Calypso Asset Mgt., L.L.C. v. 180 Indus., L.L.C. ( 2018 )

[Cite as Calypso Asset Mgt., L.L.C. v. 180 Indus., L.L.C., 2019-Ohio-2.]
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
Calypso Asset Management, LLC et al., :
Plaintiffs-Appellees, :
No. 18AP-53
v. : (C.P.C. No. 15CV-4446)
180 Industrial, LLC, : (REGULAR CALENDAR)
Defendant-Appellant. :
D E C I S I O N
Rendered on December 31, 2018
On brief: Brunner Quinn, Rick L. Brunner, and Patrick M.
Quinn, for appellees. Argued: Patrick M. Quinn.
On brief: Carpenter Lipps & Leland LLP, and David A.
Wallace, for appellant. Argued: David A. Wallace.
APPEAL from the Franklin County Court of Common Pleas
KLATT, J.
{¶ 1} Defendant-appellant, 180 Industrial, LLC ("180"), appeals a judgment of the
Franklin County Court of Common Pleas that (1) awarded 180 attorney fees and costs under
a fee-shifting provision in 180's contract with plaintiff-appellee, Calypso Asset
Management, LLC ("CAM"), and (2) denied 180's motion for sanctions under R.C. 2323.51.
For the following reasons, we reverse and remand this matter to the trial court.
{¶ 2} This case arises from a failed business transaction between 180 and CAM.
CAM intended to purchase Calypso Distribution Services, Ltd. ("Calypso"), a logistics
company, and the industrial facility that Calypso used to operate its business.1 In a
1 Throughout this decision, we will refer to Calypso's industrial facility as the "Innis Road property."
No. 18AP-53 2
simultaneous transaction, CAM planned to enter into a sale-leaseback arrangement with a
third party. In this arrangement, CAM would sell the Innis Road property to the third party
and enter into a long-term lease for the property. CAM needed the money from the sale of
the Innis Road property to fund its purchase of Calypso and the property itself.
{¶ 3} After entering into a letter of intent with Calypso, CAM hired plaintiff-
appellee, Alterra Real Estate Advisors, LLC ("Alterra"), to market the Innis Road property.
Pursuant to the listing agreement between Alterra and CAM, Alterra would receive a
commission of four to six percent of the gross sale price upon the closing of the sale-
leaseback transaction.
{¶ 4} In June 2014, 180 expressed interest in the Innis Road property. Bryan
Norton, 180's chief operating officer, met with Jim Pack, CAM's chief executive officer and
president, in July 2014. During that meeting, Pack told Norton that he intended to
integrate Calypso with his trucking company and invest at least one million dollars in the
combined businesses. Impressed with Pack's pitch, Norton and his partner, Mark Weber,
decided to do business with Pack.
{¶ 5} On July 25, 2014, 180 and CAM entered into a purchase agreement whereby
180 agreed to pay $8.5 million to purchase the Innis Road property. The agreement also
provided that 180 would lease the property back to CAM. In accordance with the
agreement's terms, 180 deposited $170,000 with an escrow agent.
{¶ 6} Section 3 of the purchase agreement mandated a due-diligence period in
which 180 could conduct "any and all feasibility studies, inspections, and all other tests,
studies or analysis, which in [180's] sole discretion, it determine[d] [was] necessary in order
to determine the feasibility of the transaction." (Ex. 1, Norton Dep.) If 180 "determine[d]
in its sole discretion that the [Innis Road property] [was] not appropriate for its use in
accordance with its intentions or if [180 was] unsatisfied for any reason with the results of
any such inspections, tests, studies or analysis," 180 could terminate the purchase
agreement. Id. Upon termination of the purchase agreement, the purchase agreement
would be "deemed null and void," none of the parties would have any further obligations to
any other party or any third party, and the escrow agent was required to return 180's
deposit to 180. Id.
No. 18AP-53 3
{¶ 7} After conducting its initial due diligence, 180 sent CAM a letter, dated
September 25, 2014, identifying the contingencies that CAM had to satisfy for the deal to
close. In relevant part, the letter stated:
As we have previously discussed and agreed, [180's] Purchase
of the [Innis Road property] is contingent on a revision to the
Purchase Agreement and Lease that reflects [CAM's]
commitment of one million dollars ($1,000,000.00) as an
additional security deposit for [CAM's] performance of the
Lease.
Further, pursuant to Paragraph 3 of the Purchase Agreement,
[180] requests that the following repairs and issues be
addressed before closing:
 Repair and replacement of the asphalt pavement;
 Repair and replacement of the concrete pavement;
 Recompacting of the gravel lot;
 Removal of the inactive generator;
 Repair and replacement of the building façade;
 Repair and [r]eplacement of the roof;
 Repair and replacement of broken bathroom fixtures,
including: toilets, urinals, and sinks;
 Repair and replacement of flooring materials to address
holes or other safety hazards;
 Removal of the two abandoned boilers * * *;
 Possible replacement of current warehouse lights with
new energy efficient fixtures.
(Ex. 2, Norton Dep.) While CAM agreed to address some of these issues, it did not agree to
address others.
{¶ 8} In the meantime, 180 was encountering difficulty obtaining financing to
purchase the Innis Road property. In an email to Pack dated November 18, 2014, 180
attempted to restructure the terms of the parties' deal. 180 explained that almost all lenders
No. 18AP-53 4
and financiers it had approached had flatly rejected the deal "once they analyze[d] the
earnings of the tenant as well as the comps and other characteristics of the building." (Ex.
3, Norton Dep.) 180 then set forth a broad proposal incorporating new terms for the sale-
leaseback transaction.
{¶ 9} In conversations discussing the restructuring, Norton learned for the first
time that Pack did not have one million dollars to invest in the prospective post-purchase
company. Norton's partner, Weber, became angry when Norton told him that Pack did not
have the promised investment funds. To 180, the million-dollar investment was a key
aspect of the sale-leaseback transaction because that investment would secure the new
company's sustainability, and consequently, ensure the company's ability to pay rent on the
Innis Road property. Norton told Pack that 180 had wasted "a very significant amount of
time and money on [the] acquisition" of the Innis Road property and Weber had "given
some serious consideration to suing [CAM] based on the way [Pack] ha[d] behaved in [the]
transaction." (Norton Dep. at 43.)
{¶ 10} Ultimately, CAM rejected 180's proposed restructuring of the transaction.2
At that point, the deal fell apart. Norton then asked Pack to release 180's $170,000 deposit
so the escrow agent could return the deposit to 180. Pack responded, "[O]kay[,] [i]f you
want us to release the escrow [deposit], then * * * we need a release because you previously
threatened to sue us." (Apr. 6, 2017 Tr. at 64.)
{¶ 11} On December 23, 2014, 180 and CAM entered into a contract entitled
"Settlement Agreement and Release of Claims." In that agreement, both parties agreed to
release and discharge the other from any claims arising from or related to the purchase
agreement or the Innis Road property. In relevant part, the recitals set forth in the
agreement provided:
This Agreement is entered into with reference to the following
facts:
A. [CAM] entered into an agreement with * * * the current
owner of the real property commonly known as 2035 Innis
Road, Columbus, Ohio, 43224 (the "Property") to acquire the
2 According to Pack, Norton did not mention suing CAM until CAM refused 180's proposal to restructure
the transaction. Pack testified that, after he rejected the proposal, he "got a call from Mr. Norton indicating
that Mr. Weber was * * * contemplat[ing] suing us to * * * compel us to go along with his new revised plan."
(Apr. 6, 2017 Tr. at 62-63.)
No. 18AP-53 5
Property in conjunction with [CAM's] acquisition of the
Calypso Logistics operating company;
B. On or about July 25, 2014, [CAM] entered into a Purchase
Agreement with 180 Industrial (the "Purchase Agreement") to
sell the Property and all of the associated right, title and interest
in and to all buildings and other improvements on or within the
Property to 180 Industrial;
C. Consistent with the Purchase Agreement, 180 Industrial
completed its due diligence on [CAM] and the Property and
determined that it could not proceed to close under the terms
set forth in the Purchase Agreement;
D. On or about November 18, 2014, 180 Industrial sent [CAM]
an email proposal setting forth new terms under which 180
Industrial would close on its acquisition of the Property;
E. The Parties were unable to reach agreement on revised
terms and the Parties agreed to terminate the Purchase
Agreement * * *[.]
(Ex. 5, Norton Dep.)
{¶ 12} Additionally, the settlement agreement and release contained a fee-shifting
provision. Section M of the agreement stated:
If any action is brought to enforce this Agreement, or is brought
in connection with any dispute arising out of this Agreement or
the claims that are the subject of this Agreement, the prevailing
Party shall be entitled to recover damages, attorney's fees, and
other costs incurred in such litigation that they may prove are
the direct and proximate result of any breach, in addition to any
other relief which that Party may be entitled to by law or in
equity.
Id.
{¶ 13} After the parties executed the settlement agreement and release, Norton
informed Jason Sipos, Calypso's president, that the purchase agreement between it and
CAM had terminated. Sipos asked whether Norton would be interested in entering a sale-
leaseback transaction directly with Calypso. This conversation led to Calypso and Triple
No. 18AP-53 6
Net Acquisitions, LLC ("Triple Net") executing a purchase agreement.3 Under that
agreement, Triple Net would purchase the Innis Road property for $3.5 million and Calypso
would enter into a long-term, triple-net lease with Triple Net.
{¶ 14} Pack discovered that Calypso was pursuing a sale-leaseback transaction with
Triple Net in March 2015. Pack believed that "180 had went to Calypso [ ] directly and it
reformed this deal and cut us out of it." (Apr. 6, 2017 Tr. at 140.)
{¶ 15} On May 26, 2015, CAM and Alterra filed suit against 180.4 In the complaint,
CAM contended that the settlement agreement and release was void and/or voidable
because it resulted from fraud in the inducement, and CAM sought a declaratory judgment
to that effect. CAM also asserted a claim for fraud and, with Alterra, claims for breach of
contract and tortious interference with a business and contractual relationship.
{¶ 16} In essence, plaintiffs maintained that 180 misrepresented its reasons for
terminating the purchase agreement. According to plaintiffs, 180 lied when it told CAM
that it could not purchase the Innis Road property under the original contractual terms and
when it proposed revised terms for the purchase. Plaintiffs contended that these alleged
misrepresentations were a sham that 180 devised to trigger the demise of the parties' deal
so 180 could contract directly with Calypso.
{¶ 17} Approximately two months after plaintiffs filed the complaint, 180 moved for
summary judgment. Plaintiffs responded with a Civ.R. 56(F) motion that requested a time
extension in order to conduct discovery. In an entry dated September 9, 2015, the trial
court granted plaintiffs 60 days to pursue discovery into whether 180 fraudulently induced
the execution of the settlement agreement and release. Plaintiffs used this additional time
to complete written discovery and take Norton's deposition. Using this discovery, plaintiffs
opposed the motion for summary judgment in a memorandum filed December 8, 2015.
{¶ 18} On March 29, 2016, the trial court issued a decision granting 180's motion
for summary judgment. In short, the trial court found that 180 had not induced CAM to
enter the settlement agreement and release. The trial court stated:
3 The record contains no evidence explaining the exact relationship between 180 and Triple Net. However,
they appear to share some affiliation as Norton is chief operating officer of both entities.
4Plaintiffs also named Calypso as a defendant, but they later voluntarily dismissed their claims against
Calypso.
No. 18AP-53 7
[CAM] requested the release and was not "induced" into it. The
Court acknowledges [CAM] did so because it was unaware that
180 Industrial and Calypso were allegedly improperly acting in
concert to close it out of the deal, but [CAM] has not shown how
180 Industrial's purported improper conduct induced it into
seeking a mutual release of claims. Again, 180 Industrial was
only seeking to terminate the purchase contract; [CAM]
demanded that the parties enter into a release agreement.
Even construing the evidence in a light most favorable to
[CAM], any fraudulent conduct was committed in connection
with the real estate purchase contract, not with the execution
of the release agreement. There are insufficient circumstances
from which reasonable minds could conclude that 180
Industrial somehow induced Plaintiff into asking for a release.
Therefore, the Court finds, as a matter of law, that the release
is not void for fraudulent inducement.
(Mar. 29, 2016 Decision and Entry at 13-14.)
{¶ 19} Because the release was valid and enforceable, the trial court found that it
barred CAM from asserting its claims against 180, and 180 was entitled to judgment on
those claims as a matter of law. The trial court also ruled that 180 was entitled to summary
judgment on Alterra's claims because Alterra had no contractual relationship with 180 or
Calypso. Finally, the trial court found that 180 could move for an award of attorney fees
and costs under the fee-shifting provision in the settlement agreement and release because
180 was the prevailing party in the instant action.
{¶ 20} 180 then moved for an award of attorney fees and costs totaling $50,563.05.
180 supported its request with its attorneys' affidavits, copies of billing records, and an
expert affidavit testifying to the reasonableness of the attorney fees sought. Immediately
prior to the hearing on the motion for attorney fees and costs, 180 filed supplemental
affidavits setting forth additional attorney fees and costs. In total, 180 sought $70,588.27
in attorney fees and costs.
{¶ 21} At the fees hearing, CAM presented the testimony of its own expert witness,
who opined that the reasonable amount of fees due 180's attorneys was only $25,000. In
an entry dated November 17, 2016, the trial court ordered CAM to pay $30,599.44, which
consisted of $28,500 in attorney fees, $1,500 in expert expenses, and $559.44 in litigation
expenses.
No. 18AP-53 8
{¶ 22} While 180 was pursuing an award under the fee-shifting provision of the
settlement agreement and release, it also moved for sanctions against CAM, Alterra, and
their attorneys under R.C. 2323.51. 180 argued that: (1) CAM's assertion of fraudulent
inducement and Alterra's claims for breach of contract and tortious interference were not
warranted under existing law or a good faith argument for a change in the law, (2) plaintiffs
made false statements in their complaint and memorandum in opposition to summary
judgment, and (3) plaintiffs' counsel concealed Pack's presence at Norton's
videoconference deposition. 180 contended that all this conduct was frivolous under R.C.
2323.51(A)(2)(a) and justified an award of reasonable attorney fees and costs. Additionally,
in conjunction with its motion for sanctions, 180 filed a motion seeking leave to conduct
discovery to obtain additional evidence regarding plaintiffs' alleged frivolous conduct.
{¶ 23} In a decision and entry dated July 14, 2016, the trial court set a hearing date
for 180's motion for sanctions and denied 180's motion for leave to conduct discovery. The
sanctions hearing ultimately occurred before a magistrate. Prior to that hearing, the
magistrate limited the time for the hearing to three hours, thus giving each side one and
one-half hours in which to present its case. Both Pack and Norton testified at the hearing.
{¶ 24} On December 4, 2017, the magistrate issued a decision finding that neither
plaintiffs nor their counsel engaged in frivolous conduct. Consequently, the magistrate
recommended that the trial court deny 180's motion for sanctions. 180 objected to the
magistrate's decision. In a decision and entry dated January 10, 2018, the trial court
overruled 180's objections and adopted the magistrate's decision.
{¶ 25} 180 now appeals the January 10, 2018 judgment, and it assigns the following
errors:
[1.] THE TRIAL COURT ABUSED ITS DISCRETION IN ITS
AWARD OF ATTORNEYS' FEES AND COSTS BECAUSE IT
DID NOT DETERMINE A REASONABLE NUMBER OF
HOURS OR A REASONABLE HOURLY RATE, DID NOT
FOLLOW ITS OWN FLAWED METHODOLOGY, AND
AWARDED AN AMOUNT OF FEES AND COSTS THAT WAS
SO UNREASONABLY LOW THAT IT SHOCKS THE
CONSCIENCE.
[2.] THE TRIAL COURT ERRED AS A MATTER OF LAW IN
DENYING DEFENDANT/APPELLANT'S MOTION FOR
SANCTIONS PURSUANT TO R.C. 2323.51(A)(2)(a)(i)-(iv) BY
No. 18AP-53 9
NOT FINDING PLAINTIFFS' ACTIONS WERE FRIVOLOUS
IN LIGHT OF EXISTING LAW.
[3.] THE TRIAL COURT ABUSED ITS DISCRETION IN
DENYING DEFENDANT/APPELLANT'S REQUESTS FOR
DISCOVERY AND ITS MOTION FOR SANCTIONS
PURSUANT TO R.C. 2323.51(A)(2)(a)(i)-(iv) [and in]
MAKING RULINGS ON FACTUAL ISSUES WHICH WERE
AGAINST SOUND, REASONABLE, AND LEGAL
DECISIONMAKING.
{¶ 26} By its first assignment of error, 180 initially argues that the trial court erred
in not using the lodestar method to calculate the amount of reasonable attorney fees owed
180 under the fee-shifting provision of the settlement agreement and release. We agree.
{¶ 27} Generally, Ohio follows the "American Rule," which precludes a prevailing
party in a civil action from recovering attorney fees as a part of the costs of litigation.
Wilborn v. Bank One Corp., 121 Ohio St. 3d 546, 2009-Ohio-306, ¶ 7. However, in one of
the exceptions to that rule, a trial court may award attorney fees where an enforceable
contract specifically provides for the losing party to pay the prevailing party's attorney fees.
Id. In such an instance, "agreements to pay another's attorney fees are generally
'enforceable and not void as against public policy so long as the fees awarded are fair, just
and reasonable as determined by the trial court upon full consideration of all the
circumstances of the case.' " Id. at ¶ 8, quoting Nottingdale Homeowners' Assn. v. Darby,
33 Ohio St. 3d 32 (1987), syllabus.
{¶ 28} In determining the amount of reasonable attorney fees to award, courts
generally apply the lodestar method. Trumbull Twp. Bd. of Trustees v. Rickard, 11th Dist.
No. 2016-A-0061, 2017-Ohio-6945, ¶ 28 (holding that the lodestar method "governs trial
court procedure when an exception to the general rule authorizes an award of attorney
fees"); BIGResearch, LLC v. PENN, LLC, 10th Dist. No. 11AP-855, 2012-Ohio-2992, ¶ 52
("It is true that, in a civil action in an Ohio court of law, an award of attorney fees is
dependent upon the completion of prescribed procedures and analyses, e.g., a lodestar
analysis."). Under that method, a trial court first multiplies the number of hours reasonably
expended on the litigation by a reasonable hourly rate. Bittner v. Tri-County Toyota, Inc.,
58 Ohio St. 3d 143, 145 (1991). The trial court may then modify that amount by application
No. 18AP-53 10
of the reasonableness factors listed in Prof.Cond.R. 1.5(a). Id. (applying the predecessor to
Prof.Cond.R. 1.5(a)). Those factors include:
(1) the time and labor required, the novelty and difficulty of the
questions involved, and the skill requisite to perform the legal
service properly;
(2) the likelihood, if apparent to the client, that the acceptance
of the particular employment will preclude other employment
by the lawyer;
(3) the fee customarily charged in the locality for similar legal
services;
(4) the amount involved and results obtained;
(5) the time limitations imposed by the client or by the
circumstances;
(6) the nature and length of the professional relationship with
the client;
(7) the experience, reputation, and ability of the lawyer
performing the services; [and]
(8) whether the fee is fixed or contingent.
Prof.Cond.R. 1.5(a)(1) through (8). The trial court has the discretion to determine which
factors to apply and in what manner the factors will affect the amount of fees awarded.
Bittner at 146.
{¶ 29} Although the trial court exercises broad discretion in applying the lodestar
method, it must state the basis for the fee determination. Id.; Timoneri v. NorthSteppe
Realty, Inc., 10th Dist. No. 15AP-618, 2016-Ohio-5901, ¶ 55; Pack v. Hilock Auto Sales,
10th Dist. No. 12AP-48, 2012-Ohio-4076, ¶ 16. Typically, without an explanation of the
trial court's calculations and reasoning, an appellate court cannot meaningfully review the
fee determination. Bittner at 146; Pack at ¶ 16; TCF Natl. Bank v. Cunningham, 5th Dist.
No. 2009 CA 00159, 2010-Ohio-1032, ¶ 8. If a trial court's decision awarding reasonable
attorney fees lacks sufficient explanation, an appellate court will reverse the award and
remand the matter for the trial court to further elucidate its analysis. O'Neill v. Tanoukhi,
7th Dist. No. 10-MA-45, 2011-Ohio-2626, ¶ 20; Jubilee Ltd. Partnership v. Hosp.
No. 18AP-53 11
Properties, Inc., 10th Dist. No. 09AP-1145, 2010-Ohio-5550, ¶ 52; Foland v. Englewood,
2d Dist. No. 22940, 2010-Ohio-1905, ¶ 83-84; Cunningham at ¶ 9-10; Turner v.
Progressive Corp., 140 Ohio App. 3d 112, 116-17 (8th Dist.2000).
{¶ 30} Here, at the conclusion of the fees hearing, the trial court recognized that it
needed to apply the lodestar method to determine the amount of reasonable attorney fees
owed to 180. However, the trial court did not perform the first step of the lodestar method,
i.e., multiplying the number of hours reasonably expended on the litigation by a reasonable
hourly rate. The trial court, instead, generally addressed many of the Prof.Cond.R. 1.5(a)
factors and then summarily concluded, "as a round number it's going to be $30,000 that I
find is reasonable, including the expert and costs."5 (Sept. 1, 2016 Tr. at 56.) Although the
trial court later reconsidered its initial ruling in a decision dated January 18, 2017, that
decision does not further illuminate the trial court's fee analysis.
{¶ 31} Moreover, we cannot adduce from the evidence how a calculation of
reasonable attorney fees using the lodestar method would result in an award of $30,000.
As we stated above, 180 provided the trial court with invoices totaling $70,588.27.
Plaintiffs presented an expert witness to contradict that evidence, but the expert did not
opine regarding the total number of hours reasonably expended on the litigation or
reasonable hourly rates for the attorneys who worked those hours. While the expert
testified about reasons to reduce the hours billed, he did not quantify the exact number of
hours to cut. Given the expert's failure to supply basic information necessary for calculating
reasonable attorney fees using the lodestar method, his testimony provides no insight.
{¶ 32} Consequently, in the final analysis, we conclude that the trial court's
approach to determining reasonable attorney fees precludes any meaningful appellate
review. We thus sustain 180's first assignment of error to the extent that it advances error
in the application of the lodestar method.
{¶ 33} Our ruling on the first part of 180's first assignment of error moots the
remaining two arguments contained within the assignment. We, therefore, will not address
whether the trial court inconsistently applied its own methodology or whether the amount
of attorney fees and costs awarded was so unreasonably low that it shocks the conscience.
5 In response to questions seeking clarification of its ruling, the trial court allowed 180 to recover "hard
costs" such as filing fees and the cost of a copy of Norton's deposition transcript. (Sept. 1, 2016 Tr. at 58.)
The addition of these costs increased the amount awarded to 180 by $559.44.
No. 18AP-53 12
{¶ 34} Because 180's second and third assignments of error both address rulings
related to the motion for sanctions, we will discuss those two assignments of error together.
We will begin our review with 180's argument that the trial court erred in denying it leave
to conduct discovery into plaintiffs' and their attorneys' alleged frivolous conduct. We find
that argument unpersuasive.
{¶ 35} Appellate courts review decisions on matters relating to discovery under an
abuse-of-discretion standard. Mauzy v. Kelly Servs., Inc., 75 Ohio St. 3d 578, 592 (1996).
An abuse of discretion occurs when a decision is unreasonable, arbitrary, or
unconscionable. Blakemore v. Blakemore, 5 Ohio St. 3d 217, 219 (1983).
{¶ 36} Ohio case law addressing the propriety of discovery to support the imposition
of sanctions is scant. Thus, Ohio courts have drawn on federal precedent reviewing
decisions to grant or deny discovery in the context of Fed.R.Civ.P. 11 proceedings. Those
courts have concluded that a trial court must, to the extent possible, limit the scope of
sanction proceedings to the record, and only allow discovery in extraordinary
circumstances. Marconi v. Savage, 8th Dist. No. 102619, 2016-Ohio-289, ¶ 45; Holloway
v. Holloway Sportswear, Inc., 3d Dist. No. 17-11-24, 2012-Ohio-2135, ¶ 29. Such an
approach prevents collateral proceedings on sanctions from expanding into full blown
litigation. Marconi at ¶ 46; Holloway at ¶ 29. We find this approach sensible, and we will
follow it in this case.
{¶ 37} 180 argues that this case involves extraordinary circumstances that
warranted discovery because 180 did not know how much investigation plaintiffs' attorneys
had undertaken prior to filing the complaint. This lack of knowledge is typical, not
extraordinary. Accordingly, we conclude that the trial court did not err in denying 180 leave
to conduct discovery.
{¶ 38} Next, 180 argues that the trial court erred in overruling its objection to the
magistrate's ruling limiting the length of the sanctions hearing to three hours, with an hour
and half allowed for each side to present its case. Again, we are not persuaded by 180's
argument.
{¶ 39} Pursuant to Evid.R. 611(A), a trial court "shall exercise reasonable control
over the mode and order of interrogating witnesses and presenting evidence so as to * * *
avoid needless consumption of time." An appellate court reviews the imposition of time
No. 18AP-53 13
limitations on the presentation of evidence for an abuse of discretion. In re T.H., 192 Ohio
App.3d 201, 2011-Ohio-248, ¶ 38 (2d Dist.).
{¶ 40} We cannot find that the time restriction at issue constituted an abuse of
discretion. Moreover, even if an abuse of discretion occurred, 180 waived that error when
it failed to identify what evidence it would have offered if given additional time. See id. at
¶ 39 ("Time limitations on evidence have been upheld where a party has not identified what
additional evidence the party would have offered or how that evidence could have changed
the court's judgment."); Evid.R. 103(A).
{¶ 41} Next, we turn to 180's argument that the trial court erred in finding CAM's
and its attorneys' conduct was not frivolous under R.C. 2323.51(A)(2)(a)(ii). We agree.
{¶ 42} Pursuant to R.C. 2323.51(B)(1), a court may award court costs, reasonable
attorney fees, and other reasonable expenses to any party to a civil action who is adversely
affected by frivolous conduct. Prior to making such an award, the court must hold a hearing
to determine: (1) whether the conduct at issue was frivolous, (2) if the conduct was
frivolous, whether any party was adversely affected by it, and (3) the amount of the award,
if any. Bennett v. Martin, 10th Dist. No. 13AP-99, 2013-Ohio-5445, ¶ 17. "Conduct"
includes "[t]he filing of a civil action, the assertion of a claim, defense, or other position in
connection with a civil action, the filing of a pleading, motion, or other paper in a civil action
* * * or the taking of any other action in connection with a civil action." R.C. 2323.51(A)(1).
"Frivolous conduct" means the conduct of a party or the party's attorney that satisfies any
of the following:
(i) It obviously serves merely to harass or maliciously injure
another party to the civil action or appeal or is for another
improper purpose, including, but not limited to, causing
unnecessary delay or a needless increase in the cost of
litigation.
(ii) It is not warranted under existing law, cannot be supported
by a good faith argument for an extension, modification, or
reversal of existing law, or cannot be supported by a good faith
argument for the establishment of new law.
(iii) The conduct consists of allegations or other factual
contentions that have no evidentiary support or, if specifically
so identified, are not likely to have evidentiary support after a
reasonable opportunity for further investigation or discovery.
No. 18AP-53 14
(iv) The conduct consists of denials or factual contentions that
are not warranted by the evidence or, if specifically so
identified, are not reasonably based on a lack of information or
belief.
R.C. 2323.51(A)(2)(a)(i) through (iv). A party who has commenced or persisted in
maintaining a frivolous action may be assessed sanctions. Carasalina LLC v. Bennett, 10th
Dist. No. 14AP-74, 2014-Ohio-5665, ¶ 30.
{¶ 43} Under R.C. 2323.51(A)(2)(a)(ii), conduct is frivolous if no reasonable
attorney would have pursued legal action in light of the existing law. Breen v. Total Quality
Logistics, 10th Dist. No. 16AP-3, 2017-Ohio-439, ¶ 17. This standard requires courts to
perform an objective review of the allegedly frivolous conduct. Bennett at ¶ 18. "As a matter
of law, an attorney's ignorance of the law or failure to investigate the law is not deemed
objectively reasonable." Kozar v. Bio-Medical Applications of Ohio, Inc., 9th Dist. No.
21949, 2004-Ohio-4963, ¶ 17. If a court "determine[s] that reasonable inquiry by a party's
counsel of record should [have] reveal[ed] the inadequacy of a claim, a finding that the
counsel of record has engaged in frivolous conduct is justified." Ron Schneider & Assocs.
v. London, 81 Ohio St. 3d 94, 97-98 (1998). Because a finding of frivolous conduct under
R.C. 2323.51(A)(2)(a)(ii) results from a legal analysis, appellate courts review that finding
de novo. Vossman v. AirNet Sys., 10th Dist. No. 16AP-801, 2018-Ohio-1940, ¶ 21; Breen
at ¶ 17.
{¶ 44} Here, 180 argues that CAM acted frivolously when it asserted that 180
fraudulently induced CAM into agreeing to the settlement agreement and release. 180
contends that this assertion was not warranted under existing law because CAM never had
any evidence that 180 induced it to enter into the settlement agreement and release.
{¶ 45} "A release is an absolute bar to a later action on any claim encompassed
within it, absent a showing of fraud, duress, or other wrongful conduct procuring it."
Lucarell v. Nationwide Mut. Ins. Co., 152 Ohio St. 3d 453, 2018-Ohio-15, ¶ 48. If a release
is obtained through fraud in the inducement, the release is voidable. Haller v. Borror
Corp., 50 Ohio St. 3d 10 (1990), paragraph one of the syllabus. To prove fraud in the
inducement, "a plaintiff must prove that the defendant made a knowing, material
misrepresentation with the intent of inducing the plaintiff's reliance, and that the plaintiff
relied upon that misrepresentation to her detriment." ABM Farms v. Woods, 81 Ohio St.3d
No. 18AP-53 15
498, 502 (1998). In asserting that fraud in the inducement has occurred, a plaintiff admits
that it released its claim for damages, but maintains that it was induced to do so by the
defendant's misrepresentation. Haller at 14. The fraud relates to facts inducing the
release's execution, as, for example, where a party has misrepresented the economic value
of a released claim. Id.; ABM Farms at 502.
{¶ 46} In general parlance, to "induce" is "to move and lead (as by persuasion or
influence)." Webster's Third New International Dictionary 1154 (1966). An "inducement,"
therefore, is "something that induces," i.e., "a motive or consideration that leads one to
action." Id. A plaintiff establishes that a defendant induced it into executing a release by
proving, first, that it relied on the defendant's misrepresentation and, second, that the
misrepresentation was material. A misrepresentation is material when, under the
circumstances, it would likely affect the conduct of a reasonable person in determining
whether to enter into the transaction at issue. Oryann, Ltd. v. SL & MB, LLC, 11th Dist. No.
2014-L-119, 2015-Ohio-5461, ¶ 51; Saxe v. Dlusky, 10th Dist. No. 09AP-673, 2010-Ohio-
5323, ¶ 48; Weiker v. A.A. Green Realty, 6th Dist. No. WD-05-081, 2006-Ohio-1860, ¶ 39;
Harrel v. Solt, 4th Dist. No. 00CA027 (Dec. 27, 2000); Leal v. Holtvogt, 123 Ohio App. 3d
51, 76 (2d Dist.1998); accord 1 Farnsworth, Farnsworth on Contracts, Section 4.12, at 480
(3d Ed.2004) ("The requirement of materiality is usually met by showing that the
misrepresentation would have been likely to have induced a reasonable recipient to make
the contract."). In gauging materiality, a court applies an objective standard that generally
precludes the consideration of any idiosyncratic qualities of the plaintiff. Saxe at ¶ 48.
{¶ 47} We begin our review of whether 180 induced CAM by considering CAM's
stated reasons for demanding the execution of a mutual release before it would release the
escrowed funds to 180. CAM offers two reasons: (1) 180 stated that it could not close under
the terms of the purchase agreement, and (2) 180 stated that it would close under the
revised terms set out in the November 18, 2014 email. Pack testified that he relied on these
two representations when executing the settlement agreement and release. Mere reliance,
however, is insufficient to show inducement. CAM also had to prove that those
representations were material, i.e., they would likely motivate a reasonable person to enter
into a release.
No. 18AP-53 16
{¶ 48} CAM has never attempted to prove materiality. Instead, CAM dodges the
issue altogether by arguing that 180 induced the settlement agreement and release because,
but for 180's representations, the agreement would not exist. This argument completely
ignores that CAM, not 180, demanded the release. Thus, for CAM's "but for" connection to
exist, 180's representations must be proven material to the creation of the release, that is,
the representations would likely lead a reasonable person in CAM's shoes to demand and
execute a release. In other words, absent materiality, there is no basis for concluding that
180's representations induced the release.
{¶ 49} CAM's avoidance of the materiality issue likely stems from its inability to
make the required showing. Nothing in the representations at issue would influence a
reasonable person to act as CAM did. 180 essentially told CAM that it would not purchase
the Innis Road property under the parameters of the original deal, but it would proceed
under modified terms. Nothing in the content of that statement would cause a reasonable
person to decide that he or she needed to demand a release for protection from future
litigation.
{¶ 50} Indeed, Pack never testified that the representations at issue influenced or
persuaded him to require the release. Pack instead stated:
Mr. Norton contacted me and said, ["][H]ey, we've got a large
and substantial amount of money that's in the escrow [account]
to do this project and * * * you know, we're * * * done. We can't
* * * do it. I'd like you to release that escrow [deposit].["]
And at that point, I said, ["][O]kay[,] [i]f you want us to release
the escrow [deposit], then * * * we need a release because you
previously threatened to sue us.["]
(Apr. 6, 2017 Tr. at 63-64.) While Pack broadly claimed that he was duped into requesting
the release, he did not explain how or why the representations at issue induced him to make
that request.
{¶ 51} Prior to the inception of this action, CAM had all the facts it needed to
determine whether 180 induced it into the release. Under the circumstances giving rise to
this action, CAM simply could not establish that 180's alleged misrepresentations were
material. The trial court recognized that in its summary judgment decision, where it ruled
in 180's favor because CAM failed to "show[ ] how 180 Industrial's purported improper
No. 18AP-53 17
conduct induced it into seeking a mutual release of claims." (Mar. 29, 2016 Decision and
Entry at 14.) We thus conclude that no reasonable attorney would initially assert or
continue to pursue the theory of fraud in the inducement. Consequently, CAM and its
attorneys engaged in frivolous conduct as defined in R.C. 2323.51(A)(2)(a)(ii).
{¶ 52} 180 raises additional grounds for finding that CAM's and its attorneys'
conduct was frivolous. However, "a party only needs a finding of frivolousness under one
of the four definitions [set forth in R.C. 2323.51(A)(2)(a)] for an award of attorney fees."
Southard Supply, Inc. v. Anthem Contrs., Inc., 10th Dist. No. 16AP-545, 2017-Ohio-7298,
¶ 33. Our conclusion that CAM and its attorneys engaged in frivolous conduct under R.C.
2323.51(A)(2)(a)(ii) entitles 180 to the relief it requests on appeal: a reversal and remand
of this matter for the trial court to consider whether to grant 180 reasonable attorney fees.
Consequently, 180's other grounds for finding frivolousness are moot, and we do not
address them.
{¶ 53} Next, 180 argues that the trial court erred in not addressing its argument that
Alterra and its attorneys engaged in frivolous conduct under R.C. 2323.51(A)(2)(a)(ii). We
agree. Although 180 raised this argument in its motion for sanctions and its objections to
the magistrate's decision, the trial court did not consider it. The trial court erred in
disregarding the argument.
{¶ 54} Given our rulings, we sustain 180's second assignment of error because
(1) the trial court erred in failing to find that CAM and its attorneys engaged in frivolous
conduct under R.C. 2323.51(A)(2)(a)(ii), and (2) the trial court erred in failing to address
180's request for sanctions against Alterra and its attorneys. We overrule 180's third
assignment of error to the extent that it challenges the denial of discovery and the
imposition of a time limitation for the sanctions hearing. We find that assignment of error
moot in all other respects.
{¶ 55} For the forgoing reasons, we sustain in part and find moot in part the first
assignment of error, we sustain the second assignment of error, and we overrule in part and
find moot in part the third assignment of error. We reverse the judgment of the Franklin
County Court of Common Pleas, and we remand this matter so the court may: (1) set forth
its calculations and reasoning for determining the amount of reasonable attorney fees and
costs owed to 180 under the fee-shifting provision of the settlement agreement and release;
No. 18AP-53 18
(2) decide whether and, if necessary, how much reasonable attorney fees and costs are due
to 180 for CAM's and its attorneys' frivolous conduct; and (3) determine whether Alterra
and its attorneys engaged in any frivolous conduct and, if so, whether and, if necessary, how
much reasonable attorney fees and costs are due to 180 for that conduct.
Judgment reversed; cause remanded with instructions.
TYACK and SADLER, JJ., concur