COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NOS. 73169, 73392 RICHARD F. JABERG, JR. : : Plaintiff-Appellant : : JOURNAL ENTRY -vs- : AND : OPINION KAYLINE COMPANY : : Defendant-Appellee : DATE OF ANNOUNCEMENT OF DECISION: JULY 30, 1998 CHARACTER OF PROCEEDING: CIVIL APPEAL FROM THE COMMON PLEAS COURT CASE NO. CV-317967 JUDGMENT: AFFIRMED DATE OF JOURNALIZATION: APPEARANCES: For Plaintiff-Appellant: ROBERT J. FEDOR (#0042653) ZASHIN & RICH CO., L.P.A. 55 Public Square, Suite 1490 Cleveland, Ohio 44113-1901 For Defendant-Appellee: ROBERT ZIMMERMAN (#0055478) KAHN, KLEINMAN, YANOWITZ & ARNSON CO., L.P.A. 100 Erieview Plaza 26th Floor Cleveland, Ohio 44114 SPELLACY, J.: This is a consolidated appeal of appellate case numbers 73169 and 73392. In appellate case number 73169, plaintiff-appellant Richard F. Jaberg has appealed from the trial court's entry of -2- summary judgment for defendant-appellee the Kayline Company in a breach of contract dispute. Jaberg assigns the following errors for review: I. THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT TO THE DEFENDANT BY FINDING THAT NO GENUINE ISSUE AS TO ANY MATERIAL FACT REMAINS TO BE LITIGATED. II. THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT TO THE DEFENDANT BY FINDING THAT ANY DAMAGES PLAINTIFF INCURRED ARE DIRECTLY RELATED TO PLAINTIFF'S OWN CARELESSNESS IN FAILING TO FILE I.R.S. RETURNS. III. THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT TO THE DEFENDANT BY FINDING THAT THE DOCTRINE OF LACHES IS APPLICABLE TO THIS CASE. Finding Jaberg's appeal to lack merit, the judgment of the trial court is affirmed. I. In 1975, Jaberg accepted the position of salesman with Kayline. At first, Jaberg's status with Kayline was that of an independent contractor. Kayline did not deduct any money for taxes from Jaberg's commission and issued Jaberg a 1099 form. Jaberg understood that Kayline was not withholding income taxes from his commission checks. On February 20, 1978, Jaberg and Kayline entered into an employment contract under which Kayline agreed to withhold social security, income taxes or other amounts required to be withheld by a governmental authority. Jaberg was to receive a $730.00 per week draw against his commissions plus $250.00 for traveling expenses. Jaberg received both 1099 and W-2 statements from Kayline for the -3- tax year of 1978. Although the 1978 employment contract stated Jaberg would be paid a set amount of $980.00 a week, his compensation from Kayline often was raised or lowered based on Jaberg's commissions. The contract itself was not changed or modified to reflect this practice. Jaberg accepted the compensation from Kayline, apparently without comment about the discrepancies between his checks and the amount specified in the contract. Jaberg brought any error he discovered in his commission statements or checks to the attention of his sales manager or the president of Kayline. On September 12, 1980, Kayline stopped withholding employment taxes from Jaberg's compensation. Jaberg claimed he never was told by anyone at Kayline that his status changed from that of employee to independent contractor. Jaberg acknowledged receiving both a 1099 form and a W-2 statement from Kayline for 1980 but he did not consider this to be unusual as Kayline had given him both in the past. Jaberg paid no attention to receiving both forms partly because he was embroiled in personal problems at the time. Jaberg did not inquire about receiving a 1099 statement until 1982, when he only was given a 1099 statement for 1981. Jaberg approached a vice-president at Kayline and asked why taxes were not being deducted. During the approximately two-minute conversation, the vice-president replied that Jaberg would be taken care of and not to worry about it. Jaberg never again asked for a further explanation although he continued to receive 1099 statements from Kayline. Jaberg did not think about whether Kayline was deducting -4- taxes. Jaberg was not told by anyone that Kayline would pay his taxes. Jaberg had other difficulties with regard to his taxes. Prior to his employment with Kayline, Jaberg worked for another company which apparently abruptly closed without issuing Jaberg a 1099 statement for 1975. Jaberg stated that an agent with the Internal Revenue Service (I.R.S.) instructed Jaberg not to file his federal income taxes for any tax year until the I.R.S. provided him with the necessary information for the tax year 1975. Consequently, Jaberg did not file his federal taxes in a timely manner for years, incurring penalties and interest. Jaberg contended the I.R.S. agent sent him a letter sometime in 1976 stating that Jaberg could not file his income tax returns for any year until his 1975 return was filed. Unfortunately, Jaberg sent this letter back to the I.R.S. without first making a copy. Jaberg lost contact with that particular I.R.S. agent in 1978 and failed to pursue the issue of his unfiled tax returns with anyone else at I.R.S until he was contacted by the agency in 1981 or 1982. When Jaberg finally did file his income tax returns for 1981 through 1985, the returns reflected that Kayline had not withheld any federal income taxes from Jaberg's compensation. Instead, the income tax returns show that Jaberg was self-employed although, on his 1984 and 1985 returns, Jaberg wrote that the taxes were disputed as they should have been deducted by his employer. He never expressed this to Kayline. Jaberg and Kayline entered into a second employment contract -5- on January 16, 1984, which did not contain any provision for Kayline to withhold taxes. Kayline terminated Jaberg in the fall of 1985. On October 1996, Jaberg filed suit against Kayline for breach of contract for Kayline's failure to properly withhold payroll taxes. The trial court granted Kayline's motion for summary judgment finding that Jaberg's claims arising before October 30, 1981, were barred by the fifteen-year statute of limitations governing written contracts. The trial court further found that, although Kayline breached the 1978 employment contract, Jaberg's take home pay was considerably increased by Kayline's failure to withhold taxes and that Kayline did not directly profit from failing to deduct taxes. Further, Kayline provided Jaberg with the appropriate 1099 forms showing that taxes were not being withheld. The trial court found that Jaberg's damages were incurred due to his own carelessness in not filing I.R.S. tax returns. The trial court applied the doctrine of laches as Jaberg was aware Kayline was not withholding payroll taxes since 1980 but did not file suit until 1996. Kayline filed a motion for sanctions pursuant to R.C. 2323.51 and Civ.R. 11. Kayline argued that Jaberg's case should not have been filed because its counsel informed Jaberg and his attorney that Jaberg's claim was frivolous as it was Jaberg's obligation to pay his taxes and that it was too late to file the complaint. Kayline also told Jaberg his claim was baseless due to the statute of limitations, the doctrine of laches, modification of the 1978 -6- employment contract, and Jaberg's lack of damages. Kayline pointed out that Jaberg admitted he understood that his receipt of the 1099 forms meant that no taxes were being withheld and that Jaberg accepted gross compensation for five years. Because Jaberg continued to pursue his suit although Kayline contended he had no recourse under Ohio law, Kayline asked for sanctions. The trial court denied Kayline's motion for sanctions. II. Jaberg's first and second assignments of error will be addressed together as similar issues of law are present. Jaberg's first assignment of error claims that Kayline's motion for summary judgment was replete with conclusory statements as to why Jaberg could not prove his case. Jaberg asserts he adequately rebutted Kayline's arguments in its motion for summary judgment so that triable issues of disputed facts remained. Jaberg's second assignment of error challenges the trial court's giving any weight to the issue of what damages Jaberg may have incurred as a result of the breach of the employment contract by Kayline. This case was decided by summary judgment. Civ.R. 56(C) provides that summary judgment is proper if the trial court determines that: (1) No genuine issue as to any material fact remains to be litigated; (2) the moving party is entitled to judgment as a matter of law; and (3) it appears from the evidence that reasonable minds can come to but one conclusion, and viewing such evidence most strongly in favor of the party against whom the motion for summary judgment is made, that conclusion is adverse to that party. Temple v. Wean United, Inc. (1977), 50 Ohio St.2d 317, 327. -7- Summary judgment is a procedural device designed to terminate litigation and to avoid a formal trial where there is nothing to try. Norris v. Ohio Std. Oil Co. (1982), 70 Ohio St.2d 1. Summary judgment is not appropriate where the facts are subject to reasonable dispute when viewed in a light favorable to the nonmoving party. Mers v. Dispatch Printing Co. (1985), 19 Ohio St.3d 100, 104. The moving party is entitled to summary judgment if the nonmoving party fails to establish the existence of an element essential to that party's case and on which that party will bear the burden of proof at trial. Celotex Corp v. Catrett (1986), 477 U.S. 317, 322. In its journal entry, the trial court did not address the 1984 employment contract or whether there was a modification of the 1978 contract. Therefore, these issues apparently did not enter into the trial court's determination that summary judgment in favor of Kayline was appropriate. Jaberg argues summary judgment was erroneous because he submitted adequate documentation and evidence to show that Kayline breached the provisions of the 1978 employment agreement by failing to withhold employment taxes without needing to address the issue of damages. However, Jaberg's cause of action was for breach of contract. An element of a breach of contract claim is damages or loss to the plaintiff. Doner v. Snapp (1994), 98 Ohio App.3d 597. Jaberg was required to present evidence establishing a genuine issue of material fact to survive summary judgment on the issue of damages. Id. As the burden is Jaberg's to prove damages, it is puzzling for -8- him to argue that the trial court should have given no weight to an element of the claim before it. Jaberg does contend that the trial court also erred in its finding of facts regarding damages. Jaberg argues he did not receive a considerable pay increase when Kayline stopped withholding taxes. But Jaberg testified at his deposition that his compensation from Kayline was subject to fluctuation based upon whether or not his draw exceeded his commissions. Jaberg also admitted that he was aware no taxes were being withheld at least by early 1982. Therefore, Jaberg clearly was aware he was receiving compensation in excess of that which he would have received had taxes been deducted. The trial court did not err in finding Jaberg's pay increased as a result of the lack of withholding. Jaberg next states the trial court erred by finding he did not file his tax returns. Technically, Jaberg has, by now, filed his federal income tax returns for the years in question. Each return was filed late, usually by several years, causing Jaberg to incur penalties and interest. Kayline had nothing to do with causing Jaberg to submit the returns well beyond the filing dates. That was entirely Jaberg's responsibility. The trial court correctly determined that any damages Jaberg suffered were caused by his own actions and not those of Kayline. Jaberg's take home pay did increase by the lack of any deduction for income taxes. Jaberg's problems with the I.R.S. and any liability incurred as a result were due to Jaberg's own actions. Jaberg's first and second assignments of error lack merit. -9- III. Jaberg's third assignment of error is moot because of the disposition of the previous assignments of error. IV. In its cross-appeal in appellate case number 73392, Kayline raises the following assignment of error: I. SANCTIONS ARE APPROPRIATE WHERE, AS HERE, A PARTY AND HIS ATTORNEY PROSECUTE A CLAIM WITHOUT ANY LEGAL OR EVIDENTIARY SUPPORT. Finding the assignment of error to lack merit, the judgment of the trial court is affirmed. V. In its assignment of error, Kayline asserts that sanctions should have been imposed upon Jaberg and his counsel by the trial court pursuant to R.C. 2323.51 and Civ.R. 11. Kayline argues that it unsuccessfully attempted to persuade Jaberg and his counsel to dismiss the suit three times. Kayline maintains that Jaberg never supported his claim with any evidence or even a viable argument. Kayline contends that Jaberg and his attorney failed to demonstrate his claim was supported by law or by a good faith argument for a change of existing law. Therefore, Jaberg's breach of contract suit was frivolous and should have been punished by the imposition of sanctions. A court may award reasonable attorney's fees to any party to a civil action who is adversely affected by another party's frivolous conduct. R.C. 2323.51(B)(1). Conduct is defined as the filing of a civil action, asserting a claim, defense, or other -10- position in connection with a civil action, or taking any other action in connection with a civil action. R.C. 2323.51(A)(1). Frivolous conduct is the conduct of a party to a civil action or his or her counsel which satisfies either of following: (a) It obviously serves merely to harass or maliciously injure another party to the civil action; (b) It is not warranted under existing law and cannot be supported by a good faith argument for an extension, modification, or reversal of existing law. R.C. 2323.51(A)(2). The wording of R.C. 2323.51 is permissive. Whether or not to impose sanctions pursuant to this statute rests within the sound discretion of the trial court and will not be reversed on appeal absent an abuse of that discretion. Riley v. Langer(1994), 95 Ohio App.3d 151. An abuse of discretion connotes more than a mere error of law or judgment. It implies an unreasonable,arbitrary, or unconscionable attitude on the part of the trial court. Shafferv. Mease (1991), 66 Ohio App.3d 400. The trial court's discretion is broad because it has the opportunity to view all of the proceedings and to make a factual finding regarding frivolity based on firsthand knowledge. Ceol v. Zion Indus., Inc. (1992), 81 Ohio App.3d 286. A trial court is to engage in a two-part inquiry when presented with a R.C. 2323.51 motion for sanctions. First, it must determine whether an action taken by the party to be sanctioned constituted frivolous conduct. Second, if the conduct was frivolous, what amount, if any, of reasonable attorney's fees necessitated by the frivolous conduct is to be awarded to the -11- aggrieved party. Lable & Co. v. Flowers (1995), 104 Ohio App.3d 227, 232-233. Whether frivolous conduct occurred is a factual determination. Id. Frivolous conduct is defined in objective terms. Lewis v. Celina Fin. Corp. (1995), 101 Ohio App.3d 464. The review of a decision to award or deny sanctions pursuant to Civ.R. 11 requires the application of an abuse of discretion standard. State, ex rel. Fant, v. Sykes (1987), 29 Ohio St.3d 65. Under this rule, a trial court may award a party attorney fees and legal expenses if an opposing attorney filed a pleading for which the attorney lacks knowledge, information, and belief is supported by a good ground. The trial court may not award sanctions without first determining whether the attorney read the document, harbored good grounds to support it, and filed the pleading only for purposes of delay. Ceol, supra at 290. The violation must be willful and not merely negligent. Id. The attorney must conduct a reasonable inquiry into whether the action is well grounded in fact and warranted by existing law or by a good faith argument for extending, modifying, or reversing existing law. Id. In its motion for sanctions, Kayline argued Jaberg's suit was frivolous because it's counsel warned Jaberg that it was his obligation to pay his taxes and due to the delay in filing the complaint. Kayline's attorney wrote a letter to Jaberg in which it asserted Jaberg had no claim based on the statute of limitations, laches, modification of the 1978 employment agreement, and lack of damages. Jaberg's counsel responded by asking for evidence relating to -12- the modification. Kayline was not forthcoming with any evidence except to assert that it had changed Jaberg's status to that of independent contractor in 1980. The 1978 employment contract required any changes or modifications to be made in writing. Kayline admits that no such writing exists but points to the conduct of the parties as proof of a modification. There was at least enough of a dispute over the issue of modification that this court cannot find an abuse of discretion by the trial court in overruling Kayline's motion for sanctions both under R.C. 2323.51 and Civ.R. 11. After all, technically, Kayline did breach the 1978 employment agreement when it discontinued withholding payroll taxes from Jaberg's compensation. Jaberg had at least a colorable claim against Kayline for breach of contract. Kayline's assignment of error lacks merit. Judgment affirmed. -13- It is ordered that appellee recover of appellant its costs herein taxed. The court finds there were reasonable grounds for this appeal. It is ordered that a special mandate issue out of this court directing the Common Pleas Court to carry this judgment into execution. A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure. JAMES M. PORTER, P.J. and MICHAEL J. CORRIGAN, J. CONCUR. LEO M. SPELLACY JUDGE N.B. This is an announcement of the court's decision. See App.R. 22(B), 22(D) and 26(A); Loc.App.R. 27. This decision will be journalized and will become the judgment and order of the court pursuant to App.R. 22(B) unless a motion for reconsideration with supporting brief, per App.R. 26(A), is filed within ten (10) days of the announcement of the court's decision. The time period for review by the Supreme Court of Ohio shall begin to run upon the journalization of this court's announcement of decision by the clerk per App.R. 22(B). See, also, S.Ct.Prac.R. II, Section .