Firestone Country Club et al v. Ohio Department of Commerce, Division of Unclaimed Funds et al

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
FIRESTONE COUNTRY
CLUB, et al.,
Plaintiffs,
v.
OHIO DEPARTMENT OF
COMMERCE, DIVISION OF
UNCLAIMED FUNDS, et al.,
Defendants.
:
:
Case No. 2:25-cv-88
Chief Judge Sarah D. Morrison
Magistrate Judge Kimberly A.
Jolson
OPINION AND ORDER
After an audit of ClubCorp’s1 books and records, on February 14, 2024, the
Division of Unclaimed Funds of the Ohio Department of Commerce notified
ClubCorp that it owed $7,997,377.76 to the State of Ohio for Total Unclaimed Funds
Reporting Liability. ClubCorp appealed that assessment, and its administrative
appeal is ongoing.
In addition to pursuing its administrative appeal, ClubCorp filed this case
against the Division of Unclaimed Funds, Akil Hardy (Superintendent of the
Division), Kelli E. Lister (Legal Counsel for the Division), George Gladden
1 ClubCorp Holdings, Inc. and 97 other entities are the Plaintiffs; while not
entirely clear, it seems that the other entities are subsidiaries of ClubCorp
Holdings. (Am. Compl., ECF No. 29, ¶¶ 1, 16.) The only Plaintiff from Ohio is the
first named Plaintiff, Firestone Country Club. The other entities own and operate
golf and country clubs, city clubs, and sports clubs around the country. (Id., ¶ 16.)
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(Compliance Manager for the Division), Audit Services U.S., LLC (“ASUS”), and
Jeremy D. Katz (the first four Defendants are “the State Defendants”, the latter two
are “the ASUS Defendants”).
Defendants have filed two motions to dismiss, arguing that this case must be
dismissed under the Younger abstention doctrine. The motions are fully briefed2
and, for the reasons set forth below, both motions are DENIED.
I. BACKGROUND
The factual allegations, but not legal conclusions, in the Amended Complaint
are considered as true for purposes of the pending motion. See Gavitt v. Born, 835
F.3d 623, 639–40 (6th Cir. 2016).
Defendants began an audit of ClubCorp in 2023. Following that audit,
ClubCorp was provided with a Closing Review Letter informing it as follows:
In conformity with the Ohio Unclaimed Funds Law,[3] this closing
examination letter notifies you of the total unclaimed funds reporting
liability of ClubCorp Holdings, Inc. (the “Company”) to the state of
Ohio (the “State”). Based on Audit Services US’ (“ASUS”) review [sic]
of the documentation submitted up to and including the date of the
final audit report on February 14, 2024, it has been determined that
the Total Unclaimed Funds Reporting Liability from the
examination of the Company found owing under Chapter 169 of the
Ohio Revised Code is $7,997,377.76 for accounts dormant as of
06/30/2023.
(ECF No. 29-3, PAGEID # 338.) The letter further informed ClubCorp that it had 30
days from the date of the letter to pay the amount due, to dispute a portion of the
2 ClubCorp requests an oral argument on the Motions to Dismiss, but the
Court finds that oral argument would not aid the decisional process.
3 The Ohio Unclaimed Funds Act is found at Ohio Revised Code Chapter 169
and Ohio Administrative Code Chapter 1301:10 (the “UFA”).
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amount due (and pay any undisputed amount), or to appeal the Total Unclaimed
Funds Reporting Liability. (Id.) ClubCorp was also told that, if it failed to pay the
Total Unclaimed Funds in 30 days, the State is “authorized to assess civil penalties
and interest.” (Id., PAGEID # 339 (citing Ohio Rev. Code § 169.12).)
ClubCorp appealed the Audit findings and liability determination on the
grounds that Defendants did not comply with the UFA’s requirements. (Am.
Compl., ¶ 41.) As part of its appeal, ClubCorp requested documents and other
information regarding the bases for the Liability Finding, but it claims that
Defendants have not provided it with the work papers or other information that it
needs to pursue the appeal.
An appeal meeting was held on September 10, 2024, pursuant to Ohio
Administrative Code 1301:10-3-04(K), to “reach mutually agreeable findings” and
explore whether the parties could reach a resolution. (Id., ¶¶ 54, 55.) The parties
were unable to resolve the dispute.
Then, on October 17, 2024, ClubCorp received a State Administrator Decision
on its appeal; ClubCorp claims that the State Administrator Decision did not
address the issues it raised, instead finding that the “bases for appeal were not
sufficiently supported or developed.” (Id., ¶ 63.)
ClubCorp then appealed the State Administrator Decision. (Id., ¶ 68.) As of
the filing of the Amended Complaint, there had not been any resolution of
ClubCorp’s appeal. (Id., ¶ 69.)
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ClubCorp asserts that Defendants are depriving it of an opportunity to
develop a record in its administrative appeal and that such deprivation violates its
constitutional rights. It also challenges the appeal procedure under the UFA as
unconstitutional and further claims that Ohio’s engagement of contract auditors to
perform audits under the UFA is unconstitutional.
II. MOTIONS TO DISMISS FOR LACK OF SUBJECT MATTER
JURISDICTION
A. Standard of Review
Generally, threshold challenges to subject matter jurisdiction under Fed. R.
Civ. P. 12(b)(1) should be decided first. See Bell v. Hood, 327 U.S. 678, 682 (1946).
In most circumstances, a plaintiff bears the burden to survive a motion to dismiss
for lack of subject matter jurisdiction. See id.
Challenges to subject matter jurisdiction come in several varieties. Facial
attacks challenge a plaintiff's establishment of jurisdiction in the complaint and
require the Court to examine the jurisdictional basis. United States v. Ritchie, 15
F.3d 592, 598 (6th Cir. 1994) (citation omitted). Factual attacks contest the
existence of factual prerequisites to jurisdiction. See id. In such motions, in contrast
to motions under Fed. R. Civ. P. 12(b)(6), the Court is empowered to resolve the
factual disputes affecting any jurisdictional prerequisites. Rogers v. Stratton Indus.,
Inc., 798 F.2d 913, 915 (6th Cir. 1986).
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B. Analysis
Defendants make a facial attack to this Court’s subject matter jurisdiction.
They argue, pursuant to the Younger abstention doctrine from Younger v. Harris,
401 U.S. 37 (1971), that this Court should abstain from hearing ClubCorp’s claims.
Federal courts have a duty to hear federal questions and “have no more right
to decline the exercise of jurisdiction which is given, than to usurp that which is not
given.” New Orleans Pub. Serv., Inc. v. Council of City of New Orleans, 491 U.S. 350,
358 (1989) (quoting Cohens v. Virginia, 19 U.S. 264, 404 (1821)). Thus, Younger
abstention is “a limited carve-out to federal courts’ ‘virtually unflagging obligation’
to exercise their jurisdiction.” Hill v. Snyder, 878 F.3d 193, 205 (6th Cir. 2017)
(quoting Deakins v. Monaghan, 484 U.S. 193, 203 (1988)). The goal of analyzing an
abstention argument is “not to find some substantial reason for the exercise of
federal jurisdiction by the district court; rather, the task is to ascertain whether
there exist ‘exceptional’ circumstances, the ‘clearest of justifications,’ that can
suffice . . . to justify the surrender of that jurisdiction.” Moses H. Cone Mem'l Hosp.
v. Mercury Constr. Corp., 460 U.S. 1, 25–26 (1983).
“Younger abstention requires a federal court to abstain from granting
injunctive or declaratory relief that would interfere with pending state judicial
proceedings.” O’Neill v. Coughlan, 511 F.3d 638, 643 (6th Cir. 2008) (citing Younger,
401 U.S. at 40–41); see also Doe v. Lee, No. 3:21-cv-00809, 2022 WL 1164228, at *5
(M.D. Tenn. Apr. 19, 2022) (citation omitted). As the Sixth Circuit explained,
“Younger abstention derives from a desire to prevent federal courts from interfering
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with the functions of state criminal prosecutions and to preserve equity and
comity.” Doe v. Univ. of Ky., 860 F.3d 365, 368 (6th Cir. 2017) (citing Younger, 401
U.S. at 44). The Supreme Court has advised that Younger can apply to state
proceedings that are not criminal prosecutions, but it has emphasized that “such
applications are narrow and exist only in a few exceptional circumstances.” Id. at
369 (citing New Orleans Pub. Service., Inc., 491 U.S. at 368).
Younger abstention is appropriate in only three categories of cases: when
there are (1) parallel, pending state criminal proceedings, (2) particular “state civil
proceedings that are akin to criminal prosecutions,” or (3) civil proceedings “that
implicate a State’s interest in enforcing the orders and judgments of its courts.”
Sprint Commc'ns, Inc. v. Jacobs, 571 U.S. 69, 72–73 (2013) (citations omitted).
Here, Defendants argue that the second Younger abstention category applies.
The critical consideration for this category is how closely the state civil proceeding
resembles a criminal prosecution. Id. at 79. The Supreme Court has explained the
contours as follows:
Our decisions applying Younger to instances of civil enforcement have
generally concerned state proceedings “akin to a criminal prosecution”
in “important respects.” . . . Such enforcement actions are
characteristically initiated to sanction the federal plaintiff, i.e., the
party challenging the state action, for some wrongful act. See, e.g.,
Middlesex, 457 U.S., at 433–434, . . . (state-initiated disciplinary
proceedings against lawyer for violation of state ethics rules). In cases
of this genre, a state actor is routinely a party to the state proceeding
and often initiates the action. See, e.g., Ohio Civil Rights Comm’n v.
Dayton Christian Schools, Inc., 477 U.S. 619 . . . (1986) (state-initiated
administrative proceedings to enforce state civil rights
laws); . . . Investigations are commonly involved, often culminating in
the filing of a formal complaint or charges. See, e.g., Dayton, 477 U.S.,
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at 624, . . . (noting preliminary investigation and complaint);
Middlesex, 457 U.S., at 433, . . . (same).
Id. at 79–80.
Accordingly, the Court will examine the UFA statutes and administrative
code, as well as the correspondence to ClubCorp from Defendants, to determine
whether its administrative appeal is akin to a criminal prosecution.
The UFA imposes a duty on any holder of unclaimed funds to report those
funds to the Division of Unclaimed Funds. Ohio Rev. Code § 169.03(A). Holders
must file unclaimed funds reports on a yearly basis. Id. § 169.03(D). Holders are
also required to pay any unclaimed funds to the Division of Unclaimed Funds or, in
certain circumstances, to deposit unclaimed funds into an appropriate interest-
bearing account. Id. § 169.05. The Division is authorized to audit “the records of any
holder to determine compliance” with the UFA’s requirements. Id. § 169.03(G)(1).
In this case, Defendants initiated an audit of ClubCorp’s books and records.
After the audit was complete, Defendants notified ClubCorp of its “Total Unclaimed
Funds Reporting Liability.” ClubCorp was told that, if it failed to pay the liability or
appeal the audit finding, the State could assess civil penalties and interest. The
audit and correspondence reflect a remedial process, with the State seeking to
determine and collect a civil liability. To that end, the UFA provides that, the
purpose of the appeals process that ClubCorp is pursuing “is to give the state
administrator and the holder the opportunity to reach mutually agreeable findings.”
Ohio Admin. Code 1301:10-3-04(K) (2023). A process to “reach mutually agreeable
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findings” is fundamentally different from a coercive criminal or disciplinary
proceeding to assess criminal penalties.
Indeed, there has been no suggestion that ClubCorp could be subject to
criminal penalties in the administrative proceeding or any appeal therefrom. There
has been neither a formal complaint nor charges filed. The only reference to
criminal sanctions in the UFA provides:
(A) Whoever violates section 169.10 of the Revised Code shall be fined
not more than five hundred dollars. Each day of continuance of such
violation is a separate offense.
(B) Whoever violates division (C) of section 169.13 or division (A) of
section 169.16 of the Revised Code is guilty of a misdemeanor of the
first degree for a first offense and of a felony of the fifth degree for
any subsequent offense.
Ohio Rev. Code § 169.99.
There are no allegations that ClubCorp has violated any of the provisions
referenced in section 169.99. Even if the State Defendants had made such
allegations, the Department of Commerce’s ability to sanction violators is extremely
limited. The Department could impose civil penalties, but it would have to make a
recommendation of prosecution to a county prosecuting attorney or to the state
attorney general to institute criminal proceedings; if such a recommendation were
made, the attorney general or county prosecutor would have complete discretion
over whether to bring charges. A connection this remote to criminal liability does
not call for abstention under Younger. See, e.g., Steffel v. Thompson, 415 U.S. 452,
454 (1974) (Younger does not prevent federal relief “when a state prosecution has
been threatened, but is not pending”); 520 S. Mich. Ave. Assoc., Ltd. v. Devine, 433
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F.3d 961, 963 (7th Cir. 2006) (suggesting that prosecution must be “imminent”
before a court will abstain).
ClubCorp’s administrative appeal under the UFA is thus not a quasi-criminal
proceeding that warrants Younger abstention. Defendants’ Motions to Dismiss on
Younger abstention grounds are DENIED.
III. MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM
In their Motion, the State Defendants also argue in passing that dismissal of
ClubCorp’s due process claim is appropriate under Fed. R. Civ. P. 12(b)(6). (ECF No.
33, PAGEID # 540.) They do not address this argument in their Reply
Memorandum.
“Issues adverted to in a perfunctory manner, unaccompanied by some effort
at developed argumentation, are deemed waived,” and “it is not sufficient for a
party to mention a possible argument in the most skeletal way, leaving the court to
... put flesh on its bones.” McPherson v. Kelsey, 125 F.3d 989, 995–96 (6th Cir. 1997)
(citation modified). The Court will not flesh out the State Defendants’ arguments
here, so their Motion to Dismiss ClubCorp’s due process claim is DENIED.
IV. CONCLUSION
The State Defendants’ Motion to Dismiss (ECF No. 33) and the ASUS
Defendants’ Motion to Dismiss (ECF No. 32) are DENIED.
IT IS SO ORDERED.
/s/ Sarah D. Morrison
SARAH D. MORRISON, CHIEF JUDGE
UNITED STATES DISTRICT COURT
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