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Washington County Board of Developmental Disabilities v. United Re AG

Court of Appeals of Ohio, Fourth District

July 26, 2013

WASHINGTON COUNTY BOARD OF DEVELOPMENTAL DISABILITIES Plaintiff-Appellee,
v.
UNITED RE AG., ET AL., Defendants-Appellants.

George J. Cosenza, Parkersburg, West Virginia, for Appellant Hugh Scott.

Ethan Vessells, Fields, Dehmlow & Vessels, Marietta, Ohio, for Appellee.

DECISION AND JUDGMENT ENTRY

Matthew W. McFarland Presiding Judge

{¶1} Hugh Scott (hereinafter "Appellant") appeals the judgment of the Washington County Court of Common Pleas, granting judgment in favor of Washington County Board of Developmental Disabilities (hereinafter "Appellee") and against Appellant in his individual capacity. Upon review of the record, we find competent, credible evidence going to the material elements of the claim of Appellee for piercing the corporate veil and, as such, we decline to disturb the judgment of the trial court as being against the manifest weight of the evidence. Because we find no error in the trial court's judgment, we overrule Appellant's sole assignment of error.

FACTS

{¶2} To a certain extent, we recount the facts as previously set forth in Washington Co. Bd. of Developmental Disabilities v. United Re AG., et al., 4th Dist. No. 11CA23, 2012-Ohio-3338, 2012 WL 3017864. Appellee is a state agency with 65 employees, and it provides a health plan for its employees. In 2005, Appellee decided to use a partially self-funded health insurance plan that called for Appellee to acquire a re-insurance or "stop loss" policy. Employee Benefit Services of Ohio ("EBS") provided third party administrative services to Appellee. EBS processed Appellee's claims and billings. EBS also provided Appellee a quote from United Re AG (hereinafter "United") for a reinsurance policy. Based on the quote from EBS, Appellee enlisted with United. The stop-loss coverage plan stated United promised to provide stop-loss coverage for Appellee's employee health plan if (1) individual employee claims exceeded $20, 000.00 per individual employee ("specific coverage'), or (2) payment of any claims over $393, 520.00 for the collective employees during the plan year ("aggregate coverage"). The plan year was February 1, 2006, through January 31, 2007. Appellee signed a Trust Agreement with United for stop- loss coverage. Appellee paid the premiums and fees to EBS to administer the claims. EBS also paid the premiums to United for the stop-loss coverage.

{¶3} Appellee submitted a claim to United for over $200, 000.00. After United failed to respond to Appellee's demands for payment, Appellee filed suit against multiple parties, including United, EBS, and two other companies, Vado AG and Texcess Re Inc. Appellee also sued Appellant claiming Appellant was personally liable for Appellee's claims against United. Appellant is an attorney in Texas and Appellant has served as United's general counsel, president, and owner. (Appellee also filed suit against other entities not relevant to the first appeal or to this one.)[1]

{¶4} EBS filed cross-claims against United and Appellant. (EBS filed suit against other entities also not relevant to either appeal). United filed a cross-claim against EBS. On March 25, 2011, EBS voluntarily dismissed its cross-claims against United and Appellant. Additionally, on March 30, 2011, EBS filed a notice of automatic stay with the trial court indicating that EBS had filed for bankruptcy. The trial court stayed the proceedings against EBS. Thus, both Appellee and United's claims remained pending at the time of trial.

{¶5} Prior to trial, United admitted that it was liable to Appellee for $200, 496.44. The parties conducted a bench trial solely on the issue of whether Appellant could be held personally liable for Appellant's claims against United.

{¶6} At trial, Appellee argued United established a trust fund for employers to contribute their stop loss premiums, which United called "trust contributions." United utilized an "overlay endorsement" as part of their trust agreement, essentially a promise that United would procure additional insurance, "reinsurance" for the employers participating in the trust fund. Appellee argued Appellant established another company, Vado AG, ("Vado") to provide the reinsurance. However, Vado was not a licensed insurance company, and there was never any stop-loss coverage for Appellee. Appellee argued all the trust fund contributions/premiums were deposited in a bank account in Texas. United or its representatives would automatically take twenty percent from the account, leaving the remainder to pay for claims. Eventually, there was not enough money to pay claims.

{¶7} In summary, Appellee contended it had been defrauded by a Ponzi scheme established and operated by Appellant. Appellee argued Appellant owned all the shares of United and Vado; the companies never observed corporate formalities; and United and Vado were sham corporations set up for the sole purpose of perpetuating fraud. There were only two witnesses testifying live at trial, and the evidence consisted chiefly of Appellant's testimony and the videotaped deposition testimony of Van A. Workman, (hereinafter "Workman").

{¶8} The trial court admitted various exhibits, including the following:[2]

1) Defendant's Exhibit 1-Articles of Incorporation for United Re AG;
2) Defendant's Exhibit 2-Assignment of shares of United Re AG to Jon R Galland;
3) Plaintiffs Exhibit 2- March 27, 2006 letter;
4) Plaintiffs Exhibit 3- November 24, 2008 letter;
5) Videotaped deposition Workman;[3] and,
6) Plaintiffs Exhibit 10-Transcript of Appellant's deposition testimony.

{¶9} Defendant's Exhibit 1, the Articles of Incorporation for United Re AG are written in German. Defendant's Exhibit 2 is a purported assignment of shares of United from Appellant to Jon Galland. The document was unauthenticated and contained only Appellant's signature. Plaintiffs Exhibit 2 is a 2006 letter identifying Appellant as U.S. counsel for United. Plaintiffs Exhibit 3 was a 2008 letter which was authorized by Appellant and sent under his signature, although Appellant denied the signature was his. Plaintiffs exhibit 10 was a transcript of Appellant's deposition testimony taken in January, 2010.

{¶ 10} There was much to be gleaned from the November 17, 2010 deposition transcript of Workman, president of EBS. Workman testified to 36 years of experience in insurance. Workman testified he met Jon Galland (hereinafter "Galland") and Appellant in Texas at a meeting hosted by Galland in 2002. At that time, United was known as Texcess Re. The meeting took place in Appellant's law office in Texas. At the initial meeting, Appellant was identified as corporate counsel. Workman testified from the beginning, he thought Appellant had an ownership interest in the business, despite the ownership of the company being kept secret. Workman explained Texcess Re was a managing general underwriter while United was the trustee of a trust. The name "Texcess Re" changed to United in 2005. Workman's testimony, like Appellant's, was lengthy. It will be discussed in detail below

{¶11 At trial, Appellant testified he did not own any of the companies, own shares in the companies, nor was he a member of the board of directors during the time in question. He acted only as president and corporate counsel. Appellant testified that he briefly acquired shares of United (pursuant to Swiss law) in August 2002 and immediately transferred them to Galland. After Galland died in 2008, Appellant reacquired the shares in 2010 from Galland's children. Appellant testified the purpose of acquiring the shares in 2010 was that by then, he was embroiled in legal proceedings and being deposed.[4] In order to "become knowledgeable" for the purposes of defending himself and testifying, he needed to have access to the corporate documents. Again, pursuant to Swiss law, he had to become a shareholder to gain access to the documents. Appellant reiterated during the relevant time period, (February 1, 2006 through January 31, 2007), he had no ownership interest in the United or Vado.

{¶ 12} After the trial concluded, Appellant and Appellee submitted alternate proposed findings of fact and conclusions of law. Utimately, the trial court found in favor of Appellee and against Appellant. On August 5, 2011, the trial court issued a judgment entry in favor of Appellee against both United and Appellant for compensatory and punitive damages. On September 14, 2011, the trial court issued a judgment entry in favor of Appellee against both United and Appellant for attorney's fees.

{¶ 13} Appellant timely filed a notice of appeal. We eventually dismissed the first appeal based on our finding of no jurisdiction to consider the appeal and thus, lack of a final appealable order. On October 30, 2012, Appellant timely filed the instant appeal. Where relevant, ...


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