Merryweather Mgt., Inc. v. KNL Custom Homes, Inc.

[Cite as Merryweather Mgt., Inc. v. KNL Custom Homes, Inc., 2012-Ohio-2977.]
STATE OF OHIO ) IN THE COURT OF APPEALS
)ss: NINTH JUDICIAL DISTRICT
COUNTY OF SUMMIT )
MERRYWEATHER MANAGEMENT, C.A. No. 25971
INC., dba Merryweather Real Estate
Appellant
APPEAL FROM JUDGMENT
v. ENTERED IN THE
COURT OF COMMON PLEAS
KNL CUSTOM HOMES, INC., et al. COUNTY OF SUMMIT, OHIO
CASE No. CV 2011 01 0314
Appellees
DECISION AND JOURNAL ENTRY
Dated: June 29, 2012
CARR, Judge.
{¶1} Appellant, Merryweather Mgt. Inc., appeals the judgment of the Summit County
Court of Common Pleas which granted judgment on the pleadings to appellee, KNL Custom
Homes, Inc. This Court reverses.
I.
{¶2} This controversy arises out of KNL’s refusal to honor its referral agreement with
Merryweather, whereby KNL agreed to pay a 3% commission if it was able to enter into a
contract with Ali and Azam Eghbal for the construction of a house.
{¶3} On January 18, 2011, Merryweather filed a complaint against KNL in which it
asserted claims for breach of contract and promissory estoppel. After obtaining leave to plead,
KNL filed its answer on March 15, 2011. On March 25, 2011, KNL filed a motion for judgment
on the pleadings pursuant to Civ.R. 12(C). Merryweather filed a brief in opposition, and KNL
replied thereto.
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{¶4} On May 16, 2011, the trial court issued a journal entry granting KNL’s motion for
judgment on the pleadings and dismissing the complaint with prejudice. In granting the motion,
the trial court specifically found that Merryweather is a real estate broker as defined by R.C.
4735.01(A)(7); that the underlying transaction was illegal due to the fact that the parties’
“Building Referral Agreement” was deficient as to numerous requirements set forth R.C.
4735.55; and that Merryweather’s promissory estoppel claim also failed due to the failure to
comply with R.C. 4735.55.
{¶5} Merryweather filed a notice of appeal on June 9, 2011. On appeal, Merryweather
raises two assignments of error.
II.
ASSIGNMENT OF ERROR I
THE TRIAL COURT ERRED AS A MATTER OF LAW IN GRANTING
KNL’S MOTION FOR JUDGMENT ON THE PLEADINGS WITH RESPECT
TO MERRYWEATHER’S CLAIM FOR BREACH OF THE BUILDER
REFERRAL AGREEMENT.
{¶6} In its first assignment of error, Merryweather argues that the trial court erred in
granting KNL’s motion for judgment on the pleadings. This Court agrees.
{¶7} In support of its assignment of error, Merryweather argues that the trial court
erroneously concluded that its agreement with KNL, designated by the parties as a “Builder
Referral Agreement,” was an agency agreement subject to the requirements of R.C. 4735.55.
With respect to the specific terms of the agreement, Merryweather contends that it reached a
third party agreement with KNL where KNL would pay a 3% referral fee if it reached a contract
with Ali and Azam Eghbal for the construction of a house. Merryweather emphasizes that the
agreement did not involve the sale of any existing real estate, and that the Eghbals, who
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ultimately entered into a contract with KNL for the construction of a house, were not parties to
the referral agreement.
{¶8} Civ.R. 12(C) states, “After the pleadings are closed but within such time as not to
delay the trial, any party may move for judgment on the pleadings.” “Under Civ.R. 12(C),
dismissal is appropriate where a court (1) construes the material allegations in the complaint,
with all reasonable inferences to be drawn therefrom, in favor of the nonmoving party as true,
and (2) finds beyond doubt, that the plaintiff could prove no set of facts in support of his claim
that would entitle him to relief.” State ex rel. Midwest Pride IV, Inc. v. Pontious, 75 Ohio St. 3d
565, 570 (1996), citing Lin v. Gatehouse Constr. Co., 84 Ohio App. 3d 96, 99 (8th Dist.1992).
Thus, Civ.R. 12(C) requires a determination that there are no material factual issues and that the
movant is entitled to judgment as a matter of law. Pontious, 75 Ohio St. 3d at 570, citing
Burnside v. Leimbach, 71 Ohio App. 3d 399, 403 (10th Dist.1991). Thus, a reviewing court will
reverse judgment on the pleadings if the plaintiff can prove any set of facts that will entitle it to
relief. Gawloski v. Miller Brewing Co., 96 Ohio App. 3d 160, 163 (9th Dist.1994).
{¶9} Merryweather’s claims for breach of contract and promissory estoppel were
premised on its assertion that KNL had failed to pay an agreed upon referral fee after it entered
into a contract with the Eghbals for the construction of a house. In its motion for judgment on
the pleadings, KNL characterized the agreement as an “agency agreement” that was subject to
the requirements set forth in R.C. 4735.55. In regard to the contract claim, KNL argued the
agreement was unenforceable and void because it did not meet the requirements of R.C. 4735.55.
KNL further argued that Merryweather did not actually perform any services that would entitle it
to receive a commission. With respect to the equitable estoppel claim, KNL argued that
Merryweather, as a real estate entity, is charged with having knowledge of pertinent statutory
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authority, and should not be permitted to recover under a quasi-contract theory when it has acted
outside the scope of statutory authority. Finally, KNL argued that the entire complaint should be
dismissed because Ohio law only permits licensed real estate brokers to recover unpaid
commissions and Merryweather had failed to allege it was a licensed broker in its complaint.
{¶10} The trial court ultimately granted KNL’s motion for judgment on the pleadings on
May 16, 2011. In its judgment entry, the trial court emphasized that “[t]he very letterhead and
language of the Builder Referral Agreement identifie[d] [Merryweather] as being a broker in this
transaction.” The trial court found that “[Merryweather] was acting for [KNL] by procuring
‘customers’ to sign contracts with the ‘Builder’ for the construction of homes, which is an
improvement on the land.” The trial court concluded that, based on the language of the
agreement and the statutory definition of real estate broker, Merryweather was, in fact, a real
estate broker and the parties’ agreement was thereby subject to the requirements of R.C. 4735.55.
The trial court subsequently concluded that the agreement violated R.C. 4735.55 in that it did not
contain: (1) an expiration date; (2) a statement regarding prohibition of discrimination in real
estate transactions in accordance with the Ohio and federal fair housing law; (3) a statement
defining “blockbusting” and that it is illegal; and (4) a copy of the United States department of
housing and urban development equal housing opportunity logotype. In light of these
deficiencies, the trial court found the contract to be unenforceable under Ohio law and concluded
that KNL was entitled to judgment as a matter of law on the contract claim. With respect to the
promissory estoppel claim, the trial court concluded that because the underlying transaction was
“illegal” under Ohio law, the “underlying transaction [cannot] shed its illegal status and become
enforceable under a theory of promissory estoppel.”
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{¶11} The trial court’s judgment was premised on its conclusion that Merryweather was
acting as a “real estate broker” as defined by R.C. 4735.01(A)(7), which states:
“Real estate broker” includes any person, partnership, association, limited liability
company, limited liability partnership, or corporation, foreign or domestic, who
for another, whether pursuant to a power of attorney or otherwise, and who for a
fee, commission, or other valuable consideration, or with the intention, or in the
expectation, or upon the promise of receiving or collecting a fee, commission, or
other valuable consideration does any of the following:
(7) Directs or assists in the procuring of prospects or the negotiation of any
transaction, other than mortgage financing, which does or is calculated to result in
the sale, exchange, leasing, or renting of any real estate[.]
{¶12} Pursuant to R.C. 4735.01(B), “real estate” includes, “leaseholds as well as any
and every interest or estate in land situated in this state, whether corporeal or incorporeal,
whether freehold or nonfreehold, and the improvements on the land, but does not include
cemetery interment rights.”
{¶13} Pursuant to R.C. 4735.51(B), an “agency agreement” is defined as “a contract
between a licensee and a client in which the client promises to pay the broker a valuable
consideration, or agrees that the licensee may receive a valuable consideration from another, for
performing an act that requires a real estate license under this chapter.” An “agency
relationship” is a “relationship in which a licensee represents another person in a real estate
transaction.” R.C. 4735.51(A). A “licensee” is defined as “any individual licensed as a real
estate broker or salesperson by the Ohio real estate commission pursuant to this chapter.” R.C.
4735.51(J). A “client” is “a person who has entered into an agency relationship with a licensee.”
{¶14} Pursuant to R.C. 4735.55, each written agency agreement shall contain all of the
following:
(A)(1) An expiration date;
(2) A statement that it is illegal, pursuant to the Ohio fair housing law, division
(H) of section 4112.02 of the Revised Code, and the federal fair housing law, 42
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U.S.C.A. 3601, as amended, to refuse to sell, transfer, assign, rent, lease, sublease,
or finance housing accommodations, refuse to negotiate for the sale or rental of
housing accommodations, or otherwise deny or make unavailable housing
accommodations because of race, color, religion, sex, familial status as defined in
section 4112.01 of the Revised Code, ancestry, military status as defined in that
section, disability as defined in that section, or national origin or to so
discriminate in advertising the sale or rental of housing, in the financing of
housing, or in the provision of real estate brokerage services;
(3) A statement defining the practice known as “blockbusting” and stating that it
is illegal;
(4) A copy of the United States department of housing and urban development
equal housing opportunity logotype, as set forth in 24 C.F.R. 109.30, as amended.
(B) Each written agency agreement shall contain a place for the licensee and the
client to sign and date the agreement.
(C) A licensee shall furnish a copy of any written agency agreement to a client in
a timely manner after the licensee and the client have signed and dated it.
{¶15} This Court has stated “[Civ.R. 12(C)] provides only that the court may consider
the pleadings in rendering its judgment. All reasonable inferences must be made in favor of the
nonmoving party. Pinkerton v. Thompson, 174 Ohio App. 3d 229, 2007-Ohio-6546, ¶ 18 (9th
Dist.). Where the action is based upon an agreement which is written, then its terms govern the
rights and obligations of the parties.” Carolyn Riley & Assoc. Inc. v. Falb, 9th Dist. No 13083,
1987 WL 16987 (Sept. 16, 1987). A copy of the “Builder Referral Agreement” was attached to
and incorporated into the complaint pursuant to Civ.R. 10. The agreement was reduced to
writing on Merryweather’s stationary, which states in the heading that Merryweather is engaged
in multiple business endeavors, namely investment, development, management, and brokerage.
The agreement identifies Merryweather as “Broker,” Betty Wulf as “Agent,” KNL as “Builder,”
and Ali and Azam Eghbal as “Customer[s].” The agreement does not specify the entity to which
the Eghbals are a “Customer,” nor does it specify how the Eghbals first came to have a
relationship with either Merryweather or KNL. The agreement is also devoid of any reference to
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an existing piece of land. The substantive language of the agreement merely states that “Builder
agrees to pay a commission in the amount of 3% of contract price to Merryweather Real Estate
for providing services designed to facilitate a building contract between [the] above mentioned
Builder and Customer.” While the agreement was signed by representatives of both
Merryweather and KNL, it was not signed by the Eghbals.
{¶16} A review of the terms of the referral agreement reveals that judgment on the
pleadings was not appropriate in this case because questions of material fact exist in regard to the
nature of the relationship between Merryweather, KNL, and the Eghbals. The foremost question
is whether Merryweather was acting as a “real estate broker” as defined by R.C. 4735.01(A)(7)
when it entered into the referral agreement with KNL. While the referral agreement identifies
Merryweather as “broker” and references a prospective construction contract between KNL and
the Eghbals, it is unclear whether Merryweather and KNL entered into the referral agreement
with knowledge that it pertained a piece of “real estate” as defined by R.C. 4735.01(B). It is
further unclear whether Merryweather had an interest in the “sale, exchange, leasing, or renting”
of any real estate, as a real estate broker would pursuant to R.C. 4735.01(A)(7). Moreover, the
fact that KNL asserted in its answer that Merryweather “failed to provide any services in
furtherance of the [referral] agreement” suggests that there is a question of fact as to whether
Merryweather acted as a broker by directing or assisting in the procurement of clients on behalf
of KNL as contemplated by R.C. 4735.01(A)(7). Finally, there is a question of fact regarding the
extent to which the Eghbals were a party, if at all, to the referral agreement. The agency
agreement requirements set forth in R.C. 4735.55 are clearly designed to make a client in a real
estate transaction aware of various public policy considerations associated with the sale, transfer,
assignment, renting, leasing, subleasing, or financing of real estate. Here, it is unclear whether
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the referral agreement resulted in any party becoming a client whereby the public policy
safeguards set forth in R.C. 4735.55 would be relevant. Thus, as material questions of fact
remain as to the nature of the relationship between the parties identified in the referral
agreement, judgment on the pleadings was not proper in this case.
{¶17} Merryweather’s first assignment of error is sustained.
ASSIGNMENT OF ERROR II
THE TRIAL COURT ERRED AS A MATTER OF LAW IN GRANTING
KNL’S MOTION FOR JUDGMENT ON THE PLEADINGS WITH RESPECT
TO MERRYWEATHER’S CLAIM FOR PROMISSORY ESTOPPEL.
{¶18} In its second assignment of error, Merryweather argues that the trial court erred in
granting KNL’s motion for judgment on the pleadings with respect to its promissory estoppel
claim. Because our resolution of the first assignment of error is dispositive of this appeal, this
Court declines to address Merryweather’s second assignment of error as it is rendered moot. See
App.R. 12(A)(1)(c).
III.
{¶19} Merryweather’s first assignment of error is sustained. This Court declines to
address the second assignment of error as it is rendered moot. The judgment of the Summit
County Court of Common Pleas is reversed, and the cause remanded for further proceedings
consistent with this opinion.
Judgment reversed,
and cause remanded.
There were reasonable grounds for this appeal.
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We order that a special mandate issue out of this Court, directing the Court of Common
Pleas, County of Summit, State of Ohio, to carry this judgment into execution. A certified copy
of this journal entry shall constitute the mandate, pursuant to App.R. 27.
Immediately upon the filing hereof, this document shall constitute the journal entry of
judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the
period for review shall begin to run. App.R. 22(C). The Clerk of the Court of Appeals is
instructed to mail a notice of entry of this judgment to the parties and to make a notation of the
mailing in the docket, pursuant to App.R. 30.
Costs taxed to Appellees.
DONNA J. CARR
FOR THE COURT
MOORE, P. J.
CONCURS.
DICKINSON, J.
CONCURRING IN JUDGMENT ONLY.
{¶19} Section 4735.55(A) of the Ohio Revised Code only applies to written “agency
agreement[s],” which are defined in Section 4735.51(B) as “contract[s] between a licensee and a
client in which the client promises to pay the broker a valuable consideration, or agrees that the
licensee may receive a valuable consideration from another, for performing an act that requires a
real estate license under this chapter.” R.C. 4735.55(A); 4735.51(B). Unlike the definition of
“[r]eal estate broker,” which “includes any person, partnership, association, limited liability
company, limited liability partnership, or corporation, foreign or domestic” that engages in
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certain activities related to real estate, or the definition of “[b]rokerage,” which “means a
corporation, partnership, limited partnership, association, limited liability company, limited
liability partnership, or sole proprietorship issued a broker’s license,” the definition of “[c]lient”
is limited to “a person who has entered into an agency relationship with a licensee.” R.C.
4735.01(A); 4735.51(E), (F).
{¶20} The purpose of Section 4735.55 is to protect individuals who enter into agency
agreements with sophisticated real estate brokers. The section’s beneficiaries do not include
domestic corporations like the alleged “client” in this case, KNL Custom Homes Inc. But see
R.C. 1.59(C) (“As used in any statute, unless another definition is provided . . . ‘[p]erson’
includes an individual, corporation, business trust, estate, trust, partnership, and association.”).
Upon review of the relevant statutory provisions, I conclude that KNL Custom Homes was not a
“client” under Section 4735.51(F) and, therefore, Section 4735.55 did not apply to the builder
referral agreement. Accordingly, I agree that the trial court incorrectly granted judgment on the
pleadings to KNL Custom Homes.
APPEARANCES:
MARK W. BERNLOHR and SARAH B. BAKER, Attorneys at Law, for Appellant.
TODD A. HARPST, Attorney at Law, for Appellees.