Gordon v. Reid , 2013 Ohio 3649 ( 2013 )

[Cite as Gordon v. Reid, 2013-Ohio-3649.]
IN THE COURT OF APPEALS FOR MONTGOMERY COUNTY, OHIO
MARK H. GORDON :
Plaintiff-Appellant : C.A. CASE NO. 25507
v. : T.C. NO. 11CV6705
JOHN REID : (Civil appeal from
Common Pleas Court)
Defendant-Appellee :
:
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OPINION
Rendered on the 23rd day of August , 2013.
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LAURENCE A. LASKY, Atty. Reg. No. 0002959, One First National Plaza, Suite 830, 130
W. Second Street, Dayton, Ohio 45402
Attorney for Plaintiff-Appellant
RICHARD P. ARTHUR, Atty. Reg. No. 0033580, 1634 S. Smithville Road, Dayton, Ohio
45410
Attorney for Defendant-Appellee
JOHN REID, 1934 E. Third Street, Dayton, Ohio 45403
Defendant-Appellee
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FROELICH, J.
[Cite as Gordon v. Reid, 2013-Ohio-3649.]
{¶ 1} After a bench trial in the Montgomery County Court of Common
Pleas, Mark H. Gordon was awarded $14,669.73 for principal and interest due from John
Reid on two land installment contracts. The court rejected Gordon’s claims for the
reimbursement of forced insurance premiums and fifteen years of real estate tax payments.
{¶ 2} Gordon appeals from the trial court’s judgment, claiming that the court
erred in applying the defense of laches to deny his claims for the real estates taxes and
insurance. For the following reasons, the portion of the trial court’s judgment that denied
Gordon’s claim for real estate tax payments will be reversed, and the matter will be
remanded to the trial court for further consideration of that claim. In all other respects, the
trial court’s judgment will be affirmed.
I. Factual and Procedural History
{¶ 3} In 1997, Mark Gordon and John Reid entered into two separate land
installment contracts whereby Reid purchased the properties located at 1605 Willamet Road
in Kettering, Ohio, and 3321 Ultimate Way in Dayton, Ohio. Reid purchased the Willamet
property for $45,000, with a $4,000 down payment. Reid was required to pay the $41,000
balance at eight percent interest, with a monthly payment of $391.83. The purchase price
for the Ultimate property was $28,500, with no down payment and eight percent interest.
Reid’s monthly principal and interest payment for the Ultimate property was $272.36.
{¶ 4} Both contracts required Reid to maintain insurance on the property and to
pay real estate taxes. The portion of the contracts regarding real estate taxes and assessments
provided, in part:
Buyer shall pay all real estate taxes and assessments becoming due or payable
from and/or after the date of this contract. Said taxes and assessments shall
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be paid by the Buyer, separate and apart from the monthly installment of
principle [sic] and interest, but not in monthly installments. It will be the
responsibility of the Seller to provide the Buyer with a copy of the
semi-annual property tax statement, and informing the Buyer of the
semi-annual property tax amount so that the Buyer can reimburse the Seller
the amount of the taxes. Or if the Seller so desires, can have the semi annual
tax statement sent directly to the buyer, with the buyer giving the Seller proof
of payment of said taxes within 15 days after they are due and payable.
In both contracts, Gordon guaranteed that there was no mortgage encumbering the property
and that he would not cause any encumbrance to be placed on the premises after the date of
the contract.
{¶ 5} In September 2011, Gordon brought suit against Reid, claiming that Reid
had defaulted on his payments on both properties. Gordon stated in his complaint that he
had no interest in “taking the real estate back or initiating a foreclosure.” Rather, he asked
that “the complete unpaid balance be declared immediately due.” Gordon sought a
monetary judgment of $8,409.50 for the Ultimate property and $7,912.19 for the Willamet
property, for a total of $16,321.69, with interest. The $7,912.19 for the Willamet property
included $836 for insurance premiums that Gordon had paid due to Reid’s failure to
maintain insurance on that property. Gordon did not allege that he was owed any amount
for real estate taxes that he had paid.
{¶ 6} On October 3, 2011, prior to the filing of an answer, Gordon filed an
amended complaint incorporating the allegations in his initial complaint, but seeking a
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monetary judgment of $28,000. The amended complaint did not explain the increase in the
requested monetary judgment.
{¶ 7} Gordon subsequently moved for summary judgment, indicating that he had
mortgages on the properties, that the mortgagees required him to insure the properties when
Reid’s insurance lapsed, and that he was seeking reimbursement of the forced insurance
premiums and the remaining mortgage balances. Reid acknowledged that he was behind on
his principal and interest payments, but he disputed the amount owed. Reid denied that he
owed Gordon for any additional expenses. The trial court denied Gordon’s motion for
summary judgment.
{¶ 8} A bench trial on Gordon’s claims was held on October 4, 2012. At trial,
Gordon sought the principal and interest due on both of the land installment contracts,
insurance premiums that he paid due to Reid’s alleged failure to insure the properties, and
reimbursement of real estate taxes that he paid on the properties over the past fifteen years.
{¶ 9} Gordon and his accountant testified to the principal and interest due on both
properties. Gordon’s accountant provided an amortization schedule showing the amounts
due on both properties. Gordon further testified that, during the last two years, Reid’s
insurance on both properties lapsed, and Gordon’s mortgage lenders required Gordon to pay
insurance premiums as part of the escrow payment for Gordon’s mortgage loans. Gordon
acknowledged that he had mortgages on the properties, even though the land installment
contracts stated that there were no encumbrances. Gordon also testified that he had paid all
of the real estate taxes on the two properties. On cross-examination, Gordon stated that he
had never asked Reid for reimbursement of the real estate tax payments and he did not have
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the real estate tax statements sent directly to Reid during the past 15 years. He explained
that he had never “really studied” the land installment contracts and “just assumed that this
was all taken care of with the monthly installments.” Gordon’s mortgage lenders paid the
real estate taxes from Gordon’s escrow accounts. Gordon’s accountant testified that
Gordon deducted the real estate taxes on his federal income tax forms.
{¶ 10} Reid did not dispute the amount of principal and interest that he owed.
Reid also acknowledged that he did not pay real estate taxes on the Ultimate and Willamet
properties, but he stated that Gordon told him that the real estate taxes were included “in his
payments and not to worry about it.” Reid testified that Gordon had never requested
reimbursement of the real estate taxes, either orally or in writing. On cross-examination,
Reid testified that he had managed a number of properties for other people in the past 20
years, that he had owned several other properties in the past, and that he knew that real estate
taxes needed to be paid for those other properties. As for the insurance payments, Reid
stated that the Ultimate property was always insured, and that the insurance on the Willamet
property lapsed only briefly.
{¶ 11} On November 15, 2012, the trial court entered judgment in favor of Gordon
in the amount of $14,669.73, representing the principal and interest due on the two
properties, as stated in the amortization schedules produced at trial. The trial court denied
Gordon’s claims for unpaid real estate taxes and forced insurance payments, with the
following explanation:
As to the real estate taxes, the agreements provided that (1) Defendant
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was to pay all real estate taxes on the properties; and (2) Plaintiff was to
provide Defendant with a copy of the semi-annual property tax statement for
reimbursement or to have the semi-annual tax statement sent directly to
Defendant for payment. Here, both parties failed to satisfy their foregoing
obligations under the agreements because they mutually believed for fifteen
years that the real estate taxes were included in Defendant’s monthly
payments. Plaintiff apparently never received separate real estate tax
statements on the properties to submit to Defendant because the real estate
taxes were included in Plaintiff’s escrow payments to his mortgage lenders.
The taxes were billed to and directly paid by the Plaintiff’s mortgage lenders
despite Plaintiff’s initial guarantees to Defendant that the properties were not
encumbered by mortgages. Consequently, Plaintiff never sought payment or
reimbursement of the taxes in fifteen years, and Defendant never provided
separate tax payments or reimbursement to Plaintiff. Under the unique
circumstances of this case, the court finds that it would be inequitable to now
require Defendant to pay fifteen years of back real estate taxes. The court
finds that Plaintiff’s claim for payment of the real estate taxes is barred by the
doctrine of laches, as (1) fifteen years is an unreasonable delay or lapse of
time in Plaintiff’s assertion of his right to the real estate taxes under the
agreements; (2) Plaintiff failed to provide any excuse for his fifteen year
delay in seeking enforcement of his right to the real estate taxes, simply
stating that he, too, believed the taxes were included in Defendant’s monthly
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payments; (3) Plaintiff had actual or constructive knowledge of his right to
payment or reimbursement of real estate taxes as stated in the agreements;
and (4) Defendant was prejudiced by Plaintiff’s delay and inadvertent failure
or otherwise to seek payment or reimbursement of the real estate taxes.
Specifically, as to Defendant’s prejudice, not only did Plaintiff assure
Defendant that the taxes were included in Defendant’s payments, Plaintiff
himself, apparently overlooked his right to reimbursement of the taxes for
fifteen years, as the taxes were never paid directly by Plaintiff but, rather,
were incorporated into Plaintiff’s mortgage escrow accounts pursuant to
mortgages that, at the outset, were also in violation of the land installment
agreements.
Finally, as to insurance, Defendant was required to maintain insurance
coverage on the properties at all times during the continuance of the
agreements, which Defendant admitted he failed to do, resulting in forced
insurance policies by Plaintiff’s mortgage lenders and the consequential
additional costs to Plaintiff, totaling $3,543.00 in insurance premiums.
However, the forced insurance policies again resulted from mortgage
encumbrances that were, themselves, in violation of the land installment
agreements, and, thus, Defendant is not liable for payment on the forced
insurance policies.
{¶ 12} Gordon appeals from the trial court’s judgment, raising one assignment of
error. Reid did not file a responsive brief.
[Cite as Gordon v. Reid, 2013-Ohio-3649.]
II. Doctrine of Laches
{¶ 13} In his sole assignment of error, Gordon claims that the “trial court erred
when it found that the doctrine of laches excused [Reid] from having to reimburse Mr.
Gordon for the payment of real estate taxes and forced insurance premiums.”
{¶ 14} In general, statutes of limitations “protect a party from ‘stale’ claims.” State
ex rel. Nozik v. City of Mentor, 11th Dist. Lake No. 2003-L-195, 2004-Ohio-5628, ¶ 8. The
“purpose of a statute of limitations is to promote justice by preventing surprise through the
revival of claims that parties have declined to pursue until evidence has been lost and
memories have faded.” Cavin v. Smith, 4th Dist. Lawrence No. 01CA5, 2001 WL 994117,
*2 (Aug. 24, 2001).
{¶ 15} The affirmative defense of laches recognizes that a claim could be “stale”
even though filed within the statute of limitations. Thirty-Four Corp. v. Sixty-Seven Corp.,
15 Ohio St.3d 350, 353, 474 N.E.2d 295 (1984). When a claim is brought within the statute
of limitations, the doctrine of laches may still bar the claim if “special circumstances” render
the delay in enforcing the claim inequitable. Id. “[I]n order to successfully invoke the
equitable doctrine of laches it must be shown that the person for whose benefit the doctrine
will operate has been materially prejudiced by the delay of the person asserting his claim.”
Id. at 354, quoting Smith v. Smith, 168 Ohio St. 447, 156 N.E.2d 113 (1959), paragraph three
of the syllabus.
{¶ 16} Stated simply, laches is an equitable doctrine that bars a party from asserting
an action when there is an unexcused delay that prejudices the opposing party. Baker v.
Chrysler, 179 Ohio App.3d 351, 2008-Ohio-6032, 901 N.E.2d 875, ¶ 31 (2d Dist.). “The
elements of laches are (1) unreasonable delay or lapse of time in asserting a right, (2)
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absence of an excuse for such a delay, (3) knowledge – actual or constructive – of the injury
or wrong, and (4) prejudice to the other party.” Martin Marietta Magnesia Specialties,
L.L.C. v. Pub. Util. Comm., 129 Ohio St.3d 485, 2011-Ohio-4189, 954 N.E.2d 104, ¶ 45,
citing State ex rel. Cater v. N. Olmsted, 69 Ohio St.3d 315, 325, 631 N.E.2d 1048 (1994).
Each element must be established for laches to apply.
{¶ 17} Whether laches should bar an action is a fact-sensitive determination.
Atwater v. King, 2d Dist. Greene No. 02CA45, 2003-Ohio-53, ¶ 28. Accordingly, we
review the trial court’s application of the doctrine of laches for an abuse of discretion. Reid
v. Wallaby’s Inc., 2d Dist. Greene No. 2011 CA 36, 2012-Ohio-1437, ¶ 34. An abuse of
discretion means “that the court’s attitude is unreasonable, arbitrary or unconscionable.”
State v. Adams, 62 Ohio St .2d 151, 157, 404 N.E.2d 144 (1980).
{¶ 18} Gordon claims that he did not unreasonably delay bringing his claims, that
any delay was excused, that Reid did not suffer material prejudice, and that Reid did not
have “clean hands.” We focus on whether Reid demonstrated material prejudice, as we find
this element to be dispositive.
{¶ 19} For purposes of the doctrine of laches, prejudice exists when the plaintiff’s
delay causes the loss of evidence helpful to the defendant’s case or when the person against
whom the claim is asserted has changed his position in reasonable reliance on the words or
conduct of the party who would enforce the claim. Reid v. Wallaby's Inc., 2d Dist. Greene
No. 2011 CA 36, 2012-Ohio-1437, ¶ 36, citing State ex rel. Donovan v. Zajac, 125 Ohio
App.3d 245, 250, 708 N.E.2d 254 (11th Dist.1998); see Atwater at ¶ 24. “The prejudice
must be material, and it may not be inferred from a mere lapse of time.” Id. at ¶ 19. The
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accumulation of interest and the absence of a timely demand for payment does not constitute
material prejudice where the terms of the debt are set forth in the contract. Thirty-Four
Corp., 15 Ohio St.3d at 353, 474 N.E.2d 295.
{¶ 20} At trial, there was substantial evidence that Gordon knew or should have
known that he was paying real estate taxes on the properties since 1997 and that his own
actions caused his failure to seek reimbursement of those real estate tax payments from Reid.
Gordon acknowledged at trial that he never sent Reid a request for reimbursement of the
real estate taxes, nor did he have the real estate tax statements sent directly to Reid. He
stated that he had failed to carefully read the land installment contracts and “assumed that
this was all taken care of with the monthly installments.” Because of Gordon’s
arrangements with his mortgage lenders, the lenders paid the real estate taxes from his
escrow account. Gordon deducted the real estate taxes on his federal tax forms.
{¶ 21} Nevertheless, Reid presented no evidence that he was materially prejudiced
by Gordon’s conduct. Reid’s testimony emphasized that Gordon had failed to seek
reimbursement for fifteen years and that Gordon had told him that the real estate taxes were
included in his monthly payments and “not to worry about it.” Reid’s testimony reflects
that, given the lapse of time and Gordon’s assurances, he did not expect Gordon to seek
reimbursement of the real estate taxes. However, the complaint did not violate the statute
of limitations for this alleged contractual violation.
{¶ 22} Reid presented no argument, let alone evidence, that he lost any evidence or
changed his position in any respect due to Gordon’s failure to timely seek reimbursement of
the real estate taxes, or that he was unable to defend against Gordon’s claim due to the
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passage of time. We appreciate the trial court’s conclusion that “it would be inequitable to
now require Defendant to pay fifteen years of back real estate taxes;” however, Gordon’s
delay in asserting his claim for reimbursement is not sufficient, by itself, to establish the
material prejudice required for the affirmative defense of laches. In the absence of any
evidence of material prejudice, the trial court abused its discretion in determining that laches
barred Gordon’s claim for reimbursement of real estate tax payments. Gordon’s assignment
of error as to real estate tax payments is sustained.
{¶ 23} Gordon’s assignment of error also references the trial court’s denial of his
claim seeking reimbursement of “forced insurance premiums.” However, Gordon’s
appellate brief only addressed the real estate tax payments. We further note that the trial
court did not reject Gordon’s claim for insurance payments based on the doctrine of laches.
Rather, the trial court denied the claim because the forced insurance policies resulted from
mortgage encumbrances that violated the land installment contracts. To the extent that
Gordon’s assignment of error challenged the trial court’s denial of his claim for
reimbursement of the insurance payments, the assignment of error is overruled.
III. Conclusion
{¶ 24} The portion of the trial court’s judgment that denied Gordon’s claim for real
estate tax payments will be reversed, and the matter will be remanded to the trial court for
further consideration of that claim. In all other respects, the trial court’s judgment will be
affirmed.
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FAIN, P.J. and WELBAUM, J., concur.
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Copies mailed to:
Laurence A. Lasky
Richard P. Arthur
John Reid
Hon. Mary Katherine Huffman