U.S. Bank Natl. Assn. v. MMCO, L.L.C. ( 2021 )

[Cite as U.S. Bank Natl. Assn. v. MMCO, L.L.C., 2021-Ohio-4605.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
U.S. BANK NATIONAL ASSOCIATION, :
AS TRUSTEE,
:
Plaintiff-Appellee,
: No. 110246
v.
:
MMCO, L.L.C., ET AL.,
:
Defendant-Appellant.
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED IN PART, REVERSED IN PART,
AND REMANDED
RELEASED AND JOURNALIZED: December 30, 2021
Civil Appeal from the Cuyahoga County Court of Common Pleas
Case No. CV-16-865052
Appearances:
Calfee, Halter & Griswold L.L.P., Christopher S. Williams,
Ronald M. McMillan, and Xin Wen, for appellee.
Porter, Wright, Morris & Arthur, L.L.P., Jeremy A.
Mercer, L. Bradfield Hughes, and Syed Ahmadul Huda,
for appellants.
MARY J. BOYLE, A.J.:
This case began as a foreclosure action involving the Rose Building, a
381,176-square-foot commercial office building on East 9th Street in Cleveland,
Ohio. Medical Mutual of Ohio, the sole tenant of the Rose Building, intervened and
brought numerous claims against three individuals and their various corporate
entities. The foreclosure claim has been resolved, and this appeal involves Medical
Mutual’s claims.
Crossclaim-defendants-appellants (the GFW Trust and MMCO,
L.L.C.) and third-party-defendants-appellants (BFG Holdings 2000, L.L.C.; the
Bentley Forbes Group, L.L.C.; the GFW II Trust; C. Frederick Wehba (“Wehba Sr.”);
Susan D. Wehba (“Ms. Wehba”); and C. Frederick Wehba II (“Wehba Jr.”)) appeal
the trial court’s orders (1) granting summary judgment in favor of Medical Mutual
for fraud, piercing the corporate veil, and Wehba Jr.’s individual liability, (2)
granting Medical Mutual leave to file a summary judgment motion against Wehba
Jr. in his individual capacity, and (3) striking their cross-motion for summary
judgment regarding Wehba Jr.’s individual liability.1 The appellants (collectively,
the “Wehba defendants”) raise four assignments of error for our review:
1. The trial court erred in granting summary judgment to Medical
Mutual and denying Appellants’ motion for summary judgment on
Medical Mutual’s fraud claim.
2. The trial court improperly pierced the corporate veil because it
imposed an adverse inference and applied collateral estoppel instead of
applying the Belvedere/Dombrowski three-prong test.
3. The trial court erred in granting Medical Mutual’s motion for leave
to file a summary judgment motion against Wehba, Jr. in his individual
1The other parties previously involved in this case were U.S. Bank NA, the Ohio
Department of Jobs and Family Services, the Cuyahoga County Treasurer, and Mitsuwa
Corporation. These parties are not involved in this appeal.
capacity, and further erred in granting the summary-judgment motion
in finding Wehba, Jr. individually liable.
4. The trial court erred in striking Wehba, Jr.’s cross-motion for
summary judgment and declining to enter judgment in favor of Wehba,
Jr..
Finding merit to the first assignment of error, we affirm in part and
reverse in part the trial court’s judgments.
I. Procedural History and Factual Background
In June 2016, U.S. Bank NA filed a foreclosure complaint against
MMCO, the GFW Trust, the Ohio Department of Jobs and Family Services, Mitsuwa
Corporation, and the Cuyahoga County Treasurer. U.S. Bank alleged that in 2005,
MMCO entered a commercial loan with Bank of America for $52,715,219 to
purchase the Rose Building from Medical Mutual. To guarantee MMCO’s payment
of the note, the GFW Trust joined MMCO in executing a loan agreement and
guaranty. The complaint states that Bank of America assigned the loan documents
to Wells Fargo Bank, N.A., who assigned them to U.S. Bank.
U.S. Bank alleged that the loan matured on January 1, 2016, and the
entire balance of the loan became “fully due and payable.” U.S. Bank alleged that
MMCO and the GFW Trust had defaulted on the loan and, as of May 1, 2016, they
owed the principal amount of $47,370,663.31, plus interest, default interest, late
fees, document preparation fees, special servicing fees, attorney fees, “and other
amounts” under the loan documents. U.S. Bank also alleged that MMCO violated
the terms of the loan documents by (1) replacing MMCO’s manager, (2) transferring
100 percent of MMCO’s membership interests in itself to “various” other trusts and
limited liability companies, and (3) granting an interest in the Rose Building to
defendant Mitsuwa Corporation, a California company.
U.S. Bank brought claims for (1) the amounts due under the note
against both MMCO and the GFW Trust as the guarantor, (2) foreclosure, (3) the
assignment of rents that MMCO had been collecting, (4) an accounting for all rental
payments that MMCO had collected after it defaulted on the loan, and (5) conversion
for the rents that MMCO had collected and distributed to other entities. U.S. Bank’s
requested relief included (1) amounts due under the loan, (2) a declaratory judgment
that U.S. Bank had a first-priority lien after the Cuyahoga County Treasurer, and (3)
that the court appoint a receiver to collect all rents. The trial court referred the case
to a magistrate, who scheduled a hearing regarding the appointment of a receiver.
The following month, Medical Mutual filed a motion to intervene as a
defendant in the action and for leave to file (1) an answer to U.S. Bank’s complaint,
(2) a counterclaim against U.S. Bank, (3) a crossclaim against MMCO and the GFW
Trust, and (3) a third-party complaint against BFG Holdings, the Bentley Forbes
Group, the GFW II Trust, Wehba Sr., Ms. Wehba individually and as a co-trustee of
the GFW and GFW II Trusts, and Wehba Jr. individually and as a co-trustee of the
GFW and GFW II Trusts. Medical Mutual argued that the court should allow it to
intervene because it should “be permitted to refrain” from making rent payments to
a receiver and instead pay rent to the court or another account. Medical Mutual
maintained that MMCO and its “alter-egos and affiliates” had defrauded Medical
Mutual and owe Medical Mutual over $4 million.
Medical Mutual attached to its motion to intervene a copy of its
combined counterclaim, crossclaim, and third-party complaint. Medical Mutual
alleged that in 2000, it engaged in a “sale-leaseback transaction” with MMCO in
which Medical Mutual sold the Rose Building (and two other properties not at issue
here) to MMCO for over $47 million, and MMCO would lease the building back to
Medical Mutual. The pleading states that MMCO financed part of the purchase with
a promissory note in favor of Medical Mutual in the amount of $12,370,000, plus
interest with a rate of 7.25% per year. Wheba Jr. executed the note on behalf of BFG
Holdings, and the following parties guaranteed the note: Ms. Wehba and Wehba Jr.,
as trustees of the GFW Trust (later replaced by the GFW II Trust); Wehba Sr. and
Ms. Wehba individually; and Bentley Forbes. Medical Mutual alleged that in the
guaranty agreement, the guarantors promised Medical Mutual that the GFW Trust
would maintain a net worth of at least $25 million in the trust as long as the note
remained unpaid.
Medical Mutual claimed that MMCO agreed to pay Medical Mutual
the $12,370,000 in monthly installments of $97,769.51 for 20 years. Medical
Mutual would also pay MMCO $419,968.33 per month for rent. The pleading states
that the note was subject to a “lockbox agreement” entered between Medical Mutual
and MMCO. Under the agreement, Medical Mutual would pay its $419,968.33 for
rent into a lockbox, and upon receipt of the rent payment, MMCO (on behalf of BGF
Holdings) would use funds from the rent payment to make the $97,769.51 note
payment to Medical Mutual. In 2006, Medical Mutual and MMCO replaced the
“lockbox agreement” with a “standing wire agreement,” under which MMCO agreed
to instruct its bank to wire the note payment to Medical Mutual on the first day of
each month.
Medical Mutual alleged that in April 2016, Wehba Sr. sent an email
informing Medical Mutual that the “lender for the Rose Building[, U.S. Bank,] is
going to put a receiver in the next week or so and that we will not be able to make
any payments on the note.” Medical Mutual attached a copy of the email to its
complaint. Wehba Sr. also states in the email that “we” could “make the note
payments using [t]ax [b]enefits.” Medical Mutual claimed that MMCO made no
note payments after June 2016.
The pleading states that after MMCO defaulted on the note, Medical
Mutual learned that BFG Holdings had been voluntarily dissolved in September
2013 and that in June 2016, Wehba Sr. “sold his Beverly Hills mansion” to settle
litigation with Mitsuwa in California, Mitsuwa Corp. v. Wehba, Los Angeles
Superior Court No. BC 463929.
Medical Mutual alleged that, “based in part on” an opinion in the
Mitsuwa proceeding in California, the Wehba family had consistently “structured
deals to buy properties in which a seller would become the tenant thereof through a
leaseback agreement,” treat the “real estate business as their own without regard for
the distinction between the entities they created and their own personal affairs,” and
“pay themselves millions of dollars from the entities involved with the result that,
eventually, the obligor entities defaulted on the notes in favor of Mitsuwa.” Medical
Mutual stated that it believed the Wehba defendants had engaged in “the same type
of misconduct in connection with the Rose Building transaction[.]”
Medical Mutual claimed that it sent notices to BFG Holdings and the
guarantors that BFG Holdings was in default under the note, and Medical Mutual
attached copies of the notices to its complaint. Medical Mutual accelerated the
remaining balance due on the note, demanding payment of $4,422,727.86. Medical
Mutual stated that the guarantors had failed to honor their obligation. Medical
Mutual alleged that “[i]t would work a substantial injustice” if Medical Mutual were
required to continue to pay its $419,968.33 monthly rent to MMCO when MMCO
still owed Medical Mutual over $4 million and had made clear that it would not
make any further note payments.
Medical Mutual asserted seven claims for relief: (1) a declaration that
Medical Mutual was permitted to withhold its rent payments to MMCO; (2) breach
of promissory note; (3) breach of guaranty; (4) fraud and fraudulent concealment;
(5) fraudulent transfers; (6) unjust enrichment; and (7) set-off. Medical Mutual also
demanded a jury trial.
Medical Mutual attached to its pleading a verification executed by a
Medical Mutual employee. The employee stated that the facts in the pleading were
based on his personal knowledge and “the institutional knowledge of Medical
Mutual,” and to the best of his “knowledge, information, and belief, all of the facts
as alleged are true[.]” Medical Mutual also attached 12 exhibits, including the lease
between MMCO and Medical Mutual, the September 2000 promissory note for
$12,370,000, the September 2000 guaranty agreement, the lockbox agreement, the
standing wire agreement, and a 2016 news article describing the crash of Bentley
Forbes’s real estate business.
With its pleading, Medical Mutual filed a motion for a temporary
restraining order and preliminary and permanent injunction. It requested one of
the following alternative orders regarding its rental payments: (1) an order that an
account be established into which Medical Mutual could pay its rent and from which
the corresponding note payment would be transmitted back to Medical Mutual, (2)
an order allowing Medical Mutual to pay its rent to the court, (3) an order requiring
the Wehba defendants to pay Medical Mutual the $97,769.51 note payment from
each of Medical Mutual’s $419,968.33 rent payments, (4) an order that Medical
Mutual’s rent payments would each be reduced by $97,769.51 until the note balance
was paid in full, or (5) an order allowing Medical Mutual to stop paying rent until
the amount of its rental payments equaled the total amount of damages that would
be awarded to Medical Mutual from the Wehba defendants.
The trial court granted Medical Mutual’s motion to intervene. After
briefing and a hearing, the trial court appointed a receiver and denied Medical
Mutual’s motion for a temporary restraining order and preliminary injunction. No
party filed an objection.
The following month, in August 2016, Mitsuwa filed an answer to U.S.
Bank’s complaint and a motion for leave to record a mortgage that predated the
receivership. Mitsuwa maintained that pursuant to the terms of a November 2015
settlement agreement in the California proceeding, “Mitsuwa received an interest in
any proceeds from the sale of the [Rose Building] junior only to the mortgage of the
first lienholder, U.S. Bank.” Mitsuwa explained that, to secure its rights to the
proceeds from any sale of the Rose Building, “on November 2, 2015, MMCO
executed the Mitsuwa Mortgage to encumber” the Rose Building. Mitsuwa attached
to its motion a copy of the settlement agreement and the mortgage. The settlement
agreement states that Mitsuwa would not record the mortgage unless the defendants
in that action (which included Wehba Sr. individually, Ms. Wehba individually and
as trustee of the GFW and GFW II Trusts, Wehba Jr. individually and as trustee of
the GFW and GFW II Trusts, Bentley Forbes, and MMCO) defaulted under the
settlement agreement. Mitsuwa maintained that the defendants in the California
action defaulted under the settlement agreement in January 2016, and Mitsuwa
sought leave to record its mortgage.
U.S. Bank opposed Mitsuwa’s motion, arguing that the motion was
untimely and that Mitsuwa was an unsecured creditor because it did not record the
mortgage. Medical Mutual also opposed the motion, emphasizing that Mitsuwa had
notice that U.S. Bank’s mortgage prohibited further mortgages or liens on the Rose
Building. MMCO also filed a motion in opposition to Mitsuwa’s motion,
maintaining that it “is precluded by the terms of the existing receivership order.”
Nearly a year later (in August 2017), the trial court denied Mitsuwa’s motion.
In November 2016, Medical Mutual filed a motion to compel the
Wehba defendants to produce discovery. Medical Mutual maintained that the
Wehba defendants had not responded to any of its first sets of interrogatories and
document requests despite two extensions of time. The Wehba defendants’
opposition to the motion to compel states that they served discovery responses
simultaneously with their opposition. Medical Mutual filed a reply, arguing that the
discovery responses were incomplete. Eight months later, the trial court granted the
motion to compel, noting that the discovery had been outstanding since November
2016. The trial court ordered the Wehba defendants to produce the requested
discovery by the following month.
In July 2017, a year after the trial court appointed the receiver,
MMCO and the GFW Trust filed a motion to vacate the appointment of the receiver.
U.S. Bank, Medical Mutual, and the receiver filed oppositions. MMCO and the GFW
Trust also sought leave to file an amended answer to U.S. Bank’s complaint and a
counterclaim against U.S. Bank for breach of contract and declaratory judgments
that R.C. Chapter 2735 is unconstitutional. MMCO and the GFW Trust argued that
they learned the receiver had agreed to sell and Medical Mutual had agreed to
purchase the Rose Building through a receivership sale pursuant to
R.C. Chapter 2735. U.S. Bank filed an opposition. A few weeks later, the receiver
filed a motion for authority to sell the Rose Building to Medical Mutual for
$37,900,000.
In August 2017, the trial court denied MMCO and the GFW Trust’s
motion to vacate the order appointing the receiver, noting that prior counsel for
MMCO and the GFW Trust had consented to the receiver and that the order
appointing the receiver was not appealed within 30 days. The trial court also denied
their motion for leave to file an amended answer and counterclaim against U.S.
Bank. The trial court noted that MMCO and the GFW Trust had “ample time” to
amend their pleadings, they failed to attend or retain counsel for three “critical”
court dates between April 2017 and June 2017, and they had “also delayed in the
past” by failing to respond to “basic” discovery requests. The trial court authorized
the receiver sale after briefing and a hearing. The trial court entered a stipulated
entry of in rem judgment and decree of foreclosure.
Also in August 2017, U.S. Bank voluntarily dismissed its claims
against the Ohio Department of Job and Family Services, noting that the lien the
department had recorded against the property had been released in October 2016.
U.S. Bank also filed a motion pursuant to Civ.R. 42(B) to bifurcate Counts 2 through
6 of Medical Mutual’s counterclaim (Medical Mutual’s claims against the Wehba
defendants for breach of the guaranty agreement, fraud and fraudulent
concealment, fraudulent transfers, and unjust enrichment) from the other claims in
the lawsuit. The trial court granted the unopposed motion.
The sale of the Rose Building to Medical Mutual closed in September
2017, and the net proceeds after closing costs and receiver expenses were
$36,501,832.50. The receiver disbursed the net proceeds to U.S. Bank to satisfy, in
part, its in rem judgment. The trial court terminated the receivership the following
month.
In December 2017, U.S. Bank filed a motion to dismiss its remaining
claims that had not been resolved by the trial court’s order of in rem judgment and
decree of foreclosure. The trial court granted the motion. The trial court’s judgment
entry states in part that Count 3 of U.S. Bank’s complaint (its claim against Mitsuwa
and the Cuyahoga County Treasurer for foreclosure of mortgage and security
interest) “was resolved by virtue of the Foreclosure Judgment.” Therefore, the only
claims remaining in the action after the trial court granted U.S. Bank’s motion to
dismiss were Medical Mutual’s claims against the Wehba defendants for breach of
the promissory note, breach of the guaranty, fraud and fraudulent concealment,
fraudulent transfers, unjust enrichment, and set-off.
In January 2018, Medical Mutual filed a motion for partial summary
judgment against the “third-party defendants”: Bentley Forbes, the GFW II Trust,
Wehba Sr., Ms. Wehba “individually and in her capacity as Co-Trustee of the GFW
II Trust,” and Wehba Jr. “in his capacity as Co-Trustee of the GFW II Trust.”
Medical Mutual sought summary judgment regarding only its claim for breach of
guaranty. Medical Mutual simultaneously filed a motion for “sanctions and/or to
compel discovery” against the Wehba defendants for failure to comply with the trial
court’s order compelling complete discovery responses to Medical Mutual’s first set
of discovery requests.
Six months later, in June 2018, Medical Mutual filed a second motion
for summary judgment on its claims for breach of promissory note, fraud and
fraudulent concealment, and unjust enrichment against all of the Wehba defendants
except for Wehba Jr. in his individual capacity: MMCO, BFG Holdings, Bentley
Forbes, the GFW Trust, the GFW II Trust, Wehba Sr., Ms. Wehba “individually and
in her capacity as Co-Trustee of the GFW II Trust,” and Wehba Jr. “in his capacity
as Co-Trustee of the GFW II Trust. Medical Mutual argued in part that BFG
Holdings breached the promissory note and the “Wehba Enterprise Defendants”
were liable for the breach as alter egos of each other.
In support of its argument that the Wehba defendants are alter egos
of each other, Medical Mutual cited to an April 2016 “Tentative Statement of
Decision” from the California proceeding involving Mitsuwa and attached the
statement as an exhibit to its summary judgment motion. The statement provides
that the case arose from Mitsuwa’s sale of two properties to corporations formed by
members of the Wehba family, the corporations defaulted on the promissory notes,
Mitsuwa obtained default judgments against them, and Mitsuwa was unable to
collect from them. The defendants in the Mitsuwa case included the following
parties that Medical Mutual also named as defendants in the present case related to
the Rose Building: MMCO, Bentley Forbes, Wehba Sr., Wehba Jr. individually and
as trustee of the GFW and GFW II Trusts, and Ms. Wehba individually and as trustee
of the GFW and GFW II Trusts.
The Mitsuwa court explained that the Wehba family conducted its
business “through a number of inter-related entities that the Wehbas commonly
referred to as ‘Bentley Forbes.’” They “structured deals to buy properties in which a
seller would become the tenant thereof through a leaseback agreement.” One of the
Bentley Forbes entities would transfer title to an L.L.C. formed by the Wehbas, and
another L.L.C. formed by the Wehbas would receive the rent that the sellers paid for
the lease. The opinion states that Bentley Forbes used this method to acquire the
two properties from Mitsuwa. The Mitsuwa court noted that Mitsuwa presented
substantial testimony and documentary evidence to establish a “unity of interest”
between the Wehbas and their L.L.C.s. The Mitsuwa court found that the “Wehbas
continually and consistently treated their real estate business as their own without
regard for the distinction between the entities they created and their own personal
affairs”:
[T]here was common ownership, direction and governance, common
use of employees and premises, a lack of regard for formalities (even
when taking into account the less formal nature of LLCs), a lack of
consistent accounting, whether periodic or regular, a lack of separation
of support services, the common exercise of executive functions and
decisions by Wehba family members, the transfer of assets and use of
funds regardless of which entity held them, personal use of business
assets and the special distributions of funds, often for the use by
another of the business entities and, in important instances, leaving an
obligor entity without funds to satisfy its obligations.
The Mitsuwa court explained that the disregard for corporate
formalities allowed the Wehbas “to pay themselves millions of dollars from the
entities involved with the result that, eventually, the obligor entities defaulted on the
notes in favor of Mitsuwa.” The Mitsuwa court found that Wehba Sr. individually,
Wehba Jr. in his individual and trustee capacities, Ms. Wehba in her individual and
trustee capacities, Bentley Forbes, and other corporations not parties to the present
case were alter egos of each other and “were part of a single enterprise in relationship
to the two transactions for the purchase of property from Mitsuwa[.]” The Mitsuwa
court noted that the parties disputed whether Ohio, Delaware, or California law
should apply to the alter ego analysis, but the court found that the “result would be
the same” regardless of which state’s law applied.
After this decision, the parties entered a stipulated judgment, and the
judge entered a “judgment pursuant to stipulation for judgment.”2 Medical Mutual
attached the judgment pursuant to the stipulation for judgment as an exhibit to its
summary judgment motion with an affidavit stating the exhibit is a true and accurate
copy. The judgment pursuant to the stipulated judgment, signed by the California
trial court judge, states that the court “rules” that “[e]ach and every Defendant is the
agent and alter ego of each and every other Defendant.”
The Wehba defendants filed a joint cross-motion for summary
judgment and “response” to Medical Mutual’s summary judgment motions. The
Wehba defendants explained in their response that they did not oppose summary
judgment in Medical Mutual’s favor on its claim for breach of the guaranty against
the GFW II Trust, Wehba Sr., Ms. Wehba (individually and as her capacity as
trustee), and Bentley Forbes. But they argued that Wehba Jr. was not a guarantor
and therefore could not be individually liable for breach of the guaranty. The Wehba
2 The judgment pursuant to the stipulation for judgment states that the stipulation
for judgment was “signed by the Defendants,” which included Wehba Sr. individually,
Ms. Wehba individually and as trustee of the GFW and GFW II Trusts, Wehba Jr.
individually and as trustee of the GFW and GFW II Trusts, Bentley Forbes, and MMCO.
Counsel for Mitsuwa and counsel for “All Defendants” signed the judgment pursuant to
the stipulation for judgment “as to form,” and the trial court judge also signed it.
defendants also stated that they did not oppose summary judgment against BFG
Holdings for breach of the promissory note, but they maintained that the guarantors
and Wehba Jr. individually could not be liable for breach of the promissory note. In
their response to Medical Mutual’s summary judgment motion, the Wehba
defendants explained that they challenged only Medical Mutual’s arguments related
to fraud, unjust enrichment, and alter-ego liability.
In their summary judgment motion, the Wehba defendants again
argued that Wehba Jr. is not liable for breach of guaranty, only BFG Holdings is
liable for breach of promissory note, and no defendants are liable for fraud,
fraudulent concealment, fraudulent transfers, unjust enrichment, or set off. In
support of their summary judgment motion, the Wehba’s attached exhibits,
including the September 2000 note and affidavits executed by Wehba Jr. and
Ms. Wehba.
The Wehba defendants also filed a motion for a protective order
providing that they do not need to disclose tax returns that Medical Mutual
requested in discovery.
In July 2018, the trial court denied the Wehba defendants’ motion for
protective order and compelled them to produce the requested tax returns under
seal. The Wehba defendants appealed, and the trial court stayed the proceedings.
This court dismissed the appeal for lack of a final, appealable order, and the Ohio
Supreme Court did not accept jurisdiction over the Wehba defendants’ appeal of our
dismissal.
In December 2019, in a written opinion, the trial court granted both
of Medical Mutual’s motions for summary judgment and granted the Wehba
defendants’ summary judgment motion in part and denied it in part. The trial court
found that all the Wehba defendants were alter egos of each other, and that Medical
Mutual was entitled to summary judgment in its favor on its claims for breach of
promissory note, breach of guaranty, and fraud and fraudulent concealment. The
trial court found that the Wehba defendants were entitled to summary judgment in
their favor on Medical Mutual’s claim for fraudulent transfers. The trial court
further found that Medical Mutual’s claims for declaratory judgment, unjust
enrichment, and setoff were moot.3
The trial court ordered that Bentley Forbes, the GFW II Trust, Wehba
Sr., Ms. Wehba “individually and as Co-Trustee of the GFW II Trust,” and Wehba
Jr. “as Co-Trustee of the GFW II Trust” were jointly and severally liable for “the
principal sum of $4,351,679.00, plus interest at the [p]romissory [n]ote rate of
7.25% per annum from July 1, 2016 until the judgment is paid in full.”
The trial court also ordered that MMCO, BFG Holdings, Bentley
Forbes, the GFW Trust, the GFW II Trust, Wehba Sr., Ms. Wehba individually and
as trustee of the GFW II Trust, and Wehba Jr. as trustee of the GFW II Trust were
jointly and severally liable for “the principal amount of $4,351,679.00, plus accrued
interest in the amount of $516,031.63, plus interest at the [p]romissory [n]ote rate
3 These claims related to the Medical Mutual’s payment of rent during the
receivership.
of 7.25% per annum from the date of January 16, 2018 to the present, and costs of
this action.”
In January 2020, Medical Mutual filed a motion for a nunc pro tunc
entry to clarify that the trial court’s summary judgment order included Wehba Jr. in
his individual capacity — not just in his capacity as a trustee for the GFW II Trust.
Medical Mutual requested in the alternative that the trial court modify the order
pursuant to Civ.R. 54(B) or grant Medical Mutual leave to file another summary
judgment motion against Wehba Jr. in his individual capacity. The Wehba
defendants filed an opposition. Before the trial court ruled on the motion, the
Wehba defendants filed a notice of appeal from the trial court’s summary judgment
order. Medical Mutual filed a notice of its cross appeal, noting that its appeal was
“contingent upon a finding that the [o]rder is final and appealable,” which Medical
Mutual disputed because the order did not dispose of the claims against Wehba Jr.
in his individual capacity. This court remanded the matter to the trial court to
“clarify” its judgment as to Wehba Jr.’s individual liability.
The trial court’s hearing on remand was delayed due to Covid-19, and
the trial court held the hearing virtually in August 2020. At the hearing, counsel for
Medical Mutual explained that they made a typographical error in their second
motion for summary judgment when they failed to include Wehba Jr. in his
individual capacity. Counsel for Wehba Jr. argued that Medical Mutual was making
an “after-the-fact attempt” to “remedy” a strategic decision. The trial court denied
Medical Mutual’s motion for a nunc pro tunc order and modification pursuant to
Civ.R. 54(B), but the trial court granted Medical Mutual leave to file another
summary judgment motion limited to the issue of Wehba Jr.’s individual liability.
This court then dismissed the appeal for lack of a final, appealable order.
Pursuant to the trial court’s order, Medical Mutual filed a summary
judgment motion regarding Wehba Jr.’s individual liability. Wehba Jr. filed an
opposition and a cross-motion for summary judgment against Medical Mutual.
Medical Mutual moved to strike the motion as untimely and redundant of the
Wehba defendants’ original summary judgment motion. Medical Mutual also filed
an opposition to Wehba Jr.’s cross-motion for summary judgment, to which it
attached excerpts from Wehba Jr.’s tax returns. The trial court granted Medical
Mutual’s motion to strike.
In January 2021, the trial court granted Medical Mutual’s summary
judgment motion and held that Wehba Jr., in his individual capacity, was jointly and
severally liable with the other Wehba defendants.
It is from this judgment that the Wehba defendants timely appeal.
The Wehba defendants’ appeal is limited to the issues of Medical Mutual’s fraud
claim, piercing the corporate veil, and the individual liability of Wehba Jr.
II. Standards of Review
Except for the trial court’s orders (1) granting Medical Mutual leave
to file a third summary judgment motion regarding Wehba Jr.’s individual liability
and (2) striking Wehba Jr.’s cross-motion for summary judgment regarding his
individual liability, the Wehba defendants’ assignments of error pertain to the trial
court’s summary judgment orders. We review a trial court’s judgment granting a
motion for summary judgment de novo. Citizens Bank, N.A. v. Richer, 8th Dist.
Cuyahoga No. 107744, 2019-Ohio-2740, ¶ 28. We independently “examine the
evidence to determine if as a matter of law no genuine issues exist for trial.” Brewer
v. Cleveland Bd. of Edn., 122 Ohio App.3d 378, 383, 701 N.E.2d 1023 (8th
Dist.1997). We review the trial court’s order without giving any deference to the trial
court. Citizens Bank at ¶ 28. “On appeal, just as the trial court must do, we must
consider all facts and inferences drawn in a light most favorable to the nonmoving
party.” Glemaud v. MetroHealth Sys., 8th Dist. Cuyahoga No. 106148, 2018-Ohio-
4024, ¶ 50.
Pursuant to Civ.R. 56(C), summary judgment is proper where (1)
“there is no genuine issue as to any material fact,” (2) “the moving party is entitled
to judgment as a matter of law,” and (3) “reasonable minds can come to but one
conclusion, and that conclusion is adverse to the party against whom the motion for
summary judgment is made.” Harless v. Willis Day Warehousing Co., 54 Ohio
St.2d 64, 66, 375 N.E.2d 46 (1978). Trial courts should award summary judgment
only after resolving all doubts in favor of the nonmoving party and finding that
“reasonable minds can reach only an adverse conclusion” against the nonmoving
party. Murphy v. Reynoldsburg, 65 Ohio St.3d 356, 358-359, 604 N.E.2d 138(1992).
The moving party carries an initial burden of setting forth specific
facts that demonstrate his or her entitlement to summary judgment. Dresher v.
Burt, 75 Ohio St.3d 280, 292-293, 662 N.E.2d 264 (1996). If the movant fails to
meet this burden, summary judgment is not appropriate. Id. at 293. If the movant
does meet this burden, the burden shifts to the nonmovant to establish the existence
of genuine issues of material fact. Id.
Regarding the Wehba defendants’ third and fourth assignments of
error, we review for abuse of discretion the trial court’s orders granting Medical
Mutual leave to file a third summary judgment motion and striking Wehba Jr.’s
cross-motion for summary judgment. Sultaana v. Giant Eagle, 8th Dist. Cuyahoga
No. 90294, 2008-Ohio-3658, ¶ 5; Marriott Corp. v. Lerew, 8th Dist. Cuyahoga No.
85551, 2005-Ohio-5336, ¶ 39. An abuse of discretion connotes that the trial court’s
attitude was unreasonable, arbitrary, or unconscionable. Ruwe v. Bd. of Twp.
Trustees, 29 Ohio St.3d 59, 61, 505 N.E.2d 957 (1987).
III. Fraud
In their first assignment of error, the Wehba defendants argue that
the trial court erred in granting summary judgment in favor of Medical Mutual on
Medical Mutual’s fraud claim. They argue that (1) the fraud claim is based on the
same underlying facts as the claim for breach of contract, (2) Medical Mutual did
not produce evidence supporting each element of its fraud claim, and (3) the trial
court improperly imposed an “adverse inference sanction” against them for failing
to meaningfully participate in discovery.
To succeed on its fraud claim, Medical Mutual must establish the
following elements: (1) a representation of fact (or where there is a duty to disclose,
concealment of a fact); (2) that is material to the transaction at issue; (3) made
falsely, with knowledge of its falsity or with utter disregard and recklessness as to
whether it is true or false; (4) with the intent of misleading another into relying upon
it; (5) justifiable reliance upon the misrepresentation (or concealment); and (6)
resulting injury proximately caused by the reliance. Cohen v. Lamko, Inc., 10 Ohio
St.3d 167, 169, 462 N.E.2d 407 (1984).
In support of its fraud claim, Medical Mutual points to the following
allegations in its complaint:
The Wehba Enterprise Defendants had a duty to disclose that the GFW
II Trust no longer had $25 million in assets,4 that they had drained the
assets from the GFW Trust for their own personal benefit, and that they
had voluntarily dissolved BFG Holdings even though it remained
obligated to make the Note Payment.
The Wehba Enterprise Defendants’ representations regarding the GFW
II Trust were false, as they had drained the assets from the GFW II
Trust. Medical Mutual reasonably relied on the Wehba Enterprise
Defendants’ representations, and on their failure to disclose their
fraudulent transfers to Medical Mutual, to its detriment by continuing
to make the Rent Payment and by refraining from taking earlier action
to enforce its rights.
Medical Mutual argues that its complaint was verified, and the Wehba defendants
did not conduct any discovery to rebut these sworn allegations.
The Wehba defendants argue that Medical Mutual produced no
evidence to support its fraud claim and that the trial court improperly put the
burden of proof on them to “disprove” the claim. However, sworn pleadings filed in
4 We note that the guaranty agreement, attached to Medical Mutual’s complaint,
required the guarantors to maintain the GFW Trust’s “net worth” at a minimum of $25
million.
the action are evidence for purposes of Civ.R. 56(C). State ex rel. Spencer v. East
Liverpool Planning Comm, 80 Ohio St.3d 297, 298, 685 N.E.2d 1251, (1997); see
also Civ.R. 56(C) (including “pleadings” in the list of materials appropriate for
consideration on summary judgment). Medical Mutual properly relied on sworn
allegations from its verified complaint in support of its summary judgment motion.
The burden then shifted to the Wehba defendants to set forth evidence to counter
those allegations. See Dresher, 75 Ohio St.3d at 292-293, 662 N.E.2d 264. Because
the Wehba defendants failed to do so, Medical Mutual had no obligation to produce
additional evidence. See Spencer at 298 (holding that because one party failed to
set forth evidence countering the allegations in the verified complaint, the other
party was not obligated to respond with additional evidence). The trial court did not
err in shifting the burden to the Wehba defendants to establish the existence of
genuine issues of material fact. The court’s shifting the burden to the Wehba
defendants under Civ.R. 56(C) did not constitute an “adverse inference sanction.”
The Wehba defendants also argue that the fraud claim fails because it
is based on the same actions underlying the claims for breach of the guaranty and
promissory note and because Medical Mutual does not seek damages for fraud
beyond the damages it suffered for breach of contract. Medical Mutual maintains
that the Wehba defendants’ failure to disclose that they had depleted the net worth
of the GFW II Trust “did not operate in a vacuum” and that the Wehba defendants
also failed to disclose that BFG Holdings had been dissolved. Medical Mutual
maintains that it suffered damages for fraud because it could not take steps to
“exercise[e] [its] guaranty rights against GFW II” or seek additional security for the
note before the Wehba defendants “drained” the GFW II Trust and rendered it
insolvent.
“[T]he existence of a contract action excludes the opportunity to
present the same case as a tort claim.” Stancik v. Deutsche Natl. Bank, 8th Dist.
Cuyahoga No. 102019, 2015-Ohio-2517, ¶ 40, citing Textron Fin. Corp. v.
Nationwide Mut. Ins. Co., 115 Ohio App.3d 137, 684 N.E.2d 1261 (9th Dist.1996).
“‘Where the causes of action in tort and contract are “factually intertwined,” a
plaintiff must show that the tort claims derive from the breach of duties that are
independent of the contract and that would exist notwithstanding the contract.’” Id.,quoting Cuthbert v. Trucklease Corp., 10th Dist. Franklin No. 03AP-662, 2004-
Ohio-4417, ¶ 44. Furthermore, a plaintiff “must include actual damages attributable
to the wrongful acts of the alleged tortfeasor which are in addition to those
attributable to the breach of contract.” (Emphasis sic) Textron at 151.
Here, Medical Mutual has not alleged actual damages beyond the
breach of guaranty. The claim for breach of guaranty is based only on the draining
of the GFW II Trust. The fraud claim adds the dissolution of BFG Holdings and the
concealment of these actions. However, the damages for both claims are the same.
In its claim for breach of guaranty, Medical Mutual seeks damages “in the principal
amount of $4,422,727.86, plus interest and penalties pursuant to the terms of the
[p]romissory [n]ote.” Likewise, in its fraud claim, Medical Mutual seeks damages
“in the principal amount of $4,422,727.86, plus interest and penalties pursuant to
the terms of the [p]romissory [n]ote.”5 Beyond this pleading, Medical Mutual did
not present any other evidence of actual damages for fraud that are in addition to
the damages it claimed for breach of the guaranty.
Accordingly, even if the allegations in the verified complaint satisfied
the elements for fraud, the trial court erred in granting summary judgment in favor
of Medical Mutual on the fraud claim. The Wehba defendants are entitled to
judgment as a matter of law in their favor on Medical Mutual’s fraud claim.
We therefore sustain the Wehba defendants’ first assignment of error.
IV. Piercing the Corporate Veil
In their second assignment of error, the Wehba defendants argue that
the trial court erred when it pierced the corporate veil to impose liability on all the
Wehba defendants as alter egos of each other. They maintain that Medical Mutual
and the trial court treated them as “one undifferentiated group,” did not identify the
conduct of any specific party, and did not cite evidence as to how any of the Wehba
defendants were related to each other. They further contend that the trial court
improperly (1) applied a judgment from the California litigation, (2) imposed
another adverse inference sanction for their lack of participation in discovery, and
(3) ignored the second and third prongs of the “Belvedere/Dombrowski test.”
It is a well-settled principle in Ohio law that shareholders, officers,
and directors of a corporation are generally not liable for the debts of the
5In its complaint, Medical Mutual sought attorney fees and punitive damages for
fraud, but these are not “actual” damages in this context. See Cord v. Victory Sols., L.L.C.,
8th Dist. Cuyahoga No. 106006, 2018-Ohio-590, ¶ 19.
corporation. Dombroski v. WellPoint, Inc., 119 Ohio St.3d 506, 2008-Ohio-4827,
895 N.E.2d 538, ¶ 16 citing Section 3, Article XIII, Ohio Constitution; Belvedere
Condominium Unit Owners’ Assn. v. R.E. Roark Cos., 67 Ohio St.3d 274, 287, 617
N.E.2d 1075 (1963). Shareholders, however, do not hold absolute immunity from
liability for the actions of their corporations. Id. at ¶ 17. The legal fiction of the
corporate form cannot stand if used for a purpose or intent not within its reason and
policy. Id., citing State ex rel. Atty. Gen. v. Std. Oil Co., 49 Ohio St. 137, 30 N.E. 279,
paragraph one of the syllabus. When a shareholder misuses the corporate form as a
shield from liability for their own misdeeds, Ohio law will permit piercing of the
corporate veil as a rare exception to the guiding principles of limited shareholder
liability. Id. at ¶ 17, 26, citing Belvedere at 287; Dole Food Co. v. Patrickson, 538
U.S. 468, 475, 123 S.Ct. 1655, 155 L.E.2d 643 (2003). Piercing the corporate veil is
a judicial act that imposes personal liability on otherwise immune corporate officers,
directors, or shareholders for the corporation’s wrongful acts. Denny v. Breawick,
L.L.C., 2019-Ohio-2066, 137 N.E.3d 578, ¶ 15 (3d Dist.), citing Minno v. Pro-Fab,
Inc., 121 Ohio St.3d 464, 2009-Ohio-1247, 905 N.E.2d 613, ¶ 8.
The Ohio Supreme Court has established a three-prong test to
determine whether to pierce the corporate veil:
(1) control over the corporation by those to be held liable was so
complete that the corporation has no separate mind, will, or existence
of its own, (2) control over the corporation by those to be held liable
was exercised in such a manner as to commit fraud or an illegal act [or
a similarly unlawful act] against the person seeking to disregard the
corporate entity, and (3) injury or unjust loss resulted to the plaintiff
from such control and wrong.
Belvedere at paragraph three of the syllabus, as modified by Dombroski at ¶ 29
(modification is indicated by the bracketed language above).
“The first prong of the Belvedere test is basically the ‘alter ego
doctrine.’” Byars v. Herman, 8th Dist. Cuyahoga No. 83496, 2004-Ohio-3613, ¶ 24,
citing Belvedere. When determining whether an “individual and corporation are
indistinguishable” for purposes of the first prong, courts may consider factors
including, “(1) whether corporate formalities were observed; (2) whether corporate
records were kept; (3) whether corporate funds were commingled with personal
funds; and (4) whether corporate property was used for a personal purpose.” Id.Medical Mutual argues that the trial court did not need to conduct an
analysis of the three elements from Belvedere, 67 Ohio St.3d 274, 617 N.E.2d 1075,
because the California court in the Mitsuwa litigation already entered a judgment
that Wehba Sr. individually, Ms. Wehba individually and as trustee of the GFW and
GFW II Trusts, Wehba Jr. individually and as trustee of the GFW and GFW II Trusts,
Bentley Forbes, and MMCO (among other parties not named in the present case)
are alter egos of each other. Medical Mutual maintains that this judgment is binding
on this court, or, alternatively, that the judgment is at least evidence to show that
the Wehba defendants are alter egos of each other. Indeed, the trial court relied on
the California judgment to find that the Wehba defendants are alter egos of each
other and to hold all the Wehba defendants jointly and severally liable to Medical
Mutual.
However, if the judgment is binding on us, it would satisfy Medical
Mutual’s burden of proof only for the first of the three prongs of the Belvedere test.
Evidence that a corporation and an individual are alter egos of each other alone is
insufficient to pierce the corporate veil; “all three prongs of the Belvedere test must
be met for the court to pierce the corporate veil.” My Father’s House #1, Inc. v.
McCardle, 2013-Ohio-420, 986 N.E.2d 1081, ¶ 29 (3d Dist.) (finding that the trial
court erred in piercing the corporate veil based on the alter ego doctrine alone
without “any evidence regarding the remaining two prongs of the Belvedere test”).
The trial court’s opinion does not mention the Belvedere test or
include analysis of the second and third prongs. Instead, the trial court states that
“alter ego is a separate remedy under Ohio law” and cites to Slone v. Lorenz (In re
Lorenz), S.D.Ohio No. 09-31913, 2011 Bankr. LEXIS 738 (Mar. 8, 2011). Slone
involved the issue of reverse veil piercing, and the bankruptcy court for the Southern
District of Ohio cited other federal cases for the principle that in Ohio, “alter ego is
a distinct remedy.” Id. at 23. Medical Mutual also cites to Brennan v. Slone (In re
Fisher), 296 Fed. Appx. 494, 506 (6th Cir.2008), another case involving reverse veil
piercing, for this principle. However, Ohio state courts have not adopted this
principle, and one state court case acknowledging this federal line of cases has
explicitly criticized it: “if a corporate form could be disregarded for purposes of
imposing personal liability vis-a-vis the alter-ego doctrine alone, then this would
seem to circumvent and, indeed, eviscerate the other two requirements for piercing
a corporate veil.” Fifth Third Bank v. Diversified Transp. Servs., C.P. Lucas No. CI
09-2373, 2010 Ohio Misc. LEXIS 547, 30 (Jan. 14, 2010), fn. 18.
Accordingly, we conduct our de novo review under all three prongs of
the Belvedere test.
A. Belvedere Test Prong One: Alter Ego
In support of the first prong of the Belvedere test (whether the Wehba
defendants are alter egos of each other), Medical Mutual points to the judgment
pursuant to the stipulated judgment in the California proceeding. The Wehba
defendants argue that we cannot consider the California judgment at all and, even if
we can, it is not binding on this court.
First, we may consider the California judgment because the judgment
is properly within the record in this case. See Huber Heights Veterans Club, Inc. v.
Grand Voiture D’Ohio La Societe Des 40 Hommes Et 8 Chevaux, 2d Dist.
Montgomery No. 29078, 2021-Ohio-2695, ¶ 34 (“The documents from other
proceedings were properly before the trial court as exhibits in support of the
supplemental motions for summary judgment, and the trial court did not err in
considering them.”). Medical Mutual’s counsel executed an affidavit in support of
Medical Mutual’s June 2018 summary judgment motion. He averred that “[a] true
and accurate copy of the Judgment Pursuant to Stipulation for Judgment in
Mitsuwa Corporation v. C. Frederick Wehba, et al., LASC No. BC 463929
(“Stipulated Judgment”) is attached as Exhibit A to Medical Mutual of Ohio’s
Motion for Summary [Judgment] Against the Wehba Enterprise Defendants for
Breach of Promissory Note, Fraud and Fraudulent Concealment, and Unjust
Enrichment.”
The judgment pursuant to the stipulated judgment, dated October 14,
2016, states the following in relevant part:
1. On June 22, 2011, Mitsuwa filed a Complaint against certain of the
Wehba Defendants, and thereby commenced Mitsuwa Corporation v.
C. Frederick Wehba, et al, Superior Court for the State of California,
County of Los Angeles, Case No. BC 463929 (the “Action”), in which it
alleged various contract and tort claims, including fraud, conversion,
and fraudulent transfers, and made certain allegations against the
Wehba Defendants.
2. Throughout the course of the litigation, certain additional Wehba
Defendants were added as Defendants by Mitsuwa.
3. Trial of the Action commenced on May 22, 2015, the first day of the
Phase 1 trial on the alter ego issues.
4. On April 22, 2015, the Court issued a “Tentative Statement of
Decision” (which became final by virtue of Cal. Code of Civil Proc.
§ 632) finding the Wehba Defendants alter egos of each other.
5. On June 26, 2015, the Court granted Mitsuwa’s motion for judgment
on the pleadings on the First and Second Causes of Action in the
Complaint against the Wehba Defendants in the amount of $7,901,
291.18, as of June 26, 2015, with interest accruing at 10% thereafter.
6. On November 6, 2015, the parties filed a Stipulation of Conditional
Dismissal and to stay the Action until December 16, 2016, which the
Court granted.
7. On October 14, 2016, Mitsuwa filed an ex parte application
requesting Judgment against Defendants pursuant to a Stipulation for
Judgment signed by the Defendants.
8. Mitsuwa suffered damages in the amount of Fifteen Million Dollars
($15,000,000).
9. Each and every Defendant is the agent and alter ego of each and every
other Defendant.
Based on these findings,
IT IS HEREBY ORDERED, ADJUDGED AND DECREED:
***
3. All the Wehba Defendants, as set forth in Exhibit A hereto, are jointly
and severally liable to Plaintiff Mitsuwa for $11,087,397.20.
Exhibit A to the stipulated judgment lists 15 defendants, including
Wehba Sr. individually, Ms. Wehba individually and as trustee of the GFW and GFW
II Trusts, Wehba Jr. individually and as trustee of the GFW and GFW II Trusts,
Bentley Forbes, and MMCO. Exhibit A includes as defendants “Bentley Forbes
Holdings, LLC” and “BF Holdings 2005, LLC,” but these appear to be different
entities from “BFG Holdings 2000, LLC,” which executed the note for the Rose
Building and has since been dissolved.
The parties dispute whether the alter-ego findings in the judgment
pursuant to the stipulated judgment are binding on this court. The parties agree
that California law regarding collateral estoppel, also known as issue preclusion,
guides this analysis. See Holzemer v. Urbanksi, 86 Ohio St.3d 129, 132, 712 N.E.2d
713 (1999) (explaining that the full faith and credit clause of the U.S. Constitution
requires Ohio to give another state’s court proceedings the same “credit” as that
proceeding would carry in the state’s own courts); In re S.K.L., 2016-Ohio-2826, 64
N.E.3d 413, ¶ 23, fn. 2 (8th Dist.), citing Holzemer (“full faith and credit only
requires courts to enforce judgments as the other court would enforce”).
Under California law, issue preclusion “prevents ‘relitigation of
previously decided issues,’ rather than causes of action as a whole.” Samara v.
Matar, 5 Cal.5th 322, 327, 419 P.3d 924, 234 Cal.Rptr.3d 446 (2018), quoting DKN
Holdings L.L.C. v. Faerber, 61 Cal.3th 813, 824, 352 P.3d 378, 189 Cal.Rptr.3d 809(2015). “[I]ssue preclusion applies (1) after final adjudication (2) of an identical
issue (3) actually litigated and necessarily decided in the first suit and (4) asserted
against one who was a party in the first suit or one in privity with that party.” DKN
Holdings at 825.6
As to the first and third elements, the California court held a trial “on
the alter ego issues” on May 22, 2015, and the following month found that many of
the Wehba defendants in that action were alter egos of each other. This decision
“became final by virtue of Cal. Code of Civil Proc. § 632.” The parties then reached
a settlement and submitted to the court a stipulation of judgment. Pursuant to the
stipulation for judgment, the judgment specifically found that each of the
defendants listed in the attached exhibit (including Wehba Sr. individually,
Ms. Wehba individually and as trustee of the GFW and GFW II Trusts, Wehba Jr.
individually and as trustee of the GFW and GFW II Trusts, Bentley Forbes, and
MMCO) is “the agent and alter ego of each and every other [d]efendant.”
Accordingly, the alter-ego issue was actually and necessarily decided and was
subject to a final adjudication.
6 Ohio law regarding issue preclusion is substantively the same as California’s. See
Thompson v. Wing, 70 Ohio St.3d 176, 183, 637 N.E.2d 917 (1994) (“Collateral estoppel
applies when the fact or issue (1) was actually and directly litigated in the prior action, (2)
was passed upon and determined by a court of competent jurisdiction, and (3) when the
party against whom collateral estoppel is asserted was a party in privity with a party to
the prior action.”).
Regarding the second element, the Wehba defendants argue that the
California proceeding was related to two completely different properties than the
Rose Building, so the issue in the judgment pursuant to the stipulated judgment is
not the same as the issue in the present case. We disagree. The specific properties
at issue do not impact the alter-ego analysis. Instead, the relevant issues include
whether the Wehba defendants observed corporate formalities, kept corporate
records, comingled corporate funds with personal funds, or used corporate property
for a personal purpose. These issues are the same in the California case and the
present case. Furthermore, the Wehba defendants who were parties in the
California case stipulated that they were alter egos of each other in October 2016,
the same year that BFG Holdings breached the note and the Wehba guarantors
breached the guaranty agreement with Medical Mutual.
Lastly, Medical Mutual is asserting the alter-ego issue against parties
who were parties in the California case or in privity with those parties. Wehba Sr.,
Ms. Wehba individually and as a trustee of GFW II Trust, Wehba Jr. individually
and as trustee of GFW II Trust, Bentley Forbes, and MMCO were defendants in the
California case. Although BFG Holdings, the GFW Trust, and GFW II Trusts were
not parties in the California case, they are owned by and in privity with the other
Wehba defendants.
The Wehba defendants argue that issue preclusion does not apply
because the judgment was a “consent judgment,” and in California, consent
judgments are “not usually given preclusive effect in subsequent litigation on a
different cause of action, unless the parties manifest an intent in the consent
judgment to give it such preclusive effect.” Landeros v. Pankey, 39 Cal.App.4th
1167, 1172 (1995). However, the facts of the cases on which the Wehba defendants
rely for this principle do not support their argument. In Landeros, the appellate
court found that collateral estoppel did not apply to bar an issue that was not
expressly within the stipulated judgment and where the stipulated judgment
contained “no language of comprehensive settlement.” Id. at 1172, 1174. In
Tennison v. California Victim Comp. & Govt. Claims Bd., 152 Cal.App.4th 1164, 1176
(2007), the appellate court found that an administrative body was not bound to find
that a former criminal defendant was “factually innocent” despite an order that he
had been released from prison after a federal court granted his habeas petition. In
Cal. State Auto. Assn. Inter-Ins. Bur. v. Superior Court, 50 Cal.3d 658, 664 (1990),
fn. 2, the California Supreme Court found that “by specifically stipulating to the issue
of liability, the parties intended the ensuing judgment to collaterally estop further
litigation on that issue.”
Unlike the judgments in Landeros and Tennison, and like the
judgment in Cal. State Auto. Ins. Co., Medical Mutual seeks to apply collateral
estoppel to an issue to which the parties specifically stipulated. The judgment
pursuant to the stipulated judgment specifically included the stipulation that “[e]ach
and every [d]efendant is the agent and alter ego of each and every other
[d]efendant.” This specific language shows that the parties intended to be bound on
this issue. See People v. Felix, 1169 Cal.App.4th 607, 615, 87 Cal.Rptr.3d 482 (“A
stipulated judgment may properly be given collateral estoppel effect if the parties
manifest an intent to be collaterally bound by the judgment, as by stipulating to a
specific factual finding.”); Cal. State Auto. Assn. Inter-Ins. Bur. at 664, fn. 2 (if the
parties did not intend to “collaterally estop further litigation on that issue,” they
“easily could have expressly restricted the scope of the agreement”). The Wehba
defendants maintain that they did not intend to be bound by the alter ego finding
because they did not admit to liability in the settlement agreement and because the
settlement agreement does not provide for third-party beneficiaries. However, a
general denial of liability to Mitsuwa is separate from the issue of whether the parties
are alter egos of each other. And Medical Mutual is not seeking to be a third-party
beneficiary to the settlement agreement between Mitsuwa and the Wehba
defendants.
Accordingly, we find that issue preclusion applies to the judgment
pursuant to the stipulated judgment, and we are bound by the judgment’s finding
that the Wehba defendants are alter egos of each other. Medical Mutual satisfied its
burden under the first prong of the Belvedere test.
B. Belvedere Test Prongs Two and Three: Control Exercised to
Commit an Unlawful Act Resulting in Injury
The Wehba defendants argue that Medical Mutual did not present
evidence to satisfy the second and third prongs of the Belvedere test, that the Wehba
defendants exercised control over the entities (namely, BFG Holdings and Bentley
Forbes) in such a manner as to commit fraud, an illegal act, or a similarly unlawful
act against Medical Mutual, causing Medical Mutual injury or unjust loss. The
Wehba defendants maintain that the trial court did not analyze the second and third
prongs, and that breach of contract is insufficient to satisfy the requirement of an
“unlawful act.”
The Wehba defendants argue that the trial court’s failure to
acknowledge the second and third prongs of the Belvedere test “itself warrants
reversal,” citing to RCO Intl. Corp. v. Clevenger, 180 Ohio App.3d 211, 2008-Ohio-
6823, 904 N.E.2d 941 (10th Dist.). However, in Clevenger, although the trial court
did not address two of the Belvedere prongs, the Tenth District considered this “in
light of the fact that” the defendant did not file an appellate brief or oppose the facts
that the plaintiff presented on appeal. Id. at 215. This case does not stand for the
principle that a trial court’s silence regarding part of the Belvedere analysis
automatically requires reversal. As our review is de novo, we analyze the second and
third prongs of the Belvedere test even though the trial court did not.
We agree with the Wehba defendants that breach of contract alone is
insufficient to satisfy the second prong of the Belvedere test. “A simple breach of
contract, in the absence of a more substantial factual predicate indicative of some
corporate malfeasance, with direct bearing on the plaintiff’s injury, is insufficient to
meet the second prong of the Belvedere test.” Connolly v. Malkamaki, 11th Dist.
Lake No. 2001-L-124, 2002-Ohio-6933, ¶ 34.
However, Medical Mutual has established unlawful conduct beyond
mere breach of contract. A judgment on a fraud claim is unnecessary to satisfy the
second prong of the Belvedere test. See Longo Construction, Inc. v. ASAP Tech.
Servs., 140 Ohio App.3d 665, 672, 748 N.E.2d 1164 (8th Dist.2000) (explaining that
a finding of fraudulent conduct to satisfy the second Belvedere factor is decided
separately from an independent claim for fraud); Clevenger at ¶ 215 (plaintiff “was
not required to plead fraud in order to seek piercing the corporate veil”). Medical
Mutual alleged in its verified complaint that the Wehba defendants concealed from
Medical Mutual that they dissolved BFG Holdings and defunded the GFW II Trust.
Given this concealment, along with the findings in the California litigation,
reasonable minds can reach only an adverse conclusion against the Wehba
defendants that the Wehba individuals controlled the Wehba entities in such a way
as to commit fraud, an illegal act, or a similarly unlawful act that caused harm to
Medical Mutual.
The Wehba defendants have not produced evidence to the contrary to
create a genuine issue of material fact. They point to Wehba Jr.’s affidavit in support
of his September 2020 opposition to Medical Mutual’s summary judgment motion
on his individual liability, in which Wehba Jr. averred the following: Ms. Wehba, not
Wehba Jr., operated and made the “business and strategic decisions for
GRW/GFWII”; Wehba Jr. resigned as manager of BFG Holdings and the GFW II
Trust in 2012; after January 2012, Wehba Sr. managed BFG Holdings, and Wehba
Jr. held a minority interest in BFG Holdings but had “no involvement in running or
operating” it; and after October 2012, Wehba Jr. was one of four beneficiaries of the
GFW II Trust but had “no involvement in running or operating” it.
Medical Mutual argues that Wehba’s affidavit contradicts a document
that Medical Mutual obtained in a separate lawsuit. Medical Mutual points to a
document that states that Wehba Sr. said that the Wehba defendants “went ahead
and put [Wehba Jr.] back as manager” in 2015. The Wehba defendants maintain
that the document obtained in another lawsuit is improper evidence for us to
consider.
Regardless, the extent of Wehba Jr.’s involvement in the GFW II
Trust and BFG Holdings pertains to the first Belvedere prong: whether Wehba Jr.
controlled the Wehba corporations so completely that the corporations had no
separate mind, will, or existence of their own. As previously discussed, the judgment
pursuant to the stipulated judgment in the California case, finding that Wehba Jr. is
an alter ego of the other Wehba defendants, is binding on this court. Thus, Wehba
Jr.’s affidavit and the document Medical Mutual obtained in another lawsuit do not
create a dispute of fact that is material here.
Accordingly, we find that the trial court did not err in piercing the
corporate veil and holding the Wehba defendants jointly and severally liable for
breach of the note and guaranty. We overrule the Wehba defendants’ second
assignment of error.
V. Wehba Jr.’s Individual Liability
In their third assignment of error, appellants argue that the trial court
erred in allowing Medical Mutual to file a motion for summary judgment against
Wehba Jr. in his individual capacity and erred in finding Wehba Jr. individually
liable. In their fourth assignment of error, appellants contend that the trial court
erred in striking Wehba Jr.’s cross-motion for summary judgment on the issue of
his individual liability. Appellants assert their arguments for these assignments of
error together, and we will address the third and fourth assignments of error
together for ease of discussion.
The Wehba defendants first argue that the trial court erred in
granting Medical Mutual leave to file a summary judgment motion against Wehba
Jr. individually because the record does not support Medical Mutual’s argument
that it was a “typographical error” to omit reference to Wehba Jr’s individual liability
in its other summary judgment motions. The Wehba defendants maintain that
Medical Mutual could not have committed a “cut and paste” error when it copied the
defendants from its January 2018 summary judgment motion into its list of
defendants in its June 2018 summary judgment motion because Medical Mutual
also added MMCO and BFG Holdings into the June 2018 motion. The Wehba
defendants further argue that counsel for Medical Mutual represented in a status
conference that a ruling on its January and June 2018 summary judgment motions
would resolve all of Medical Mutual’s claims.
“[A] trial court has the inherent power to control its own docket and
the progress of proceedings in its court.” Chou v. Chou, 8th Dist. Cuyahoga No.
80611, 2002-Ohio-5335, ¶ 38. As previously discussed, we review the trial court’s
“docketing decision[s]” and decisions to grant leave to file a summary judgment
motion for abuse of discretion. Id.; Sultaana, 8th Dist. Cuyahoga No. 90294, 2008-
Ohio-3658, at ¶ 5. An abuse of discretion connotes that the trial court’s attitude was
unreasonable, arbitrary, or unconscionable. Ruwe, 29 Ohio St.3d at 61, 505 N.E.2d
957.
We find that the trial court’s decision to grant Medical Mutual leave
to file another summary judgment motion addressing Wehba Jr.’s individual
liability was not “unreasonable, arbitrary, or unconscionable.” Medical Mutual
named as a defendant in its third-party complaint Wehba Jr. in both his individual
and trustee capacities. Neither the January nor June 2018 summary judgment
motions included Wehba Jr. in his individual capacity, and the issue if Wehba Jr.’s
individual liability therefore remained pending after the trial court ruled on the
January and June 2018 summary judgment motions. Accordingly, we find that the
trial court did not abuse its discretion in granting Medical Mutual leave to file a
summary judgment motion addressing Wehba Jr.’s individual liability.
Next, the Wehba defendants argue that the trial court erred in
granting Medical Mutual’s summary judgment motion against Wehba Jr.
individually. They maintain that Wehba Jr. had no “managerial role” over BFG
Holdings or GFW II during the relevant time period. As discussed above, we find
that the trial court did not err in piercing the corporate veil to hold Wehba Jr.
individually liable for Medical Mutual’s judgment. But, as previously discussed, we
find that the trial court erred in holding Wehba Jr. (and the other Wehba
defendants) liable for fraud.
Accordingly, we sustain the Wehba defendants’ third assignment of
error as it pertains to the trial court’s holding Wehba Jr. liable for fraud, but we
otherwise overrule the third assignment of error.
Lastly, the Wehba defendants argue that the trial court abused its
discretion in striking Wehba Jr.’s September 2020 cross-motion for summary
judgment on the issue of his individual liability. The Wehba defendants maintain
that because the trial court gave Medical Mutual leave to file an additional summary
judgment motion regarding Wehba Jr.’s individual liability, “Wehba Jr. should have
been permitted to do the same.” As previously discussed, we review a trial court’s
decision on a motion to strike for abuse of discretion. Marriott Corp., 8th Dist.
Cuyahoga No. 85551, 2005-Ohio-5336, at ¶ 39. In January 2020, Medical Mutual
sought (along with alternative remedies) leave to file another summary judgment
motion for its apparent mistake of not including Wehba Jr.’s individual liability in
its previous motions. The trial court granted Medical Mutual leave. However,
Wehba Jr. filed his September 2020 cross-motion for summary judgment without
leave and did not request leave until after Medical Mutual moved to strike his
motion. The Wehba defendants also already argued in their June 2018 summary
judgment motion that “Wehba II is not liable for breach of guaranty” and only BFG
Holdings 2000 is liable for breach of the note.
Accordingly, we find that the trial court did not abuse its discretion in
striking Wehba Jr.’s September 2020 summary judgment motion, and we overrule
the Wehba defendants’ fourth and final assignment of error.
Judgment is affirmed in part and reversed in part consistent with this
opinion. We reverse in part the trial court’s December 2019 and January 2021
orders granting summary judgment to Medical Mutual as those orders pertain to
Medical Mutual’s fraud claim. We remand with instructions for the trial court to
enter judgment in favor of the Wehba defendants (including Wehba Jr. in his
individual capacity) on Medical Mutual’s fraud claim. We otherwise affirm the trial
court’s judgments.
It is ordered that the appellants and the appellee split the costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment
into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27
of the Rules of Appellate Procedure.
MARY J. BOYLE, ADMINISTRATIVE JUDGE
EILEEN A. GALLAGHER, J., and
EMANUELLA D. GROVES, J., CONCUR