Court Opinion

ID: 9363295
Source: CourtListenerOpinion
Date Created: 2023-01-13 19:06:01.515068+00
Date Added: 2024-06-11T17:15:30.283884
License: Public Domain

[Cite as Pacetti's Apothecary, Inc. v. Rebound Bracing & Pain Solutions, L.L.C., 2023-Ohio-93.]

                               IN THE COURT OF APPEALS OF OHIO
                                  SECOND APPELLATE DISTRICT
                                        GREENE COUNTY

 PACETTI'S APOTHECARY, INC. dba                         :
 MEDICINE SHOPPE, et al.                                :
                                                        :     C.A. No. 2022-CA-28
       Appellants                                       :
                                                        :     Trial Court Case No. 2021 CV 0415
 v.                                                     :
                                                        :     (Civil Appeal from Common Pleas
 REBOUND BRACING AND PAIN                               :     Court)
 SOLUTIONS, LLC, et al.                                 :
                                                        :
       Appellees

                                                ...........

                                                OPINION

                                     Rendered on January 13, 2023

                                                ...........

JOHN A. FISCHER, Attorney for Appellants

DAVID BOCKRATH c/o Rebound Bracing and Pain Solutions, LLC, Appellees, Pro Se

                                              .............

WELBAUM, J.

        {¶ 1} Plaintiffs-Appellants, Pacetti’s Apothecary, Inc. dba Medicine Shoppe and

Cindi Pacetti (collectively, “Pacetti”) appeal from a trial court judgment awarding them

$94,456.50 in damages against Defendant-Appellee, Rebound Bracing and Pain

Solutions, LLC (“Rebound”).
                                                                                             -2-

       {¶ 2} According to Pacetti, the trial court erred in finding that a late fee provision in

the parties’ contract was a penalty instead of being enforceable as liquidated damages.

Pacetti further contends that the court erred in failing to hold Defendant-Appellee Richard

Bockrath personally liable for the damages.      Rebound and Bockrath failed to file a brief.

       {¶ 3} After reviewing the record, we conclude that the trial court did not err in

finding the late fee provision unenforceable as a penalty. Under the established test for

resolving this issue, Pacetti’s damages were not uncertain as to amount or difficult to

prove. The trial court correctly found no relationship between the late fee provision and

Pacetti’s damages.

       {¶ 4} The court also did not err in refusing to pierce the corporate veil. The court

correctly found insufficient evidence that Bockrath exercised control over Rebound in

such a manner as to commit fraud, an illegal act, or a similarly unlawful act.

Accordingly, the judgment of the trial court will be affirmed.

                            I. Facts and Court of Proceedings

       {¶ 5} On August 30, 2021, Pacetti filed a complaint for breach of contract and

unjust enrichment against Rebound and Bockrath.              The amount claimed included

$50,000 on a promissory note, $10,000 in interest on the note, and a late fee of 0.5% (or

$250) on the principal amount for each day the amount due was unpaid. In addition,

Pacetti requested $32,456.50 in unpaid billing fees. Pacetti also asked for attorney fees

and the costs of bringing the action.

       {¶ 6} Service was made on Rebound and Bockrath, but they failed to either appear
                                                                                        -3-

in the action or file answers to the complaint. As a result, on October 5, 2021, Pacetti

filed a motion for default judgment. The court referred the case to a magistrate, who held

a default judgment and damages hearing on January 10, 2022. Cindi Pacetti testified at

the hearing and presented the court with two exhibits, including the promissory note

attached to the complaint. Bockrath did not appear for the hearing.

      {¶ 7} Ms. Pacetti testified that she is the owner of Pacetti’s Apothecary, which does

business as Medicine Shoppe. The Medicine Shoppe is an independent retail pharmacy

that also sells durable medical equipment.     Besides the retail business, Pacetti has

various exclusive contracts with insurance companies for billing durable medical

equipment.    Transcript of Default Judgment Hearing (“Tr.”) (Jan. 10, 2022), p. 2-3.

Bockrath owns Rebound, which is in the business of providing durable medical

equipment. A number of years ago, Bockrath and Pacetti entered into an agreement,

pursuant to which Pacetti would perform insurance billing services for Rebound and would

receive a 20% commission for its efforts. Id. at p. 4 and 12-13.

      {¶ 8} During this relationship, Bockrath, on occasion, asked Pacetti to forego its

commission.    Typically, this occurred when Bockrath needed money for payroll or

needed to buy medical equipment. Id. On one occasion, Bockrath asked Pacetti to

refrain from collecting the commission because he needed money for his daughter’s

wedding. Id. at p. 13. At the time of the damages hearing in January 2021, the total

amount owed to Pacetti was $32,456.50. Id. at p. 13-15.

      {¶ 9} A separate matter involved a $50,000 promissory note that Pacetti’s

Apothecary and Rebound entered into on September 1, 2020.              This was done at
                                                                                        -4-

Bockrath’s request, because he wanted to purchase more durable medical equipment to

keep his business going. Id. at p. 5-6 and Exhibit 1. The note required repayment of

the entire amount of the loan by December 1, 2020, and it imposed $10,000 as interest

charges for the three-month duration of the loan. As a result, $60,000 was due on

December 1, 2020. In addition, the note stated that:

        FAILURE TO PAY[:] If the Lender has not received the full amount of the

        payment after [December 1, 2020], the Borrower shall owe a late payment

        fee to the Lender of 1/2 % of the principal amount each day the amount due

        is late.

Ex. 1 (Promissory Note), p. 1.

        {¶ 10} The “Lender” on the Loan was Pacetti’s Apothecary, Inc., and the

“Borrower” was Rebound Bracing and Pain Solutions, LLC. Id. at p. 2. Ms. Pacetti

signed the note on Apothecary’s behalf, and Bockrath signed it on Rebound’s behalf. Id.;

see also Tr. at p. 6. The note further provided that if any payment obligation under the

loan was late, the Borrower would pay collection costs, including attorney fees and costs.

        {¶ 11} After the note was signed, Ms. Pacetti gave Bockrath a $50,000 check, and

he accepted the money. Id. at p. 7 and Ex. 1 at p. 3. Bockrath never made any payment

on the loan. As a result, Pacetti filed suit on August 30, 2021. Tr. at p. 7-8. At the time

of the magistrate’s hearing on January 10, 2022, 405 days had elapsed, and Pacetti

stated that an additional $101,450 was owed, which represented ½% of $50,000 (or $250)

per day times 405 days. Id. at p. 8-10. Pacetti had also incurred $2,000 in attorney

fees.   Id. at p. 10.   As a result, Pacetti’s total damages amounted to $195,706.50
                                                                                           -5-

($60,000 + $101,250 + $2,000 + 32,456.50 = $195,706.50).

       {¶ 12} After hearing the evidence, the magistrate filed a decision on January 21,

2022, granting the default judgment and awarding Pacetti damages of $94,456.40. The

magistrate found that Pacetti was entitled to the loan amount and interest (totaling

$60,000), attorney fees of $2,000, and the billing amounts that had been deducted

($32,456.40).1 Magistrate’s Decision (Jan. 21, 2021), p. 4-6. However, the magistrate

rejected the late fee amount of $101,250 due to insufficient evidence of a relation between

the late fees and actual damages. Id. at p. 5.

       {¶ 13} Pacetti filed timely objections to the magistrate’s decision and also asked

the court for permission to file supplemental objections after the transcript was completed.

The court granted the motion, and Pacetti then filed supplemental objections on February

28, 2022.   On April 1, 2022, the court issued a decision overruling the objections. First,

the court agreed with the magistrate that Pacetti was not entitled to late fees because this

amount was not intended to compensate Pacetti; instead, it was intended to punish

Rebound. Decision and Judgment Entry (Apr. 1, 2022), p. 3-5. The court also rejected

Pacetti’s argument that Bockrath should be held personally responsible for the debt. The

court noted that the complaint lacked any allegations about piercing the corporate veil

and that Pacetti had also failed to offer any evidence in support of such a theory. As

indicated, the court modified the amount for the billing fees from $32,456.40 to

$32,456.50. In all other respects, the court adopted the magistrate’s decision. Id. at p.

6-7.   Pacetti then timely appealed from the court’s judgment.

1 The magistrate’s stated billing amount was incorrect, and the trial court changed this
in its decision overruling the objections. The actual billing amount was $32,456.50.
                                                                                            -6-

                                      II. Late Payment Fee

       {¶ 14} Pacetti’s first assignment of error states that:

              The Trial Court Erred by Finding That the Late Payment Fee

       Provided in the Contract Was Not Enforceable as Agreed Upon by Two

       Parties with Business Acumen.

       {¶ 15} Under this assignment of error, Pacetti contends that the trial court erred in

rejecting the late fee because late fees are permissible and the fee was not a penalty.

According to Pacetti, the contract indicates that the parties contemplated a quick

repayment, and the amount of its damages was uncertain and difficult to prove. Pacetti

further argues that the amount of the fee was not unreasonable, as it was only .5% of the

principal amount, and Bockrath, as a sophisticated businessperson, could not be deemed

ignorant of the provision’s effect.

       {¶ 16} Before addressing the merits, we note that the trial court’s decision was

made after a referral to the magistrate, who held a hearing on damages.                This is

consistent with Civ.R. 55(A), which states that:

       If, in order to enable the court to enter judgment or to carry it into effect, it

       is necessary to take an account or to determine the amount of damages or

       to establish the truth of any averment by evidence or to make an

       investigation of any other matter, the court may conduct such hearings or

       order such references as it deems necessary and proper and shall when

       applicable accord a right of trial by jury to the parties.
                                                                                         -7-

       {¶ 17} We have stressed that the trial court has discretion to require a hearing on

damages and to require proof of damages “ ‘where the claim is based upon a written

instrument, a contract where a specific amount is due or an account.’ ” Day Air Credit

Union, Inc. v. Davis, 2021-Ohio-2054, 173 N.E.3d 1285 ¶ 19 (2d Dist.), quoting Schroeder

v. Gold, 2d Dist. Montgomery No. 10052, 1987 WL 5627, *4 (Jan. 22, 1987). In Davis,

we found that the trial court had abused its discretion by refusing to award a credit union

$100 in late fees without holding a hearing.       See also Countrywide Home Loans

Servicing v. Nichpor, 136 Ohio St.3d 55, 2013-Ohio-2083, 990 N.E.2d 565, ¶ 5 (“[i]n order

to enter a default judgment, a court must determine that no issues of law or fact exist and

that the plaintiff is entitled to judgment”).

       {¶ 18} In reviewing a trial court's adoption of a magistrate's decision, we apply an

“ ‘abuse of direction standard.’ ” Holfinger v. Stonespring/Carespring, L.L.C., 2d Dist.

Montgomery No. 27091, 2016-Ohio-7982, ¶ 33, quoting State Farm Mut. Auto. Ins. Co.

v. Fox, 182 Ohio App.3d 17, 2009-Ohio-1965, 911 N.E.2d 339, ¶ 11 (2d Dist.). An abuse

of discretion “ ‘implies that the court's attitude is unreasonable, arbitrary or

unconscionable.’ ” (Citation omitted.) Blakemore v. Blakemore, 5 Ohio St.3d 217, 219,

450 N.E.2d 1140 (1983). “It is to be expected that most instances of abuse of discretion

will result in decisions that are simply unreasonable, rather than decisions that are

unconscionable or arbitrary.”        AAAA Ents., Inc. v. River Place Community Urban

Redevelopment Corp., 50 Ohio St.3d 157, 161, 553 N.E.2d 597 (1990). “A decision is

unreasonable if there is no sound reasoning process that would support that decision. It

is not enough that the reviewing court, were it deciding the issue de novo, would not have
                                                                                       -8-

found that reasoning process to be persuasive, perhaps in view of countervailing

reasoning processes that would support a contrary result.” Id.

      {¶ 19} Analysis of the appropriate standard of review can also involve whether a

question of law is concerned. If issues pertain to questions of law, they are reviewed de

novo, in which case “an appellate court may properly substitute its judgment for that of

the trial court.” Castlebrook, Ltd. v. Dayton Properties Ltd. Partnership, 78 Ohio App.3d

340, 346, 604 N.E.2d 808 (2d Dist.1992); Payson v. Phipps, 2d Dist. Miami No. 2021-CA-

36, 2022-Ohio-1525, ¶ 36. See also Davis, 2021-Ohio-2054, 173 N.E.3d 1285, at ¶ 26

(in default judgment case, “[w]hether a trial court's determination of prejudgment and

postjudgment interest is reviewed de novo or, instead, for an abuse of discretion depends

on the statutory basis for the interest and whether questions of law are involved”).

Regardless of the standard of review applied here, however, Pacetti’s claim fails.

      {¶ 20} “As a general rule, parties are free to enter into contracts that contain

provisions which apportion damages in the event of default.” Lake Ridge Academy v.

Carney, 66 Ohio St.3d 376, 381, 613 N.E.2d 183 (1993). “In certain circumstances,

however, complete freedom of contract is not permitted for public policy reasons. One

such circumstance is when stipulated damages constitute a penalty. Because the sole

purpose of contract damages is to compensate the nonbreaching party for losses suffered

as a result of a breach, ‘[p]unitive damages are not recoverable for a breach of contract

unless the conduct constituting the breach is also a tort for which punitive damages are

recoverable.’ ” Id., quoting 3 Restatement of the Law 2d, Contracts Section 355, at 154

(1981).   “A punitive remedy is one that subjects the breaching party to a liability
                                                                                         -9-

‘disproportionate to the damage which could have been anticipated from breach of the

contract * * *.’ ” Id., quoting 5 Williston on Contracts Section 776 at 668 (3d Ed.1961).

“A penalty is designed to coerce performance by punishing nonperformance; its principal

object is not compensation for the losses suffered by the nonbreaching party.” Id.

      {¶ 21} The Supreme Court of Ohio has established the following test to decide if a

provision for stipulated damages is for liquidated damages or is punitive:

             Where the parties have agreed on the amount of damages,

      ascertained by estimation and adjustment, and have expressed this

      agreement in clear and unambiguous terms, the amount so fixed should be

      treated as liquidated damages and not as a penalty, if the damages would

      be (1) uncertain as to amount and difficult of proof, and if (2) the contract as

      a whole is not so manifestly unconscionable, unreasonable, and

      disproportionate in amount as to justify the conclusion that it does not

      express the true intention of the parties, and if (3) the contract is consistent

      with the conclusion that it was the intention of the parties that damages in

      the amount stated should follow the breach thereof.

Samson Sales, Inc. v. Honeywell, Inc., 12 Ohio St.3d 27, 465 N.E.2d 392 (1984), syllabus,

following Jones v. Stevens, 112 Ohio St. 43, 146 N.E. 894 (1925), paragraph two of the

syllabus.

      {¶ 22} In the case before us, Pacetti’s claim fails on the first prong, which is that

the damages would be “uncertain as to amount and difficult of proof.” In this context,

Pacetti argues that damages are uncertain because failure to repay the $60,000 would
                                                                                           -10-

require proof about various matters, such as how the failure would impact Pacetti’s

business, whether it would cause Pacetti to have trouble making payroll, and whether the

failure would cause Pacetti to not be able to pay other debts. Appellant’s Brief, p. 4-5.

However, no evidence was presented on these points during the hearing. Furthermore,

even if this were otherwise, Pacetti’s situation is no different than that of any other person

or entity who loans money to another. Repayment of a loaned amount is never a given,

and this is a risk any lender takes.

       {¶ 23} When the parties entered into the agreement in September 2020, the

amount of damages was also easily ascertainable; the amount was the $50,000 loaned,

plus the $10,000 in interest charged for three months’ use of the money (in itself a very

large sum). Therefore, the trial court did not err in concluding that the daily assessment

of $250 in the event of breach was a penalty rather than liquidated damages. Compare

Indus. Waste Disposal v. Shone, 2d Dist. Montgomery No. 12267, 1991 WL 47538, *3

(Mar. 27, 1991) (upholding a liquidated damages provision in a contract for waste disposal

where testimony indicated that “damages were difficult to determine due to fluctuations in

prices charged by the EPA and Montgomery County for the waste disposal”).

Accordingly, the trial court did not err in finding a lack of relationship between the late fee

and Pacetti’s damages.

       {¶ 24} We do disagree with the trial court’s comment that the current amount of

damages was more than double the amount borrowed. Decision and Judgment (Apr. 1,

2022), at p. 5. The Supreme Court of Ohio has specifically rejected a hindsight approach

to the analysis. Instead, the court has stressed that “Ohio law requires a court, when
                                                                                         -11-

considering a liquidated-damages provision, to ‘ “examine it in light of what the parties

knew at the time the contract was formed.” ’ ” Boone Coleman Constr., Inc. v. Piketon,

145 Ohio St.3d 450, 2016-Ohio-628, 50 N.E.3d 502, ¶ 35, quoting Jones, 112 Ohio St.

43, 146 N.E. 894, at paragraph one of the syllabus. (Other citations omitted.) The trial

court’s error was harmless, however, given Pacetti’s failure on the first prong of the

liquidated damages analysis.

       {¶ 25} Based on the preceding discussion, the first assignment of error is

overruled.

                             III. Piercing the Corporate Veil

       {¶ 26} Pacetti’s second assignment of error states that:

              The Trial Court Erred by Failing to Hold Mr. Bockrath Personally

       Liable When He Failed to Respond in Any Way to Either the Complaint or

       the Motion for Default Judgment.

       {¶ 27} Under this assignment of error, Pacetti contends that the trial court erred in

failing to pierce the corporate veil, which would have allowed Bockrath to be held

personally liable for Rebound’s debt. According to Pacetti, Bockrath’s failure to appear

in the action deprived her of the ability to conduct discovery on this point. Pacetti notes,

however, that some evidence was presented at the hearing to indicate that Bockrath was

mingling corporate and personal finances. This is based on testimony that Bockrath

sought money “ ‘because he needed to make payroll, his daughter’s wedding was coming

up, and that he needed the money.’ ” Appellant’s Brief at p. 7, quoting the Magistrate’s
                                                                                       -12-

Decision (Jan. 21, 2022), p. 2, fn.4.

       {¶ 28} The complaint did not contain any allegations pertaining to piercing the

corporate veil, nor was this matter discussed at the hearing that was conducted. In

objecting to the magistrate's decision, Pacetti did claim that the magistrate had erred by

failing to hold Bockrath personally liable. See Plaintiff's Objections to the Magistrate's

Decision (Jan. 31, 2022), p. 1 and 5-6, and Plaintiff's Supplemental Objections to the

Magistrate's Decision (Feb. 28, 2022), p. 8-9. The trial court overruled this objection,

finding that the matter had not been raised in the complaint and no evidence or argument

had been offered on this subject at the default judgment hearing.          Decision and

Judgment Entry (Apr. 1, 2022), at p. 6. The court further found that the record did not

contain sufficient evidence to pierce the corporate veil. Id.

       {¶ 29} Again, we review the trial court’s adoption of a magistrate’s decision for

abuse of discretion. Holfinger, 2d Dist. Montgomery No. 27091, 2016-Ohio-7982, at

¶ 33. As previously noted, “most instances of abuse of discretion will result in decisions

that are simply unreasonable, rather than decisions that are unconscionable or arbitrary.”

AAAA Ents., 50 Ohio St.3d at 161, 553 N.E.2d 597.

       {¶ 30} Having reviewed the record, we cannot find that the trial court’s decision

lacked a sound reasoning process. The Supreme Court of Ohio has said that:

              The corporate form may be disregarded and individual shareholders

       held liable for wrongs committed by the corporation when (1) control over

       the corporation by those to be held liable was so complete that the

       corporation has no separate mind, will, or existence of its own, (2) control
                                                                                           -13-

       over the corporation by those to be held liable was exercised in such a

       manner as to commit fraud or an illegal act against the person seeking to

       disregard the corporate entity, and (3) injury or unjust loss resulted to the

       plaintiff from such control and wrong.

Belvedere Condominium Unit Owners' Assn. v. R.E. Roark Cos., Inc., 67 Ohio St.3d 274,

275, 617 N.E.2d 1075 (1993).

       {¶ 31} The court later modified this test by stating that “[t]o fulfill the second prong

of the Belvedere test for piercing the corporate veil, the plaintiff must demonstrate that

the defendant shareholder exercised control over the corporation in such a manner as to

commit fraud, an illegal act, or a similarly unlawful act.” Dombroski v. WellPoint, Inc.,

119 Ohio St.3d 506, 2008-Ohio-4827, 895 N.E.2d 538, syllabus.

       {¶ 32} Dombroski involved a claim that was resolved on a Civ.R. 12(B)(6) motion

to dismiss. Id. at ¶ 3. Thus, like here, the plaintiff had no ability to conduct discovery.

       {¶ 33} In Dombroski, the plaintiff asserted that various insurers had acted in bad

faith in denying coverage for a cochlear implant. Id. at ¶ 6-9. The issue before the court

was resolution of a conflict among districts about whether Belvedere allowed “ ‘the

corporate veil to be pierced in cases where control was exercised to commit unjust or

inequitable acts that do not rise to the level of fraud or an illegal act.’ ” Id. at ¶ 1. For

purposes of deciding the issue, the court assumed “as true the allegation that WellPoint

and Anthem Insurance controlled the subsidiary corporations, Community and Anthem

UM, to such a degree that those corporations had no separate minds, wills, or existences

of their own.” Id. at ¶ 19.
                                                                                             -14-

       {¶ 34} In deciding to modify Belvedere, the court stressed its adherence “to the

principle that limited shareholder liability is the rule * * * and piercing the corporate veil is

the ‘rare exception’ that should only be ‘applied in the case of fraud or certain other

exceptional circumstances.’ ” Id. at ¶ 26, quoting Dole Food Co. v. Patrickson, 538 U.S.

468, 474, 475, 123 S.Ct. 1655, 155 L.Ed.2d 643 (2003). (Other citation omitted.) The

court also emphasized that:

               Limiting piercing to cases in which the shareholders used their

       complete control over the corporate form to commit specific egregious acts

       is key to maintaining this balance. Were we to allow piercing every time a

       corporation under the complete control of a shareholder committed an

       unjust or inequitable act, virtually every close corporation could be pierced

       when sued, as nearly every lawsuit sets forth a form of unjust or inequitable

       action and close corporations are by definition controlled by an individual or

       small group of shareholders.

Id. at ¶ 27.

       {¶ 35} The court therefore held that “to fulfill the second prong of the Belvedere

test for piercing the corporate veil, the plaintiff must demonstrate that the defendant

shareholder exercised control over the corporation in such a manner as to commit fraud,

an illegal act, or a similarly unlawful act. Courts should apply this limited expansion

cautiously toward the goal of piercing the corporate veil only in instances of extreme

shareholder misconduct.” Id. at ¶ 29. As applied to the case before it, the court found

dismissal under Civ.R. 12(B)(6) appropriate because “[i]Insurer bad faith is a
                                                                                         -15-

straightforward tort, a basic example of unjust conduct; it does not represent the type of

exceptional wrong that piercing is designed to remedy.” Id.

       {¶ 36} The same observation applies here.          There were no allegations or

testimony that would transform this situation into the kind of exceptional wrong that

causes courts to pierce the corporate veil. The “Borrower Name” on the promissory note

was “Rebound Bracing and Pain Services, LLC,” and Ms. Pacetti and Bockrath both

signed the note on behalf of their respective corporate entities. The check stub for the

$50,000 payment also referred only to corporate entities, not to individuals, i.e., it bore

the names “Rebound Bracing, LLC,” and “Dave Bockrath, LLC.”              See Ex. 1 to the

Complaint and Tr. at p. 6-7.

       {¶ 37} In addition, Ex. 2 (which referred to situations in which Pacetti chose not to

charge Rebound a 20% commission) only mentions these limited liability corporations,

not Bockrath individually. See Tr. at p. 10-11 and Ex. 2 attached to Notice of Plaintiffs[‘]

Filing of Redacted Exhibit (Jan. 21, 2022).

       {¶ 38} Based on the preceding discussion, the trial court correctly held that there

was insufficient evidence in the record to pierce the corporate veil. Accordingly, Pacetti’s

second assignment of error is overruled.

                                         IV. Conclusion

       {¶ 39} Both of Pacetti’s assignments of error having been overruled, the judgment

of the trial court is affirmed.

                                     .............
                                      -16-

TUCKER, P.J. and LEWIS, J., concur.