In re Estate of Udell v. Seeley ( 2016 )

[Cite as In re Estate of Udell v. Seeley, 2016-Ohio-6974.]
STATE OF OHIO, MAHONING COUNTY
IN THE COURT OF APPEALS
SEVENTH DISTRICT
IN THE MATTER OF: ) CASE NO. 14 MA 0157
THE ESTATE OF ALAN UDELL, et al. )
)
PLAINTIFFS-APPELLANTS )
)
VS. ) OPINION
)
DONALD R. SEELEY, et al. )
)
DEFENDANTS-APPELLEES )
CHARACTER OF PROCEEDINGS: Civil Appeal from the Court of Common
Pleas of Mahoning County, Ohio
Case No. 2011 CV 00983
JUDGMENT: Affirmed.
APPEARANCES:
For Plaintiffs-Appellants: Atty. Marty D. Nosich
143 West Main Street
Cortland, Ohio 44410
Atty. Robert A. Henkin
6 Federal Plaza Central, Ste. 905
Youngstown, Ohio 44503
For Defendants-Appellees: Atty. Mark A. Hutson
33 Pittsburgh Street
Columbiana, Ohio 44408
JUDGES:
Hon. Cheryl L. Waite
Hon. Gene Donofrio
Hon. Mary DeGenaro
Dated: September 22, 2016
[Cite as In re Estate of Udell v. Seeley, 2016-Ohio-6974.]
WAITE, J.
{¶1} This matter involves the appeal of an October 15, 2014 judgment of the
Mahoning County Court of Common Pleas in favor of Appellees, Donald R. Seely
(“Seely”); Stephen Smith (“Smith”); Midland Title and Security (“Midland”) and Inter-
County, Inc. (“Inter-County”) against Appellants, Estate of Alan Udell (“Udell”) and
Robert Henkin (“Henkin”). Appellants contend the trial court erred in finding in
Appellees’ favor on Appellants’ unjust enrichment and spoliation of evidence claims.
Based upon the foregoing, Appellants’ assignments of error are without merit and the
judgment of the trial court is affirmed.
Factual History
{¶2} On August 1, 1983, Seely, Smith, Udell and Henkin founded Inter-
County, Inc., an Ohio corporation, in which each were 25% shareholders. As
consideration, three shareholders paid $2,500.00 each. Smith’s consideration was
his “sweat equity.” Inter-County was established to perform title and escrow services
in Columbiana County. Approximately eighteen months after Inter-County was
initially formed, Seely and Smith decided to form a partnership which they named
Midland Title and Security. Midland was established to perform title work in
Mahoning and Trumbull Counties. The two companies agreed to share office space
and to have all the escrow work for Midland’s Mahoning and Trumbull County
business go to Inter-County. In dispute is whether, in exchange for receiving all of
Midland’s escrow work, Inter-County agreed to pay all of the operating expenses for
both companies.
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{¶3} From their inception in the 1980s until an economic downturn around
2008, both companies performed well and all shareholders received dividend
payments regularly. Udell and Henkin acted as passive investors while Seely and
Smith ran the day to day operations, with Smith playing the most prominent role. In
2008 both businesses began to suffer from the economic downturn which particularly
affected the housing market. Smith and Seely decided to dissolve Inter-County and
wind up its affairs. Corporate dissolution papers were drafted and a meeting of all
shareholders was called. The meeting was held at the company offices on
November 17, 2008. Udell had passed away in 2006 but his estate was represented
at this meeting by the estate’s probate attorney. The meeting did not end with a
signed dissolution agreement, as the expense sharing arrangement was called into
question by Udell’s son and estate attorney. Appellants filed suit in March of 2011.
Statement of the Case
{¶4} Appellants filed their complaint against Appellees on March 28, 2011,
alleging conversion, unjust enrichment, breach of fiduciary duty, breach of duty of
loyalty, tortious inducement into a breach of the duty of loyalty, breach of contract,
fraud, fraudulent inducement, spoliation of evidence and a demand for an
accounting. Appellees filed an answer and counterclaim on June 2, 2011, alleging
that overpayments were made to Inter-County.
{¶5} On completion of discovery, Appellees filed a motion for summary
judgment. The trial court overruled this motion and the matter proceeded to a bench
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trial held on October 1, 2014. At the conclusion of trial, Appellees dismissed their
counterclaim.
{¶6} In a judgment entry dated October 15, 2014, the trial court found for
Appellees on all counts. It is from this judgment which Appellants now appeal. As
Appellants’ first and second assignments of error are related, they will be addressed
together.
ASSIGNMENT OF ERROR NO. 1
The trial court erred as a matter of law by requiring Plaintiffs to prove an
existence of a contract with respect to an unjust enrichment claim.
ASSIGNMENT OF ERROR NO. 2
The trial court erred in finding in the Defendants' favor on the
Complaint's "unjust enrichment" claim.
{¶7} Appellants argue the trial court erred in requiring that they prove a valid
contract existed when ruling on their unjust enrichment claim. Appellants take issue
with the following language in the trial court judgment entry: “In order for the Plaintiffs
to prevail on any of their theories of recovery, they must first show that the parties all
agreed that each corporation would pay its pro rata share of expenses.” (10/15/14
J.E.) Appellants contend that the trial court erroneously viewed all of their claims
using a breach of contract standard, based on this sentence.
{¶8} In Ohio, an unjust enrichment claim is quasi-contractual in nature. It is
an obligation which arises by law to address an instance where a party is the
recipient of benefits which that party is not equitably entitled to retain. Hummel v.
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Hummel, 133 Ohio St. 520, 527, 13 N.E.2d 923 (1938). Unjust enrichment arises
where no express contract exists, and any agreements are those implied by the
actions of the parties. Weiper v. W.A. Hill & Assoc., 104 Ohio App. 3d 250, 262, 661
N.E.2d 796 (1995). The only remedy available to a party in raising an unjust
enrichment claim is restitution of the reasonable value of the benefit unjustly
conferred. St. Vincent Med. Ctr. v. Sader, 100 Ohio App. 3d 379, 384, 654 N.E.2d
144 (1995).
{¶9} The elements of an unjust enrichment claim are as follows: (1) a
benefit conferred by plaintiff upon defendant; (2) knowledge by defendant of the
benefit; and (3) retention of the benefit by defendant in circumstances where
retention without payment to plaintiff is unjust. L & H Leasing Co. v. Dutton, 82 Ohio
App.3d 528, 534, 612 N.E.2d 787 (1992).
{¶10} Appellants challenge the findings of the trial court following a bench trial
on the matter. According to the Ohio Supreme Court, a reviewing court must be
“guided by a presumption” that the fact-finder’s determinations are correct. Seasons
Coal Co. v. Cleveland, 10 Ohio St. 3d 77, 79-80, 461 N.E.2d 1273 (1984). “[A]n
appellate court should not substitute its judgment for that of the trial court when there
exists, as in this case, competent and credible evidence supporting the findings of
fact and conclusions of law rendered by the trial judge.” Id. at 80. Therefore, we
should not overturn the trial court’s decision unless its decision is against the
manifest weight of the evidence. Id. A judgment is not against the manifest weight of
the evidence if it is supported by “some competent, credible evidence going to all the
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essential elements of the case.” C.E. Morris Co. v. Foley Constr., 54 Ohio St. 2d 279,
376 N.E.2d 578 (1978), syllabus.
{¶11} In the instant case, although Appellants argue in their first assignment
of error that the trial court erroneously required them to establish the existence of a
contract in order to recover under their unjust enrichment claim, this is based on their
interpretation of one sentence in an entry taken out of context. A complete review of
the matter reveals the trial court conducted a thorough analysis of the evidence,
including whether the parties had an actual agreement stating the manner in which
operating expenses were to be paid. It is Appellants who have argued, both here
and throughout these proceedings, that the parties maintained an express agreement
for the payment of operating expenses. Appellants contend that an actual contract
existed which set forth the parties’ agreements as to payment of expenses, and that
included terms of mandatory pro rata division of operating expenses. Appellants’
third assignment, in fact, is predicated on the notion that Appellees destroyed
evidence relating to Midland’s documents, including, “the corporate book” that
“would have contained the parties’ agreement regarding expenses.” (Appellant’s Brf.,
p. 17.) In the alternative, Appellants also argue that no such agreement existed and
thus, they should recover on a theory of unjust enrichment based solely on the
uncontested evidence that Inter-County paid Midland’s operating expenses over
more than a twenty-year time period. Because Appellees admitted at trial that 100%
of their time was spent working on Inter-County business and none on Midland’s,
Appellants argue, Midland’s profits were directly attributable to the alleged unjustified
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benefit conferred by Inter-County’s payment of all of Midland’s operating expenses.
They claim Inter-County should be reimbursed for all of this benefit (in the form of
payment of operating expenses) conferred on Midland for over twenty years.
{¶12} Throughout the trial, Appellants argued that an agreement was in place
that provided Inter-County would pay only its pro rata share of operating expenses
and that an actual written memorialization of that agreement was purposefully
destroyed by Appellees. Appellees contend, however, that it was argued that Inter-
County paid a majority of operating expenses for both businesses in exchange for
receiving all of Midland’s escrow business. After the bench trial, the trial court
ultimately concluded that, “there is an absence of any written agreement between the
parties relative to the expenses.” (10/15/14 J.E.)
{¶13} Because Appellants were unable to produce a written agreement
relevant to the operating expenses arrangement, Appellants also raised a claim for
unjust enrichment for the payment of these operating expenses by Inter-County to
benefit Midland. Appellants contend this matter presents a textbook example of
unjust enrichment. Evidence shows Inter-County paid substantially all of Midland’s
expenses for over twenty years, (include a company car, Christmas parties and all
operating expenses) while at the same time Appellees Seely and Smith drew large
salaries. At trial, Appellants admitted into evidence multiple tax returns for the
Midland partnership as well as a summary of tax returns for Inter-County and
evidence of compensation received by Inter-County officers and employees, all in an
effort to demonstrate the amount of monies allegedly improperly expended by Inter-
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County for both entities. Testimony from both parties indicates that Inter-County did
pay the majority of operating expenses and all salaries for the duration of the period
both entities were in existence and shared office space. All parties agree further that
Appellees retained those monies and continued to accept payment from Inter-County
for Midland expenses.
{¶14} The crux of Appellants’ argument rests on whether the retention of
those monies by Appellees without repayment was unjust. Appellees claim that
Midland’s expenses were paid by Inter-County in exchange for Midland’s agreement
to give all of its escrow work to Inter-County, resulting in great profit for Inter-County.
At trial, Appellees testified that all parties attended meetings to discuss bonuses,
dividend disbursements and large office expenditures, including computer systems.
Appellees contend that at no time during the over twenty-year existence of the
companies did Appellants contact the accountants handling Inter-County’s finances
nor make any inquiry into the payment of expenses. The record reveals the first time
the issue was raised was at the time the decision was made to dissolve Inter-County
in 2008, when Udell’s son and his estate attorney inquired about the arrangements
for expense payment at the dissolution meeting.
{¶15} A review of this record reveals no evidence of an express agreement
regarding an expense sharing arrangement between the parties. There was
evidence introduced, however, as to the manner in which expenses were paid for
over a twenty-year period and as to the participation of all parties in the operation of
the businesses. Due to the conflicting evidence presented on the parties’
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understanding of the expense payment arrangements, and without any evidence
from Appellants as to the amount of restitution sought, we cannot conclude the trial
court erred in reaching judgment against Appellants’ claim of unjust enrichment.
Appellants offered little to no evidence that each company was intended to pay its
own expenses and evidence was offered to the contrary. Ultimately, the trial court,
as trier of fact, was not persuaded by Appellants’ unjust enrichment arguments and
determined that Appellants’ “silence and acquiescence for over 25 years is a
compelling factor that they have failed to sustain their burden in proving an
agreement that each entity pay its own expenses.” (10/15/14 J.E.) As the record
does not substantiate Appellants’ claims in this regard and they appear speculative at
best, Appellants’ first and second assignments of error are without merit and are
overruled.
ASSIGNMENT OF ERROR NO. 3
The trial court erred in finding in the Defendants' favor on the
Complaint's "spoliation of evidence" claim.
{¶16} In their third assignment of error, Appellants contend the trial court
erred in finding in Appellees’ favor on the claim of spoliation of evidence.
{¶17} We again note that a judgment supported by some competent and
credible evidence going to all elements of the claim will not be reversed as against
the manifest weight of the evidence. C.E. Morris Co., supra.
{¶18} The Ohio Supreme Court has recognized the following elements
required to prove a claim of spoliation of evidence: (1) pending or probable litigation
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involving the claimant; (2) the respondent has knowledge that litigation exists or is
probable; (3) willful destruction of evidence by respondent in an attempt to disrupt
claimant’s case; (4) actual disruption of claimant’s case; and (5) damages resulting
from the destruction. Smith v. Howard Johnson Co., Inc., 67 Ohio St. 3d 28, 29, 615
N.E.2d 1037 (1993).
{¶19} In order to succeed on a claim for spoliation, Appellants must establish
each element. At trial, Appellants introduced a letter dated October 31, 2008, from
Udell’s estate attorney to Seely, requesting the Inter-County corporate record book
and all records of shareholder meetings, financial statements and tax returns.
Appellants also submitted a second letter the estate attorney sent after the November
of 2008 shareholder meeting regarding dissolution in which the attorney informed
Seely that there was a disagreement about the expense paying arrangement. This
letter again contained a request for the documents. Appellants note in their brief that
Seely testified at trial regarding a letter reciting the terms of engagement between
Inter-County and their accounting firm, Packer Thomas. In his testimony Seely refers
to this letter as a “CYA letter,” saying the accounting firm was “covering their own
behind because they are not sure what’s going to happen[.]” (Trial Tr., pp. 280-281.)
{¶20} The letters presumably were offered in support of the first and second
elements of Appellants’ claim of spoliation: that litigation was pending or probable
and that Appellees had knowledge. However, it is apparent that the trial court did not
interpret this evidence as Appellants would have liked. In its entry, the trial court
states: “[t]he Court further finds that the Plaintiffs have failed to show that the
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Defendants, with knowledge that there would be pending or probable litigation,
destroyed records in a manner designed to disrupt Plaintiffs’ case.” (10/14/15 J.E.)
{¶21} On review, we do not find error in this decision. The letters and
Seeley’s testimony do not meet the threshold burden to establish that Appellees were
aware that litigation was pending or probable. Over two years elapsed between the
dissolution discussion and exchange of letters and the time this suit was filed. During
the intervening years, there is no evidence of any further contact from the estate
attorney or evidence that in any other way indicates that litigation was probable.
While this evidence clearly reflects disagreements during dissolution, as over two
years elapsed with no further adverse action, we cannot say the trial court clearly lost
its way in finding this did not rise to the level necessary to show knowledge on the
part of Appellees.
{¶22} Appellants also presented no evidence of willful destruction of records
to satisfy the third element of their spoliation claim. “The concept of ‘willfulness’
contemplates not only an intentional commission of the act, but also a wrongful
commission of the act.” (Emphasis sic.) Drawl v. Cornicelli, 124 Ohio App. 3d 562,
567, 706 N.E.2d 849 (1997). Appellees admit that records were destroyed in the
ordinary course of business in 2009 once the companies ceased operation. At that
time, there was no suit pending, no litigation apparently contemplated, and a year
and a half had passed since the dissolution meeting. Appellees note that the
accountants still possess all financial records and filings, to which Appellants had
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complete access as shareholders. Therefore, Appellants failed to establish the third
element and their spoliation of evidence claim must fail.
{¶23} Appellants’ third assignment of error is without merit and is overruled.
Based upon the foregoing, Appellants’ three assignments of error are without merit
and are overruled. The judgment of the trial court is affirmed.
Donofrio, P.J., concurs.
DeGenaro, J., concurs.