Supreme Court of Ohio Oral Argument Previews

Communications Office - 2006 Oral Argument Summaries

Wednesday, Oct. 18, 2006

Dugan & Meyers Construction, Inc. et al. v. State of Ohio Department of Administrative Services et al., Case no. 2005-1698
10^th District Court of Appeals (Franklin County)

State of Ohio v. Joel A. Buzzard, Case no. 2005-2061
3^rd District Court of Appeals

In the Matter of the Estate of Michael H. Holycross, Case no. 2005-2281
2^nd District Court of Appeals (Auglaize County)

Rex Cramer, Sponsor & Administrator of the Estate of Frank Cramer, Deceased v. Auglaize Acres, et al., Case no. 2005-1629
3^rd District Court of Appeals (Auglaize County)

Is Contractor Entitled to Recover from Project Owner for Overruns Based on Incomplete Plans?

Dugan & Meyers Construction, Inc. et al. v. State of Ohio Department of Administrative Services et al., Case no. 2005-1698
10^th District Court of Appeals (Franklin County)

ISSUES:

Is a contractor who bases its bid for a construction contract on plans developed by the project owner entitled to additional compensation for cost overruns that result from errors or omissions in the owner's plans?

Is a contractor whose bid was based on an owner's plans liable for contractual penalties for late completion of a project if the primary factor causing late completion was owner-initiated changes to the original plans?

BACKGROUND: This case involves a contract dispute between the State of Ohio and Dugan and Meyers Construction Co. (D&M), the lead contractor selected through a competitive bidding process to manage construction of a $20 million, three-building complex at The Ohio State University's Fisher College of Business in Columbus. Construction work began in August 1997. The scheduled completion date set forth in the contract was July 12, 1999.

Beginning in June 1998 and continuing through the remainder of the construction process, D&M reported to the state that the company and its subcontractors were encountering significant delays and cost overruns, which they attributed to a combination of errors and omissions in the original state-provided blueprints and mechanical plans and hundreds of changes the state was making on an ongoing basis to the original plans. They asserted particularly that week-to-week changes being made by the state in the interior floorplans of the buildings were severely delaying and disrupting work schedules of the interior framing and drywall subcontractor.

In February 1999, D&M asked the state to approve an updated construction schedule that reflected a delayed project completion date. The state refused to approve the new schedule, and advised all contractors that the July 12 contract completion date must be met in order for the university to accommodate scheduled Fall Quarter 1999 classes. In early July 1999, D&M was replaced by the state as lead contractor overseeing other subcontractors, but continued to complete its own portion of the construction process. Two of the three buildings in the complex were sufficiently completed by September 1999 to host Fall Quarter classes. D&M's remaining work on the project was substantially completed by January 2000.

The state refused to compensate D&M for its cost overruns based on claimed defects, omissions and excessive changes in the state's design documents, deducted $325,000 from its payments to D&M as damages for the company's failure to complete the project by the contract deadline date and deducted an additional $245,000 to cover the state's claimed expenses of retaining a replacement lead contractor to coordinate completion of the project.

D&M filed suit in the Ohio Court of Claims alleging breach of contract by the state and seeking recovery of its cost overruns, lost profit from the project as estimated in its original bid, and the

deductions made by the state from its payments to D&M. Following dispute resolution procedures set forth in R.C. 2743.03(C)(3), the Chief Justice appointed a referee to hear evidence, make findings of fact and law, and recommend a resolution.

After hearing testimony by 24 witnesses and reviewing extensive exhibits submitted by the parties, the referee found that the fundamental issue underlying the cost overruns and six-month delay in completion of the project was “the existence of an excessive number of errors, omissions and conflicts in the design documents furnished to the bidders by the state and incorporated into the plaintiffs' contracts.” Based on that finding and financial information submitted by the parties, the referee recommended judgment in favor of D&M in the amount of $1,996,421 plus prejudgment interest.

The Court of Claims reviewed the referee's report and adopted it, with minor revisions, as the decision of the court. The state appealed to the 10^th District Court of Appeals. The 10^th District reversed the Court of Claims ruling, vacating the monetary awards to D&M with the exception of the $245,000 recovery for the state's cost of hiring of a replacement lead contractor. The Supreme Court accepted jurisdiction to review the 10^th District's ruling.

Both sides agree that a 1918 U.S. Supreme Court decision, Spearin v. United States, has been recognized by state and federal courts across the country as the guiding legal authority for disputes between project owners and contractors over alleged defects in owner-furnished design documents. They disagree, however, about whether the Spearin decision and subsequent court rulings applying Spearin should guide the Supreme Court in deciding this case.

Attorneys for D&M argue that:

Under Spearin and succeeding court decisions, the legal principle has been established that if a contractor is required to bid on a project and build according to design documents provided by the owner, the owner has implicitly warranted that the plans are buildable and free of defects, and the contractor cannot be held responsible for the consequences of defects in the plans and specifications or post-bid changes in the plans made by the owner. They note that the Court of Claims made a specific finding in this case that failure to provide reliable plans from which D&M could complete work in a timely manner constituted a breach of contract by the state.

D&M gave the state months of advance notice by way of oral and written reports, meeting notes and memoranda that flaws in the state's building plans and hundreds of changes to those plans had made it impossible to complete construction by the deadline date. They assert that the referee and Court of Claims correctly held that this “actual notice” was sufficient to meet the contractor's legal duty even if D&M had failed to provide the state with written notice in the precise form specified in the bid contract.

In overruling the Court of Claims, the 10^th District impermissibly substituted its own opinion of the credibility of evidence and witness testimony for that of the Court of Claims referee who observed the testimony of those witnesses and closely reviewed more than 600 documents during 17 days of trial. D&M asks the Supreme Court to find that the 10^th District exceeded its authority and must be reversed.

Attorneys for the state respond that:

The bid proposal entered by D&M and the contract it signed with the state anticipated that there were likely to be changes and adjustments to the building plans while construction was underway, and provided for written “change orders” to be signed by an affected contractor including any estimated increase in costs attributable to the requested change. They note that D&M did not assess additional charges on any of the change orders they accepted, but now seek to recover from the state hundreds of thousands of dollars based on an inappropriate claim of breach of implied warranty under Spearin.

The contract between the state and D&M included a specific requirement that the contractor must submit any request for an extension of the project completion date in writing, and that failure to do so in the manner prescribed by the contract would waive the right to an extension and subject D&M to monetary damages for failing to meet the completion deadline.

NOTE: Amicus curiae (friend of the court) briefs supporting the position of Dugan & Meyers have been submitted by more than 30 different regional, state and national associations representing the construction industry and building trades. Among others, these include the Associated General Contractors of Ohio, Ohio Contractor's Association, and Associated Builders and Contractors of Ohio.

A joint amicus brief supporting the position of the State of Ohio has been submitted by the Ohio Municipal League, Ohio School Boards Associations, Buckeye Association of School Administrators and Ohio Association of School Business Officials.

Contacts
Peter D. Welin, 614.469.3200, for Dugan & Meyers Construction Company.

David S. Cupps, 614.464.6400, for the Ohio Dept. of Administrative Services and the Ohio State University.

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Does Officer’s Look Through Gap in Closed Door Violate Suspect’s Expectation Of Privacy?

State of Ohio v. Joel A. Buzzard, Case no. 2005-2061
3^rd District Court of Appeals

ISSUE: Do observations made by law enforcement through a gap in a closed, locked secure door or window into someone's private residence or surrounding outbuildings violate a suspect's constitutional right to be free from unreasonable search and seizure?

BACKGROUND: Joel A. Buzzard broke into a business near his home in October 2003 and stole several items. Investigating officers followed tire tracks from the crime scene to the vicinity of a detached garage adjacent to Buzzard's home. The garage doors were closed and padlocked, but a detective was able to see into the garage through a ¼-inch gap between the doors and observed what appeared to be some of the stolen items. The officer called the theft victim to Buzzard's property and had him look through the gap into Buzzard's garage while officers held the doors apart. The victim said items that were visible appeared to be items taken from his business. Based on that information, police sought and obtained a search warrant and recovered the stolen items from the garage.

Buzzard was arrested and charged with breaking and entering and receiving stolen property. At trial, his attorneys moved to exclude all evidence obtained through the search of his home and garage, arguing that the warrant that authorized the search was invalid. The trial court denied that motion, the search evidence was presented to the jury, and Buzzard was subsequently convicted and sentenced to 30 months in prison.

Buzzard appealed, and the 3^rd District Court of Appeals reversed the trial court's judgment. The appellate panel held 2-1 that evidence obtained through the search warrant should have been excluded from Buzzard's trial because the warrant was based on a police officer's unconstitutional peering inside a locked, windowless garage adjacent to a private home – which the 3^rd District held is a set of circumstances in which a citizen enjoys the expectation of privacy from warrantless intrusion by the state.

The state has appealed the 3^rd District's ruling, and the Supreme Court agreed to hear arguments in the case.

Attorneys for the state assert that the 3^rd District's ruling created a new standard for determining when a police officer may legally see incriminating items that are “in plain view.” The state contends that the new test focuses excessively on the subjective expectation of privacy of the accused, and ignores the objective standard that police may act on observations of any evidence that is in “plain view” from a location where they are legally allowed to be. The state cites a 1999 decision by the 5^th District Court of Appeals, State v. Davis, upholding the constitutionality of an arrest based on an officer's observation of a suspect smoking drugs in a water pipe in the privacy of his own home when the officer viewed that activity through a window while standing on the suspect's front porch, a place where the officer was lawfully allowed to be.

Buzzard's attorneys argue that the 3^rd District correctly balanced the plain view doctrine against the privacy right of citizens to be free from police intrusion into their homes by peering through a tiny gap between closed and locked doors. They distinguish between the 5^th District's ruling in State v. Davis, where a defendant was held to have no expectation of privacy for actions that were plainly visible through a window by a person standing on a porch, and a Hamilton County decision, State v.

Scott (1986), holding that evidence that could be observed by police only when one stood on another's shoulders to look into a window was not “in plain view” and that a warrant based on such an intrusion on individual privacy was unconstitutional and therefore invalid.

Contacts
Clifford J. Murphy, 419.468.7766, for the State of Ohio and Crawford County prosecutor's office.

John Spiegel, 419.562.6624, for Joel A. Buzzard.

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Does Ex-Spouse Remain Insurance Beneficiary After Divorce Despite 1990 Law Change?

In the Matter of the Estate of Michael H. Holycross, Case no. 2005-2281
2^nd District Court of Appeals (Auglaize County)

ISSUE: In the case of a couple who were divorced in 1993, does a constitutional ban against retroactive legislation that impairs vested contract rights allow the ex-wife to remain the beneficiary of her ex-husband's life insurance policy despite a 1990 Ohio law that ‘automatically' terminates all life insurance beneficiary designations in favor of former spouses at the time of a divorce unless the divorce decree specified otherwise?

BACKGROUND: Effective in May 1990, Section 1339.63 of the Ohio Revised Code provided that divorce, dissolution, or annulment of a marriage automatically terminates all life insurance beneficiary designations in favor of a former spouse unless the divorce decree specifically provides otherwise. Upon his death in February 2003, Michael H. Holycross owned a life insurance policy that designated the beneficiary as Carol Zerkle, his ex-wife from whom he had been divorced since 1993. Holycross had last updated the beneficiary designation in 1972.

At the time of their divorce, Holycross and Zerkle agreed to a detailed separation agreement that specified the rights and responsibilities of both parties, but contained no provisions concerning Zerkle's right to remain as the beneficiary of Holycross's life insurance policy following the divorce. In May 1997, Michael Holycross married Barbra Holycross and remained married to her until his death. Upon his death, Holycross' life insurance benefits, in the amount of $32,532.30, were paid to Zerkle. Barbara Holycross filed an objection in Champaign County Probate Court, alleging that the proceeds of the insurance policy should have been included in the inventory of her husband's estate, and should not have been distributed to Zerkle because Zerkle's rights as his beneficiary were extinguished by the 1993 divorce decree under R.C. 1339.63.

The probate court considered Barbra Holycross's objection and complaint but ruled that Zerkle was entitled to the proceeds of the insurance policy under the Supreme Court of Ohio's 1993 ruling in Aetna v. Schilling. In Schilling, the Court ruled that the Ohio and U.S. constitutions prohibit the retroactive application of legislation in cases where doing so would deprive a person of property or rights arising from a contract that was in force before the new law was adopted. Applying that reasoning to R.C. 1339.63, the Schilling court held that divorced spouses who had not been removed as the designated beneficiaries in their ex-spouses' insurance policies prior to enactment of the new law in May 1990 could not have their right to those insurance benefits taken away retroactively.

Barbara Holycross appealed to the 2^nd District Court of Appeals, which affirmed the decision of the probate court. She now asks the Supreme Court to reverse the 2^nd District and rule that Zerkle was not entitled to the proceeds of the insurance policy.

Her attorneys argue that the probate and appellate courts erred by failing to distinguish this case from Schilling because the Schilling decision involved a couple whose divorce and property settlement were finalized before the May 1990 effective date of R.C. 1339.63. After the effective date of the new law, they assert, any couple going through a divorce or dissolution of marriage in Ohio was on notice that state law would automatically terminate the designation of an ex-spouse as a life insurance beneficiary upon their divorce unless the couple specifically indicated otherwise in the official decree. They argue that applying R.C. 1339.63 to Zerkle is not a “retroactive” application of the statute because Zerkle was on notice of the new law at the time of her divorce, and waived her rights as a life insurance beneficiary when she failed to specifically preserve those rights in the decree.

Attorneys representing Matthew Holycross, the estate executor, argue that the probate and appellate courts were correct in ruling that applying R.C. 1339.63 to deprive Zerkle of her ex-husband's insurance would violate the Supreme court's prior holding in Schilling. They assert that the “contract” that gave Zerkle legal entitlement to her ex-husband's insurance was the 1972 policy declaration naming her as his beneficiary, not the couple's 1993 divorce decree. Just as in Schilling, they say, a 1990 statute may not be invoked to deprive Zerkle of rights in which she was vested 18 years before the effective date of that statute.

Contacts
Karl E. Paulig, 513.653.5257, for the Estate of Michael H. Holycross and Matthew S. Holycross, Executor.

William Clark, 614.766.8475, for Barbra Holycross.

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Does Patient ‘Bill of Rights’ Impose Civil Liability on County-Operated Nursing Home, Staff?

Rex Cramer, Sponsor & Administrator of the Estate of Frank Cramer, Deceased v. Auglaize Acres, et al., Case no. 2005-1629
3^rd District Court of Appeals (Auglaize County)

ISSUES:

Does Ohio's “Nursing Home Patients' Bill of Rights” expressly impose liability for negligent acts on employees of homes operated by political subdivisions, and thereby except such homes from the state law that confers general immunity from civil liability on political subdivisions?

Is the state law conferring immunity on political subdivisions for deliberate wrongful acts committed by their employees unconstitutional because it deprives the victims of such acts of legal recourse to recover for their injuries, equal protection of the law and the right to a jury trial?

BACKGROUND: Section 2744.03 of the Ohio Revised Code confers general immunity from civil lawsuits on political subdivisions of the state (e.g.. cities, counties and townships and agencies operated by a city, county or township). However, the immunity statute provides several specific exceptions. One of those exceptions allows a person injured by the negligent act of a political subdivision's employee to sue for damages if “liability is expressly imposed upon the employee by a section of the Revised Code.”

In this case, Frank Cramer, a multiply handicapped patient at Auglaize Acres, a nursing home operated by Auglaize County, suffered a severe leg fracture when he fell from a special lift-sling apparatus called a Hoyer lift that was being used by two nurses, Linda Green and Margaret Warder, to move him from a chair to his bed. After the fall, the nurses lifted Cramer off the floor and placed him in his bed, where he remained for several hours without medical treatment before a nurse on the following shift discovered his broken leg and summoned emergency medical technicians. Cramer died two days later of complications arising from the leg injury.

The victim's son, Rex Cramer, filed suit on behalf of his father's estate in the Auglaize County Court of Common Pleas naming the nursing home, the Auglaize County Commissioners and nurses Green and Warder as defendants. The complaint alleged that the nurses acted negligently in dropping Frank, and that to cover up their negligence, they then intentionally failed to follow mandatory “fall procedures” that required immediately summoning a doctor. The suit sought money damages for the

wrongful death of Frank Cramer, for the physical pain and suffering he endured as a result of his injuries and for the intentional infliction of severe emotional harm.

Attorneys for Auglaize County and the defendant nurses filed a pretrial motion seeking summary judgment in their favor, arguing that the nursing home and its employees were immune from civil liability for Cramer's injuries under the provisions of R.C. 2744.03. In a complex, multi-part ruling, the trial court granted summary judgment dismissing all claims against Auglaize Acres and the county. The judge ruled that the nurses were not immune from liability because R.C. 3721.17 (often referred to as the Nursing Home Patients' Bill of Rights) “expressly imposes” liability against any person who violates the rights of a nursing home patient to adequate nursing care. Despite that holding, the judge dismissed most of Cramer's claims against the nurses on other grounds, but ruled that the estate could proceed with the part of its case based on the allegation that Green and Warder had gone beyond negligence and engaged in “wanton and reckless” conduct (which is specifically excepted from immunity under R.C. 2744.03) when they failed to immediately report the fall and obtain a medical examination and treatment for their patient.

Both sides appealed the portions of the trial court judgment unfavorable to them to the 3^rd District Court of Appeals. In another complex, multi-part decision, the court of appeals reversed the trial court's holding that R.C. 3721.17 expressly imposed liability on the nurses for Cramer's injuries. It also rejected arguments advanced by the estate that the portion of R.C. 2744.03 applicable to political subdivisions is unconstitutional and therefore cannot be invoked to protect the county or its employees from liability for negligent acts. The Cramer estate has appealed the 3^rd District's decision to the Supreme Court.

Among multiple legal arguments advanced by the Cramer estate are claims that:

Contrary to the holding of the court of appeals, the language of the nursing home patients' bill of rights statute does “expressly impose” liability on county nursing homes and their employees when it states that “Any resident whose rights under (the statute) are violated has a cause of action against any person or home committing the violation.” They assert that this unequivocal language was intended to protect all Ohio nursing home patients, many of whom reside in government-operated facilities, and makes no distinction between private nursing homes and those operated by political subdivisions.
Lawyers for the defendants respond that general language in a statute applying its provisions to “all persons” does not indicate a specific intention by the legislature to impose civil liability on employees of a political subdivision. They argue that the court of appeals was correct in holding that, in order to overcome the presumed immunity granted by R.C. 2744.03, a statute must specifically state that its provisions apply to political subdivisions and their employees.

Cramer's attorneys argue that the trial and appellate courts were wrong to dismiss the negligence claims against the nurses based on a legal provision that grants immunity for actions arising “from the exercise of discretion or judgment” about whether and how to use equipment. They assert that it was not the discretion or judgment of nurses Green and Warder about using the Hoyer lift that caused Cramer's injury and death, but rather their negligence in operating the lift and failing to properly restrain Cramer while moving him. In any event, they argue, the provision relied upon by the lower courts applies only to the exercise of “discretion or judgment” by a governmental entity, and does not grant immunity for the personal judgments of individual government employees.

The defendants respond that the actions leading to Cramer's injury were directly related to the nurses' judgments regarding whether and how to use the Hoyer lift. They argue that medical professionals like Green and Warder must frequently exercise discretion and judgment in determining how to care for patients, and say the immunity statute was intended to shield from the threat of lawsuits not only policy-level judgments of governmental bodies but also the day-to-day operational decisions made by professional employees.

Cramer points out that while persons injured by the intentional wrongful act of an agency or employee of the State of Ohio are permitted to seek recovery through a suit brought in the Ohio Court of Claims, the sovereign immunity statute applicable to local political subdivisions provides no legal recourse for such injuries. Because the Ohio and U.S. constitutions require that every citizen must be able to seek redress of grievances through the legal system, must receive equal protection of the laws and is entitled to trial by jury, they assert, the current Ohio statutory scheme granting absolute immunity to political subdivisions for the intentional wrongful acts of their officials and employees is unconstitutional and must be overturned.

Attorneys for Auglaize County and the defendant nurses respond that the legislature has constitutional authority to define and limit the types of legal claims that may be asserted by civil litigants, as long as those limitations are rational and can be shown to serve a legitimate governmental interest. They note that the limitations on lawsuits against political subdivisions set forth in R.C. Chapter 2744 have been upheld as constitutional in prior court decisions based on the finding that it is essential to public safety and welfare to preserve the fiscal integrity of local government units whose essential services to local citizens could be crippled if exposed to civil lawsuits.

NOTE: Amicus curiae (friend of the court) briefs supporting the arguments of Auglaize County have been filed by the Ohio Prosecuting Attorneys Association, the County Commissioners Association of Ohio and Ohio County Homes Association, and the Ohio Association of Civil Trial Attorneys.

An amicus curiae brief supporting the position of the Cramer estate has been entered by the Ohio Academy of Trial Lawyers.

Contacts
Gregory D. Wilson, 419.394.2323, for Rex Cramer and the estate of Frank Cramer.

Brad A. Everhardt, 419.241.3213, for Auglaize Acres, the Auglaize County Commissioners and defendant nurses.

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These summaries are prepared by the Office of Public Information solely to help news reporters determine if they want to cover the arguments. The summaries are not part of the case record and are not considered by the Court at any point 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.