Tuesday, April 28, 2020
Defender Security Company dba Defender Direct v. Joseph Testa (Jeffrey A. McClain), tax commissioner of Ohio, Case no. 2019-0531
Tenth District Court of Appeals
State of Ohio v. Michael D. Hudson, Case no. 2019-0646
Tenth District Court of Appeals (Franklin County)
State of Ohio v. Kyle Patrick, Case no. 2019-0655
Seventh District Court of Appeals (Mahoning County)
Disciplinary Counsel v. James L. Reinheimer, Case no. 2019-1742
Sandusky County
Are Home Monitoring Services from Non-Ohio Locations Subject to State Tax?
Defender Security Company dba Defender Direct v. Joseph Testa (Jeffrey A. McClain), tax commissioner of Ohio, Case no. 2019-0531
Tenth District Court of Appeals
ISSUES:
- Does a purchaser of contract rights receive the benefits of such intangible assets in the physical location where they are received and used?
- If the intangible assets are received and used at physical locations outside of Ohio to service contracts for consumers in Ohio, are the sales of the contract rights subject to Ohio’s Commercial Activity Tax?
BACKGROUND:
Defender Security Company, doing business as Defender Direct, is an authorized seller of ADT Security Systems. Defender acquires customers in Ohio, sells and installs ADT security equipment in homes and businesses, and initially contracts with customers to enter into monitoring service agreements with ADT. ADT is headquartered in Colorado, and provides monitoring to its customers nationwide through six service centers, none of which are located in Ohio. Defender doesn’t provide monitoring services, and turns over more than 95 percent of the contracts to ADT, which then pays Defender a commission for the sale of the monitoring rights.
Defender, based in Indiana, paid Ohio’s Commercial Activity Tax (CAT) on the receipts of its sales of the contracts for tax years 2010 to 2013. In 2014, it asked the Ohio Department of Taxation for a $88,000 refund based on its payments. The company claimed that under R.C.5751.033(I), the location of the recipient of the benefits of the service contracts was Colorado and the other non-Ohio monitoring centers where ADT provided service. Because the “situs” of the use and benefits of the sales wasn’t in Ohio, the contracts weren’t subject to the CAT, the company maintained.
The Ohio Tax Commission denied the refund. In 2015, after conferring with the tax department, Defender withdrew its request for a 2010 tax year refund and requested a $73,000 refund for the remaining three tax years. In 2016, the commissioner also denied these requests.
Defender appealed the decision to the Ohio Board of Tax Appeals. In 2018, the board affirmed the commissioner’s decision, and the company appealed the ruling to the Tenth District Court of Appeals. In 2019, the Tenth District affirmed the board’s decision.
Defender appealed the Tenth District’s ruling to the Ohio Supreme Court, which agreed to hear the case. To comply with state directives during the COVID-19 pandemic, the Court will hear Stiner’s case via teleconference.
Commissioner Used Wrong Test to Levy Tax, Company Argues
Defender explained that for companies doing business in multiple states, state tax laws have to be developed to prevent the double taxation of a single transaction. Ohio and other states established by law where a sale is considered to have occurred, or “sitused.” The company notes that R.C. 5751.033(I) helps determine where the sales of intangible assets, such as contract rights, take place. The statute states, “The physical location where the purchaser ultimately uses or receives the benefit of what was purchased shall be paramount in determining the proportion of the benefit in this state to the benefit everywhere.”
Under its interpretation of the law, Defender maintains the intangible assets are received by ADT in Colorado and used by ADT there and at its six monitoring centers. ADT has no Ohio employees or locations, so it doesn’t use the contract benefits in Ohio, and isn’t subject to the Ohio CAT.
The company argues the tax commissioner used a “without Ohio” test to determine the location of the tax. Defender explains the commissioner determined that without Ohioans entering the contract, and without Ohio police, fire, and other emergency responders answering the calls from ADT once it detects an alarm, the contracts would be worthless. Since the value of the contract is in Ohio, then the contracts can be taxed, the commissioner ruled.
Defender notes it pays taxes on the equipment it sells in Ohio and the transactions it completes in Ohio. But the sale of the contracts to ADT occur between its staff in Indiana and ADT’s employees in Colorado. Because the law makes the physical location the primary factor in determining where the sale occurred, the company believes Colorado has a right, but not Ohio, to tax the sale of the contracts.
Benefits Received in Ohio, Tax Appropriate, Commissioner Maintains
The tax commissioner argues the key words of R.C. 5751.033(I) are “benefit” and “uses or receives.” ADT uses or receives in Ohio the benefits of the rights it purchases from Defender. ADT bought the right to charge Ohio homeowners to monitor their homes, and the key promise to Ohio homeowners from ADT is to connect to local Ohio police and fire services if an alarm is detected. The benefit Defender receives is that it sold a contract right that utilizes government emergency services in Ohio. Because the benefit occurs in Ohio, the sale of the rights of Ohio contracts to ADT are taxable, the commissioner argues. ADT benefits from the right of payment from Ohioans and the ability to provide a valuable service by relying on Ohio police and fire services, the commissioner maintains.
The commissioner notes that during the proceedings, ADT conceded the service is almost worthless if it’s not able to ensure Ohioans that local police and fire services will be summoned by ADT. The emergency services are a benefit ADT uses in Ohio, and that subjects the contractual rights to the CAT, the commissioner concludes.
– Dan Trevas
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing Defender Security Company, dba Defender Direct: Richard Fry, 330.376.5300
Representing Jeffrey A. McClain, tax commissioner of Ohio, from the Ohio Attorney General’s Office: Benjamin Flowers, 614.466.8980
Can Trial Court Correct Sentencing Entry that Lacked Information about Consequences for Postrelease Control Violations?
State of Ohio v. Michael D. Hudson, Case no. 2019-0646
Tenth District Court of Appeals (Franklin County)
ISSUE: If a trial court fails to reference the consequences for violating postrelease control in its sentencing entry, is the trial court permitted to correct the omission in a “nunc pro tunc” entry?
BACKGROUND:
A jury convicted Michael Hudson in 2006 of kidnapping and burglary. The Franklin County trial court sentenced him to 10 years for kidnapping, eight years for burglary, and one year for a firearm offense. The sentences were imposed consecutively for a 19-year prison term.
In its sentencing entry, the trial court stated that Hudson also must serve a five-year mandatory term of postrelease control (PRC). The entry didn’t state the consequences for Hudson if he violated his PRC.
Hudson appealed to the Tenth District Court of Appeals, which in 2007 upheld his convictions and sentence. In a 2018 motion, Hudson challenged whether he received the proper PRC term and asked the trial court to vacate it. The trial court rejected his request.
Convicted Man Challenges Validity of Postrelease Control Sanction
Hudson appealed that decision to the Tenth District. The court’s opinion pointed to the Ohio Supreme Court’s decision in State v. Grimes (2017), which identified three requirements for a court to validly impose PRC in a sentencing entry. In Hudson’s case, the Tenth District stated, the trial court didn’t meet Grimes’ third requirement – that the entry must include “a statement to the effect that the Adult Parole Authority (‘APA’) will administer the postrelease control pursuant to R.C. 2967.28 and that any violation by the offender of the conditions of postrelease control will subject the offender to the consequences set forth in that statute.” The appellate court concluded that although Hudson’s PRC was imposed defectively, the trial court’s entry had enough information to properly impose PRC. The trial court could fix the error in a nunc pro tunc entry, the Tenth District stated.
The Ohio Supreme Court agreed to review Hudson’s appeal. To comply with state directives during the COVID-19 pandemic, the Court will hear Hudson’s case via teleconference.
Sentencing Entry Didn’t Meet Supreme Court’s Requirements, Man Argues
Hudson’s brief explains that the Court has issued numerous opinions about the duty of lower courts to impose PRC properly and, when they don’t correctly impose PRC, the sanction is unenforceable. Hudson suggests this case could end the “postrelease control whack-o-mole” the Court must play because it has to keep reversing lower court decisions contrary to its PRC rulings.
For the executive branch to have the authority to implement the PRC part of a sentence, Grimes clearly states that courts in their sentencing entries must abide by all three requirements, Hudson maintains. Through their sentencing entries, trial courts give the executive branch the power to implement PRC sanctions, he notes. In his view, the Tenth District turned the three requirements of Grimes into a two-part test by making the third requirement optional. The Tenth District doesn’t have the authority, though, to dismiss or alter a higher court’s ruling, Hudson argues.
When lower courts change or disregard the Court’s rulings about PRC, the executive branch must guess which parts of the Court’s guidance are mandatory and which are discretionary, Hudson asserts.
He also maintains that the five-year PRC sanction was imposed for the kidnapping offense. Because he has served more than 10 years, which was the prison sentence for the kidnapping offense, the trial court has no jurisdiction to correct the error, he argues. He asks the Court to vacate his PRC term.
Court Decision Doesn’t Apply to Sentence Imposed 11 Years Earlier, Prosecutor Maintains
The Franklin County Prosecutor’s Office maintains that when Hudson was sentenced in 2006, no law required trial courts to include language in sentencing entries about the consequences of violating PRC. Grimes wasn’t a retroactive ruling, the prosecutor states, andit shouldn’t be applied to Hudson’s case because his case was final long before Grimes was decided in 2017. In the state’s view, Grimes can’t be applied retroactively because it wasn’t compelled by precedent, and didn’t interpret the meaning of any statute.
The office also argues the trial court’s sentencing entry incorporated the necessary PRC notifications – including that a violation could mean Hudson would go to prison – because the entry referenced state laws about PRC notifications. The entry gave the executive branch all it needed to do its job, the prosecutor contends.
The prosecutor asserts that when a trial court leaves out sufficient consequences language, the error isn’t an omission but rather a mistake in the manner in which PRC was imposed. A sentencing entry that includes PRC with “inartful or erroneous language” still authorizes the executive branch to enforce the PRC sanction, the office’s brief maintains. It contends that only the complete omission of PRC in the entry would prevent the executive branch from its authority to implement the PRC sanction.
The prosecutor also explains that Ohio law requires prison terms to be served in a particular order only in specific circumstances. For example, mandatory prison terms are served before nonmandatory ones, and definite terms are served before indefinites ones. However, the prosecutor stresses, Hudson doesn’t point to any law requiring a kidnapping sentence to be served before a burglary sentence, or longer terms before shorter ones, or higher-degree felony sentences before lesser felonies.
However, should the Court decide that Hudson has completed his kidnapping prison term, nothing prevents the trial court from correcting the absence of consequences information in its sentencing entry, the prosecutor argues. The office notes the trial court told Hudson verbally at sentencing about the consequences of violating PRC, and a notice Hudson and his attorney signed also listed consequences. Because Hudson was notified about PRC violation consequences, the court can correct any failure in its sentencing entry through a nunc pro tunc entry, the prosecutor concludes.
Attorney General Supports Prosecutor, Will Participate in Arguments
The Ohio Attorney General’s Office has filed an amicus curiae brief supporting the Franklin County prosecutor’s positions. The prosecutor and the attorney general asked to share the 15 minutes of time allotted to the prosecutor for oral argument, and the Court agreed.
– Kathleen Maloney
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing Michael D. Hudson from the Ohio Public Defender’s Office: Stephen Hardwick, 614.466.5394
Representing the State of Ohio from the Franklin County Prosecutor’s Office: Seth Gilbert, 614.525.3555
Must Court Consider Juvenile’s Age When Imposing Life with Possibility of Parole Sentence?
State of Ohio v. Kyle Patrick, Case no. 2019-0655
Seventh District Court of Appeals (Mahoning County)
ISSUE: Is it unconstitutional to sentence a juvenile to life in prison with the possibility parole while not explicitly considering youth as a factor?
BACKGROUND:
In its 2014 State v. Long decision, the Ohio Supreme Court ruled that a trial court violates a juvenile’s Eighth Amendment right against cruel and unusual punishment if the court imposes a life sentence without the possibility of parole without considering youth as mitigating evidence . Kyle Patrick argues that imposing a life sentence, even with parole after a term of years, also violates a juvenile’s constitutional rights if the trial court didn’t consider his youth at sentencing.
In April 2012, Michael Abighamen and his friend Michael Nakoneczny went to a home in Youngstown to sell a video game system and laptop computer. At the home were four men, including Kyle Patrick, who was 17 years old at the time, and Reginald Whitfield. Whitfield directed Abighamen upstairs to demonstrate on a television that the game system was operable. Patrick was upstairs hiding in a closet. Either Whitfield or Patrick shot Abighamen. Nakoneczny ran from the house.
Police discovered Patrick’s gun and the discarded merchandise in a dumpster. Police were able to match the bullet that killed Abighamen to Patrick’s gun. Nakoneczny testified he heard no signs of a struggle before shots were fired.
Plea Deal Erodes
Mahoning County prosecutors filed a juvenile complaint against Patrick for aggravated murder and aggravated robbery. Based on his age and the nature of the charges, the juvenile court automatically bound him over to the Mahoning County Common Pleas Court to be tried as an adult.
Whitfield and Patrick were offered plea agreements. Whitfield pleaded guilty to involuntary manslaughter and was sentenced to 13 years in prison. In 2014, Patrick agreed to plead guilty to the lesser charge of murder as well as aggravated robbery and tampering with evidence. Prosecutors recommended he receive a 16-years-to-life prison term. Patrick agreed to the terms and pled guilty. Patrick then attempted to withdraw his plea, but the judge refused. He appealed his sentence, and the Seventh District Court of Appeals reversed the trial court’s decision.
Patrick went to trial on the original charges and was convicted of all of them. Prosecutors noted recent court decisions raised issues with sentencing juveniles to life in prison without the possibility of parole, and recommended the next-sternest sentence -- life in prison with parole eligibility after 30 years. The trial judge adopted the recommendation and also imposed a three-year mandatory firearm specification, which makes Patrick eligible for parole after 33 years.
Patrick appealed this sentence to the Seventh District, which affirmed the decision. He appealed to the Supreme Court, which agreed to hear the case. To comply with state directives during the COVID-19 pandemic, the Court will hear Stiner’s case via teleconference.
Court Fails to Consider Age, Offender Argues
Ohio law permits a trial judge to select from a range of sentences for those convicted of aggravated murder, ranging from life without parole to 20 years to life. Patrick contends the trial court looked solely at the facts of the case when selecting the 30-years-to-life sentence, and didn’t indicate a consideration of his youth. The offender points to numerous U.S. and Ohio Supreme Court decisions in the past two decades emphasizing that minors should be treated differently than adults when it comes to criminal sentencing because of their different emotional and intellectual development.
Patrick notes the Seventh District ruled that under R.C. 2929.12, the trial judge must consider several factors when determining a sentence, but it doesn’t require a judge to consider the age of the defendant. He argues that while the law may not specify the consideration of age, the Eighth Amendment to the U.S. Constitution requires it, and a trial judge must consider age when sentencing. He maintains that it is illogical that under Long a trial court must consider a juvenile’s age when sentencing a minor to life in prison without parole, but doesn’t have to consider age when sentencing a juvenile to life in prison with the possibility of parole.
Considering that the judge was willing to sentence Patrick to 16 years to life under a plea agreement, Patrick maintains that it is cruel and unusual punishment for the state to impose the longest life term possible for his conviction after he went to trial. He argues the court must provide sentences to juveniles that allow a meaningful opportunity for potential rehabilitation and change. Because he will not be eligible for parole until he is in his 50s, he is unconstitutionally deprived of the opportunity for change, Patrick asserts.
Prosecutors Maintain Sentence Is Appropriate
The Mahoning County Prosecutor’s Office and the Ohio Attorney General’s Office — through an amicus curiae brief — argue the case should be considered improvidently allowed. They maintain that under R.C. 2953.08(D)(3), a single sentence for aggravated murder isn’t reviewable by the Supreme Court.
The prosecutor notes in its brief that under U.S. Supreme Court rulings a state isn’t required to guarantee the release of a juvenile convicted of murder, but only to provide “some meaningful opportunity to obtain release based on demonstrated maturity and rehabilitation.” The prosecutor argues the trial court has provided a meaningful opportunity to Patrick by selecting the 33-years-to-life sentence.
The prosecutor also notes Ohio trial courts are guided by R.C. 2929.11 and R.C. 2929.12 when considering sentences and those laws require they take into account the possibility for rehabilitation. The trial court isn’t required to detail in its findings what was considered when sentencing a juvenile to less than life without the possibility of parole, the office asserts. The trial judge had the discretion to sentence Patrick to 33 years to life and that sentence doesn’t violate his constitutional rights, the office states. Additionally, the prosecutor notes that other state high courts faced with the same issue haven’t required a trial judge to make findings on the record about the consideration of age when sentencing a juvenile to life with the possibility of parole.
Attorney General Make Similar Arguments
The Court has granted the attorney general’s office the right to share oral argument time with the county prosecutor. In its amicus brief, the attorney general’s office makes arguments similar to the prosecutor in favor of affirming Patrick’s sentence.
The attorney general notes that both the prosecutor and Patrick raised the issue of his age and his youthful inexperience before the trial court issued its sentence. The attorney general argues that when a court record is silent as to its reasoning, it is presumed the trial court considered all the arguments of the parties before ruling. The office concludes the trial court did all that was required by the law and issued a constitutional sentence.
Friend-of-the-Court Briefs Submitted
A joint amicus brief supporting Patrick’s position has been submitted by the Central Juvenile Defender Center, Children’s Law Center, Cuyahoga County Public Defender’s Office, , Juvenile Law Center, Ohio Public Defender’s Office, National Juvenile Defender Center, and Schubert Center for Child Studies.
– Dan Trevas
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing Kyle Patrick: John Juhasz, 330.758.7700
Representing the State of Ohio from the Mahoning County Prosecutor’s Office: Ralph Rivera, 330.740.2330
Public Reprimand Suggested for Port Clinton Lawyer
Disciplinary Counsel v. James L. Reinheimer, Case no. 2019-1742
Sandusky County
The Ohio Board of Professional Conduct recommends that James Reinheimer of Port Clinton receive a public reprimand for failing to communicate fully with his client during a Sandusky County defamation lawsuit.
Reinheimer objects to the board’s findings and recommended sanction, arguing the board panel that conducted the disciplinary hearing found he violated professional conduct rules that weren’t part of the original allegations.
Attorney Hired to Represent Woman in Defamation Suit
In August 2013, Angela Weber (Bowers) hired Reinheimer to represent her in the defamation case, which was filed against her by her daughter’s father, Brett Forinash. The couple was engaged in multiple legal actions against each other, including custody actions and a civil protection order request. In the defamation lawsuit, Forinash alleged that Weber made false and defamatory statements about him on her Facebook page in 2012. Reinheimer responded to the complaint.
The board’s report states that Reinheimer and Weber discussed the case in person and on the phone. Weber didn’t want to testify at a trial, but indicated she would if she had to. They talked about various strategies to avoid the need for her to testify. Weber told Reinheimer she wouldn’t agree to settle the case even for $1.
In September 2015, Forinash requested summary judgment in the case. Reinheimer didn’t inform Weber about the motion and didn’t file a response. The Sandusky County Common Pleas Court issued summary judgment in Forinash’s favor, awarding him $100 in compensatory damages and $500 in punitive damages. The court also ordered Weber to pay $2,000 in attorney fees plus the costs of the proceedings.
Disciplinary Charges Filed against Attorney
At the disciplinary hearing, Reinheimer said his trial strategy was to let the court grant summary judgment against Weber by not responding to the motion. He adopted this strategy for several reasons, including because Weber was reluctant to testify and because he believed the judge would award a minimal amount in damages. He acknowledged he didn’t document anything confirming that Weber knew about, and approved, this strategy.
The Office of Disciplinary Counsel, which investigated the matter, alleged three violations of the rules governing the conduct of Ohio attorneys. After the disciplinary hearing, the board’s panel dismissed two of the three charges. The panel also asked the parties to submit additional written arguments, and then it dismissed the third charge but found Reinheimer violated two other rules. Specifically, Reinheimer violated the rules requiring a lawyer to promptly inform the client about decisions and developments that need the client’s informed consent, and to explain case matters so the client can make informed decisions, the board report states.
The report notes there was no issue with Reinheimer’s strategy and tactics. However, the report states, the lawyer didn’t properly discuss his strategy with Weber and didn’t inform her that by not responding to the summary judgment request she might have to pay damages and fees.
The board recommends that the Supreme Court publicly reprimand Reinheimer for the misconduct. The Court will hear the lawyer’s disciplinary case during oral arguments that will be held by teleconference. The Court is meeting remotely to comply with state directives during the COVID-19 pandemic.
No Opportunity to Defend against Eventual Rule Violations, Attorney Contends
Reinheimer argues in his objections that he defended himself against the three charges that were in the original complaint and was successful in getting those dismissed. But then he was found in violation of two rules that weren’t charged. Because the panel determined he violated those two rules after the hearing, he was unable to defend against the new charges in a hearing – a violation of his right to due process, Reiheimer maintains.
He also contends that the evidence doesn’t support the adopted rule violations. He argues he properly informed Weber of the strategy.
Poor Communication Always Part of Charges, Disciplinary Counsel Argues
In its answer brief, the disciplinary counsel responds that the original and the adopted rule violations all fall under Rule 1.4 of the Rules of Professional Conduct. Rule 1.4 addresses lawyer obligations when communicating with clients. The disciplinary counsel states the factual allegations and one of the alleged rule violations in the original complaint made clear that Reinheimer’s communication with his client was an issue in the disciplinary case. Because the lawyer had notice that his communication with Weber was part of the complaint, the board could find that Reinheimer violated any provision in Rule 1.4, the office argues. It adds the lawyer hasn’t offered any physical evidence to dispute the finding.
The disciplinary counsel notes that Weber told Reinheimer early on she didn’t want to pay even $1 to settle the case, and that Weber was upset when she received the $2,600 judgment in the mail. Such evidence supports the board’s findings, and no evidence weighs substantially against them, the disciplinary counsel concludes.
– Kathleen Maloney
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing James L. Reinheimer: Jonathan Coughlan, 614.934.5677
Representing the Office of Disciplinary Counsel: Joseph Caligiuri, 614.461.0256