Independent Insurance Agents of Ohio, Inc. v. Duryee

Whiteside, Presiding Judge. Plaintiff-appellant, Independent Insurance Agents of Ohio, Inc., appeals from a dismissal by the Franklin County Court of Common Pleas of plaintiffs complaint and raises the following three assignments of error: “I. The trial court erred in dismissing this action in reliance upon the doctrine of res judicata because the cause of action contained in the complaint is dissimilar from the cause of action presented by and decided in Independent Insurance Agents of Ohio, Inc. v. Fabe. “II. The trial court erred in dismissing this action in reliance upon the doctrine of res judicata because the decision in Independent Insurance Agents of Ohio, Inc. v. Fabe did not adjudicate the merits of IIAO’s challenge to the Superintendent’s unconstitutional exercise of legislative power. “III. The trial court erred in dismissing this action because the factual allegations of the complaint, presumed to be true upon consideration of a motion to dismiss for failure to state a claim, entitle IIAO to declaratory and injunctive relief.” In 1992, the Ohio Supreme Court decided Indep. Ins. Agents of Ohio, Inc. v. Fabe (1992), 63 Ohio St.3d 310, 587 N.E.2d 814 (“Independent Ins. Agents I ”). The syllabus of that case states as follows: “1. R.C. 3905.01(B) and 3905.04 do not prohibit the licensing of applicants affiliated with non-insurance financial institutions. “2. An applicant for a license as an other-than-life insurance agent is not precluded from licensure by'R.C. 3905.01(B) and 3905.04 merely because an affiliate of the applicant would be precluded thereunder, unless the applicant is but the alter ego of the precluded affiliate.” Subsequently, Huntington Insurance Agency, Inc. (“Huntington”), which was not a party to the Independent Ins. Agents I case, filed a requisition for corporate agency member license for a fire and casualty insurance license in the state of Ohio with the Superintendent of the Ohio Department of Insurance. *10 Huntington is a wholly owned subsidiary of Huntington Insurance Services, Inc., a bank subsidiary corporation which is wholly owned by the Huntington State Bank, Alexandria, Ohio. The Huntington State Bank is a wholly owned subsidiary of Huntington Bancshares, Inc. Plaintiff then filed this action in the Franklin County Court of Common Pleas, seeking declaratory and injunctive relief. Plaintiff sought an order declaring that the statute as construed in Independent Ins. Agents I is unconstitutional, since any determination made by the superintendent whether an applicant was the alter ego of a precluded affiliate would constitute an unconstitutional exercise of legislative power by the superintendent. Plaintiff also sought an order preliminarily and permanently enjoining the superintendent from making such a determination on Huntington’s application until the General Assembly provides standards to guide the superintendent. Plaintiff contends that there are no standards developed to guide the superintendent in determining alter ego status and that, therefore, the superintendent is exercising legislative power. Section 1, Article II of the Ohio Constitution vests all legislative power in the General Assembly and Section 26, Article II of the Ohio Constitution has been interpreted to prohibit the delegation of the power except where the General Assembly has provided sufficient, definite standards with which to use the power. 1 It is true that the General Assembly may not delegate its essential legislative functions, and attempts to do so are unconstitutional. In Belden v. Union Cent. Life Ins. Co. (1944), 143 Ohio St. 329, 28 O.O. 295, 55 N.E.2d 629, paragraph one of the syllabus, the Ohio Supreme Court declared that: “The legislative power of the state is vested in the General Assembly by Section 1, Article II of the Constitution and that body may not abdicate or transfer to others the essential legislative functions with which it is vested.” Additionally, legislative acts which grant to a board or administrative agency quasi-legislative or quasi-judicial power are proper only if the General Assembly has provided sufficient standards within which the board or agency may make subordinate rules. Belden, paragraph three of the syllabus; Am. Cancer Soc., Inc. v. Dayton (1953), 160 Ohio St. 114, 125, 51 O.O. 32, 37, 114 N.E.2d 219, 225. An exception to the rule requiring “definite rules of guidance in restricting or *11 limiting the exercise of such official action” has been recognized in “cases where the establishment of such criteria would be impossible or impracticable or result in rendering the enforcement of a police regulation nugatory or ineffective.” Matz v. Curtis Cartage Co. (1937), 132 Ohio St. 271, 8 O.O. 41, 7 N.E.2d 220, paragraph seven of the syllabus, at 278-279, 8 O.O. at 44-45, 7 N.E.2d at 224-225. Defendant filed a motion to dismiss, pursuant to Civ.R. 12(B)(6), for failure to state a claim for which relief can be granted, contending that the action was barred by the doctrine of res judicata. The Ohio Supreme Court has held in the syllabus of O’Brien v. Univ. Community Tenants Union, Inc. (1975), 42 Ohio St.2d 242, 71 O.O.2d 223, 327 N.E.2d 753, that: “In order for a court to dismiss a complaint for failure to state a claim upon which relief can be granted (Civ.R. 12(B)(6)), it must appear beyond doubt from the complaint that the plaintiff can prove no set of facts entitling it to recovery.” The common pleas court determined that plaintiff could prove no set of facts entitling it to recovery and, therefore, dismissed the complaint stating as follows: “Based on the Ohio Supreme Court’s decision in Independent Insurance Agents of Ohio v. Fabe (1992), 63 Ohio St.3d 310 [587 N.E.2d 814], and based upon this court’s determination that the Superintendent’s interpretation of words in the English language would not be legislation, the motion to dismiss is SUSTAINED and this matter is dismissed. This decision, therefore, makes moot the motion to intervene on behalf of Huntington.” 2 It is from this decision that plaintiff now appeals. Initially, it must be noted that res judicata is an affirmative defense under Civ.R. 8(C) and, thus, may not ordinarily be the basis of a Civ.R. 12(B)(6) motion. Being an affirmative defense, it necessarily involves information not required to be alleged in the complaint and, therefore, could not be determined by looking only at the complaint, as is required of a Civ.R. 12(B)(6) motion. The defense should have been raised initially by answer (Civ.R. 8[C]) and then by summary judgment motion. See Nelson v. Pleasant (1991), 73 Ohio App.3d 479, 482, 597 N.E.2d 1137, 1139; Toledo v. Thomas (1989), 60 Ohio App.3d 42, 572 N.E.2d 867; Johnson v. Linder (1984), 14 Ohio App.3d 412, 14 OBR 531, 471 N.E.2d 815. However, since the trial court determined the merits of the defense, we shall address the assignments of error. The assignments of error are related and will be discussed together. Plaintiff contends that the trial court erred in dismissing this action in reliance upon the *12 doctrine of res judicata. Plaintiff argues that this action presents different issues from those presented by and decided in Independent Ins. Agents I, supra, and that Independent Ins. Agents I also did not determine the constitutionality of the statute. The parties argue that the basis for the trial court’s decision is the doctrine of res judicata. The Ohio Supreme Court has defined res judicata in Norwood v. McDonald (1943), 142 Ohio St. 299, 305, 27 O.O. 240, 242, 52 N.E.2d 67, 71, quoting 30 American Jurisprudence (1940) 908, Judgments, Section 161, as follows: “ ‘The doctrine of res judicata is that an existing final judgment rendered upon the merits, without fraud or collusion, by a court of competent jurisdiction, is conclusive of rights, questions and facts in issue, as to the parties and their privies, in all other actions in the same or any other judicial tribunal of concurrent jurisdiction.’ ” The court continued: “ ‘If, however, the two suits do not involve the same claim, demand, and cause of action, such effect will not be ordinarily given to the prior judgment.’ * * * 30 American Jurisprudence, 914, Section 172. To constitute a bar there must be identity not only of subject matter but also of the cause of action. In other words, a judgment in a former action does not bar a subsequent action where the cause of action prosecuted is not the same, even though each action relates to the same subject matter.” (Italics sic; boldface added.) The court later approved and followed this definition in paragraph one of the syllabus of Whitehead v. Gen. Tel. Co. (1969), 20 Ohio St.2d 108, 49 O.O.2d 435, 254 N.E.2d 10. Some writers discuss res judicata as having two aspects. The first aspect is generally what is known as the concept of res judicata and is sometimes referred to as “claim preclusion” or “claim bar.” This concept is the effect of a prior judgment acting as a bar to a second action on the same claim — that is a bar to the entire action in subsequent litigation. The second aspect, frequently referred to as “issue preclusion” or “collateral estoppel,” is the effect of a prior judgment precluding relitigation of specific issues in a second action between the same parties or their privies. It precludes issues determined in the first action' from being relitigated in the second action. See Restatement of the Law 2d, Judgments (1982), Section 27; Goodson v. McDonough Power Equip., Inc. (1983), 2 Ohio St.3d 193, 2 OBR 732, 443 N.E.2d 978. Res judicata (“claim preclusion” or “claim bar”) is the issue involved in this appeal. *13 Under res judicata, to determine whether a second action is the same as the claim for relief 3 in the first action and, therefore, barred by the prior judgment, “the primary tests are the identity of investitive facts creating the right of action in each case; the identity of the evidence necessary to sustain each action; and the accrual of the alleged rights of action at the same time.” Norwood, supra, at paragraph four of the syllabus. That court also stated that “[w]hether different proofs are required to sustain the two actions is said to be the best and most accurate test in determining whether the former action is a bar.” Id., 142 Ohio St. at 311, 27 O.O. at 245, 52 N.E.2d at 73. With these tests in mind, a comparison of the actions involved here reveals that there are two distinct claims for relief. The claim for relief in Independent Ins. Agents I was a declaratory judgment seeking an interpretation of R.C. 3905.01(B) and 3905.04. The question in that case involved whether applicants for insurance licenses are automatically precluded from licensure by R.C. 3905.01(B) and 3905.04 merely because an affiliate would be precluded. In fact, the Ohio Supreme Court framed the statement of the case as follows: “Appellants, the Independent Insurance Agents of Ohio, Inc. and Thomas H. Hardy, filed a complaint against the Superintendent of Insurance and the Ohio Department of Insurance seeking a declaratory judgment that R.C. 3905.01(B) and 3905.04 prohibit the licensing of applicants affiliated with non-insurance financial institutions. * * * “The case was submitted to the trial court on stipulated facts. The trial court construed R.C. 3905.01(B) and 3905.04 to include the unwritten words ‘or any affiliate thereof and entered a judgment declaring: tt * * * “ ‘DECLARED that Sections 3905.01, 3905.02, and 3905.04 of the Ohio Revised Code prohibit the licensing of any affiliate of a non-insurance' financial or lending institution * * *.’ (Emphasis added.) “The court of appeals reversed the judgment of the trial court and held that (1) there is no per se disqualification of applicants affiliated with the non-insurance financial or lending institutions, and (2) R.C. 3905.01(B) and 3905.04 do not apply to affiliates as they do to employers, employees and relatives, unless the applicant is but the alter ego of its affiliate.” (Footnotes omitted; emphasis sic.) Independent Ins. Agents I, 63 Ohio St.3d at 310-311, 587 N.E.2d 814-815. The court also stated at the beginning of the opinion, “The principal issue in this case is whether R.C. 3905.01(B) and 3905.04 prohibit the licensing of *14 applicants affiliated with non-insurance financial institutions.” Id. at 312, 587 N.E.2d at 815. That claim for relief involved construing the statute to determine its meaning. The Ohio Supreme Court determined that an applicant is precluded only if it is the alter ego of a precluded affiliate. Although the two claims involve the same statute, this case involves a different case or controversy. The first involved whether the statute itself precludes applicants affiliated with precluded corporations from receiving a license. This second action seeks a determination upon the statute’s constitutionality. The issue of the constitutionality of the statute was not in issue, either directly or by implication, in the first action and was not determined by the court. To be a bar to a subsequent suit, a matter must have been put into issue in the first action and determined by that court. See Taylor v. Monroe (1952), 158 Ohio St. 266, 49 O.O. 118, 109 N.E.2d 271, paragraph three of the syllabus; Lessee of Lore v. Truman (1859), 10 Ohio St. 45. Actions may arise out of the same transaction or relate to the same subject matter, yet still not be res judicata because the causes of action are not the same. See Norwood, supra, 142 Ohio St. 299, 300, 27 O.O. 240, 240, 52 N.E.2d 67, 68-69, at paragraph two of the syllabus; Henderson v. Ryan (1968), 13 Ohio St.2d 31, 42 O.O.2d 65, 233 N.E.2d 506. Therefore, since the two causes of action are not the same, res judicata does not apply here as a bar to this claim for relief. 4 The amicus curiae brief that was filed in this case raises another argument, that res judicata is applicable here because plaintiff had the opportunity to present the unconstitutional delegation argument in the first claim for relief but failed to do so. The brief quotes as follows: “ ‘[A] party must make good his cause of action or establish his defenses” * * * by all the proper means within his control, and if he fails in that respect, purposely or negligently, he will not afterward be permitted to deny the correctness of the determination, nor to relitigate the same matters between the same parties.’ ” Johnson’s Island, Inc. [v. Bd. of Trustees of Danbury Twp. (1982), 69] Ohio St.2d [241] at 244 [23 O.O.3d 243, 245, 431 N.E.2d 672, 674-675] (quoting Covington & Cincinnati Bridge Co. v. Sargent, 27 Ohio St. 233 (1875) (syllabus 1).” Even if the issue could have been raised before the Supreme Court in the previous action, it was not necessary to raise it. The issue of whether a statute is constitutional should generally not be raised for the first time in the Supreme *15 Court when it had not been raised or determined either in the trial court or the appellate court. The Supreme Court ordinarily does not consider constitutional issues neither raised nor determined in the court below. See Clarington v. Althar (1930), 122 Ohio St. 608, 174 N.E. 251; State ex rel. Specht v. Oregon City Bd. of Edn. (1981), 66 Ohio St.2d 178, 182, 20 O.O.3d 191, 193, 420 N.E.2d 1004, 1007. 5 Plaintiff was not required to raise the constitutionality issue in the previous action in the trial court and, therefore, was not required to raise it for the first time on appeal to the Supreme Court. Additionally, this argument was addressed by the Ohio Supreme Court in Norwood, supra, 142 Ohio St. at 314, 27 O.O. at 246-247, 52 N.E.2d at 74-75. In that case the court stated: “The trial court, as disclosed by the opinion above quoted, took the position that while the claim or cause of action litigated in the second action was not litigated or considered in the first action, it could have been and should have been so litigated, and that because this was not done the claim made in the present action is barred. The court failed to recognize that the rule which it applied can apply only where there is a single cause of action involved in both suits. Since there were two entirely separate and distinct causes of action involved in this litigation, the plaintiff was not required to prosecute them in one action.” (Emphasis added.) In Norwood, the plaintiff attempted to acquire a decedent’s title to property through a trust. In the first action, the trial court dismissed the action, since the plaintiff had not established the existence of the trust by the required degree of proof. In the second action, plaintiff attempted to acquire the property as the sole heir at law, since he was decedent’s common-law husband. The Ohio Supreme Court held that these were two separate causes of action, and the doctrine of res judicata was not applicable. Similarly, in the case at hand, res judicata is not applicable, since there are two separate claims for relief involved. Although arguably the two claims could have been joined in the first action, such joinder is permissive, not mandatory. See Civ.R. 18. As the Ohio Supreme Court stated in the eighth paragraph of the syllabus of Norwood, supra: “While all claims of right embraced in a single cause of action must be prosecuted simultaneously, a litigant cannot be required to prosecute simulta *16 neously in a single action multiple causes of action, even though they relate to the same subject matter.” In this case, the constitutional claim is not part of the first action, there are separate claims for relief, and the claim herein was not a claim which was mandatory to be joined in the first action. The amicus brief cites Johnson’s Island, Inc. v. Bd. of Trustees of Danbury Twp. (1982), 69 Ohio St.2d 241, 23 O.O.3d 243, 431 N.E.2d 672, as signifying that the Ohio Supreme Court has made no distinction between statutory interpretation claims and constitutional claims in terms of whether they have to be joined within one lawsuit. 6 That distinction is not germane to our conclusions. Additionally, no such distinction was made in Johnson’s Island, and that case is inapplicable. In Johnson’s Island, the first action involved an injunction granted to enjoin a landowner’s violation of a zoning law rejecting a “nonconforming use” defense to the application of the zoning law. Nearly a year later, the landowner filed a complaint in declaratory judgment seeking to void the injunction granted in the first case on the ground that the zoning law upon which the injunction was based was unconstitutional as applied to the landowner. The Ohio Supreme Court obviously found res judicata applicable. Although applying res judicata, Johnson’s Island is neither controlling nor applicable. Here, the constitutionality of the statute is not being raised as a defense to affirmative relief granted in a prior action so as to nullify that relief, as was the case in Johnson’s Island. Plaintiff does not attempt to set aside the interpretation of the statute. Rather, it seeks a declaration of the constitutionality of the statute — there simply is no attack on the prior judgment, and any judgment herein would not be inconsistent with that in the first action. 7 Therefore, plaintiffs three assignments of error are all well taken. For the foregoing reasons, all three of plaintiffs assignments of error are sustained, the judgment of the Franklin County Court of Common Pleas is *17 reversed, and this cause is remanded to that court for further proceedings in accordance with law and consistent with this opinion. Judgment reversed and cause remanded. John C. Young, J., concurs. Petree, J., dissents. Footnotes [1] Section 1, Article II, Ohio Constitution provides: “The legislative power of the state shall be vested in a general assembly consisting of a senate and house of representatives * * Section 26, Article II, Ohio Constitution provides: "All laws, of a general nature, shall have a uniform operation throughout the state; nor, shall any act, except such as relates to public schools, be passed, to take effect upon the approval of any other authority than the general assembly, except, as otherwise provided in this constitution.” [2] Huntington had previously filed a motion to intervene. The Ohio Bankers Association also filed a motion to intervene on July 27, 1993, but the trial court failed to mention this motion in its decision, which was rendered two days later. [3] The Civil Rules refer to "claims for relief.” The two phrases are used interchangeably within the meaning of Norwood, and claim for relief will be used throughout the opinion. [4] The dissenting opinion does not distinguish the two claims for relief as being separate but, rather, assumes without explanation either that (1) the same claim is involved in both causes of action, or (2) if there are separate claims, it was mandatory that the second be joined in the first claim for relief. [5] The dissenting opinion recognizes the correctness of this principle in footnote 8 but fails to apply it to this case accurately. The dissenting opinion misstates the issue involved in this case, attempting to define it in footnote 8 as: "[T]he real issue in this case is whether it was necessary to bring the constitutional claim in the first declaratory judgment action." (Emphasis sic.) Actually, the issue should be divided into two questions: (1) Is the constitutional claim a part of the original claim? and (2) If these are separate claims, was joinder of the claims mandatory? The dissenting opinion fails to address these questions. [6] The dissenting opinion adopted and expanded this argument. [7] ' The dissenting opinion also relies upon other inapplicable cases. Cincinnati ex rel. Crotty v. Cincinnati (1977), 50 Ohio St.2d 27, 4 O.O.3d 83, 361 N.E.2d 1340, was cited for the proposition that constitutional issues must be raised in the first action, but the basis of the Supreme Court decision was that the common pleas court lacked jurisdiction over the complaint. Id. at 30, 4 O.O.3d at 85, 361 N.E.2d at 1342. Canton, Ohio v. Maynard (C.A.6, 1985), 766 F.2d 236, involved a defense to enforcement of the law and followed Johnson’s Island.