlying shareholders’ acts that was significant: “[T]he ‘veil’ of the corporation can be ‘pierced’ and individual shareholders held liable for corporate misdeeds when it would be unjust to allow the shareholders to hide behind the fiction of the corporate entity.” (Emphasis added.) Id. at 287, 617 N.E.2d 1075. Elsewhere in Belvedere, the court cited a corporation’s “fraud or other wrongs” that could lead to liability for shareholders. Id. at 288, 617 N.E.2d 1075. A leading treatise interprets this court’s decision in Belvedere thusly: “[T]he Ohio Supreme Court has now clearly adopted the Bucyrus-Erie rule that it is not necessary to prove fraud to pierce the veil.” Presser, Piercing the Corporate Veil (2004), 2-449, Section 2:39. That is, until today.
II
{¶ 36} As the majority sets forth, most Ohio appellate courts that have addressed the issue have held that the Belvedere element of “fraud or an illegal act” should not be rigidly and mechanically construed to include only fraud or criminal acts. For instance, the court in Wiencek v. Atcole Co., Inc. (1996), 109 Ohio App.3d 240, 245, 671 N.E.2d 1339, held that the second element of Belvedere is satisfied where the corporation has committed a “fraud, illegal, or other unjust or inequitable act upon the person seeking to disregard the corporate entity.” Ohio corporations have well withstood Ohio appellate courts’ expansive view — a view consistent with Bucyrus-Erie — of the type of corporate activity that satisfies the second element of Belvedere. Piercing the corporate veil remains difficult to achieve; we accepted this case not to cure an epidemic of veil piercings but instead because one Ohio appellate district stood against the tide of Ohio appellate law, creating a conflict. Instead of resolving the conflict, this court has muddied the waters.
Ill
{¶ 37} “Now that the Ohio Supreme Court’s Belvedere opinion has clearly addressed the veil-piercing issue there should be much less uncertainty about the appropriate Ohio tests. They are those to be found in Bucyrus-Erie and its progeny.” (Footnote omitted.) Presser, Piercing the Corporate Veil, at 2-454-455, Section 2:39.
*516{¶ 38} To the contrary, today the majority abrogates this court’s previous reliance on Bucyrus-Erie and thus installs a much more restrictive test than it originally set forth in Belvedere. Ironically, the majority claims to be fine-tuning Belvedere’s second element to cover “egregious wrongs” perpetrated by shareholders as it simultaneously greatly restricts the kinds of claims that can successfully be brought pursuant to Belvedere.
{¶ 39} The majority believes that it expands on the Belvedere element of a “fraud or an illegal act” by including the redundancy “or a similarly unlawful act.” Thus, not only may an “illegal act” satisfy the second element of the Belvedere test, but so will an act that is similarly unlawful to an illegal act. The new language seems to be pulled from the air. Is there a notable distinction between an “unlawful” and an “illegal” act? Not that the majority identifies. The words appear to be two ways of saying the same thing. Potato, potahto, illegal, unlawful — let’s call the whole thing off.
{¶ 40} The majority would have been better served by adopting Tennessee’s requirement of a “fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and unjust act.” Continental Bankers Life Ins. Co. of the South v. Bank of Alamo (Tenn.1979), 578 S.W.2d 625, 632, or the simple standard set forth in many states requiring an “injustice.” Presser, Piercing the Corporate Veil, 2-298-299, Section 2:26. Those standards, and the standards already set forth by Ohio appellate courts, provide useful distinctions between the types of acts that might lead to a piercing of the corporate veil. Today, the majority adds words but no distinctions, and by whitewashing Belvedere’s reliance on Bucyrus-Erie, places Ohio within the most restrictive jurisdictions for proving a case for piercing of the corporate veil. That was never this court’s intent in Belvedere.
IV
{¶ 41} The majority finds that even under its “expanded” version of the Belvedere test, Dombroski’s claim fails. “Insurer bad faith is a straightforward tort, a basic example of unjust conduct; it does not represent the type of exceptional wrong that piercing is designed to remedy.” Majority opinion, ¶ 30. To the contrary, insurer bad faith is an exceptional wrong. “In contract actions, the corporate fiction generally will not be disregarded in cases of simple negligent performance of contractual duties.” 1 Fletcher, Cyclopedia of the Law of Corporations (2005) 271, Section 41.85. However, in a bad-faith case, what ordinarily would be a breach-of-contract claim is transformed into a tort action because of the unreasonableness of the insurer’s behavior. Zoppo v. Homestead Ins. Co. (1994), 71 Ohio St.3d 552, 644 N.E.2d 397, paragraph one of the syllabus. The insurer guilty of bad faith breaches a legal duty owed to the insured. I *517would hold that the breach of a legal duty constitutes an illegal or similarly unlawful act.
Robert Gray Palmer Co., L.P.A., and Robert G. Palmer, for appellee.
Vorys, Sater, Seymour & Pease, L.L.P., and Suzanne K. Richards, Robert N. Webner, and Michael J. Hendershot; and Thornburg, Bean & Glick and Charles H. Bean, for appellants.
Linda S. Woggon, urging reversal for amici curiae Ohio Chamber of Commerce, Ohio Council of Retail Merchants, Ohio Chapter of the National Federation of Independent Business, and Ohio Farm Bureau Federation.
V
{¶ 42} For all of the above reasons, and because today’s decision reverses the development of Ohio law, I dissent.