Carr v. Acacia Country Club Co.

[Cite as Carr v. Acacia Country Club Co., 2012-Ohio-1940.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
Nos. 96731 and 96732
LEONARD F. CARR
PLAINTIFF-APPELLEE
vs.
ACACIA COUNTRY CLUB CO., ET AL.
DEFENDANTS-APPELLEES
Appeal By Acacia Development Company, Ltd.
DEFENDANT-APPELLANT
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case Nos. CV-682363 and CV-635329
BEFORE: Celebrezze, J., Stewart, P.J., and S. Gallagher, J.
RELEASED AND JOURNALIZED: May 3, 2012
ATTORNEYS FOR APPELLANT
Acacia Development Company
Scott H. Kahn
Mark F. Kruse
McIntyre, Kahn & Kruse Co., L.P.A.
Galleria & Tower at Erieview
1301 East Ninth Street
Suite 2200
Cleveland, Ohio 44114
ATTORNEYS FOR APPELLEES
For Leonard F. Carr
William F. Scully, Jr.
Williams, Moliterno & Scully Co., L.P.A.
2241 Pinnacle Parkway
Twinsburg, Ohio 44087
Robert P. DeMarco
Joseph J. Triscaro
DeMarco & Triscaro, Ltd.
30505 Bainbridge Road
Suite 225
Solon, Ohio 44139
For Acacia Country Club Company
Timothy J. Fitzgerald
Colleen A. Mountcastle
Matthew T. Norman
Mark M. Turner
Alton L. Stephens
Gallagher Sharp
6th Floor, Bulkley Building
1501 Euclid Avenue
Cleveland, Ohio 44115
-continued-
Andrew A. Kabat
Jennifer K. Rinkes
Haber Polk Kabat, L.L.P.
737 Bolivar Road
Suite 4400
Cleveland, Ohio 44115
For Westfield Insurance Company
Richard M. Garner
Roni R. Sokol
Davis & Young
1200 Fifth Third Center
600 Superior Avenue, East
Cleveland, Ohio 44114
FRANK D. CELEBREZZE, JR., J.:
{¶1} Appellant, Acacia Development Co., Ltd. (the “Developer”), brings the present
appeal from the grant of summary judgment in favor of appellee, the Acacia Country Club Co.
(the “Club”), on appellant’s claims of breach of contract, breach of joint venture agreement,1
negligence, negligent misrepresentation, rescission, unjust enrichment, equitable estoppel, and
declaratory judgment stemming from the sale of real estate from the Club to the Developer.
After a thorough review of the record and law, we affirm.
{¶2} In 2003, the Club decided it needed to update its clubhouse in order to attract and
retain new members. In an effort to raise capital and secure financing, the Club decided to sell a
piece of its unused real estate to partially finance the construction of a new clubhouse. The
original potential buyer and the Club could not reach an agreement, and a Club member and
former director who had helped negotiate the deal stepped in and offered to purchase the
property. In 2005, the Developer, through representative Joseph Aveni, agreed to purchase
17.9897 acres of land with an additional easement on 6.4 acres for $4,000,000. In 2003, the
Club had authorization through a shareholder vote to sell only 16 acres of land and the authority
to do whatever was necessary to effectuate the sale of 16 acres of land.
{¶3} Upset with the sale, a member of the Club, Leonard Carr, filed a shareholder
derivative suit on behalf of the Club against its directors.2 The suit also named the Developer as
This cause of action was previously disposed of via summary judgment in a separate motion
1
on February 8, 2010, and is not being appealed here.
A second suit was later filed that named the Developer as a defendant. These cases, while
2
never formally consolidated below, were handled together because they were related.
a party. The Developer cross-claimed against the Club with the above-stated causes of action,
seeking to rescind the sale and for the return of the purchase price plus approximately $8,000,000
in out-of-pocket expenses incurred in the development of the land for sale as residential lots.
Summary judgment was granted in the Club’s favor regarding Carr’s derivative suit. The
remaining claims were the Developer’s against the Club.
{¶4} The Developer and the Club filed cross-motions for summary judgment. The trial
court allowed extensive briefing and subsequently granted the Club’s motion in a lengthy
opinion.
{¶5} The Developer appeals, raising two assignments of error:
I. The Trial Court erred in its Journal Entry of April 1, 2011, granting summary
judgment in favor of [the Club], and denying summary judgment in favor of [the
Developer], and thereby ruling that appellant [the Developer] received marketable
title to approximately 17.9897 acres of real estate, and that [the Club] had
“transferred a marketable title with no clouds.”
II. The trial court erred by finding as a matter of law that appellant [the
Developer] was not proximately damaged even if there was an unmarketable title,
and did not have standing to make a claim even if there was an unmarketable title,
as the cloud on title was “not caused by [the Club’s] failure to abide by the code
of regulations but by Carr’s conduct, including his lawsuit,” when said lawsuit
was a derivative action brought by Carr, a shareholder of [the Club] “acting on
behalf of and for the benefit of [the Club].”
{¶6} Upon thorough review of the record, applicable law, and the decision of the trial
court, we find the trial court’s consideration of the facts and application of pertinent law to be
correct. The trial court’s thorough analysis of the issues makes a lengthy opinion by this court
duplicitous and unnecessary because this court’s judgment is the same as the court’s below. We
therefore adopt the well-reasoned decision of the trial court, journalized April 1, 2011, as our
own.3 We find appellant’s assigned errors not well taken.
{¶7} Judgment affirmed.
It is ordered that appellees recover from appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court 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.
FRANK D. CELEBREZZE, JR., JUDGE
MELODY J. STEWART, P.J., and
SEAN C. GALLAGHER, J., CONCUR
APPENDIX
IN THE COURT OF COMMON PLEAS
CUYAHOGA COUNTY, OHIO
LEONARD F. CARR ) JUDGE JOHN P. O’DONNELL
)
) CASE NO. CV 07 635329
Plaintiff, )
)
vs. )
)
ACACIA COUNTRY CLUB )
COMPANY, et al. )
)
Cuyahoga County Common Pleas Court Journal Entry dated April 1, 2011, is included in
3
the appendix to this opinion. We have edited the trial court’s opinion for the sole purpose of
correcting any obvious typographical errors and including paragraph numbers. In all other respects,
the trial court’s opinion remains in its original form.
Defendants. )
LEONARD F. CARR )
) CASE NO. CV 09 682363
)
Plaintiff, )
)
vs. )
)
ACACIA COUNTRY CLUB )
COMPANY, et al. )
)
Defendants. ) JOURNAL ENTRY
John P. O’Donnell, J.:
STATEMENT OF THE CASE
CASE NO. CV 07 635329
{¶8} This lawsuit began with a complaint by Leonard F. Carr against, among others, the
Acacia Country Club Company1 and the Acacia Development Company, LLC.2 Carr’s claims
were decided by summary judgment, but ADC’s cross-claims against Acacia remain pending.
{¶9} ADC and Acacia have each now moved for summary judgment on ADC’s claims.
CASE NO. CV 09 682363
{¶10} Leonard F. Carr filed this case against Acacia and its directors. His claims were
decided in the defendants’ favor by summary judgment, but ADC intervened in the lawsuit and
its intervenor’s cross-claim against Acacia is pending. ADC and Acacia have separately moved
for summary judgment on the intervenor’s cross-claim.
{¶11} Although the cases have not been consolidated, in deciding the pending motions
for summary judgment the court has considered all relevant briefs and evidentiary materials filed
in each case.
Referred to throughout this entry as Acacia.
1
ACACIA DEVELOPMENT COMPANY, LLC’S CLAIMS
CASE NO. CV 07 635329
{¶12} ADC’s affirmative claims against Acacia in case number 635329 were asserted as a
cross-claim filed January 31, 2008.3 Included in that cross-claim are causes of action for:
· Count One – Breach of Contract
· Count Two – Breach of Joint Venture Agreement
· Count Three – Negligence and Negligent Misrepresentation
· Count Four – Rescission
· Count Five – Unjust Enrichment
· Count Six – Equitable Estoppel
· Count Seven – Declaratory Judgment
{¶13} Summary judgment in Acacia’s favor on the claim for breach of a joint venture
agreement was granted.4 The other six causes of action are still pending.
CASE NO. CV 09 682363
{¶14} ADC’s affirmative claim against Acacia in case number 682363 is set forth as a
cross-claim filed March 24, 2009.5 That pleading sets forth a cause of action for declaratory
judgment. ADC seeks a declaration of the parties’ rights and obligations under a first amended
and restated purchase agreement and easement covering the sale of some of Acacia’s land to
ADC.
STATEMENT OF FACTS
Case Number CV 07 635329 Pleadings
{¶15} On August 19, 2005, Acacia and ADC signed a contract where ADC agreed to buy
about 18 acres of Acacia’s land for $4,000,000 and Acacia agreed to grant certain easements on
Referred to throughout this entry as ADC.
2
Defendant Acacia Development Company, LLC’s amended answer to first amended verified
3
complaint, counterclaim, and cross-claim, pages 18-37.
See journal entry of 02/08/2010.
4
its remaining property to ADC. ADC intended to use the land for a housing development and
began to improve the land and seek out buyers, eventually getting 17 lot reservations and several
deposits for purchase.
{¶16} Around the same time, Carr — a member and shareholder of Acacia — brought
an unsolicited offer from a buyer to purchase all of Acacia for $22,000,000. Acacia’s
membership rejected that offer, but ADC alleges that the uncertainty it created about Acacia’s
future killed the momentum of ADC’s development because part of the development’s attraction
was proximity and access to Acacia’s golf course.
{¶17} Then, in September 2007, Carr filed case number 635329 as a shareholders’
derivative lawsuit against the company’s directors individually pursuant to Rule 23.1 of the Ohio
Rules of Civil Procedure. The complaint alleged, among other things, that Acacia, in entering
into the contract with ADC, exceeded the authority granted by its shareholders in a July 2003
resolution because that resolution approved the sale of no more than 16 acres for a net of not less
than $4,000,000 and did not give Acacia the authority to encumber its remaining real estate with
a scenic easement. Based on Carr’s allegations, ADC claims that Acacia did not have authority
to enter into the contract. ADC seeks to rescind the contract and recover damages.
The Acacia Country Club
{¶18} The Acacia Country Club Company is a golf country club at 26899 Cedar Road in
Lyndhurst. It has been in operation since 1921. Acacia is formed as an Ohio non-profit
corporation and is governed by a code of regulations. The code of regulations includes the
following provisions relevant to these cases:
CODE OF REGULATIONS
Intervenor’s answer and cross-claim, pages 6-9.
5
ACACIA COUNTRY CLUB COMPANY
***
ARTICLE I
***
Section 3. NOTICE: A written or printed notice of . . . any special
meeting of shareholders, stating the time and place and objects and purposes
thereof, shall be mailed to each shareholder . . . at least twenty (20) days before
any meeting . . .
***
Section 6. VOTING BY PROXY: Any shareholder entitled to a vote at a
meeting of the shareholders may . . . vote . . . by proxy . . . submitted to the
Secretary at or before such meeting. The shareholder may indicate upon such
proxy how their vote shall be cast . . . upon any question before the meeting.
***
ARTICLE II
DIRECTORS
***
Section 2. POWERS: The Board of Directors shall have entire control
and management of the affairs and property of the company, subject to such
orders and resolutions as may from time to time be adopted by the shareholders . .
. The Board of Directors shall have the power to sell or trade minor portions of the
company property when such sale or trade shall benefit the use of the company.
***
The Board shall control . . . Purchasing and/or the awarding of contracts . .
.
The Board of Directors shall not have power to mortgage or voluntarily
encumber any real property owned by the company unless such action shall have
been approved by the majority of shares outstanding.
***
The code of regulations is otherwise silent about the authority of the board to sell the
company’s property.
Most of the country club’s members are also shareholders of the corporation. After
eight decades of existence, the club’s membership had decreased and its facilities, particularly
the clubhouse, were outdated. The board of directors considered selling Acacia’s assets as a
solution to the company’s decline. However, the shareholders rejected two offers by Carr clients
to buy the assets.
{¶19} Then, in May 2003, the board of directors decided to tear down the old clubhouse
and build a new one. To finance the new construction the board recommended selling some
land and mortgaging the rest as collateral for a loan. The board, on May 22, 2003, resolved that:
RESOLUTION
***
Whereas, the Members of Acacia have expressed their wish to preserve a long
tradition of friendly association in a private social club setting, and
Whereas, . . . upgraded facilities are needed to serve the needs of existing
Members as well as attract new Members, and
***
Now Therefore: The Board of Directors unanimously recommends that Acacia
Members vote in favor of the Resolution to proceed with the sale of 16 acres of
land and the construction of new clubhouse facilities as set forth in the Resolution
before the Acacia Shareholders.
{¶20} The exact dimensions of the land to be sold were not surveyed before the resolution
was put to a vote by the shareholders. The shareholder meeting to vote on the resolution was
held on July 1, 2003. The members approved the following resolution:6
Some copies of the resolution and proxy refer to the sale of “16 acres of land” and other
6
SHAREHOLDER RESOLUTION
. . . the Board of Directors of the Company and the officers of the Company are
hereby authorized and directed to execute and deliver agreements and to take all
other action required to implement the following:
The design and construction of a new clubhouse containing
approximately 28,000 square feet to be located to the immediate
east of the existing clubhouse at a total cost of Acacia not to
exceed $8,000,000;
To sell 16 acres of land located in the northeast section of the
Acacia property as depicted on Exhibit B attached hereto and made
a part hereof for a price of not less than $4,000,000, which
proceeds shall be applied to the cost of designing and constructing
the new clubhouse;
To place a mortgage on the Acacia real estate in an amount not to
exceed $4,000,000 with an amortization schedule and interest rate
and balloon payment date as favorable as possible to Acacia to be
repaid by a monthly assessment of the existing and new Acacia
members and from the initiation fees paid by new members; the
proceeds of the mortgage shall be used to pay for the design and
construction of the new clubhouse.
{¶21} After getting this approval, the board continued negotiations to sell the land to
developer Donald L. Barr & Co. During these negotiations it became apparent that a scenic
easement, or “buffer zone,” would have to be made on the golf course property between the
course and the development. Ultimately, Barr & Co. did not buy the land and Joseph Aveni’s
company, ADC, became the buyer.
Acacia’s Sale of Land to ADC
{¶22} Joseph T. Aveni is a real estate developer and a member and former director of
Acacia. He is an officer of Acacia Development Company, LLC. On August 19, 2005, he
copies of the resolution and ballot refer to “approximately 16 acres of land.” Because the exact
language approved is uncertain, the court, on summary judgment, will assume that the version
actually voted on is the one most favorable to the party claiming the resolution was ineffective, i.e. the
version referring to “16 acres of land.”
executed on behalf of ADC the first amended and restated agreement of purchase and sale of
17.9897 acres of Acacia’s land. That contract provides:
FIRST AMENDED AND RESTATED AGREEMENT
OF PURCHASE AND SALE
***
Section 1 – The Property
Seller agrees . . . to sell and convey to Purchaser, and Purchaser agrees to
purchase and acquire from Seller . . .
A. the real property located in the City of Lyndhurst, County of Cuyahoga,
and State of Ohio, consisting of 17.9897 acres . . .
B. the Property shall also include the following easements . . .
i. an easement over a portion of Seller’s property near the
17th tee . . .for off-site drainage . . .
ii. the Scenic Easement (as defined in Section 6(G) below), subject to
the terms of Section 6(G) below.
***
Section 2 – Purchase Price
The purchase price to be paid by Purchaser to Seller for the Property is
Four Million and 00/100 Dollars ($4,000,000.00) . . .
***
Section 3 – Title
A. Seller shall convey good and marketable, indefeasible fee simple
title to the Property to Purchaser . . . free and clear of all defects,
encumbrances, mortgages, reservations, liens, and clouds on title
except . . . permitted exceptions . . .
***
I. Notwithstanding any provision herein to the contrary, if any of the
obligations imposed on Seller by this Agreement require
resubmission to Seller’s members for approval (e.g. reducing the
net sales proceeds to Seller below $4,000,000), such approval shall
be a condition to Seller’s obligations hereunder. Purchaser
acknowledges and agrees that the current approval of Seller’s
shareholders and board of directors to enter into this transaction is
expressly conditioned upon Seller receiving net proceeds of not
less than $4,000,000 from the sale after all expenses of any kind.
***
Section 8 – Seller’s Representations and Warranties
Seller represents, warrants and covenants to Purchaser as follows:
A. Seller is a corporation duly organized and validly existing under
the laws of the State of Ohio. Seller and the party signing this
Agreement on its behalf have full power, authority and legal rights
to enter into this Agreement;
***
C. The execution and delivery of this Agreement and performance
thereunder by the Seller will not conflict with or result in a
violation of, or breach of. . . any. . . other agreement or instrument
to which Seller is a party.
***
{¶23} ADC paid the four million dollars and Acacia transferred title to the property by a
deed executed on August 19 and recorded on August 22, 2005. The caption of the legal
description attached as an exhibit to the deed describes the property as being “a 17.9919 acre
parcel.” Acacia used the money from the sale to build the new clubhouse and ADC began to
develop its property.
{¶24} Two years later, on September 11, 2007, Carr filed the complaint in case number
635329. The primary defendants in 635329 were Acacia’s individual directors. The gist of
Carr’s claims is that the directors: 1) exceeded their authority under the resolution authorizing the
sale of “16 acres” of land by selling 17.9897 acres; 2) violated the prohibition in the code of
regulations against encumbering land without shareholder approval by granting ADC a scenic
easement; and 3) exceeded their authority under the resolution by approving a sale that netted
Acacia less than $4,000,000. The lawsuit included Joseph Aveni as an individual defendant on
claims of fraud (for not disclosing to Acacia’s members details of the land sale) and civil
conspiracy. Carr also named Acacia Development Company, LLC as a defendant — for reasons
that are still inscrutable — precipitating ADC’s seven-count cross-claim against Acacia.
ADC’s claims in 635329
Cross-claim count one: Breach of Contract
{¶25} By the first count of its cross-claim, ADC claims that Acacia, by selling 17.9897
acres when the shareholder resolution authorized the sale of only 16 acres, breached the
contract’s representations that Acacia had authority to sell the land and grant the easements.
Cross-claim count three7: Negligence and Negligent Misrepresentations
and
Cross-claim count six: Equitable Estoppel
{¶26} ADC claims that Acacia negligently (count three) or misleadingly (count six)
represented that it had the authorization of its shareholders to sell the property and grant the
easements when it did not, and that ADC relied on that representation to its detriment in the
amount of the money paid for the land and additional money spent to develop the project.
Cross-claim count four: Rescission
{¶27} Like the other cross-claims, the claim for rescission is based on the assertion that
Acacia never had the shareholders’ authority to enter into the contract in the first place. This
claim alleges alternatively that the contract should be rescinded because either both ADC and
Acacia were mistaken, or Acacia only was mistaken, about whether Acacia had shareholder
Count two of the cross-claim — breach of joint venture agreement — is no longer pending.
7
See footnote 4.
authority to sell the property. Like the other counts, the mistake claims are based on the alleged
violation of the shareholder resolution.
Cross-claim count five: Unjust Enrichment
{¶28} Here ADC claims that Acacia never transferred the land because it didn’t have the
authority to do so, and that ADC has conferred a benefit on Acacia by spending over $10 million
to improve land that actually belongs to Acacia.
Cross-claim count seven: Declaratory Judgment
{¶29} In its last cross-claim ADC seeks a declaration of the rights and obligations of the
parties to the real estate purchase agreement. ADC has detailed at page 2 of its November 18,
2009 motion for summary judgment the declaratory relief it seeks as follows: that Acacia did not
have authority to enter into the purchase agreement, grant the easements, and grant the property
by deed; that Acacia did not execute the contract, the easement or the deed according to its code
of regulations; that Acacia did not deliver marketable title to ADC; that Acacia did not deliver
the easements to ADC; that ADC effectively rescinded the deal; and that Acacia’s January 2009
ratification was invalid.
Acacia’s shareholder ratification
{¶30} Because Carr’s and ADC’s claims in case number 635329 were all grounded in the
allegation that Acacia’s board exceeded the shareholders’ authority under the resolution for the
sale of 16 acres, with no explicit mention of the scenic and other easements, a subsequent board
scheduled a shareholder vote to ratify the purchase and easement agreements. The shareholders
were notified of the proposed resolution by a notice dated December 29, 2008, and a vote was
taken on January 28, 2009. The resolution provided, in pertinent part, that the shareholders:
“hereby ratify and approve all of the actions of . . .the Board of Directors .
. .relative to the negotiation, sale and transfer of approximately 17.9919 acres of
land” and “the terms and conditions set forth in the First Amended and Restated
Purchase and Sale Agreement and Easement Agreement dated August 19, 2005,
granting the scenic easement/buffer zone in favor of Acacia Development
Company, Ltd.”
{¶31} The resolution passed with the approval of 81% of the outstanding shares of record
entitled to vote.
LAW AND ANALYSIS
{¶32} All of ADC’s claims in both cases are premised on the claim that because the board
of directors did not comply with the corporate code of regulations, Acacia never had authority to
enter into the contract, grant the land, and grant the easements. The court is considering these
claims first in the context of Acacia’s motions for summary judgment, so the evidence must be
construed most strongly in ADC’s favor.8 In connection with Acacia’s motion on ADC’s
claims, then, the court assumes, first, that the board needed, and did not have, explicit
shareholder approval to sell 17.9897 acres of land and to grant the scenic and other easements
and, second, that the instruments of transfer were not signed by both the board president and
secretary as required by Article III of Acacia’s code of regulations.
{¶33} Corporations in Ohio may purchase, sell or encumber property and may make
contracts.9 Sections 1702.10 and 1702.1110 of the Ohio Revised Code provide that a non-profit
corporation may adopt “regulations for the government of the corporation, the conduct of its
affairs, and the management of its property, consistent with law” and the articles of
See Rule 56(C) of the Ohio Rules of Civil Procedure.
8
R.C. 1702.12(F) pertaining to non-profits and 1701.13(F) pertaining to for-profit
9
corporations.
All the parties agree that Acacia is a non-profit corporation, hence the references in this
01
entry to Chapter 1702. However, even if the general corporation law of Chapter 1701 applies to
incorporation. If regulations are adopted, they may include provisions with respect to “defining,
limiting, or regulating the exercise of the authority of the corporation, the directors, the officers,
the members, or any class of members.” Acacia did adopt a code of regulations, the relevant
provisions of which are excerpted above and which arguably prescribed shareholder approval as
the condition necessary before the company could exercise its statutory authority to sell or
encumber land.11
{¶34} But Acacia’s failure to abide by those regulations does not create a cause of action
in favor of ADC, or in Acacia’s favor against ADC. A corporation’s code of regulations
establishes the procedural rules that govern the relationships among the corporate shareholders,
directors and officers. Shareholders delegate the management of the company to a board of
directors but may reserve control over certain executive decisions through the code of
regulations. The regulations have the force of contracts between the corporation and its
shareholders.12 As such, only an aggrieved shareholder — either derivatively or individually,
depending on the injury — may base a cause of action against the directors on a violation of the
code of regulations, but a non-shareholder, like ADC, who is not bound by13 the code of
regulations cannot enforce them against the corporation, and Acacia cannot enforce them against
Acacia, its provisions are substantially the same.
The code of regulations, as excerpted above, provides that the board may “sell or trade
11
minor portions of the company property” but is silent on whether a shareholder resolution is required
to do so. However, the code also provides that the board “shall not have power to mortgage or
voluntarily encumber any real property” without specific shareholder approval. Because a sale is not
the same as an encumbrance (see footnote 22 below), and because the regulations are silent about the
need for shareholder approval of the sale of real property, a question of fact exists about whether
Acacia ever needed a shareholder resolution to sell the land. Nevertheless, in considering Acacia’s
motion for summary judgment the court will assume shareholder approval of a land sale is required.
Knight v. Shutz (1943), 141 Ohio St. 267, at syllabus 8.
21
Or even aware of the code of regulations. See R.C. 1702.11(F): No person dealing with
31
a third-party like ADC. Toward that end, §1702.12(I)14 of the Revised Code limits the classes of
litigants who have standing to claim that a corporation exceeded its authority:
No lack of, or limitation upon, the authority of a corporation shall be
asserted in any action except as follows:
(a) By the state in an action by it against the corporation;
(b) By or on behalf of the corporation against a director, an officer, or a
member as such;
(c) By a member as such or by or on behalf of the members against the
corporation, a director, an officer, or a member as such.
{¶35} So, while Carr, as a shareholder, had standing to assert a claim for damages against
Acacia’s directors for having sold and encumbered the real estate without proper shareholder
approval, ADC, a non-shareholder, could not make that same claim because ADC is not a party
to the code of regulations. At the same time, if for some reason either Acacia or its shareholders
wanted to avoid Acacia’s obligations under the contract with ADC they could not do so based on
a claim of lack of shareholder authorization under the code of regulations. The notion of
allowing the shareholders to attack the directors for their failure to abide by the code of
regulations is consistent not only with the regulations being a contract between the board and the
shareholder, but also with the stockholders entrusting the management of the corporation’s
affairs to the board of directors. On one hand, no corporation could be managed if every
decision had to be submitted to the shareholders for approval. On the other hand, no third party
would contract with a corporation without assurance that the corporation couldn’t purposely
forgo shareholder approval to enter into a voidable contract.
the corporation shall be charged with constructive notice of the regulations.
1701.13(H) if Acacia is not non-profit.
41
{¶36} Where the directors don’t follow the code of regulations when entering into a
contract they might have to answer to the shareholders, but neither the corporation nor the other
contracting party can negate the contract on the same grounds.
{¶37} Since Acacia’s breach of the code of regulations cannot itself form the basis for a
cause of action in favor of Acacia Development Co., LLC, ADC asserts that Acacia breached its
warranty in the contract that it had “full power, authority and legal right to enter into” the
contract. The elements ADC must prove on a breach of contract claim are (1) the existence of a
contract, (2) that ADC fulfilled its obligations, (3) that Acacia failed to fulfill its obligations, and
(4) that damages resulted from Acacia’s failure.15 ADC’s ability to recover on this claim
depends first on what the parties intended by including Acacia’s representation that it had the
authority to enter into the contract.
{¶38} The interpretation of a written contract is a matter of law for the court.16 Courts
presume that the parties expressed their intentions in the language they chose to employ in the
contract.17 If a contract is clear and unambiguous, there is no issue of fact to be determined.18
The context of a particular provision may also be considered when deciding its meaning. In this
case, the representation at issue appears in a separate section captioned “Seller’s Representations
and Warranties.” The section has three paragraphs, labeled A, B, and C. Paragraph A contains
the representation that the seller, Acacia, “is a corporation duly organized and validly existing
under the laws of the State of Ohio” and that Acacia “and the party signing this agreement” on
See, e.g., Lawrence v. Lorain Cty. Community College (1998), 127 Ohio App. 3d 546,
51
548-49.
Alexander v. Buckeye Pipeline Co. (1978), 53 Ohio St.3d 241, syllabus at ¶ 1.
61
Kelly v. Med. Life Ins. Co. (1987), 31 Ohio St.3d 130, at syllabus 1.
71
Inland Refuse Transfer Co. v. Browning-Ferris Ind. of Ohio, Inc. (1984), 15 Ohio St.3d
81321, 322.
Acacia’s behalf (the board president) “have full power, authority and legal right to enter into this
Agreement.” Paragraph C includes the representation that by entering into the contract Acacia
will not be violating any “other agreement” to which it is a party.
{¶39} “Full power, authority and legal right” is the kind of ungainly language that
frustrates courts.19 Did the parties choose this language because they meant three different
things by “full power,” “authority” and “legal right?” Or, like “free and clear” in Kohlbrand, is
it flaccid writing of the sort endemic to legal documents? Given that the contract is more than
15 single-spaced pages, it seems improbable that the parties chose these three terms with
particular care to encompass three different concepts; more likely is that it is form language that
has found its way into one contract after the next over many years. Yet, this provision cannot be
said to unambiguously include or exclude a representation by Acacia that it had authority under
its code of regulations to sell the property and grant the easements. In Acacia’s favor,
shareholder authority to enter into the contract is never explicitly mentioned, and there is no
express language that the contract will not be made in violation of Acacia’s code of regulations.
These omissions suggest that ADC was only concerned with Acacia being a corporation in good
standing and that it had not otherwise encumbered the property. However, the representations
See, for example, Kohlbrand v. Ranieri, 159 Ohio App. 3d 140, 2005-Ohio-295, ¶¶ 15-17,
91
where the court offered the following on the subject of a contract that used the term “free and clear”:
Free and clear mean the same thing. Using both is an unnecessary lawyerism. Free is English;
clear is from the Old French cler. After the Norman Conquest, English courts were held in French.
The Normans were originally Vikings, but after they conquered the region of Normandy, they became
French; then they took over England. But most people in England, surprisingly enough, still spoke
English. So lawyers started using two words for one and forgot to stop for the last 900 years.
So free and clear do not mean separate things; they mean, and were always meant to mean,
exactly the same thing. Just as null and void and due and payable mean the same thing. All of these
couplets are redundant and irritating lawyerisms. And they invite just what has happened here — an
assertion that they somehow have different meanings.
that Acacia had “authority” and was not breaching any “other agreement” can be read to include
a promise that it had satisfied its code of regulations — i.e., Acacia’s agreement with its
shareholders that it would get their authority through a resolution before selling or encumbering
land. The court must indulge, on a motion for summary judgment, a construction that favors
ADC and there is therefore an issue of fact about what the parties intended by including this
language in the contract. Because of that, and assuming for now, and for the purpose of
considering summary judgment, that Acacia did not properly obtain shareholder approval, then
there is necessarily an issue of fact about whether Acacia breached the contract.
{¶40} That leaves for consideration only the question of whether Acacia’s breach
proximately caused damage to ADC. Proximate cause includes a failure to act — in this case,
the failure to obtain shareholder approval of the property sale and easements — which directly
produces the damage and without which it would not have occurred. The damage claimed by
ADC is a cloud on the title that made it unmarketable. While acknowledging that proximate
cause is ordinarily a question of fact for a jury to decide,20 there is no evidence here that a cloud
on the title ever existed and, even if it did, it was not caused by Acacia’s failure to abide by the
code of regulations but by Carr’s conduct, including his lawsuit.
{¶41} At Section 3 of the contract, Acacia agreed to “convey good and marketable,
indefeasible fee simple title” to the property “free and clear” of “encumbrances” and “clouds on
title” except for six permitted exceptions, none of which are relevant here. The Ohio Supreme
The Norman Conquest was in 1066. We can safely eliminate the couplets now.
See, e.g., Strother v. Hutchinson (1981), 67 Ohio St.2d 282, 288.
02
Court has described marketable title as that which “imports such ownership as insures to the
owner the peaceable enjoyment and control of the land as against all others.”21 Furthermore:
It has also been defined as one which is sufficient to support or defend an
action of ejectment. It should show a full and perfect right of possession in the
vendor. It should appear reasonably certain that the title will not be called in
question in the future, so as to subject the purchaser to the hazard of litigation
with reference thereto. It must in any event embrace the entire estate or interest
sold, and that free from the lien of all burdens, charges, or incumbrances which
present doubtful questions of law or fact.22
{¶42} Marketable in this context does not mean the same thing as salable, as ADC and its
expert witnesses argue. Instead, marketable means the title to the property is not subject to a
claim that could result in the property holder being dispossessed. Even though the notoriety of
Carr’s lawsuit may have made it difficult to find buyers for the property, i.e., less salable, the
lawsuit is not a claim to the property’s title. There is no evidence in this case that Acacia
possessed and conveyed anything other than a marketable title. Acacia had “a full and perfect
right of possession” of the property it sold, and there are no encumbrances23 on the title other
than the listed exceptions.
{¶43} Acacia is a corporation with the power to sell its own real estate. Once the
contract was performed, Acacia and ADC were bound, despite whether Acacia failed to follow
its own code of regulations. That failure may have subjected Acacia to Carr’s lawsuit, but it did
not encumber the real property because title had transferred well before the suit, so the litigation
McCarty v.Lingham (1924), 111 Ohio St. 551, 553.
12
Id., at 558. Emphasis in italics added.
22
An encumbrance means “[a]ny right to, or interest in, land which may subsist in another to
32
diminution of its value, but consistent with the passing of the fee by conveyance. * * * A claim, lien,
charge, or liability attached to and binding real property; e.g. a mortgage; judgment lien; mechanics
lien; lease; security interest; easement or right of way; accrued and unpaid taxes. If the liability relates
to a particular asset, the asset is encumbered.” Dietl v. Sipka, 185 Ohio App.3d 218,
was never a “hazard” with reference to ADC’s title. The lawsuit sought money damages only
and, for whatever its deficiencies, correctly never sought the restitution to Acacia of the real
property or a declaration that the real estate transfer and easements were invalid as a matter of
law because those remedies were never available in a shareholders’ derivative suit once the deed
and money were exchanged. Title passed when ADC paid the contract price. Carr and the
other shareholders’ only remedy after that for the alleged violation of the code of regulations and
breach of fiduciary duty was a derivative claim on behalf of the corporation for money damages
against the directors for impairing the value of the company. There were no circumstances
under which Carr’s suit could have dispossessed ADC of the property. This is true even though
ADC was named as a defendant.24 At the very worst, the lawsuit represented a potential future
judgment lien against ADC that, if not satisfied, would encumber its own title, but it certainly
never interfered with ADC’s “full and perfect right of possession.”
{¶44} Nor did Acacia’s alleged lack of shareholder authority constitute a cloud on the
title. Like “marketable,” the term “cloud on title” has a specific legal meaning and that meaning
doesn’t encompass ADC’s practical difficulty in finding buyers once Carr made his allegations
and filed a lawsuit. A cloud on title has been defined as a title or encumbrance apparently valid,
but in truth invalid.25 ADC’s comparison to a married grantor passing title without releasing a
spouse’s dower rights is an example of a cloud on title — because dower is an interest in land —
but is not analogous to what happened here since the shareholders never had an interest in the
2009-Ohio-6225, at ¶ 14.
Even after repeated readings of the 10/09/2007 first amended verified complaint in case
42
number 635329, the court cannot discern any cause of action at all alleged against Acacia
Development Co., LLC, much less a claim that would have withstood a motion to dismiss.
Fortune Megatronics of Ohio, Inc. v. Risen (May 18, 1989), 10 Dist. App. No. 88AP-954,
52 ht
WL 1989 52952, unreported.
land. There is no question that Acacia’s conveyance of the property and easement were intra
vires vis-à-vis ADC and were thus valid even if they were done without a fully compliant
shareholder resolution according to Acacia’s code of regulations. As a corporation, Acacia had
the legal ability to own and convey real estate. As already discussed, any breach of the code of
regulations is actionable only by the shareholders against the corporation — not by ADC against
Acacia or Acacia against ADC — and would not invalidate the deeds. The transfer would be
invalid only if it were ultra vires in the truest sense: that is, a corporate act beyond the statutory
and charter powers of the corporation.26 But the notion of ultra vires acts by a corporation does
not encompass a corporation’s violation of its own regulations or bylaws.27
{¶45} Because Acacia transferred a marketable title with no clouds, ADC was not harmed
by any breach by Acacia of the contract warranty that it had specific shareholder authority to sell
the land and grant the easements, and summary judgment in Acacia’s favor is appropriate on
count one of ADC’s cross-claim in case number 635329.
{¶46} In count three of the cross-claim, ADC alleges that Acacia owed it a duty “to
investigate and fully, properly, and accurately represent its authority”28 to ADC, and that Acacia
negligently represented that it had the authority to enter into the transaction. This is essentially
the same claim for breach of contract in count one, and summary judgment is appropriate in
Acacia’s favor for all the reasons given above and the additional reason that it is not a tort to
breach a contractual duty.
Ohio Jurisprudence, Third Edition, Business Relationships, Section 313.
62
Id.72
Cross-claim, page 34, ¶ 97.
82
{¶47} Count four of the cross-claim is for rescission. Rescission is not a separate cause
of action, but an equitable remedy.29 ADC claims the right to this remedy because of Acacia’s
conduct in counts one and three of the cross-claim. Summary judgment has been granted on
those claims and a remedy for them is moot. ADC also claims the right to rescission because
either the parties to the land purchase agreement were mutually mistaken, or Acacia was
unilaterally mistaken, about whether Acacia had the legal right to enter into the contract. As
discussed above, Acacia had the legal right to enter into the contract, and the deeds granting the
land and the easements are unassailable by third parties (e.g., shareholders) even though, if Carr’s
allegations had merit, the directors might have to answer to the shareholders for selling and
encumbering the land without specific shareholder approval. As a result, there was no mistake
about Acacia’s legal right to perform under the contract and the remedy of rescission is moot.
{¶48} Count five of the cross-claim is for unjust enrichment. ADC claims that because
Acacia did not have shareholder approval it was “unable to make the conveyances of real
property”30 so that Acacia actually still owns the land and has been unjustly enriched by ADC’s
improvements to the land. Summary judgment in Acacia’s favor on this claim is appropriate for
the reason already decided above, namely that ADC has received good title to the property and
now owns the land, not Acacia.
{¶49} Count six of the cross-claim is captioned as a claim for equitable estoppel.
Equitable estoppel requires ADC to prove four elements: (1) that Acacia made a factual
misrepresentation, (2) that the misrepresentation was misleading, (3) that the misrepresentation
induced actual reliance, which was reasonable and in good faith, and (4) that ADC suffered
J.A. Industries, Inc. v. All Am. Plastics, Inc. (1999), 133 Ohio App.3d 76, 83.
92
Cross-claim, page 36, ¶ 112.
03
detriment due to the reliance.31 Summary judgment in Acacia’s favor is appropriate for the
same reasons as counts one and three of the cross-claim.
{¶50} Count seven of the cross-claim in case number 635329, and count one (the only
count) of ADC’s intervenor’s cross-claim in case number 682363, are for declaratory judgment.
In case number 635329, ADC simply asserts that “a controversy exists between the parties as to
the conveyances via the contract” and that “the parties are entitled to a declaration from the court
as to the meaning, effect and validity of the contract and the conveyances within the contract.”32
The cross-claim in case number 682363 is more expansive about the relief sought. There, ADC
alleged that Acacia never had the authority to convey the land or the easements and that the
January 2009 ratification had no effect because by then ADC had rescinded the transaction.
ADC asks that the court declare: a) that the real estate transactions and contracts between ADC
and Acacia have been breached; b) that the real estate transactions and contracts between ADC
and Acacia have been rescinded; and c) that the resolution and the purported ratification of the
real estate transactions and contracts are void.33
{¶51} The court has found that Acacia lawfully sold the land and granted the easements
to ADC even if it did so without strictly complying with its own code of regulations. The
evidence also shows that each party to the August 19, 2005 first amended and restated agreement
of purchase and sale has performed all of its other duties and obligations under the contract. No
genuine issue of material fact remains and summary judgment in Acacia’s favor on the claims for
declaratory judgment is appropriate. The court therefore declares: that the August 19, 2005
contract is enforceable; that each party has performed its duties and obligations under the
Currier v. Penn-Ohio Logistics, 186 Ohio App.3d 249, 2010-Ohio-195, ¶ 33.
13
Cross-claim, page 37, ¶¶ 122 and 123.
23
contract; that the limited warranty deed from Acacia Country Club to Acacia Development Co.,
Ltd., dated August 19, 2005 and first recorded as instrument number 2005 08 22 1094 in the
records of the Cuyahoga County Recorder transferred marketable, unclouded title to the property;
and that the easement agreement acknowledged August 19, 2005 and recorded as instrument
number 2005 10 20 0913 in the records of the Cuyahoga County Recorder is effective and
binding on the parties.
CONCLUSION
{¶52} For the reasons given, Acacia’s motions for summary judgment in case numbers
635329 and 682363 on Acacia Development Company, LLC’s cross-claims are granted, and
ADC’s motions for summary judgment against Acacia in those cases are denied.
{¶53} Summary judgment in the defendants’ favor on the complaint in case number
635329 was previously granted. That leaves Aveni’s and ADC’s counterclaims against Carr and
Aveni’s cross-claim against Acacia for indemnity (with intervenor Westfield’s stayed declaratory
judgment claim) as pending affirmative claims in 635329. No claims remain pending for
adjudication in 682363. Because all of the court’s decisions in 682363 are ripe for appeal, the
court finds as to both cases, and pursuant to Civil Rule 54(B), that there is no just cause for delay
in 635329 and 682363.
{¶54} IT IS SO ORDERED:
Date: [April 1, 2011]
JUDGE JOHN P. O’DONNELL
Intervenor’s cross-claim in 682363, page 9.
33