Secrest v. Gibbs , 2015 Ohio 42 ( 2015 )

[Cite as Secrest v. Gibbs, 2015-Ohio-42.]
IN THE COURT OF APPEALS
ELEVENTH APPELLATE DISTRICT
LAKE COUNTY, OHIO
DEAN SECREST, et al., : OPINION
Plaintiffs-Appellants, :
CASE NO. 2014-L-004
- vs - :
ROBERT GIBBS, et al., :
Defendants-Appellees. :
Civil Appeal from the Lake County Court of Common Pleas, Case No. 12 CV 002676.
Judgment: Affirmed.
David S. Brown and Robert B. Weltman, Weltman, Weinberg & Reis Co., L.P.A., 323
West Lakeside Avenue, Suite 200, Cleveland, OH 44113-1099 (For Plaintiffs-
Appellants).
Donald A. Richer, 270 Main Street, #160, P.O. Box 1575, Painesville, OH 44077-1575
(For Defendants-Appellees).
CYNTHIA WESTCOTT RICE, J.
{¶1} Appellants, Dean and Diane Secrest (“Secrests”), appeal from the
judgment of the Lake County Court of Common Pleas, entering summary judgment in
favor of appellees, Robert Gibbs, 270 Main Street, Inc., Morgan Brice, Ltd., and Estarr,
Inc. For the reasons discussed in this opinion, we affirm.
{¶2} In August 2002, in Case No. 99 CV 001635, the Secrests obtained a jury
verdict in the amount of $235,000 against Robert Gibbs and two of his companies,
Hazelwood Builders, Inc., and R.E.G., Inc. In May 2003, the Secrests were awarded
$25,000 in attorney fees. They filed a certificate of judgment lien in Lake County,
thereby successfully encumbering any property owned by Mr. Gibbs, Hazelwood
Builders, Inc., or R.E.G., Inc. Mr. Gibbs and his corporations appealed the verdict as
well as the award of attorney fees and, in Secrest v. Gibbs, 11th Dist. Lake No. 2003-L-
083, 2005-Ohio-2074, this court affirmed the trial court on all issues raised.
Notwithstanding the Secrests’ success, neither Mr. Gibbs, nor Hazelwood Builders, Inc.,
nor R.E.G., Inc. has ever satisfied the judgment.
{¶3} In January 2004, 270 Main Street, Inc., filed a foreclosure action against
Hazelwood Builders, Inc. and the Secrests in Case No. 04 CF 000189.1 The property
upon which the foreclosure was premised was real estate at 10447 Johnnycake Ridge
Road that was owned by Hazelwood.
{¶4} The Secrests filed a counterclaim, cross-claim, and third-party complaint
in the foreclosure. In December 2004, the property was sold to 270 Main Street, Inc. for
$160,000 which, in turn, assigned its bid to Morgan Brice, Ltd. Upon 270 Main Street’s
motion, the counterclaim, cross-claim, and third-party complaint were severed from the
foreclosure action; the record indicates, however, the matters at issue in the
counterclaim, cross-claim, and third-party complaint remain unresolved.
{¶5} After the foreclosure, Hazelwood Builders, Inc. was left without assets to
pay the Secrests’ 2002 judgment. And, in November 2008, Robert Gibbs was deposed
in aid of execution. Mr. Gibbs testified he was not employed by 270 Main Street, Inc.,
Morgan Brice, Ltd., or Estarr, Inc.,; that he did not receive any income from these
1. The Secrests were included in the foreclosure as parties who may have an interest in the property at
issue. Their ostensible interest was a permanent driveway easement Hazelwood possessed on their
property; events relating to this easement triggered the filing of Case No. 99 CV 001635.
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entities; that he did not control the assets of these entities; and that he did not have
assets sufficient to satisfy the Secrests’ judgment.
{¶6} On October 4, 2012, the Secrests filed the underlying complaint for
declaratory judgment, attempting to obtain post-judgment relief. The complaint listed
numerous real estate properties owned by 270 Main Street, Inc., Morgan Brice, Ltd.,
and Estarr, Inc., and documented transfers of these properties among the various
appellees by quit claim and other deeds.
{¶7} In the complaint, the Secrests sought a declaration that 270 Main Street,
Inc., Morgan Brice, Ltd., and Estarr, Inc., are alter egos of Mr. Gibbs, and thus
requested that any asset owned by these entities be declared an asset of Mr. Gibbs; the
Secrests also sought to pierce the corporate veil and alleged a claim for successor
liability. The Secrests sought judgment in the amount of $447,501.25, together with
interest from July 24, 2012, at the rate of 10 per cent per annum on the principal sum of
$235,000. The Secrests further sought an order “acknowledging the fraud” perpetrated
upon them by Mr. Gibbs and an order from the court instructing the Lake County Clerk
of Courts and Lake County Recorder to acknowledge a legal or equitable lien on the
real estate set forth in the complaint; finally, the Secrests sought the appointment of a
receiver to take possession of Mr. Gibb’s interests in the corporate defendants as well
as the real estate listed in the complaint. The complaint did not specifically allege fraud
or fraudulent conveyance as a cause or causes of action.
{¶8} In August 2013, Evelyn L. Gibbs, wife of Mr. Gibbs, was deposed. Mrs.
Gibbs testified she is the sole owner and shareholder of 270 Main Street, Inc., Morgan
Brice, Ltd., and Estarr, Inc. She asserted Mr. Gibbs worked for her and she provided for
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all his needs and expenses. She maintained, however, Mr. Gibbs was not her
employee and was not an employee for any of her companies.
{¶9} Mr. Gibbs was also deposed in August 2013. He testified he resides on
property owned or controlled by his wife, and his wife provides for all of his needs. Mr.
Gibbs confirmed that he has not paid the judgment to the Secrests and will not because
he has no income or assets. He testified, however, he receives monthly social security
checks in the amount of $925 per month. He maintains he has never drawn on this
account because, as of his deposition, there was no need to access these funds.
{¶10} Appellees filed a motion for summary judgment, in which they argued the
Secrests’ claims are barred by the applicable statutes of limitations. They asserted that,
even though the Secrests’ sought declaratory judgment, the essence of the complaint
sounded in fraud. Appellees pointed out that the allegations in the Secrests’ complaint
indicated appellees engaged in fraud or fraudulent transfers. Appellees pointed out that
the Secrests’ exhibits, which were copies of various deeds relating to property transfers,
all implied appellees fraudulently conveyed the subject properties to make them, in
effect, judgment proof. Appellees asserted, however, the statute of limitations for fraud
or fraudulent transfers is four years from the date the fraud could have reasonably been
discovered. To the extent the alleged fraudulent transfers were recorded, appellees
argued the Secrests were charged with knowledge of the transfers on the relevant
dates, the latest of which was 2004. Because the four-year statutory period had
passed, appellees concluded the Secrests were barred from asserting a fraud or
fraudulent transfer claim.
{¶11} Appellees further asserted that the Secrests’ counts asserting alter ego
and piercing the corporate veil must fail because they are merely doctrines permitting
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recovery of damages from a corporation’s shareholders. Hence, absent an underlying
tort or breach of contract claim, such theories set forth no independent cause of action.
Appellees further argued that ownership is an essential factor in determining whether
the doctrines of alter ego or piercing the corporate veil apply. Because Mr. Gibbs is not
an owner of any of the companies, appellees concluded these theories must fail as a
matter of law.
{¶12} Finally, appellees asserted that the defendant corporations cannot be held
successors to the liability of the previous defunct corporations or Mr. Gibbs. Appellees
maintained that there is nothing in the Secrests’ complaint to indicate the defendant-
corporations did anything that could subject them to liability as successors to the
defunct corporations. Thus, appellees concluded the defendant corporations could not
be held liable to the seller corporations’ debts or obligations.
{¶13} The Secrests, in their memorandum in opposition to appellees’ motion for
summary judgment, conceded they did indeed seek to hold Mr. Gibbs and the corporate
defendants liable for fraud or fraudulent transfer; they contended, however, there was
an issue for trial as to when the fraud occurred. To wit, the Secrests alleged there was
a genuine issue of material fact regarding whether Mr. Gibbs, in his November 2008
deposition, fraudulently testified he had no interest in or control over the corporate
defendants. Because they filed their complaint in October 2012, the Secrests
maintained there was a triable issue on whether the statute of limitations barred their
complaint.
{¶14} The Secrests further asserted there were issues of material fact regarding
whether they could hold Mr. Gibbs liable as an alter ego of the defendant companies as
well as whether they could pierce the corporate veils of those companies. In support,
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they maintain the depositions of Mr. and Mrs. Gibbs were replete with examples of how
Mr. Gibbs is the individual who controls the entities on a day-to-day basis. Thus, the
Secrests maintained, the inference could be drawn that the alleged fraud in which Mr.
Gibbs engaged was accomplished to avoid his creditors.
{¶15} On December 11, 2013, the trial court issued an order granting appellees
summary judgment. In its judgment the court concluded appellees’ statute of limitations
argument was persuasive. The court observed:
{¶16} Nowhere in the complaint is there any allegation that Robert Gibbs
committed fraud or perjury during his debtor’s examination on
November 6, 2008. The gravamen of their complaint is that Robert
Gibbs and his wife engaged in a variety of transactions to shield his
assets from his judgment creditors and that these acts occurred in
the 2004 time frame when the only real asset of Hazelwood
Builders, Inc. was sold to an entity controlled by his wife. The
complaint alleged that his other real estate assets were transferred
by quit claim or other deeds to his wife or entitles controlled by his
wife prior to 2004. These actions effectively rendered Robert Gibbs
judgment proof. These transactions occurred well outside the
applicable statute of limitations for this case.
{¶17} The court consequently found there are no genuine issues of material fact
to be litigated because the claims were barred by the applicable statute of limitiations.
{¶18} The court further agreed with appellees that the Secrests’ counts alleging
alter ego and piercing the corporate veil are not substantive claims for relief unto
themselves. The court determined that the Secrests’ attempts to pierce the corporate
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veil and to hold Mr. Gibbs responsible as an alter ego were improper because “they are
means of imposing liability on an underlying cause of action such as a tort or breach of
contract.” The court consequently concluded appellees were entitled to summary
judgment on these counts.
{¶19} The Secrests now appeal and assign four errors for this court’s review.
Their first assignment of error provides:
{¶20} “The trial court committed reversible error by granting summary judgment
based upon the four (4) year statute of limitations for fraud (R.C. 2305.09) and or
fraudulent transfer (R.C. 1336.09), instead of the ten (10) year catch-all statute of
limitations outlined in R.C. 2305.14, which is applicable to actions seeking equitable
relief.”
{¶21} Under this assignment of error, appellants assert, for the first time on
appeal, their complaint for declaratory judgment did not allege a tort for fraud or a claim
for fraudulent conveyance. Instead, appellants contend their complaint sought to attach
Mr. Gibbs’ equitable interests in the assets of the appellee corporations. In particular,
they claim their causes of action were premised upon R.C. 2333.01, which provides:
{¶22} When a judgment debtor does not have sufficient personal or real
property subject to levy on execution to satisfy the judgment, any
equitable interest which he has in real estate as mortgagor,
mortgagee, or otherwise, or any interest he has in a banking,
turnpike, bridge, or other joint-stock company, or in a money
contract, claim, or chose in action, due or to become due to him, or
in a judgment or order, or money, goods, or effects which he has in
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the possession of any person or body politic or corporate, shall be
subject to the payment of the judgment by action.
{¶23} Moreover, R.C. 2305.14 provides:
{¶24} “An action for relief not provided for in sections 2305.04 to 2305.131 and
section 1304.35 of the Revised Code shall be brought within ten years after the cause
thereof accrued. This section does not apply to an action on a judgment rendered in
another state or territory.”
{¶25} Appellants contend that, because their declaratory judgment action was
based solely in equity, the ten-year, catch-all statute of limitations set forth under R.C.
2305.14 governs their cause of action. Thus, they maintain, the trial court erred in
applying the four-year limitations period governing fraud and fraudulent transfers.
{¶26} First, appellants are correct that R.C. 2305.14 is applicable to actions
premised exclusively in equity. See e.g. Biggins v. Garvey, 90 Ohio App. 3d 584, 606
(11th Dist.1993). Appellants’ complaint for declaratory judgment, however, was neither
based solely in equity nor did it seek relief pursuant to R.C. 2333.01. Furthermore,
appellants did not even argue R.C. 2333.01 as a potential basis for avoiding summary
judgment in the memorandum in opposition.
{¶27} Even though appellants maintain on appeal that their complaint was not
premised upon fraud or fraudulent transfer, in their memorandum in opposition, they
appeared to concede that each of their three expressly pleaded counts was premised
upon Mr. Gibbs’ purported fraudulent misrepresentation. In doing so, they conceded
that the four-year statute of limitations period governing fraud was applicable to their
complaint. In order to avoid the time bar, however, they asserted their causes of action
did not accrue until Mr. Gibbs’ November 2008 deposition; the point at which appellants
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alleged that Mr. Gibbs made fraudulent statements about the nature of his role(s) in the
defendant companies. It is therefore clear from appellants’ complaint as well as their
argumentation during summary judgment, that the matter was not premised exclusively
in equity. This, unto itself, is sufficient to place appellants’ cause outside the catch-all
provision set forth under R.C. 2305.14.
{¶28} More problematic, however, is appellants’ failure to raise their current
argument in the lower court. It is well established that “[i]ssues not raised in the lower
court and not there tried and which are completely inconsistent with and contrary to the
theory upon which appellants proceeded below cannot be raised for the first time on
review.” See e.g. Republic Steel Corp. v. Bd. of Revision of Cuyahoga Cty., 175 Ohio
St. 179 (1963), syllabus. Appellants’ position on appeal is not only completely
inconsistent with the position they took during the summary judgment exercise, their
current theory was not even advanced as a cause for relief in their complaint. As a
result, appellants have waived their argument premised upon R.C. 2333.01.
{¶29} Given the manner in which the issues were pleaded and argued below, we
conclude the trial court correctly applied the four-year statute of limitations to appellants’
claims. We therefore hold appellees were entitled to judgment as a matter of law.
{¶30} Appellants’ first assignment of error is without merit.
{¶31} Appellants’ second assignment of error provides:
{¶32} “The trial court committed reversible error by failing to recognize that veil
piercing and alter ego concepts are distinct, and holding that count one of Plaintiffs-
Appellants’ Complaint – the allegation of Alter Ego – was not in itself a claim for
substantive relief.”
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{¶33} Appellants argue the trial court committed reversible error when it
determined its allegation premised upon the alter ego doctrine was not a cognizable
claim for substantive relief.
{¶34} In granting appellees summary judgment on the foregoing issue, the trial
court relied upon an argument advanced by appellees in their motion for summary
judgment; namely, that claims based upon either alter ego or veil piercing are not, in
themselves, claims for substantive relief. In effect, therefore, standing alone, they
create no independent causes of action. Appellees’ argument and the trial court’s
conclusion were supported by both Ohio and Federal case law. See Union Bank Co. v.
Car Mart Auto Group, Inc., 3d Dist. Putnam No. 12-12-06, 2012-Ohio-5944, ¶25; Hodak
v. Madison Cap. Mgmt., LLC, 348 Fed. Appx. 83 (6th Cir.1009).
{¶35} Appellants were on notice of this argument. Appellants, however, did not
attempt to distinguish their alter ego allegation as a separate claim for substantive relief.
Instead, appellants merely noted that piercing the corporate veil is proper under
circumstances where a shareholder is an “alter ego” of the corporation itself.
Consequently, they did not specifically contest appellees’ argument. In their
memorandum in opposition, appellants simply asserted, in a somewhat conclusory
fashion, they properly sought to pierce the corporate veil because, they alleged, the
corporate defendants were used as a means to avoid Mr. Gibbs’ creditors.
{¶36} Similar to their first assignment of error, appellants failed to advance the
position they assert on appeal in the lower court. Their argument is consequently
waived.
{¶37} Even if the argument was not waived, however, the position appellants
took in the trial court serves to defeat their contention on appeal. In their memorandum
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in opposition to appellees’ motion for summary judgment, appellants conceded their
causes of action were premised upon alleged fraudulent misrepresentations made by
Mr. Gibbs during his 2008 deposition. We appreciate that fraud is not an essential
ground for the alter-ego doctrine to apply; in this case, however, appellants admitted it
was the foundation upon which they premised their claims. For this additional reason,
appellants’ position is without merit.
{¶38} Appellants’ second assignment of error lacks merit.
{¶39} Appellants’ third assignment of error provides:
{¶40} “The trial court committed reversible error by granting summary judgment
in favor of Defendants-Appellees without first considering Plaintiffs-Appellants’ claim for
successor liability.”
{¶41} Appellants contend the trial court’s judgment relating to their successor
liability claim should be reversed to the extent it completely failed to address the issue.
We do not agree.
{¶42} In concluding appellants’ claims were time barred by the applicable statute
of limitations for fraud, the trial court underscored its ruling “specifically [applied to]
count three.” Count three was appellants’ successor liability claim.
{¶43} The Ohio Supreme Court has observed that a successor corporation may
be held liable when “(1) the buyer corporation expressly or impliedly agrees to assume
such liability; (2) the transaction amounts to a de facto consolidation or merger; (3) the
buyer corporation is merely a continuation of the seller corporation; or (4) the
transaction is entered into fraudulently for the purpose of escaping liability” Welco
Indus., Inc. v. Applied Cos., 67 Ohio St. 3d 344, 347 (1993).
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{¶44} The fourth circumstance upon which a successor liability claim may be
premised is a fraudulent act and therefore presupposes a claimant has a viable claim
for fraud. Although appellants argued in the trial court they had sufficient evidence of
fraud that had occurred in Mr. Gibbs’ 2008 deposition, the trial court found that
appellants’ complaint failed to allege this act as a basis for their claims; instead, the
court determined that the only alleged fraud that had been impliedly pleaded consisted
of the various transfers of real estate from defunct companies to the corporate
defendants. And the last transfer occurred in 2004. Because of this, the court found
appellants’ allegations premised upon fraud were time-barred. As any fraud claim
alleged in the complaint was barred by the four-year statute of limitations, appellants
had no viable fraud claim upon which they might premise their successor liability claim.
{¶45} It also bears noting that appellants failed to contest appellees’ motion for
summary judgment on the successor liability claim in their memorandum in opposition.
Even though the Welco test sets forth a disjunctive test in which four separate
circumstances would permit a claim for successor liability, appellants, whether
intentionally or by oversight, did not positively argue any circumstance applied. The trial
court, in entering summary judgment in appellees’ favor, apparently construed
appellants’ memorandum in opposition to tacitly argue the fourth circumstance. It did
so, most likely, because appellants were entitled to have the facts and evidence
construed in its favor. Where, however, a party offers no opposition and alleges no
specific facts or evidentiary materials that could be construed in its favor, it does so to
its peril.
{¶46} We acknowledge that appellants’ complaint asserted the corporations at
issue were essentially continuations of the seller corporation; Civ.R. 56(E) nevertheless
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makes it clear that a non-moving “party may not rest upon the mere allegations or
denials of the party’s pleadings, but the party’s response, by affidavit or as otherwise
provided in this rule, must set forth specific facts showing that there is a genuine issue
for trial. If the party does not so respond, summary judgment, if appropriate, shall be
entered against the party.” Where, as here, the party has failed to make any argument
or provide any evidentiary material to overcome a motion for summary judgment, that
party has, in effect, conceded the issue to the movant. For the foregoing reasons, the
trial court did not err in granting appellees summary judgment on appellants’ claim for
successor liability.
{¶47} Appellants’ third assignment of error lacks merit.
{¶48} For their fourth assignment of error, appellants assert:
{¶49} “The trial court committed reversible error by choosing to grant summary
judgment instead of consolidating Case No. 12 CV 002676 with Case No. 04 CF
000189.”
{¶50} In the instant matter, appellees filed two motions to dismiss, arguing the
underlying complaint should be dismissed because appellants had related claims
pending in Lake County Court of Common Pleas, Case No. 04 CF 000189. In both
instances, appellants opposed the motion and requested the court to either deny the
motions or consolidate this matter with Case No. 04 CF 000189. The trial court elected
to deny the motions to dismiss.
{¶51} Appellants assert the trial court abused its discretion by refusing to
consolidate the underlying matter with Case No. 04 CF 000189. Appellants, however,
failed to affirmatively move the court to do so. Appellants, in their response to
appellees’ arguments to dismiss, asked the court to either deny the motions or
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consolidate the cases. In denying the motions to dismiss, the court did not refuse to
consolidate as much as it determined the motions to dismiss lacked merit. Appellants
did not independently move to consolidate the matters and, as a result, there was no
decision by the court denying consolidation.
{¶52} Appellants’ final assignment of error lacks merit.
{¶53} For the reasons discussed in this opinion, the judgment of the Lake
County Court of Common Pleas is affirmed.
COLLEEN MARY O’TOOLE, J., concurs,
DIANE V. GRENDELL, J., concurs in part and dissents in part, with a Dissenting
Opinion.
______________________
DIANE V. GRENDELL, J., concurs in part and dissents in part, with a Dissenting
Opinion.
{¶54} The majority affirms the decision of the lower court by construing all the
Secrests’ claims as claims for fraud and, consequently, time-barred under the four-year
statute of limitations for fraud. A fair appraisal of the Secrests’ Complaint demonstrates
that it raises valid claims of alter ego and successor liability irrespective of the allegedly
fraudulent underlying transfers. While I concur in the dismissal of the Secrests’ claim
for piercing the corporate veil, I dissent and would reverse the judgment of the lower
court with respect to their claims of alter ego and successor corporation liability.
{¶55} The Secrests’ Complaint sought, inter alia, “declaratory judgment which
confirms that the Defendant corporations, 270 Main Street, Inc., Estarr Inc., and Morgan
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Brice, Ltd., are the alter egos of the Defendant, Robert Gibbs, and successors to
previous entities owned and operated by the Defendant, Robert Gibbs * * *.”
{¶56} The defendants moved for summary judgment, in relevant part, based on
the argument that “the gist of the Complaint actually sounds in fraud,” and the statute of
limitations for fraudulent conveyances had run. R.C. 2305.09.
{¶57} With respect to alter ego liability, the Secrests rely on authority
distinguishing such liability from liability based on piercing the corporate veil: “[V]eil
piercing and alter ego concepts are distinct. The former asks a court to hold A
vicariously liable for B’s debts, while the latter asserts that A and B are the same entity
and therefore liability is direct.” United States v. Parenteau, 976 F. Supp. 2d 978, 979
(S.D.Ohio 2013), quoting Fisher v. Slone, 296 Fed.Appx. 494, 506 (6th Cir.2008).
{¶58} In deciding whether the company is an alter ego of the individual, Ohio
courts consider such factors as:
(1) grossly inadequate capitalization, (2) failure to observe corporate
formalities, (3) insolvency of the debtor corporation at the time the debt is
incurred, (4) shareholders holding themselves out as personally liable for
certain corporate obligations, (5) diversion of funds or other property of the
company property for personal use, (6) absence of corporate records, and
(7) the fact that the corporation was a mere facade for the operations of
the dominant shareholder(s).
Taylor Steel, Inc. v. Keeton, 417 F.3d 598, 605 (6th Cir.2005), citing LeRoux’s Billyle
Supper Club v. Ma, 77 Ohio App. 3d 417, 422-423, 602 N.E.2d 685 (6th Dist.1991).
{¶59} “It has been held that, ‘in applying the “instrumentality” or “alter ego”
doctrine, the courts are concerned with reality and not form, with how the corporation
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operated and the individual defendant’s relationship to that operation[;]’ * * * in certain
instances, courts have looked beyond the issues of ownership interest or title to
determine whom the controlling party really is.” (Citation omitted.) Sanderson Farms,
Inc. v. Gasbarro, 10th Dist. Franklin No. 01AP461, 2004-Ohio-1460, ¶ 36.
{¶60} Significantly for the present case, “[t]hough fraud is a frequent ground for
application of the alter ego doctrine, it is not essential.” Bucyrus-Erie Co. v. Gen. Prods.
Corp., 643 F.2d 413, 419 (6th Cir.1981); Kuempel Serv., Inc. v. Zofko, 109 Ohio App. 3d
591, 597, 672 N.E.2d 1026 (1st Dist.1996).
{¶61} The Secrests allege in their Complaint that “Defendant, Robert Gibbs, is
indistinguishable from, or the ‘alter ego’ of the Defendants, 270 Main, Estarr Inc., and
Morgan Brice.” In opposition to the defendants’ motion for summary judgment, the
Secrests attached deposition testimony suggesting that Robert Gibbs’ interest in these
corporations was indistinguishable from that of his wife, their nominal owner (“really
everything I [wife] did, he [Robert] did”).
{¶62} The majority fails to address this case law, noting, instead, that the
Secrests “did not attempt to distinguish their alter ego allegation as a separate claim for
substantive relief.” Supra at ¶ 35. On the contrary, the Secrests identified their alter
ego theory of liability as a separate count in their Complaint for which they sought a
specific declaration that the defendant corporations are the alter ego of Robert Gibbs.
The defendants did not challenge the substance of the alter ego claim, but, rather,
argued that it should be construed as a fraud claim. Unlike a claim to pierce the
corporate veil so as to hold corporate shareholders liable, alter ego liability does not
require fraud or an identified ownership interest. The issue is not whether assets were
fraudulently transferred to the defendant corporations. It is whether the defendant
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corporations have any existence independent of Robert Gibbs and, if not, whether it
would be inequitable to exempt the assets of those corporations from attachment by his
creditors.
{¶63} The Secrests cannot be faulted for not developing their alter ego argument
more fully where summary judgment was not sought based on the merits of that claim.
{¶64} With respect to the Secrests’ successor liability claim, the majority cites
the lead Ohio Supreme Court case for the proposition that a successor corporation may
be held liable where “(1) the buyer expressly or impliedly agrees to assume such
liability; (2) the transaction amounts to a de facto consolidation or merger; (3) the buyer
corporation is merely a continuation of the seller corporation; or (4) the transaction is
entered into fraudulently for the purpose of escaping liability.” (Citation omitted.) Welco
Indus., Inc. v. Applied Cos., 67 Ohio St. 3d 344, 347, 617 N.E.2d 1129 (1993).
{¶65} Contrary to the allegations in the Complaint, the majority maintains that
the Secrests “did not positively argue any circumstance [for successor corporation
liability] applied.” Supra at ¶ 45. Rather, count three of the Secrests’ Complaint
alleging successor liability is not based on fraud, but on the claim that the initial and
successor corporations were alter egos of defendant, Robert Gibbs, i.e., that the buyer
corporation was merely a continuation of the seller corporation.
{¶66} The majority affirms the dismissal of the Secrests’ entire Complaint on the
grounds that the four-year statute of limitations for fraud had expired, despite the
existence in the Complaint of claims for alter ego and successor liability not based on
fraud. Yet, the majority repeatedly asserts that the Secrests “admitted [fraud] was the
foundation upon which they premised their claims” based on their response to the
defendants’ motion for summary judgment. Supra at ¶ 37.
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{¶67} The majority errs by imputing to the Secrests’ opposition to summary
judgment a definitive statement of their claims, even in derogation of claims expressly
raised in the Complaint. In a summary judgment exercise, “the moving party bears the
initial responsibility of informing the trial court of the basis for the motion.” Dresher v.
Burt, 75 Ohio St. 3d 280, 292, 662 N.E.2d 264 (1996). In the present case, the
defendants did not challenge the substantive allegations in the Complaint, but based
their motion on the affirmative defense of the statute of limitations. To the extent that
the Secrests’ allegations were based on fraud, they would have been properly
dismissed. Dismissal on limitations grounds is “not on the merits in the sense that the
underlying substantive claim has been adjudicated,” and “is in no way dependent on nor
reflective of the merits—or lack thereof—in the underlying action.” (Citations omitted.)
Friel v. Swartz, 10th Dist. Franklin No. 11AP-277, 2012-Ohio-2405, ¶ 17. Since the
substance of Secrests’ alter ego and successor liability claims was not challenged in the
motion for summary judgment, there was nothing for the Secrests to overcome with
respect to these claims in their opposition to summary judgment.
{¶68} In sum, the defendants’ position that all the Secrests’ claims were based
on fraud is contradicted by the face of the Complaint. The burden of producing
evidence did not shift to the Secrests with respect to their alter ego and successor
liability claims.
{¶69} With respect to the Secrests’ claim for piercing the corporate veil, I concur
that summary judgment was properly entered in that the defendants introduced
uncontroverted evidence that Robert Gibbs had no ownership interest in the defendant
corporations. Minno v. Pro-Fab, Inc., 121 Ohio St. 3d 464, 2009-Ohio-1247, 905 N.E.2d
613, syllabus.
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{¶70} For the foregoing reasons, I would reverse the grant of summary judgment
with respect to the Secrests’ claims of alter ego and successor corporation liability and
respectfully dissent.
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