Gordon v. Erie Islands Resort & Marina , 2014 Ohio 4970 ( 2014 )

[Cite as Gordon v. Erie Islands Resort & Marina, 2014-Ohio-4970.]
IN THE COURT OF APPEALS OF OHIO
SIXTH APPELLATE DISTRICT
OTTAWA COUNTY
Carl R. Gordon, et al. Court of Appeals No. OT-13-040
Appellees Trial Court No. 10-CV-271H
v.
Erie Islands Resort & Marina, et al. DECISION AND JUDGMENT
Appellants Decided: November 7, 2014
*****
D. Jeffery Rengel and Thomas R. Lucas, for appellees.
John A. Coppeler and Bryan M. Ridder, for appellants.
*****
JENSEN, J.
{¶ 1} Defendants-appellants, Erie Islands Resort & Marina, Erie Islands Resort &
Marina, Inc., and Erie Islands Holding Company (collectively “appellants”), appeal the
November 21, 2013 judgment of the Ottawa County Court of Common Pleas granting the
motion of plaintiffs-appellees, Carl and Gerri Gordon (“appellees”), for class
certification.1 For the reasons that follow, we reverse the decision of the trial court and
remand for further proceedings.
I. Background
{¶ 2} Erie Islands Resort & Marina is a collection of cottages, campground sites,
recreational facilities, and a marina located in Port Clinton, Ohio. On August 25, 1989,
appellees purchased an undivided 1/15,000 fee simple ownership interest as tenants-in-
common for $10,200. They made a cash payment of $1,020 and financed the remaining
$9,180 with appellants over 120 months at a rate of 15 percent interest per annum.
Appellees executed a promissory note and purchase money mortgage in favor of Erie
Islands Resort & Marina.
{¶ 3} Appellees’ ownership classification, designated as “A-1 Harbor Admiral,”
entitled them to use the marina and “to reserve and occupy a Campsite or a Cottage on a
first-come, first-served, space available basis, and to use the recreational and common
facilities within ‘Erie Island Resort & Marina,’” for up to 14 consecutive days, with
additional days allowed after a seven-day waiting period, in accordance with and subject
to appellants’ rules and regulations and the provisions of its declaration. Appellees were
1
Katherine Walderzak, the plaintiff in Walderzak v. Erie Islands Resort & Marina,
Ottawa C.P. No. 11-CV-606H, moved on December 10, 2012, to consolidate her case
with the present action, but it appears that the trial court consolidated the matters for
purposes of a hearing on class certification only, and never ruled on the motion to
consolidate. We, therefore, address this appeal only as it concerns Carl and Gerri Gordon
and the order granting their motion for class certification.
2.
obligated to pay an annual maintenance fee of $192, in addition to use fees for
accommodations.
{¶ 4} According to its literature, the recreational amenities offered by appellants
were intended to include a nine-hole professional golf course, tennis courts, a golf pro
shop, an outdoor swimming pool for the R.V. villages, two tot lot/playgrounds, R.V.
storage, a 300-boat slip marina, year-round boat storage, utilities and hookups at boat
docks, fuel pumps, a boat rental fleet, a recreation center featuring an indoor/outdoor
heated swimming pool, racquetball courts, a health club with sauna, a jacuzzi, locker
rooms, a universal weight room, a snack bar and eating area, an adult lounge area, a teen
lounge and meeting room, as well as a shopping complex consisting of a restaurant and
lounge, retail shops, and a camping and boating supply store. Some of these amenities
currently exist, and some do not.
{¶ 5} On September 27, 1992, appellees upgraded to a “Priority Gold Membership”
for $2,495. They entered into an “Installment Sales Agreement and Disclosure
Statement,” a “Priority Gold Membership and Special Stipulations Addendum,” and a
“Resale Agreement.” Under these agreements, appellees’ maintenance fee was “frozen”
at $210; appellees were entitled to overnight accommodations for up to 21 consecutive
nights at a time, subject to specified use charges and other restrictions; and they were
approved to participate in appellants’ resale program, under which appellants established a
number of procedures and preconditions as to the price, the creditworthiness of the
prospective buyer, and other conditions of sale.
3.
{¶ 6} On February 18, 1994, appellees entered into a “Priority Gold Modification
Agreement,” and “Priority Gold Option Agreement Exhibit A,” and at that time paid an
additional $495 to appellants. As part of that agreement, they could quitclaim all of their
previously-purchased rights, titles, and interests to appellants while maintaining
membership rights in “Coast to Coast” and/or RPI, “subject to their rules and
regulations,” and were granted 14 days of usage at appellants’ resort per year, with
reservations allowable up to 45 days in advance. The agreement gave appellants a 20-
year option to purchase appellees’ interest at 85 percent of appellees’ purchase price of
$12,695.
{¶ 7} On March 22, 2003, appellees again upgraded their agreement with
appellants by entering into a “Platinum Club Membership Agreement #4139” at an “A-1
Admiral Membership” level. They paid an additional $4,000 to appellants. Under this
agreement, maintenance fees and special assessments were waived permanently.
Appellees’ benefits remained substantially the same, but some priority reservations and
usage discounts were added. Appellants imposed a number of transfer limitations.
{¶ 8} Appellants’ rules and regulations are set forth in the resort’s declaration,
which is filed with the county recorder’s office. The declaration permits appellants to
modify the rules and regulations unilaterally and it provides that the declaration, too, can
be modified either by a vote of two-thirds of the members or unilaterally by appellants,
unless three-fourths of the membership votes to repeal any such amendment. Appellants
4.
first filed declarations in 1988. They have since amended the declarations approximately
six times between 1988 and 2011.
{¶ 9} On April 9, 2010, appellees filed a 19-count complaint alleging various
claims of fraud, breach of contract, breach of fiduciary duty, and violations of the Ohio
Consumer Sales Practices (“CSPA”) and the Ohio Retail Installment Sales Acts
(“RISA”). To briefly summarize, appellees’ complaint alleged that appellants failed to
provide all of the amenities that it represented would be available; sold more
memberships than the resort could reasonably accommodate; charged various
assessments and maintenance fees despite those fees having been “frozen” or waived;
disguised fees and assessments to circumvent agreements providing for “frozen” or
waived maintenance fees and assessments; charged fees that had no relationship to the
true operational expenses of the resort; unreasonably amended the rules governing use of
the resort facilities; imposed unfair procedures and preconditions upon the members’
ability to transfer their membership in the resort; misrepresented the status of the resale
market; sold “upgrades” that did not offer any additional appreciable rights; breached
their duties and implied warranties of good faith and fair dealing and other fiduciary
duties; engaged in a systematic, predatory scheme of selling illegal timeshares and
memberships; and violated a number of specific statutes and regulations in their method
of selling and financing interests in the resort.
{¶ 10} Since its formation, appellants have sold approximately 10,000 interests
and 5,000 upgrades. In their complaint, appellees sought class certification under Civ.R.
5.
23 and sought to serve as class representatives. They ultimately argued that six classes
should be certified:
Class 1. All Purchasers of the Undivided Ownership Interests from
Defendant Erie Islands Resort and Marina, an Ohio general partnership,
(“Erie Islands”).
Class 2. Purchasers of Undivided Ownership Interests from
Defendant Erie Islands Resort and Marina, an Ohio general partnership,
(“Erie Islands”) who were charged or paid an expense reimbursement fee or
assessment by Erie Islands after purchase where the expense reimbursement
fee or assessment was collectively in excess of true operational expenses of
the Resort.
Class 3. “Platinum Club” Purchasers of Undivided Ownership
Interests from Defendant Erie Islands Resort and Marina, an Ohio general
partnership, (“Erie Islands”) who were charged or paid an expense
reimbursement fee or assessment by Erie Islands after purchase.
Class 4. “Gold Club” Purchasers of Undivided Ownership Interests
from Defendant Erie Islands Resort and Marina, an Ohio general
partnership, (“Erie Islands”) who were charged or paid an expense
reimbursement fee or assessment by Erie Islands after purchase in excess of
their agreed set or frozen annual expense reimbursement fee or assessment.
6.
Class 5. Purchasers of Undivided Ownership Interests from
Defendant Erie Islands Resort and Marina, an Ohio general partnership,
(“Erie Islands”) who made payments to Erie Islands for an “Ad Valorem
Tax” or “VAT” tax.
Class 6. Purchasers of Priority Gold Modification Agreements, with
or without purchase of the related Option Agreement.
{¶ 11} Appellants opposed class certification. They contended that each of the
potential 10,000 class members would need to be examined to resolve the various fraud
claims to determine what was represented to each of them, whether they relied on those
representations, and whether they suffered damages. As to damages, appellants argued
that any alleged damages claims would be individualized and, in essence, mini-trials
would have to be conducted for each class member. Appellants also contended that
because appellees’ interests were purchased in 1989, 1992, 1994, and 2003, and because
the CSPA and RISA have two-year statutes of limitations, fraud and breach of fiduciary
duty have four-year statutes, and breach of written contract has a 15-year statute, virtually
all of appellees’ claims are time-barred. They claimed that this defense created a conflict
between appellees and potential class members and rendered appellees unable to
represent the class. Finally, appellants argued that this court has determined that the
CSPA is inapplicable to appellees’ claims because they concern the purchase of an
undivided interest in real property. They insisted that these defenses made it impossible
for appellees to satisfy Civ.R. 23(A)(1), (4), and (5).
7.
{¶ 12} The trial court conducted a hearing on appellees’ request for class
certification on January 4, 2013. Thereafter, the parties submitted proposed findings of
fact and conclusions of law. The court issued its decision on November 21, 2013. In a
two-paragraph decision, it granted appellees’ motion and certified the classes identified
by appellees.
{¶ 13} Without elaborating as to the facts supporting each factor, the trial court
found that the classes are so numerous that joinder of all members is impracticable; there
are questions of law or fact common to the classes; the claims or defenses of the
representative parties are typical of the claims or defenses of the classes; the
representative parties will fairly and adequately protect the interests of the classes; the
classes are identifiable; and the class definitions are unambiguous. The court found the
provisions of Civ. R. 23(B)(1)(a) and (b) applicable, and it found that questions of law or
fact common to the members of the classes predominate over any questions affecting
only individual members and that a class action is superior to other available methods for
the fair and efficient adjudication of the controversy.
{¶ 14} It is from that decision that appellants filed this appeal. In its single
assignment of error, appellants contend that “[t]he trial court erred in certifying this
matter as a class action.” They identify the following issues for our review:
1. The trial court erred and abused its discretion in finding that an
identifiable class does exist and that the proposed class definition is
unambiguous.
8.
2. The trial court erred and abused its discretion in finding that there
are sufficient questions of law or fact common to the class and that there is
commonality between Appellees and the Class.
3. The trial court erred and abused its discretion in finding that the
claims of Appellees are typical of the claims of the class.
4. The trial court erred and abused its discretion in finding that the
Appellees fairly and adequately protect the interest of the proposed class.
5. The trial court erred and abused its discretion in finding that
Appellees met the requirements of Civ.R. 23(B).
II. Standard of Review
{¶ 15} A trial court has broad discretion in determining whether a class action may
be maintained and we will not disturb its determination absent an abuse of discretion.
Cullen v. State Farm Mut. Auto. Ins. Co., 137 Ohio St. 3d 373, 2013-Ohio-4733, 999
N.E.2d 614, ¶ 19. A trial court abuses its discretion when its decision is “unreasonable,
arbitrary, or unconscionable.” Id., quoting Wilson v. Brush Wellman, Inc., 103 Ohio
St.3d 538, 2004-Ohio-5847, 817 N.E.2d 59, ¶ 30. This standard applies to both the trial
court’s ultimate decision and as to its determination regarding each requirement of the
rule. Id.
9.
III. Analysis
{¶ 16} As the Ohio Supreme Court recently discussed in Cullen v. State Farm
Mut. Auto. Ins. Co., 137 Ohio St. 3d 373, 2013-Ohio-4733, 999 N.E.2d 614, ¶ 12, Civ.R.
23 sets forth seven requirements for maintaining a class action:
(1) an identifiable class must exist and the definition of the class must be
unambiguous; (2) the named representatives must be members of the class;
(3) the class must be so numerous that joinder of all members is
impracticable; (4) there must be questions of law or fact common to the
class; (5) the claims or defenses of the representative parties must be typical
of the claims or defenses of the class; (6) the representative parties must
fairly and adequately protect the interests of the class; and (7) one of the
three Civ.R. 23(B) requirements must be met.
{¶ 17} A party seeking class certification bears the burden of demonstrating each
of these requirements by a preponderance of the evidence. Id. at ¶ 15. In considering
whether to certify a class, a trial court must conduct a rigorous analysis to determine that
each requirement is satisfied. Id. at ¶ 16. In performing this analysis, the court must
resolve factual disputes relative to each requirement and find, “based upon those
determinations, other relevant facts, and the applicable legal standard, that the
requirement is met.” Id. Should a factual dispute concerning a Civ.R. 23 requirement
overlap with a merit issue, the trial court may examine the underlying merits of the claim
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to the extent necessary to determine whether the requirement of the rule is satisfied. Id.
at ¶ 17.
{¶ 18} In its appeal, appellants claim that the trial court erred in granting
appellees’ motion for class certification because there exists no identifiable class, the
proposed class definition is ambiguous, there are not sufficient questions of law or fact
common to the class, there is no commonality between appellees and the class, typicality
is lacking, appellees do not fairly and adequately protect the interests of the proposed
class, and the Civ.R. 23(B) requirements have not been established. The trial court’s
judgment does not analyze these requirements—it merely states that each requirement
was met.
{¶ 19} In Hamilton v. Ohio Sav. Bank, 82 Ohio St. 3d 67, 71, 694 N.E.2d 442
(1998), the Supreme Court of Ohio discussed the importance of the trial court explaining
its reasons for finding that each Civ.R. 23 prerequisite was either satisfied or not
satisfied. It discussed the difficulty in applying the abuse-of-discretion standard to Civ.
R. 23 determinations where the trial court has failed to articulate the rationale for its
decision. It explained:
While there is no explicit requirement in Civ.R. 23 that the trial
court make formal findings to support its decision on a motion for class
certification, there are compelling policy reasons for doing so. Aside from
the obvious practical importance, articulation of the reasons for the decision
tends to provide a firm basis upon which an appellate court can determine
11.
that the trial court exercised its discretion within the framework of Civ.R.
23, and discourages reversal on the ground that the appellate judges might
have decided differently had they been the original decisionmakers. On the
other hand, the failure to provide an articulated rationale greatly hampers an
appellate inquiry into whether the relevant Civ.R. 23 factors were properly
applied by the trial court and given appropriate weight, and such an
unarticulated decision is less likely to convince the reviewing court that the
ruling was consistent with the sound exercise of discretion. (Citations
omitted.) Id. at 70-71.
The court, therefore, suggested that “in determining the propriety of class certification
under Civ.R 23, trial courts make separate written findings as to each of the seven class
action requirements, and specify their reasoning as to each finding.”
{¶ 20} We encountered this issue in reviewing an order granting class certification
in Miller v. Volkswagen of Am., Inc., 6th Dist. Erie No. E-05-005, 2006 WL 4017949
(Apr. 7, 2006). There the trial court issued a seven-word judgment entry stating only that
“Plaintiff’s motion for class certification is granted.” Id. at ¶ 7. We recognized that the
trial court is required to conduct a rigorous analysis into whether the Civ.R. 23
prerequisites have been satisfied. Id. at ¶ 13. We also emphasized that under this
standard, “a trial court is required to address any argument raised in opposition to class
certification; a decision that ignores such an argument is properly reversed.” Id. With
those principles in mind, we reversed the trial court’s judgment and remanded the matter
12.
to the trial court so that it could articulate its reasons for finding that each of the seven
class certification requirements had been satisfied.2
{¶ 21} Other Ohio courts have held similarly. For instance, in Maas v. Penn
Central Corp., 11th Dist. Trumbull No. 2003-T-0123, 2004-Ohio-7233, after discovery, a
hearing, and submission of proposed findings of fact and conclusions of law filed by the
parties, the trial court granted plaintiffs’ motion for class certification. Id. at ¶ 10, 12-14.
Without providing its rationale, the court found that the matter should proceed as a class
action under Civ.R. 23(B)(2) as to some claims, and Civ.R. 23(B)(3) as to others. Id. at
¶ 14. It also defined the class. Id. at ¶ 15. The appellate court observed, however, that
the defendants had raised several issues concerning class certification that were worthy of
consideration that had not been addressed. It explained:
[W]e are unable to conclude, from either the record or the appealed
judgment entry, whether the trial court carefully applied the class action
requirements and conducted a rigorous analysis into whether they were
satisfied. The minimal language of the judgment entry before us precludes
us from determining if the ruling was consistent with the sound exercise of
2
But see Stammco, LLC v. United Tel. Co. of Ohio, 6th Dist. Fulton No. F-07-024, 2008-
Ohio-3845, rev’d on other grounds, Stammco, LLC v. United Tel. Co. of Ohio, 25 Ohio
St.3d 91, 2010-Ohio-1042, 926 N.E.2d 292. In Stammco, we elected to review the merits
of the appeal despite the trial court’s failure to provide separate findings of fact as to each
Civ.R. 23 prerequisite. There, however, the trial court issued a “lengthy and detailed
opinion reviewing relevant facts” and other information pertinent to its decision. Id. at
¶ 27.
13.
discretion. This case presents complicated issues that require a more
detailed analysis that includes the reasons supporting certification.
(Internal citations and quotations omitted.) Id. at ¶ 32.
The court determined that the judgment should be reversed and remanded. See also
Martin v. Grange Mut. Ins. Co., 11th Dist. Geauga Nos. 2002-G-2473, 2002-G-2479,
2003-Ohio-4869, ¶ 32 (reversing and remanding where trial court’s order granting
plaintiffs’ motion to certify merely recited the Civ.R. 23 prerequisites without comment
or explanation); Dunkelman v. Cincinnati Bengals, 170 Ohio App. 3d 224, 2006-Ohio-
6825, 866 N.E.2d 576, ¶ 15 (1st Dist.) (“The trial court’s entry certifying the class * * *
is devoid of any rationale, yet [sic] alone any rigorous analysis, relating to any of the
prerequisites for class certification. Given the inadequacy of the record before us, we
cannot properly review the trial court’s entry granting class certification * * * under an
abuse-of-discretion standard.”).
{¶ 22} Consistent with the Supreme Court’s recommendations in Hamilton, and
the other decisions applying Hamilton, we reverse the trial court’s judgment and remand
the matter so that the trial court can elaborate as to its rationale for reaching its decision,
addressing each Civ.R. 23 prerequisite and addressing appellants’ objections.
{¶ 23} We find appellants’ sole assignment of error well-taken.
14.
IV. Conclusion
{¶ 24} Because we determine that the November 21, 2013 judgment of the Ottawa
County Court of Common Pleas does not provide sufficient detail for us to make an
abuse-of-discretion determination, we reverse and remand for proceedings consistent
with this decision. Pursuant to App.R. 24, the costs of this appeal are assessed to
appellees.
Judgment reversed.
A certified copy of this entry shall constitute the mandate pursuant to App.R. 27.
See also 6th Dist.Loc.App.R. 4.
Mark L. Pietrykowski, J. _______________________________
JUDGE
Thomas J. Osowik, J.
_______________________________
James D. Jensen, J. JUDGE
CONCUR.
_______________________________
JUDGE
This decision is subject to further editing by the Supreme Court of
Ohio’s Reporter of Decisions. Parties interested in viewing the final reported
version are advised to visit the Ohio Supreme Court’s web site at:
http://www.sconet.state.oh.us/rod/newpdf/?source=6.
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