Northpoint Properties, Inc. v. Charter One Bank , 2014 Ohio 1430 ( 2014 )

[Cite as Northpoint Properties, Inc. v. Charter One Bank, 2014-Ohio-1430.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 100210
NORTHPOINT PROPERTIES, INC.
PLAINTIFF-APPELLEE
vs.
CHARTER ONE BANK., F.S.B., ET AL.
DEFENDANTS-APPELLANTS
JUDGMENT:
AFFIRMED IN PART, REVERSED IN PART
AND REMANDED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case Nos. CV-03-494961 and CV-06-589150
BEFORE: Jones, P.J., McCormack, J., and E.T. Gallagher, J.
RELEASED AND JOURNALIZED: April 3, 2014
ATTORNEYS FOR APPELLANTS
Diane E. Citrino
Marquettes D. Robinson
Ryan J. Sears
Mark I. Wallach
Thacker Martinsek L.P.A.
2330 One Cleveland Center
1375 East 9th Street
Cleveland, Ohio 44114
ATTORNEYS FOR APPELLEE
Richard C. Haber
Haber Polk Kabat L.L.P
737 Bolivar Road
Suite 4400
Cleveland, Ohio 44115
Patrick J. Holland
Cindy L. Renner
c/o Northpoint Properties, Inc.
75 Public Square
Suite 300
Cleveland Ohio 44113
Edward R. LaRue
75 Public Square
Suite 800
Cleveland, Ohio 44113
Angelo F. Lonardo
Yelsky & Lonardo
75 Public Square
Suite 800
Cleveland, Ohio 44113
LARRY A. JONES, SR., P.J.:
{¶1} Defendants-appellants, Charter One Bank, F.S.B., and Thriftco, Inc.
(hereinafter referred to individually as “Charter One” or “Thriftco” or collectively as
“appellants”), appeal multiple orders from the trial court issued after remand from this
court. After thorough review and consideration, we affirm in part, reverse in part, and
remand.
BACKGROUND FACTS1
{¶2} In 1997, plaintiff-appellant, Northpoint Properties, Inc., purchased a 15-story
office building located at 75 Public Square in Cleveland from Thriftco, a wholly owned
subsidiary of Charter One. Northpoint claimed that when purchasing the building, it
justifiably relied upon fraudulent representations about, and the concealment of, the
condition of the building’s fire-suppression system and domestic water lines.
{¶3} In January 1996, Charter One took possession of the building through a deed
in lieu of foreclosure. Shortly thereafter, Charter One hired Kaczmar Architects, Inc.,
and Pyramid Electric, Inc. to inspect the property. The Kaczmar-Pyramid report
(“Kaczmar Report”) recommended that a fire-protection expert be retained to “recommend
changes to the sprinkler, standpipe, fire hose cabinet and fire pump system.” Despite this
recommendation, no action was taken.
{¶4} A Phase One Environmental Site Assessment performed in February 1996
Portions of these facts are taken from the background facts set forth in this court’s en banc
1
decision in Northpoint Properties v. Charter One Bank, 8th Dist. Cuyahoga No. 94020,
2011-Ohio-2512, ¶ 3-16.
indicated that there were not any serious code or regulatory violations and that “[t]he water
for this property is provided by a regional public water system, and is considered safe for
human consumption.” A Phase One Environmental Site Assessment performed in 1997,
four months before Northpoint purchased the building, also concluded that there were no
code or regulatory violations and the water was safe for human consumption.
{¶5} Charter One retained Ehle Morrison Group, Ltd. (“EMG”) for the
management, leasing, and sale of the building. Frank Schwartz was hired as the building
manager.
{¶6} Schwartz received regular complaints from tenants about the taste of the
drinking water; he personally tasted the water and found it “unpleasant.” During an
inspection in 1996, a Cleveland fire department inspector informed Schwartz that the
six-inch fire standpipe was cut and capped, a fire pump was missing, the domestic water
line had been tied together with the fire-suppression system, and the water gauge on the
15th floor showed that the pressure was insufficient to run the sprinklers on that floor.
Schwartz testified that he was concerned that these things might result in the actual
shutting down of the building or even perhaps the loss of his job. The next time he saw
EMG’s owner, Bruce Morrison, Schwartz “excitedly” relayed what the inspector had told
him. Morrison told him to “calm down, that everything would be okay.”
{¶7} On May 1, 1996, Charter One transferred title to the building to Thriftco.
Brandstetter Carroll Zolfcin, Inc., an architectural and engineering firm, was hired to
inspect the building in June and November 1997. The firm also issued a report, the
“Brandstetter Report,” which stated in part:
There are presently no standpipes in the stairwells which does not comply
with today’s code requirements for a high rise building. The fifteenth floor
is sprinklered from the domestic water system with booster pumps in the
basement. There are fire hoses located throughout the building. For these
to be effective, the water pressure should be verified. It is questionable
whether the fire department would want these to remain in service.
{¶8} When the owner of Northpoint, Daniel Dzina, expressed interest in purchasing
the building, he received a Property Interest Packet that contained both Phase One
Environmental Site Assessments and the Brandstetter Report. Dzina was never given the
Kaczmar Report. The paperwork EMG provided Dzina specified that the building was
being sold in its “as is, where as” condition, contained disclaimers regarding
representations and warranties, and indicated that buyers could only rely on their own
inspections and investigations of the property.
{¶9} Northpoint did not obtain an independent property inspection before
purchasing the building; Dzina testified that he relied on the reports that had been included
in the Property Interest Packet, including the Environmental Site Assessment, which was
completed four months prior to his purchase. Dzina, an experienced real estate
purchaser, went on two tours of the building and testified he did not observe any defects in
the fire-suppression or domestic water systems.
{¶10} Dzina testified that he was aware of the recommendation in the Brandstetter
Report that in order for the fire hoses to be effective, the water pressure should be verified.
Instead of going through the time-consuming process of having the fire hoses tested,
Northpoint replaced them after acquiring the building, operating on the assumption that
they rot so it is customary to replace them instead of test them. Dzina also upgraded
other fire safety measures, including the building’s sprinkler system, fire extinguishers,
and smoke detectors.
{¶11} Dzina claimed that had he received the Kaczmar Report and its
recommendation that the services of a fire-protection expert be obtained “to recommend
changes to the sprinkler, standpipe, fire hose cabinet and fire pump system,” he would
have hired such an expert to determine what needed to be done and then negotiated a
lower price on the building or walked away from the sale.
{¶12} The building was appraised at $3.1 million and Northpoint bought the
building in its “as is” condition for $3.15 million. The purchase agreement specifically
disclaimed any representation as to the nature and condition of the property.
{¶13} Northpoint took possession of the building in January 1998 and Schwartz
remained as the building manager. Four months later, after a tenant had complained to
Dzina about the taste of the drinking water, he questioned Schwartz about the water.
Schwartz told Dzina about the domestic and fire water tie-ins. Dzina also discovered that
the fire-suppression system was not working properly when he went through the building
with a fire inspector. Dzina testified that the fire inspector appeared “surprised” and
“upset” that the problems the inspector had found during his previous inspection (before
Northpoint bought the building) had not been remedied.
{¶14} Northpoint hired Tri-S Piping, owned by Joe Stojkov, to inspect the
fire-suppression and water line systems. Stojkov discovered a missing check valve in a
main water pipe, which was necessary to prevent the backflow and mixing of water; the
six-inch water-supply line was disconnected and had no pressure; and a missing fire pump.
He also discovered that the pressure gauge on the 15th floor had been “pegged” to read a
fixed pressure, i.e., it falsely showed that there was adequate pressure for the
fire-suppression system to work on the 15th floor.
{¶15} Stojkov testified that the existing three-inch water line was insufficient to
provide the volume of water needed for the fire-suppression system and he could tell from
the odor of the building’s drinking water that it was contaminated. Stojkov testified he
could have identified all of these conditions, except the missing check valve that was
located inside of a water pipe, had he inspected the building prior to Northpoint’s purchase
of the property.
{¶16} Northpoint initially claimed it spent $280,000 to repair the water lines and
fire-suppression system and for the purchase of a fire pump.
INITIAL TRIAL COURT RULING
{¶17} In 2003, Northpoint filed suit against Charter One, Thriftco, and EMG,
(hereinafter collectively referred to as “defendants”) raising claims for fraud and breach of
contract. Northpoint filed a separate action against Charter One, Thriftco, EMG, and
EMG’s owner, Morrison, for spoliation of evidence. The cases were consolidated.
{¶18} The trial court granted summary judgment in favor of the defendants on the
breach of contract claim. The case proceeded to a bench trial on the fraud and spoliation
claims; the trial court entered judgment for the defendants on the spoliation claim.
{¶19} The trial court found that Northpoint failed to prove the defendants engaged
in fraud with respect to non-latent defects with the fire-suppression system because the
property was being sold in its “as is” condition: Dzina had observed the capped six-inch
water supply line and knew of the tie-in, Stojkov testified he could have discovered most
of the defects had he inspected the property prior to purchase, and there was no evidence
that the defendants concealed the absence of a fire pump.
{¶20} The trial court further found that the Kaczmar Report recommended only that
a fire protection expert be retained to recommend changes, but the report did not point to
any defects or code violations. Thus, the court determined, the defendants did not
knowingly make false representations about the fire- suppression system.
{¶21} The trial court determined the defendants did not intend to induce reliance
nor did Northpoint justifiably rely on the defendants’ representations as disclaimers were
made and Northpoint failed to inquire further or obtain an independent inspection of the
property. Finally, the court found Northpoint failed to provide sufficient evidence of its
resulting injury.
{¶22} The trial court did find that Northpoint established fraud with respect to
latent defects in connection with the building’s drinking-water system. Despite finding
fraud had occurred in this regard, the trial court determined that Northpoint failed to
demonstrate injury and was therefore not entitled to damages. The court reasoned that
although Northpoint presented evidence of its cost to repair the water lines and
fire-suppression system, it did not present evidence of the diminution in value of the
building. The trial court concluded that the “cost of repair” was not the appropriate
measure of damages.
NORTHPOINT I
{¶23} Northpoint filed an appeal and the defendants cross-appealed. Northpoint
argued that the trial court erred in finding that the applicable measure of damages was
“loss in value” instead of “cost to repair.” A panel of this court initially determined that
the reasonable cost to repair was the appropriate measure of damages and the trial court
erred in concluding that Northpoint failed to present evidence on the cost to repair the
water lines and fire-suppression system. Northpoint Properties v. Charter One Bank, 8th
Dist. Cuyahoga No. 94020, 2011-Ohio-68, ¶ 32-33.
{¶24} This court then determined that a conflict existed between Northpoint,
2011-Ohio-68, and this court’s prior decision in Krantz v. Schwartz, 78 Ohio App.3d 759,
605 N.E.2d 1321 (8th Dist.1992). This court granted en banc consideration and
convened an en banc conference on the question of “whether a plaintiff alleging fraud in a
commercial real estate transaction is limited to recovery of the difference between the
value of the property as represented and the value as actually delivered.” Northpoint
Properties v. Charter One Bank, 8th Dist. Cuyahoga No. 94020, 2011-Ohio-2512, ¶ 1
(“Northpoint I”). This court vacated Northpoint, 2011-Ohio-68, and issued Northpoint I
as the final decision in the appeal.
{¶25} This court answered the certified question in the negative and determined
that the correct measure of damages was the cost of repair. In this case, “[b]ecause
market value may not have been affected by the faulty systems, it is likely that the
diminution-in-value measure of damages would not adequately compensate Northpoint
and would effectively allow the defrauding party to escape liability.” Northpoint I at ¶
36. Therefore, “[t]he appropriate inquiry is whether competent evidence of damages has
been presented to establish with reasonable certainty an amount sufficient to fully and
fairly compensate the aggrieved party.” Id.{¶26} This court considered that Northpoint purchased the property with defective
fire-suppression and contaminated drinking water systems, which formed the basis for
the company’s fraud claims. Northpoint repaired the defects due to health and safety
concerns and presented evidence of the cost to repair the premises to conform with the
defendants’ original representations of the condition of the property.
{¶27} This court also determined that the trial court erred in concluding that
Northpoint failed to present evidence on the appropriate measure of damages. The case
was remanded for the trial court to determine the cost to repair. The trial court was
instructed that it was within its discretion to “make this determination upon the evidence
presented, or to accept additional briefing or evidence regarding damages.” Id. at ¶ 70.
{¶28} Within its appeal, Northpoint had also argued that the trial court committed
reversible error in allowing the unilateral withdrawal of the defendants’ jury demands and
in striking Northpoint’s jury demands. This court disagreed, concluding the trial court
did not err by enforcing the contractual waiver contained in the parties’ sales agreement
and ordering the matter to proceed to a non-jury trial. Id. at ¶ 44.
{¶29} Northpoint also claimed that the trial court erred in refusing to pierce the
corporate veil of Charter One and refusing to award punitive damages to Northpoint.2
This court overruled this argument, but recognized that those issues that had not yet been
determined by the trial court and would be upon remand. Id. at ¶ 48.
{¶30} Finally, this court considered the defendants’ issue raised on cross-appeal,
whether the trial court erred in finding that Northpoint proved liability for fraud as to the
latent defects with the drinking water system, even though the trial court found no
evidence of cognizable damages. This court determined that the relevant inquiry was
whether the defects would have been discovered by an ordinarily prudent purchaser who
had a duty to use diligence in inspecting the property before purchase. Id. at ¶ 54.
Employing that inquiry, this court concluded that the trial court erred in its finding as to
the non-latent nature of the defects because the defects found by Northpoint’s expert
would not be discoverable by an ordinarily prudent purchaser.
{¶31} This court concluded that the trial court’s finding that Northpoint failed to
prove fraud with regard to the fire-suppression system was against the manifest weight of
the evidence because the trial court record clearly established fraud with respect to the
Northpoint also argued that the trial court erred in “limiting its analysis and findings to
2
EMG” but this court noted that the trial court extended its ruling to Charter One and Thriftco.
defective condition of both the domestic water lines and the fire-suppression system. Id.
at ¶ 67. Moreover, neither the doctrine of caveat emptor nor the defense of spoliation
barred Northpoint’s fraud claim.
CASE ON REMAND
{¶32} After the case was remanded to the trial court, Northpoint moved for a status
conference. The court denied the request and ordered the parties to brief any remaining
issues. Northpoint filed its post-remand brief and attached four affidavits to support an
additional compensatory damages claim of $83,272 that it alleged it spent on labor costs
associated with the cost to repair.
{¶33} In response, the defendants moved to strike the affidavits and asked for leave
to reopen discovery; the trial court denied their request. The trial court indicated in a
journal entry dated December 14, 2011, “ [w]hile not stricken from the Record, the Court
will not consider new evidence when rendering its decision upon remand.”
{¶34} A year later, on December 21, 2012, the trial court issued its written opinion,
holding: (1) Thriftco was the alter ego of Charter One, therefore Charter One could be
held liable for Thriftco’s actions; (2) the defendants were jointly and severally liable to
Northpoint for damages that flowed from their fraudulent conduct, measured by the
reasonable cost of repair, and liable for court costs; and (3) the defendants were jointly and
severally liable for punitive damages in the amount of $3,269,448, plus attorney fees.
{¶35} The trial court determined Northpoint provided sufficient evidence of
additional compensatory damages in the amount of $83,272, for a total cost of repair of
$363,272. The trial court also found that Northpoint was entitled to an award of punitive
damages based on the defendants’ conscious disregard for the rights and safety of others.
The court found that the defendants knowingly jeopardized the health and safety of the
users and occupants of the building by subjecting them to a contaminated water supply and
faulty fire-suppression system. Further, with knowledge of the defects on the property,
the defendants concealed said defects and materially misrepresented the condition of the
property; therefore, Northpoint was entitled to punitive damages in the amount of
$3,269,448.
{¶36} The trial court ordered the parties to brief the issue of attorney fees and
whether prejudgment interest was due and owing and set the matter for hearing. The trial
court subsequently held a lengthy hearing at which it took testimony and the parties
submitted exhibits.
{¶37} The court awarded attorney fees and prejudgment interest to Northpoint.
The trial court found that Northpoint’s original calculation of $1,282,188.39 in attorney
fees was excessive and reduced the award to $751,228.39. The court also granted
Northpoint’s request for prejudgment interest on compensatory damages in the amount of
$201,690.60, finding that the defendants failed to make a good faith effort to settle the
case and the plaintiff did not fail to make a good faith effort to settle the case.
ASSIGNMENTS OF ERROR
{¶38} Charter One and Thriftco filed a timely notice of appeal. EMG did not file
a notice of appeal and, therefore, it is not a party to this appeal.
I. The Trial Court denied Charter One and Thriftco due process of law and
their rights under the Ohio Rules of Civil Procedure and the Ohio Rules of
Evidence by increasing Northpoint’s compensatory damages from $280,000
to $363,272.
II. The Trial Court erred in piercing the corporate veil of Thriftco.
III. The Trial Court erred in awarding Plaintiff punitive damages against
Charter One and Thriftco.
IV. The Trial Court erred in failing to apply the cap on punitive damages
contained in Ohio Revised Code Section 2315.21(D)(2)(a).
V. The award of punitive damages by the Trial Court violated Charter
One’s and Thriftco’s rights to due process of law.
VI. The Trial Court’s award of attorney’s fees to Northpoint was based on
the improper award of punitive damages, and should therefore be reversed.
VII. The Trial Court’s award of prejudgment interest to Northpoint
constituted an abuse of discretion.
COMPENSATORY DAMAGES
{¶39} In the first assignment of error, the appellants argue that the trial court erred
when it increased the amount of compensatory damages from $280,000 to $363,272.
Again, the additional $83,272 was based on the payments Northpoint alleged it made to its
employees who assisted Tri-S Piping in repairing the water lines. To support the
additional amount, Northpoint attached four affidavits and exhibits to each affidavit in its
post-remand merit brief. The defendants moved to strike the affidavits and exhibits,
which the trial court denied.
{¶40} The appellants contend that the trial court’s decision to consider the
affidavits and accompanying exhibits to increase the amount of compensatory damages
was an abuse of its discretion. The appellants further argue that the affidavits constituted
inadmissible hearsay and that the trial court erred in denying them the opportunity to
conduct discovery on the new evidence found in the affidavits and exhibits.
{¶41} The four affidavits consisted of averments from Northpoint’s owner Daniel
Dzina, Tri-S Piping’s owner Joe Stojkov, and two Northpoint employees. Each affidavit
was accompanied by what appear to be identical sets of approximately 80 pages of
photocopied documents, consisting of: (1) a five-page undated spreadsheet captioned
“Tri-S Piping Invoice correlating to NorthPoint payroll for specific time periods in the
years 1999, 2000 and 2001,” which summarized payments made to Northpoint employees
Matthew Ging, William Montgomery, Leon Williams, and Charles Harmotta; (2) cancelled
paychecks made payable to the same four employees; (3) labor invoices from Tri-S Piping;
and (4) checks from Northpoint made payable to Tri-S Piping.
{¶42} In his affidavit, Stojkov confirmed that he received the help of Northpoint
employees and the cost of repairs would have exceeded $400,000 if he had not received
their assistance. Northpoint employees Matthew Ging and William Montgomery averred
that they had reviewed the documents, the documents reflected the hours they worked for
Tri-S Piping, and the documents were a true and accurate reflection of payments they
received. Dzina averred that he was president of Northpoint and that he provided his
employees as helpers to Tri-S, and the documents reflected the hours his employees
worked for Tri-S. He stated that the attached documents were a true and accurate
reflection of the labor expenses Northpoint incurred to assist in fixing the water pipes.
{¶43} Northpoint claims that the documents attached to the affidavits were business
records, and are therefore excepted from the hearsay rules by Evid.R. 803(6). It also
relies on this court’s language in Northpoint I that stated that the trial court could consider
additional evidence when determining the cost to repair. Therefore, according to
Northpoint, the trial court was within its authority to consider the affidavits and
accompanying documents when calculating the compensatory damages award.
{¶44} Evid.R. 803(6) governs the admission of business records:
To qualify for admission under Rule 803(6), a business record must manifest
four essential elements: (i) the record must be one regularly recorded in a
regularly conducted activity; (ii) it must have been entered by a person with
knowledge of the act, event or condition; (iii) it must have been recorded at
or near the time of the transaction; and (iv) a foundation must be laid by the
“custodian” of the record or by some “other qualified witness.”
State v. Davis, 116 Ohio St.3d 404, 2008-Ohio-2, 880 N.E.2d 31, ¶ 171, citing
Weissenberger, Ohio Evidence Treatise 600, Section 803.73 (2007). But a trial court
abuses its discretion when it admits a business record in the absence of an adequate
foundation to establish admissibility under Evid.R. 803(6). State v. Myers, 153 Ohio
App.3d 547, 2003-Ohio-4135, 795 N.E.2d 77, ¶ 58 (10th Dist.).
{¶45} This situation is unique because the trial court awarded damages based on
affidavits and evidence that were neither part of a Civ.R. 56(C) motion for summary
judgment nor admitted at trial. However, if the trial court was going to award additional
damages based on sworn evidence, the evidence must meet basic rules of admissibility.
And although Dzina could attest to his personal knowledge of the attached evidence,
neither he nor the other affiants attested that the records were kept in the regular course of
business as required by Evid.R. 803(6)(i). Moreover, the five page spreadsheet that
summarizes payments made to Northpoint employees was clearly not made in course of
regular business activity. As such, the affidavits contained inadmissible hearsay, and the
trial court erred in considering them.
{¶46} We find no merit in Northpoint’s argument that the appellants should have
deposed the affiants if they wanted to challenge their affidavits or the amount of additional
damages. The trial court denied appellants’ motion to strike, motion to reopen discovery,
and stated that it would not consider any “new evidence” in calculating compensatory
damages. Therefore, there was no reason for appellants to further challenge Northpoint’s
assessment of compensatory damages.
{¶47} In light of the above, the trial court erred when it increased compensatory
damages to $363,272. Therefore, we remand the case for the trial court to enter judgment
in favor of Northpoint and against the defendants, jointly and severally, in the amount of
$280,000 for compensatory damages.
{¶48} The first assignment of error is sustained.
PIERCING THE CORPORATE VEIL
{¶49} In the second assignment of error, the appellants argue that the trial court
erred by piercing the corporate veil to impose liability on Charter One through finding that
Charter One operated Thriftco as an alter ego and sham corporation.
{¶50} In civil cases, judgments supported by some competent, credible evidence
going to all the essential elements of the case will not be reversed by a reviewing court as
against the manifest weight of the evidence. C.E. Morris Co. v. Foley Constr. Co., 54
Ohio St.2d 279, 376 N.E.2d 578 (1978), syllabus. Moreover, the credibility of witnesses
and resolutions of conflicts in evidence are matters for the trier of facts. G. F. Business
Equip., Inc. v. Liston, 7 Ohio App.3d 223, 225-226, 454 N.E.2d 1358 (10th Dist.1982).
Therefore, a reviewing court should not reverse a trial court’s decision if it merely has a
difference of opinion on questions of credibility or the weight of the evidence; rather, a
trial court’s decision should be overturned only when there is no competent and credible
evidence to support that decision. Seasons Coal Co. v. Cleveland, 10 Ohio St.3d 77, 80,
461 N.E.2d 1273 (1984); see also Hayes v. Walt Ward Constr. Co., 8th Dist. Cuyahoga
No. 69557, 1996 Ohio App. LEXIS 5199, *23 - *24 (Nov. 21, 1996) (employing a civil
manifest weight standard of review when reviewing a piercing the corporate veil claim).
{¶51} In order to pierce the corporate veil and hold Charter One liable for the acts
of Thriftco, there must be evidence establishing: (1) Charter One controlled Thriftco so
completely that Thriftco had no separate mind, will, or existence of its own, (2) control
over Thriftco was exercised in such a manner as to commit fraud, 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
Condominium Unit Owners’ Assn. v. R.E. Roark Cos., 67 Ohio St.3d 274, 617 N.E.2d
1075 (1993), paragraph three of the syllabus, and Dombroski v. WellPoint, Inc., 119 Ohio
St.3d 506, 2008-Ohio-4827, 895 N.E.2d 538, syllabus.
{¶52} Thus, under the first Belvedere prong, Northpoint must show that Thriftco
and Charter One were fundamentally indistinguishable. Belvedere at 288. In making
this determination, a trial court may consider such factors as:
(1) grossly inadequate capitalization, (2) failure to observe corporate
formalities, (3) insolvency of the debtor corporation at the time the debt is
incurred, (4) shareholders holding themselves out as personally liable for
certain corporate obligations, (5) diversion of funds or other property of the
company property for personal use, (6) absence of corporate records, and (7)
the fact that the corporation was a mere facade for the operations of the
dominant shareholder(s).
Sanderson Farms, Inc. v. Gasbarro, 10th Dist. Franklin No. 01AP-461, 2004-Ohio-1460,
¶ 26, citing LeRoux’s Billyle Supper Club v. Ma, 77 Ohio App.3d 417, 602 N.E.2d 685(6th Dist.1991).
{¶53} The trial court found that the two corporations were indistinguishable
because Thriftco had no employees, offices, phone lines, or business stationary, and its
board was composed primarily of Charter One employees. The trial court further noted
that Thriftco was significantly undercapitalized for the 75 Public Square investment and
borrowed money from Charter One to purchase the property and fund the transaction.
Finally, the court noted that even after transferring title of the property to Thriftco, Charter
One continued to list 75 Public Square as an asset on its commercial Real Estate Owned
reports.
{¶54} Under the second Belvedere prong,3 the trial court found that Charter One
controlled Thriftco in a manner that constituted fraud. The court reasoned that the
marketing material for 75 Public Square specifically referenced Charter One and
“expressly and impliedly” represented that Charter One was the entity selling the property
so that buyers would place greater confidence in the fact that an established bank was
selling the property as opposed to an unknown entity like Thriftco.
{¶55} Under the third and final Belvedere prong, the trial court concluded that
Charter One’s control of Thriftco resulted in injuries to Northpoint. The trial court found
that because Charter One represented itself as the seller of the property, it instilled greater
confidence in Northpoint to buy the property and, as such, “discouraged” Northpoint from
conducting its own inspections, which, in turn, decreased the risk of it discovering any
defects prior to purchase of the property.
{¶56} Appellants argue that there was evidence that it was a corporate entity
distinguishable from Charter One. Appellants claim that Thriftco was incorporated as a
holding company, which normally do not have corporate staffs. According to appellants,
all of Thriftco’s legal documents were executed by Thriftco, and there was no evidence
that Charter One personally or through others “intentionally caused misrepresentations or
nondisclosures” that would constitute a finding of fraud.
{¶57} We find, however, that there is competent, credible evidence to support the
The second Belvedere prong was modified and expanded by the Ohio Supreme Court in
3
Dombroski to include unlawful acts. Dombroski at ¶ 28-29.
trial court’s findings. Thriftco’s board was comprised of Charter One’s vice president,
Charter One’s executive vice president, Charter One’s senior vice president, and one other
member who served as Thriftco’s president. Charter One’s senior vice president, John
Fulton, was the main contact person for the 75 Public Square project. From the record,
the only non-Charter One member of Thriftco’s board, Bill Boyd, had little involvement
with the project, other than to inquire about the board’s director and officers (“D&O”)
liability insurance.
{¶58} Thriftco had D&O insurance coverage of $20 million with no deductible; in
fact, the board brought an advisor into their board meeting to remind them of their
coverage before they signed off on the purchase of 75 Public Square. Thriftco only
showed cash assets of $162,000, even though it was going to be investing $3 million by
taking ownership in 75 Public Square. Again, Thriftco borrowed the money it needed for
the investment from Charter One.
{¶59} In a February 22, 1996 memorandum to John Koch, who served as executive
vice president of Charter One and vice president-secretary of Thriftco, from Lawrence
Helm, vice president of both Thriftco and Charter One, Helm wrote:
As we have discussed previously, title to the building should be vested in a
service corporation in order to help shield the bank from potential liabilities
inherent with ownership of a multi-tenant operating facility such as this
project. In addition, as the building * * * is not currently within all city
codes, the bank’s assuming title could draw the attention of local building
authorities. Vesting of title in a service corporation may help defer their
interest.
{¶60} A few days later, in a February 27 memorandum to Thriftco’s board of
directors, Helm wrote that the bank was considering having the property titled in a
subsidiary instead of the bank due to potential liability and code violations. Helm
continued:
I am requesting the Board [of Thriftco] consider accepting title to this
property until a sale of the asset can be arranged. The transaction, as
anticipated, would require contribution of capital by the holding company *
* * . The property, during its ownership, would be managed by [Charter
One’s] Facilities Department. All leasing, accounting and bill payment
services would be provided by this department with an outside management
firm to provide the necessary labor for cleaning, security and maintenance.
The bank’s mortgage would be initially assumed by Thriftco with a capital
infusion arranged approximately in 4 months * * * .
{¶61} This evidences that Charter One was going to use Thriftco to shield itself
from liability and the prying eyes of local authorities and potential buyers.
{¶62} As to the fraud that was committed, there is evidence supporting the trial
court’s conclusion that the appellants marketed the property as though they had already
conducted all due diligence typically performed by prospective buyers.
{¶63} Charter One retained EMG prior to transferring the property into Thriftco’s
name. In EMG’s proposal to Charter One, the company explained that its
“marketing approach” included a “seller controlled marketing process”; as EMG noted, it
“dislike[d] having buyers tie up our property while they perform their due diligence.” As
part of the contract with Charter One, EMG would perform all due diligence work for the
building up front to “put the best face on [the] property legally, cosmetically, physically
and financially to maximize its appeal to buyers.”
{¶64} EMG proposed to provide each potential buyer with a Property Information
Packet, which would include property inspections and environmental reports, containing
all due diligence information normally developed during a contingency period. In its
proposal, EMG stated, “[b]ecause all the information is provided up front in our process,
we can move directly to a non-contingent contract. * * * The less uncertainty in the
purchaser’s mind, the more comfortable he is and the higher the price he is willing to pay
[for the property].”
{¶65} As part of the marketing plan, EMG created and provided each potential
purchaser with a four-sided color brochure. The front of the brochure prominently stated
“BANK DIRECTS IMMEDIATE SALE 75 Public Square Building.”
{¶66} This is the plan that EMG created and Charter One and Thriftco subscribed
to. By providing potential purchasers, including Northpoint, with reports from reputable
companies, which indicated that there were no code violations and the water in the
building was safe to drink, and by concealing and misrepresenting the condition of the
fire-suppression and domestic water systems, the appellants fraudulently induced potential
purchasers to rely on these reports, in part at least, because purchasers thought they were
dealing with an established bank.
{¶67} When asked at trial how he relied on the Brandstetter and the Phase One
Environmental Assessment Reports, Dzina testified:
I relied on the documents that were given to me. I mean, I was given
reports that say there were no code violations and they were done by
reputable people from the City of Cleveland and an environmental company,
not once, but twice. Once in ‘96 and once four months before I bought the
building that there were no problems, and I mean normally what you do with
something like this, it would be a strictly an as-is with no documents, you’d
have to do all your own reports. They were giving me reports. Why
would you want to have them redone.
***
I relied on [the property inspection report.] That’s what they said was wrong
with the fire suppression system and that’s what I did, I replaced the hoses *
* * I replaced the things that were in that report. There was nothing in
there about inadequate pressure, lines being cut off, needing a [fire] pump,
that a safety expert had to be hired to do this.
{¶68} Dzina continued: “if I knew at that time that there was this life safety issue
that was out there, of course I would have never paid the price I paid for the building, I
would have negotiated the price to fix these items.” He further testified that the seller
was “a bank by God sake, this isn’t like some stranger who is just trying to sell a
building.”
{¶69} Under the third Belvedere prong, whether injury or unjust loss resulted to
Northpoint from such control and wrong, as we found under the previous assignment of
error, the injury to Northpoint was the cost to repair its water lines and fire-suppression
system.
{¶70} Based on these facts and our standard of review, we find that there was
competent credible evidence to support the trial court’s decision to pierce the corporate
veil and find Charter One liable for the acts of Thriftco.
{¶71} Accordingly, the second assignment of error is overruled.
PUNITIVE DAMAGES
{¶72} In the third through fifth assignments of error, the appellants challenge the
trial court’s award of punitive damages to Northpoint.4
{¶73} “The purpose of punitive damages is not to compensate a plaintiff, but to
punish and deter certain conduct.” Moskovitz v. Mt. Sinai Med. Ctr., 69 Ohio St.3d 638,
651, 635 N.E.2d 331 (1994).
Statutory Cap on Punitive Damages Does Not Apply
{¶74} Effective April 7, 2005, the General Assembly capped punitive damages in
tort actions at two times the amount of compensatory damages. R.C. 2351.21(D)(2)(a).
The appellants argue that the trial court erred in failing to apply this cap to its punitive
damages award. We disagree.
{¶75} This court has held that R.C. 2315.21 may not be applied retroactively.
Mastellone v. Lightning Rod Mut. Ins. Co., 175 Ohio App.3d 23, 2008-Ohio-311, 884
N.E.2d 1130, ¶ 17-21 (8th Dist.); see also Blair v. McDonagh, 177 Ohio App.3d 262,
We note that the appellants failed to separately argue the fifth assignment of error, completely
4
skipping over it in their brief, in violation of App.R. 12(A)(2) and 16(A). We could completely
disregard this assignment of error, but use our discretion to discuss the third through fifth assignments
of error together as they are interrelated.
2008-Ohio-3698, 894 N.E.2d 377 (1st Dist.); Arndt v. P & M Ltd., 11th Dist. Portage Nos.
2007-P-0038 and 2007-P-0039, 2008-Ohio-2316. A court cannot apply the statute to a
cause of action that arose before the statute’s effective date even if some of the conduct
giving rise to the cause of action occurred after the effective date. Blair at ¶ 40, citing
Van Fossen v. Babcock & Wilcox Co., 36 Ohio St.3d 100, 104-106, 522 N.E.2d 489(1988).
{¶76} Here, the actions and/or omissions Northpoint argued warranted punitive
damages arose starting in 1997 and continued until Northpoint completed the repairs to the
building in 2000. Therefore, the current version of R.C. 2315.21 does not apply
retroactively to that conduct.5
Fraud as Basis for Punitive Damages
{¶77} Former R.C. 2315.21(B) provided that punitive or exemplary damages are
recoverable in a tort action if: (1) the defendants’ actions or omissions “demonstrate
malice, aggravated or egregious fraud, oppression, or insult,” or the defendants “as
principal or master authorized, participated in, or ratified actions or omissions of an agent
or servant” and (2) the plaintiff has adduced proof of actual damages as a result of
defendants’ actions or omissions.
We are aware that the version of R.C. 2315.21 that became effective January 27, 1997,
5
capped punitive damages at three times the amount of compensatory damages. That version,
however, was found to be unconstitutional in toto in State ex rel. Ohio Academy of Trial Lawyers v.
Sheward, 86 Ohio St.3d 451, 715 N.E.2d 1062 (1999). The Ohio legislature did not amend R.C.
2315.21 again until 2001. Therefore, the statute in effect at the time the claims accrued in this case
did not have a punitive-damages cap. See former R.C. 2315.21, effective date January 5, 1988.
{¶78} The appellants argue that because they did not authorize, participate in, or
ratify EMG’s actions, specifically the withholding of the Kaczmar Report from
Northpoint, they cannot be assessed punitive damages. We disagree. Again, former
R.C. 2315.21(B) provided that a party can be held liable for punitive damages in a tort
action if (1) the party’s actions directly demonstrated aggravated or egregious fraud; or (2)
where the party authorized, participated in, or ratified such actions by its agent.
{¶79} Both this court and the trial court have already found that the defendants
committed fraud. See Northpoint I at ¶ 64, 67. And, as will be discussed below, the
trial court’s finding that the fraud was egregious was supported by competent, credible
evidence. Therefore, Charter One and Thriftco can be held liable irrespective of whether
they authorized, participated in, or ratified EMG’s withholding of the Kaczmar Report.
9:1 Punitive Damages Award
{¶80} The trial court awarded punitive damages in the amount of $3,269,448,
which was nine times the amount of compensatory damages (employing the higher award
of $363,272), and the amount Northpoint requested.
{¶81} A court reviewing an award of punitive damages for excessiveness must
independently analyze (1) the degree of reprehensibility of the party’s conduct, (2) the
ratio of the punitive damages to the actual harm inflicted by the party, and (3) sanctions for
comparable conduct. Barnes v. Univ. Hosps. of Cleveland, 119 Ohio St.3d 173,
2008-Ohio-3344, 893 N.E.2d 142, paragraph two of the syllabus (adopting the test set
forth by the United States Supreme Court in BMW of N. Am., Inc. v. Gore, 517 U.S. 559,
116 S.Ct. 1589, 134 L.Ed.2d 809 (1996)).
{¶82} Thus, pursuant to Barnes, and with the goal of punishment and deterrence in
mind, this court must analyze the punitive damages award for excessiveness using the
Gore guideposts and do so independent of the trial court’s discretion to impose punitive
damages. In other words, we employ a de novo standard of review when determining
whether an award of punitive damages is excessive.
{¶83} Of the three guideposts, “[p]erhaps the most important indicium of the
reasonableness of a punitive damages award is the degree of reprehensibility of the
defendant’s conduct.” Gore at 575. With respect to the reprehensibility factor, the
United States Supreme Court has enumerated five typical indicia: (1) physical, as
opposed to economic harm; (2) tortious conduct evidenced by indifference or reckless
disregard to others, (3) financial vulnerability of the target, (4) repeated actions, and (5)
harm resulting from intentional malice, trickery, or deceit. State Farm Mut. Auto Ins. Co.
v. Campbell, 538 U.S. 408, 419, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003), citing Gore at
575.
{¶84} In its post-remand merit brief, Northpoint argued for a 9:1 ratio of punitive
damages based on the “extreme reprehensibility of Charter One’s conduct,” relatively
small amount of compensatory damages, and Charter One’s net worth, which it estimated
to be $46 billion.
{¶85} The trial court agreed, finding the defendants’ actions were “especially
egregious” because they knowingly jeopardized the health and safety of the users and
occupants of 75 Public Square by subjecting them to a contaminated drinking water supply
and faulty fire-suppression system. The court found that the defendants’ conduct
demonstrated a reckless disregard for the health and safety of tenants, visitors, and
potential purchasers of the property.
{¶86} The trial court also determined that the defendants materially misrepresented
and intentionally concealed the dangerous and defective condition of the property to
facilitate its sale to Northpoint. According to the court, the defendants conduct “involved
repeated actions that were executed with malice, trickery, and deceit.” Instead of
correcting the issues with the drinking water and fire-suppression system, Charter One
vested title of the property to Thriftco to shield itself from liability and deceive local
authorities and potential buyers and, further, procured reports from companies that
revealed no significant defects on the property while withholding information from the
more damaging Kaczmar Report.
{¶87} The trial court also determined that the punitive damages award would deter
the appellants’ future conduct and that a large punitive damage award was appropriate
based on the appellants’ conduct, the small compensatory damage award, Charter One’s
net worth, and the potential harm of the appellants’ conduct.
{¶88} The appellants contend that the large punitive damages award violated their
rights to due process because there was no real danger to health or safety and the award
exceeded the actual sale price of the property. According to the appellants, even after
Northpoint found out about the building’s defects, the company never told tenants to stop
drinking the water or closed the building for repairs. The appellants also argue that
Charter One’s net worth at the time of the sale was closer to $1.4 billion, not $46 billion,
making the punitive damages award excessive. Finally, the appellants argue that the
comparable sanction, or criminal fine, that could have been levied against them for theft
by deception would have been $25,000, far less than the punitive damage award.
{¶89} In Barnes, 119 Ohio St.3d 173, 2008-Ohio-3344, 893 N.E.2d 142, the Ohio
Supreme Court noted that both it and the United States Supreme Court have rejected a
mathematical formula to assess the reasonableness of punitive damage awards. A low
compensatory damages award “‘may properly support a higher ratio than high
compensatory awards, if, for example, a particularly egregious act has resulted in only a
small amount of economic damages.”’ Id. at ¶ 34, quoting Gore, 517 U.S. 559 at 582,
116 S.Ct. 1589. The Ohio Supreme Court has allowed a punitive damage award with a
ratio of 6,250-to-one damages ratio to stand, but the court has also invalidated a 20-to-one
ratio. Barnes at id., citing Wightman v. Consol. Rail Corp., 86 Ohio St.3d 431, 715
N.E.2d 546 (1999); Dardinger v. Anthem Blue Cross & Blue Shield, 98 Ohio St.3d 77,
2002-Ohio-7113, 781 N.E.2d 121. A large disparity is allowable because a punitive
damages award is more about a defendant’s behavior than the plaintiff’s. Wightman at
439.
{¶90} We find that there was competent, credible evidence to support the trial court
finding that the defendants’ fraud was egregious. Although this case presents economic
rather than physical harm, cases involving economic injury can warrant an award of
substantial punitive damages when the harm is committed “intentionally through
affirmative acts of misconduct or when the party is financially vulnerable.” Gore at 576.
Here we have affirmative acts of misconduct, which included, but were not limited to,
the withholding of the Kaczmar Report and the pegged water pressure gauge on the 15th
floor of the building. As the trial court noted, the occupants of 75 Public Square were
subjected to a contaminated drinking water supply and faulty fire-suppression system on a
daily basis. This was in a 15-story office building that, at the time the appellants owned
it, was at 88% capacity and included a restaurant.
{¶91} The second guidepost considers the ratio of the punitive damages to the
actual harm inflicted by the party. In Gore, supra at 581, the United States Supreme
Court stated that “the proper inquiry is ‘whether there is a reasonable relationship between
the punitive damages award and the harm likely to result from the defendant’s conduct as
well as the harm that actually has occurred.”’ Id., quoting TXO Prod. Corp. v. Alliance
Resources Corp., 509 U.S. 443, 460, 125 L.Ed.2d 366, 113 S.Ct. 2711 (1993). A court
may rely on the difference between that figure and the harm to the victims “that would
have ensued if the tortious plan had succeeded.” Gore at id.{¶92} Stojkov, who was hired by Northpoint, testified that because the check valve
on the water pipe was missing, contaminated water was syphoning into the storage tank,
which held water used for drinking water throughout the building. Stojkov testified that
if you drank the contaminated water “you could get very sick, possibly die.” Although
there was no evidence that any of the defendants removed the check valve, they had
knowledge of the contaminated water. Lawrence Helm, vice president of Thriftco and
Charter One, testified that he went through the building with the former owners before
Charter One purchased the building. He testified “[former] management * * * mentioned
* * * there had been some issue with the separation between the — in the water system,
but to my knowledge, at that time they were telling me that it had been fixed, but there had
been issues.”
{¶93} Stojkov also testified that there was not enough water pressure to put out a
fire after the fifth or sixth floor: “the pressure would be disastrous to try to put out a fire
[without the assistance of the fire department].” Although Stojkov did not know when
the pressure gauge on the 15th floor had been rigged or “pegged,” he testified that it had
been tampered with to show a consistent pressure. Schwartz, the building manager, had
showed that pressure gauge to EMG’s owner before the building was sold to Northpoint
and the gauge read a low pressure, insufficient to run the sprinklers on the top floor.
{¶94} While the appellants point to the fact that Northpoint never closed the
building, Stojkov testified that he did not recommend that Dzina evacuate the building.
According to Stojkov, his primary concern was the contaminated drinking water. Dzina
testified that he thought the building was safe when he bought it; but when he found out
about the defective fire-suppression system he immediately cleared the 15th floor, took
everything combustible out of it, and connected the six-inch water line to the three-inch
water line prior to beginning repairs. Dzina testified he could not close the building to
fix the fire-suppression system because he would lose all his tenants.
{¶95} Appellants also complain that the trial court erred in calculating Charter
One’s net worth at $46 billion and in relying on that figure. We find this claim specious
as best. At trial, counsel for Charter One expressly stipulated that the net worth of
Charter One Bank “for the purpose of the punitive damages is reflected in Plaintiff’s
Exhibit * * * 41.” The only figure listed in Exhibit 41 are the bank’s assets listed at $46
billion. Charter One contends that its assets differ from its net worth; however, we
decline to find that the trial court erred in relying on Charter One’s own stipulation.
{¶96} In so far as the third Gore guidepost, sanctions for comparable conduct, as
the appellants pointed out, the maximum fine for theft by deception is $25,000, a fraction
of the amount of the trial court awarded for punitive damages. See R.C. 2923.02.
However, if one were to consider relevant civil penalties or sanctions in a case like this, it
would be the potential civil damage award in a lawsuit for personal injury, which could
yield a large damage award had someone been injured as a result of a fire or contaminated
drinking water. See Wrightman, 86 Ohio St.3d at 441, 715 N.E.2d 546 (upholding a
6,250:1 punitive damages award and finding that the relevant sanction for comparable
conduct was the “potential” civil damage award that could be in the millions of dollars).
{¶97} In this case, the trial court considered the facts and assessed the damages.
Under the guidelines of Gore, State Farm, and Barnes as applied to the facts of this case,
we cannot say the punitive damages in the amount of nine times compensatory damages
were excessive so as to violate the appellants’ due process protections. “There is no
magic formula for determining the proper amount of punitive damages. Rather, the
amount that should be awarded is the amount that best accomplishes the twin aims of
punishment and deterrence as to that defendant.” Dardinger, 98 Ohio St.3d 77,
2002-Ohio-7113, 781 N.E.2d 121, at ¶ 178.
{¶98} However, because we found that the trial court erred in increasing the
amount of compensatory damages, we remand the punitive damages award so the trial
court can enter judgment of punitive damages in the amount equal to nine times the
amount of compensatory damages: $2,520,000.
{¶99} Therefore, the third, fourth, and fifth assignments of error are sustained in
part and overruled in part. The case is remanded for the trial court to enter a punitive
damage award in the amount nine times the amount of compensatory damages.
ATTORNEY FEES
{¶100} In the sixth assignment of error, the appellants challenge the trial court’s
award of attorney fees.
{¶101} The appellants state that their sole basis for this assignment of error is that
because the trial court erred in awarding punitive damages to Northpoint, it also erred in
awarding attorney fees to the company. The appellants expressly state that they are not
challenging the amount of attorney fees awarded to Northpoint.
{¶102} Attorney fees may be awarded as an element of compensatory damages
where the finder of fact finds that punitive damages are warranted. Zoppo v. Homestead
Ins. Co., 71 Ohio St.3d 552, 558, 644 N.E.2d 397 (1994), citing Columbus Fin., Inc. v.
Howard, 42 Ohio St.2d 178, 183, 327 N.E.2d 654 (1975). Because we upheld the trial
court’s decision to award punitive damages in this case, the court was also within its
discretion to award attorney fees to Northpoint.
{¶103} The sixth assignment of error is overruled.
PREJUDGMENT INTEREST
{¶104} In the seventh assignment of error, the appellants argue that the trial court
erred in awarding prejudgment interest to Northpoint.
{¶105} R.C. 1343.03 permits the trial court to award prejudgment interest if it finds
the tortfeasor failed to make a good faith effort to settle the case and that the party to
whom the money is to be paid did not fail to make a good faith effort to settle the case.
{¶106} The award of prejudgment interest encourages the “settlement of
meritorious claims, and the compensation of a successful party for losses suffered as the
result of the failure of an opposing party to exercise good faith in negotiating a
settlement.” Lovewell v. Physicians Ins. Co. of Ohio, 79 Ohio St.3d 143, 147, 679
N.E.2d 1119 (1997).
{¶107} For purposes of prejudgment interest, a lack of good faith is not the
equivalent of bad faith. Kalain v. Smith, 25 Ohio St.3d 157, 159, 495 N.E.2d 572 (1986).
The Ohio Supreme Court has held that a trial court should not award prejudgment interest
where the tortfeasor (1) fully cooperated in discovery, (2) rationally evaluated risks and
potential liability, (3) did not attempt to delay the proceedings unnecessarily, and (4) made
a good-faith monetary settlement offer or responded in good faith to an offer from the
other party. Id. at the syllabus. Whether a party’s settlement efforts were made in good
faith is a decision committed to the sound discretion of the trial court; absent an abuse of
discretion, the court’s decision should not be reversed on appeal. Andre v. Case Design,
Inc., 154 Ohio App.3d 323, 2003-Ohio-4960, 797 N.E.2d 132, ¶ 9 (1st Dist.).
{¶108} Appellants argue that they made a good faith effort to settle the case,
tendering oral offers to settle the case for between $30,000-$40,000 before trial and
between $250,000-$300,000 after Northpoint I was released. Appellants claim that their
initial $30,000-$40,000 settlement offer was reasonable and they cannot be said to have
engaged in bad faith evaluation of their lack of liability when they came to the same legal
conclusion as the trial court before the court was reversed by Northpoint I.
{¶109} Northpoint contends that the appellants made no offer to settle the case
during the litigation, even though counsel for Charter One advised the bank that its
potential liability could reach $5.9 million. Northpoint, however, made a pretrial
settlement demand of $225,000 in 2005 and a $2 million settlement demand after
Northpoint I was released.
{¶110} The trial court found that the appellants failed to make a good faith effort to
settle the case, but Northpoint did make a good faith effort. The court reasoned that
appellants never tendered a monetary offer and did not have an objective, reasonable belief
that they had no liability. Northpoint’s settlement demands, on the other hand, were
rationally based on its evaluation of the case. The court determined that prejudgment
interest on the compensatory damages was warranted in the amount of $201,690.60.
{¶111} After reviewing the hearing transcript and evidence submitted to the trial
court, we cannot say that the trial court abused its discretion in finding that Northpoint
negotiated in good faith and appellants did not negotiate in good faith. Northpoint
initially made a settlement demand of $300,000 but dropped it to $225,000 during
mediation. Charter One did not make an offer. After Northpoint I was released, the
parties discussed settlement and Northpoint issued a demand for $2 million, but Charter
One never countered. Although throughout the years of litigation Charter One’s attorney
had settlement authority of $280,000, the hearing testimony and accompanying exhibits
show that counsel never tendered a settlement offer to Northpoint.
{¶112} In light of the above, the trial court did not abuse its discretion in awarding
prejudgment interest to Northpoint. However, because we have reduced compensatory
damages to $280,000, the case is remanded for calculation of the amount of prejudgment
interest based on that amount.
{¶113} The seventh assignment of error is overruled.
JUDGMENT AND REMAND INSTRUCTIONS
{¶114} Judgment is affirmed in part and reversed in part. We remand the case for
the trial court to enter judgment in favor of Northpoint and against the defendants, jointly
and severally, in the amount of $280,000 for compensatory damages and $2,520,000 for
punitive damages, and to recalculate the amount of prejudgment interest due to
Northpoint. The judgment awarding attorney fees to Northpoint is affirmed.
{¶115} The case is remanded for proceedings consistent with this opinion.
It is ordered that appellee recover of appellants costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the Cuyahoga
County Court of Common Pleas 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.
LARRY A. JONES, SR., PRESIDING JUDGE
EILEEN T. GALLAGHER, J., CONCURS;
TIM McCORMACK, J., CONCURS IN PART
AND DISSENTS IN PART WITH SEPARATE
OPINION
TIM McCORMACK, J., CONCURRING IN PART, DISSENTING IN PART:
{¶116} I join with the majority in the disposition of the issues regarding the
compensatory damages and piercing the corporate veil. I respectfully dissent on the issue
of punitive damages. My analysis of the Barnes factors shows that an award of punitive
damages nine times the amount of compensatory damages is excessive, unwarranted under
the full circumstances of this case. A nine-to-one punitive damages award warrants
greater scrutiny, as “few awards exceeding a single-digit ratio” will satisfy due process.
(Emphasis added.) State Farm Mut. Auto Ins. Co. v. Campbell, 538 U.S. 408, 425, 123
S.Ct. 1513, 155 L.Ed.2d 585 (2003). While targeted punitive damages may well be
appropriate in this case, I do not find this punitive damages award of a nine-to-one ratio,
an award which would amount to approximately 80 percent of the total value of the subject
property, to be one of those few cases that warrant a punitive damages award near double
digits.
{¶117} Our duty as an appellate court is to review a punitive damages award de
novo by conducting our own thorough and independent review of the record and
governing law. Cooper Industries, Inc., v. Leatherman Tool Group, Inc., 532 U.S. 424,
436, 441, 121 S.Ct. 1678, 149 L.Ed.2d 674 (2001). In Barnes, the Supreme Court of
Ohio adopted a tripartite test to evaluate punitive damages for compliance with due
process requirements set forth by the United States Supreme Court in BMW of N. Am., Inc.
v. Gore, 517 U.S. 559, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996). Under the test, we must
examine: (1) the “degree of reprehensibility”; (2) “the disparity between the harm or
potential harm suffered by the plaintiff and the punitive damages award”; and (3) the
difference between the award and appropriate civil or criminal damages. Barnes, 119
Ohio St.3d 173, 2008-Ohio-3344, 893 N.E.2d 142, at ¶ 32. Of particular importance to
this case are the first two factors.
{¶118} The most important indicium of the reasonableness of a punitive damages
award under the Barnes tripartite test is the degree of reprehensibility. Barnes at ¶ 33.
Reprehensibility is measured by several factors, but pertinent to this case are: (1)
whether “the harm caused was physical as opposed to economic”; and (2) whether “the
tortious conduct evinced an indifference to or a reckless disregard of the health and safety
of others.” Barnes at ¶ 33, citing State Farm Mut. Auto Ins. Co. v. Campbell, 538 U.S.
408, 419, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003).
{¶119} Here, regarding the degree of reprehensibility under the first Campbell
factor, the record shows that the harm caused by appellants’ failure to disclose was purely
economic. In the prior appeal, this court concluded that the “cost to repair,” an economic
standard used in cases involving fraud in the sale of real estate, was the appropriate
measure of damages. This court noted that the appellee spent $280,000 to repair the
water and fire suppression lines and for the purchase of a new pump. These are
economic harms. Physical harm to the tenants of the subject building did not occur as a
result of appellants’ conduct. Without physical harm, the degree of reprehensibility is
necessarily lessened, warranting a more limited punitive damages award.
{¶120} Turning to the second Campbell factor, i.e., an indifference to or a reckless
disregard of the health and safety of others, appellants’ failure to provide the
Kaczmar-Pyramid Report and the fire inspector’s recommendations was a purposeful
omission that warrants an appropriate punitive award. The Kaczmar-Pyramid Report
advised that a fire-protection expert be retained to “recommend changes to the sprinkler,
standpipe, fire hose cabinet and pump system,” and the fire inspector noted that the fire
and water systems were tied together and that water pressure was insufficient to run the
15th floor sprinklers.
{¶121} However, it is relevant and important to note that appellants did provide
appellee with the Brandstetter Report, which reflected similar concerns with the building’s
fire suppression system and pointed out specific areas requiring attention. It stated:
There are presently no standpipes in the stairwells, which does not comply
with today’s code requirements for a high rise building. The fifteenth floor
is sprinklered from the domestic water system with the booster pumps in the
basement. There are fire hoses located throughout the building. For these
to be effective, the water pressure should be verified. It is questionable
whether the fire department would want these to remain in service.
Thus, the record shows appellee was generally apprised of the deficiency of the building’s
fire system. Furthermore, the purchasing paperwork specified that the building was
being sold in its “as is” condition. The purchase agreement also indicated that buyers
could only rely on their own inspections and investigations of the property; appellee
obtained no property inspection of its own. Both of these factors reflect a lesser degree
of reprehensibility under the first prong of the Barnes analysis.
{¶122} Turning to the second Barnes factor, that is, “the disparity between the harm
or potential harm suffered” and the award, the record indicates appellee itself contributed
to the potential harm posed by the deficient conditions of the building’s fire suppression
and drinking water system. Appellee’s witness Stojkov, who repaired the system,
testified that if one drank the contaminated water, one “could get very sick, possibly die.”
Despite its awareness of the problem, appellee did nothing to warn its tenants, but instead
allowed them to continue drinking the water notwithstanding its potentially contaminated
nature. Furthermore, the same complacency of appellee was demonstrated with the fire
suppression system, because repairs did not begin until 1999 and were not completed until
2000, three years after the purchase of the property. Once again, appellee did not
evacuate the building regardless of the potential harm. Instead, appellee admitted that it
did not disclose the fire suppression issues because it would lose tenants. In deciding the
reasonableness of the punitive damages award, we must consider the actual or potential
harm inflicted on the plaintiff; here, the circumstances show that appellee itself shared by
contributing greatly to the potential harm in failing to timely remedy the deficient
conditions. This factor also warrants a reduction of the punitive damages award.
{¶123} Furthermore, in assessing the second factor, the Supreme Court of Ohio
recognized that “‘low awards of compensatory damages may properly support a higher
ratio than high compensatory awards, if, for example, a particularly egregious act has
resulted in only a small amount of economic damages.’” Barnes, 119 Ohio St.3d 173,
2008-Ohio-3344, 893 N.E.2d 142, at ¶ 34, quoting Gore, 517 U.S. at 582, 116 S.Ct. 1589,
134 L.Ed.2d 809. This case is not one of a low compensatory award, because appellee
was awarded its full economic damages; therefore, a high punitive damages award at a
nine-to-one ratio, which exceeds the value of the property, is disparate.
{¶124} This court “‘has the same unlimited power and control of verdicts and
judgments as the trial court and may weigh the evidence and exercise an independent
judgment upon questions of excessive damages and when no passion or prejudice is
apparent may modify and affirm the judgment by ordering a remittitur with the consent of
the prevailing party.’” Moskovitz v. Mt. Sinai Med. Ctr., 69 Ohio St.3d 638, 654, 635
N.E.2d 331(1994), fn. 6, quoting Chester Park Co. v. Schulte, 120 Ohio St. 273, 166 N.E.
186 (1929). Appellants in this case filed a motion for reconsideration and reduction of
the punitive damages, asking the trial court to reduce the punitive damages to the statutory
two-to-one ratio. Because neither the degree of reprehensibility is so high nor the actual
or potential harm inflicted so great to justify a near double-digits ratio under the
circumstances of this case, the punitive damages award should have been reduced to
satisfy due process. Gore at 568. Although R.C. 2315.21 is inapplicable as it was not
yet in effect, based on the foregoing analysis, the trial court should have applied a ratio
comparable to the statute and granted appellants’ motion for a reduction of the punitive
damages award.