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Supreme Court Rules Ohio Court Cannot Create Receivership For Dissolved Illinois Corporation

After Time Limit for Suing Dissolved Company Has Expired Under Illinois Law

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2010-1705.  In re All Cases Against Sager Corp., Slip Opinion No. 2012-Ohio-1444.
Cuyahoga App. No. 93567, 188 Ohio App.3d 796, 2010-Ohio-3872. Judgment reversed and cause remanded.
O'Connor, C.J., and Lundberg Stratton, O'Donnell, Lanzinger, Cupp, and McGee Brown, JJ., concur.
Pfeifer, J., dissents.
Opinion: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2012/2012-Ohio-1444.pdf

Video clip View oral argument video of this case.

(April 3, 2012) The Supreme Court of Ohio ruled today that, when a company incorporated in another U.S. state has been dissolved, and the company is no longer amenable to being sued under the laws of the state in which it was incorporated, an Ohio court may not create a receivership marshalling the company’s unexhausted insurance assets as a vehicle for Ohio plaintiffs to pursue new damage claims against the dissolved corporation.
The court’s 6-1 decision, authored by Justice Terrence O’Donnell, reversed a ruling by the Eighth District Court of Appeals that had approved the 2007 creation of an Ohio receivership for Sager Corporation, an Illinois company that was dissolved under Illinois law in 1998.

Sager, incorporated in Illinois in 1921, sold protective clothing such as gloves, aprons and jackets and other industrial products containing asbestos to companies across the U.S., including sales to the U.S. Steel plant in Lorain. Sager ceased operations in June 1998 and filed for dissolution in the state of Illinois, commencing a five-year post-dissolution period during which Illinois law permitted claims to be asserted against it.  That period ended on June 17, 2003. 

On September 4, 2007, Commodore Bowens, suffering from mesothelioma, and executors of the estates of two deceased victims of mesothelioma filed suit in the Cuyahoga County Common Pleas Court against Sager and more than 200 other entities for personal injury, loss of consortium, and wrongful death, alleging that their injuries stemmed from exposure to asbestos products. Sager moved for summary judgment, asserting that because it had been dissolved and because the five-year period for filing claims against it had expired, it was no longer amenable to suit. 

In response, the law firm of Bevan & Associates, on behalf of all clients with asbestos-related claims pending against Sager, sought the appointment of a receiver to wind up Sager’s corporate affairs in Ohio, asserting that “Sager has insurance policies which have not been exhausted, and are assets of Sager.” Sager opposed the motion, asserting that the trial court lacked jurisdiction to appoint a receiver for a foreign corporation and arguing that even if the court had jurisdiction, it should apply Illinois law, which provides that Sager is no longer amenable to suit. Sager also argued that the appointment of an Ohio receiver violated the Due Process, Commerce, and Full Faith and Credit clauses of the United States Constitution.

The trial court, relying on R.C. 1701.88(B), appointed a receiver to accept claims and marshal corporate assets, including unexhausted insurance proceeds, and stated in its order, “the defunct corporation persists for the purpose of winding up its affairs in Ohio.” Sager appealed the appointment to the Eighth District Court of Appeals, which relied on R.C. 2735.01(E) and held that “there is no dispute that corporate assets exist notwithstanding Sager’s dissolution and that these assets may afford insurance coverage to Ohioans injured by exposure to Sager’s products,” so that “the trial court did not abuse its discretion by appointing a receiver in this matter.”  Sager sought and was granted Supreme Court review of the Eighth District’s ruling.

In today’s decision reversing the Eighth District, Justice O’Donnell wrote: “Although the trial court relied on R.C. 1701.88(B) as authority to appoint a receiver, we recognize that R.C. 1701.98 restricts the provisions of R.C. 1701.01 to 1701.98 to domestic corporations, except as otherwise provided, and we are unaware of any provision extending its authority to foreign corporations.” 

“The analysis of the court of appeals applying R.C. 2735.01(E) is more compelling because that section of the code authorizes a common pleas court to appoint a receiver when a corporation has been dissolved.  ...  (W)hile the appellate court correctly recognized that a trial court has the authority to appoint a receiver for a foreign corporation to wind up its affairs in Ohio, that authority is limited by our obligation to afford full faith and credit to the laws of other states.”

In rejecting the Eighth District’s finding that Ohio tort law took precedence over Illinois corporation laws in this case because the claimants’ injuries occurred in Ohio, Justice O’Donnell cited the U.S. Supreme Court’s holding in Chicago Title & Trust Co. v. Forty-One Thirty-Six Wilcox Bldg. Corp. that “‘[A] private corporation in this country can exist only under the express law of the state or sovereignty by which it was created. Its dissolution puts an end to its existence, the result of which may be likened to the death of a natural person. There must be some statutory authority for the prolongation of its life, even for litigation purposes.’”

“Also, 2 Restatement of the Law 2d, Conflict of Laws, Section 299(1), states, ‘Whether the existence of a corporation has been terminated or suspended is determined by the local law of the state of incorporation.’ ... We concur.  The question of whether a dissolved foreign corporation has the capacity to sue or be sued is a matter determined by the law of the state of incorporation. In this case, then, we look to Illinois law because Sager incorporated there.”

“Ill.Ann.Stat. Chapter 805, Section 5/12.80, permits claims to be filed against a dissolved Illinois corporation for a period of five years following dissolution. ... Claimants here cannot overcome the lack of existence of the Sager Corporation, nor can they deny the Illinois five-year survival statute, which allowed claims to be commenced against Sager only until June 17, 2003. Because Sager no longer exists and because it no longer has the capacity to be sued, no judgment can be taken against it.”

“The question then remains as to whether the unexhausted liability-insurance proceeds are assets subject to receivership.  They are not. ... In Hartford Acc. & Indemn. Co. v. Randall ... (1932), we explained that a tort claimant has only a potential interest in a liability-insurance policy covering claims against the insured and that potential interest ‘does not develop into a vested right until a judgment is secured.’ ... Because Sager lacks capacity to be sued, no judgment can be taken against it.  And without a judgment, R.C. 3929.06(B) precludes a direct action against the unexhausted proceeds from any liability-insurance policies and conditions the filing of a supplemental complaint against the insurer upon the entry of a final judgment. Accordingly, a receiver may not accept service of process on behalf of Sager, process defenses, or purport to marshal its assets consisting of unexhausted insurance proceeds, because the statute precludes that action until a judgment has been rendered that remains unpaid.”
“The authority to appoint a receiver for a dissolved foreign corporation is subject to constitutional limitations, notably the Full Faith and Credit Clause, obliging us to recognize Illinois corporation law as barring claims filed against Sager that were not pending on June 17, 2003. Thus, the court is without authority to appoint a receiver to ‘accept the process of claims, process defenses and marshal assets’ on behalf of the Sager Corporation, as the trial court ruled. Accordingly, the judgment of the court of appeals is reversed and the matter is remanded to the trial court for further proceedings consistent with this opinion.”

Justice O’Donnell’s opinion was joined by Chief Justice Maureen O’Connor and Justices Evelyn Lundberg Stratton, Judith Ann Lanzinger, Robert R. Cupp and Yvette McGee Brown.

Justice Paul E. Pfeifer entered a dissent stating that in his view: “The appointment of a receiver would allow the insurance policies that Sager Corporation paid for to do what Sager intended that they do: cover insured risks that arose in Ohio within the applicable coverage period. The appointment of a receiver for that purpose would do no harm to the dissolved corporation or its shareholders, thus leaving the philosophical underpinnings of the Illinois survival statute unscathed.”

Thomas W. Bevan, 330.650.0088, for Commodore Bowens and other plaintiff clients of Bevan & Associates.

Bruce P. Mandel, 216.583.7020, for Sager Corporation.