Court Opinion

ID: 9700462
Source: CourtListenerOpinion
Date Created: 2023-08-25 21:29:58.499121+00
Date Added: 2024-06-11T14:57:33.390021
License: Public Domain

*120LATTA, Bankruptcy Judge,
concurring.
Because I concur in the result reached by the other members of the Panel, but not in the analysis used to reach it, I have prepared this separate opinion.
The facts of this case are relatively straightforward. R.R. Fox entered into a contract with the Appellant, Cash America, to provide collection services on accounts generated by Cash America. Pursuant to the terms of the contract between them, R.R. Fox was required to follow certain procedures in the handling of proceeds of these accounts and was to remit the proceeds of its efforts net of its fee to Cash America by the fifth day of the following calendar month. R.R. Fox did not follow the procedures set out in the contract for the segregation of accounts and proceeds, but this fact was known to Cash America before it delivered accounts to R.R. Fox for collection. R.R. Fox remitted payment to Cash America for the first month of collections approximately thirty days late. Pri- or to the due date for the second month’s payment, Cash America stopped assigning accounts to R.R. Fox for collection. The business of R.R. Fox failed, and it filed a petition for relief under Chapter 11 on April 4, 2003. The case was later converted to Chapter 7.
The Appellee in the present appeal, the Debtor, was the president, chief operating officer, director, and 50% shareholder of R.R. Fox. He made decisions on behalf of R.R. Fox and was responsible for the relationship with Cash America. During the relevant period, he received three monthly payments of $20,000 each, which he characterized variously as returns on his investment and consulting fees.
The bankruptcy court stated that in order for any obligation to Cash America to be excepted from discharge, Cash America must demonstrate that R.R. Fox committed a corporate tort, that the Debtor was responsible for the commission of that tort, and finally that the Debtor’s particular tortuous conduct fell within one of the exceptions to discharge set forth at section 523(a) of the Bankruptcy Code. Rather than following this analysis, however, the bankruptcy court and the other members of this Panel move directly into a discussion of various exceptions to discharge. Nowhere does the bankruptcy court identify a corporate tort committed by R.R. Fox. Instead, both the bankruptcy court and the other members of the Panel hold that the failure of R.R. Fox to segregate the funds of Cash America and to pay it breached the contract between them. I agree with that analysis. The liability of R.R. Fox to Cash America arises from the breach of the contract between them, and is measured according to the terms of that contract.
Where the other members of the Panel and I do not agree is as to the implications of that determination. Once we have said that the liability of R.R. Fox to Cash America arises from their contract, then we have effectively excluded any claim sounding in tort. Generally, “ ‘the existence of a contract action ... excludes the opportunity to present the same case as a tort claim.’ ” Textron Fin. Corp. v. Nationwide Mut. Ins., 115 Ohio App.3d 137, 152, 684 N.E.2d 1261, 1270 (1996), quoting Wolfe v. Cont’l Cas. Co., 647 F.2d 705, 710 (6th Cir.1981). Further,
A tort claim based upon the same actions as those upon which a claim of contract breach is based will exist independently of the contract action only if the breaching party also breaches a duty owed separately from that created by the contract, that is, a duty owed even if no contract existed.
Id., citing Battista v. Lebanon Trotting Ass’n, 538 F.2d 111, 117 (6th Cir.1976). The only obligations between R.R. Fox *121and Cash America arose from the contract between them. No basis upon which an independent cause of action for breach of duty was articulated or demonstrated by Cash America. In fact, the contract between them explicitly foreclosed this possibility, as pointed out by the other members of the Panel.
Thus, the bankruptcy court’s finding that the Debtor converted the funds of Cash America is an anomaly. It is inconsistent with its prior determination that R.R. Fox breached its contract with Cash America. Conversion is a common law tort having to do with the unlawful taking or retention of tangible personal property. It is the civil analog of the criminal actions of robbery and larceny.11 While the action for conversion has been extended in recent times to include the unlawful taking or retention of intangible personal property under certain conditions, it cannot be the case that the actions of R.R. Fox give rise to a claim for breach of contract while the very same actions (viewed as the actions of the Debtor) give rise to a claim for damages sounding in tort.
If the Debtor is to be made personally liable for the contractual obligations of R.R. Fox, it must be either because he bound himself to Cash America as an individual or for some reason having to do with the Debtor’s failure to observe corporate formalities. Under Ohio law, “[a]n officer of a corporation is not personally liable on contracts ... for which his corporate principal is liable, unless he intentionally or inadvertently binds himself as an individual.” Dietz-Britton v. Smythe, Cramer Co., 139 Ohio App.3d 337, 352, 743 N.E.2d 960, 971 (2000); citing, Centennial Ins. Co. of N.Y. v. Vic Tanny Int’l of Toledo, Inc., 46 Ohio App.2d 137, 142, 346 N.E.2d 330, 334 (1975). This holds true even if the corporate principal’s liability is founded on a corporate misdeed unless the evidence supports piercing the corporate veil. Carter-Jones Lumber Co. v. Dixie Dist. Co., 166 F.3d 840, 847 (6th Cir.1999). In order to pierce the corporate veil or disregard the corporate form under Ohio law so that an individual shareholder may be held liable for corporate misdeeds, it is necessary to show that,
(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 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.
Id., quoting, Belvedere Condo. Unit Owners’ Ass’n v. R.E. Roark Cos., Inc., 67 Ohio St.3d 274, 289, 617 N.E.2d 1075, 1086 (1993).
There has been no showing in this case that the Debtor intentionally or inadvertently bound himself to be personally liable for the contractual obligations of R.R. Fox. Further, the closest that Cash America has come to articulating grounds for disregarding the corporate form is to point to the draws taken by the Debtor in the first three months of R.R. Fox’s operations. Cash America failed, however, to show that these withdrawals were unauthorized or unreasonable given the expectations for the future of R.R. Fox and its capital structure. This was the finding of the bankruptcy court, which is not clearly erroneous. Thus, Cash America has failed to demonstrate that the Debtor may be *122held personally liable for the contractual obligations of R.R. Fox. Even if it had, it is yet another step, of course, to show that the personal liability of the Debtor to Cash America should be excepted from discharge.
Once the Panel and the bankruptcy court determined, as a matter of law, that the liability of R.R. Fox to Cash America was solely a contractual liability, and that there was no basis to hold the Debtor personally liable for the contractual obligations of the company, their analysis should have stopped. I agree with the ultimate conclusion of the bankruptcy court, and thus agree with the Panel that the decision of the bankruptcy court should be affirmed, but for the narrow reasons that I have articulated.

. For an excellent discussion of the history of the rise and development of the action of conversion, see Thyroff v. Nationwide Mut. Ins. Co., 8 N.Y.3d 283, 832 N.Y.S.2d 873, 864 N.E.2d 1272, 2007 N.Y. Slip Op. 02442 (N.Y. 2007).