Fencorp, Co. v. Ohio Kentucky Oil Corporation, et al

Filing

OPINION and JUDGMENT filed: The verdict on the state common law fraud claim is set aside and the district court is directed to reinstate the verdict on the federal securities claim. The rulings of the district court are otherwise AFFIRMED and case is REMANDED, decision for publication pursuant to local rule 206. R. Guy Cole, Jr., Julia Smith Gibbons (AUTHORING), John M. Rogers, Circuit Judges. [09-4317, 09-4320, 09-4321, 09-4322]

Case: 09-4317

Document: 006111264277

Filed: 04/04/2012

Page: 1

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 12a0091p.06

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
X
FENCORP, CO.,
Plaintiff-Appellee/Cross-Appellant, v.
>
,
OHIO KENTUCKY OIL CORPORATION; CAROL
L. CAMPBELL,
Defendants-Appellants/Cross-Appellees. N

Nos. 09-4317/4320/4321/4322

On Appeal from the United States District Court
for the Northern District of Ohio at Akron.
No. 06-00506; 06-00260—John R. Adams, District Judge.
Argued: March 4, 2011
Decided and Filed: April 4, 2012
Before: COLE, GIBBONS, and ROGERS, Circuit Judges.
_________________
COUNSEL
ARGUED: Thomas W. Connors, BLACK, McCUSKEY, SOUERS & ARBAUGH,
Canton, Ohio, for Appellants. Dennis R. Rose, HAHN, LOESER & PARKS LLP,
Cleveland, Ohio, for Appellee. ON BRIEF: Thomas W. Connors, Gordon D.
Woolbert, II, BLACK, McCUSKEY, SOUERS & ARBAUGH, Canton, Ohio, for
Appellants. Dennis R. Rose, Eric B. Levasseur, Steven J. Mintz, HAHN, LOESER &
PARKS LLP, Cleveland, Ohio, for Appellee.
_________________
OPINION
_________________
JULIA SMITH GIBBONS, Circuit Judge. This case involves allegations of
fraud and misrepresentation in the issuance of securities related to oil and gas interests.
Following a jury verdict for plaintiff-appellee Fencorp, Co. (“Fencorp”), defendants1

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 2

Page 2

appellants Ohio Kentucky Oil Corporation (“OKO”) and Carol L. Campbell appeal and
raise numerous issues. Fencorp cross-appeals and raises two additional issues. For the
reasons that follow, we reverse the district court’s entry of judgment on damages but
otherwise affirm its rulings.
I.
This case stems from a series of investments made by Frederick E. Nonneman
with OKO. Nonneman invested money both personally and through Fencorp, a family
investment corporation he formed in 1986. Many of these investments were in domestic
oil and gas although Nonneman had no experience in drilling wells or running an oil and
gas company.
From 2000 to 2003, Nonneman, who was president of Fencorp until 2004, when
his daughter, Lois Nonneman, succeeded him, invested $3,980,345.50 with OKO
through Fencorp, of which $1,012,835.50 was invested after March 6, 2001 (the relevant
date for the Ohio five-year securities statute of repose). The investments included
twenty-one joint ventures and five limited partnerships.

Evidence showed that

Nonneman expected to receive favorable tax treatment.
During the time period in question, Nonneman was showing the beginning signs
of dementia and suffering from disabilities. Eventually, Gregory Nolfi, a trusted business
advisor, assumed management of Nonneman’s affairs as successor trustee on
November 5, 2003. By this time it had become apparent that the OKO investments
would yield no returns. Of the one hundred twenty-eight wells drilled by OKO, only
eleven produced oil, and they did not produce enough to recoup the investment, let alone
return a profit to Fencorp, even taking account of tax benefits.
Upon assuming control, Nolfi went to OKO to learn more about the transactions.
He was unsuccessful, and Nolfi and Lois Nonneman filed suit in Ohio state court. The
state court lawsuit on Nonneman’s personal behalf was filed December 22, 2004.
Fencorp was not named as a plaintiff in this suit.

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 3

Page 3

During discovery for the state lawsuit, Nolfi and Lois Nonneman learned of facts
and circumstances that gave rise to federal and state securities claims. Fencorp’s
representatives learned that William M. Griffith, the founder of OKO, and Carol L.
Campbell, Griffith’s daughter and the president of OKO during the relevant time period,
had been persistent in their pursuit of sales to Frederick Nonneman. Griffith touted the
virtues of the drilling joint-ventures and included grandiose promises of rich rewards,
promises not tempered by cautions or warnings that the exploratory drilling OKO
planned had a low chance of success. Evidence showed that Nonneman had grown to
trust Griffith, and that Griffith exploited that trust by pressing for more investment
opportunities, encouraging hurried transactions, and bestowing gifts on Nonneman’s
wife.
Griffith thus persuaded Nonneman to invest over three million dollars with OKO
through Fencorp, but the investments failed to return as promised. Moreover, OKO’s
pricing and other behavior were suspicious. The terms of the investments provided that
if no oil was found, OKO would keep the excess funds invested. As a drilling company,
OKO made money by drilling the wells; then, if no oil was found, completion costs
would be unnecessary, and OKO would make even more profit because it could keep the
remainder of Nonneman’s investment. Ostensibly for this reason, OKO did not drill in
areas where it was likely to strike oil. Additional evidence revealed that OKO had
overstated its costs and had billed substantial and unexplained internal overhead,
including expenses at restaurants and stores, employment of Griffith’s family, and
purchases of a personal plane, a house, and horses for Griffith.
After learning these facts, Nolfi and Lois Nonneman filed federal and state
securities claims on Nonneman’s personal behalf. About a month after the federal
lawsuit on Nonneman’s personal behalf was filed, on March 6, 2006, Fencorp filed a
case against OKO and Carol L. Campbell alleging (1) violations of § 12(a)(1) of the
Securities Act of 1933, 15 U.S.C. §77l(a)(1), (2) violations of the Ohio Blue Sky laws
by the sale of unregistered securities, (3) federal securities fraud, (4) misrepresentation,
(5) common law fraud, (6) breach of fiduciary duties, and (7) breach of contract.

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 4

Page 4

Fencorp also sought punitive damages. Although the district court declined to exercise
supplemental jurisdiction over Nonneman’s personal state law claims, it retained
jurisdiction over Fencorp’s state law claims. On March 23, defendants moved to
consolidate the two federal cases, which the district court granted on May 9, 2006. Both
Nonneman’s personal claims and Fencorp’s claims against OKO and other defendants
were therefore tried together. Appeals from the two cases have proceeded separately.
The district court ruled on several pre-trial motions relevant to this appeal. First,
the district court dismissed many of Fencorp’s §12(a)(1) non-registration claims as being
beyond the three-year statute of repose, and the court found that equitable tolling did not
apply. In addition, the district court denied defendants’ motion to dismiss, finding that
the complaint adequately pled particularity, scienter, reliance, and loss causation.
After discovery, both parties moved for summary judgment. First, the district
court dismissed the remaining §12(a)(1) claims for being outside the one-year statute of
limitations. Second, the court denied summary judgment to Fencorp on its Ohio nonregistration claims on the ground that whether OKO’s securities were exempt was a
question of fact. Third, the court denied defendants’ § 10(b) summary judgment motion.
Fourth, the court dismissed Fencorp’s Ohio Blue Sky claims from prior to March 6,
2001, as being beyond the statute of repose, but it refused to dismiss claims filed
between March 6, 2001, and March 6, 2002 because the statute of repose, which was
four years at the time the investments were sold but had been changed to five years by
the Ohio General Assembly, only creates a substantive right once the limitation period
has run. Fifth, the district court rejected defendants’ argument that federal law
preempted Fencorp’s Blue Sky claims because whether defendants’ products were
rightfully exempt from registration under SEC Rule 506 depended on whether OKO had
engaged in a “general solicitation,” a question of fact. Finally, the district court denied
defendants’ motion for summary judgment on the state law breach of contract claim.
Defendants had argued that a “general accounting” between partners must take place
before such a claim could be brought, but the district court found that the partnership

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 5

Page 5

interests here were not so complex as to require an accounting before the court could
resolve the contractual dispute.
As the case proceeded, OKO thwarted Fencorp’s efforts to obtain discovery on
whether OKO had engaged in a general solicitation. Not only did OKO refuse to hand
over requested documents, but also one of its executives admitted that OKO had
destroyed some of the documents Fencorp had requested for the case. OKO did not
institute a “litigation hold” on these documents during the state and federal lawsuits.
The district court found that defendants had violated a discovery order: “[T]he
defendants failed to even investigate the existence of documents that would have been
responsive to discovery requests. The Court does not impose sanctions lightly. The
underlying misconduct, however, warrants it.” Accordingly, under Fed. R. Civ. P. 37(b),
the district court sanctioned defendants by finding, as a matter of law, that OKO had
engaged in a general solicitation. This decision meant that OKO’s federal preemption
defense under Rule 506 was rendered inapplicable.
The district court made a number of other additional rulings during trial. First,
the district court ruled on a Rule 50 motion that the investments at issue were, as a
matter of law, securities under Ohio Revised Code § 1707.01(B) and §2(a)(1) of the
Securities Act of 1933. The court also found that the violation was “material.” But the
court did not grant judgment as a matter of law because whether OKO had “knowingly”
sold unregistered securities remained uncertain. Also, over defendants’ objection, the
court offered rescission damages in its jury instructions as a measure of damages for the
§10(b) claims.
The case was tried before a jury, and the jury ruled in favor of Fencorp on its
federal securities claims. The jury then determined that the rescission damages—the
price paid for the investments, less any income received—were $3,591,605 for Fencorp.
Having stated the rescissory damages as over three million dollars, the jury then entered
$847,858 on its verdict form as the total amount of damages for Fencorp.

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 6

Page 6

On the Ohio state non-registration claim, the jury found for Fencorp, but it only
awarded $735,496, substantially less than full rescission. The jury found for Fencorp
on its state securities fraud claim but awarded no damages. The jury found for Fencorp
on its common law fraud claim and awarded $1,404,769. The jury found for Fencorp
on its breach of fiduciary duty claim and awarded $43,200. The jury found for
defendants on the breach of contract claim and denied punitive damages. Finally, when
asked to state the largest total amount of damages for Fencorp, the jury stated $847,858.
Immediately after the jury’s verdict was returned, while both parties waited to
hear whether punitive damages would be awarded, Fencorp moved under Rule 49 to
correct an error. The jury had stated that $847,858 was the largest amount of damages
awarded to Fencorp on any single claim, when in fact $1,404,769 was the largest
amount. When Fencorp asked the court to amend the verdict to $1,404,769, defendants
objected and requested that the court resubmit the matter to the jury. The court agreed
with Fencorp that there was a simple transcription error and entered judgment for
$1,404,769.
Both parties offered post-trial motions relevant to this appeal. The court granted
a Rule 59(e) motion by defendants to change the $1,404,769 common law fraud award
to $1,012,835.50 because, as Fencorp conceded, the $1,012,835.50 sum was the
maximum amount of money not barred by the statute of repose. Defendants brought a
Rule 50(b) motion, arguing that they were entitled to judgment as a matter of law on the
§10(b) claims with respect to the statute of limitations and proof of justifiable reliance.
The district court denied their motion. Fencorp filed a post-trial motion to alter or
amend the judgment, arguing it was entitled to rescissory damages by law. Because the
jury stated rescissory damages were $3,591,605 but only awarded $847,858, Fencorp
asked the court to amend the judgment to $3,591,605, or, in the least, the $1,012,835.50
within the five-year statute of repose. The district court refused, finding that Fencorp
had waived this argument by failing to raise the issue prior to discharge of the jury, as

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 7

Page 7

required by Rule 49(b).1 Finally, the district court denied Fencorp’s argument that
Ohio’s statute of repose is unconstitutional under the Ohio state constitution. This
appeal followed.
II.
We begin our analysis by considering defendants’ arguments that the district
court should have granted their motion to dismiss and their motion for summary
judgment. We review a district court’s decision to deny a motion for summary judgment
for an abuse of discretion. Romstadt v. Allstate Ins. Co., 59 F.3d 608, 615 (6th Cir.
1995).
Ortiz v. Jordan, 131 S. Ct. 884, 889 (2011), precludes our consideration of most
of the issues defendants raise with respect to their motions for summary judgment and
to dismiss. But because Ortiz leaves open the possibility that cases “involv[ing] . . .
[only] disputes about the substance and clarity of pre-existing law” may still be
considered, Id. at 892, we briefly consider two legal arguments for summary judgment
on the state law claims. See also Owatonna Clinic–Mayo Health Sys. v. Med. Protective
Co. of Fort Wayne, Ind., 639 F.3d 806, 809–10 (8th Cir. 2011) (recognizing that Ortiz
did not address the issue of whether a denial of a summary judgment motion was
appealable after a final judgment if the denial was based on a legal question rather than
on the existence of material facts in issue); Fireman’s Fund Ins. Co. v. North Pacific Ins.
Co., No. 10-35414, 2011 WL 3510936, (9th Cir. Aug. 11, 2011) (unpublished) (finding
Ortiz “expressly declined to consider whether . . . ‘purely legal issue[s]’ [involved in a
district court’s ruling on a motion for summary judgment] are appealable after a full trial
on the merits”).

1

We note an important distinction between defendants’ Rule 59(e) motion, which was granted,
and Fencorp’s Rule 59(e) motion, which was denied. Fencorp’s motion dealt with an inconsistency in the
jury verdict and therefore could have been raised under Rule 49(b), while defendants’ motion was a matter
of law unrelated to the jury’s verdict.
We also note that Fencorp did make a Rule 49(b) motion before the jury was discharged but
argued in it for correction of another inconsistency in the verdict—not this one.

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 8

Page 8

First, defendants argue the statute of repose should have been four years, not five
years, because the Ohio savings statute and state constitution make the extension of the
statute of repose in this case from four years to five unlawful. The Ohio savings statute
provides: “The reenactment, amendment, or repeal of a statute does not . . . affect any
validation, cure, right, privilege, obligation, or liability previously acquired, accrued,
accorded, or incurred thereunder.” Ohio Rev. Code § 1.58. Additionally, Ohio law
provides that a statute is unconstitutionally retroactive if it “‘creates a new obligation,
imposes a new duty, or attaches a new disability, in respect to transactions or
considerations already past.’” Van Fossen v. Babcock & Wilcox Co., 522 N.E.2d 489,
496 (Ohio 1988) (quoting Cincinnati v. Seasongood, 21 N.E. 630, 633 (Ohio 1889)).
The new duty created must be substantive, which means the unconstitutionally
retroactive statute “impairs or takes away vested rights, affects an accrued substantive
right, [or] . . . gives rise to or takes away the right to sue or defend actions at law.” Id.
(internal citations omitted).
Because we have found no Ohio law—and defendants offer none—which states
when a statute of repose creates a substantive right, we look to persuasive authority. We
have previously quoted with approval language from the Delaware Supreme Court
noting that statutes of repose are substantive provisions. See Roskam Baking Co., Inc.
v. Lanham Machinery Co., Inc., 288 F.3d 895, 903 (6th Cir. 2002) (quoting with
approval Cheswold Volunteer Fire Co. v. Lambertson Const. Co., 489 A.2d 413, 421
(Del. 1984)). Moreover, it is accepted law in a number of jurisdictions that “the running
of a statute of repose creates a vested right not to be sued.” Wenke v. Gehl, Co., 682
N.W.2d 405, 425 (Wis. 2004). See also Mills v. Wong, 155 S.W.3d 916, 920 (Tenn.
2005) (“The running of the statute of repose . . . has a substantive effect.”); Nolan v.
Paramount Homes, Inc., 518 S.E.2d 789, 792 (N.C. Ct. App. 1999) (“If plaintiff fails to
file within the prescribed period, the statute gives defendant a vested right not to be
sued.”). In light of these authorities it was not an abuse of discretion for the district
court to find that the substantive right for a statute of repose only begins when the
limitation period has run. See Doe A. v. Diocese of Dallas, 917 N.E.2d 475, 485 (Ill.

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 9

Page 9

2009) (holding that because the repose period in question was eliminated before it
expired, it never operated to insulate defendants from liability and never vested
defendants with any substantive rights). Because the limitation period had not run when
the Ohio General Assembly amended the statute, defendants had no vested right.
Accordingly, we uphold the district court’s denial of summary judgment.
Second, defendants argue that state law requires a general accounting among
partners; the district court should have granted summary judgment because an
accounting was required prior to initiation of the lawsuit. Defendants, however, admit
that the case that sets out this requirement, Dunn v. Zimmerman, also states: “We
recognize . . . that . . . there may be some [partnership disputes] for which a formal
accounting would be a pointless exercise. Such cases would involve disputes over a
very limited time or number of transactions, whose resolution would not require a
searching inquiry into partnership affairs.” 631 N.E.2d 1040, 1044 (Ohio 1994). The
district court found that a general accounting is not mandatory and that “the underlying
rationale for requiring an accounting is missing in this matter,” as there were only two
partners and no issue regarding whether Fencorp owed money to OKO. The district
court did not abuse its discretion in finding that this case falls within the Zimmerman
exception. We therefore uphold the district court’s denial of summary judgment.
III.
We next consider three arguments defendants make regarding the federal
securities claims. First, defendants argue that the district court erred in finding as a
matter of law that Fencorp’s partnership and joint-venture interests are securities. We
previously held in the companion case that the OKO investments qualify as “fractional
undivided interests in oil, gas, or other mineral rights” that are securities per 15 U.S.C.
§ 77b(a)(1).

Nolfi, supra, slip op. at 10. Because defendants merely repeat their

argument from the companion case, we affirm the district court for the reasons stated in
Nolfi.

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 10

Page 10

Second, defendants argue that the district court erred in denying their Rule 50(b)
motion concerning whether Fencorp’s § 10(b) claims were barred by the two-year statute
of limitations and a lack of justifiable reliance. In the companion case, we held that the
statute of limitations did not begin to run until the beginning of the first state case and
that—under the contextual analysis we employ—plaintiffs have adequately proved
justifiable reliance. Nolfi, supra, slip op. at 11. Because defendants merely repeat the
same arguments from the companion case, we affirm the district court for the reasons
stated in Nolfi.
Third, defendants argue that the jury instructions incorrectly stated the law
regarding presumption of reliance and damages for the federal securities fraud claims.
We addressed defendants’ arguments in the companion case and held the district court
did not err by instructing the jury that reliance may be presumed, that rescission is a
proper method of determining damages in this case, and that tax benefits do not need to
be deducted from the rescissory award. Nolfi, supra, slip op. at 14-16. Because
defendants merely repeat the same arguments we rejected in the companion case, we
affirm the district court for the reasons stated in Nolfi.
IV.
We conclude our analysis of defendants’ appeals by considering their remaining
state-law claims.
A.
First, we consider whether the district court erred by imposing discovery
sanctions against defendants and granting judgment against them on their federal
preemption defense to Fencorp’s state securities non-registration claims. Defendants
argue that the district court erred in imposing “drastic” discovery sanctions by finding
the defendants had engaged in a general solicitation, rendering their federal preemption
defense void.

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 11

Page 11

Fed. R. Civ. P. 37(b)(2)(A)(i) provides that when a party does not obey a
discovery order, the district court may “direct[] that the matters embraced in the order
or other designated facts be taken as established for purposes of the action, as the
prevailing party claims.” Fed. R. Civ. P. 37(b)(2)(A)(i). We review a district court’s
decision to impose discovery sanctions under Rule 37 for abuse of discretion. Beil v.
Lakewood Eng’g & Mfg. Co., 15 F.3d 546, 551 (6th Cir. 1994). In the Rule 37 context,
an abuse of discretion occurs when “(1) the district court’s decision is based on an
erroneous conclusion of law, (2) the district court’s findings are clearly erroneous, or
(3) the district court’s decision is clearly unreasonable, arbitrary, or fanciful.” Id.
The district court did not abuse its discretion. The district court found that
defendants had disobeyed three separate discovery requests for documents related to
OKO’s general solicitation. After defendants objected, the district court determined the
materials were discoverable. But defendants did not produce the documents. Then, at
a later hearing, an OKO official testified that, although the materials requested still
existed, there had been a company-wide order to destroy them, and no official had
ordered that the documents be made available to the plaintiffs. These facts demonstrate
the reasonableness of the district court’s action. Accordingly, we affirm the district
court’s imposition of discovery sanctions against defendants.
B.
Next, we consider whether the district court erred in finding that the OKO
investments were securities under Ohio state securities law. Defendants argue that a
partnership where the investor has the right to exercise managerial control is not a
security under Ohio law. Managerial control exists when the managing agent can be
removed or the partnership can be dissolved by the written consent of partners holding
at least three-quarters of the then capital accounts of the partnership. See Brannon v.
Rinzler, 603 N.E. 2d 1049, 1052 (Ohio Ct. App. 1991) (applying a four-prong test for
securities under state law). Because the OKO investments allowed removal of the
general partner or dissolution of the partnership upon agreement of 80% of the

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 12

Page 12

partnership interests, defendants state that these investments were like those in Rinzler,
giving Fencorp managerial control and rendering the investments not securities under
Ohio law.
This argument is without merit because defendants do not cite any investment
in which Fencorp owned 80% or more; nor are we aware of any. Some representative
ownership stakes purchased included 6.25%, 50%, 38%, and 62.5%, but in no instance
did Fencorp own 80%. OKO was the managing agent, and OKO owned enough of each
investment to veto any dissolution or management change by Fencorp. Thus, under
defendants’ own standard, Fencorp did not have management control. We therefore
reject this argument.
C.
Finally, we must decide whether the district court erred by failing to instruct the
jury about the five-year statute of repose applicable to Fencorp’s state law claims and,
if so, how this error affected the damages awarded to Fencorp. In its answers to the
interrogatories, the jury indicated Fencorp was entitled to $1,404,769 in damages on the
common law fraud claim despite the fact—later stipulated to by the parties—that the
maximum amount of eligible damages within the statute of repose was only
$1,012,835.50. The district court failed to instruct the jury about this five-year statute
of repose, and defendants assert that this discrepancy shows “that the jury awarded
damages based on transactions barred by the statute of repose.”
Jury instructions are reviewed to see “whether the charge, taken as a whole, fairly
and adequately submits the issues and applicable law to the jury.” Fisher v. Ford Motor
Co., 224 F.3d 570, 575–76 (6th Cir. 2000). “While the correctness of jury instructions
is a question of law, which we review de novo, the refusal to give a specifically
requested instruction is reviewed for abuse of discretion. A judgment may be reversed
only if the instructions, viewed as a whole, were confusing, misleading, or prejudicial.”
Micrel, Inc. v. TRW, Inc., 486 F.3d 866, 881 (6th Cir. 2007) (internal citation omitted).
“‘[W]hen judicial action is taken in a discretionary matter, such action cannot be set

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 13

Page 13

aside by a reviewing court unless it has a definite and firm conviction that the court
below committed a clear error of judgment in the conclusion it reached upon a weighing
of the relevant factors.’” United States v. Frost, 914 F.2d 756, 764 (6th Cir. 1990)
(quoting McBee v. Bomar, 296 F.2d 235, 237 (6th Cir. 1961)).
We agree that investments made outside the statute of repose should not have
been considered by the jury in assessing damages for common law fraud. Never having
received any instructions on this limitation, the jury indicated an amount that was nearly
$400,000 above the maximum amount Fencorp was entitled to receive for its common
law fraud claim. Defendants were clearly prejudiced by the district court’s failure to
instruct the jury on the five-year statute of repose, and the charge did not adequately
submit the applicable law to the jury. The district court erred by failing to include an
instruction on the statute of repose.
This error was not harmless, nor was it cured by the district court’s amendment
of the judgment. The jury indicated Fencorp was entitled to $1,404,769 on the state
common law fraud claim, but when asked on the verdict form to state the largest total
damages award for Fencorp for any single claim, the jury entered $847,858. The district
court granted Fencorp’s motion to correct this apparent transcription error and modified
the verdict to reflect the larger total of $1,404,769. Later, in an attempt to correct the
discrepancy resulting from the judgment being greater than the maximum amount
allowed by the statute of repose under the circumstances, the district court granted
defendants’ Rule 59(e) motion and reduced the judgment from $1,404,769 to
$1,012,835.50 with the revised amount reflecting the total amount of transactions still
within the statute of repose.
The modification of the judgment by the district court compounded the error. By
modifying the judgment to $1,012,835.50, the district court apparently presumed that the
full transaction cost—a rescission theory—was the proper measure of damages. There
is no indication, however, that the jury intended to award Fencorp the full amount it had
invested with defendants. To the contrary, although it was not precluded from using the

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 14

Page 14

full transaction price as the measure of damages, it appears that the jury awarded an
amount less than the full price paid by Fencorp and made a smaller award based on the
damages “proximately resulting” from defendants’ fraud. We can only speculate as to
what damages the jury might have awarded if it had been properly instructed on the
statute of repose, but it is very possible that the jury would have awarded an amount less
than $1,012,835.50. It was improper for the district court to assume that the full
transaction price was the appropriate measure of damages under these circumstances.
Because the jury was not properly instructed on the applicable statute of repose
for Fencorp’s state law fraud claim, its verdict on this claim cannot be considered a valid
one. In modifying the verdict amount, the district court was not simply performing a
mathematical computation but instead substituting a figure that was only a possible
outcome, had the jury considered the statute of repose issue. In fact, given the jury’s
rejection of rescission as a measure of damages, this possible outcome seems rather
unlikely. The only remedy here is a new trial on damages with respect to the state
common law fraud claims.
Defendants argue on appeal that under Rule 49(b) the final verdict was
inconsistent with the interrogatories, and they cite precedent stating that when
interrogatories are inconsistent with each other and with the general verdict, “the trial
judge is permitted only to return the jury for further consideration of its answers and
verdict, or to order a new trial. Rule 49(b) gives the trial judge no authority to enter
judgment for any party in this situation.” Bahamas Agr. Indus. Ltd. v. Riley Stoker
Corp., 526 F.2d 1174, 1183 (6th Cir. 1975). Defendants argue that the district court’s
entry of judgment on the verdict was therefore unauthorized. We review a district
court’s interpretation of a verdict rendered pursuant to Rule 49 for abuse of discretion.
Radvansky v. City of Olmstead Falls, 496 F.3d 609, 618 (6th Cir. 2007).
Defendants failed to raise this argument that the jury’s verdict was internally
inconsistent before the jury was discharged and, consequently, have waived this

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 15

Page 15

objection.2 See id. Perhaps more importantly, however, this argument is moot, given
the setting aside of the verdict on the common law fraud claim. Any inconsistency in
the verdict form no longer exists as a result of setting aside the verdict on the common
law fraud claim.
Our ruling with respect to the common law fraud claim in no way affects the
verdict returned by the jury on the federal securities claim to which the state statute of
repose does not apply. On remand, therefore, the district court is directed to reinstate the
verdict on the federal claim in the amount of $847,858.
V.
On cross-appeal, Fencorp makes two contentions. The first cross-claim is that
the district court erred by refusing to alter or amend the judgment to award full
rescission to Fencorp. In the companion case, we found that the Nolfi plaintiffs waived
their right to make this claim by not raising the issue before the jury was dismissed.
Nolfi, supra, slip op. at 17-18. Similarly, Fencorp failed to make this argument before
discharge of the jury. Therefore, we affirm the district court for the reasons stated in
Nolfi.
Fencorp’s second contention on cross-appeal is that the district court erred in
applying the Ohio securities statute of repose because that statute is contrary to the Ohio
state constitution’s right to remedy provision.
Article I, section 16 of the Ohio constitution provides: “All courts shall be open,
and every person, for an injury done him in his land, goods, person, or reputation, shall
have remedy by due course of law, and shall have justice administered without denial
or delay.” Ohio Const. art. I, § 16. Fencorp asserts that this “right to remedy” provision
has been used to strike down various statutes of repose that take away the remedy the
law would have otherwise permitted. Ohio courts, for example, struck down the medical
2

Defense counsel did request that the issue of the amount of damages be returned to the jury for
clarification when asked for a response to plaintiffs’ motion to modify the verdict pursuant to Rule 49.
Defendants failed to raise an objection under Rule 49(b) themselves.

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 16

Page 16

malpractice statute of repose. Hardy v. VerMeulen, 512 N.E.2d 626, 629 (Ohio 1987).
But see Groch v. Gen. Motors Corp., 883 N.E.2d 377, 398 (Ohio 2008) (upholding the
products liability statute of repose). Fencorp now asks us to employ the right to remedy
provision and hold that the Ohio securities statute of repose is contrary to the Ohio
constitution.
We begin our analysis by noting that Ohio law requires a high degree of certainty
before a law is declared to be contrary to the state constitution. “All [Ohio] statutes have
a strong presumption of constitutionality.” Arbino v. Johnson & Johnson, 880 N.E.2d
420, 429 (Ohio 2007); see also Hartford Fire Ins. Co. v. Lawrence, Dykes,
Goodenberger, Bower & Clancy, 740 F.2d 1362, 1366 (6th Cir. 1984) (“[A]cts of the
General Assembly are presumed valid under Ohio law, and in cases of doubt should be
held constitutional.”).

For an Ohio court to declare the legislature’s action

unconstitutional, “it must appear beyond a reasonable doubt that the legislative and
constitutional provisions are clearly incompatible.” Id. (quoting State ex rel. Dickman
v. Defenbacher, 128 N.E.2d 59, 60 (Ohio 1955)). Furthermore, “the constitutionality of
any statute of repose should turn on the particular features of the statute at issue, and . . .
such a statute should be evaluated narrowly within its specific context.” Groch, 883
N.E.2d at 401. A party bringing a facial challenge “must demonstrate that there is no
set of circumstances in which the statute would be valid.” Id.
Recently, the Ohio Supreme Court in Groch considered Brennaman v. R.M.I.
Co., 639 N.E.2d 425 (Ohio 1994), a case Fencorp cites and upon which other cases
Fencorp cites rely. The Ohio Supreme Court criticized the logic of the Brennaman
decision and stated: “To the extent that Brennaman stands for the proposition that all
statutes of repose are repugnant to Section 16, Article I [of the Ohio constitution], we
expressly reject that conclusion.” Groch, 883 N.E.2d at 403. The court “confine[d]
Brennaman to its particular holding” regarding the statute of repose for improvements
to real property. Id. Instead, the court quoted with approval language from an earlier
Ohio Supreme Court case: “the right to remedy provision . . . applies only to existing,
vested rights, and it is state law which determines what injuries are recognized and what

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 17

Page 17

remedies are available.” Id. (quoting Sedar v. Knowlton Const. Co., 551 N.E.2d 938,
947 (Ohio 1990)).
Reviewing the statute “narrowly within its specific context,” we emphasize that
the securities claims were created by statute and gave plaintiffs substantial protections
and privileges not available under common law. Where the legislature creates a new,
statutory right, it is reasonable that the legislature also has the ability to shape the
contours and limits of that right. To hold otherwise would mean that any statutorilycreated right in Ohio, once created, could not be limited by a statute of repose. This
policy concern cautions us from declaring the statute unconstitutional.
Fencorp’s argument is similar to the arguments used by the Ohio Supreme Court
to find medical malpractice statutes of repose unconstitutional. See Groch, 883 N.E.2d
at 404 (noting instances in which the Ohio Supreme Court struck down medical
malpractice statutes of repose because those statutes “took away an existing, actionable
negligence claim before the injured person discovered the injury (when the injury had
already occurred) or gave the injured person too little time to file suit.” ) However, it
does not appear to us “beyond a reasonable doubt” that the securities statute, which had
created new rights, is analogous to the common-law rights limited by the medical
malpractice statutes of repose. Moreover, although the common law fraud claims are
similar to medical malpractice claims, Fencorp attempts a facial challenge to the whole
statute and not an as-applied challenge to just the common-law elements governed by
the statute, so it must demonstrate that there is “no set of circumstances in which the
statute would be valid.” This Fencorp has failed to do. Finally, no Ohio court has
declared this statute of repose unconstitutional, and Ohio appeals courts have not been
dissuaded by the medical malpractice cases from applying the securities statute of repose
to common-law claims subsumed within the larger securities claims. See Helman v. EPL
Prolong, Inc., 743 N.E.2d 484, 493 (Ohio Ct. App. 2000). All of these elements
combine and lead us to uphold the constitutionality of the securities statute of repose.
We therefore affirm the district court.

Case: 09-4317

Document: 006111264277

Nos. 09-4317/4320/4321/4322

Filed: 04/04/2012

Fencorp, Co. v. Ohio Kentucky Oil Corp.,
et al.

Page: 18

Page 18

VI.
For the foregoing reasons, we set aside the verdict on the state common law fraud
claim and direct the district court to reinstate the verdict on the federal securities claim.
We otherwise affirm the rulings of the district court and remand the case for further
proceedings consistent with this opinion.