The Court returned a lawsuit to a trial court to decide if the matter could first be resolved by state law.

The Court returned a lawsuit to a trial court to decide if the matter could first be resolved by state law.

A Franklin County trial court should have decided whether a claim was properly brought under state law rather than dismissing the case under principles of federal preemption, the Supreme Court of Ohio ruled today.

In a divided opinion, the Supreme Court reversed lower court decisions that had held that Epcon Communities Franchising could not sue a developer with whom it had worked in an effort to recover a portion of a $2.5 million fine it had paid to resolve allegations that it violated the federal Fair Housing Act (FHA).  The courts below were not sure if Ohio law allowed Epcon’s lawsuit, but they said that if Ohio law did allow such a lawsuit the Ohio law would be invalid because it conflicted with federal law.  Determining that the courts below were first required to decide if Epcon’s claim was allowed under Ohio law, the Supreme Court remanded the case to the Franklin County Common Pleas Court to determine whether the suit could go forward.

Writing for the Court majority, Justice R. Patrick DeWine explained that it would violate several principles of judicial restraint for the Court to decide the first preemption issue at this juncture.  Justice DeWine explained that neither party in the case asked for preemption and that courts only decide issues raised by the parties.  In addition, courts should not decide hypothetical disputes, so it was not proper for the courts below to skip over the question of whether Epcon’s claim was valid under Ohio law.  Finally, it was improper to decide the constitutional issue of preemption without first determining if the case could be decided on non-constitutional grounds.

Chief Justice Sharon L. Kennedy and Justices Patrick F. Fischer, Michael P. Donnelly, and Joseph T. Deters joined Justice DeWine’s opinion. Justice Melody Stewart concurred in judgment only.

In a separate opinion concurring in judgment only, Justice Jennifer Brunner wrote the Ohio Supreme Court agreed to consider the issue of whether the lower courts were correct in finding the federal FHA required Epcon to pay the full fine. She wrote that the Court should have found federal law does not prohibit Epcon from asking a trial court to order the contractor to contribute to paying the fine.

Federal Government Penalized Builder
Epcon Communities develops and constructs residential homes for community development projects. It is also a franchisor, allowing other companies to build multifamily plans under the Epcon banner using Epcon designs.

In 2019, the U.S. Department of Justice filed a lawsuit against Epcon for violating the FHA. The matter was resolved through a consent order under which Epcon agreed to pay $2.5 million. Epcon had developed some of the properties, while others were built by Wilcox Development Group and its affiliates.

In January 2021, Epcon sued Wilcox to recoup some of the money it paid to resolve the federal lawsuit. Epcon sought to use the state law that allows a party who has to pay a judgment to seek “contribution” from another party, R.C. 2307.25(A). Under the law, if one or more persons are “jointly and severally liable in tort for the same injury or loss to person or property,” the payor of the judgment can seek contribution from all others who are also liable.

Epcon argued its agreements required Wilcox to be solely responsible for the design and construction of the properties it developed, which included complying with the FHA and other laws. Epcon asserted that because Wilcox violated the FHA, it should have to pay some of the $2.5 million fine.

Wilcox asked the trial court to dismiss the case, asserting that R.C. 2307.25(A) does not apply. The contractor argued among other things that the law applies only to tort cases, and a violation of the FHA is not a tort claim.

The trial court dismissed the case, but not for the reasons Wilcox argued. Instead, the trial court ruled that even if Epcon had a valid claim under Ohio law, the FHA preempted Epcon from using it to recover for an FHA violation. Epcon appealed to the Tenth District Court of Appeals, arguing it never had a chance to address the issue of preemption because it was not addressed in the trial court by Epcon or Wilcox. In response, Wilcox asked the Tenth District to affirm the lower court decision based on its arguments to the trial court. Wilcox again did not argue the FHA preempts state law.

The Tenth District affirmed the trial court’s ruling, agreeing with the trial court’s position. Epcon appealed to the Supreme Court, which agreed to hear the case.

Supreme Court Declined to Rule
Epcon requested that the Court consider one legal argument, known as a proposition of law. It asserted the FHA does not preempt the state contribution law. Justice DeWine wrote the parties are asking the Court to decide whether the FHA preempts state law even though neither side has argued that it does. He explained preemption is an application of the supremacy clause of the U.S. Constitution, so deciding a case based on preemption requires addressing a constitutional issue. Accordingly, the trial court should not have addressed the constitutional issue without first examining whether the case could be decided by Ohio law. Particular to this case, the trial court should have first ruled on whether Epcon could force Wilcox to contribute to the penalty under Ohio’s contribution statute, the opinion stated.

“We should not be deciding issues that have not been properly presented by the parties, and we should not be deciding constitutional questions unless it is necessary to do so,” the opinion stated.

The Court also noted it cannot issue advisory opinions or answer hypothetical questions. The opinion stated that the case asks it to answer a hypothetical question: “Assuming that a state-law contribution claim exists, would such a claim be preempted by federal law?”

The Court ruled the only way the preemption issue could become an issue in this controversy is if a court first decides Epcon has a valid claim under Ohio law to force Wilcox to contribute to the penalty.

The Court vacated the Tenth District and trial court judgments and returned the case to the trial court to consider if Epcon can invoke the state contribution law.

Federal Issue Discussed in Trial Court, Concurrence Maintained
While noting that the case’s path to the state Supreme Court was not ideal, Justice Brunner maintained the lower courts were presented with the preemption issue and had a chance to hear arguments on the matter when the case was appealed.

The concurrence explained when the case was in the trial court, Wilcox asked that the case be dismissed, and Epcon opposed the request. In response to Epcon’s argument not to dismiss the case, Wilcox submitted a brief arguing the FHA does not allow Epcon to seek contribution from another party regardless of whether Epcon used federal or state law. In support of its argument, Wilcox presented a series of rulings where other courts decided that the FHA preempts state law.

“That likely explains why the trial court issued a decision based on preemption,” she wrote.

The lower courts decided the case only on the preemption issue, and the Supreme Court accepted the issue and allowed the parties to argue about preemption before the Court, the concurrence noted. If the Court was not prepared to decide the issue, the justices should not have voted to hear the case, the concurrence stated.

Justice Brunner wrote the Court has enough information to consider the issue and should conclude that the FHA does not preempt Epcon from seeking contribution from Wilcox. The trial court should proceed to consider the matter based on Epcon’s claim that under state law, Wilcox should contribute to paying off the penalty, she concluded.

2022-1404. Epcon Communities Franchising LLC v. Wilcox Dev. Group LLC, Slip Opinion No. 2024-Ohio-4989.

View oral argument video of this case.

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