Columbus Steel Castings Co. v. Transp. & Transit Assocs., L.L.C.

Citation: 2014 Ohio 272Docket: 12AP-970

Court: Ohio Court of Appeals; January 27, 2014; Ohio; State Appellate Court

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Transportation Transit Associates, LLC (TTA) appealed the judgments of the Franklin County Court of Common Pleas favoring Columbus Steel Castings Company (CSC). The case arose from a September 2000 purchase order where Buckeye Steel Castings Company (Buckeye Steel) was contracted to supply truck components to TTA. Buckeye Steel delivered 155 parts but TTA failed to pay for 21 deliveries and associated freight costs. After Buckeye Steel filed for Chapter 11 bankruptcy in December 2002, it entered into an asset purchase agreement with CSC, which included accounts receivable from TTA.

Following the purchase, CSC requested payment from TTA for the owed amount, but TTA claimed a right of recoupment due to alleged contract breaches by Buckeye Steel. TTA submitted a proof of claim in the bankruptcy proceedings to recover damages while asserting the recoupment right against the account receivable. CSC sought to enforce the sale order that prohibited TTA from pursuing claims related to its dealings with Buckeye Steel.

The bankruptcy court dismissed CSC's motion for lack of subject-matter jurisdiction, a decision that was upheld by the United States Bankruptcy Appellate Panel for the Sixth Circuit, which ruled that the dispute did not affect the bankruptcy estate as TTA had waived its right to amend its claim if the recoupment defense was rejected. Ultimately, the appellate court affirmed the lower court's judgments in favor of CSC.

In December 2004, CSC initiated a lawsuit against TTA in Franklin County Court to collect an account receivable purchased from Buckeye Steel. TTA acknowledged in its response that CSC's purchase was sanctioned by a bankruptcy court order from February 2003. TTA counterclaimed, alleging Buckeye Steel breached its contract, resulting in damages exceeding the amount owed on the account. The trial court denied both parties' motions for summary judgment and granted CSC's motion to prevent TTA from asserting recoupment as a defense or counterclaim, determining this ruling affected TTA's substantial rights and constituted a final order. TTA appealed, and the appellate court reversed the trial court's judgment, ruling that TTA should be allowed to assert the recoupment defense and that the trial court had misapplied the "integrated transaction test."

On remand, after renewing their motions for summary judgment, the court ruled on February 9, 2012, that TTA had no recoupment rights, as TTA's claim did not meet the integrated transaction test criteria under New York law. The court found it inequitable for TTA to benefit from accepted deliveries without fulfilling payment obligations, as its recoupment claim related only to unfulfilled deliveries. In June 2012, TTA sought to amend its original claim regarding the assignment of the account receivable to CSC, but this was denied due to untimeliness and potential prejudice to CSC. Following a bench trial on October 18, 2012, the court ruled in favor of CSC, awarding $2,008,969.06 plus interest and costs. TTA appealed, citing errors related to the account stated ruling, summary judgment on recoupment, and CSC's alleged enforceable interest in the account receivable. The judgment against TTA's counterclaim was not part of this appeal.

New York law governs substantive issues, while Ohio law applies to procedural matters as per the purchase order's choice-of-law provision. The discussion addresses TTA's third assignment of error, where TTA argues that CSC did not acquire an enforceable interest in the account receivable from TTA to Buckeye Steel, claiming it was an excluded asset not purchased by CSC. CSC counters that the Bankruptcy Appellate Panel's ruling was based on CSC owning the account receivable and that TTA failed to raise objections during the bankruptcy proceedings, thus barring them from litigating this now. The case cited, Mickowski v. Visi-Trak Worldwide, illustrates this principle, as Mickowski's failure to object during the bankruptcy process led to the dismissal of his subsequent fraud claim as an impermissible collateral attack.

TTA did file a proof of claim in the bankruptcy but did not contest the sale order or appeal its confirmation. TTA's current challenge to the sale order, claiming CSC did not assume the account receivable, represents a prohibited collateral attack on the prior sale order. TTA further argues that the issue of whether CSC obtained the receivable is a legal rather than factual issue, and additionally contends that the trial court erred in excluding evidence regarding CSC's interest in the account and Buckeye Steel's alleged breach of the purchase order. However, these matters need not be addressed due to the preclusive effect of the bankruptcy proceedings. TTA's third assignment of error is thus overruled. In its first assignment of error, TTA claims the trial court mistakenly favored CSC, arguing CSC did not adequately plead or prove the elements of an account stated, while CSC argues that TTA had sufficient notice of the claim and may have waived its defense.

A defendant is required to serve an answer within 28 days of receiving a complaint, as per Civ.R. 12(A). However, Civ.R. 12(B) allows for certain defenses to be raised through a pre-answer motion, specifically the 'failure to state a claim upon which relief can be granted' under Civ.R. 12(B)(6). TTA did not file such a motion against CSC's complaint and, despite claiming it could not waive a challenge to an unasserted claim, had participated in extensive litigation. Generally, raising an argument on appeal that was not previously asserted results in a waiver.

TTA contended that CSC failed to prove essential elements of an account stated, arguing that CSC did not show evidence of an agreement on a specific balance owed. Under New York law, proving an account stated requires demonstrating a debtor's express or implied promise to pay an agreed sum, based on prior transactions. An account stated must be balanced and accepted as correct; disputes or an absence of presented accounts negate this claim. Acceptance can be implied if a debtor does not object to an account statement in a reasonable timeframe or makes partial payments.

CSC's complaint detailed a purchase order between Buckeye Steel and TTA, which involved undisputed deliveries of truck components that TTA failed to pay for. Invoices supporting the claimed amount were attached to the complaint, and TTA did not provide timely objections to these invoices. Testimony from CSC's vice-president indicated that the unpaid invoices were valid, and TTA did not offer evidence to contradict this. As a result, TTA is deemed to have accepted the amount due and promised to pay it, leading to the conclusion that CSC sufficiently proved its claim.

TTA's first assignment of error was overruled. In the second assignment, TTA argued the trial court wrongly granted summary judgment for CSC while preventing TTA from asserting a recoupment defense. The appellate court reviews summary judgment motions de novo, affirming if any grounds raised in the trial court substantiate the judgment.

Summary judgment is appropriate under Civ. R. 56(C) when there is no genuine issue of material fact, the moving party is entitled to judgment as a matter of law, and the evidence, viewed in favor of the nonmoving party, leads to one conclusion adverse to that party. CSC's motion for summary judgment focused on TTA's defense of recoupment, which allows a defendant to reduce or eliminate a plaintiff's claim based on the plaintiff's breach of duty in the same transaction. Courts use either the 'logical relationship' test or the 'integrated transaction' test to determine if obligations are part of the same transaction. TTA argued that the trial court erred by applying the 'integrated transaction test,' which New York law favors, rather than the 'logical relationship test.' Despite the trial court not mentioning the latter, the appellate court did not mandate its application on remand.

TTA also claimed that the trial court failed to recognize that Buckeye Steel did not fulfill its obligations under the purchase order, asserting it should have been allowed to present evidence supporting this claim. The trial court found the purchase order created separate remedies for distinct transactions, allowing TTA to reject individual deliveries. Since TTA's recoupment defense was limited to undelivered items and not deficiencies in received deliveries, the court ruled it inequitable for TTA to benefit from completed transactions without fulfilling its payment obligations. The court concluded that TTA accepted and used delivered goods without payment, necessitating payment to Buckeye Steel’s successor, CSC. Furthermore, TTA's claim regarding the inability to present additional evidence was not considered by the appellate court. Consequently, TTA's assignments of error were overruled, and the judgments of the Franklin County Court of Common Pleas were affirmed.