Update: On March 25, 2020, the Supreme Court of Ohio handed down a merit decision in this case.  Read the analysis here.

Read the analysis of the oral argument here.

On June 12, 2019, the Supreme Court of Ohio will hear oral argument in David Ayers v. City of Cleveland, 2018-0852. At issue in this case is whether R.C. 2744.07(A)(2) provides judgment creditors with standing to enforce indemnification directly against a political subdivision.

Case Background

In December 2000, David Ayers was convicted of aggravated murder, aggravated burglary, and aggravated robbery of a 76-year-old woman. However, in 2011, the Sixth Circuit Court of Appeals granted Ayers’ petition for a writ of habeas corpus finding that the state had violated Ayers’ Sixth Amendment right to counsel by inducing Ayers to make incriminating statements without the assistance of counsel. The federal appeals court ordered Ayers to be released unless retried within 180 days. In his brief, Ayers asserts that DNA testing excluded him as the perpetrator. In its brief, the City of Cleveland asserts that Ayers’ “intimation that his conviction was overturned due to DNA evidence is false.” In any case, the state chose not to retry Ayers, who was released from prison September 12, 2011.

In March 2012, Ayers filed a civil complaint in federal district court against Detective Michael Cipo, Detective Denise Kovach, and the City of Cleveland (“the City”) for violating his civil rights in the underlying criminal case. The City provided Joseph Scott, an assistant city law director who also represented the City in the case, as counsel for the officers. The claims against the City were dismissed by the trial court, but the claims against Cipo and Kovach proceeded to trial. The jury ruled in favor of Ayers and against the officers in the amount of $13,210,000.

After the district court’s entry of judgment, the City failed to indemnify the detectives as required by R.C. 2744.07(A)(2), and Cipo and  Kovach took no action to enforce this right against the City. Instead, the City engaged bankruptcy counsel, David M. Leneghan, to file for bankruptcy on behalf of Cipo and Kovach as a means of discharging the detectives’ $13,210,000 debt.  After Cipo passed away in 2013, Leneghan filed for bankruptcy on Kovach’s behalf, and the bankruptcy court discharged Kovach of personal responsibility for the $13,210,000 debt.

In June of 2015, Ayers filed the present suit against the City, Leneghan, and Scott, asserting, among other claims, a claim for statutory indemnification pursuant to R.C. 2744.07(A)(2). Judge Robert C. McClelland of the Cuyahoga County Court of Common Pleas granted Ayers’ motion for partial summary judgment and entered a judgment of $13,210,000 against the City, determining that R.C. 2744.07(A)(2) allowed Ayers to bring an indemnification claim directly against the City. All other claims were dismissed as moot.

The Appeal

In a split decision, the Eighth District Court of Appeals reversed the trial court’s grant of summary judgment in Ayers’ favor and remanded the case with instructions for the trial court to address and resolve Ayers’ remaining claims not pertinent to this Supreme Court appeal. Judge Eileen T. Gallagher authored the opinion and Judge Frank D. Celebrezze Jr. concurred. The majority held that Ayers, as a judgment creditor, did not have first or third-party standing to bring a private cause of action against the City to enforce its indemnification obligations under R.C. 2744.07(A)(2). Only the police officers had standing to enforce their statutory right to indemnification.

Judge Mary Eileen Kilbane dissented. She would find that the legislature did not intend to limit the private right of action to enforce indemnification under R.C. 2744.07(A)(2) to employees, because such a limitation would be inconsistent with the purposes of the statute.

Votes to Accept the Case

Yes: Chief Justice O’Connor, Justices French, Fischer, and former Justice DeGenaro*

* Justices French, Fischer, and DeGenaro would have accepted both propositions of law.

No: Justices Kennedy, DeWine and former Justice O’Donnell

Key Statutes and Precedent

R.C. 2744.07(A)(2)(Defending and Indemnifying Employees)(political subdivisions must indemnify judgments entered against their employees for good faith conduct within the scope of employment.)

Cort v. Ash, 422 U.S. 66 (1975) (creating a three-part test to determine whether a private cause of action is impliedly created by a statute: (1) whether the plaintiffs belong to a class for whose special benefit the statute was enacted; (2) whether the legislature intended to create a private cause of action, or to deny a private cause of action; and (3) whether the creation of a private cause of action is consistent with the underlying purposes of the legislation.)

Fawcett v. G.C. Murphy Co., 46 Ohio St. 2d 245, 348 N.E.2d 144 (1976) (a private cause of action should not be interpreted into a statute absent the clear intent by the legislature to create such a remedy.)

Taylor v. Academy Iron Metal Company, 36 Ohio St. 3d 149, 522 N.E.2d 464 (1988) (a litigant’s injury must be within the “zone of interest” that a statute intended to protect to maintain standing.)

Stengel v. Columbus, 74 Ohio App. 3d 608, 600 N.E.2d 248 (10^th Dist. 1991) (R.C. 2744.07(A)(2) creates a statutory obligation to indemnify and not an avenue for judgment enforcement.)

Piro v. Franklin Township, 102 Ohio App. 3d 130, 656 N.E.2d 1035 (9^th Dist. 1995) (Where employees act in good faith related to a government or proprietary function, their employers are required to indemnify. The requirement of indemnification is distinct from imposing direct liability on the employer.)

Grey v. Walgreen, 2011-Ohio-6167 (suggesting that the Cort test may no longer be valid in determining whether a private cause of action exists in a statute.)

Vaughan v. City of Shaker Heights (N.D. Ohio 2013) (permitting the use of R.C. 2744.07(A)(2) as a private cause of action for a judgment creditor to pursue indemnification from an employer.)

Ajamu v. City of Cleveland, (N.D. Ohio 2016) (holding that an employee has the right of indemnification, and not a third party via a private cause of action.)

Ayers’ Argument

Backdrop of Significance to Ayres

The City had absolutely no basis to deny full indemnification of Ayers’ judgment. It had paid such judgments in all previous cases in which the City controlled an officer’s defense. In addition, assigning City Attorney Scott to defend the officers while also representing the City created an egregious conflict of interest, because the officers had an enormous interest in enforcing indemnification of the 13.2 million dollar judgment while the City had just as strong an interest in avoiding it. Because the City had not obtained insurance for this, the judgment would have to be satisfied from the Law Department budget or a bond issue.

At no time were the officers given a conflict waiver or reservation of rights letter. At no time did Scott advise the officers they were entitled to full indemnification, or take steps to obtain it for them from the City, which was also his client.

Additionally, when the City, acting through Scott, hired attorney Leneghan to file bankruptcy for the officers, Leneghan’s contract specified that Leneghan also represented the City, even though the City had no legitimate interest in these personal bankruptcies, and that Leneghan would not be paid unless the officers filed for bankruptcy rather than enforcing their indemnification rights against the City. As a further incentive to make sure of the bankruptcy filing, Scott also misrepresented to Leneghan that a collective bargaining agreement capped Cleveland’s separate statutory obligation to indemnify at $1 million dollars.

Argument

The Court should reverse the Eighth District’s ruling which serves no purpose except to allow cities to circumvent the indemnification statute. The legislature intended to permit a judgment creditor to enforce R.C. 2744.07(A)(2) directly against an indemnitor. The text of R.C. 2744.07(A)(2) does not limit the private cause of action to public employees or expressly prohibit judgment creditors from enforcing indemnification directly against indemnitors and, thus, indicates that the legislature intended to allow all parties to a judgment to enforce R.C. 2744.07(A)(2) directly against an indemnitor. Additionally, allowing judgment creditors to enforce indemnification directly against an indemnitor is consistent with the way in which indemnification operates in the municipal context where the municipality must pay the judgment creditor directly without any written request or enforcement action by the employee. Further, the legislative history of R.C. 2744.07(A)(2) indicates that the legislature expressly considered and then rejected limiting enforcement of the statute to employees.

Recognizing that R.C. 2744.07(A)(2) allows judgment creditors to enforce indemnification directly against indemnitors is necessary to achieve the statute’s purposes, including the protection of public employees, the provision of public insurance, the promotion of judicial economy, and the avoidance of unfairness, injustice, inequity, and gamesmanship.

The primary purpose of the statute is to protect public employees acting in good faith and within the scope of their employment.  Requiring such public employees to sue their own employers for indemnification would burden public employees rather than protect them by placing the costs of initiating separate indemnification litigation on the public employees and by enabling employers to avoid indemnification obligations by pressuring, coercing, and manipulating public employees into forgoing indemnification.

Additionally, providing municipalities with greater opportunities to avoid indemnification through the deception and coercion of public employees undermines the ability of R.C. 2744.07(A)(2) to serve as a form of public insurance by effectively shifting the costs of tortious conduct onto public employees. Further, requiring public employees to sue their own employers for indemnification rather than allowing judgment creditors to simply enforce indemnification as part of the existing lawsuit will create unnecessary, complex, and expensive additional litigation and, thus, subvert judicial efficiency. In addition, limiting enforcement of R.C. 2744.07(A)(2) to public employees encourages municipalities to engage in unjust practices and conspire with employees to avoid the municipality’s duty to indemnify. The effect of the decision of the appeals court is exactly what happened in this case- allowing a public employer to manipulate or trick its employees into declaring bankruptcy as a way of avoiding its own independent statutory obligation to pay the judgment.

Even if the legislature primarily intended employees to enforce R.C. 2744.07(A)(2), the legislature nevertheless also intended to allow judgment creditors with third party standing to enforce the statute directly against indemnitors. Ayers satisfies the criteria for third party standing because Ayers has suffered an injury in fact, Ayers has a sufficiently close relationship with Kovach, and the City’s decision to provide Kovach with attorneys with a conflict of interest hindered Kovach’s ability to assert her right to indemnification. Therefore, even if the legislature did not intend to permit all judgment creditors to enforce R.C. 2744.07(A)(2) against indemnitors, Ayers nonetheless, has third party standing to enforce indemnification directly against the City.

Finally, in reaching its decision, the Eighth District wrongly relied on the “zone of interests” test from Taylor v. Academy Iron & Metal Co. and the “intent to benefit” criterion from Cort v. Ash. Not only are these federal decisions no longer valid, but they are also inappropriate in this context because, when a state court interprets a state statute, such as R.C. 2744.07(A)(2), it must not rely on federal law, but rather, on the state legislature’s intent.

R.C. 2744.07(A)(2) was intended to be enforced through a private right of action, and the remedy extends to judgment creditors.

City of Cleveland’s and Joseph Scott’s Argument

Backdrop From City’s and Scott’s Viewpoint

Both City Attorney Scott and Bankruptcy Attorney Leneghan at all times acted in the best interests of their police officer clients. There was no conflict because the City had been dismissed from the underlying lawsuit in which Ayers won the judgment.

It was Ayers who drove the officers into bankruptcy by twice rejecting their offers to assign him their rights of indemnification, which would have allowed him to stand in their shoes and proceed against the City.  Additionally, after Cipo died before he could file for bankruptcy, Ayers never made a claim against his estate for the amount he was owed. And finally, Scott informing the officers of the cap on the City’s indemnification was not improper, because that is what the Collective Bargaining Agreement provides, although it likely would have been challenged had indemnification been sought here. Nor did the City’s decision to defend the officers waive its rights to later contest indemnification.

Finally, there was nothing improper or nefarious in Officer Kovach’s decision to file for personal bankruptcy. There is no evidence that she would have preferred helping Ayers collect a 13 million dollar judgment from the City based on her allegedly wrongful conduct.

Argument

R.C. 2744.07(A)(2) clearly and unambiguously limits indemnification to political subdivision employees.  It cannot properly be understood to create a private cause of action for a judgment creditor against a municipality. If it were so interpreted, it would create an impermissible respondeat superior exception to the sovereign immunity doctrine. Therefore, the decision of the Eighth District should be affirmed.

The plain language of the statute gives only the employees of a municipality the private cause of action to seek indemnification. They are the ones obligated to pay the judgment to a judgment creditor, so they are the only ones who have the right to request and enforce reimbursement under the statute. The statute’s creation of a mandatory duty for a municipality does not also create a private cause of action for a third party to enforce the mandatory duty. The statute explicitly states that employees may seek indemnification. Because the plain language of the statute is unambiguous, the legislature intended the statute’s applicability to be limited to employees and to exclude all other third parties, like judgment creditors.

Ayers argues that the Court should infer a private cause of action for judgment creditors. Ayers argues that this remedy serves the legislative purpose behind the statute: protecting employees. However, the statute does not seek only to protect employees but also political subdivisions. Ayers’ proposition will primarily benefit third party creditors, not employees. Additionally, several other districts have embraced the view that R.C. 2744.07(A)(2) does not create a private cause of action, and the onslaught of public policy issues, predicted by Ayers, has not come to pass. Even if there are valid public policy concerns in support of Ayers, the legislature should handle this and not the courts. If the legislature opposed this narrower interpretation of the statute, the legislature could re-write the statute to include third party creditors. This has yet to happen, indicating that the legislature endorses the views taken by the courts.

Furthermore, Ayers seeks effectively to re-write a statute for his own lack of diligence. The officers twice offered to assign their rights to indemnification to Ayers, and twice Ayers refused. It was Ayers’s own failure to accept the offer of an assignment of indemnification from the officers that resulted in their bankruptcy, which stayed his actions against them. Additionally, being aware of both the bankruptcy proceedings and the death of one officer, Ayers did not act, but rather, waited a substantial period before seeking indemnification from the City. Ayers now wants to create a statutory exception where none exists to compensate for his own failure to protect his interests.

To permit Ayers to enforce indemnification directly against the municipality would fashion a respondeat superior cause of action for the statute and thus undermine the legislature’s sovereign immunity scheme. The creation of such a cause of action has drastically dangerous implications for political subdivisions. If this cause of action is permitted, tort claimants could avoid suing the municipality and instead only sue individual employees. Judgment creditors could then use the judgment against the employee to access taxpayer dollars. This back-door exception is exactly what the legislature was attempting to avoid when crafting the few exceptions to the government’s sovereign immunity from respondeat superior. The weight of authority, both state and federal, in Ohio and nationally, agree that R.C. 2744.07(A)(2) grants no cause of action for third parties to enforce indemnification.

Finally, Ayers has no third-party standing to assert a right of indemnification against the City. Ayers claims that the Eighth District erred in citing Taylor v. Academy Iron & Metal Co. and Cort v. Ash in its decision that Ayers does not fall within the “zone of interest” of the statute. Even if the Court accepts Ayers’ argument that these cases are irrelevant, Ayers still should not prevail.  Standing is established by the specific language of R.C. 2744.07(A)(2). There is no implication, by either statutory language, legislative history, or the underlying purpose of the act, that this statute gives third party judgment creditors a private cause of action against a political subdivision. Therefore, Ayers, as a third party, does not have standing to proceed directly against a municipality.

Ayers’ Proposed Proposition of Law Accepted for Review

Subsection 2744.07(A)(2) reflects the legislature’s intent to permit a judgment creditor to proceed directly against an indemnitor.

City’s Proposed Counter Proposition of Law

R.C. 2744.07(A)(2) reflects no legislative intent to permit a judgment creditor to proceed directly against a municipality.

Ayers’ Proposed Proposition of Law Not Accepted For Review

Courts that have considered post-verdict indemnification claims have allowed judgment creditors to enforce indemnification .

Amici in Support of Ayers

Ohio Law Professors

A number of Ohio law professors, with expertise in legal ethics, and acting only in their individual capacities, filed an amicus brief in support of Ayers.

The professors point out that attorneys have a moral and legal obligation to exercise independent judgment and maintain loyalty to their clients and, thus, the Court should reject a construction of R.C. 2744.07(A)(2) that incentivizes attorneys to engage in unethical conduct that violates these professional obligations.

The professors argue that Scott’s joint representation of Kovach and the City violated Prof. Cond.R. 1.7(b) because Kovach’s interest in seeking indemnification and the City’s interest in avoiding indemnification were directly at odds and created a conflict of interest for Scott as counsel to both parties. By failing to disclose this conflict of interest to Kovach and obtain Kovach’s informed written consent before continuing to represent her, Scott violated Prof. Cond.R 1.7(b).

The professors also argue that Leneghan violated Prof. Cond.R. 1.7(a)(2) because his simultaneous representation of both Kovach and the City created a substantial risk that his ability to provide Kovach with effective counsel would be limited by his responsibilities to the City. Specifically, as Kovach’s bankruptcy counsel, Leneghan had an obligation to fully evaluate whether declaring bankruptcy best served Kovach’s interests which necessarily required Leneghan to evaluate Kovach’s indemnity rights. However, as counsel for the City, Leneghan had an obligation to protect the City from Kovach’s claim of indemnity and was prohibited from evaluating Kovach’s indemnity rights without the City’s consent. Under the Ohio Rules of Professional Conduct, a lawyer cannot benefit one client at the expense of another.

Further, the professors argue that Leneghan’s joint representation of Kovach and the City violated Prof. Cond.R. 1.7(b)(2) and Prof. Cond. R. 1.8(f) because Leneghan’s payment arrangement with the City interfered with his ability to exercise independent professional judgment. Specifically, because Leneghan’s compensation depended on his filing of bankruptcy on the detectives’ behalves, the payment arrangement incentivized Leneghan to file for bankruptcy on Kovach’s behalf without regard for Kovach’s indemnity rights. Additionally, Leneghan’s decision to limit the scope of his representation only to the filing of bankruptcy on Kovach’s behalf violated Prof. Cond.R. 1.2(c). Fully determining Kovach’s financial situation required an analysis of her indemnity rights under municipal law and, thus, limiting the scope of Leneghan’s representation to exclude any analysis of Kovach’s indemnity rights was unreasonable and in violation of Prof. Cond.R. 1.2(c). The professors argue that, even if this limitation was not unreasonable, Leneghan nevertheless violated Prof. Cond.R. 1.2 because he failed to disclose the limitation on the scope of his representation to Kovach.

Ultimately, the professors urge the Court to decline to interpret R.C. 2744.07 (A)(2) in a way that promotes or rewards the aforementioned violations of the Ohio Rules of Professional conduct. “The General Assembly did not intend to provide political subdivisions with an exception to indemnification based on employee-bankruptcy filings made by conflicted counsel in violation of the Rules of Professional Conduct,” they wrote.

Amicus Ohio Law Professors’ Proposed Proposition of Law

Municipalities may not suborn unethical conduct in order to evade their mandatory indemnity obligations under R.C. 2744.07(A)(2).

Amici in Support of the City of Cleveland and Joseph Scott

Ohio Prosecuting Attorneys Association

The OPAA is an organization founded to benefit elected county prosecutors in the state of Ohio. Its mission is to increase the efficiency of its members in the pursuit of their profession; to broaden their interest in government; to provide cooperation and concerted action on policies that effect the office of the Prosecuting Attorney; and to aid in the furtherance of justice.

Ayers’ construction of R.C. 2744.07(A)(2) is incorrect because the language of the statute is unambiguous. The statute does not authorize a judgment creditor to proceed directly against a political subdivision to recover any judgment entered against a public employee. The General Assembly crafted Chapter 2744 to protect the fiscal interests of cities and other political subdivisions by limiting their tort liability through sovereign immunity, and to protect employees who act in good faith and whose actions are not manifestly outside the scope of their employment. Because the statute only gives the right of indemnification to employees, it cannot properly be understood to provide a cause of action to third party judgment creditors.

The definition of “employee” is narrow and precise, and cannot be understood to include third parties, including judgment creditors. Had the General Assembly intended to vest this private cause of action in third parties, the General Assembly could have written that into the statute. The fact that the General Assembly chose to exclude such language indicates its intent to limit the cause of action to employees. Any other reading of the statute is an unnatural contortion of the language.

Here, the statute is unambiguous. To hold otherwise would be to supersede clear legislative intent. The plain language of R.C. 2744.07(A)(2) should prevail over Ayers’ arguments, which attempt to obfuscate the meaning of a clearly written statute.

Amicus OPAA’s Proposed Counter Proposition of Law

The right of a public employee to seek indemnification from a public employer does not extend to a third party under any circumstances. Rather, the right of indemnification is limited to the public employee.

Ohio Association of Civil Trial Attorneys

OACTA’s mission is to provide a forum where dedicated professionals can work together to promote and improve the administration of justice in Ohio.

The legislature, in passing R.C. 2744.07(A)(2), did not intend to create an exception to sovereign immunity by permitting judgment creditors to pursue indemnification in place of the employee. This is evidenced by the statute’s plain language and the underlying policy of the statute.

First, the language of the statute provides a right of indemnification for employees, but does not authorize judgment creditors to sue a political subdivision directly to recover damages. The term “employee” in the statute is unambiguously defined by the statute and should not be read to include judgment creditors. Ayers’ demand for direct payment from the City has no basis in the statutory language of R.C. 2744.07(A)(2). Had the legislature intended to protect third party creditors by the passage of the statute, the statute’s plain language would reflect this intent.

Additionally, the fundamental structure of the statute supports the claim of the City of Cleveland that no exception to the City’s sovereign immunity exists for third-party creditors seeking damages. The statute presumes that the City is immune from damages, unless it meets one of only a few exceptions enumerated in the statute. Ayers seeks to create a common law exception to the statute that undermines the statute’s precise exceptions to sovereign immunity.

Furthermore, the statute was written for the purposes of protecting political subdivisions from being financially drained from all those seeking to sue. The common law exception that Ayers proposes benefits judgment creditors, rather than the party the statute intended to protect. Of course Ayers wants to sue the City of Cleveland directly – the City has more money than individual employees. However, policy concerns should not, and cannot, override the General Assembly’s valid legislation.

Finally, the opinion of the Eighth District aligns with prevailing case law. Both state and federal courts agree that R.C. 2744.07(A)(2) does not provide a private cause of action for judgment creditors. Rather, the cause of action for individuals seeking indemnification from political subdivisions lies with the employee alone.

Student Contributors: Maggie Pollitt and Madeline Pinto