Tuesday, Jan. 5, 2016
Epic Aviation, LLC v. Joseph W. Testa, Tax Commissioner of Ohio, Case no. 2014-1691
Ohio Board of Tax Appeals
Ford Motor Company v. Ross J. Linert, et al, Case no. 2014-1940
Seventh District Court of Appeals
Dennis Carter v. Larry Reese Jr., et al., Case no. 2015-0108
Twelfth District Court of Appeals (Butler County)
Regis F. Lutz et al. v. Chesapeake Appalachia, L.L.C., Case no. 2015-0545
U.S. District Court for the Northern District of Ohio
Is Air Cargo Carrier a Public Utility and Exempt from Sales Tax?
Epic Aviation, LLC v. Joseph W. Testa, Tax Commissioner of Ohio, Case no. 2014-1691
Ohio Board of Tax Appeals
ISSUE:
- Does an air cargo carrier meet the requirements under R.C. 5739.02(B) and 5739.01(P) as a “public utility” in order to be exempted from sales tax on fuel?
BACKGROUND:
AirNet Systems is the third-largest all-cargo air carrier in the United States, and is based at Rickenbacker Airport in Columbus. Epic Aviation filed for a refund on the sales tax collected on jet fuel it sold to AirNet between Jan. 1, 2006 and April 30, 2009. Epic asked the Ohio Department of Taxation to approve a $1.727 million refund because AirNet is a public utility and should be tax exempt. The company based its argument on AirNet’s air cargo operations and service to the public, including transporting financial documents and biological products.
In April 2012, the tax commissioner denied the tax exemption because AirNet failed to prove it was a public utility and because it’s subject to less stringent safety and economic regulations than traditional airlines. The company’s appeal to the Board of Tax Appeals (BTA) was rejected in a September 2014 decision. In upholding the refund denial, the BTA applied a 2006 Ohio Supreme Court decision in Castle Aviation, Inc. v. Wilkins that a small air carrier was not a public utility because it didn’t meet the criteria for being under special regulation and control, and its business consisted mostly of transporting freight rather than passengers. The company has appealed to the Supreme Court.
Epic’s Argument
Attorneys for Epic contend in the brief to the Court that AirNet’s operations are different than Castle’s. In backing up the claim, they note several similarities to other “major freight carriers” that are tax-exempted, including a similar system for delivering packages; regularly scheduled flights, with the schedule published on a public website; and delivery of any qualifying package or customer.
There is one difference: AirNet is under different federal guidelines than other air carriers. Epic’s attorneys maintain AirNet chose to qualify for its current Federal Aviation Administration Part 135 standards “not to avoid regulation” but to remain flexible using smaller aircraft that can fly to smaller airports. To be under Part 121, like FedEx and others, would mean flying larger aircraft, they write.
State law was amended after Castle to add language that public utility status includes those who have a certificate of public convenience and necessity, which AirNet doesn’t have. Epic argues legislators didn’t intend for a certificate to be the only way to determine a public utility, and they note AirNet’s significant contributions to the transportation industry show it provides important services to segments of the public. Those contributions include forming the “backbone” of transporting cancelled checks for financial institutions, being one of the first carriers allowed by the federal government to resume operations after the 9/11 attacks, and delivering much of the country’s radiopharmaceuticals such as cancer treatments.
Tax Commissioner’s Response
Attorneys for the state tax commissioner argue that AirNet doesn’t meet the legal nor legislative intent that give tax exemptions to public utilities.
By choosing to operate as an air taxi, with smaller aircraft and limited passenger options, the company can “avoid having to undergo the accompanying ‘economic and fitness and review,’” they write. Because of that, as with Castle, AirNet isn’t subject to the degree of governmental regulation and control that are required of public utilities under the state law. Answering Epic’s claim that AirNet’s significance to the transportation industry should be a standard for being a public utility, the tax commissioner sticks to the strict interpretation of the General Assembly’s intent when it amended the law to codify the Court’s Castle decision and added the requirement for a certificate of public convenience and necessity.
The tax commissioner’s attorneys also note that while AirNet claims to offer public services, the company failed to present evidence that would show it’s “subject to any statute or regulation that grants the general public ‘a legal right to demand or receive its service.’”
- Stephanie Beougher
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing Epic Aviation: Edward Bernert, 614.228.1541
Representing Joseph W. Testa, Tax Commissioner of Ohio, from the Ohio Attorney General’s Office: Daniel Kim, 614.466.5967
Should Ford Have Warned of Police Cruiser’s Post-Collison Risks?
Ford Motor Company v. Ross J. Linert, et al, Case no. 2014-1940
Seventh District Court of Appeals
ISSUES:
- Does a manufacturer’s post-sale duty to warn apply to all known risks of a product, or only in correspondence to a risk’s likelihood and seriousness of harm?
- Do subsequent product improvements “trigger” a manufacturer’s post-marketing duty to warn consumers of product changes or improvements?
BACKGROUND
In November 2007, Austintown police officer Ross Linert suffered significant burns over the majority of his body from a fire that erupted after his police cruiser, a 2005 Ford Crown Victoria, was rear-ended by a vehicle traveling at about 115 mph. This police cruiser is commonly referred to as a Crown Victoria Police Interceptor (CVPI).
Linert’s attorneys allege that the police cruiser was defective in its design and manufacture and also claim that Ford Motor Company failed in its responsibility to issue pre-marketing and post-marketing warnings on the vehicle. Specifically, the brief they submitted claims the fuel system “was defectively designed because the fuel tank was located behind the axle instead of in front of the axle.” They also alleged that the CVPI was defectively designed because of the way the sending unit was attached to the fuel tank (crimped instead of welded).
It is believed that Linert suffered only broken ribs from the collision itself. But his attorneys maintain that the crimp holding the vehicle’s sending unit to the fuel tank failed, which caused fuel to leak and ignite the fire that badly injured the officer.
During a jury trial before the Mahoning County Common Pleas Court, Ford asserted that its crash testing was the most robust of all police-interceptor manufacturers and that its testing went beyond regulations and the industry’s standards. It also claimed that the CVPI’s safety ratings ranked highest among all manufacturers’ police vehicles.
According to Ford’s attorneys, the trial-court judge “found insufficient evidence to instruct the jury on the design defect claim based on crimping instead of welding. It also found insufficient evidence to submit plaintiffs’ post-marketing failure to warn claim.” The jury was instructed on the design-defect theory (fuel tank location), the manufacturing-defect theory (length of the crimp holding the sending unit to the fuel tank) and the pre-sale marketing failure-to-warn claim.
The jury, in July 2011, rejected all of the plaintiffs’ claims. Ford’s attorneys maintain that the verdict “established that a reasonable manufacturer would not have warned of the remote risk of post-collision fire known to Ford at the time of sale.”
After filing for a new trial in August 2011, which was denied, the Linerts appealed to the Seventh District Court of Appeals, raising 20 assignments of error, including eight jury-instruction challenges. The officer did not challenge the jury’s verdict on design defect.
In its September 2014 ruling, the appellate court affirmed almost all of the trial court’s decisions. However, in relation to the officer’s claim that the manufacturer’s crimp method and location of the fuel tank cause a risk of a post-collision fire, the court ordered a new trial on Linert’s post-marketing failure-to-warn claim, stating that “failure to warn of a known risk. . . could constitute a defect.” Ford’s attorneys stated that, “The only evidence cited by the Seventh District in support of this holding was evidence relating to Ford’s post-sale crimp tooling project.”
Ford appealed to the Supreme Court in November 2014, and the Court agreed to hear the case. Ford asks the Court to reverse the Seventh District’s decision to remand for a new trial and uphold the jury’s verdict in favor of Ford.
Manufacturer’s Warning for Any “Known Danger” is Not Required by Statute
Ford maintains that civil actions, under Ohio’s R.C. 2307 and specifically R.C. 2307.76, do not require manufacturers to warn consumers for simply any known risk. Rather, Ford’s attorneys claim that the statute requires the “risk” must be one for which “a reasonable manufacturer would warn in light of the likelihood and likely seriousness of harm.”
The merit brief lists three “fundamental errors” in the Seventh District’s ruling:
- Erroneously held that a manufacturer must give post-sale warnings of all known risks, which, it says, ignores the statute that requires a warning only in light of the likelihood and seriousness of harm
- Erroneously held that liability for not giving a post-sale warning can be “predicated on a risk a jury finds does not require a pre-sale warning”
- Erroneously held that a “duty to warn can exist even if a warning will not avert the harm in question.”
Stating that the appellate court “effectively rewrote the controlling statute,” Linert’s attorneys also wrote, “The statute’s plain language makes clear that the mere existence of some known risk is insufficient to trigger a post-marketing duty to warn.”
Pointing to the flammability of fuel and the risk of injury from collision in the safest cars to be well-known facts, Ford states, “…In determining what constitutes a sufficient ‘likelihood’ to trigger a warning from a reasonable manufacturer under R.C. 2703.76(A)(2)(b), a court must be cognizant of subsection (B), which does not require a warning about ‘an open and obvious risk or a risk that is a matter of common knowledge.’”
The company goes on to state that liability for failure to warn post-sale cannot be based on a risk that does not require a pre-sale warning. It also maintains that there is no duty to warn a consumer if a warning will not avert the harm.
Product Improvements Are Not Made Necessarily Because of a Defect
Ford also maintains that a manufacturer’s post-marketing product improvements do not “trigger” a post-marketing duty to warn consumers of a problem.
It claimed: “The Seventh District erred by allowing the post-sale duty to warn to be triggered by Ford’s attempt to improve an already safe and non-defective product. The statute neither requires a product to be a safe as possible nor does it endeavor to penalize manufacturers who consider product improvements.”
Ford claimed that the General Assembly “did not intend to stifle innovation or chill safety improvements” by including a post-marketing duty to warn in statute. Further, Ohio courts, it stated, have not had occasion to address this premise to date.
Ford’s attorneys stated, “Ohio has often turned to the Restatement of Torts for guidance…and it should certainly do so here.” Specifically, they point to Section 10 of the Restatement of the Law 3d on torts and product liability, which urges caution on duties to warn. Section 10, Comment a. reads: “[A]s product designs are developed and improved over time, many risks are reduced or avoided by subsequent design changes. If every post-sale improvement in a product design were to give rise to a duty to warn users of the risks of continuing to use the existing design, the burden on product sellers would be unacceptably great.”
If allowed to stand, the Seventh district’s decision would impose liability for incremental safety improvements, Ford’s attorneys stated.
They also suggested that notifying consumers about every incremental product-safety change will not improve safety, due to a possibility of saturating consumers with warnings and notices that may eventually be ignored due to the volume or frequency.
The Officer’s Response
In replying to Ford’s arguments, Officer Linert and his attorneys point to Ford’s two manufacturing changes on the CVPI at about the same time as the collision – the retooling of the crimp to strengthen the bond between the sending unit and the fuel tank and the development and addition of a fire-suppression system – both of which, they maintain, point to Ford knowing of the CVPI’s safety deficiencies.
In fact, they stated, Ford’s response to investigate the integrity of the crimp in the first place was because of reports of actual fires in CVPIs following similar collisions. Also, they assert, the CVPI could be defective simply due to the lack of a post-marketing warning ‒ a point the trial court failed to include in jury instructions.
Linert’s attorneys wrote: “Ford learned of an increased risk of harm to police officers in CVPIs, developed and sought patent protection for a fire suppression system, learned of ‘real world’ crimp connection failures, discovered that the crimp overlap…had decreased, and embarked on a secret Crimp Improvement Project to fix the new fuel tanks ‒ never alerting anyone about the risk in the old CVPIs. Of course Ford doesn’t want the jury to hear all the evidence and decide whether Ford should have issued a warning. But that isn’t for Ford or even a court to decide – it’s for the jury.”
The officer and his attorneys said they believe the Seventh District was correct in its ruling to remand the case for a new trial where the jury can hear all of this evidence, which was excluded in the first trial. Citing the Supreme Court’s 1991 Murphy v. Carrollton Mfg. Co. opinion, “The failure to instruct on a theory supported by the evidence is reversible error.”
Additional Briefs
Two briefs of amicus curiae were filed in support of Ford Motor Company, including one jointly from the Chamber of Commerce of the United States, National Association of Manufacturers, National Federation of Independent Business Small Business Legal Center, Ohio Chamber of Commerce, and Ohio Manufacturers’ Association. The Ohio Association for Justice filed an amicus brief in support of the Linerts.
- Carol Taylor
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing Ford Motor Company: Elizabeth B. Wright, 216.566.5500
Representing Ross and Brenda Linert: Robert W. Schmieder II: 314.588.9300
Does Good Samaritan Law Apply Only to Health-Care Workers Providing Care in Emergency?
Dennis Carter v. Larry Reese Jr., et al., Case no. 2015-0108
Twelfth District Court of Appeals (Butler County)
ISSUE: Does the protection afforded under Ohio’s Good Samaritan statute, R.C. 2305.23, apply only to health-care responders providing emergency medical care or treatment to another individual at the scene of an emergency?
BACKGROUND:
Dennis Carter, a commercial truck driver, delivered a trailer to a company in Fairfield, Ohio, in April 2012, and then hooked up another trailer to his truck. While attempting to close the back door to the trailer, Carter slipped and his right leg became pinned between the trailer and the loading dock.
He yelled for help, and Larry Reese Jr., who worked across the street, heard him and went over to assist. Carter asked Reese to pull the rig forward. Carter stated that he heard Reese rev the motor and then the sound of the air brake releasing. The trailer then started rolling backward, breaking Carter’s leg and leading to extensive bleeding.
Paramedics arrived, and Carter was taken to a hospital where he had to have his leg amputated above the knee.
Case History
Carter and his wife sued Reese for damages, asserting claims of negligence and loss of consortium (harm to the Carters’ relationship). Reese responded that the state’s Good Samaritan law gave him immunity from the lawsuit.
In March 2014, the trial court granted summary judgment to Reese. The Carters appealed, but the Twelfth District Court of Appeals agreed with the trial court. The Carters filed an appeal with the Ohio Supreme Court, which agreed to review the issue.
Truck Driver’s Assertions
Attorneys for the Carters argue that a person must be providing “emergency medical care or treatment” to someone to be protected by the immunity granted in R.C. 2305.23. They contend that the Ohio Supreme Court’s decision in Primes v. Tyler (1975) supports this view. In that case, the Court stated in a footnote that the Good Samaritan law gives immunity to those providing “medical treatment” in an emergency.
Carters’ attorneys also maintain that the General Assembly intended the law to protect health-care providers who deliver medical care and treatment because they’re trained in those skills. They assert that a broader interpretation that the statute applies to anyone who gives emergency care in an emergency situation undermines a long-held common law rule that a Good Samaritan who aids another must exercise reasonable care.
They note that a California law used the same “emergency care” language in its Good Samaritan statute before 2009. The California Supreme Court then ruled in a similar case that a person who pulled a passenger from a car after an accident wasn’t providing “medical care,” so the Good Samaritan had no immunity from liability for assisting the passenger. The state’s legislature then amended the law to specify that it applies to “emergency medical or nonmedical care or assistance.” Ohio hasn’t included a specific mention of non-medical care in the law, so Carters’ attorneys argue that the law doesn’t give Reese automatic immunity for his actions but instead raises a factual issue that should’ve moved the case to trial instead of being decided through summary judgment.
Claims from Man Who Tried to Assist Driver
Quoting the statute, attorneys for Reese respond that it clearly protects all “persons” who administer emergency care or treatment in an emergency as long as the actions don’t amount to “willful or wanton misconduct.” They maintain that no case law supports the argument that the law was intended or has been interpreted to apply only to health-care providers, and the law itself doesn’t mention health-care providers.
They also point out that the statute’s language covers “emergency care or treatment” and doesn’t include the word “medical.” Subsequent sections of the Revised Code do specifically mention “medical care,” which makes it clear that the legislature didn’t intend R.C. 2305.23 to cover only people giving medical care or treatment, they argue. They add that Primes dealt with a completely different legal issue and that the footnote cited by Carters’ attorneys isn’t controlling in this case.
They point instead to a 1986 ruling from the Eighth District Court of Appeals involving an off-duty firefighter who pulled a firefighter pinned by hydrant water away from the rushing current. The appeals court held that the off-duty firefighter gave urgent care in an emergency situation and was therefore immune from liability. In the view of Reese’s attorneys, the Eighth District’s decision “is the only case directly on point that squarely decides the issues presented” in this matter.
Additional Party Waives Oral Argument
The Ohio Bureau of Workers’ Compensation was named as a party in this case. However, because the bureau didn’t file a merit brief on the issues, it will not be permitted to argue before the Court.
- Kathleen Maloney
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing Dennis and Mary Carter: Robert Winter Jr., 859.250.3337
Representing Larry Reese Jr.: Katherine Clemons, 513.961.6200
Representing the Ohio Bureau of Workers’ Compensation: Jacalena Jewell, 614.299.3000
Can Costs to Put Natural Gas and Oil Into Modern Marketplace Be Deducted from Royalty Payments to Landowners?
Regis F. Lutz et al. v. Chesapeake Appalachia, L.L.C., Case no. 2015-0545
U.S. District Court for the Northern District of Ohio
ISSUES:
- Does Ohio follow the “at the well” rule, which would allow a drilling company to deduct post-production expenses when calculating oil and gas royalty payments to landowners?
- Does Ohio follow a version of the “marketable product” rule, which doesn’t allow the gas company to deduct the expenses for preparing the oil and gas for sale in the market?
- Should Ohio courts not select a rule and attempt to determine the cost allocation based on the interpretation of oil and gas leases on a case-by-case basis?
BACKGROUND:
Several Ohio landowners who entered oil and gas leases in the 1960s and 1970s filed a class action lawsuit against Chesapeake Appalachia in the U.S. District Court for the Northern District of Ohio. The dispute regards the deduction of the costs from the royalty payment to the landowners for preparing and transporting natural gas from the wells to offsite points where the gas can be distributed for sale. Until the early 1990s, natural gas was nearly all sold by producers to buyers at the wellhead site. Those leases, including ones in effect today, based the royalty payment to the landowner on the price sold “at the well.” However, because not all gas was sold at the well, other provisions of the landowners’ leases indicated in cases where it was sold someplace else, the landowner’s royalty would be based on “the market value at the well” of the gas.
In the early 1990s the Federal Energy Regulatory Commission deregulated the natural gas industry, which led to the majority of natural gas being taken by the gas company from the well to an offsite location to sell. To get the gas to market, the gas companies began to incur “post-production” cost for various processes like compressing and dehydrating the gas as well as the costs for trucking it to a sales point. Both the landowners and Chesapeake agree that the company is responsible for all “production” costs used to get the gas out of the ground and to the wellhead. The dispute centers on if the leases allow Chesapeake to deduct post-production costs before calculating royalties to the landowners, leaving the landowners and company to split the post-production costs. The two sides interpret the term “market value at the well” and the leases in general differently. A federal district judge is considering the class-action lawsuit and informed the Ohio Supreme Court that her decision will be impacted by how Ohio determines the rules for deducting post-production costs. The judge noted gas-producing states around the nation are split in determining if the royalty is based on the price “at the well,” which allows for deductions, or whether it follows a “marketable product” rule that limits or prevents the deduction of the post-production costs. The federal court asked in a certified question if Ohio follows the “at the well” rule or some version of the “marketable product” rule, and the Court agreed to hear the matter.
Chesapeake Asserts Deductions Permitted
Attorneys for Chesapeake argue the majority of oil and gas producing states follow the “at the well” rule permitting the deduction of post-production costs, and that when it inherited the older leases from the landowners through the years, it has always maintained it had the right to do so. They note the company follows a “netback method” for determining the costs to deduct and to pay all landowners in a consistent and fair way. They maintain if the state were to follow the “marketable product” rule, it would rewrite the contracts between the parties and skew the royalty payments in a way that wouldn’t treat landowners consistently.
They assert the contract is clear that the royalty payment, in this case 12.5 percent of the total price of gas, is determined by the price paid to Chesapeake when the gas was at the well, allowing it to deduct the post-production costs. “Indeed, the lease language itself makes clear that royalties are to be paid based on what the gas is worth at the well – no matter where the gas is sold,” the brief Chesapeake filed stated. The attorneys further argue that the value of the gas and the price paid for it increases when the product is processed for sale and the landowners would benefit without sharing any of the costs. They also advocate that if Ohio adopts the at-the-well rule, it would be similar to surrounding oil and gas producing states such as Michigan, Pennsylvania, and Kentucky, as well as Texas and Mississippi.
Lutz Argues Deductions Prohibited
Attorneys for Lutz and other landowners suggest that when federal regulators deregulated the industry, the notion of selling gas at the wellhead ended and that virtually all gas sales happen offsite after a company has processed it. Since no market activity happens at the well, then there is no “market value at the well” for natural gas anymore, they contend. With no at-the-well market, they suggest Ohio has an “implied duty to market” built into all oil and gas leases and that requires Chesapeake to pay post-production costs as well as production costs in this newly regulated era. Because of this shift in the market, the attorneys suggest that the trend across the country is to favor the “marketable product” rule because of this need to prepare and transport the gas for sale. They note states establishing legislation regarding the sale of oil and gas don’t allow post-production costs to be deducted from royalties. They note states such as West Virginia, Virginia, and Oklahoma follow the marketable product rule by case law and Nevada, Wyoming, and the federal government have statutes following the rule in certain circumstances.
“There has been no market at the well since 1992,”the brief filed by the landowners asserts. “If a lease provides for a royalty on the ‘market value at the well,’ the implied covenant to market requires the gas producer to sell the gas where there is a market and to pay the attendant costs.”
The attorneys note the federal court asked the Supreme Court to analyze the lease based on three clauses regarding calculating the price of gas and oil, not just the single clause referencing the market price at the well. They contend that when all the contracts clauses are read together, it implies the company can’t deduct the post-production costs.
Friend-of-the-Court Briefs Filed
Several amicus curiae briefs have been filed in the case, mostly supporting Chesapeake’s position. That includes briefs by Texas Tech University Professor Bruce Kramer, a leading author of at least three prominent law books on the oil and gas position; the 640-member American Petroleum Institute, which estimates more than 250,000 Ohio jobs are provided or supported by the oil and gas industry; and the Ohio Oil and Gas Association in conjunction with eight member oil and gas companies. The association contends the at-the-well rule has been recognized since the 1930s, that the splitting of the post-production cost is fair and predictable, and accuses the landowners of wanting “a free ride on the producer’s extra work and expense” for bringing the gas to market.
Four Ohio mineral rights’ owners also collectively filed an amicus brief not in support of either side. The brief asked the Court not to adopt either rule, and suggests the opposing sides are fighting over terms in the leases that shouldn’t control the interpretation of the contract. The four have more modern leases with gas companies that expressly indicate royalties are paid on gross proceeds of the gas price and that post-production costs can’t be deducted. They raise concerns that applying a rule could unfairly influence their contracts. They ask the Court to “apply the basic rules of contract interpretation, rather than a rigid one-size-fits-all rule.”
- Dan Trevas
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing Regis F. Lutz et al: James Lowe, 216.781.2600
Representing Chesapeake Appalachia, LLC. Daniel Donovan, 202.879.5000
These informal previews are prepared by the Supreme Court's Office of Public Information to provide the news media and other interested persons with a brief overview of the legal issues and arguments advanced by the parties in upcoming cases scheduled for oral argument. The previews are not part of the case record, and are not considered by the Court during its deliberations.
Parties interested in receiving additional information are encouraged to review the case file available in the Supreme Court Clerk's Office (614.387.9530), or to contact counsel of record.