APCO Industries, Inc. v. Braun Constr. Group, Inc.

[Cite as APCO Industries, Inc. v. Braun Constr. Group, Inc., 2020-Ohio-4762.]
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
APCO Industries, Inc., :
Plaintiff-Appellee, : No. 19AP-430
(C.P.C. No. 09CV-9698)
v. :
(REGULAR CALENDAR)
Braun Construction Group, Inc. et al., :
Defendants-Appellees. :
KeyBank National Association et al., :
Plaintiffs-Appellees, :
No. 19AP-431
v. : (C.P.C. N0. 09CV-9921)
Columbus Campus, LLC et al., : (REGULAR CALENDAR)
Defendants-Appellees, :
(Braun Construction Group, Inc. et al., :
Defendants-Appellants). :
D E C I S I O N
Rendered on October 1, 2020
On brief: Porter, Wright, Morris & Arthur, LLP, Jared M.
Klaus, Polly J. Harris, and David S. Bloomfield, Jr., for
appellees.
On brief: Kevin E. Humphreys, for appellants Braun
Construction Group, Inc., and John Eramo & Sons, Inc.
APPEALS from the Franklin County Court of Common Pleas
Nos. 19AP-430 and 19AP-431 2
KLATT, J.
{¶ 1} Counterclaimants-appellants, Braun Construction Group, Inc., and John
Eramo & Sons, Inc., appeal a judgment of the Franklin County Court of Common Pleas that
granted summary judgment to counterclaimants-defendants-appellees, KeyBank National
Association; Fifth Third Bank; NBH Bank, NA, f.k.a. Bank Midwest, NA, f.k.a. Hillcrest
Bank, NA, f.k.a. Hillcrest Bank; Manufacturers and Traders Trust Company as successor to
Wilmington Trust FSB; Arvest Bank, f.k.a. Solutions Bank; and First Commonwealth Bank
(collectively "Lenders"). For the following reasons, we affirm that judgment in part and
reverse it in part.
{¶ 2} This case arises out of the unsuccessful development of a 1,745-unit
continuing care retirement community in Hilliard, Ohio known as Hickory Chase. Erickson
Retirement Communities, LLC, a developer of multiple continuing care retirement
communities across the United States, conceived the Hickory Chase project. Erickson
formed Columbus Campus, LLC, a wholly owned subsidiary, to own the property and
borrow money to construct the community.
{¶ 3} Erickson requested that KeyBank arrange the primary financing for the
Hickory Chase project. KeyBank approved a $20 million loan and secured an additional
$60 million in financing from other lenders, with each lender committing a set amount. On
April 16, 2008, Columbus Campus and the Lenders entered into a Construction Loan
Agreement providing Columbus Campus with a revolving loan not to exceed $90 million.
KeyBank, as lead arranger and administrative agent for the Lenders, secured the loan with
an Open-End Mortgage, Assignment of Rents and Leases, Security Agreement, and Fixture
Filing, which KeyBank filed with the Franklin County Recorder. KeyBank also obtained a
Guaranty Agreement executed by Erickson.
{¶ 4} Columbus Campus borrowed an additional $21,350,000 from Windsor OH
Holdings, LLC pursuant to a Loan Agreement executed on April 16, 2008. Windsor also
protected its loan with a Mortgage, Assignment of Rents and Leases, Security Agreement
and Fixture Filing, which Windsor filed with the Franklin County Recorder. Windsor,
however, agreed to subordinate its interests to those of the Lenders in a Subordination and
Standstill Agreement it executed with KeyBank. Because Windsor subordinated its
interests, its loan constituted mezzanine financing.
Nos. 19AP-430 and 19AP-431 3
{¶ 5} Columbus Campus hired Braun as the general contractor for the first phase
of construction of the Hickory Chase project. Braun, in turn, contracted with a number of
subcontractors, including Eramo.
{¶ 6} Construction on the first phase of Hickory Chase progressed steadily
throughout 2008 and the winter of 2009. Throughout that period, Columbus Campus
relied on the revolving loan to fund the construction. Columbus Campus submitted
monthly requests for the disbursement of loan funds to KeyBank, as the administrative
agent of the Construction Loan Agreement. Each request sought funds to pay for the
materials used and work performed on the Hickory Chase project during the prior month.
KeyBank regularly disbursed loan proceeds to Columbus Campus on or near the 20th of
each month. Columbus Campus then used those funds to pay Braun. Using this process,
Braun received payments totaling $26,413,939.89 for work performed through
February 28, 2009.1 This process, however, came to an abrupt halt after KeyBank's receipt
of the April 2009 request for payment.
{¶ 7} In April 2009, Columbus Campus failed to make an interest payment on the
$21,350,000 loan that Windsor had extended to it. In a letter dated April 10, 2009,
Windsor informed Columbus Campus that its failure to make the interest payment
constituted an Event of Default under the Windsor Loan Agreement.2 Moreover, Windsor
advised Columbus Campus that, as a result of the Event of Default, it was accelerating the
loan balance and declaring the full principal amount due and payable.
{¶ 8} Windsor shared the April 10, 2009 letter with KeyBank. In a letter to
Erickson dated April 21, 2009, KeyBank stated, "Under Section 9.1 of the [Construction]
Loan Agreement, a default or the occurrence of an Event of Default with respect to the
Mezzanine Financing would constitute an Event of Default under the [Construction] Loan
1 In total, KeyBank disbursed loan proceeds amounting to $45,441,241.68 to Erickson or Columbus Campus
under the Construction Loan Agreement.
2 Under Section 21.1 of the Windsor Loan Agreement, an "Event of Default" "constitute[d] a breach of th[e]
Agreement" and included the "fail[ure] to pay, within five (5) days of when due, any sums payable under
the Mezzanine Note or this Agreement." (Ex. 10, Jan. 24, 2011 Stipulations.) The Mezzanine Note required
Columbus Campus to make an interest payment on the first of each month.
Both the Windsor Loan Agreement and the Construction Loan Agreement capitalize defined terms. We will
capitalize those defined terms in this decision as well.
Nos. 19AP-430 and 19AP-431 4
Agreement."3 (Ex. 11, Kleinhaut Dep.) KeyBank informed Erickson that, due to "the
apparent Event of Default," the Lenders had decided to suspend further monthly advances
under the Construction Loan Agreement. Id.{¶ 9} KeyBank followed up its April 21, 2009 letter with a second letter, dated
April 28, 2009. In this second letter, KeyBank again referred to the April 10, 2009 letter
from Windsor declaring that an Event of Default had occurred under the Windsor loan and
accelerating the loan balance. KeyBank then stated:
Under Section 9.1 of the [Construction] Loan Agreement, a
default or the occurrence of an Event of Default with respect to
the Mezzanine Financing constitutes an Event of Default under
the [Construction] Loan Agreement. Other events of default
may also exist under the [Construction] Loan Agreement. This
letter constitutes notice of default, and interest will now be
charged at the Default Rate, and the Loan is now due and
payable.
(Ex. 172, Shoop Dep.)
{¶ 10} Despite the existence of an Event of Default, KeyBank assured Erickson and
Columbus Campus that it "and the Lenders are not exercising any of their rights under the
[Construction] Loan Agreement or the Loan Documents." Id. The Lenders wanted to work
with Erickson and Columbus Campus to see if the parties could enter into a forbearance
agreement. KeyBank represented that the Lenders would only exercise their rights and
remedies under the Construction Loan Agreement if the parties did not execute a
forbearance agreement by May 15, 2009.
{¶ 11} The next day, April 29, 2009, Windsor rescinded and revoked its April 10,
2009 default letter and the Event of Default referenced therein. In a letter dated April 30,
2009, Erickson informed KeyBank of Windsor's actions and posited that the rescission and
revocation cured the Event of Default under the Construction Loan Agreement. The
April 30, 2009 letter also directed KeyBank to Section 3.2 of the Subordination and
Standstill Agreement between KeyBank and Windsor. Erickson interpreted that section to
3 Under Section 9.1(y) of the Construction Loan Agreement, an "Event of Default" occurred upon "any
default, and expiration of any stated grace or cure period, or the occurrence of any Event of Default (so
defined) pursuant to any of the documents executed and delivered in connection with the Mezzanine
Financing[.]" (Ex. 14, Jan. 24, 2011 Stipulations.)
Nos. 19AP-430 and 19AP-431 5
prohibit cross default under the Construction Loan Agreement if Columbus Campus
defaulted under the Windsor Loan Agreement.
{¶ 12} KeyBank's attorney responded to Erickson's April 30, 2009 letter with a letter
dated May 8, 2009. In the May 8, 2009 letter, KeyBank's attorney stated, "[T]he Lenders
respectfully disagree with both your characterization of the purported recission by Windsor
and your conclusion (or opinion) that somehow the Event of Default has been cured."
(Ex. 17, Kleinhaut Dep.) KeyBank's attorney also asserted that other Events of Default
existed under the Construction Loan Agreement, and he wrote, "By way of example, * * * it
is inconceivable how the Borrower could today, in good faith, reasonably argue that nothing
has occurred and that no condition or situation exists which constitutes a material adverse
change with respect to the Project."4 Id.{¶ 13} Erickson, acting as agent for Columbus Campus, directed Braun to suspend
work on the Hickory Chase project in a letter dated May 11, 2009. The last loan proceeds
KeyBank had advanced to Columbus Campus had paid for construction performed during
February 2009. Between March 1, 2009 and the stoppage of work, Braun and its
subcontractors had provided, but had not received payment for, $9,178,230.44 of labor and
materials.
{¶ 14} On May 15, 2009, Columbus Campus, Erickson, and KeyBank entered into a
forbearance agreement, whereby the Lenders agreed not to exercise any rights or remedies
they had under the Construction Loan Agreement due to the alleged Events of Default for
15 days. Before those 15 days elapsed, the parties executed a second agreement extending
the standstill period to July 1, 2009. Then, on July 1, 2009, the parties entered into a third
forbearance agreement, but on markedly different terms. In the third agreement, the
Lenders agreed not to exercise any of their contractual rights or remedies for an additional
30 days, with the exception of their right to foreclose. Not only did Columbus Campus
concede to a foreclosure action, it also agreed to file an answer consenting to judgment in
the Lenders' favor.
{¶ 15} On July 2, 2009, the Lenders filed for foreclosure against Columbus Campus.
The Lenders also named as defendants Braun and all the subcontractors that worked on
4 Under Section 9.1(0) of the Construction Loan Agreement, an "Event of Default" occurred if, "in the
Administrative Agent's sole judgment, [any condition or situation] constitute[d] a material adverse change
with respect to the Project * * *." (Ex. 14, Jan. 24, 2011 Stipulations.)
Nos. 19AP-430 and 19AP-431 6
the Hickory Chase project, including Eramo, because they had filed mechanics' liens against
the project. The Lenders later amended their complaint to include Erickson as a defendant
and added a claim for breach of the Guaranty Agreement.5
{¶ 16} Columbus Campus filed an answer that admitted to defaulting under the
Construction Loan Agreement and consented to foreclosure. Braun filed an answer and a
cross-claim against Columbus Campus. Eramo filed an answer, a counterclaim against the
Lenders, and a cross-claim against Columbus Campus and Erickson.
{¶ 17} In October 2009, Erickson and Columbus Campus filed for bankruptcy,
which stayed the foreclosure action. However, in May 2010, the bankruptcy court
permitted the foreclosure action to proceed, so the trial court lifted the stay.
{¶ 18} Once foreclosure proceedings resumed, the Lenders and the subcontractors
filed opposing motions for summary judgment on the issue of lien priority. The trial court
granted the Lenders' motion and denied the subcontractors' motion, finding that the
construction mortgage had priority over the subcontractors' mechanics' liens.6 This court
affirmed that judgment. KeyBank NA v. Columbus Campus, LLC, 10th Dist. No. 11AP-920,
2013-Ohio-1243.
{¶ 19} While the appeal of the lien-priority judgment was pending, the trial court
granted the Lenders' motion for summary judgment on their claim for foreclosure.
Ultimately, the Hickory Chase property sold in two lots, and the trial court confirmed the
sales in entries dated September 6 and 9, 2013. The Lenders received $1.78 million from
the sale of the first lot. Additionally, the Lenders recouped approximately $3 million from
other sources. Braun and the subcontractors recovered nothing from the sale of the
Hickory Chase property.
{¶ 20} In a scheduling order dated October 18, 2013, the trial court (1) gave Braun
leave to file a counterclaim against the Lenders and (2) permitted Eramo to amend its
counterclaim against the Lenders. Braun and Eramo filed their counterclaims on
November 15, 2013. Both counterclaims included claims for constructive fraud, breach of
5 In July 2010, the Lenders voluntarily dismissed their claim for breach of the Guaranty Agreement.
6 Later, the trial court also denied Braun's motion for summary judgment on the question of lien priority,
finding that the Lender's construction mortgage had priority over Braun's mechanic's lien. Braun did not
appeal that judgment.
Nos. 19AP-430 and 19AP-431 7
the Construction Loan Agreement, and promissory estoppel. Braun also separately
asserted claims for tortious interference with contracts, as well as breach of statutory
and/or legal fiduciary duties arising under R.C. 1311.14.
{¶ 21} The Lenders moved for summary judgment on all of Braun's and Eramo's
claims. Braun and Eramo opposed that motion. In a judgment dated June 6, 2019, the
trial court granted the Lenders' motion.
{¶ 22} Braun and Eramo now appeal the June 6, 2019 judgment, and they assign the
following errors:
I. THE TRIAL COURT ERRED WHEN IT GRANTED
SUMMARY JUDGMENT IN FAVOR OF THE LENDERS ON
BRAUN AND ERAMO'S CLAIMS FOR CONSTRUCTIVE
FRAUD.
II. THE TRIAL COURT ERRED WHEN IT GRANTED
SUMMARY JUDGMENT IN FAVOR OF THE LENDERS ON
BRAUN'S CLAIM FOR TORTIOUS INTERFERENCE WITH A
CONTRACT.
III. THE TRIAL COURT ERRED WHEN IT GRANTED
SUMMARY JUDGMENT IN FAVOR OF THE LENDERS ON
BRAUN'S CLAIM FOR BREACH OF STATUTORY AND/OR
LEGAL FIDICIARY DUTIES ARISING UNDER R.C. 1311.14.
IV. THE TRIAL COURT ERRED WHEN IT GRANTED
SUMMARY JUDGMENT IN FAVOR OF THE LENDERS ON
BRAUN AND ERAMO'S CLAIMS FOR BREACH OF [THE]
CONSTRUCTION LOAN AGREEMENT BASED UPON
THEIR RIGHTS AS THIRD-PARTY BENEFICIARIES.
V. THE TRIAL COURT ERRED WHEN IT GRANTED
SUMMARY JUDGMENT IN FAVOR OF THE LENDERS ON
BRAUN AND ERAMO'S CLAIMS BASED UPON
PROMISSORY ESTOPPEL.
{¶ 23} A trial court must grant summary judgment under Civ.R. 56 when the moving
party demonstrates that: (1) there is no genuine issue of material fact; (2) the moving party
is entitled to judgment as a matter of law; and (3) reasonable minds can come to but one
conclusion when viewing the evidence most strongly in favor of the nonmoving party, and
that conclusion is adverse to the nonmoving party. Hudson v. Petrosurance, Inc., 127 Ohio
St.3d 54, 2010-Ohio-4505, ¶ 29; Sinnott v. Aqua-Chem, Inc., 116 Ohio St.3d 158, 2007-
Nos. 19AP-430 and 19AP-431 8
Ohio-5584, ¶ 29. Appellate review of a trial court's ruling on a motion for summary
judgment is de novo. Hudson at ¶ 29. This means that an appellate court conducts an
independent review, without deference to the trial court's determination. Zurz v. 770 W.
Broad AGA, LLC, 192 Ohio App.3d 521, 2011-Ohio-832, ¶ 5 (10th Dist.); White v. Westfall,
183 Ohio App.3d 807, 2009-Ohio-4490, ¶ 6 (10th Dist.).
{¶ 24} The party moving for summary judgment bears the initial burden of
informing the trial court of the basis for the motion and identifying those portions of the
record that demonstrate the absence of a genuine issue of material fact. Dresher v. Burt,
75 Ohio St.3d 280, 293 (1996). The moving party does not discharge this initial burden
under Civ.R. 56 by simply making conclusory allegations. Id. Rather, the moving party
must affirmatively demonstrate by affidavit or other evidence allowed by Civ.R. 56(C) that
there are no genuine issues of material fact and the moving party is entitled to judgment as
a matter of law. Id. If the moving party meets its burden, then the nonmoving party has a
reciprocal burden to set forth specific facts showing that there is a genuine issue for trial.
Civ.R. 56(E); Dresher at 293. If the nonmoving party does not so respond, summary
judgment, if appropriate, shall be entered against the nonmoving party. Dresher at 293.
{¶ 25} By their first assignment of error, Braun and Eramo argue that the trial court
erred in granting summary judgment on their claims for constructive fraud. We disagree.
{¶ 26} "Constructive fraud is defined as 'a breach of a legal or equitable duty, which,
irrespective of moral guilt of the fraud feasor, the law declares fraudulent, because of its
tendency to deceive others, to violate public or private confidence, or to injure public
interests.' " Cohen v. Estate of Cohen, 23 Ohio St.3d 90, 91 (1986), quoting Stanley v.
Sewell Coal Co., 285 S.E.2d 679, 683 (W.Va.1981). "Constructive fraud does not require
proof of fraudulent intent; the law indulges in an assumption of fraud for the protection of
valuable social interests based upon an enforced concept of confidence both public and
private." Perlberg v. Perlberg, 18 Ohio St.2d 55, 58 (1969). In other words, a plaintiff need
not offer evidence of fraudulent intent to recover for constructive fraud; rather, the law
presumes the existence of fraud to protect those rendered vulnerable as a result of investing
a special confidence in another, thus placing the trusted party in a position to take unfair
advantage. L&N Partnership v. Lakeside Forest Assn., 183 Ohio App.3d, 2009-Ohio-2987,
¶ 49 (10th Dist.); Woodworth v. Huntington Natl. Bank, 10th Dist. No. 95APE02-219
Nos. 19AP-430 and 19AP-431 9
(Dec. 7, 1995). Therefore, instead of scienter, a constructive fraud claim requires proof of a
confidential or fiduciary relationship between the parties. Schmitz v. Natl. Collegiate
Athletic Assn., 8th Dist. No. 103525, 2016-Ohio-8041, ¶ 63; L&N Partnership at ¶ 50;
accord Kegg v. Mansfield, 5th Dist. No. 2000CA00311 (Apr. 30, 2001) ("[I]n order to
succeed under a constructive fraud [claim], 'some peculiar confidential relationship' must
exist, such as in the form of a fiduciary duty."); Ohio Univ. Bd. of Trustees v. Smith, 132
Ohio App.3d 211, 219 (4th Dist.1999) ("In order for constructive fraud to exist, the parties
must have 'special confidential or fiduciary relation.' "); Assn. for Responsible Dev. v.
Fieldstone Ltd. Partnership, 2d Dist. No. 16994 (Nov. 13, 1998) (concluding that the
plaintiffs could not prevail on their claim for constructive fraud because they failed to prove
the existence of a special or fiduciary relationship between the parties); Woodworth
("Constructive fraud requires a confidential relationship.").
{¶ 27} A fiduciary relationship is one " 'in which special confidence and trust is
reposed in the integrity and fidelity of another and there is a resulting position of
superiority or influence, acquired by virtue of this special trust.' " Ed Schory & Sons, Inc.
v. Soc. Natl. Bank, 75 Ohio St.3d 433, 442 (1996), quoting In re Termination of
Employment of Pratt, 40 Ohio St.2d 107, 115 (1974). A confidential relationship arises
whenever one person relies on and trusts another in his or her important affairs, whether
the relations involved are legal, moral, social, domestic, or personal. Applegate v. Fund for
Constitutional Govt., 70 Ohio App.3d 813, 816 (10th Dist.1990). Ordinarily, a business
transaction where the parties deal at arm's length does not create a fiduciary or confidential
relationship. Hoyt v. Nationwide Mut. Ins. Co., 10th Dist. No. 04AP-941, 2005-Ohio-6367,
¶ 30; Assn. for Responsible Dev.
{¶ 28} In the case at bar, the Lenders had scant dealings with Braun and none with
Eramo. To the extent the parties interacted, the record contains no evidence that their
relationship varied from a typical arm's-length business relationship in which both sides
operated to protect their own interests. Braun and Eramo cite no evidence showing that
they entrusted the Lenders with important or confidential matters. The record, therefore,
does not reflect the existence of any issues of fact with regard to the creation of a
confidential or fiduciary relationship between the parties. Absent evidence supporting the
creation of such a relationship, the trial court did not err in granting the Lenders summary
Nos. 19AP-430 and 19AP-431 10
judgment on Braun's and Eramo's claims for constructive fraud. Accordingly, we overrule
the first assignment of error.
{¶ 29} By the second assignment of error, Braun argues that the trial court erred in
granting the Lenders summary judgment on Braun's claim for tortious interference with
contracts. We agree.
{¶ 30} To establish a claim for tortious interference with a contract, a plaintiff must
prove: (1) the existence of a contract, (2) the defendant's knowledge of the contract, (3) the
defendant's intentional procurement of the contract's breach, (4) lack of justification, and
(5) resulting damages. Fred Siegel Co., L.P.A. v. Arter & Hadden, 85 Ohio St.3d 171 (1999),
paragraph one of the syllabus. Here, in their motion for summary judgment, the Lenders
focused solely on the fourth element and argued that their actions were justified. To
demonstrate the fourth element, the plaintiff must present evidence that the defendant's
interference with another's contract was improper. Id. at paragraph two of the syllabus.
Determination of whether a defendant has acted improperly requires consideration of the
factors set forth in Section 767 of the Restatement (Second) of Torts. Fred Siegel Co. at 178.
Those factors are:
(a) the nature of the actor's conduct,
(b) the actor's motive,
(c) the interests of the other with which the actor's conduct
interferes,
(d) the interests sought to be advanced by the actor,
(e) the social interests in protecting the freedom of action of
the actor and the contractual interests of the other,
(f) the proximity or remoteness of the actor's conduct to the
interference and
(g) the relations between the parties.
Restatement of the Law 2d, Torts, Section 767 (1979).
{¶ 31} Here, in its counterclaim, Braun alleged that the Lenders knew that Braun
and Columbus Campus had entered into agreements for the construction of the first phase
of the Hickory Chase project. Braun also alleged that the Lenders knew that Columbus
Nos. 19AP-430 and 19AP-431 11
Campus relied on advances from the Construction Loan Agreement to satisfy its obligations
to pay Braun as required by the construction agreements. Braun claimed that the Lenders
tortiously interfered with the construction agreements because they improperly and
without justification deprived Columbus Campus of loan advances, which caused
Columbus Campus to default on its payment obligations under the construction
agreements, resulting in damages to Braun.
{¶ 32} In their motion for summary judgment, the Lenders argued that Braun could
not recover for tortious interference because Braun could not prove that the Lenders acted
improperly. The Lenders contended that they had the authority to cut off funding to
Columbus Campus because Section 9.2 of the Construction Loan Agreement stated, "Upon
the occurrence of any Event of Default, the obligation of the Lenders to make any further
disbursements under the Loan * * * shall terminate." (Ex. 14, Jan. 24, 2011 Stipulations.)
In response, Braun asserted that: (1) presuming Events of Default occurred, under the
terms of the Construction Loan Agreement, an Event of Default did not discharge the
Lenders' obligation to fund the unpaid construction work, (2) presuming Events of Default
occurred, questions of fact remained regarding when they occurred, and (3) if the
occurrence of Events of Default gave the Lenders the right to stop loan disbursements, the
Lenders voluntarily agreed to delay enforcement of that right.
{¶ 33} The trial court found that it had already determined the question of
Columbus Campus' default in the Lenders' favor. The court then concluded that "the
Lenders' refusal to disburse funds was founded in their contractual right to do so under the
[Construction] Loan Agreement." (June 6, 2019 Decision & Entry at 11.) The court further
stated the Lenders had no "nefarious motive" in withholding the funds, but only sought to
protect their security. Id. Finally, the court found that requiring the Lenders to continue
to disburse loan proceeds to a defaulting borrower was inconsistent with the requirement
to mitigate damages and would most likely have a chilling effect on commercial lending
practices. Based on this reasoning, the trial court determined that there was no question of
fact that the Lenders' refusal to disburse funds was justified.
{¶ 34} We will first address Braun's argument that the trial court erred in
interpreting the Construction Loan Agreement to permit the Lenders to completely stop
the disbursement of loan proceeds upon an Event of Default. Braun asserts that, under the
Nos. 19AP-430 and 19AP-431 12
Construction Loan Agreement, an Event of Default allowed the Lenders to terminate loan
advances to Columbus Campus, but imposed upon the Lenders an obligation to directly pay
Braun for its work. Braun's argument relies on Section 6.2 of the Construction Loan
Agreement, which reads, in relevant part:
Notwithstanding any other provision of this Agreement, the
Borrower hereby irrevocably authorizes the Lenders, at the
option of the Administrative Agent, after the occurrence of any
Default to make disbursements of Loan proceeds (i) directly
* * * to any contractor * * * furnishing labor, services, or
materials in connection with the Project for any amounts due
them in connection therewith * * *.
(Ex. 14, Jan. 24, 2011 Stipulations.)
{¶ 35} We do not construe Section 6.2 as Braun does. Section 6.2 gave KeyBank, as
the Administrative Agent, the "option" to directly pay a contractor after a Default. Thus,
Section 6.2 permitted, but did not compel, KeyBank to directly pay a contractor. As a
discretionary provision, Section 6.2 imposed no duty on KeyBank to fund the unpaid
construction work.
{¶ 36} Next, Braun argues that questions of fact remain regarding timing;
specifically, when the Event of Default that triggered the Lenders' right to terminate
funding occurred. The timing of the Event of Default has significance because if the
Lenders withheld loan proceeds prior to the occurrence of an Event of Default, then they
cannot claim to have acted with justification. The Lenders do not dispute that, given
Columbus Campus' April 9, 2009 draw request, a loan disbursement was due on or about
April 20, 2009.7 Consequently, the issue is whether the evidence establishes without
question that an Event of Default occurred prior to April 20, 2009.8
7 Section 2.1(b) of the Construction Loan Agreement set forth the borrowing procedure and stated that
"[t]he Borrower shall give the Administrative Agent a Notice of Borrowing at least seven (7) Business Days'
[sic] prior to a requested Loan advance, setting forth the amount of any proposed borrowing hereunder
* * *." (Ex. 14, Jan. 24, 2011 Stipulations.) If the notice was sufficient, KeyBank would make the
disbursement.
8 We reject the Lenders' argument that Braun lacks standing to assert that questions of fact remain
regarding whether certain events qualify as Events of Default. The caselaw the Lenders rely on for their
standing argument does not support that argument. See Deutsche Bank Natl. Trust Co. v. Sopp, 10th Dist.
No. 14AP-343, 2016-Ohio-1402, ¶ 19 (finding evidence regarding a mortgagee's noncompliance with a
pooling and servicing agreement irrelevant because the mortgagee was the holder of the note, which was
endorsed in blank, by virtue of its possession of the note).
Nos. 19AP-430 and 19AP-431 13
{¶ 37} The Lenders rely on the trial court's February 13, 2012 judgment, in which
the trial court granted the Lenders summary judgment regarding foreclosure, to establish
the occurrence of Events of Default. In the February 13, 2012 judgment, the trial court
found that Columbus Campus' failure to pay "the Notes * * * according to their terms and
the terms and conditions of the Mortgage, * * * together with the other events alleged,
constitute Events of Default as set forth in the [Construction] Loan Agreement." (Feb. 13,
2012 Order at ¶ 13.) The Lenders assert that this factual finding is now the law of the case,
and thus excused them from providing evidence regarding the Events of Default. Under
the law-of-the-case doctrine, a " 'decision of a reviewing court in a case remains the law of
that case on the legal questions involved for all subsequent proceedings in the case at both
the trial and reviewing levels.' " Hopkins v. Dyer, 104 Ohio St.3d 461, 2004-Ohio-6769,
¶ 15, quoting Nolan v. Nolan, 11 Ohio St.3d 1, 3 (1984). The law-of-the-case doctrine may
also encompass a trial court's adherence to its own prior rulings under certain
circumstances. Klaus v. Klosterman, 10th Dist. No. 16AP-273, 2016-Ohio-8349, ¶ 15.
Here, assuming the trial court's prior finding is law of the case, that finding is not dispositive
because, although the court determined that "other events alleged" were Events of Default,
it did not describe what those events were or, more significantly, when those events
occurred.
{¶ 38} Consequently, we turn to the actual evidence the Lenders offered to support
their motion for summary judgment: the admissions Columbus Campus made in its answer
to the Lenders' complaint. An admission in a pleading is equivalent to proof of the fact
admitted and, therefore, is evidence that a court may consider in rendering a decision on
summary judgment. BAC Home Loans Servicing, L.P. v. Vanjo, 11th Dist. No. 2013-L-106,
2015-Ohio-4317, ¶ 24; Everett v. Cinque, 10th Dist. No. 99AP-1409 (Aug. 31, 2000). Here,
Columbus Campus admitted to the averment contained in the complaint that it "fail[ed] to
comply with the requirements of Article IX, Sections 9.1(a), 9.1(e), 9.1(i), 9.1(o), 9.1(t), and
9.1(bb) and [sic] of the [Construction] Loan Agreement." (July 2, 2009 Compl. at ¶ 12, 16,
20, 24, 28, & 32.) By admitting to its failure to comply with these sections, Columbus
Campus admitted to engaging in Events of Default. Thus, the Lenders could rely on
Columbus Campus' admissions to prove the occurrence of Events of Default. However, the
complaint does not describe the circumstances underlying the Events of Default or specify
Nos. 19AP-430 and 19AP-431 14
when those circumstances arose. The admissions, consequently, do not prove how or when
the Events of Default occurred.
{¶ 39} The Lenders argue that Columbus Campus' default under Section 9.1(t)
implicitly corresponds to Columbus Campus' April payment default on the Windsor loan.
Under Section 9.1(t), an Event of Default occurs upon "any default, and expiration of any
stated grace or cure period, or the occurrence of any Event of Default (so defined), in
connection with any indebtedness of the Borrower, the Guarantor or the Tenant in excess
of Two Hundred Fifty Thousand Dollars ($250,000), individually or in the aggregate." (Ex.
14, Jan. 24, 2011 Stipulations.)
{¶ 40} Conceivably, the allegation in the complaint that Columbus Campus
defaulted under Section 9.1(t) could have stemmed from Columbus Campus' missed April
interest payment on the Windsor loan. At least some evidence, however, conflicts with this
conclusion. In internal communications, KeyBank cited Windsor's acceleration of the
principal balance—not the failure to timely make the April interest payment—as the Event
of Default that arose from the circumstances that developed in early April. (Ex. 13,
Kleinhaut Dep.) ("We do however, have a default because the mezz[anine] lender in the
Columbus Campus deal has accelerated their entire principal balance."); Ex. 173, Shoop
Dep. ("[M]uch of the default rationale was the fact that Windsor sent a letter to ERC which
accelerated their debt. The acceleration caused a cross default to our Loan."); Ex. 179,
Shoop Dep. (May 5, 2009 email from KeyBank listing Columbus Campus' alleged defaults,
which included the "acceleration of the Windsor debt," but not the missed April interest
payment.) Not only do the Lenders disregard this evidence, they also ignore evidence that
Braun offered to negate the existence of the alleged Event of Default, including evidence
that Windsor rescinded and revoked its letter of default and the Event of Default declared
therein. The Lenders likewise do not respond to Braun's contention that the Subordination
and Standstill Agreement between KeyBank and Windsor prohibited cross default and
Windsor's acceleration of the principal without KeyBank's prior written consent.
Moreover, the Lenders fail to explain why, if they meant to claim an Event of Default based
on a breach of the Windsor loan terms, they did not instead assert a failure to comply with
Section 9.1(y), which mirrors the language of Section 9.1(t) but specifically applies to the
mezzanine financing. Given these issues, questions of fact remain.
Nos. 19AP-430 and 19AP-431 15
{¶ 41} The Lenders also argue (for the first time) on appeal that the Event of Default
under Section 9.1(o) implicitly corresponds with Erickson's looming financial collapse and
withdrawal of support for the Hickory Chase project. According to Section 9.1(o), an Event
of Default includes "any condition or situation which, in the Administrative Agent's sole
judgment, constitutes a material adverse change with respect to the Project, the Borrower,
the Guarantor, * * * or the Loan." (Ex. 14, Jan. 24, 2011 Stipulations.)
{¶ 42} We are even less persuaded that the evidence unquestionably supports this
connection. By the time Columbus Campus admitted to the Event of Default under Section
9.1(o), all construction had ceased on the Hickory Chase project, which could constitute a
material adverse change. Thus, the admission could refer to the May 11, 2009 construction
stoppage, and not Erickson's financial condition. Additionally, the Lenders did not raise
the existence of a material adverse change until the May 8, 2009 letter, and even then, they
did not explain what condition or situation constituted the change. We, therefore, conclude
that questions of fact remain regarding what circumstances gave rise to the Section 9.1(o)
Event of Default and when those circumstances reached the tipping point.
{¶ 43} In sum, we determine that Columbus Campus admitted that Events of
Default occurred under Sections 9.1(t) and 9.1(o) of the Construction Loan Agreement.
However, the record does not conclusively disclose what facts precipitated those Events of
Default nor when those Events of Default occurred. As those questions remain unresolved,
the trial court erred in concluding that the Lenders established their refusal to disburse loan
proceeds was justified.
{¶ 44} Finally, Braun argues that the Lenders cannot claim that they properly
withheld loan proceeds because, at the time the relevant loan advances were due, the
Lenders had agreed to refrain from enforcing their default rights and remedies. In other
words, Braun contends that, because the Lenders agreed to postpone the termination of
disbursements until July 31, 2009, the Lenders should have made loan advances on
April 20, May 20, and June 20. These loan advances would have compensated Braun for
the construction work performed on the Hickory Chase project from March 1, 2009 until
the stoppage of work on May 11, 2009.
{¶ 45} The resolution to this argument turns on the difference between suspension
and termination. As we stated above, Section 9.2 of the Construction Loan Agreement
Nos. 19AP-430 and 19AP-431 16
stated, "[u]pon the occurrence of any Event of Default, the obligation of the Lenders to
make any further disbursements under the Loan * * * shall terminate." (Ex. 14, Jan. 24,
2011 Stipulations.) Nevertheless, in the April 21, 2009 letter, the Lenders suspended
further disbursements due to the "apparent" Event of Default. In the subsequent April 28,
2009 letter, the Lenders declared the Event of Default had actually occurred, but they were
not exercising any of their default rights. They could correctly make this statement because
they never terminated the loan advancements—they had just suspended them. By this
maneuver, the withholding of loan proceeds did not run afoul of the forbearance
agreements. Thus, neither the April 28, 2009 letter nor the terms of the forbearance
agreements rendered the Lenders' actions improper.
{¶ 46} After considering each of Braun's arguments, we conclude that questions of
fact relevant to the issue of justification preclude summary judgment on the claim for
tortious interference with contracts. The trial court, therefore, erred in granting the
Lenders summary judgment on that claim. Accordingly, we sustain the second assignment
of error.
{¶ 47} By its third assignment of error, Braun argues that the trial court erred in
granting summary judgment to the Lenders on Braun's claim for breach of statutory and/or
legal fiduciary duties arising under R.C. 1311.14. We disagree.
{¶ 48} Generally, construction mortgages, as defined in R.C. 1311.14, have priority
over valid mechanics' liens. In re Qualstan Corp., 310 B.R. 833, 840 (Bankr.S.D.Ohio
2004). However, to obtain that priority, a mortgagee must distribute the proceeds of the
construction loan in the order specified in R.C. 1311.14(B)(1) through (7). Id. at 842; accord
Wayne Bldg. & Loan Co. v. Yarborough, 11 Ohio St.2d 195, 209 (1967) ("Section 1311.14,
Revised Code, specifically allows priority to a construction mortgage for future advances
over mechanics' liens * * * if * * * the disbursement of mortgage funds satisfies such
section.").
{¶ 49} Braun interprets R.C. 1311.14(B) to impose a duty on a mortgagee to disburse
the entirety of a construction mortgage fund. To support this interpretation, Braun relies
on Knollman Lumber Co. v. Hillenbrand, 64 Ohio App. 549 (1st Dist.1940). That case
involved a controversy between homeowners, a mortgagee, and multiple material
suppliers, arising out of the construction of a residence. After determining lien priority
Nos. 19AP-430 and 19AP-431 17
under the General Code predecessor to R.C. 1311.14, the appellate court turned to
housekeeping matters. The appellate court noted that the mortgagee had not distributed
all the money the homeowner had borrowed under the construction loan, and it ordered
that money disbursed to the unpaid claimants. The court did not cite any authority for its
action. Apparently, the court required the pay out because the mortgagee had a contractual
duty—not any statutory duty—to pay the full amount borrowed. The mortgagee owed that
contractual duty because, unlike here, it appears the borrowers had not defaulted on the
construction loan. Because the Hillenbrand court's order hinged on the existence of a
contractual duty, we do not interpret Hillenbrand to create any duty under R.C. 1311.14 to
disburse undistributed mortgage funds.
{¶ 50} Moreover, the plain language of R.C. 1311.14(B) does not support Braun's
interpretation. That section provides that, "the mortgagee shall, in order to obtain the
priority set forth in this section, distribute the mortgage fund" in the order set forth in R.C.
1311.14(B)(1) through (7). R.C. 1311.14(B). If "the mortgagee pays out the fund otherwise
than as provided in [R.C. 1311.14(B)(1) through (7)], then the lien of the mortgage to the
extent that the funds had been otherwise paid, is subsequent to liens of original contractors,
subcontractors, material suppliers, and laborers." Id. Thus, rather than impose a duty,
R.C. 1311.14(B) gives the mortgagee an option: comply and receive priority; deviate and fall
into a subordinate position. Accordingly, we overrule Braun's third assignment of error.
{¶ 51} By their fourth assignment of error, Braun and Eramo argue that the trial
court erred in granting summary judgment to the Lenders on Braun's and Eramo's claims
for breach of the Construction Loan Agreement. We disagree.
{¶ 52} "Only a party to a contract or an intended third-party beneficiary of a contract
may bring an action on a contract in Ohio." Grant Thorton v. Windsor House, Inc., 57 Ohio
St.3d 158, 161 (1991). Here, neither Braun nor Eramo is a party to the Construction Loan
Agreement, but both claim to be intended third-party beneficiaries to that contract. On
that basis, Braun and Eramo assert that they have the ability to bring a claim for breach of
the Construction Loan Agreement against the Lenders.
{¶ 53} To determine whether a party is an intended third-party beneficiary, Ohio
courts apply Section 302 of the Restatement (Second) of Contracts, which reads:
(1) Unless otherwise agreed between promisor and promisee,
a beneficiary of a promise is an intended beneficiary if
Nos. 19AP-430 and 19AP-431 18
recognition of a right to performance in the beneficiary is
appropriate to effectuate the intention of the parties and either
(a) the performance of the promise will satisfy an
obligation of the promisee to pay money to the
beneficiary; or
(b) the circumstances indicate that the promisee
intends to give the beneficiary the benefit of the
promised performance.
(2) An incidental beneficiary is a beneficiary who is not an
intended beneficiary.
Restatement of the Law 2d, Contracts, Section 302 (1981). See Hill v. Sonitrol of
Southwestern Ohio, Inc., 36 Ohio St.3d 36, 40 (1988) (adopting Section 302). Under
Section 302(1)(b), for a third party to acquire intended beneficiary status, it must present
evidence that the promisee intended to directly benefit the third party. Huff v. FirstEnergy
Corp., 130 Ohio St.3d 196, 2011-Ohio-5083, ¶ 11; Hill at 40. A third party who receives a
mere happenstance benefit from the performance of a contract is only an incidental
beneficiary. Hill at 40.
{¶ 54} As evidence that the Lenders intended to directly benefit them, Braun and
Eramo point to Section 2.1(a) of the Construction Loan Agreement. Section 2.1(a) states in
relevant part, "Loan proceeds shall be advanced (or reserved) for the following purposes:
(i) for the construction of the Project Improvements[.]" (Ex. 14, Jan. 24, 2011 Stipulations.)
This section, however, does not establish an intent to directly benefit Braun or Eramo. The
purpose of the loan was to directly benefit Columbus Campus by providing it with the
funding necessary to pay for the construction of the Hickory Chase project. Because Braun
and Eramo worked as general contractor and a subcontractor on the Hickory Chase project,
they received an incidental benefit in the form of payment for their services. This incidental
benefit, however, does not transform them into intended third-party beneficiaries.
{¶ 55} At least three Ohio cases have reached the same holding in like
circumstances. Skaff v. Khutorsky, 6th Dist. No. L-15-1249, 2016-Ohio-4903, ¶ 20;
Huntington Natl. Bank v. Val Homes, Inc., 11th Dist. No. 2011-G-3021, 2012-Ohio-526,
¶ 42; Bain Builders v. Huntington Natl. Bank, 8th Dist. No. 78442 (July 5, 2001). In each
of these cases, a contractor or subcontractor claimed it was an intended third-party
Nos. 19AP-430 and 19AP-431 19
beneficiary to a construction loan agreement between a lender and a borrower. In each
case, the court rejected the contractor's or subcontractor's argument, reasoning as we did
above.
{¶ 56} In arguing to the contrary, Braun and Eramo contend that Columbus Campus
intended to give the contractors the loan proceeds (i.e., the benefit of the promised
performance under the Construction Loan Agreement), so the contractors were third-party
intended beneficiaries pursuant to Section 302(1)(b). We are not persuaded.
{¶ 57} Section 302(1)(b) recognizes the creation of a third-party intended
beneficiary as a result of a "[g]ift promise," which occurs when "the promised performance
is not paid for by the recipient, discharges no right he has against anyone, and is apparently
designed to benefit him." Restatement of the Law 2d, Contracts, Section 302, Comment c
(1981). However, here, Columbus Campus never intended to give anything to Braun or the
subcontractors when it executed the Construction Loan Agreement. Columbus Campus
used the loan proceeds it received to discharge Braun's right to payment under the
construction contracts governing the first phase of the Hickory Chase project. In other
words, the loan proceeds constituted compensation—not a gift—to Braun. Without
evidence that Columbus Campus intended to give the contractors the loan proceeds, Braun
and Eramo cannot establish themselves as third-party intended beneficiaries under Section
302(1)(b).
{¶ 58} In sum, we conclude that the record contains no evidence from which
reasonable minds could find that Braun and Eramo were intended third-party
beneficiaries. Braun and Eramo, therefore, lack the ability to sue for breach of the
Construction Loan Agreement. Accordingly, we overrule the fourth assignment of error.
{¶ 59} By the fifth assignment of error, Braun and Eramo argue that the trial court
erred in granting the Lenders summary judgment on Braun's and Eramo's claims for
promissory estoppel. We disagree.
{¶ 60} Promissory estoppel is an equitable doctrine that comes into play when the
requisites of contract are not met, yet a promise should be enforced to avoid injustice.
Olympic Holding Co., L.L.C. v. Ace Ltd., 122 Ohio St.3d 89, 2009-Ohio-2057, ¶ 39-40.
" 'Promissory estoppel is inconsistent with the existence of an express written contract.' "
Kashif v. Cent. State Univ., 133 Ohio App.3d 678, 684 (10th Dist.1999), quoting Warren v.
Nos. 19AP-430 and 19AP-431 20
Trotwood-Madison School Dist. Bd. of Edn., 2d Dist. No. 17457 (Mar. 19, 1999).
Consequently, a plaintiff cannot recover for promissory estoppel where the promise
forming the basis of that claim is contained within an express written contract. Right-Now
Recycling, Inc. v. Ford Motor Credit Co., LLC, 644 Fed.Appx. 554, 558 (6th Cir.2016);
Americana Invest. Co. v. Natl. Contracting & Fixturing, LLC, 10th Dist. No. 15AP-1010,
2016-Ohio-7067, ¶ 13-14; TLC Health Care Servs., LLC v. Enhanced Billing Servs., L.L.C.,
6th Dist. No. L-08-1121, 2008-Ohio-4285, ¶ 24.
{¶ 61} Here, Braun and Eramo based their promissory estoppel claims on "the
Lenders' representations * * * that KeyBank was administering a $90 Million [sic]
construction loan to fund the $40 Million [sic] of construction." (Appellant's Brief at 73.)
The representation that KeyBank was administering a $90 million loan is a fact, not a
promise. That fact, of course, resulted from the Lenders' promise, contained in the
Construction Loan Agreement, to provide Columbus Campus a revolving loan, in an
amount not to exceed $90 million. Because the Lenders' made their promise in a contract,
Braun and Eramo cannot pursue a promissory estoppel claim for reliance on that promise.
See Shane v. Bunzl Distrib. USA, Inc., 200 Fed.Appx. 397, 404 (6th Cir.2006), quoting
Heating & Air Specialists, Inc. v. Jones, 180 F.3d 923, 934 (8th Cir.1999) (holding "it is a
'widely accepted principle that promissory estoppel is applicable only in the absence of an
otherwise enforceable contract' "); Manno v. St. Felicitas Elementary School, 161 Ohio
App.3d 715, 2005-Ohio-3132, ¶ 31 (8th Dist.) ("[T]he existence of a written contract barred
[the plaintiff] from maintaining a promissory-estoppel claim."); see also Zollinger v.
Carrol, 137 Idaho 397, 400 (2002) (holding that, where the parties to an agreement had
exchanged mutual promises, there was no failure of consideration such that promissory
estoppel could apply, thus defeating the promissory-estoppel claim of a non-party to the
agreement). Accordingly, we overrule the fifth assignment of error.
{¶ 62} Finally, because we have sustained the second assignment of error, we must
address the Lenders' alternative argument for affirming the grant of summary judgment in
their favor. We have concluded that the existence of questions of fact precludes summary
judgment on Braun's claim for tortious interference with contracts. The Lenders, however,
assert that that claim is barred by the law-of-the-case doctrine.
Nos. 19AP-430 and 19AP-431 21
{¶ 63} As we stated above, under the law-of-the-case doctrine, a " 'decision of a
reviewing court in a case remains the law of that case on the legal questions involved for all
subsequent proceedings in the case at both the trial and reviewing levels.' " Hopkins, 104
Ohio St.3d 461, 2004-Ohio-6769, at ¶ 15, quoting Nolan v. Nolan, 11 Ohio St.3d 1, 3 (1984).
This doctrine prevents a party from raising arguments that "were fully pursued, or available
to be pursued, in a first appeal." Hubbard v. Sauline, 74 Ohio St.3d 402, 404-05 (1996).
{¶ 64} Here, the Lenders contend that law of the case appears in our decision
affirming the trial court's ruling that the Lenders' construction mortgage had priority over
the subcontractors' mechanics' liens. In the course of that decision, we concluded that the
trial court did not err in declining to apply a constructive trust on the undistributed portion
of the mortgage loan so the subcontractors could receive payment. KeyBank NA, 2013-
Ohio-1243, at ¶ 64. The Lenders now assert that our rejection of this equitable theory of
recovery precludes Braun from pursuing its claim for tortious interference. We are not
persuaded. First, we did not decide any legal issue in the first appeal that arises again in
this appeal. Second, Braun did not participate in the first appeal, so it did not have the
opportunity to pursue any argument in that appeal. Accordingly, the law-of-the-case
doctrine does not entitle the Lenders to summary judgment on Braun's claim for tortious
interference with contracts.
{¶ 65} For the foregoing reasons, we sustain the second assignment of error, and we
overrule the first, third, fourth, and fifth assignments of error. We affirm in part and
reverse in part the judgment of the Franklin County Court of Common Pleas, and we
remand this cause to that court for further proceedings consistent with law and this
decision.
Judgment affirmed in part; reversed in part;
cause remanded.
SADLER, P.J., and BRUNNER, J., concur.