Court Opinion

ID: 4694791
Source: CourtListenerOpinion
Date Created: 2021-06-11 16:12:19.688635+00
Date Added: 2024-06-11T08:05:31.608920
License: Public Domain

[Cite as CyrusOne, L.L.C. v. Great Am. Ins. Co., 2021-Ohio-1971.]

                     IN THE COURT OF APPEALS
                 FIRST APPELLATE DISTRICT OF OHIO
                      HAMILTON COUNTY, OHIO

CYRUSONE, LLC,                                   :          APPEAL NOS. C-200156
                                                                        C-200162
   and                                           :          TRIAL NO. A-1504669

CINCINNATI BELL, INC.,                           :                  O P I N I O N.

        Plaintiffs-Appellees/Cross-              :
        Appellants,
                                                 :
  vs.
                                                 :
GREAT AMERICAN INSURANCE
COMPANY,                                         :

  Defendant-Appellant/Cross-                     :
  Appellee.                                      :

Civil Appeals From: Hamilton County Court of Common Pleas

Judgment Appealed From Is: Affirmed

Date of Judgment Entry on Appeal: June 11, 2021

Baker & Hostetler LLP, Ted T. Martin, Robert T. Razzano and Carrie Dettmer Sly,
for Plaintiffs-Appellees/Cross-Appellants,

Eckert Seamans Cherin & Mellott, LLC, F. Joseph Nealon, Michael A. Graziano,
Keating Muething & Klekamp PLL and Rachael A. Rowe, for Defendant-
Appellant/Cross-Appellee.
                    OHIO FIRST DISTRICT COURT OF APPEALS

BOCK, Judge.

       {¶1}   These appeals arise from an insurance-claim dispute under a crime-

and-fidelity policy (“the policy”) issued by defendant-appellant/cross-appellee Great

American Insurance Company to plaintiffs-appellees/cross-appellants Cincinnati

Bell, Inc., and CyrusOne, LLC, (collectively, “CyrusOne”). The policy insures against

losses caused by the acts of a “dishonest employee.”

       {¶2}   CyrusOne submitted a claim under the policy reporting that its

employee, Dennis Scheib, had engaged in an elaborate self-dealing scheme in which

he received “kickbacks” from CyrusOne’s vendors and directly or indirectly passed

the costs of the kickbacks to CyrusOne.

       {¶3}   After Great American failed to cover the claim, CyrusOne sued, seeking

a declaratory judgment that CyrusOne’s claim was a covered loss under the policy

and alleging bad faith and breach of contract. CyrusOne alleged that its loss stemmed

from Scheib, acting as CyrusOne’s purchasing agent, accepting kickbacks from

vendors in exchange for awarding them construction work and having a financial

interest in several of the vendors to whom Scheib awarded work.

       {¶4}   The trial court entered judgment in favor of CyrusOne and awarded it

$4,654,560 in damages. Both parties appeal from this judgment.

       {¶5}   For the following reasons, we affirm the trial court’s judgment.

                              The Insurance Policy

       {¶6}   Cincinnati Bell, Inc., CyrusOne’s former parent company, purchased a

crime-protection policy from Great American, which covered losses discovered

during the calendar year 2011. CyrusOne was an insured entity under the agreement.

The policy, subject to a $1,000,000 deductible, covered:

               I. Employee dishonesty

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                      OHIO FIRST DISTRICT COURT OF APPEALS

              We will pay for loss of, and loss from damage to, money,

              securities and other property resulting directly from

              dishonest acts committed by an employee, whether

              identified or not, acting alone or in collusion with other

              persons, with the manifest intent to:

              a.   Cause you to sustain loss, and also

              b.   Obtain financial benefit (other than employee

                   benefits   earned    in   the   normal     course   of

                   employment, including salaries, commissions, fees,

                   bonuses, promotions, awards, profit sharing or

                   pensions) for:

                         1. The employee; or

                         2. any person or organization intended by

                              the employee to receive that benefit.

       {¶7}   The policy required insureds to bring legal action against Great

American within “two years from the date you discover the loss.” The policy defined

discovery of a loss as “when you first become aware of facts which would cause a

reasonable person to assume that a loss covered by this insurance has been or will be

incurred, even though the exact amount or details of loss may not then be known.”

       {¶8}   An endorsement to the policy provided that Great American shall pay

“the insured for 50% of the claims expense of the insured on any paid claim up to the

limit of $100,000.”

                          Scheib’s Self-Dealing Scheme

       {¶9}   CyrusOne builds and operates datacenters, which are structures that

house electrical components to provide power to computer servers that are then

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                    OHIO FIRST DISTRICT COURT OF APPEALS

leased or sold to customers. After learning of his scheme, CyrusOne sued Scheib for

breach of fiduciary duty. An arbitration panel, applying Texas law, described the

details of Scheib’s scheme and determined that Scheib had defrauded CyrusOne.

       {¶10} Scheib’s scheme began shortly after CyrusOne hired him in August

2008 as its director of new construction. Over the next three years, Scheib managed

approximately 21 construction projects. He was responsible for developing a budget

for each project. He ordered the necessary power equipment and air conditioning

units from vendors. Scheib obtained bids from subcontractors for engineering,

electrical, and commissioning work necessary to complete the construction and to

make the datacenters operational.

       {¶11} Scheib instructed the vendors and subcontractors (collectively, “the

vendors”) to only communicate with him regarding the construction work—he was to

be their sole contact at CyrusOne as he was responsible for approving invoices from

vendors.

                                    The Vendors

       {¶12} During Scheib’s employment, CyrusOne instituted a preferred-vendor

program in which Scheib recommended preferred vendors. CyrusOne could approve

or deny his recommendation. Scheib recommended, and CyrusOne approved, Cabo

Electric, Inc., as a preferred vendor. Jim Stark, one of Cabo Electric’s owners,

testified in his deposition that his company could not compete with another electric

vendor, FSG, whose bids were consistently lower.

       {¶13} Cabo Electric was incorporated in January 2009 by Tim Preski and

Stark, friends of Scheib’s. Notably, in that same month, Scheib incorporated his own

company, Cabo Tech. According to Scheib, Cabo Tech received an almost 40 percent

interest in Cabo Electric in exchange for it giving $250,000 to “seed” Cabo Electric.

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                     OHIO FIRST DISTRICT COURT OF APPEALS

Eventually, half of the seed money was returned to Scheib, but he still received 40

percent of Cabo Electric’s profits.

       {¶14} Between 2009 and 2011, Scheib awarded Cabo Electric more than $19

million of work on CyrusOne projects. Cabo Electric (as well as Tek Energy, LLC, a

part owner of Cabo Electric) transferred more than $1,500,000 to Scheib and/or his

businesses. Stark testified that although Cabo Electric was making significant

payments to Scheib, he was confident that his company’s bids would be profitable

and that it would not have to dip into any of Scheib’s seed money.

       {¶15} K2 Construction (“K2”), a general contractor, was another CyrusOne

vendor. In 2009, K2 presented an initial bid for a CyrusOne project—this bid

included a line item for $170,000 in commissioning. (Commissioning is a quality-

control review to ensure that the equipment installed in the datacenter is performing

at design specifications.) But in its final bid, although the total bid amount stayed the

same, the line item for commissioning had been removed. Other line item amounts

had been increased by a total of $170,000. Despite the commissioning line item

disappearing, Scheib’s company, Datacenter Management Services (“DMS”),

invoiced K2—and K2 paid—$170,000 for purportedly completing commissioning

work. K2’s owner testified that any money he spent on a CyrusOne project, he

recouped it by submitting an invoice to CyrusOne for that amount.

       {¶16} Jim McDowell owned Critical Infrastructure Solutions (“CIS”). CIS

was a preferred vendor of CyrusOne. Most of CIS’s equipment sales were to

CyrusOne. Because of that, McDowell reported that when Scheib asked him to cover

the cost of a Mediterranean cruise for Scheib and his wife, CIS did so.

       {¶17} McDowell recalled that although he was hesitant, he gave Scheib’s

company, Cabo Tech, a 25 percent interest in CIS in exchange for “collateral,” which

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                     OHIO FIRST DISTRICT COURT OF APPEALS

McDowell said he had not needed for his business. McDowell testified that he only

entered into this arrangement because he did not want to upset Scheib, who directed

CyrusOne’s construction business. During the course of Scheib’s employment with

CyrusOne, CIS gave Scheib and his companies more than $300,000.

       {¶18} Critical Mission Corporation, a.k.a. Contract Management Corporation

(“CMC”), a company owned by Tim Preski (Scheib’s friend), was also a preferred

vendor during Scheib’s employment. CMC performed commissioning work for

CyrusOne projects. CyrusOne paid CMC more than $ 1,000,000 for commissioning

work during Scheib’s employment. During this same time, CMC paid Scheib

$99,000. Scheib claimed that this payment was compensation for writing test scripts

for commissioning. But Scheib could not produce documentation (other than his

invoice) that he or DMS had actually performed that work for CMC.

       {¶19} Over the course of his employment at CyrusOne, Scheib and his

companies, Cabo Tech and DMS, received approximately $5.6 million from

CyrusOne vendors. Although Scheib contended that some of this money was for work

on projects unrelated to CyrusOne, he could not produce business records to support

his contention.

                              CyrusOne’s Discovery of Loss

       {¶20} In the fall of 2010, CyrusOne’s president, Dave Ferdman, became

suspicious about Scheib’s activities as director of construction when he learned that

Scheib had invested a substantial sum of money, inconsistent with his salary, in a

real estate venture. CyrusOne hired Premier Protection Group (“Premier”) to

investigate Scheib to determine if he was engaged in self-dealing or using his

employment with CyrusOne to enrich himself. CyrusOne permitted Premier to place

a recording device in Scheib’s office to secretly record his conversations.

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                     OHIO FIRST DISTRICT COURT OF APPEALS

       {¶21} Sharon White Ellis, a CyrusOne human-resources employee, testified

that she had listened to the recordings. She recalled that the conversations were

difficult to understand and that she had heard nothing to demonstrate that Scheib

had been acting improperly. She testified that she believed that she gave the tapes to

her replacement when she left the company. CyrusOne could not locate the

recordings.

       {¶22} In May 2011, Premier reported to CyrusOne that Scheib’s repeatedly

awarding work to Cabo Electric created an appearance of collusion between Scheib

and Tim Preski, the owner of Cabo Electric. But Premier noted, “due to the very

limited scope of the investigation and without additional investigative processes, this

hypothesis cannot be supported.”

       {¶23} CyrusOne reported Premier’s findings to Cincinnati Bell, which then

initiated its own investigation into Scheib’s activities. Cincinnati Bell retained a law

firm and an accounting firm, KPMG, to investigate whether Scheib was receiving

kickbacks and/or bribes from vendors.

       {¶24} On Cincinnati Bell’s law firm’s advice, CyrusOne contacted the United

States Postal Inspector to inform him that it suspected Scheib potentially was

involved in illegal activity in which he used the mail. CyrusOne sought the

Inspector’s assistance with the investigation to cut down on its time and costs

investigating Scheib. The United States Postal Inspector declined to participate.

       {¶25} On August 4, 2011, Bryan O’Connell from KPMG sent the following

email to Cincinnati Bell’s general counsel:

               Here are examples of what we have pulled together

               relating to subcontracting and payments which go back

               to Dennis’ business Datacenter Management Services

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                    OHIO FIRST DISTRICT COURT OF APPEALS

               (DMS). We believe that this may be the principal

               scheme and we have begun to identify this scenario

               during his employment with CyrusOne among the

               documents and data we are analyzing. We are focused

               on identifying other examples of this currently. Let us

               know what questions you have.

       {¶26} Attached to the email was documentation showing that CMC had paid

Scheib for commissioning work that he had performed on a CyrusOne project before

he began his employment with CyrusOne. O’Connell testified that at the time that he

had sent this email, KPMG had not yet identified any examples of payments from

vendors to DMS or Scheib during Scheib’s employment with CyrusOne. Further,

O’Connell testified that KPMG had not reached a conclusion as to whether Scheib’s

activities had been detrimental to CyrusOne.

       {¶27} On August 24, 2011, CyrusOne terminated Scheib’s employment.

Following his termination, CyrusOne began interviewing its vendors and other

employees and learned the extent of Scheib’s scheme.

                                  The Insurance Claim

       {¶28} CyrusOne notified Great American of its potential claim in September

2011. CyrusOne indicated on its third proof of loss submitted to Great American that

CyrusOne had discovered the loss, at the earliest, on August 23, 2011.

       {¶29} Tracey Archbold, the adjustor assigned to CyrusOne’s claim, testified

that although she had initially communicated incorrect information to CyrusOne

about coverage under the policy, she accurately communicated what documentation

was needed to support a covered loss. Further, she testified that Great American

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                     OHIO FIRST DISTRICT COURT OF APPEALS

granted CyrusOne several time extensions to gather and submit information to

support the claim.

       {¶30} Archbold testified that she remembered receiving an email from Jerry

Douglas, the underwriter of the policy, which said in part, “Cannot afford another

one this year. Save Me!” But Archbold testified that the comment was not relevant to

her investigation of CyrusOne’s claim and she ignored it. Douglas testified the

comment was “tongue-in-cheek” and not a serious request.

       {¶31} At trial, Robert Berens, Cincinnati Bell’s risk management consultant,

confirmed that Great American had granted CyrusOne several extensions of time to

submit evidence demonstrating its loss.

       {¶32} Thomas Maloney, the vice-president of Great American’s crime

division, testified that Great American consistently and repeatedly told CyrusOne

that it could demonstrate a covered loss by providing inflated invoices from vendors.

       {¶33} John Retinger, Great American’s assistant vice-president of claims,

testified that in kickback schemes he had investigated (more than ten), the insured’s

loss was at least the amount of the kickback; otherwise, it would not “make sense.”

                                     Commissioning

       {¶34} Jim Hatem, who replaced Scheib as director of construction at

CyrusOne, testified at trial. During Scheib’s tenure, Hatem had worked as a general

contractor on about 33 percent of CyrusOne’s datacenter projects that Scheib had

managed. Based on his experience, the trial court declared Hatem an expert on

commissioning and datacenter construction.

       {¶35} Hatem testified that commissioning must be completed by an

independent third party for it to have value. He reiterated no one having a stake in

the completion of a project—such as the owner of a datacenter or vendors who

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                    OHIO FIRST DISTRICT COURT OF APPEALS

supplied and installed the equipment—should perform commissioning. Thus, Hatem

opined that any commissioning work performed by DMS technically had no value

because it was performed by an interested party.

       {¶36} Hatem testified that commissioning usually takes approximately 20 to

25 people a week to complete. He testified that he had observed Scheib purportedly

commission a CyrusOne project in only two days, and therefore, the datacenter could

not have been properly commissioned.

       {¶37} But McDowell, the owner of CIS, testified in his deposition that he saw

five or six CMC employees commission a CyrusOne project and that those employees

had worked “crazy-long hours.”

                                     Amount of Loss

       {¶38} At trial, Scott Bayley, a certified fraud examiner and public accountant,

testified as CyrusOne’s expert. Bayley reported that he had 35 years of experience in

forensic accounting, valuation, and economic-damage analysis. Further, he had

experience investigating kickback schemes.

       {¶39} Bayley, who also provided expert testimony at CyrusOne and Scheib’s

arbitration, testified that Scheib and his companies had received at least $5,654,560

in kickbacks from vendors while Scheib was employed at CyrusOne. Bayley’s

flowchart, which detailed the flow of money (and the specific amount) from each

vendor to Scheib and his business, was admitted into evidence.

       {¶40} Bayley testified that Scheib’s kickback scheme directly harmed

CyrusOne by inflating the costs of construction above fair value. Bayley explained

that under accepted economic theory, a kickback scheme necessarily involves

inflating the vendor’s price for the good or service above fair value by at least the

amount of the kickback or bribe. Therefore, Bayley opined that the $5.6 million

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                     OHIO FIRST DISTRICT COURT OF APPEALS

“represents a loss to CyrusOne as a result of purposeful inflation.” He defined

“purposeful inflation” as “inflating the invoices so that the kickbacks can be paid to

[Scheib], and the vendor can still make the profit that they desire to make.”

       {¶41} In reaching his opinion, Bayley stated that he had relied on Scheib’s

tax returns, the tax returns of the vendors in which Scheib had maintained a

financial interest, bank records (including cancelled checks), construction records,

including invoices and electronic mail correspondence, and testimony from other

witnesses. For example, he relied on Stark’s testimony that to be profitable as a

vendor of CyrusOne, Stark had to “include [in the bids] the amounts that they were

paying to Mr. Scheib.”

       {¶42} Bayley also testified that Scheib had received $310,000 worth of gifts

from vendors, including a luxury car, a Mediterranean cruise, and construction of a

pool house at Scheib’s home. He testified that this was a loss to CyrusOne as well.

       {¶43} Finally, Bayley testified that from the time he was initially contacted

about Scheib’s activities in 2013, he had invoiced CyrusOne $202,791.48 for his

services.

                                  Trial Court Judgment

       {¶44} Before trial, the trial court granted summary judgment in favor of

Great American on CyrusOne’s bad-faith claim and in favor of CyrusOne on Great

American’s affirmative defense that CyrusOne “failed to cooperate” in the

investigation of the claim. Further, the trial court accepted the CyrusOne/Scheib

arbitration panel’s findings about the details of Scheib’s scheme and its conclusion

that Scheib had defrauded CyrusOne. Finally, the trial court ruled that “to show a

covered loss, CyrusOne must demonstrate that it sustained an actual depletion of

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                          OHIO FIRST DISTRICT COURT OF APPEALS

funds, and the amount of money Scheib received from his schemes does not provide

proof in and of itself that CyrusOne suffered depletion in its assets.”

             {¶45} After trial on the remaining claims, the trial court found that CyrusOne

had suffered a loss of $5,654,560 and, after subtracting the $1 million policy

deductible, awarded CyrusOne $4,654,560. The trial court asked CyrusOne to submit

a judgment entry for the court’s signature. CyrusOne asked the court to increase its

award to $5,952,401, which included $5,654,560 from its loss from kickbacks,

$1,197,070 paid by CyrusOne to CMC for fictional commissioning, and $100,000 in

expenses it incurred investigating the claim. The trial court declined to alter its

award and entered judgment awarding CyrusOne $4,654,560.

             {¶46} Both parties appealed.

                                     Great American’s Appeal

        I.      The damage award was supported by competent, credible evidence

             {¶47} Great American’s first assignment of error asserts that the trial court

erred by entering judgment in favor of CyrusOne and awarding it $4,654,560 in

damages.

             {¶48} The standard of review following a civil bench trial is whether the trial

court’s judgment is against the manifest weight of the evidence as supported by

competent, credible evidence. Downtime Rebuild, LLC v. Trinity Logistics, Inc.,

2019-Ohio-1869, 135 N.E.3d 1253, ¶ 12 (1st Dist.), citing Eastley v. Volkman, 132

Ohio St.3d 328, 2012-Ohio-2179, 972 N.E.2d 517. Under a manifest-weight-of-the-

evidence review, “every reasonable intendment and every reasonable presumption

must be made in favor of the judgment and the finding of facts.” Id., citing Eastley at

¶ 21.

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                       OHIO FIRST DISTRICT COURT OF APPEALS

          {¶49} When reviewing a trial court’s decision under a manifest-weight-of-

the-evidence standard, appellate courts review the entire record, weigh the evidence

and all reasonable inferences, consider the credibility of the witnesses, and

determine whether the trial court “clearly lost its way and created a manifest

miscarriage of justice.” Fischoff v. Hamilton, 1st Dist. Hamilton No. C-120200, 2012-

Ohio-4785, ¶ 11.

          {¶50} The insurance policy stated that it covered a loss of money caused by

the dishonest acts of the insured’s employee, regardless of whether the employee acts

alone or in collusion with other persons, if those acts cause the insured to sustain a

loss and the employee (or some person or entity the employee designates) obtains a

financial benefit.

          {¶51} Great American maintains that CyrusOne failed to prove it had

sustained a loss under the policy because it failed to demonstrate that its vendors

had passed along the cost of any kickbacks or bribes to CyrusOne in the form of

inflated bids or invoices. We disagree. CyrusOne’s expert, a CPA and certified fraud

examiner, provided unrebutted testimony that the invoices or bids submitted by

vendors to CyrusOne were inflated by at least the amount of the kickbacks and that

Scheib had received more than $5,000,000 in kickbacks. Bayley’s testimony

supports the trial court’s determination that CyrusOne sustained a loss under the

policy.

          {¶52} First, Bayley traced payments from CyrusOne to its vendors and then

from the vendors directly to Scheib and his businesses. He testified that Scheib and

his companies had received at least $5,654,560 in kickbacks from vendors during his

employment with CyrusOne. Scheib’s tax statements support this testimony. Scheib

admitted in his deposition that he had received millions of dollars from CyrusOne

                                              13
                     OHIO FIRST DISTRICT COURT OF APPEALS

vendors, but he claimed some of it was for work performed on projects unrelated to

CyrusOne construction. Despite making this claim, Scheib could not provide any

documentation—work records, time sheets, etc.—that he had performed any work on

any project unrelated to CyrusOne. Notably, Bayley testified that after Scheib’s

employment with CyrusOne ended, so did his receipt of money from CyrusOne

vendors.

       {¶53} Next, Bayley testified, based on his experience investigating kickback

schemes and under accepted economic theory, that a vendor who pays a kickback

inflates its bid above fair value by at least the amount of the kickback. (Great

American’s assistant vice-president of claims agreed with this opinion.) As Bayley

explained at trial, if Scheib had been an honest employee, he would have negotiated

the price for the goods or services down to the fair-value amount without tacking on

the amount of the kickback, which would have saved CyrusOne money. Instead,

Scheib was “dishonest” and chose not to negotiate a lower price for CyrusOne.

Instead, he kept a kickback for himself, thereby causing CyrusOne to spend more

money. After testifying to the amount of kickbacks that Scheib had received, Bayley

opined that CyrusOne had suffered a $5.6 million loss due to the “purposeful

inflation” of the vendors’ invoices and/or bids. This unrebutted testimony

competently and credibly connected Scheib’s receipt of $5.6 million in kickbacks as

equal to—or less as—the financial loss suffered by CyrusOne.

       {¶54} Lastly, Great American contends that even if there was competent,

credible evidence that CyrusOne had suffered a financial loss, the trial court erred in

determining the amount of that loss. Great American argues that the bank

statements and checks admitted into evidence to support the loss only amount to

$2,418,526.94. But Bayley testified that his opinion was not based solely on bank

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                          OHIO FIRST DISTRICT COURT OF APPEALS

records, but on Scheib’s tax documents as well. His personal and business tax

records demonstrate that he received an additional $3,000,000 from vendors during

his employment with CyrusOne. This documentary evidence, combined with Scheib’s

testimony that all money he received during the relevant timeframe came from

vendors of CyrusOne (although he maintains that it was for work unrelated to

CyrusOne projects), is competent, credible evidence of the amount of CyrusOne’s

loss.

              {¶55} Because competent, credible evidence supports the trial court’s

conclusion about CyrusOne’s amount of loss, Great American’s first assignment of

error is overruled.

        II.      CyrusOne’s loss was discovered after August 8, 2011

              {¶56} In its second assignment, Great American contends that the court

erred when it determined that CyrusOne’s claim was not barred by the policy’s two-

year contractual period of limitations. The parties agree that if CyrusOne had

discovered its loss prior to August 8, 2011, then its claim would be barred by the

policy’s contractual period of limitations.

              {¶57} The policy defines “discovery of loss” as “occur[ing] when you first

become aware of facts which would cause a reasonable person to assume that a loss

covered by this insurance has been or will be incurred even though the exact amount

or details of loss may not then be known.”

              {¶58} Great American, citing Am. Mut. Share Ins. Corp. v. CUMIS Ins. Soc.,

Inc., 10th Dist. Franklin No. 08AP-576, 2009-Ohio-364, maintains that CyrusOne

discovered its loss no later than August 4, 2011, the date that KPMG sent Cincinnati

Bell documentation that a CyrusOne vendor had sent DMS a payment for

commissioning work and reported that KPMG believed that “this may be the

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                     OHIO FIRST DISTRICT COURT OF APPEALS

principal scheme” used by Scheib. This argument fails. The payment from the vendor

to DMS occurred before Scheib’s employment with CyrusOne. Further, O’Connell

confirmed that as of August 4, 2011, KPMG had not identified any payments going

from vendors to Scheib and his companies during Scheib’s employment and

confirmed that KPMG had not yet reached a conclusion as to whether any of Scheib’s

activities were detrimental to CyrusOne.

       {¶59} CUMIS is distinguishable from this case. At issue in CUMIS was when

an employer first discovered a loss, thus triggering its duty to notify the insurer. In

CUMIS, an employee had made questionable financial transactions. Id. at ¶ 2. After

he was terminated, his employer entered into a supervisory agreement with a credit

union and two other entities. Id. at ¶ 3. The supervisory agreement did not allege that

the employee had committed fraud, but did name concerning facts, such as the

employee paying expenses that appeared personal, failing to provide a full

accounting of checks he wrote, and making preferential loans to risky investors. Id.

at ¶ 3-4. The CUMIS policy defined when discovery occurs as “when you first become

aware of facts which would cause a reasonable person to assume that a loss of a type

covered under this Bond has been or will be incurred.” Id. at 20. The court held that

the insured discovered the loss no later than when the parties entered into the

supervisory agreement.

       {¶60} The employer in CUMIS had facts showing that its employee’s

dishonesty had caused a loss. But here, evidence supports the trial court’s conclusion

that CyrusOne did not have any facts that showed that Scheib had engaged in self-

dealing when he was a CyrusOne employee until after August 8, 2011. While KPMG’s

email correspondence may have caused CyrusOne to suspect that Scheib may be

engaged in improper activity, it did not yet know that Scheib’s activities were

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                      OHIO FIRST DISTRICT COURT OF APPEALS

“dishonest” and detrimental to the company. CyrusOne only gained that knowledge

after Scheib was terminated and CyrusOne had started contacting and interviewing

its vendors.

          {¶61} Under a manifest-weight-of-the-evidence review, the trial court is

afforded wide deference. Based upon our review of the record, we conclude that there

is competent, credible evidence to support the court’s finding that CyrusOne had not

discovered its loss before August 8, 2011. The second assignment of error is

overruled.

   III.      CyrusOne did not prejudice Great American’s investigation

          {¶62} In its final assignment, Great American argues that the trial court

erred by entering summary judgment in favor of CyrusOne on Great American’s

“failure to cooperate” defense.

          {¶63} We review a grant of summary judgment de novo. Grafton v. Ohio

Edison Co., 77 Ohio St.3d 102, 105, 671 N.E.2d 241 (1996). Summary judgment is

appropriately granted when there are no genuine issues of material fact, the party

moving for summary judgment is entitled to judgment as a matter of law, and the

evidence, when viewed in favor of the nonmoving party, permits only one reasonable

conclusion, which is adverse to that party. State ex rel. Howard v. Ferreri, 70 Ohio

St.3d 587, 589, 639 N.E.2d 1189 (1994).

          {¶64} CyrusOne moved for summary judgment on Great American’s defense

that CyrusOne had failed to cooperate in the investigation of its claim and that this

failure materially prejudiced Great American’s investigation. It was undisputed that

CyrusOne had permitted Premier to secretly record Scheib’s office activity and that

these recordings were not turned over to Great American.

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                      OHIO FIRST DISTRICT COURT OF APPEALS

       {¶65} In support of its motion for summary judgment, CyrusOne offered the

deposition testimony of Sharon White Ellis, a former human-resources employee.

Ellis testified that she had listened to a few of the tapes and that they were difficult to

understand. She does not remember what she did with the tapes, but that she may

have given them to her replacement when she left the company.

       {¶66} Great American, although it had the opportunity to depose all the

people who were involved with the recording of Scheib’s office, did not present any

evidence that anything on the recordings was material to its investigation of

CyrusOne’s claim.

       {¶67} The only evidence presented to the court was that the tapes had not

demonstrated any dishonest activity by Scheib. Moreover, CyrusOne did not

terminate Scheib after reviewing these tapes. Instead, it continued his employment

for another year. Accordingly, we conclude that reasonable minds could only find

that the failure to turn over these recordings did not materially prejudice Great

American’s investigation of CyrusOne’s claim.

       {¶68} The third assignment of error is overruled.

                                   CyrusOne’s Cross-Appeal

  I.       Great American acted in good faith in processing the claim

       {¶69} In its first and second assignments of error, respectively, CyrusOne

contends that the trial court erred by granting Great American’s motion, and denying

its own motion, for summary judgment on its bad-faith claim.

       {¶70} In its summary-judgment motion, Great American argued that

CyrusOne could not demonstrate that Great American had acted in bad faith in

processing CyrusOne’s claim. In support, Great American points to letters it had sent

to CyrusOne setting forth how it could prove a covered loss under the policy—by

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                      OHIO FIRST DISTRICT COURT OF APPEALS

submitting evidence demonstrating that CyrusOne had overpaid for goods or

services or that CyrusOne had paid for work that had not been performed. Further,

Great American pointed to the fact that it had granted several extensions to the

contractual period of limitations so that CyrusOne would have more time to gather

and submit proof of a covered loss.

       {¶71} In Ohio, an insurance company has a fiduciary duty to act in good faith

toward its insured in carrying out its duties under the contract and fails to exercise

good faith when it refuses to pay a claim without “reasonable justification.” Zoppo v.

Homestead Ins. Co., 71 Ohio St.3d 552, 644 N.E.2d 347 (1994).

       {¶72} CyrusOne disagreed with Great American as to what constituted a

covered loss under the policy. CyrusOne believed that because the arbitration panel,

in its lawsuit against Scheib, had found that Scheib had received more than

$5,000,000 in kickbacks from vendors, this in and of itself demonstrated a covered

loss under the policy. Therefore, CyrusOne argued that Great American did not have

a reasonable justification to deny its claim and instead had an improper financial

incentive to do so.

       {¶73} In support of that argument, CyrusOne pointed to the “Save Me” email

sent from the underwriter to the claims adjuster, the underwriter’s letter to

CyrusOne inaccurately explaining a loss provision in the policy, and Great

American’s employee-pay structure in which employees in the claims division

received bonuses based upon the performance of their division.

       {¶74} Although this is circumstantial evidence of a financial incentive to

deny the claim, that does not negate Great American’s good-faith handling of the

claim. Great American accurately described, in several letters to CyrusOne, the type

of proof necessary to demonstrate a covered loss. In addition, it was undisputed that

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                     OHIO FIRST DISTRICT COURT OF APPEALS

Great American granted several extensions of time for CyrusOne to gather and

submit the necessary proof.

       {¶75} The two parties disagreed about whether the loss was covered and

what proof was required to show a loss. But this is not enough to show a bad-faith

denial of the claim. We find that Great American did not act arbitrarily or

capriciously in denying coverage. This claim involved a complicated financial scheme

and ultimately required expert testimony to demonstrate a loss. Because there was a

legitimate dispute as to coverage, Great American processed CyrusOne’s claim in

good faith.

       {¶76} We overrule CyrusOne’s first and second assignments of error.

 II.      Damage award for commissioning is unsupported

       {¶77} In its third assignment of error, CyrusOne contends that the trial court

erred by not including in its judgment CyrusOne’s loss of at least $1,197,841 caused

by fictional commissioning. We are unpersuaded.

       {¶78} First, CyrusOne’s contention that the court intended to award damages

for fictional commissioning is undermined by the trial court’s refusal to award an

additional amount after CyrusOne asked it to do so when submitting the final

judgment entry for signature. The trial court meant to enter the award as it is.

       {¶79} Second, CyrusOne’s argument that the $1.2 million should have been

included in the trial court’s award of damages because the commissioning work was

fictional also fails. CyrusOne points to Jim Hatem’s testimony that although

commissioning should take at least a week and requires between 20 and 25

employees, he only observed CMC perform commissioning for two or three days with

only four or five employees. However, Hatem admitted that he was only on site for a

few construction projects when commissioning was being done. Additionally,

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                     OHIO FIRST DISTRICT COURT OF APPEALS

McDowell testified that he had seen CMC on site to perform commissioning and said

that CMC employees worked some “crazy, long hours.”

       {¶80} CyrusOne argues that even if commissioning work had been

performed, it had no value because it was performed by a nonindependent entity—

CMC’s owner also owned Cabo Electric, the preferred electrical vendor on CyrusOne

projects. Although Hatem testified that commissioning had no value if performed by

a nonindependent entity, the trial court was free to disregard this testimony or give it

little weight, especially given the undisputed fact that CyrusOne’s datacenters, all

commissioned by CMC, were in operation with paying customers leasing the

equipment. Therefore, the court could have reasonably concluded that CMC’s

commissioning services did have some value to CyrusOne and that a damage award

was not warranted.

       {¶81} Although the trial court stated in its decision that CyrusOne’s

payments for fictional commissioning was “clearly a loss to CyrusOne,” this

statement was made in the context of the overall kickback scheme and not as a

separate finding in support of an additional damage award.

       {¶82} An award of $1.2 million in damages for “fictional” commissioning is

unwarranted because there was conflicting testimony about whether commissioning

work was performed and there was no testimony as to whether CyrusOne had

overpaid for any commissioning work. The trial court’s choice to reject CyrusOne’s

request to include these damages was supported by competent, credible evidence.

       {¶83} Accordingly, the third assignment of error is overruled.

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                      OHIO FIRST DISTRICT COURT OF APPEALS

III. Award for claim expenses was unsupported

       {¶84} In its final assignment of error, CyrusOne argues that the trial court

erred by failing to award it $100,000 for claim expenses it had incurred in proving

its loss under the policy.

       {¶85} The policy contains an endorsement, which provides coverage for 50

percent of claims expenses up to a limit of $100,000. Under the endorsement,

“claims expenses means reasonable expenses incurred by the Insured in establishing

the existence and amount of any direct loss.”

       {¶86} At trial, Bayley testified that since 2013 (when he was hired by

CyrusOne for the arbitration proceeding) he had invoiced CyrusOne $202,719.48 for

his services. Although the invoices were submitted into evidence, it is unclear how

much time was spent in preparation for litigation (arbitration, depositions, and trial)

versus forensic-accounting work to establish the existence and amount of loss. In

addition, there was no testimony at trial regarding the breakdown of Bayley’s work.

As such, there was inadequate evidence presented to support a $100,000 award for

reasonable claim expenses. The fourth assignment of error is overruled.

                                    Conclusion

       {¶87} To find a judgment against the manifest weight of the evidence, this

court had to determine that the trial court clearly lost its way and created a manifest

miscarriage of justice that required reversal. This is not one of those rare cases

warranting a conclusion that the trial court’s judgment is contrary to the manifest

weight of the evidence. The trial court properly entered judgment for CyrusOne in

the amount of $4,564,560. Accordingly, the trial court’s judgment is affirmed.

                                                                  Judgment affirmed.

ZAYAS, P.J., and BERGERON, J., concur.

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                    OHIO FIRST DISTRICT COURT OF APPEALS

Please note:

       The court has recorded its own entry on the date of the release of this opinion.

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