[Cite as Covenant Dove Holding Co., L.L.C. v. Mariner Health Care, Inc.,

.]

IN THE COURT OF APPEALS FIRST APPELLATE DISTRICT OF OHIO HAMILTON COUNTY, OHIO

COVENANT DOVE HOLDING : APPEAL NO. C-120878 COMPANY, LLC, COVENANT DOVE, TRIAL NO. A-0805955 LLC, ARK HOLDING, INC., ARK REAL : ESTATE, LLC, ARK MISSISSIPPI O P I N I O N. HOLDING COMPANY, LLC, : CORNERSTONE HEALTH & REHAB OF CORINTH, LLC, d.b.a. CH&R OF : CORINTH LLC, COVENANT HEALTH & REHAB OF PICAYUNE, LLC, d.b.a. : CH&R OF PICAYUNE, LLC, COVENANT HEALTH & REHAB OF : VICKSBURG, LLC, d.b.a. CH&R OF VICKSBURG, LLC, TRINITY MISSION : HEALTH & REHAB OF CLINTON, LLC, d.b.a. TM H&R OF CLINTON, : LLC, TRINITY MISSION HEALTH & REHAB OF GREAT OAKS, LLC, d.b.a. : TM H&R OF GREAT OAKS, LLC, CRYSTAL HEALTH & REHAB OF : GREENWOOD, LLC, d.b.a. CH&R OF GREENWOOD, LLC, GRACE HEALTH : & REHAB OF GRENADA, LLC d.b.a. GH&R OF GRENADA, LLC, TRINITY : MISSION HEALTH & REHAB OF HOLLY SPRINGS, LLC d.b.a. TM H&R : OF HOLLY SPRINGS, LLC, JOY HEALTH & REHAB OF CLEVELAND, : LLC, CLEVELAND RE, LLC, SONG HEALTH & REHAB OF COLUMBIA, : COLUMBIA RE, LLC, LIBERTY HEALTH & REHAB OF INDIANOLA, : LLC, INDIANOLA RE, LLC, CROWN HEALTH & REHAB OF NATCHEZ, : LLC, NATCHEZ RE, LLC, OASIS HEALTH & REHAB OF YAZOO CITY, : LLC, YAZOO CITY RE, LLC, DOVE HEALTH & REHAB OF : COLLIERVILLE, COLLIERVILLE RE, LLC, RAINBOW HEALTH & REHAB : OF MEMPHIS, and MEMPHIS RE, LLC, : Plaintiffs-Appellees, OHIO FIRST DISTRICT COURT OF APPEALS

: vs. : MARINER HEALTH CARE, INC., FMSC LEASEHOLD, LLC, FMSC : COLLIERVILLE OPERATING COMPANY, LLC, FMSC MEMPHIS : OPERATING COMPANY, LLC, DMSC LEASEHOLD, LLC, DYNAMIC YAZOO : CITY OPERATING COMPANY LLC, DYNAMIC NATCHEZ OPERATING : COMPANY, LLC, DYNAMIC INDIANOLA OPERATING COMPANY, : LLC, DYNAMIC COLUMBIA OPERATING COMPANY, LLC, : DYNAMIC CLEVELAND OPERATING COMPANY, LLC, NATIONAL SENIOR : CARE, INC., MHC HOLDING COMPANY, MHC MID AMERICA : HOLDING COMPANY, NATIONAL HERITAGE REALTY, INC., MARINER : HEALTH CARE MANAGEMENT COMPANY, and MARINER HEALTH : CENTRAL, INC., : Defendants-Appellants. :

Civil Appeal From: Hamilton County Court of Common Pleas

Judgment Appealed From Is: Reversed and Cause Remanded

Date of Judgment Entry on Appeal: September 6, 2013

Keating, Muething & Klekamp, PLL, Michael Scheier and Benjamin G. Stewart, for Plaintiffs-Appellees,

Robinson, Curphey & O’Connell, LLC, Peter N. Lavalette and Jason M. Van Dam, for Defendants-Appellants.

Please note: this case has been removed from the accelerated calendar.

2 OHIO FIRST DISTRICT COURT OF APPEALS

HENDON, Presiding Judge.

{¶1} Defendants-appellants, collectively referred to as “Mariner,” appeal the

trial court’s judgment awarding attorney fees to plaintiffs-appellees, collectively

referred to as “Covenant Dove.” For the following reasons, we reverse the trial court’s

judgment and remand this cause for further proceedings.

Procedural Posture

{¶2} Covenant Dove sued Mariner for breach of contract, specific

performance, and attorney fees alleging in essence that Mariner had failed to abide by a

settlement agreement pertaining to the transfer of operation of seven skilled nursing

home facilities. The attorney-fee claim alleged that Mariner had acted in bad faith.

Prior to trial, Covenant Dove moved for summary judgment on its breach of contract

and specific performance claims. Covenant Dove’s motion was denied, and the case

proceeded to trial. Eight days into a jury trial, after Mariner had rested, Covenant Dove

“renewed” its motion for summary judgment. Despite this procedural irregularity, the

court entertained the motion. Covenant Dove also moved for a directed verdict in its

favor on a counterclaim that had been raised by Mariner.

{¶3} Covenant Dove and Mariner presented arguments to the court

concerning the breach of contract and specific performance claims, and on Mariner’s

counterclaim. Neither party nor the trial court addressed the issue of attorney fees, nor

did Covenant Dove ever move the trial court for judgment on this claim. Nevertheless,

the trial court’s entry indicated that it had ruled in favor of Covenant Dove on all claims

in its complaint─which by definition included Covenant Dove’s claim for attorney fees.

Mariner appealed.

3 OHIO FIRST DISTRICT COURT OF APPEALS

{¶4} In Mariner’s first appeal, we held that the trial court had properly

entered judgment on Covenant Dove’s claims for breach of contract and specific

performance, and that it had also properly entered a directed verdict in favor of

Covenant Dove on Mariner’s counterclaim. Although Mariner had raised an

assignment of error pertaining to the attorney-fee award, we determined that this claim

had not yet been adjudicated, and therefore that it was not ripe for our review. We

remanded the case to the trial court for resolution of this claim.

{¶5} On remand, the court conducted a hearing on the amount of fees to be

awarded. Covenant Dove did not attempt to establish that Mariner had acted in bad

faith, and the trial court made no bad-faith finding. Following the hearing, the court

entered a $658,644.50 judgment in favor of Covenant Dove. It is from this judgment

that Mariner now appeals.

{¶6} In its sole assignment of error, Mariner claims that the trial court erred

when it awarded attorney fees to Covenant Dove. Mariner is correct. We review the

trial court’s judgment for an abuse of discretion. Lambda Research Inc. v. Jacobs, 1st

Dist. Hamilton No. C-100796,

.

The Bad-Faith Exception to the American Rule

{¶7} “Ohio has long adhered to the ‘American rule’ with respect to recovery of

attorney fees: a prevailing party in a civil action may not recover attorney fees as a part

of the costs of litigation.” Willborn v. Banc One Corp.,

, 2009-Ohio-

306,

. An exception to this rule is where the losing party has acted

in bad faith.

“Bad faith” is more than bad judgment or negligence. State v. Powell,

,

,

, ¶ 81. It implies a dishonest

purpose, moral obliquity, conscious wrongdoing, breach of a known duty due to ulterior

4 OHIO FIRST DISTRICT COURT OF APPEALS

motive, ill will comparable to fraud, or an actual intent to mislead or deceive another.

A party seeking attorney fees based on the bad-faith exception to the American rule

“must be the prevailing party in the litigation, and then must prove that his opponent

acted in bad faith.” Strum v. Strum,

,

(1991). If

a trial court makes a finding that the losing party had acted in bad faith, and if that

finding is supported by the record, an award of attorney fees is warranted. SST Bearing

Corp. v. Twin City Fan Cos., 1st Dist. Hamilton No. C-110611,

, ¶ 29-

30; see Wright v. Fleming, 1st Dist. Hamilton No. C-070121,

(recognizing that an award of attorney fees may be granted upon a finding by the trial

court of bad-faith conduct, but reversing the award of attorney fees because the trial

court had not made such a finding).

{¶8} Here, Covenant Dove made no attempt to establish that Mariner had

acted in bad faith. And the trial court made no such finding. We therefore hold that the

trial court erred when it awarded attorney fees to Covenant Dove.

Jurisdiction

{¶9} Mariner also argues that the trial court’s judgment must be vacated

because the court did not have subject-matter jurisdiction absent a finding of bad faith.

It cites Internatl. Lottery, Inc. v. Kerouac,

,

(1st

Dist. 1995) in support of this argument.

{¶10} In Kerouac, we reversed the trial court’s award of attorney fees for plain

error and for lack of subject-matter jurisdiction.

. In that case, the prevailing

party had never moved the court for attorney fees and none of the exceptions to the

American rule existed. We held that, under these circumstances, the trial court did not

5 OHIO FIRST DISTRICT COURT OF APPEALS

have jurisdiction to enter an award of attorney fees because there was no basis for the

award.

.

{¶11} By contrast, in this case it is not disputed that Covenant Dove pleaded a

claim for attorney fees based on the bad-faith conduct of Mariner. Kerouac therefore

does not apply. The trial court had the authority to hear and decide this claim. See

Morrison v. Steiner,

,

(1972). Mariner’s argument

has no merit.

Compensatory Damages

{¶12} Finally, Mariner argues that the award of attorney fees in this case

cannot be considered compensatory damages. Citing Shankar v. Columbus Warehouse

Ltd. Partnership, 10th Dist. Franklin No. 99AP-772,

(June

6, 2000), Covenant Dove claims that the fee award can be affirmed on this basis.

Mariner is correct.

{¶13} In Shankar, the Tenth Appellate District held that “[w]hen a party

breaches a settlement agreement to end litigation and the breach causes a party to incur

attorney fees in continuing litigation, those fees are recoverable as compensatory

damages in a breach of settlement claim.” Id. at *15.

{¶14} We acknowledge that, in its amended complaint, Covenant Dove alleged

that Mariner had breached its settlement agreement with Covenant Dove and that, as a

result, Covenant Dove sought compensatory damages including attorney fees. But the

trial court’s judgment in this case states that $1,340,810.29 is the “total amount of

Covenant Dove’s compensatory damages less the $106,223.86 that Covenant Dove

admitted holding as a recoupment against the larger amount owed by Mariner.”

(Emphasis added.) The total amount of compensatory damages in this case did not

6 OHIO FIRST DISTRICT COURT OF APPEALS

include an award of attorney fees. And Covenant Dove has never challenged the

amount of the compensatory damage award.

Conclusion

{¶15} Mariner’s assignment of error is sustained. The judgment of the trial

court awarding Covenant Dove attorney fees is reversed, and this cause is remanded to

the trial court to determine whether Mariner acted in bad faith and to proceed

accordingly. We note that neither party contested the amount of fees awarded.

Judgment reversed and cause remanded.

HILDEBRANDT and DINKELACKER, JJ., concur.

Please note: The court has recorded its own entry on the date of the release of this opinion.

7