Oral Argument Preview: Does Ohio’s Dram Shop Act Preclude All Traditional Common-Law Negligence Claims Against a Liquor Permit-Holder? Nichole Johnson v. Mary E. Montgomery et al.

Read the analysis of the argument in this case here.

On April 6, 2017, the Supreme Court of Ohio will hear oral argument in the case of Nichole Johnson v. Mary E. Montgomery et al., 2016-0790. At issue in this case is whether an innocent party injured by an intoxicated worker may pursue a claim of negligence against a liquor permit holder, outside the confines of Ohio’s Dram Shop Act, when that permit holder encouraged and profited from the intoxicated worker’s alcohol consumption. This case will be argued at Morgan High School in Morgan County as part of the court’s off-site program.

Case Background

During the early morning hours of July 4, 2010, Mary Montgomery (“Montgomery”) was preparing to leave work. She was a dancer at a local strip-club, the Living Room. Dancers received no paychecks or benefits, but were paid from customer tips.  Montgomery admitted that she drank while on that job, and that she was intoxicated when she left work. Despite that, she drove herself home, and no one tried to stop her.  Due to her impairment, Montgomery struck another car on the interstate. Nichole Johnson (“Johnson”) was a passenger in that car.

Johnson suffered numerous injuries as a result of the accident. She had multiple fractures, broken teeth, a lacerated liver, and a collapsed lung. She endured over ten surgeries and incurred hundreds of thousands of dollars in medical bills. Johnson filed claims against Montgomery, Thirty-Eight Thirty, Inc. d/b/a The Living Room (“the Living Room”), and Michael Ferrero (“Ferrero”), the sole owner and operator of the Living Room.

The business practices implemented by Ferrero became the lynchpin of the litigation. Approximately 95% of the Living Room’s profits came from the sale of alcohol, most of which were drinks with marked up prices purchased for dancers. Ferrero admitted that the dancers alone consume about 30-40% of all alcoholic beverages. This consumption was actually encouraged due to the higher prices collected, and because it allowed dancers to alter their mental state if they found the dancing to be difficult. The Living Room and Ferrero did not prohibit or limit the dancers’ drinking, monitor their consumption during their shifts, or establish a policy for getting any impaired workers home from the Living Room.

At trial, a directed verdict was granted on all Ohio Dram Shop Act (“the Act”) claims, and for claims against Ferrero. The court found that Johnson did not establish a sufficient basis to pierce the corporate veil. However, traditional claims of negligence were allowed to proceed against Montgomery and the Living Room. The jury found both defendants liable and awarded Johnson over $2.8 million in compensatory damage, plus $50,000 in punitive damges against Montgomery.

On the issue pertinent to this appeal, The Living Room appealed the court’s denial of its motion for a directed verdict. Montgomery did not participate in the appeal.

In a unanimous opinion authored by Judge Fain, and joined by Judge Donovan and Judge Welbaum, the Second District reversed the trial court’s denial of the Living Room’s motion for directed verdict. The court found that the Act precluded the negligence claim raised by Johnson. Specifically, the Act “provides the exclusive cause of action against a liquor permit holder for injuries sustained as a result of the negligent conduct of a person who becomes intoxicated by alcohol furnished by the permit holder.”

Votes to Accept the Case

Yes: Justices O’Donnell, O’Neill, Pfeifer, and Lanzinger.

No: Chief Justice O’Connor, and Justices Kennedy and French.

Key Statutes and Precedent

R.C. 4399.18 (Ohio’s Dram Shop Act) (Liability for acts of intoxicated person)

A person has a cause of action against a permit holder…for personal injury… caused by the negligent actions of an intoxicated person occurring off the premises… only when both of the following can be shown by a preponderance of the evidence:

(A)(1) (the permit holder or an employee of the establishment “knowingly sold an intoxicating beverage” to a “noticeably intoxicated person.”)

(B) The person’s intoxication proximately caused the personal injury, death, or property damage.

Siegel v Jozac Corp., No. 78465, 2001 Ohio App. Lexis 3306 (8th Dist.) (Allowed alternative theory of liability in workers’ compensation context when a server, who was encouraged to drink with patrons, was injured in a motor vehicle accident. Held that employer cannot profit from worker drinking on the job and then turn a blind eye to resulting harms.)

Mason v. Roberts, 33 Ohio St.2d 29 (1973) (At common law, it was the drinking, not the serving of alcohol that was deemed to constitute the proximate cause of the harm done to a  third party. Case syllabus held that the Dram Shop Act does not provide the exclusive remedy against a liquor permit holder to recover damages for the death of a bar patron, and that generally such a claim is a question of fact for the jury. Superseded by amended statute.)

Settlemyer v. Wilmington Veterans Post No. 49, Am. Legion, Inc., 11 Ohio St.3d 123 (1984) (A non-commercial alcohol provider (i.e. a social-host) will not be the “veritable insurer of the alcohol recipient’s misdeeds.”)

Smith v. 10th Inning, Inc., 49 Ohio St.3d 289, 292 (1990) (Innocent third parties hold greater rights of recovery.)

Bresnick v. Beulah Park Ltd. Ptnrshp., Inc., 1993-Ohio-19 (Statutes do not automatically abrogate the common law. In order to do so, the language of the law must expressly state that it supersedes the common law.)

State ex rel. Toledo Edison Co. v. City of Clyde, 76 Ohio St.3d 508, 513-514 (1996) (When interpreting a statute, courts may consider many factors including, “the consequences of a particular construction. . . and the public policy that induced the statute’s enactment.”)

Klever v. Canton Sachsenheim, Inc., 86 Ohio St.3d 419 (1999) (Ohio historically refused to recognize claims against tavern owners for any injuries caused by their intoxicated patrons. Ohio’s Dram Shop Act embodies that general common law rule.)

Houston, Inc. v. Love, 92 S.W.3d 450, 452 (Tex. 2002) (Similar case regarding a dancer becoming intoxicated per the business plan. In these circumstances, dram shop laws do “not bar all common-law liability for any conduct by a seller toward its employee or independent contractor whenever alcohol is involved.”)

Bishop v. Carpenters Local Union No. 126, 2008-Ohio-2846, ¶ 22 (1st Dist.) (“[A]n action under R.C. 4399.18 is the sole remedy against a permit holder for the actions of an intoxicated person.”)

Johnson’s Argument

The Court should not extend the Dram Shop Act beyond its intended purpose. The Second District misconstrued the Act in reaching its decision. More importantly, its ruling was not supported by the language of the statute or the historical background underlying dram shop acts. The law was enacted to protect permit-holders from liability from patrons to whom alcohol was sold, not to prevent recovery when an innocent third party is injured by a worker, especially where, as here, worker drinking was encouraged to facilitate the permit-holder’s business plan. The Act should not even be applied in a permit-holder/worker context.

The Act was predicated on the common-law tort problem of proving proximate cause against a permit-holder who sold alcohol to a patron. There is no causation problem in the employer-worker relationship present in this case. Unlike a patron, the Living Room had control over Montgomery, knew about the dangerous situation it created, and profited from this conduct.

Siegel is the perfect example of courts allowing recovery when an employer encouraged, induced, and profited from alcohol consumption. Granted, since this involved a claimant who was a worker, this case only focused on the worker’s compensation claim (the Act was not discussed). However, Siegel did establish that alternative theories of liability can be raised when a permit-holder creates a dangerous situation and then attempts to avoid the consequences.

Holding the Living Room liable would not impact social-host liability. This case does not concern a “neutral provider.” This permit-holder was not only aware of the drinking, its business was dependent on it. And yet, no precautions or safety measures were ever taken by the Living Room or Ferrero.

Several other jurisdictions have adopted a similar stance, all of which are consistent with public policy in rejecting a total bar for negligence claims under dram shop laws. The harm caused by drunk driving needs to be discouraged. Permit-holders who encourage and profit from their workers drinking without providing a safe way home should be held accountable.

The Living Room’s interpretation arguments are not supported by the law or the facts of this case. Alternative theories of liability are permissible; therefore, the Act cannot be the sole remedy. The worker-patron distinction, which places this case outside of the reach of the Act, cannot be ignored. This is why the Court should reverse the Second District, and refuse to shield permit-holders who profit by encouraging its workers to consume alcohol, “while turning a ‘blind eye’ to the harms that their business model” created.

The Living Room’s Argument

The Second District’s decision to enforce a clear and unambiguous law should be affirmed. The language of the Act clearly limits liability of permit holders to situations where they have (i) continued to serve alcohol to an intoxicated person, or (ii) served alcohol to an underaged drinker. Neither applies to this case. Therefore, since the Act is the exclusive remedy for injured third parties, other claims are precluded.

Johnson’s attempts to circumvent this limitation by framing the Act as only applying to “patrons” is incorrect. The Act established a uniform standard, and the language of “person” reflects that. Johnson’s arguments ignore both the statute’s unambiguous terms and the court’s prior precedent. The uniform duty created by the Act applies to all persons, regardless of whether or not there is a relationship other than patron with the tortfeasor and the permit holder.

Furthermore, it is improper to try to “interpret” around the language of the Act. Policy and other factors under R.C. 1.49 may only be considered upon a finding of ambiguity. A “person” encompasses both worker and patron. Mere encouragement to purchase (or consume) alcohol does not blur this categorization, especially since Montgomery’s employment was not contingent upon drinking alcohol. She testified that her decision to drink with customers was strictly voluntary. Further, there was no record evidence that Montgomery was sold or furnished alcohol while visibly intoxicated.

Siegel is inapposite here. It is an unreported case that does not mention the Act, and only concerns a worker’s compensation claim. The cases from other jurisdictions cited by Johnson are also distinguishable. Their dram shop laws are not the same as Ohio’s.

Finding for Johnson would also have problematic implications beyond the confines of this case. Expanding liability would call into question Ohio’s standing law regarding social-host liability, and the requirement for “actual knowledge” of intoxication. Instead the Second District should be affirmed. This ruling would be consistent with the language of the statute.

Johnson’s Proposed Proposition of Law

An innocent third party may rely on traditional common-law negligence principles to impose liability on a liquor-permit holder, and is not limited to the Dram Shop Act, when the intoxicated person who harms the innocent third party is not a patron of the liquor-permit holder, but rather a worker who consumes alcohol as a normal part of his or her job responsibilities at the liquor-permit holder’s establishment with the permission or encouragement of the permit holder and for the permit holder’s economic benefit.

The Living Room’s Proposed Counter Proposition of Law

Ohio’s Dram Shop Act, R.C. 4399.18, provides the exclusive remedy against a liquor permit holder for injuries occurring off the permit holder’s premises as a result of the negligent acts of an intoxicated person to the exclusion of all other common-law negligence claims.

Amici in Support of Johnson

Ohio’s chapter of Mothers Against Drunk Driving (“MADD”) filed an amicus brief on behalf of Johnson. MADD argued against transforming the Act into a shield to liability. The Living Room should not be able to profit from liquor and sex, and then insulate itself from the consequences of its conduct. This “outrageously irresponsible business practice” needs to be deterred. It also focused on the rationale of protecting the public discussed in Mason, which concerned Ohio’s prior iteration of the Act.  MADD urges the court to reverse the Second District.

The State of Ohio also filed an amicus brief on behalf of Johnson. The State argued that the Act only preempted certain claims; however, traditional common-law torts are still available as a remedy. The negligence here had nothing to do with selling alcohol to patrons. The negligence was the enabling and encouraging of drinking while working. When an employer’s business model is to encourage its workers to drink and a harm occurs because of this consumption, then the Act does not preclude liability.

Also, the Act has a narrow scope. It is limited to situations involving the “sale” of alcohol, and law is silent on the negligence asserted by Johnson. The title of the Act, which explains it covers “negligence in selling to a patron” also supports this interpretation. Reversing the Second District would respect the precedent of Ohio and would not affect social-host liability or other unrelated claims. Therefore, this Court should find that the Act “does not cloak the Thirty-Eight Thirty operator with immunity from its negligence.”

The state offers this proposed proposition of law:

Ohio’s Dram Shop Act, R.C. 4399.18, does not preempt common-law negligence suits against liquor-license holders relating to the impairment of their employees or contractors whose on-the-job acceptance of drinks is integral to the licensee’s operations.

The Ohio Association for Justice (“OAJ”), filed an amicus brief on behalf of Johnson. The immunity created by the Act was only meant to protect permit-holders when they responsibly sold alcohol. A permit is not and should not be characterized as “a license to engage in negligent conduct with impunity.” The Living Room, like all individuals or corporate entities, is obligated to avoid foreseeable harm. Broadly interpreting the Act as the Second District did, ignores this basic duty as well as the primary directive – public safety. Therefore, this Court should not expand the Act. Instead it should hold that permit holders, under a traditional negligence claim, do have a duty to take reasonable precautions when their business practices create a foreseeable risk of harm.

Student Contributor: Jefferson Kisor

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