Ohio Kentucky Oil Corp. v. Nolfi

[Cite as Ohio Kentucky Oil Corp. v. Nolfi, 2013-Ohio-5519.]

COURT OF APPEALS
STARK COUNTY, OHIO
FIFTH APPELLATE DISTRICT

JUDGES:
OHIO KENTUCKY OIL : Hon. W. Scott Gwin, P.J.
CORPORATION, ET AL : Hon. William B. Hoffman, J.
: Hon. Patricia A. Delaney, J.
Plaintiffs-Appellees :
:
-vs- : Case No. 2013CA00084
:
GREGORY M. NOLFI, AS :
SUCCESSOR TRUSTEE, ET AL : OPINION

Defendants-Appellants

CHARACTER OF PROCEEDING: Civil appeal from the Stark County Court of
Common Pleas, Case No. 2006CV00078

JUDGMENT: Reversed and Remanded

DATE OF JUDGMENT ENTRY: December 16, 2013

APPEARANCES:

For Plaintiffs-Appellees For Defendants-Appellants

DAVID BUTZ ERIC LEVASSEUR
ALETHA CARVER STEVEN MINTZ
OWEN RARRIC DENNIS ROSE
Krugliak, Wilkins, Griffiths Hahn, Loeser & Parks LLP
and Dougherty, Co., L.P.A. 200 Public Square, Ste. 2800
4775 Munson Street N.W. Cleveland, OH 44114
Canton, OH 44735-6963
[Cite as Ohio Kentucky Oil Corp. v. Nolfi, 2013-Ohio-5519.]

Gwin, P.J.

{¶1} Appellants appeal the February 28, 2013 judgment entry of the Stark

County Common Pleas Court granting appellees’ motion for summary judgment in part

and dismissing appellants’ counterclaims one, three, four, five, six, seven, and eight

based on res judicata.

Facts & Procedural History

{¶2} Appellants are collectively referred to in this litigation as the “Nonneman

parties” and include: Gregory M. Nolfi as Successor Trustee of the Frederick E.

Nonneman (“Nonneman”) Declaration of Trust Dated August 19, 1994, as Amended;

Rena Nonneman, Frederick’s widow to whom he assigned a fifty percent interest in his

oil and gas investments, and Anita Nonneman, Frederick’s daughter and executrix of his

estate. Appellees are referred to as the “OKO parties” and include: Ohio Kentucky Oil

Corporation (“OKO”), Carol Campbell (“Campbell”) as President of OKO, and Carol

Campbell as executrix of the estate of William M. Griffith.

{¶3} OKO is an Ohio corporation engaged in oil and natural gas drilling in

Kentucky, Tennessee, and Pennsylvania. This case originated from a series of

investments made by Frederick E. Nonneman with OKO. Nonneman began investing

with OKO in 1986 in oil and gas partnerships and joint ventures. Nonneman invested

$6,520,995 with OKO between 1986 and 2001. In 2001, he substantially increased his

rate of investment with OKO and between 2001 and 2003 invested $8,383,046 with

OKO in his individual capacity. In 2003, Gregory Nolfi (“Nolfi”) assumed management

of Frederick Nonneman’s business affairs as successor trustee.
Stark County, Case No. 2013CA00084 3

{¶4} On December 22, 2004, the Nonneman parties filed suit in the Cuyahoga

County Common Pleas Court against the OKO parties alleging undue influence, breach

of contract, and common law fraud. The Nonneman parties voluntarily dismissed the

action on January 5, 2006. On January 6, 2006, the OKO parties filed a complaint in

the Stark County Court of Common Pleas, seeking declaratory judgment on the same

issues the Nonneman parties previously brought in the Cuyahoga County action. The

Nonneman parties asserted numerous counterclaims, including claims that the OKO

parties committed securities fraud by making false or misleading statements and/or

omissions of material fact when selling securities in their oil and gas drilling programs

and sold securities that were not registered or properly exempt from registration.

{¶5} On February 2, 2006, the Nonneman parties filed suit in the United States

District Court for the Northern District of Ohio, alleging the OKO parties committed

federal securities fraud under Section 10(b) of the Securities Exchange Act of 1934,

Rule 10b-5, and failed to properly register the securities pursuant to federal law. The

Nonneman parties amended their federal court complaint in July of 2006 to include state

law claims of securities fraud under Ohio law, sale of unregistered securities under Ohio

law, common law fraud, breach of fiduciary duty, and breach of contract. In July of

2006, the Nonneman parties filed a motion to stay the Stark County case pending the

resolution of the federal case. The OKO parties objected to the motion to stay. On

September 27, 2006, the Stark County trial judge granted the Nonneman parties’ motion

to stay and stayed the Stark County case pending the resolution of two consolidated

actions in federal district court captioned Gregory M. Nolfi, as Successor Trustee under

the Frederick E. Nonneman Declaration of Trust Dated August 19, 1994, as Amended,
Stark County, Case No. 2013CA00084 4

et al. v. Ohio Kentucky Oil Corp., et al., and Fencorp Co. v. Ohio Kentucky Oil Corp., et

al.

{¶6} The OKO parties filed a motion to dismiss for failure to state a claim and a

motion to dismiss first amended complaint in the federal court case. In their motions,

the OKO parties argued the Nonneman parties’ federal securities claims should be

dismissed for failure to state a claim and that the federal court should, pursuant to the

doctrine of abstention in Colorado River Water Conservation Dist. v. United States, 424

U.S. 800 (1976), dismiss or stay the federal case until the completion of the state court

proceeding. The Nonneman parties objected to the motion. In a September 28, 2007

judgment entry, the federal district judge stated as follows:

The Court will not decide the Ohio Blue Sky and Ohio

common law claims set forth in the Third through Tenth

claims for relief, which were added to the present action

when the first amended complaint was filed * * * These

claims were originally asserted as counterclaims in the Stark

County Action. Because the Court concludes that the

considerations of judicial economy, fairness, and

convenience do not require the Court to decide these

additional claims, the Court declines to exercise jurisdiction

in favor of their resolution by the Stark County, Ohio

Common Pleas Court.

{¶7} The federal district court thus partially granted the OKO parties’ motion to

dismiss amended complaint, dismissing the Nonneman parties’ state law claims. A
Stark County, Case No. 2013CA00084 5

separate party plaintiff, the Fencorp Company, also brought a separate lawsuit against

the OKO parties in federal court. The Fencorp action was consolidated with the

Nonneman action for trial in the federal district court. The federal district court agreed to

exercise jurisdiction over both Fencorp’s federal securities fraud claim and its Ohio-law

claims.

{¶8} The federal action proceeded to trial on May 29, 2008. The district court

found a rescission theory could provide a proper measure of damages for the

Nonneman parties’ § 10(b) claims. The jury found in favor of the Nonneman parties on

their federal securities claims and determined that rescission damages amounted to

$7,700,723 for the Nonneman parties. In a separate interrogatory, the jury also found

the amount of damages proximately caused by the OKO parties’ fraud was $1,777,909.

Despite having found rescissory damages of $7,700,723, the jury listed an award of

$1,777,909 on the verdict form. The district court denied the Nonneman parties’

subsequent motion to amend the judgment to award the full amount of rescissory

damages because the Nonneman parties waived the right to object by failing to file a

Fed.R.Civ.P. Rule 49(b) motion.

{¶9} Both parties appealed the district court’s judgment to the United States

Court of Appeals for the Sixth Circuit. In a decision dated April 4, 2012, the Sixth Circuit

affirmed the district court’s decision in Nolfi v. Ohio Kentucky Oil Corp., 675 F.3d 538

(6th Cir. 2012). The Sixth Circuit found that while the jury instructions did not mention

damages other than rescissory damages, the instructions also did not require the jury to

award rescissory damages in the event the jury decided the Nonneman parties were

entitled to damages on the their federal claims. Id. “The verdict form suggested in
Stark County, Case No. 2013CA00084 6

question 1-G that rescissory damages were the appropriate measure but then in

questions 1-H and 1-I gave the jury the opportunity to compute damages based on the

losses proximately caused by [OKO parties’] fraud – a measure that does not require

rescissory damages.” Id. at 551. The Sixth Circuit determined that “the jury availed

itself of the opportunity afforded by questions 1-H and 1-I and awarded lesser amounts

than the amount of rescissory damages.” Id. While the Sixth Circuit found the

interrogatories to be “arguably inconsistent with each other,” they also found the

Nonneman parties waived the right to object to this inconsistency by failing to file a

Fed.R.Civ.P. Rule 49(b) motion. Id. at 551-552.

{¶10} On April 26, 2012, the Nonneman parties filed a notice in the Stark County

action that the federal cases had been resolved. The parties renewed their original

motions for summary judgment filed in 2006 and supplemented their motions for

summary judgment. The Nonneman parties moved for summary judgment on

counterclaim three, the sale of unregistered securities, and counterclaim four, Ohio

securities fraud, on the basis of issue preclusion. The OKO parties moved for summary

judgment on all of the Nonneman parties’ counterclaims, arguing the doctrine of claim

preclusion barred the counterclaims because they arose out of the same transactions

as the federal securities claims that had been fully adjudicated in the federal district

court case.

{¶11} In a judgment entry dated February 28, 2013, the trial court granted

summary judgment to the OKO parties on each of the Nonneman parties’ counterclaims

except for counterclaim two for common law fraud. The trial court found that

counterclaims one, three, four, five, six, seven, and eight had been fully and fairly
Stark County, Case No. 2013CA00084 7

litigated in the federal court proceeding. The trial court also found that “collateral

estoppel” barred counterclaims one, three, four, five, six, seven, and eight. The trial

court found a genuine issue of material fact precluded summary judgment on

counterclaim two for common law fraud. Subsequently, the parties settled the

remaining issues in the case and the trial court entered its final judgment on April 26,

2013.

{¶12} Appellants appeal the February 28, 2013 judgment entry of the trial court

granting appellees’ motion for summary judgment on counterclaims one, three, four,

five, six, seven, and eight, and assign the following errors:

{¶13} “I. THE TRIAL COURT ERRED BY GRANTING SUMMARY JUDGMENT

IN FAVOR OF APPELLEES OHIO KENTUCKY OIL CORPORATION AND CAROL

CAMPBELL (JUDGMENT ENTRY DATED FEBRUARY 28, 2013).

{¶14} “II. THE TRIAL COURT ERRED BY DENYING APPELLANTS’ GREGORY

NOLFI, ANITA NONNEMAN, AND RENA NONNEMAN’S MOTION FOR SUMMARY

JUDGMENT ON TWO OF THEIR COUNTERCLAIMS (JUDGMENT ENTRY DATED

FEBRUARY 28, 2013).”

Summary Judgment Standard

{¶15} Civ.R. 56 states, in pertinent part:

“Summary judgment shall be rendered forthwith if the pleadings,

depositions, answers to interrogatories, written admissions, affidavits, transcripts

of evidence, and written stipulations of fact, if any, timely filed in the action, show

that there is no genuine issue of material fact and that the moving party is entitled

to judgment as a matter of law. No evidence or stipulation may be considered
Stark County, Case No. 2013CA00084 8

except as stated in this rule. A summary judgment shall not be rendered unless it

appears from the evidence or stipulation, and only from the evidence or

stipulation, that reasonable minds can come to but one conclusion and that

conclusion is adverse to the party against whom the motion for summary

judgment is made, that party being entitled to have the evidence or stipulation

construed mostly strongly in the party’s favor. A summary judgment, interlocutory

in character, may be rendered on the issue of liability alone although there is a

genuine issue as to the amount of damages.”

{¶16} A trial court should not enter a summary judgment if it appears a material

fact is genuinely disputed, nor if, construing the allegations most favorably towards the

non-moving party, reasonable minds could draw different conclusions from the

undisputed facts. Hounshell v. Am. States Ins. Co., 67 Ohio St.2d 427, 424 N.E.2d 311

(1981). The court may not resolve any ambiguities in the evidence presented. Inland

Refuse Transfer Co. v. Browning-Ferris Inds. of Ohio, Inc., 15 Ohio St.3d 321, 474

N.E.2d 271 (1984). A fact is material if it affects the outcome of the case under the

applicable substantive law. Russell v. Interim Personnel, Inc., 135 Ohio App.3d 301,

733 N.E.2d 1186 (6th Dist. 1999).

{¶17} When reviewing a trial court’s decision to grant summary judgment, an

appellate court applies the same standard used by the trial court. Smiddy v. The

Wedding Party, Inc., 30 Ohio St.3d 35, 506 N.E.2d 212 (1987). This means we review

the matter de novo. Doe v. Shaffer, 90 Ohio St.3d 388, 2000-Ohio-186, 738 N.E.2d

1243.
Stark County, Case No. 2013CA00084 9

Grava and the Restatement Approach to Claim Preclusion

{¶18} Res judicata can be divided into two separate subparts: claim preclusion

and issue preclusion. Grava v. Parkman Twp., 73 Ohio St.3d 379, 381, 1995-Ohio-331,

653 N.E.2d 226 (1995). The Ohio Supreme Court analyzed the doctrine of claim

preclusion in the Grava decision in 1995. Id. In the syllabus of Grava, the Ohio

Supreme Court stated that “a valid, final judgment rendered upon the merits bars all

subsequent actions based upon any claim arising out of the transaction or occurrence

that was the subject matter of the previous action” and found that the “1 Restatement of

the Law 2d Judgments (1982), Sections 24 – 25 [are] approved and adopted.” Grava,

73 Ohio St.3d at syllabus. In Grava, a property owner filed an initial application for

zoning for a proposed business. Id. at 379. After his initial application was denied, the

property owner then filed a second application seeking zoning for the same building that

was the subject of his earlier application under a separate zoning ordinance regarding

nonconforming use. Id. at 379-380.

{¶19} The Ohio Supreme Court stated that they:

Expressly adhere to the modern application of the doctrine of

res judicata, as stated in 1 Restatement of the Law 2d,

Judgments (1982), Sections 24 – 25 and hold that a valid,

final judgment rendered upon the merits bars all subsequent

actions based upon any claim arising out of the transaction

or occurrence that was the subject matter of the previous

action.
Stark County, Case No. 2013CA00084 10

Id. at 382. The Ohio Supreme Court thus adopted the “transactional” approach to res

judicata. Id. The Court determined that Grava’s second zoning application was barred

by claim preclusion because the zoning applications for the same building derived from

the same transaction or the same “common nucleus of operative fact.” Id. at 382.

Grava had a “full and fair opportunity to present his case” during his first zoning

application where he did not appeal the denial of the zoning request and “simply failed

to avail himself of all available grounds for relief in the first proceeding.” Id. at 383.

Restatement Exceptions

{¶20} The parties differ in their interpretation of the Grava case. Appellees

contend the decision in Grava precludes the state claims of appellants and that the Ohio

Supreme Court adopted the transactional approach to res judicata as found in Sections

24 and 25 of the Restatement, but did not adopt the exceptions to claim preclusion

found in the Restatement. Appellants contend the Grava and Restatement approach to

claim preclusion includes the exceptions set forth in the Restatement which are integral

parts of the Restatement’s doctrine of claim preclusion. We agree with appellants.

{¶21} Restatement Section 24 sets forth the general rule of claim preclusion in

two subdivisions. 1 Restatement of the Law 2d, Judgments, Section 24 (1982). After

these two subdivisions and prior to the comments, Section 24 includes a sentence that

states, “The general rule of this Section is exemplified in § 25, and is subject to the

exceptions stated in § 26.” Thus, the language contained in Section 24 of the

Restatement, a section explicitly adopted by the Ohio Supreme Court, contemplates the

use of the exceptions found in Section 25 and Section 26. Further, Section 25, also a

section of the Restatement specifically adopted by the Ohio Supreme Court in Grava,
Stark County, Case No. 2013CA00084 11

contains a comment entitled “State and federal theories or grounds.” The comment

provides that the general rule of claim preclusion in Section 24 applies as to claims

between state and federal courts with the caveat that:

If however, the court in the first action would clearly not have

had jurisdiction to entertain the omitted theory or ground (or,

having jurisdiction, would clearly have declined to exercise it

as a matter of discretion), then a second action in a

competent court presenting the omitted theory or ground

should be held not precluded. See Illustrations 10-11.

1 Restatement of the Law 2d, Judgments, Section 25, Comment (e) (1982). This

exception is further explained in an illustration to the text of the Restatement.

Illustration 10 describes a situation in which a plaintiff attempts to bring a state antitrust

action in state court under a state law after losing a federal antitrust action in federal

court. Id. “Therefore unless it is clear that the federal court would have declined as a

matter of discretion to exercise that jurisdiction * * * the state action is barred.” Id. This

section of the Restatement comports with the Ohio Supreme Court’s holding that “[I]t

has been long recognized that the doctrine of res judicata applies in a proper case as

between federal court and state court judgments.” Rogers v. Whitehall, 25 Ohio St.3d

67, 69, 494 N.E.2d 1387 (1986).

{¶22} Section 25, Comment (e) also refers to the exception contained in Section

26(1)(c). Section 26 provides that when any of the following circumstances exists, the

general rule of Section 24 of claim preclusion does not apply:
Stark County, Case No. 2013CA00084 12

(c) The plaintiff was unable to rely on a certain theory of the

case or to seek a certain remedy or form of relief in the first

action because of the limitations on the subject matter

jurisdiction of the courts or restrictions on their authority to

entertain multiple theories or demands for multiple remedies

or forms of relief in a single action, and the plaintiff desires in

the second action to rely on that theory or to seek that

remedy or form of relief * * *

1 Restatement of the Law 2d, Judgments, Section 26 (1982). Comment (c) to Section

26 of the Restatement explains that the general rule of claim preclusion in Section 24 is

based upon the assumption that the jurisdiction in which the first judgment was

rendered put “no formal barriers” to prevent their theories of recovery or claims for relief.

Id. at Comment (c). Thus, if “formal barriers” exist against a plaintiff in the first action, “it

is unfair to preclude him from a second action in which he can present those phases of

the claim which he was disabled from presenting in the first.” Id.

{¶23} In Grava, the Ohio Supreme Court did not indicate that it was adopting

only certain portions of Restatement Sections 24 and 25 or limit its holding to the

language of the Restatement sections to the exclusion of the detailed comments and

notes accompanying each section. In fact, in the Grava decision, the Ohio Supreme

Court quotes from the comments contained in the Restatement. 73 Ohio St.3d at 381.

As noted above, the sections adopted by the Ohio Supreme Court in Grava (Sections

24 and 25) both refer to the exceptions contained in Section 26. While appellees cite to

Stanfield v. Osborne Indus., Inc., 949 P.2d 602 (Kan. 1997), in which the Kansas
Stark County, Case No. 2013CA00084 13

Supreme Court declined to recognize the pendent jurisdiction exception to claim

preclusion, this case represents a minority position and, as noted by a Wisconsin court,

“[m]ost state courts * * * have held that where it is clear that the federal court would

have declined jurisdiction over related state claims which could have been raised in the

federal action through pendent jurisdiction * * * a later action in state court on the state

claims is not barred by res judicata.” Parks v. City of Madison, 492 N.W.2d 365, 369

(Wis. App. 1992), citing as examples, Terrell v. City of Bessemer, 406 So.2d 337 (Ala.

1981); Puckett v. City of Emmett, 747 P.2d 48, 51 (Idaho 1987); Jeanes v. Henderson,

688 S.W.2d 100 (Texas 1985); Sattler v. Bailey, 400 S.E.2d 220, 226-27 (W.Va. 1990).

{¶24} Ohio courts have generally accepted the principles set forth in the

Restatement in addressing res judicata issues. See, e.g., Marrone v. Phillip Morris

USA, Inc., 9th Dist. Medina No. 03CA0120-M, 2004-Ohio-4874, reversed on other

grounds in Marrone v. Philip Morris USA, Inc., 110 Ohio St.3d 5, 850 N.E.2d 31, 2006-

Ohio-2869 (stating that because the Ohio Supreme Court approved and adopted

Sections 24 – 25 of the Restatement “this Court must presume that it would likewise

follow the exceptions to that rule which are set forth in 1 Restatement of the Law 3d,

Judgments (1982), Section 26”); Price v. Carter Lumber Co., 9th Dist. Summit No.

24991, 2010-Ohio-4328 (citing the exception in Restatement Section 26, but finding

plaintiff failed to show the federal court dismissed his state claims).

{¶25} Further, other courts of appeals have determined that when a federal court

declines to exercise pendent jurisdiction over state claims in a federal action, there is no

prior valid judgment on the merits as required for the utilization of claim preclusion.

Bush v. Dictaphone Corp., 10th Dist. Franklin No. 98AP-585, 1999 WL 178370 (stating
Stark County, Case No. 2013CA00084 14

that “under the well-established authority finding that a dismissal premised on a decision

not to exercise supplemental jurisdiction does not constitute a final judgment on the

merits so as to invoke the principles of res judicata, we similarly find that the federal

district court’s decision here did not reach a final decision on the merits”) Saha v.

Research Institute at Nationwide Children’s Hospital, 10th Dist. Franklin No. 12AP-590,

2013-Ohio-4203 (finding when plaintiff raised state law claims before the federal court

and the court declined to exercise jurisdiction over those claims there is no prior valid

judgment on the merits); Johnson v. Cleveland City School District, 8th Dist. Cuyahoga

No. 94214, 2011-Ohio-2778 (finding there was no final judgment on the merits in the

federal action as to state claims when a federal court declined to exercise pendent

jurisdiction over the remaining state claims).

{¶26} We find the instant case falls squarely within the exceptions contained in

Section 25 and Section 26 of the Restatement. Pursuant to Restatement Section 25,

the federal district court clearly declined to exercise its discretionary jurisdiction over the

state claims by stating that “the Court will not decide the Ohio Blue Sky and Ohio

common law claims set forth * * * the Court declines to exercise jurisdiction in favor of

their resolution by the Stark County Ohio Common Pleas Court.” Further, pursuant to

Restatement Section 26, “formal barriers” existed against appellants in the first action

which make it unfair to preclude them from a second action. The federal district court

specifically declined jurisdiction of the state court claims and appellants could not seek

the remedies of full rescissory damages or joint and several liability of the appellees as

contemplated by R.C. 1707.43(A), the Ohio code section detailing remedies for

violations of Ohio securities law.
Stark County, Case No. 2013CA00084 15

{¶27} In this case, the facts are not analogous to the Grava case in which the

plaintiff failed to avail himself of all available grounds for the zoning variance in his first

proceeding. Here, appellants did avail themselves of all the various grounds for relief in

the first proceeding. They asserted their claims in the federal action, as required by the

transactional doctrine of claim preclusion. Unlike the plaintiff in Grava, appellants could

not litigate their state claims in the first case through no fault of their own. The federal

district court had the power to hear the state law claims as a matter of pendent

jurisdiction. However, the exercise of this pendent jurisdiction is discretionary and the

federal district court specifically declined to entertain the pendent state claims raised in

appellants’ federal action. Instead, the district court dismissed the state law claims and

reserved appellants’ right to pursue the matter in the Stark County action. Appellants

did not have a full and fair opportunity to litigate the state law claims in federal court.

Single Recovery Argument

{¶28} Appellees argue that even if Ohio recognizes the exceptions to claim

preclusion contained the Restatement, the exceptions are not applicable because

appellants are entitled to only one recovery. Appellees contend appellants could obtain

the same relief in state court as they could in federal court, namely, rescissory

damages. Thus, appellants were not denied an available remedy when the federal

court declined to exercise pendent jurisdiction over appellants’ state law claims. We

disagree.

{¶29} In this case, the remedy of rescissory damages is available to appellants

in the Stark County action pursuant to R.C. 1707.43(A). In the federal case, the jury

found the amount of rescissory damages was $7,700,723 and found the amount of
Stark County, Case No. 2013CA00084 16

damages proximately caused by appellees’ misrepresentations to be $1,777,909.

However, in the jury verdict form, the jury awarded appellants a total of $1,777,909,

assessing appellee Carol Campbell liability of $296,318 and appellee OKO liability of

$1,481,591. As noted by the Sixth Circuit Court of Appeals, though rescissory damages

were included in the jury instructions as a permissible measure of damages for the

federal claims, the instructions “did not require the jury to award rescissory damages in

the event it decided plaintiffs were entitled to damages on the federal claims.” Nolfi, 675

F.3d 538 at 551. While Interrogatory I-G suggested rescissory damages was an

appropriate measure of damages “question 1-H and 1-I gave the jury the opportunity to

compute damages based on the losses proximately caused by defendants’ fraud – a

measure that does not require rescissory damages. The jury availed itself of this

opportunity afforded by questions 1-H and 1-I and awarded lesser amounts than the

amount of rescissory damages.” Id.

{¶30} As explained by the Sixth Circuit in Nolfi, both proximate cause damages

and, in some cases depending upon the facts, rescissory damages, are available as the

measure of damages for violations of federal securities law. Id. at 550, citing 15 U.S.C.

§ 78-u4(b)(4) and (f). Unlike the federal statute, Ohio state law permits only rescission

as the measure of damages for state securities fraud. R.C. 1707.43(A) (seller is liable

“for the full amount paid by the purchaser”). Further, under federal law, there is joint

and several liability only if there is a specific finding by the trier of fact that the violation

of securities law was done “knowingly.” 15 U.S.C. § 78-u(f)(2)(A). Otherwise, federal

securities law requires the jury to apportion liability between OKO, Campbell, and any

other person responsible for committing the fraud. Id. No such specific finding is
Stark County, Case No. 2013CA00084 17

required by Ohio law for joint and several liability. R.C. 1707.43(A). Accordingly, an

award for rescissory damages in the Stark County action would not be duplicative or

result in a double recovery for appellants. We also note that appellants have stipulated

that the proximate cause damages awarded by the federal judgment should be

subtracted from any recovery of rescissory damages in the Stark County action.

Waiver Exception

{¶31} Appellants argue the trial court also erred in not applying the waiver

exception contained in Section 26(1)(a) of the Restatement to the general rule of claim

preclusion. We agree. As noted above, Section 24 of the Restatement, specifically

adopted by the Ohio Supreme Court in Grava, states that “[t]he general rule of this

Section is exemplified in § 25, and is subject to the exceptions stated in § 26.” 1

Restatement of the Law, 2d, Judgments, Section 24 (1982). Section 26 of the

Restatement provides that:

(1) When any of the following circumstances exists, the general

rule of § 24 does not apply to extinguish the claim, and part

or all of the claim subsists as a possible basis for a second

section by the plaintiff against the defendant:

(a) The parties have agreed in terms or in effect that the plaintiff may split

his claim, or the defendant has acquiesced therein.

1 Restatement of the Law 2d, Judgments, Section 26 (1982). The comments to the

Restatement explain that the rule of § 24 is “not applicable where the defendant

consents, in express words or otherwise, to the splitting of the claim” and “the failure of

the defendant to object to the splitting of the plaintiff’s claim is effective as an
Stark County, Case No. 2013CA00084 18

acquiescence in the splitting of the claim.” Id. at Section 26, Comment (a). See also

Davis v. Sun Oil Co., 148 F.3d 606 (6th Cir. 1998) (finding that § 26 of the Restatement

adopted in Grava precludes claim-splitting except where “the parties have agreed in

terms or in effect that the plaintiff may split his claim, or the defendant has acquiesced

therein.”)

{¶32} In this case, appellees failed to object to the splitting of the state and

federal securities claims when the federal district court declined to exercise pendent

jurisdiction over appellants’ state law claims. Further, in their amended motion to

dismiss pursuant to Civil Rule 12(B)(2) filed in federal court, appellees requested the

federal court “dismiss or stay the subject case until completion of the state court

proceeding.” The district court thus granted appellees’ motion in part, declining to

exercise jurisdiction over appellants’ state law claims “in favor of their resolution by the

Stark County, Ohio Common Pleas Court” and dismissing appellants’ Ohio law claims.

We find appellees’ failure to object to the splitting of the claim and amended motion to

dismiss requesting a dismissal of the claims in federal court in favor of the Stark County

Common Pleas Court demonstrates that appellees acquiesced in the splitting of

appellants’ federal and state claims. Thus, the waiver exception found in § 26(1)(a) of

the Restatement applies to defeat the broad application of claim preclusion found in §

24 of the Restatement.

Collateral Estoppel

{¶33} The trial court also stated in its judgment entry that counterclaims one,

three, four, five, six, seven, and eight are barred by “collateral estoppel.” Collateral

estoppel, also known as issue preclusion, precludes relitigation of any “issue that has
Stark County, Case No. 2013CA00084 19

been actually and necessarily litigated and determined in prior action.” Fort Frye

Teachers Assn. v. State Emp. Rels. Bd., 81 Ohio St.3d 392, 395, 1998-Ohio-435, 692

N.E.2d 140 (1998). In this case, the trial court fails to identify which issues were

actually litigated and determined in the federal case and appellees did not argue that

appellants’ counterclaims were barred by collateral estoppel in their summary judgment

motion and subsequent briefing. Accordingly, we reverse the trial court’s granting of

summary judgment in favor of appellees to the extent that the trial court granted

summary judgment based on collateral estoppel or issue preclusion.

{¶34} Based on the foregoing, appellants’ first assignment of error is sustained.

II.

{¶35} Appellants finally argue the trial court erred by denying their motion for

summary judgment on counterclaim three, sale of unregistered securities, and

counterclaim four, Ohio securities fraud, on the basis of issue preclusion.

{¶36} As discussed above, when a valid, final judgment on the merits is

rendered, all subsequent actions based upon any claim arising out of the transaction or

occurrence that was the subject matter of the previous action is barred. Grava, 73 Ohio

St.3d at 382. Issue preclusion or collateral estoppel “holds that a fact or a point that

was actually and directly at issue in a previous action, and was passed upon and

determined by a court of competent jurisdiction, may not be drawn into question in a

subsequent action between the same parties or their privies, whether the cause of

action in the two actions be identical or different.” Ft. Frye Teachers Assn, 81 Ohio

St.3d 392 at 395. While claim preclusion bars re-litigation of the same cause of action,

issue preclusion bars the re-litigation of an “issue that has been actually and necessarily
Stark County, Case No. 2013CA00084 20

litigated and determined in a prior action that was based on a different cause of action.”

Id.

{¶37} In this case, the trial court applied claim preclusion to completely bar the

adjudication of appellants’ counterclaims three and four. Thus, the trial court did not

examine the underlying factual issues or determine whether the issues in counterclaims

three and four were actually and necessarily litigated and determined in the federal

court action dealing with the federal securities violation claims. Accordingly, because

we sustained appellants’ first assignment of error and reversed the trial court’s decision

regarding claim preclusion, the trial court must now determine whether appellants can

offensively utilize issue preclusion against appellees in counterclaims three and four.

{¶38} Accordingly, the February 28, 2013 judgment entry of the Stark County

Common Pleas Court granting appellees’ motion for summary judgment and dismissing

counterclaims one, three, four, five, six, seven, and eight of appellants is reversed. We

remand the matter to the trial court for further proceedings in accordance with the law

and this opinion.

By Gwin, P.J.,
Hoffman, J., and
Delaney, J., concur
_________________________________
HON. W. SCOTT GWIN

_________________________________
HON. WILLIAM B. HOFFMAN

_________________________________
HON. PATRICIA A. DELANEY

WSG:clw 1121
[Cite as Ohio Kentucky Oil Corp. v. Nolfi, 2013-Ohio-5519.]

IN THE COURT OF APPEALS FOR STARK COUNTY, OHIO

FIFTH APPELLATE DISTRICT

OHIO KENTUCKY OIL
CORPORATION, ET AL :
:
Plaintiffs-Appellees :
:
:
-vs- : JUDGMENT ENTRY
:
GREGORY M. NOLFI, AS SUCCESSOR :
TRUSTEE, ET AL :
:
:
Defendants-Appellants : CASE NO. 2013CA00084

For the reasons stated in our accompanying Memorandum-Opinion, the February

28, 2013 judgment entry of the Stark County Common Pleas Court granting appellees’

motion for summary judgment and dismissing counterclaims one, three, four, five, six,

seven, and eight of appellants is reversed. We remand the matter to the trial court for

further proceedings in accordance with the law and this opinion. Costs to appellees.

_________________________________
HON. W. SCOTT GWIN

_________________________________
HON. WILLIAM B. HOFFMAN

_________________________________
HON. PATRICIA A. DELANEY