Wednesday, April 13, 2022
Navistar Inc. v. Dutchmaid Logistics Inc., Case No. 2021-0719
Fifth District Court of Appeals (Licking County)
State of Ohio v. Marquis Bollar, Case Nos. 2021-0756 and 2021-0769
Fifth District Court of Appeals (Stark County)
City of Maple Heights v. Netflix Inc. and Hulu LLC, Case No. 2021-0864
U.S. District Court for the Northern District of Ohio
Can Hauler Sue for Faulty Truck Engines When Contract Had Limited Warranty?
Navistar Inc. v. Dutchmaid Logistics Inc., Case No. 2021-0719
Fifth District Court of Appeals (Licking County)
ISSUES:
- Can a claim that a contract was secured by fraudulent lack of disclosure be pursued if the claim contradicts the express disclaimer in the parties’ written contract?
- When both a breach of contract and a fraud claim are brought in the same lawsuit, must the party prove they suffered damages from the fraud that are in addition to the damages from the breach?
BACKGROUND:
Dutchmaid Logistics owns a fleet of commercial trucks for hauling dry and refrigerated goods across 48 states. Navistar manufactures heavy-duty commercial trucks with diesel engines. Between 2008 and 2009, Dutchmaid purchased nine Navistar trucks equipped with its MaxxForce 1 engines that were compliant with 2007 EPA emission standards.
The trucks began experiencing mechanical issues after 100,000 miles. The problems were mostly attributed to the failure of the exhaust gas recirculation (EGR) cooler. The EGR cooler was part of a system that pumps the engine exhaust back into the engine to lower emissions. Because of the issue, Dutchmaid retired all MaxxForce 1 engine vehicles earlier than normal, noting that the industry standard lifetime of a commercial truck engine is 1.2 million miles.
In late 2010, Dutchmaid began the process of purchasing additional trucks. Navistar representatives met with Sam Burrer, Dutchmaid’s general manager and the person in charge of truck purchases. Burrer said he insisted that Navistar convince him the issues with the MaxxForce engine had been resolved. After extensive discussions, and visits to Navistar’s manufacturing plant, Burrer was convinced the EGR issues were fixed with the introduction of Navistar’s MaxxForce 2 engine, which was complaint with updated EPA emission standards.
Dutchmaid purchased 20 Navistar trucks between 2011 and 2012. In the next three years, the Navistar vehicles were in the shop for warranty repairs more than 100 times because of EGR system failures.
Fleet Owner Sues Manufacturer
In February 2015, Dutchmaid filed a lawsuit against Navistar, raising three claims: breach of warranty; fraudulent misrepresentation; and fraudulent nondisclosure. At the trial, several Navistar executives testified, as did Burrer and the Navistar dealership representative who sold the trucks to Dutchmaid. Burrer testified that he received repeated verbal assurances from Navistar officials that the EGR issues were resolved. He said Navistar’s continuing issues with the system weren’t disclosed to him.
The jury found for Dutchmaid on the fraudulent nondisclosure claim. The jury awarded Dutchmaid $275,000 in compensatory damages and $1,025,000 in punitive damages. The trial court reduced the punitive damages to $550,000. The trial court awarded attorney fees and court costs to Dutchmaid, for a total judgment against Navistar for about $1.9 million. The jury found for Navistar on the breach of warranty claim (which is a type of breach of contract), and the fraudulent misrepresentation claim.
Navistar appealed to the Fifth District Court of Appeals, which affirmed the trial court’s decision. Navistar appealed the Fifth District’s decision to the Supreme Court of Ohio, which agreed to hear the case.
Contract Bars Claims Against Misleading Statements, Truck Maker Asserts
Navistar argues that regardless of what company officials may have told Burrer, Dutchmaid can’t sue for fraudulent misrepresentation or fraudulent nondisclosure because the company signed a written contract that expressly stated the agreement between the two companies, The truck maker cites the Supreme Court’s 2000 Galmish v. Cicchini decision, which stated that an express disclaimer will bar a fraudulent inducement claim that directly contradicts the disclaimer.
Navistar notes that Burrer signed a contract that disclaimed “all other representations to [Dutchmaid] and all other obligations and liabilities” besides those in the written contract. The truck maker argues that the two parties are sophisticated businesses that knew what provisions were in the contract, and that Burrer testified he was aware that Navistar only had to provide the services covered by the warranties in the written contract.
Any misrepresentations allegedly made orally to Burrer before the contracts were signed can’t be used against Navistar once the contract is signed, the truck maker asserts. Since the contract stated that the only warranties about the quality of the trucks were in the written contract, Dutchmaid can’t allege it relied on the oral statements or lack of information from company officials, Navistar concludes.
Rule Limits Damages Buyer Can Claim, Truck Maker Asserts
The truck maker also challenges the award of damages to Dutchmaid for fraud, stating a jury has limited ability to award damages for fraud when both breach of contract and fraud are raised in the same lawsuit. The only way Dutchmaid can win damages for fraud is if it can prove additional harm from the fraud that was separate from the breach, Navistar argues. The truck maker argues Ohio case law requires that Dutchmaid had to articulate what damages it suffered from Navistar breaching the contract, and specify what additional harm was suffered by the fraudulent nondisclosure that induced Dutchmaid to purchase the trucks.
Navistar notes that Dutchmaid’s attorneys told the jury that whether it ruled that Navistar breached the contract or found the company committed fraud, the damages were the same. By doing so, Dutchmaid failed to prove it suffered additional damages from fraud and isn’t entitled to the jury award, Navistar concludes.
‘Boilerplate’ Disclaimer Doesn’t Shield Harm From Fraud, Buyer Argues
Dutchmaid argues the standard “boilerplate” language disclaiming responsibility for any representations made by company officials doesn’t prevent a fraud challenge when the company deliberately withheld information. Dutchmaid notes it never discussed the written disclaimers with Navistar directly because it signed the contracts with a Navistar dealership, not Navistar. Burrer and the Navistar dealer, who accompanied Burrer on the manufacturing plant visit, both testified that the key to Dutchmaid’s purchase was the resolution of the EGR issues. Burrer said he wouldn’t have signed the contracts had Navistar officials given him any indication the problem hadn’t been fixed.
Dutchmaid argues Ohio courts have invalidated contracts with disclaimers similar to Navistar’s when it was clear the buyer signed the contract based on seller’s failures to disclose information the buyer asked about.
Dutchmaid also argues Galmish doesn’t apply because the company isn’t arguing the information in the warranty contradicts the conversations between Dutchmaid and Navistar officials. The warranty states Navistar will pay for repairs based on the failure of truck engines. The warranty doesn’t have any effect on the officials’ failure to disclose that they knew the EGR issues weren’t resolved and failed to tell Burrer, the company argues.
The procedural argument that Dutchmaid didn’t prove additional damages from the fraud is also not a bar to prevailing in a lawsuit claiming both breach of contract and fraud, the company argues. Dutchmaid maintains that the company can only recover one damages award if it proves Navistar either breached its contract or committed fraud. Dutchmaid explains the rule cited by Navistar means a party can’t receive two separate judgments for both claims unless it proves the two claims were based on two entirely separate improper actions. Finding that Navistar committed fraud but didn’t breach the warranty, the jury awarded damages just for fraud, which is permitted, Dutchmaid concludes.
– Dan Trevas
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing Navistar Inc.: Roman Martinez, 202.637.2201
Representing Dutchmaid Logistics Inc.: Mark Kitrick, 614.224.7711
Can Court Stack Firearm Penalties After Merging Underlying Offenses?
State of Ohio v. Marquis Bollar, Case Nos. 2021-0756 and 2021-0769
Fifth District Court of Appeals (Stark County)
ISSUES:
- Can a trial court impose a prison sentence for an enhanced penalty, or “specification,” that is attached to an offense that the court merged with another offense at sentencing?
- When felony crimes are merged, does state law authorize cumulative punishments for multiple firearm specifications that were committed as part of one act?
BACKGROUND:
Erica DeLong of Canton was shot and killed in August 2019. Marquis Bollar was indicted in DeLong’s murder case on felony murder, involuntary manslaughter, felonious assault, and having a weapon illegally. Each count included a firearm specification. A firearm specification increases the prison sentence for a charge when the offender possesses a gun while committing a crime.
In a plea bargain, the Stark County prosecutor agreed to drop the murder charge, and Bollar pleaded guilty to the three remaining charges and the firearm specifications. The trial court merged the involuntary manslaughter and felonious assault offenses. It sentenced Bollar to 11 years for involuntary manslaughter, three years for the associated firearm specification, no sentence for felonious assault because it had merged, and three years for the firearm specification connected to that offense. The court sentenced Bollar to three more years for having a weapon illegally and merged that offense with the related three-year firearm specification.
The state argued the two firearm specifications must be imposed consecutively to each other for a six-year sentence, and consecutive to the 11-year sentence for involuntary manslaughter and the three years for having a weapon illegally. The court agreed, imposing a minimum of 20 years.
Offender Appeals Multiple Firearm Penalties
Bollar argued to the Fifth District Court of Appeals that the three-year sentence for the firearm specification connected to the felonious assault charge shouldn’t have been imposed. The Fifth District disagreed, upholding the sentences. It also agreed that its decision conflicts with rulings from Eighth District Court of Appeals and the Ninth District Court of Appeals.
Bollar appealed. The Supreme Court of Ohio accepted his appeal and agreed to review the conflict among the state appellate courts. The two cases were consolidated.
Firearm Penalty Depends on Sentence for Underlying Crime, Offender Maintains
A state law, R.C. 2929.14(B)(1)(g), addresses cases in which a defendant pleads guilty to two or more felonies, one of which is a serious felony such as felonious assault, and the defendant is “convicted of or pleads guilty to” firearm specifications. In such cases, the court must impose consecutive sentences for the two most serious firearm specifications.
Bollar states that a conviction consists of both a guilty verdict and the imposition of a sentence or penalty. When the felonious assault and involuntary manslaughter offenses were merged, no sentence was imposed for felonious assault, and there was no conviction for that crime, he argues. Without a sentence or conviction for felonious assault, the trial court had no authority to sentence him to the three-year firearm specification connected to that offense, Bollar contends. Although the prosecutor’s office points to the statute in its arguments, he counters that sentencing on multiple specifications shouldn’t be permitted when the underlying offenses have merged.
He maintains that a specification – a penalty that enhances the sentence for the underlying offense – doesn’t stand alone, but instead is tied to that associated charge, Bollar maintains. If a person isn’t sentenced for the underlying crime, there is no sentence to increase for the specification, he asserts.
He states that the Fourth, Eighth, and Ninth Districts have reached the same conclusion.
Law Authorizes Stacked Firearm Punishments, State Contends
The Stark County Prosecutor’s Office counters that R.C. 2929.14(B)(1)(g) does exactly what Bollar says it can’t. The law was designed to impose cumulative punishments, the prosecutor states.
The office argues that a firearm specification doesn’t disappear when a court merges the offense underlying the specification with another offense. Bollar pled guilty to both felonious assault and the associated firearm specification, the office notes. It maintains that Bollar’s guilty plea to the firearm specification triggered the three-year penalty, and that penalty doesn’t require a sentence to be imposed on the underlying crime.
The prosecutor asserts that the legal issues in the Fourth and Ninth District cases weren’t the same as those raised in this case, so the conflict the Supreme Court is reviewing is more limited than suggested.
State Attorney General Submits Brief
The Ohio Attorney General’s Office filed an amicus curiae brief supporting the Stark County prosecutor.
– Kathleen Maloney
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket (2021-0756 and 2021-0769).
Contacts
Representing Marquis Bollar from the Ohio Public Defender’s Office: Max Hersch, 614.466.5394
Representing the State of Ohio from the Stark County Prosecutor’s Office: Timothy Yahner, 330.451.7792
Must Internet Streaming Companies Pay Ohio’s Local Cable Franchise Fees?
City of Maple Heights v. Netflix Inc. and Hulu LLC, Case No. 2021-0864
U.S. District Court for the Northern District of Ohio
ISSUES:
- Are Netflix and Hulu “video service providers” under Ohio law, and must they pay franchise fees to municipalities?
- Under the state’s cable competition laws, can a municipality file a lawsuit to enforce provisions of the state law, or does the director of the Ohio Department of Commerce retain sole enforcement authority?
BACKGROUND:
Local governments and online streaming services, including Netflix and Hulu, are engaged in lawsuits in multiple states over the payment of local franchise fees, similar to what cable television and telecommunications companies pay.
Prior to 2007, cable television companies seeking to use Ohio’s public rights-of-way to install cable and wires to carry their services had to negotiate franchise fees or other agreements with each individual municipality. In 2007, the Ohio General Assembly passed a state law granting the director of the state’s Department of Commerce “sole franchising authority” to issue “video service authorizations.” This authorization gave providers the right to install lines through rights-of-way across the state without having to negotiate individual agreements with the estimated 2,000 localities that could charge fees. The law allows municipalities to charge the authorized companies the franchise fee.
A section of the law — R.C. 1332.22(B) — states, “This state’s economy will be enhanced by investment in new communications and video programming infrastructure, including fiber optic and internet protocol technologies.” After the law was enacted, cable television companies and telecommunication companies such as AT&T and Verizon sought authorization to install equipment to deliver telecommunication services, including video, through high-speed networks. Hulu and Netflix have not sought authorization.
City Sues to Collect Franchise Fees
In 2020, the city of Maple Heights filed a class-action lawsuit in the U.S. District Court for the Northern District of Ohio on behalf of all Ohio local governments receiving franchise fees, claiming that Netflix and Hulu are required to receive video service authorization from the state commerce director. The city claims the services must receive authorization and pay franchise fees to Maple Heights and all other municipalities the companies are serving.
Netflix and Hulu asked the district court to dismiss the case. The federal court instead submitted two certified questions of law to the Supreme Court of Ohio. The federal court asked if Netflix and Hulu fit the definition of “video service providers” under Ohio law, and if Maple Heights can sue to enforce the provisions of Ohio law requiring video service providers obtain state authorization. The Supreme Court agreed to consider the questions.
Authorizations Only Required for Those Constructing Networks, Services Say
Netflix and Hulu submitted separate briefs in the case, but make similar arguments in response to Maple Heights’ claims. Both companies describe themselves as internet streaming services that do not own or operate any physical equipment located in Ohio public rights-of-way to deliver their content to their customers. The companies argue that under R.C. 1332.24, the law requires video service authorization for those who “construct and operate a video service network in, along, across, or on public rights-of-way for the provision of video service.” The law applies only to companies such as cable television and telecommunications companies that install wire, lines, and other equipment along the rights-of-way to deliver service, Netflix and Hulu assert.
Netflix and Hulu also argue that cable and telecommunications companies are internet service providers (ISPs) or are hosts to ISPs. Netflix and Hulu subscribers are customers who purchase internet access from an ISP. Once customers have internet access, they can subscribe to streaming services and receive content. This makes the streaming services significantly different than the companies that need to construct facilities to offer services, Netflix and Hulu assert, and the law doesn’t require streaming services to obtain authorization from the state.
In Hulu’s brief, the company notes that it and other streaming services pay a “specified digital product” state sales tax. If the companies are deemed to be video service providers and required to pay a franchise fee to local governments, then state law exempts them from the sales tax. That will cost the state millions of dollars in sales tax, the company notes.
Hulu also asserts that, when read in context, the cable competition laws — R.C. 1332.21 through R.C. 1332.34 — make it clear the authorization is only required for companies physically using the rights-of-way. Hulu notes the entire concept of a “franchise” is that the fee is paid to the local government in exchange for the right to physically occupy and place equipment in public rights-of-way. The streaming services don’t place that burden on the local government, which reinforces the interpretation that the law was enacted to apply only to those that are physically occupying the land, Hulu maintains.
The companies also note that they don’t provide “video service” under Ohio law and only those providing video service require authorization. The streaming companies explain they are exempt under R.C. 1332.21(J), which excludes “video programming provided solely as part of and via a service that enables users to access content, information, electronic mail, or other services offered over the public internet” from the definition of “video service.” The companies assert their customers access them through the public internet.
City Has No Right to Pursue Streaming Services, Providers Argue
Netflix and Hulu also maintain Maple Heights has no legal right to enforce the state law and require the companies seek authorization from the commerce director. They are joined by the Ohio Attorney General’s Office, which submitted an amicus curiae brief supporting the streaming companies’ position. The attorney general also has received permission to share oral argument time with the services.
The state and the companies argue that the commerce director has the sole authority to grant authorization and investigate any matters concerning violations of the law. The attorney general’s office notes that along with the commerce director, the attorney general can also seek to enforce the state law to compel a video service provider to obtain authorization. The law doesn’t give Maple Heights the right to file a lawsuit to direct Netflix and Hulu to obtain authorization, the services and the attorney general assert.
Companies Must Be Authorized, City Asserts
Maple Heights maintains the same provision of law, R.C. 1332.21(J)¸ that Netflix and Hulu argue exempts them from the franchise fees actually directs them to pay the fee. The provision defining “video service” applies to “video programming over wires or cables located at least in part in public rights-of-way, regardless of the technology used to deliver that programming, including internet protocol technology or any other technology.” State law allows those with authorization to construct facilities in the network but doesn’t require them to do so nor apply only to those who do, the city argues. Netflix and Hulu stream their programming “over the wires and cables” located in the rights-of-way so they are subject to the franchise fee, the city asserts.
The city argues that communications providers are increasingly burdening the public rights-of-ways to construct facilities in large part because of the increased capacity needed to serve streaming companies like Netflix and Hulu. These expansion efforts are impacting Maple Heights and other cities, the city maintains.
The city also asserts that “public internet” has a distinct meaning in the telecommunications industry and that Netflix and Hulu don’t qualify for an exemption under the clause pertaining to the public internet. The city notes the exemption in R.C. 1332.21(J) is for “video programming provided solely as part of and via a service” for those entities providing a variety of internet services. Hulu and Netflix only provide video programming and are not “part of” any provider that is offering multiple services.
The city also counters that it has a right to sue Netflix and Hulu for noncompliance. Under R.C. 1332.33(D), a city has a right to sue a video service provider after conducting an audit and finding the provider is paying less of the franchise fee than it must pay. The law allows the city to pursue a company authorized to provide service and pay a franchise fee, the city maintains.
It would be an absurd interpretation of the law to not allow the city to pursue those who disregard the law and pay no franchise fee, Maple Heights asserts. Even if the state law doesn’t explicitly grant the city a right to force a service to seek authorization, nothing in the law states that the commerce director is the sole authority allowed to pursue those out of compliance with the franchise law, Maple Heights asserts. The city notes it is the local governments, not the state, that are harmed by a company not paying the fee, and cities should be allowed to enforce their right to compel a provider to obtain authorization.
Friend-of-the-Court Briefs Submitted
DIRECTV LLC submitted an amicus brief supporting Netflix’s and Hulu’s position as did a joint brief from DISH Network Corp. and DISH Network LLC. The companies note they are named in similar lawsuits in other states.
– Dan Trevas
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing Hulu LLC: Kerri Keller, 330.535.5711
Representing Netflix Inc.: Amanda Martinsek, 216.583.7000
Representing City of Maple Heights: Mark DiCello, 440.953.8888
Representing the Ohio Attorney General’s Office: Benjamin Flowers, 614.466.8980
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 aren’t part of the case record, and aren’t considered by the Court during its deliberations.