Trumbull Twp. Bd. of Trustees v. Rickard , 98 N.E.3d 800 ( 2017 )

[Cite as Trumbull Twp. Bd. of Trustees v. Rickard, 2017-Ohio-8143.]
IN THE COURT OF APPEALS
ELEVENTH APPELLATE DISTRICT
ASHTABULA COUNTY, OHIO
BOARD OF TRUMBULL TOWNSHIP : OPINION
TRUSTEES, et al.,
:
Plaintiff-Appellant, CASE NOS. 2016-A-0044
: 2016-A-0045
- vs -
:
LAWRENCE RICKARD, et al.,
:
Defendants/Cross-Claim
Defendants-Appellees,
:
STATE OF OHIO ex rel.
ATTORNEY GENERAL MIKE DeWINE, :
Defendant/Cross-Claim :
Plaintiff-Appellant.
Civil Appeals from the Ashtabula County Court of Common Pleas.
Case No. 2008 CV 0925.
Judgment: Affirmed.
Nicholas A. Iarocci, Ashtabula County Prosecutor, and Catherine R. Colgan, Assistant
Prosecutor, Ashtabula County Courthouse, 25 West Jefferson Street, Jefferson, OH
44047-1092 (For Plaintiff-Appellant).
Grant J. Keating and Erik L. Walter, Dworken & Bernstein Co., L.P.A., 60 South Park
Place, Painesville, OH 44077 (For Defendants/Cross-Claim Defendants-Appellees).
Mike DeWine, Ohio Attorney General; C. Patrick Denier and Lauren D. Emery,
Assistant Attorneys General, 150 East Gay Street, 23rd Floor, Columbus, OH 43215
(For Defendant/Cross-Claim Plaintiff-Appellant).
TIMOTHY P. CANNON, J.
{¶1} Appellants, Board of Trumbull Township Trustees (“the Board”) and State
of Ohio ex rel. Attorney General Mike DeWine (“the Attorney General”), appeal from a
judgment entered on July 11, 2016, by the Ashtabula County Court of Common Pleas,
following a damages hearing, against appellees, Lawrence Rickard and Phoenix
Productions LLC (“Defendants”). For the reasons that follow, the trial court’s judgment
is affirmed.
Procedural History
{¶2} This case originated on July 3, 2008, when the Board filed a complaint
against Appellee Lawrence Rickard, various John Does, and ABC companies. The
Board named, as involuntary plaintiffs, Trumbull Township Volunteer Fire Department,
Inc. (“the Fire Department”) and Trumbull Township Fire and Rescue Auxiliary, Inc. (“the
Auxiliary”). The complaint states that the Fire Department is a nonprofit corporation and
charitable trust, recognized under R.C. 109.23 and R.C. 1716.01 et seq., inuring to the
exclusive benefit of Trumbull Township as stipulated in a settlement agreement that
resolved disputes between the Board and the Fire Department. As a result of this
settlement agreement, the Board became the successor in interest to any claims the
Fire Department may have, known or unknown, against third parties. The Auxiliary is
also a nonprofit corporation and a charitable trust inuring to the exclusive benefit of
Trumbull Township.
{¶3} The Board’s complaint alleged claims related to charitable trust assets
and, therefore, named the Attorney General as a necessary and indispensable party-
defendant, pursuant to R.C. 109.25. The Attorney General filed an answer and a cross-
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claim against Defendants on behalf of various charitable trusts, pursuant to R.C.
109.24.
{¶4} The Board and the Attorney General were subsequently granted leave to
amend their pleadings to substitute Phoenix Productions, LLC as a party defendant for
the previously unnamed ABC, LLC. They allege Phoenix Productions was formed in
2002 at the direction of Rickard, who then transferred a legal or equitable interest in
certain of his assets into the limited liability company.
{¶5} Defendants operate and have an interest in the Great Lakes Medieval
Faire (“the Faire”) located in Rock Creek, Ohio, which is open on certain weekends
each summer. Defendants allowed for the sale of beer at the Faire, utilizing temporary
Class F permits obtained from the state of Ohio. See R.C. 4303.20 and R.C. 4303.202.
From 1994 through 2002, the Fire Department operated the beer concession. In 2003,
the Montville Volunteer Fire Department (“Montville Fire”) operated the beer concession.
The concession was operated by Defendants from 2004 through 2008 for the benefit of
the various charitable trusts named in the Attorney General’s cross-claim. After this
lawsuit was instituted, the trial court appointed a receiver to manage the beer
concession during the summer of 2009. No beer has been sold at the Faire since 2009.
{¶6} The Board’s second amended complaint alleged that Rickard entered into
a contract with the Fire Department, sometime between 1994 and 1997, for the
operation and management of beer concessions at the Faire. Pursuant to this alleged
contract, the Fire Department was granted the exclusive right to procure permits,
dispense beer, and receive the net proceeds from the beer concession. On December
16, 1997, Defendants obtained a conditional use zoning permit from the Trumbull
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Township Board of Zoning Appeals (“BZA”) to operate the Faire. In issuing this zoning
permit, the BZA found the Faire would benefit Trumbull Township in part because of the
contract with the Fire Department. The Board, therefore, alleged that the contract with
the Fire Department was to last as long as the zoning permit was in effect. The Board
alleged that Defendants demanded payment of unreasonable expenses and other
unlawful payments from the Fire Department to be deducted from the proceeds of the
beer concession and that, on or before July 4, 2003, Defendants improperly and
unilaterally refused to allow the Fire Department to operate the beer concession.
{¶7} The Board asserted claims for an Accounting and Breach of Contract,
alleging they have a right to (1) any unlawful payments and expenses deducted from
the proceeds during the time the Fire Department operated the concession and (2) any
past and future net proceeds the Defendants obtained or will obtain from beer
concessions following its breach of the contract. The Board also asserted a claim for
Promissory Estoppel, alleging the Fire Department sustained substantial financial
losses by making costly improvements to its property and Defendants’ property in
reliance on the contract.
{¶8} The Board requested the trial court enter a Declaratory Judgment that the
contract is enforceable and that Defendants are required to pay 50% of the net
proceeds from the Faire’s beer concession to the Board and 50% to the Fire
Department, to be donated to the Auxiliary (less any net proceeds previously received
by the Fire Department, plus any unlawful amounts previously paid to Defendants).
They also requested a declaration that Defendants are required to allow the Auxiliary to
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operate and manage the beer concession as long as there is a beer concession at the
Faire.
{¶9} Finally, the Board asserted a claim for Unjust Enrichment. It alleged
Defendants were unjustly enriched in the amount of $35,000.00, which represents
$25,000.00 in funds expended and $10,000.00 in labor provided by the Fire Department
to build permanent structures and otherwise improve the real property at the Faire,
owned by Rickard. The Board further requested an award of attorney fees.
{¶10} The Attorney General’s second amended cross-claim stated it is charged
with the enforcement of charitable trusts in Ohio, in order that the interests of charitable
beneficiaries may be protected and preserved. See R.C. 1716.16 and R.C. 109.24.
The Attorney General brought the cross-claim on behalf of the following charitable
trusts, which had been contacted by Rickard to receive 100% of the profits from the
beer concession: the Fire Department, Montville Fire, Cork Little League, Ashtabula
County Humane Society, Mesopotamia Fire Association, The Conneaut Fish and Game
Club, Peaceful Pastures Horse Rescue, Hartsgrove Volunteer Firefighters Association,
and Camp Camo, Inc. The Attorney General asserted eight counts against Defendants:
Breach of Fiduciary Duties, Unjust Enrichment, Conversion, Nuisance, “F Permits,”
Attachment, Reformation of Charitable Trust, and Fraudulent Concealment.
{¶11} Pursuant to O.A.C. 4301:1-1-35(B), a holder of a Class F temporary
permit “shall direct the payment of the proceeds from the function to the * * * charitable *
* * purpose, provided that the proceeds will not be directed for the profit or gain of any
person.” The Attorney General alleged that Rickard violated this code provision and
also violated common law fiduciary duties to the charitable trusts by willfully, wantonly,
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and wrongfully failing to direct the payment of the beer concession proceeds to the
charities and, instead, illegally collecting, controlling, retaining, profiting, or distributing
those proceeds. The Attorney General further alleged that Defendants fraudulently
concealed from the charities the true expenses and amount of profits they were entitled
to receive and wrongfully converted those profits. It also alleged Defendants created a
nuisance, under R.C. 1716.14, by misleading the public that the proceeds would benefit
the charities.
{¶12} The Attorney General requested the trial court to impose and enforce a
constructive trust over all proceeds wrongfully collected, controlled, or retained by
Defendants for the purpose of redistributing the funds to the appropriate charitable
beneficiaries. It also requested an order of attachment on Rickard’s assets as a result
of his fraudulent and criminal behavior, a declaratory judgment reforming the terms of
the charitable trust, and an order permanently enjoining Defendants from participating in
further charitable solicitation. The Attorney General requested monetary relief in the
form of restitution, civil penalties in the amount of $10,000.00 per day of violation (see
R.C. 1716.16), punitive damages, attorney fees, and expenses.
{¶13} Defendants filed answers and affirmative defenses to both parties’ claims.
Rickard also asserted a counter-claim for declaratory relief against the Board with
regard to the aforementioned contract.
{¶14} Defendants subsequently filed a motion for summary judgment against the
Board, and the Board filed a response. The Attorney General filed a motion for
summary judgment against Defendants. Defendants failed to respond to the Attorney
General’s motion and failed to reply to the Board’s response, despite obtaining several
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extensions of time from the trial court. The trial court never ruled on these summary
judgment motions.
{¶15} Frequent disputes arose between the parties during the discovery process
concerning Defendants’ responses to formal discovery and requests for production of
documents, the veracity of Rickard’s deposition testimony and answers to
interrogatories, Defendants’ failure to timely identify material witnesses, and Rickard’s
alleged interference with the inspection of his real property. These disputes culminated
in a joint motion for sanctions, filed by the Board and the Attorney General, in which
they alleged Defendants had engaged “in a systemic pattern of discovery abuses, other
contumacious conduct, and fraud on the court” that resulted in substantial delays and
otherwise prejudiced them.
{¶16} On April 29, 2014, the trial court granted the joint motion for sanctions.
The court made the following findings: (1) Rickard made false and misleading
statements to the court and other parties that nonexistent tax return documents had
been prepared and produced; (2) Rickard acted egregiously by failing to produce
discoverable insurance documents after representing that he would produce them, in an
attempt to persuade the court to avoid issuing an order requiring their production; (3)
Rickard failed to comply with Civ.R. 26(B) and Civ.R. 34 by failing to produce requested
electronic data and documents and by falsely representing that no such electronic data
existed; (4) Rickard failed to timely identify his accountant during a period they
maintained an ongoing business relationship, which resulted in spoliation of evidence;
(5) Rickard failed to produce vendor contracts, which prevented the parties from
discovering evidence regarding Faire revenues and the allocation of Faire expenses to
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all vendors; (6) on multiple occasions, Rickard delayed retaining new counsel until the
eve of continued hearings in order to obtain further continuances; (7) Rickard filed a
fraudulent bankruptcy petition in order to delay these proceedings, and the financial
information listed on his 2005–2010 tax returns is not credible.
{¶17} As a result, the trial court struck Defendants’ answers and affirmative
defenses to the Board’s second amended complaint and to the Attorney General’s
second amended cross-claim. Defendants’ counterclaim was also stricken. The trial
court entered default judgment against Defendants, jointly and severally, in favor of the
Board and the Attorney General, reserving the issue of damages for a later date. The
court stated this was “the only effective remedy to adequately cure the prejudice to the
parties and the interference with the efficient administration of justice caused by
Rickard’s violation of the Civil Rules through repeated instances of discovery
misconduct, his contumacious conduct, and his commission of fraud upon the Court.”
The court further found that awarding a monetary sanction, as an alternative, was not
an option because Rickard was not able to pay.
{¶18} A hearing on damages was scheduled for October 6, 2014. The parties
instead spent the day in settlement negotiations. An agreement was reached and put
on the record. The settlement failed, however, as the agreement was never ratified by
the Board at a public meeting.
{¶19} A hearing on damages was rescheduled the following year on November
6, 2015. The trial court issued an entry instructing the parties as to the particulars of
that hearing, which stated, in part, that “the Court expects the parties to summarize and
list ALL the available evidence on the issue of damages so that the Court does not
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overlook any evidence that may have been submitted during the past seven years.”
(Emphasis sic.)
{¶20} Prior to the hearing, Defendants filed an exhibit and witness list. The
Board filed a motion in limine to exclude any evidence Defendants intended to use that
would dispute facts already admitted as true pursuant to the entry of default judgment.
Defendants responded in opposition and filed their own motion in limine to exclude or
limit the Board’s introduction of irrelevant evidence, including evidence related to the
value of Defendants’ assets and other evidence unrelated to the charitable beer
concession. The Board responded in opposition. Neither motion was ruled on prior to
the hearing.
{¶21} The parties renewed their motions in limine at the start of the damages
hearing on November 6, 2015. The trial court held the Board’s motion in abeyance.
The Board attempted to introduce a binder of exhibits at the hearing, a copy of which
had not been given to Defendants until immediately prior to the hearing. Defendants
moved to exclude the entire binder on that basis, which the trial court denied.
Defendants moved to exclude those portions of the binder relating to appraisals of
Defendants’ real estate, on the basis Defendants had agreed to the appraisals only for
the purpose of settlement negotiations. The trial court granted this motion “in principle.”
Essentially, the trial court instructed the parties it would only hear evidence related to
damages, but the parties would have to object during the hearing in order to obtain a
specific ruling.
{¶22} The Attorney General made, what it called, a “presentation” to the court. It
presented no witness testimony, but presented the affidavit and expert report of Mark
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Graves, the Chief Accountant for the Attorney General’s Office, which had previously
been submitted to the trial court. Mr. Graves’ report contained the analysis he used to
determine the amount of charitable funds received by Rickard from the Fire Department
and the other charitable trusts. He reviewed cancelled checks written by the Fire
Department to Phoenix Productions; financial documents and an expense summary
provided by the Board; a 2003 contract between Rickard and Montville Fire; vendor
invoices; expense statements for the summer of 2005 submitted by Defendants to the
Ohio Division of Liquor Control; and contracts between Rickard and various charities.
Mr. Graves estimated that Defendants received illegal payments in the amount of
$100,023.11 between 1994 and 2002, when the Fire Department was operating the
beer concession, and $13,700.00 in 2003 when Montville Fire was operating it. Mr.
Graves also estimated Defendants wrongfully withheld $322,878.00 from the various
charities between 2004 and 2008. The Attorney General therefore requested damages
in the amount of $436,601.11, plus interest at the statutory rate. The Attorney General
also calculated the statutory civil penalties the trial court could impose—at $10,000.00
per day of violation multiplied by 12 days each year—was close to $2,000,000.00. It
further requested punitive damages and imposition of a constructive trust.
{¶23} The Board called Ron Tamburrino, a current Trumbull Township Trustee
elected in 2005, who testified regarding the Board’s decision to pursue its case against
Defendants for breach of contract with the Fire Department. Mr. Tamburrino testified
that the Board had reviewed the following: a transcript of a 1997 BZA meeting, at which
Rickard spoke of conversations he had with Stanley D. Ruck (“Mr. Ruck”), a firefighter
at the time the Fire Department began operating the beer concession; the Fire
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Department’s lease purchase agreement for a fire truck in 1997, signed by Stanley J.
Ruck (“Chief Ruck”), Mr. Ruck’s father and the fire chief at the time, which listed the
beer concession proceeds as a source of funds; a 1998 newsletter issued by the Fire
Department, stating its main fundraiser was the beer concession at the Faire; minutes
from a 1993 meeting of the Fire Department reflecting a vote to operate the beer
concession; and the absence of meeting minutes from 2002 to terminate any agreement
with Defendants. The trial court ruled that Mr. Tamburrino was not permitted to offer his
opinion as to the terms of the alleged contract, because his opinion was based on
inferences he drew from these documents, not his personal knowledge, and the
documents did not include anything about actual terms.
{¶24} Mr. Tamburrino testified regarding the conclusions reached in Mr. Graves’
expert report. He also testified about the expert report of Bernard Agin, an economic
analyst, which had been submitted to the trial court at the sanctions hearing. Neither
expert testified at the damages hearing. Mr. Agin’s report calculated past and future
loss to the charitable beneficiaries; the fair market value of the Faire; and Rickard’s life
expectancy. The report indicates Mr. Agin was “provided with information regarding
past expenses associated with [the Faire]” and Mr. Graves’ expert report.
{¶25} Defendants called Mr. Ruck, a member of the Fire Department and son of
the former chief of the Fire Department, who testified that no written contract to operate
the beer concession ever existed; rather, Defendants and the Fire Department had an
oral, year-to-year agreement. Mr. Ruck further testified that the Fire Department
obtained the necessary permits and operated the beer concession from 1994 to 2002,
at which time the members lost interest and abandoned the concession. He testified
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that during the years the Fire Department operated the concession, it handled the sales
revenue and retained all beer sales proceeds, less agreed expenses (referred to as
“keg charges”) it paid to Defendants.
{¶26} Defendants also called Gary E. Jones, Chief of Investigations and
Compliance at the Ohio Division of Liquor Control (“ODLC”), who testified the ODLC
sent letters in 2005 requesting information to verify that the beer concessions were
operating in compliance with the statutes governing the temporary permits. Defendants
presented copies of unsigned responses received and stamped by the ODLC, which
identified categories and amounts of expenses associated with the beer concession.
Mr. Jones could not authenticate the responses, but it was determined at the hearing
that they were the same responses Mr. Graves utilized to calculate his expert opinion
on lost profits and submitted into evidence by the Board and the Attorney General. Mr.
Jones also could not testify that the expenses included in those reports were legitimate,
as no investigation was undertaken upon receipt of the responses. Mr. Jones did testify
that upon receipt of each response, the ODLC issued another letter indicating no further
action was necessary at that time. He stated, however, that this letter was not reflective
of the Faire’s compliance with the temporary permits; it was simply an acknowledgment
that the responses had been received.
{¶27} At the end of the hearing that day, the parties still disputed the
admissibility of certain evidence, and additional argument was necessary. The trial
court issued a docket entry continuing the hearing until December 22, 2015. The entry
also stated the following with respect to the various motions in limine:
IT IS ORDERED that the Plaintiffs’ Motion in Limine to Exclude
Evidence Not Relating to Damages is GRANTED.
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IT IS ORDERED that the Defendants’ Motion in Limine to Prevent
the Plaintiffs From Using a 70-Exhibit Binder presented to defense
counsel on today’s date [November 6, 2015] is DENIED.
IT IS FURTHER ORDERED that Defendants’ Motion in Limine to
Limit Real Estate Appraisals which were performed in conjunction
with settlement negotiations be GRANTED IN PRINCIPLE. The
parties are reminded that they must raise the objections again at
the time during the hearing that the issues are raised.
{¶28} On December 22, 2015, the trial court made final evidentiary rulings and
heard closing arguments. The Board again attempted to introduce the real estate
appraisals, to which Defendants objected. The trial court held the appraisals were
inadmissible and the Board was only permitted to rely on public records relating to the
value of Defendants’ real estate. Based on Mr. Agin’s expert report, the Board
requested contractual damages in the amount of $1,330,627.00. This figure represents
$735,964.00 in past beer proceeds for 2003 through 2015, and $594,663.00 in future
beer proceeds for 2016 through 2032. The Board requested the trial court impose a
constructive trust, in the alternative, for the future loss.
{¶29} The parties subsequently submitted posthearing briefs. On March 29,
2016, the Board and the Attorney General filed a joint motion to strike improper and
inadmissible evidence referenced by Defendants in their posthearing brief. The trial
court later denied this motion, in its entirety, one day after issuing its final order in this
matter.
Trial Court’s Final Order
{¶30} The trial court issued its final order on July 11, 2016. At the outset, it
stated: “Although Defendants have failed to cooperate and have attempted to sabotage
this litigation, the Court must still strive to accomplish a just result. Personal animosity
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will not be engaged in by the Court.” The following is a summary of the trial court’s
findings with respect to the Board’s and the Attorney General’s claims for relief.
A. The Board’s Damages
{¶31} The trial court first addressed the Board’s claim that all the averments in
its second amended complaint are admitted, pursuant to Civ.R. 8(D), because the court
struck Defendants’ answer as a sanction and granted default judgment. The court held
that Civ.R. 8(D) has an inequitable result in this case because the Board avers a
perpetual contract “which flies in the face of the Statute of Frauds since it could not be
completed in one year.” Relying on Civ.R. 55(A), the trial court found “that in order to
prove contractual damages, the contract must be proven. What damages are
recoverable can only be determined by the terms of the contract.”
{¶32} The trial court found that any alleged contracts between Defendants and
the Fire Department to operate the beer concession were entered into orally and year-
to-year. No written contract was ever produced, and the evidence provided that no
written contract ever existed. The trial court stated the Board failed to prove what
damages may have been recoverable because the terms of the alleged written contract
are not known; “for it to infer a valid written agreement existed merely because it was
alleged in the pleadings would constitute a failure of justice.” Although the Board was
the assigned beneficiary of the Fire Department, it was not a party to the oral
agreements and therefore had no greater rights than those held by the Fire Department.
{¶33} The trial court awarded no damages to the Board because it failed to
establish it was entitled to recover any damages. The trial court also declined to award
attorney fees to the Board.
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B. The Attorney General’s Damages
{¶34} The Attorney General claimed Defendants misappropriated hundreds of
thousands of dollars. The trial court found Defendants failed to keep appropriate
records, tax returns, or make an accurate accounting of revenues and expenses. Thus,
the Attorney General relied on estimates, projections, and approximations to determine
sales, expenses, and profits of the beer concession. The only actual records available
for the trial court to consider were the 2009 sales and expense report of the court-
appointed receiver. The receiver’s report showed total receipts of $82,463.00;
expenses of $50,283.00; and profits of $32,180.00.
{¶35} Four responses to requests from the ODLC in 2005 were found in the
records of the ODLC, although those responses were not verified by Mr. Jones, and it is
unknown who prepared them. The responses covered four of the six weekends the
Faire operated in 2005, and the trial court found the numbers were “strikingly similar” to
the 2009 receiver’s report. Total sales for those four weekends in 2005 were
$52,496.00, for an average of $13,124.00 per weekend; multiplied by six weekends
indicated total beer sales would have been approximately $78,764.00 for 2005. The
trial court found this amount “compares favorably” to the 2009 total sales of $82,463.00.
{¶36} The trial court found that certain categories of expenses listed in the 2005
responses to the ODLC were inappropriate to beer sales and constituted individual
profit, to wit: “entertainment,” “costuming,” and “privileged rent.” When those line items
are subtracted, total expenses for 2005 are $53,322.00. The trial court found this
number also “compares favorably” to the 2009 expenses of $50,283.00 as reported by
the receiver.
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{¶37} Thus, with respect to the years 2004 through 2008, the trial court found
the 2009 receiver’s report to be the most reliable source of verification of total sales and
expenses. The trial court inferred and accepted as reasonably accurate that the profit
of $32,180.00 as reported by the receiver was also the net profit per year for the years
2004 through 2008.
{¶38} The trial court found that no damages were established for the year 2003.
Montville Fire operated the beer concession that year, and it is unknown what amount it
received in total sales or net profit. Therefore, the trial court could not determine
whether any loss was incurred.
{¶39} The trial court concluded that the charities represented by the Attorney
General should have received $32,180.00 per year, from 2004 through 2008, for a total
of $160,900.00. During that period, Defendants paid $22,500.00 to the charities, for a
total net loss of $138,400.00.
{¶40} The Attorney General also sought statutory civil fines and punitive
damages as punishment for Defendants’ alleged breach of fiduciary duties to the
charitable beneficiaries.
{¶41} The Fire Department was the charitable beneficiary for the years 1994
through 2002. It paid a negotiated “keg charge” to Defendants each year, estimated as
$11,000.00 per year, or less than $2,000.00 per weekend. Mr. Rusk testified that the
Fire Department accepted this as a reasonable amount to cover Defendants’ expenses
associated with the beer concession. The trial court stated this was far less than the
receiver’s reported expenses of $50,283.00 in 2009. The court further stated this oral
agreement could not be second-guessed by the Board or by the Attorney General. The
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trial court found Defendants were not malicious in negotiating the “keg charge” and that
the amount was reasonable.
{¶42} Montville Fire was the charitable beneficiary for the year 2003. The trial
court found there is no evidence of who provided labor, what the sales revenue was, or
how much the charity received.
{¶43} Defendants played a direct role in conducting the beer concession from
2004 through 2008 for the benefit of various charities. The sales revenue, expenses,
and net profits were inferred by the trial court, as outlined above, based on the 2009
receiver’s report. The trial court found Defendants received little guidance from the
state of Ohio regarding appropriate expenses and regulations: the only regulations
defining approved expenses indicate they are not to be expended for individual profit.
See R.C. 4303.20 and R.C. 4303.202. The trial court analogized this to the regulations
for charitable gambling operations, which are very inclusive and permit a wide range of
expenses. See R.C. Chapter 2915. The trial court also found Defendants had reason
to believe they were in compliance with state laws and regulations: the ODLC accepted
the information submitted in response to its requests regarding expenses and charitable
proceeds, and it indicated no further action on the part of Defendants was necessary.
The trial court further found no evidence of malicious conduct or intentional violation of
any fiduciary duties and no evidence of improper fund tracing from beer-sales profits to
the purchase of specific assets.
{¶44} The trial court held the imposition of civil fines and punitive damages was
inappropriate in this factual situation. The trial court also declined to impose a
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constructive trust because it was not established that Defendants committed some
wrong or fraud that required confiscation of their property.
C. Conclusion
{¶45} The Board was awarded no damages for the years 1994 through 2002.
The trial court found no damage to anyone for the year 2003 due to lack of evidence.
The charities represented by the Attorney General incurred a loss of $138,400.00 for
the years 2004 through 2008. The clerk of courts was ordered to release $19,500.00 it
was holding to the Attorney General; the remaining $118,900.00 was awarded to the
Attorney General against Defendants, jointly and severally, plus interest at the statutory
rate. The trial court declined to award attorney fees or to impose a constructive trust.
Court costs were assessed against Defendants. Defendants were also enjoined from
operating charitable beer sales in the future.
{¶46} Finally, the trial court stated, “[t]o the extent that any previous orders of the
Court conflict with this one, such orders are hereby vacated.”
Assignments of Error
{¶47} The Board and the Attorney General filed separate appeals from this final
entry, including assignments of error relating to the trial court’s denial of their joint
motion to strike improper and inadmissible evidence.
A. The Board’s Assignments of Error
[1.] The court erred and abused its discretion in failing to apply
Civ.R. 8(D) at the damages hearing after previously striking the
defendants’ answer and affirmative defenses and dismissing
Defendant Rickard’s counterclaim.
[2.] As a matter of law, the court committed prejudicial error and
violated the parties’ right to due process in converting a hearing on
damages held pursuant to a default judgment entered as a sanction
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to a bench trial on the merits without providing advance notice to
the parties and after it had granted a motion in limine to exclude
evidence that contradicted allegations already deemed admitted.
[3.] The court erred and abused its discretion in denying Plaintiff
Board of Trumbull Township Trustees’ and Defendant-Cross
Claimant Ohio Attorney General’s joint motion to strike improper
and inadmissible evidence that caused severe prejudice to the
parties.
[4.] The court erred in construing R.C. 4303.20 as governed by
Ohio’s gambling statute R.C. 2915 and in finding the
misappropriation of funds by Lawrence Rickard was lawful under
the statute.
[5.] The court erred and abused its discretion in failing to provide
Plaintiff Board of Trumbull Township Trustees a remedy on its claim
for an accounting.
[6.] The court erred and abused its discretion in failing to find the
existence of a constructive trust where defendants were unjustly
enriched and funds illegally misappropriated were traceable to
defendants’ purchase of the properties in question.
[7.] The court erred and abused its discretion in denying Plaintiff
Board of Trumbull Township Trustees attorney fees and expenses
when it found that defendants engaged in severe discovery
misconduct.
B. The Attorney General’s Assignments of Error
[1.] The trial court abused its discretion in failing to impose a
constructive trust where Defendants were unjustly enriched and the
proceeds were traceable to Mr. Rickard’s purchase of real property.
[2.] The trial court erred in finding that Civ.R. 8(D) did not preclude
introduction of evidence regarding the contract between TTVFD
and Mr. Rickard after it had stricken Defendants’ answer,
affirmative defenses, and counterclaim.
[3.] The trial court erred and violated the parties’ right to due
process by converting the damages hearing to a trial on the merits
without providing sufficient notice and after granting the Board’s
motion in limine to exclude evidence unrelated to damages.
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[4.] The trial court erred and abused its discretion in denying the
parties’ motion to strike improper and inadmissible evidence.
[5.] The trial court erred in using R.C. 2915 to construe what types
of expenses are permissible under R.C. 4303.20.
[6.] The trial court erred by relying on information submitted to the
Ohio Division of Liquor Control (‘ODLC’) when determining the
revenue, expenses, and charitable proceeds from the sale of
alcohol at the GLMF.
Application of Civil Rules 8, 37, and 55
{¶48} As a result of discovery misconduct, the trial court imposed sanctions
against Defendants by striking their answers, affirmative defenses, and counterclaim
and by entering a default judgment in favor of the Board and the Attorney General. At
the time the sanction was entered in 2014, Civ.R. 37(B)(2) read, in relevant part:
If any party * * * fails to obey an order to provide or permit
discovery, * * * the court in which the action is pending may make
such orders in regard to the failure as are just, and among others
the following: * * * (c) An order striking out pleadings or parts
thereof, or staying further proceedings until the order is obeyed, or
dismissing the action or proceeding or any part thereof, or
rendering a judgment by default against the disobedient party[.]
{¶49} Civ.R. 8(D) provides that “[a]verments in a pleading to which a responsive
pleading is required, other than those as to the amount of damage, are admitted when
not denied in the responsive pleading.” In its entry imposing sanctions, the trial court
did not state all the averments were admitted as a result of the answers and affirmative
defenses being stricken, but it did state that the issue of damages shall be taken up at a
later date.
{¶50} In its final order following the damages hearing, the trial court found that
Civ.R. 8(D) would have an inequitable result when applied to the terms of the contract
between Rickard and the Fire Department. It found the amount of recoverable
20
damages under the contract could only be determined by ascertaining the terms of that
contract. The trial court therefore relied on Civ.R. 55(A), which applies to default
judgments entered against a defendant who has failed to plead or otherwise defend:
If, in order to enable the court to enter judgment or to carry it into
effect, it is necessary to take an account or to determine the
amount of damages or to establish the truth of any averment by
evidence or to make an investigation of any other matter, the court
may conduct such hearings or order such references as it deems
necessary and proper and shall when applicable accord a right of
trial by jury to the parties.
{¶51} The Board, in its first assignment of error, and the Attorney General, in its
second assignment of error, state this was reversible error. They argue it was an abuse
of discretion for the trial court to consider any evidence relating to the contract because
its existence and its terms were admitted when Defendants’ answers were stricken.
They further assert that Civ.R. 55(A) does not apply, as a matter of law, to default
judgments entered as a Civ.R. 37 sanction for discovery misconduct.
{¶52} Appellants’ argument that Civ.R. 55(A) does not apply to default
judgments entered as a Civ.R. 37 sanction is untenable. The plain language of Civ.R.
55 and Civ.R. 37 do not provide for such a result. The Attorney General invokes Reese
v. Proppe for the proposition that a judgment entered against a party by operation of
Civ.R. 37(B) is not a true default judgment to which Civ.R. 55(A) applies. In Reese, the
trial court entered a default judgment against a defendant who had filed an answer but
failed to appear at a hearing. 3 Ohio App.3d 103, 104 (8th Dist.1981). The Reese
Court held this was error because a default judgment is only appropriate “when the
defendant has failed to contest the allegations raised in the complaint[.]” Id. at 105. A
21
default judgment entered pursuant to Civ.R 37 was not an issue before the Reese
Court, and the case is inapposite to the facts at hand.
{¶53} The Tenth District Court of Appeals has applied the provision in Civ.R.
55(A) that accords a right of trial by jury to a defaulting party, even when the default
judgment was entered by way of a discovery sanction under Civ.R. 37(B). “‘[W]e find
the only result consistent with both Civ.R. 38(D) and Civ.R. 55(A) is to require a trial by
jury upon the issue of damages, when necessary, if it has been previously demanded
by any party, even though default judgment be entered as a sanction for failure to
comply with discovery requests pursuant to Civ.R. 37(B)(2)(c)[.]’” Malaco Constr., Inc.
v. Jones, 10th Dist. Franklin No. 94APE10-1466, 1995 WL 506026, *8 (Aug. 24, 1995),
quoting Harris v. Interstate Check Sys., Inc., 10th Dist. Franklin No. 77AP-275, 1977 WL
200414, *2 (Sept. 20, 1977), and citing DMAC Co. v. Bochner, 1st Dist. Hamilton Nos.
C-840686 & C-840687, 1985 WL 8953, *3-4 (July 31, 1985).
{¶54} The Ohio Supreme Court has similarly held that “the notice requirement of
Civ.R. 41(B)(1) applies to all dismissals with prejudice, including those entered pursuant
to Civ.R. 37(B)(2)(c) for failure to comply with discovery orders. A dismissal on the
merits is a harsh remedy that calls for the due process guarantee of prior notice.
Accordingly, the two rules should be read in pari materia with regard to dismissals with
prejudice.” Ohio Furniture Co. v. Mindala, 22 Ohio St.3d 99, 101 (1986) (emphasis sic).
“This holding stems from and reflects ‘a basic tenet of Ohio jurisprudence that cases
should be decided on their merits.’” Id., quoting Perotti v. Ferguson, 7 Ohio St.3d 1, 3
(1983); see also Baker v. Edmonds, 2d Dist. Clark No. 2002-CA-17, 2003-Ohio-1030,
¶24 (“the preference for adjudicating disputes on their merits, rather than on the basis of
22
procedural defaults, alluded to in [Mindala], militates in favor of the cautious exercise of
the ultimate sanction of default judgment”).
{¶55} Further, “[a] trial court has considerable latitude in imposing sanctions for
discovery violations and a trial court’s decision on a discovery violation will not be
reversed absent a showing of an abuse of discretion.” Johnson Controls, Inc. v. Cadle
Co., 11th Dist. Trumbull No. 2006-T-0030, 2007-Ohio-3382, ¶15, citing Nakoff v.
Fairview Gen. Hosp., 75 Ohio St.3d 254, 256 (1996). An abuse of discretion is the trial
court’s “‘failure to exercise sound, reasonable, and legal decision-making.’” State v.
Beechler, 2d Dist. Clark No. 09-CA-54, 2010-Ohio-1900, ¶62, quoting Black’s Law
Dictionary 11 (8th Ed.2004). When fashioning an appropriate sanction for discovery
violations, a trial court is not limited to the orders outlined in Civ.R. 37, such as default
judgment, dismissal, or striking a pleading; it is permitted to “make such orders in regard
to the failure as are just.” Former Civ.R. 37(B)(2).
{¶56} Here, the trial court determined it would be unjust to accept, as admitted,
the Board’s averment that a perpetual contract existed, when the Board’s evidence
showed that a written contract to that effect could not be located and no one had
personal knowledge of any written contract. In light of the harsh discovery sanction that
had been imposed against Defendants, the trial court determined it was necessary to
establish the terms of the contract in order to reach an equitable result regarding
damages. The trial court’s refusal to accept appellants’ position that Civ.R. 8(D)
required a finding of truth as to all averments was well within the discretion of the trial
court, as it was the trial court’s sanction that created the issue. As noted above, the law
in Ohio is clear that the scope of the sanctions imposed is left to the sound discretion of
23
the trial court. Notably, the trial court did not state that a contract did not exist nor did it
state that Defendants were not liable on the contract. Rather, it found a year-to-year,
oral agreement did exist and then determined—based on evidence put forth by both the
Board and Defendants—that both the Fire Department and Defendants complied with
that agreement on a yearly basis and that no amount of contractual damages was
proven for any other period of time.
{¶57} We cannot say the trial court abused its discretion in refusing to accept all
averments in the complaint and cross-claim as true. Nor can we say the trial court
abused its discretion in requiring the Board to prove, as it related to damages and as
specifically permitted by Civ.R. 55(A), the terms of an alleged written contract it could
not locate, which the Board alleged was to last in perpetuity until the death of Rickard,
and for which it was attempting to collect over one million dollars. It is apparent the
Board was committed to receiving a windfall based on its interpretation of the trial
court’s sanction, while the trial court was committed to reaching a just decision based
on what the parties had actually agreed upon.
{¶58} The Board’s first assignment of error and the Attorney General’s second
assignment of error are without merit.
Due Process
{¶59} The Board, in its second assignment of error, and the Attorney General, in
its third assignment of error, assert the trial court violated their right to due process by
converting the damages hearing to a trial on the merits without sufficient notice and
after granting the Board’s motion in limine to exclude evidence unrelated to damages.
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{¶60} The Fourteenth Amendment to the United States Constitution and Section
16, Article I of the Ohio Constitution guarantee due process of law. “Due process of law
involves only the essential rights of notice, hearing or opportunity to be heard before a
competent tribunal.” State v. Edwards, 157 Ohio St. 175 (1952), paragraph one of the
syllabus. “[A]t a minimum, due process of law requires that when a court conducts a
hearing, it give the parties a reasonable opportunity to be heard.” City of Painesville
Bldg. Dept. v. Petro, 11th Dist. Lake Nos. 99-L-181 & 99-L-182, 2001 WL 589410, *2
(June 2, 2001), citing Mathews v. Eldridge, 424 U.S. 319, 333 (1976). We review due
process challenges de novo. JPMorgan Chase Bank, Natl. Assoc. v. Muzina, 11th Dist.
Lake No. 2015-L-028, 2015-Ohio-4432, ¶27 (citation omitted).
{¶61} Prior to the damages hearing, the trial court issued an entry instructing the
parties as to the particulars of the evidence to present. That entry stated, in part:
The parties have made further inquiries as to what type of evidence
the Court wants at the damage hearing. The Court has advised the
parties that they must either identify in the record, evidence that
may have been offered in motion hearings or by deposition, and the
Court will permit additional testimony and evidence to be submitted
by the parties. In sum, the Court expects the parties to summarize
and list ALL the available evidence on the issue of damages so
that the Court does not overlook any evidence that may have been
submitted during the past seven years. [Emphasis sic.] These
hearings in this case have been lengthy, the files are numerous and
voluminous, and the Court wants to be assured that it has all the
evidence before it on the issue of damages. Judgment has
previously been rendered against Defendant Rickard, et al., on the
issue of liability.
Thus, the parties had notice of the damages hearing and were given a meaningful
opportunity to be heard.
{¶62} Contrary to the characterization of events asserted by appellants, the trial
court did not convert the damages hearing to a trial on the merits. The trial court
25
allowed evidence as to the damages that could be recovered under the terms of the
contract. In doing so, the trial court determined that no damages were established
under the alleged written contract because the Board’s own evidence was that a written
contract could not be located and its only witness, Mr. Tamburrino, had no personal
knowledge of the existence or terms of any written contract.
{¶63} Appellants cannot say they did not have notice that the trial court was
considering this issue in its attempt to elicit recoverable damages. At the hearing, the
trial court repeatedly indicated it had yet to hear any evidence about the terms of the
contract because it appeared no one before the court had ever seen a written contract
or had personal knowledge of terms of a written contract. Additionally, the damages
hearing took place over two days, with approximately six weeks in between each day.
The Board did not offer any additional evidence as to the terms of the contract on the
second day of hearings nor has it asserted on appeal that it had additional evidence to
present at that time. It was very clear, however, that the parties had agreed that the
primary obligation of the Fire Department was to provide labor for the beer concession.
It is also undisputed that the Fire Department did not provide any labor after 2002. To
claim damages “in perpetuity” and for periods during which other charitable
organizations provided that labor is nonsensical.
{¶64} Finally, appellants cannot rely on the trial court’s ruling on the Board’s
motion in limine in support of the argument that their due process rights were violated.
A ruling on a motion in limine is interlocutory and does not determine the admissibility of
evidence. State v. Leslie, 14 Ohio App.3d 343, 344 (2d Dist.1984). In its ruling granting
the Board’s motion in limine, the trial court reminded the parties “that they must raise
26
the objections again at the time during the hearing that the issues are raised.” Thus,
they were on notice that their evidentiary arguments would be further addressed at the
damages hearing.
{¶65} Appellants were not denied due process of law, as they were granted both
notice and a reasonable opportunity to be heard on the issues relevant to the trial
court’s determination of damages.
{¶66} The Board’s second assignment of error and the Attorney General’s third
assignment of error are without merit.
Evidentiary Rulings
{¶67} The Board, in its third assignment of error, and the Attorney General, in its
fourth assignment of error, assert the trial court erred in denying their joint motion to
strike improper and inadmissible evidence.
{¶68} A trial court’s decision to grant or deny a motion to strike is reviewed
under the abuse of discretion standard. Johnsonite, Inc. v. Welch, 11th Dist. Geauga
No. 2011-G-3012, 2011-Ohio-6858, ¶21, citing State ex rel. Mora v. Wilkinson, 105
Ohio St.3d 272, 2005-Ohio-1509, ¶10.
{¶69} In their posthearing brief, Defendants referenced Mr. Ruck’s testimony at
the damages hearing and the affidavits of Rickard and Chief Ruck, which had previously
been submitted to the trial court. Appellants filed a joint motion to strike the sections of
the posthearing brief that reference these items, as they were improper and
inadmissible for the purposes of the damages hearing. They stated: “Mr. Rickard’s
affidavit is inadmissible hearsay. The Rucks’ testimony goes to facts already deemed
admitted and is therefore irrelevant to a determination as to the amount of damages
27
and/or the appropriate remedy to address the parties’ claims. [Chief] Ruck’s affidavit in
particular is invalid because it is unsworn.” The trial court overruled this motion in its
entirety.
{¶70} The relevancy of Mr. Rusk’s testimony was a determination to be made
within the trial court’s discretion, and that decision will not be disturbed on appeal
absent a clear showing of an abuse of that discretion. See Renfro v. Black, 52 Ohio
St.3d 27, 32 (1990) (citation omitted). In a default judgment proceeding, the trial court is
permitted “to take an account or to determine the amount of damages or to establish the
truth of any averment by evidence or to make an investigation of any other matter[.]”
Civ.R. 55(A). In doing so, damages must be proven the same as in a case assigned for
regular trial. Mid-America Acceptance Co. v. Reedy, 11th Dist. Lake No. 89-L-14-072,
1990 WL 94816, *3 (June 29, 1990). “‘The court must also take into consideration
elements, facts, and circumstances which tend to mitigate, reduce or correctly reflect
the damages sustained.’” Id., quoting Blank v. Snyder, 33 Ohio Misc. 67, 69 (1972).
{¶71} Mr. Rusk’s testimony was relevant to the determination of damages, as he
was the only witness who had personal knowledge of the business relationship between
the Fire Department and Rickard. The trial court also made it clear, on more than one
occasion, that it intended to hear testimony about the terms of the alleged contract in
order to assess damages. As discussed above, the repeated assertion that the trial
court was required to accept all the averments in the complaint as “admitted” is simply
without merit.
{¶72} The trial court did not abuse its discretion in considering Mr. Rusk’s
testimony.
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{¶73} Additionally, the trial court did not abuse its discretion in failing to strike the
affidavits of Chief Ruck and Rickard. First, the trial court made no reference to
Rickard’s affidavit. Second, the only reference to Chief Ruck’s affidavit in the trial
court’s final entry was with regard to the Board’s request for attorney fees. The trial
court indicated Chief Rusk’s affidavit should have put the Board on notice to contact the
Fire Department, before pursuing its claim, regarding the Board’s assumption that a
written contract existed:
[T]he affidavit of Chief Stanley J. Ruck contained in the Defendants’
motion for summary judgment put the Board on notice that there
was no contract and the [Fire Department] abandoned the
concession. Despite this notice, the Board did not contact the [Fire
Department] regarding the contract, choosing instead to pursue a
meritless claim. Therefore, no attorney’s fees will be awarded.
{¶74} Thus, the trial court did not rely on either of these affidavits for the truth of
the matter asserted therein as it pertained to damages. The trial court did not err in
denying the joint motion to strike improper and inadmissible evidence.
{¶75} The Board’s third assignment of error and the Attorney General’s fourth
assignment of error are without merit.
{¶76} The Attorney General asserts, under its sixth assignment of error, that the
trial court erred by placing undue weight on the responses submitted to the ODLC in
2005 when determining the revenue, expenses, and charitable proceeds from the beer
concession.
{¶77} “[I]t is the trial court which decides whom to believe and how much weight
should be given to any piece of evidence.” Beatty v. Wilson, 4th Dist. Ross No. 1808,
1992 WL 226342, *1 (Sept. 9, 1992); see also Domo v. Stouffer, 64 Ohio App.3d 43, 51
(6th Dist.1989), citing Seasons Coal Co. v. Cleveland, 10 Ohio St.3d 77, 80 (1984) (“It
29
was the function of the trial judge, as the finder of fact, to observe the demeanor of the
witnesses, examine the evidence and weigh the credibility of the testimony and
evidence presented.”). We cannot substitute our judgment for that of the trial court in
this regard; our review is limited to whether the trial court’s judgment was against the
manifest weight of the evidence, i.e., the greater amount of credible evidence, keeping
in mind the presumption in favor of the trier of fact. Id. (citations omitted); Eastley v.
Volkman, 132 Ohio St.3d 328, 2012-Ohio-2179, ¶19 & ¶21.
{¶78} Mr. Jones, chief investigator of the ODLC, testified with regard to the
letters sent to the Faire in 2005 to verify the beer concessions were operating in
compliance with Ohio’s liquor laws. During Mr. Jones’ testimony, Defendants presented
copies of the unsigned responses received by the ODLC; Mr. Graves had utilized these
same responses to calculate his expert opinion on lost profits. Mr. Jones stated the file
stamp on the documents appeared to be that used by the ODLC when it receives
documents, but he could not authenticate the responses because he did not personally
receive them and they were not signed. Mr. Jones also could not testify as to the
accuracy of the reported categories and amounts of expenses related to the beer
concession, total sales, and charitable proceeds or whether the Faire was operating in
compliance, because no further investigation was taken by the ODLC.
{¶79} The Board and the Attorney General objected throughout Mr. Jones’
testimony. The trial court stated, “Well, he might be able to testify that this is part of
their records, but he sure can’t testify that these expenses are legitimate. * * *
[C]ertainly, the Court is not going to be obligated to say that all these expenses were
legitimate since there’s nobody here to tell us what they even consisted of.” At the
30
conclusion of that day’s hearing, in deciding an argument regarding admissibility, the
trial court stated: “I’ll admit them, but they are going to get no weight. They’re valueless.
* * * I’ll admit them into evidence, Exhibits A through J, and the issues of credibility are
for me to decide[.]”
{¶80} In its final entry, the trial court stated: “To verify the receiver’s amount, the
Court has reviewed the 2005 receipt and expense reports sent to the [ODLC] in 2005.
Although these reports are not verified and it is unknown who prepared them, they are
strikingly similar to the 2009 receiver reports.” The trial court further found that certain
expenses listed on the 2005 responses were inappropriate to beer sales; when those
items were subtracted, the amount compared favorably to the amount of expenses
reported by the receiver in 2009. The trial court found the receiver’s report was the
most reliable source of verification for beer sales in 2004 through 2008, which was
further verified by similar figures reported to the ODLC in 2005.
{¶81} We do not find merit with the Attorney General’s argument that the trial
court gave undue weight to the 2005 responses. They were certainly relevant to the
determination of damages, and they were merely used to bolster the 2009 receiver’s
report, the credibility of which has not been attacked. The trial court’s judgment is not
against the manifest weight of the evidence.
{¶82} The Attorney General next argues the trial court erred by implying the
Attorney General was estopped from contesting the figures contained in the 2005
responses. It bases this argument on the following quote from the trial court’s final
entry: “Records from the [ODLC] indicated the Defendants responded and provided the
requested information. Although the information submitted was neither verified nor
31
signed by an individual, the State accepted the information submitted to it by the
Defendants.”
{¶83} This finding related to the trial court’s decision not to award punitive
damages to the Attorney General; it in no way implied the Attorney General was
estopped from contesting the specific figures in the 2005 responses. Regardless of the
figures, the trial court found the fact that the state had accepted the responses without
further investigation gave Defendants reason to believe they were in compliance with
state laws and regulations.
{¶84} The Attorney General’s sixth assignment of error is without merit.
Constructive Trust
{¶85} On the issue of a constructive trust remedy, the trial court found the Board
and the Attorney General “failed to establish that the Defendants have committed some
wrong or fraud which requires a confiscation of his property.”
{¶86} The Board asserts, in its fourth assignment of error, that the trial court
erred in determining Defendants had committed no wrong and, in its sixth assignment of
error, that the trial court erred in failing to impose a constructive trust.
{¶87} The Board’s arguments are premised on its allegation that Defendants
misappropriated $100,023.11 in charitable trust assets from the Fire Department. This
figure represents the negotiated “keg charge” the Fire Department paid to Defendants
each year it operated the beer concession, from 1994 through 2002—approximately
$11,000.00 per year, or less than $2,000.00 per weekend. In fact, the testimony in this
regard was that the Fire Department, who had entered into the contract with Rickard,
annually agreed to the charges. It is only the Board, who later acquired the rights under
32
the contract, that objects to them. The trial court found Defendants were not malicious
in negotiating this “keg charge” and that the amount was reasonable. The trial court did
not find Defendants were unjustly enriched by this “keg charge”; thus, the Board was
not entitled to any remedy, let alone imposition of a constructive trust.
{¶88} The Board’s fourth and sixth assignments of error are without merit.
{¶89} In its fifth assignment of error, the Attorney General asserts the trial court
erred in determining Defendants had committed no wrong by using R.C. Chapter 2915,
relating to Ohio’s charitable gambling laws, to construe what types of expenses are
permissible under a Class F temporary permit for alcohol sales issued pursuant to R.C.
4303.20.
{¶90} This argument is raised in response to the following statement in the trial
court’s final entry regarding the issue of whether Defendants engaged in malicious
conduct or intentionally violated any fiduciary duties:
During the latter years [2004-2008], the Defendants received little
guidance from the State of Ohio. The only regulations defining
approved expenses provide that the expenses are not to be
expended for the profit of any individual. The State regulations
defining the charitable gambling operations are very inclusive and
permit a wide range of expenses to be charged before charitable
gambling profits are calculated.
{¶91} This assignment of error is based on a false premise. The trial court did
not use R.C. 2915 to determine which expenses were permissible under R.C. 4303.20.
The trial court referenced the guidelines contained in R.C. 2915 to underscore its finding
that Defendants had reason to believe they were not violating Ohio’s liquor laws. The
state had provided very little guidance to licensees in that regard, as compared to the
guidelines provided by the state for those engaged in charitable gambling operations.
33
{¶92} The Attorney General’s fifth assignment of error is without merit.
{¶93} The Attorney General, in its first assignment of error, asserts the trial court
erred in failing to impose a constructive trust where Defendants were unjustly enriched
by misappropriated funds and the beer concession proceeds were traceable to
Rickard’s purchase of real property.
{¶94} The trial court determined the charities represented by the Attorney
General were charged excessive expenses for a total net loss of $138,400.00. The
Attorney General asserts the appropriate remedy was imposition of a constructive trust
over Rickard’s property because Defendants were unjustly enriched.
{¶95} A constructive trust is an equitable remedy that may be invoked when
property has been acquired by fraud or “where it is against the principles of equity that
the property be retained by a certain person even though the property was acquired
without fraud.” Ferguson v. Owens, 9 Ohio St.3d 223, 226 (1984), citing 53 Ohio
Jurisprudence, Trusts, Section 88, at 578-579 (2d Ed.1962); see also Cosby v. Cosby,
96 Ohio St.3d 228, 2002-Ohio-4170, ¶17.
{¶96} The party seeking judicial recognition of a constructive trust bears the
burden of producing clear and convincing evidence justifying it. Univ. Hosps. of
Cleveland, Inc. v. Lynch, 96 Ohio St.3d 118, 2002-Ohio-3748, paragraph three of the
syllabus. The ultimate decision to impose a constructive trust, however, lies within the
sound discretion of the trial court. See Willson v. Bd. of Trustees of The Ohio State
Univ., 10th Dist. Franklin No. 91AP-144, 1991 WL 274862, *18 (Dec. 24, 1991), citing
Hecht Co. v. Bowles, 321 U.S. 321 (1944) (whether to “award or withhold equitable
relief turns on the facts of the case and is within the sound discretion of the trial court”).
34
“[T]he trial judge has first-hand exposure to the litigants and the evidence and, thus, is
in a considerably better position to bring the scales into balance than this court would
be.” Id. (citations omitted). Therefore, we review the relief awarded only for an abuse
of discretion. Id.{¶97} Here, the trial court found no evidence of malicious conduct or any type of
wrong or fraud that would justify a constructive trust remedy. That holding is not against
the manifest weight of the evidence, as has been outlined throughout our opinion. We
will not substitute our judgment for that of the trial court on the issue of fashioning an
appropriate remedy. We do not find the trial court abused its discretion in failing to
impose a constructive trust on Defendants’ assets in favor of the Attorney General.
{¶98} The Attorney General’s first assignment of error is without merit.
Accounting
{¶99} The Board asserts, under its fifth assignment of error, that the trial court
erred in failing to provide the Board a remedy on its claim for an accounting.
{¶100} In its second amended complaint, the Board requested the trial court order
Defendants to provide an accounting for January 1, 1994, to the present representing
the exact amount of the following: the gross proceeds derived from the operation and
management of the beer concession; related reasonable expenses; the amount of
expenses charged by Defendants to any such person or entity; amounts of all other
payments made to Defendants by the Fire Department and any other person or entity
directly or indirectly related to such beer concession.
{¶101} The Board’s request was for an accounting of proceeds as a remedy for
the alleged breach of contract. The trial court found the Board was not entitled to any
35
damages for breach of contract. Now, on appeal, the Board claims it was entitled to an
accounting of proceeds as the beneficiary of one of the charitable trusts, i.e., the Fire
Department. The Attorney General brought suit on behalf of the charitable trusts,
including the Fire Department, to recover misappropriated funds. Although both parties
are seeking recoupment of the beer proceeds for 2004 through 2008, the Board denied
before the trial court that it was bringing a claim that in any way overlapped that of the
Attorney General. The Board stated it was suing for contractual damages, while the
Attorney General was suing for breach of fiduciary duties. The Board, as opposed to
the Attorney General, has not provided any authority to establish it has standing to raise
this argument as a beneficiary of the charitable trust. This is particularly true due to the
undisputed fact that the Fire Department provided no labor to support the beer
concession after 2002. The Attorney General, who does have standing, did not make a
claim for an accounting before the trial court and does not raise any similar argument on
appeal.
{¶102} The Board’s fifth assignment of error is without merit.
Attorney Fees
{¶103} Under its seventh assignment of error, the Board asserts the trial court
erred in failing to award the Board attorney fees and expenses when it found that
Defendants engaged in severe discovery misconduct.
{¶104} Again, “[a] trial court has considerable latitude in imposing sanctions for
discovery violations and a trial court’s decision on a discovery violation will not be
reversed absent a showing of an abuse of discretion.” Johnson Controls, supra, at ¶15,
36
citing Nakoff, supra, at 256. “Specifically, in deciding a sanction, the trial court should
observe several factors:
‘the history of the case; all the facts and circumstances surrounding
the noncompliance, including the number of opportunities and the
length of time within which the faulting party had to comply with the
discovery or the order to comply; what efforts, if any, were made to
comply; the ability or inability of the faulting party to comply; and
such other factors as may be appropriate.’
Maggard v. Zervos, 11th Dist. Lake No. 2001-L-072, 2003-Ohio-6688, ¶16, quoting
Billman v. Hirth, 115 Ohio App.3d 615, 619 (10th Dist.1996), quoting Russo v.
Goodyear Tire & Rubber Co., 36 Ohio App.3d 175, 178 (9th Dist.1987).
{¶105} In its joint motion for sanctions, appellants requested the trial court to
grant relief, inter alia, in the form of attorney fees and expenses due to Defendants’
discovery abuses that caused substantial delays and prejudice to appellants. The trial
court granted the motion for sanctions, and indeed imposed a very significant sanction
by striking Defendants’ answer and counterclaim. It did not include as one of those
sanctions an award of attorney fees and expenses. The trial court found the only
effective sanction was to strike Defendants’ pleadings and enter default judgment,
stating:
[A]ny lesser sanction would be futile because equity would require
that Rickard pay as a condition of the sanctions, in advance of
continued proceedings, substantial attorney’s fees and expenses
incurred by the Board and Attorney General in bringing the joint
motion for sanctions, and Rickard contends he is financially
destitute and unable to meet his monthly financial obligations. The
Court finds he could not pay a monetary sanction that would allow
the case to proceed.
{¶106} In its final order, after hearing the testimony that offered no support for the
Board’s position about a “perpetual” written contract, the trial court further stated it
37
chose not to award attorney fees because it found the Board chose “to pursue a
meritless claim.”
{¶107} We find no abuse of discretion and will not substitute our judgment for that
of the trial court on this issue.
{¶108} The Board’s seventh assignment of error is without merit.
Conclusion
{¶109} The judgment of the Ashtabula County Court of Common Pleas is
affirmed.
THOMAS R. WRIGHT, J.,
COLLEEN MARY O’TOOLE, J.,
concur.
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