G.R.P.L. Ents., Inc. v. Sethi , 2010 Ohio 6513 ( 2010 )

[Cite as G.R.P.L. Ents., Inc. v. Sethi, 2010-Ohio-6513.]
STATE OF OHIO, MAHONING COUNTY
IN THE COURT OF APPEALS
SEVENTH DISTRICT
G.R.P.L. ENTERPRISES, INC., et al., )
) CASE NO. 09 MA 205
PLAINTIFFS-APPELLANT, )
)
- VS - ) OPINION
)
MANU SETHI, et al., )
)
DEFENDANTS-APPELLEES. )
CHARACTER OF PROCEEDINGS: Civil Appeal from Common Pleas
Court, Case No. 07 CV 3936.
JUDGMENT: Affirmed.
APPEARANCES:
For Plaintiffs-Appellant: Attorney Matthew Giannini
1040 South Commons Place
Suite 200
Youngstown, OH 44514
For Defendants-Appellees: Attorney R. Jay Carson
Frantz Ward LLP
2500 Key Center
127 Public Square
Cleveland, OH 44114
JUDGES:
Hon. Mary DeGenaro
Hon. Joseph J. Vukovich
Hon. Cheryl L. Waite
Dated: December 16, 2010
[Cite as G.R.P.L. Ents., Inc. v. Sethi, 2010-Ohio-6513.]
DeGenaro, J.
{¶1} This timely appeal comes on for consideration upon the record in the trial
court and the parties' briefs. Plaintiff-Appellant, Gennaro Russo, timely appeals the
November 23, 2009 decision of the Mahoning County Court of Common Pleas, which
granted a involuntary dismissal under Civ.R. 41(B)(2) in favor of Defendants-Appellees,
Manu and Sangeetha Sethi. Russo argues that the trial court erred in finding that Russo
was not an intended third-party beneficiary with the right to enforce the terms of a contract
between GRPL and the Sethis. However, Russo specifically disclaimed any third-party
beneficiary status to the contract. Accordingly, the decision of the trial court is affirmed.
Facts and Procedural History
{¶2} Gennaro Russo is a shareholder of GRPL, which is a land development
company that sells land in the Fox Den development in Canfield, Ohio. One of the terms
in GRPL’s contracts is that Russo Builders Unlimited, Inc. has the right of first refusal to
build on the lots sold by GRPL. Gennaro Russo is a shareholder in Russo Builders along
with his son, Antonio Russo.
{¶3} The Sethis owned a home in the Fox Den development. In 2004, Russo, as
an agent of GRPL, sold an adjacent parcel of residential land to the Sethis. The contract
terms included that "Gennaro Russo shall have the first right of refusal to build the
residence" on the Sethis' lot. In 2006, the Sethis began construction of an addition to
their house on the adjacent lot using the services of Sudon Brothers. GRPL filed suit on
October 22, 2007 and sought a preliminary injunction that was denied.
{¶4} GRPL initially claimed that the failure to disclose the plans for the addition
constituted a breach of the contractual provision for right of first refusal, which caused
GRPL lost profits. However, in Requests for Admissions, GRPL admitted that it incurred
no damages due to the lost construction project; that Russo Builders was designated to
provide construction services in the contract, and amended its complaint to add Gennaro
Russo individually.
{¶5} Throughout discovery Russo claimed individual lost profits resulting from not
being given the opportunity to build the Sethis' addition. However, in Request for
Admissions directed to GRPL, Russo, as GRPL's agent, specifically denied that Gennaro
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Russo was an intended third-party beneficiary to the contract between GRPL and the
Sethis, and asserted that Russo Builders was the third-party beneficiary with the right of
first refusal.
{¶6} Because GRPL voluntarily dismissed its claims with prejudice, the matter
proceeded to a bench trial before the magistrate with Russo in his individual capacity as
the sole plaintiff. The Sethis then moved for dismissal, arguing that Russo, in his
individual capacity was not an intended third-party beneficiary to the contract, and further,
that Russo had presented no evidence of damages. The magistrate granted the motion.
Russo timely filed Objections to the Magistrate's Decision, which the trial court overruled.
Although the trial court's judgment did not dispose of a counterclaim that had been filed
by the Sethis, the judgment entry expressly stated that there was "no just cause for delay"
making the judgment a final appealable order. Civ.R. 54(B).
Third Party Beneficiary
{¶7} Appellant Russo asserts a single assignment of error:
{¶8} "The trial court erred in directing a verdict for the defendants where Gennaro
Russo, as principal of the construction company, Russo Builders LTD, is a third-party
beneficiary of the first right to construction provision contained purchase agreement
entered into by and between Plaintiff, GRPL Enterprises, Inc. and the Defendant
homeowners."
{¶9} Russo argues that he was an intended third-party beneficiary of the contract
because of the right of first refusal provision. Russo argues that he proved this intention
because he was acting specifically as an agent for both GRPL and Russo Brothers to
enact contractual provisions that would benefit him personally. Russo further argues that
because the Sethis hired another contractor without giving Russo the right of first refusal,
this caused a loss of income that was intended to benefit him individually as a third-party
beneficiary of GRPL.
{¶10} A court of appeals will generally not set aside the trial court's dismissal
pursuant to Civ.R. 41(B)(2) unless the decision is erroneous as a matter of law or against
the manifest weight of the evidence. Martin v. Lake Mohawk Property Owner's Assn., 7th
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Dist. No. 04 CA 815, 2005-Ohio-7062, at ¶19. The court of appeals will defer to the trial
court’s factual findings, so long as they are supported by competent credible evidence,
because the trial court was in the best position to observe witnesses and determine
credibility. Seasons Coal Co., Inc. v. Cleveland (1984), 10 Ohio St. 3d 77, 80, 10 OBR
408, 461 N.E.2d 1273. But regarding questions of law, an appellate court "may properly
substitute its judgment for that of the trial court since an important function of the
appellate court is to resolve disputed propositions of law." Miller-Yount Paving, Inc. v.
Freeman Cargo Carrier, Inc. (Mar. 30, 2000), 7th Dist. No. 98 C.A. 226, at *3.
{¶11} A third-party may recover damages flowing from a contract only when the
third-party is the intended beneficiary of the contract. J.G. Wentworth L.L.C. v. Christian,
7th Dist. No. 07 MA 113, 2008-Ohio-3089, at ¶34, citing Grant Thornton v. Windsor
House, Inc. (1991), 57 Ohio St.3d 158, 161, 566 N.E.2d 1220. If the contract does not
indicate an intent to benefit the third-party, then the third-party is merely an incidental
beneficiary with no right to enforce the contract. McCullion v. Ohio Valley Mall Co. (Feb.
10, 2000), 7th Dist. No. 97 C.A. 175, at *2.
{¶12} To be an intended third-party beneficiary the contract "must have been
entered into directly or primarily for the benefit of that person." Sony Electronics., Inc. v.
Grass Valley Group, Inc., 1st Dist. Nos. C-010133, C-010423, 2002-Ohio-1614, at *3.
Conferring a benefit on the beneficiary by performance of a contract is not enough to
establish an intended third-party beneficiary; instead, the performance of the promise
must satisfy a duty owed by the promisee to the beneficiary. Visintine & Co. v. New York,
C & St. L. R. Co., (1959), 169 Ohio St. 505, 507, 9 O.O.2d 4, 160 N.E.2d 311. If a
contract is "clear that the 'primary' and 'paramount' purpose seems to be to benefit the
third person * * * he should have an enforceable right * * *." Id. at 509.
{¶13} First, Russo claims that he is the "principal" of Russo Builders and thus
merges himself and the corporation into one entity to claim third-party beneficiary status.
Second, Russo asserts that he is explicitly referenced in his individual capacity in the
contract between GRPL and the Sethis. Both of these arguments fail.
{¶14} A party does not attain the status of a third-party beneficiary merely
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because he is an agent acting on behalf of one of the parties to a contract. When a party
is acting as an agent, his actions are attributed to the principal rather than himself,
because the agent is "standing in the shoes" of the principal. See First Nat. Bank of New
Bremen v. Burns (1913), 88 Ohio St. 434, 441, 103 N.E. 93. Thus, an agent's
participation in contracting for a principal will allow the principal to enforce its rights under
the contract, but it does not create a right for that agent to enforce the contract on his own
behalf or in his individual capacity as a third-party beneficiary.
{¶15} Additionally, a party is not considered a third-party beneficiary merely
because he is a shareholder of one of the contracting parties. A corporation is a separate
legal entity from the entities which make up the corporation. Agley v. Tracy (1999), 87
Ohio St.3d 265, 268, 719 N.E.2d 951. Only a corporation can recover for an injury
sustained to the corporation and shareholders do not possess this same privilege. Adair
v. Wozniak (1986), 23 Ohio St.3d 174, 176, 23 OBR 339, 492 N.E.2d 426. And despite
the small size and closed nature of Russo's corporations "[a] corporation is a separate
legal entity from its shareholders, even where there is but one shareholder." LeRoux's
Billyle Supper Club v. Ma (1991), 77 Ohio App. 3d 417, 420, 602 N.E.2d 685. Thus,
Russo cannot claim third-party beneficiary status due to his "commonality of ownership
and managerial interest in both closed corporate entities."
{¶16} Russo's second argument is that he is named individually in the contract
and is therefore a third-party beneficiary. However, in Requests for Admissions directed
to GRPL, it is specifically denied that Gennaro Russo was an intended third-party
beneficiary to the contract. Pursuant to Civ.R. 36(B), "[a]ny matter admitted [in a
response to Request for Admissions] is conclusively established unless the court on
motion permits the withdrawal or amendment of the admission."
{¶17} The contract between GRPL and the Sethis’ does state that "Gennaro
Russo shall have the first right of refusal to build the residence" on the Sethis' lot.
However, in the Request for Admissions directed to GRPL, No.16 asked: “Admit that
G.R.P.L. intended Gennaro Russo, as an individual and not as a corporate
representative, to be a third-party beneficiary of the land sale contract for Lot #59."
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Russo, acting as an agent for GRPL, denied this saying, "the Corporate Entity (Russo
Builders) is the party with the right to construct homes." Therefore Gennaro Russo did
not have the right to personally enforce the contract against the Sethis as a third-party
beneficiary.
{¶18} Given the foregoing, Russo only established his status as an agent and
shareholder of both GRPL and Russo Builders, and failed to establish that he was
personally an intended third-party beneficiary of the contract between GRPL and the
Sethis. Therefore, the trial court's finding that Russo did not have the right to enforce the
contract against the Sethis was supported by competent, credible evidence, and was
proper as a matter of law. Accordingly, Russo's sole assignment of error is meritless, and
the judgment of the trial court is affirmed.
Vukovich, P.J., concurs.
Waite, J., concurs.