STE Invests., L.L.C. v. Macprep, Ltd.

[Cite as STE Invests., L.L.C. v. Macprep, Ltd., 2022-Ohio-2614.]
IN THE COURT OF APPEALS OF OHIO
SIXTH APPELLATE DISTRICT
OTTAWA COUNTY
STE Investments, LLC, et al. Court of Appeals No. OT-21-036
Appellants Trial Court No. 21CV126
v.
Macprep, Ltd., et al. DECISION AND JUDGMENT
Appellees Decided: July 29, 2022
*****
David J. Horvath, for appellants.
D. Casey Talbott, Jared J. Lefevre, Nicholas W. Bartlett,
Howard B. Hershman, and Bruce S. Schoenberger, for appellees.
*****
OSOWIK, J.
{¶ 1} This is an appeal from a judgment by the Ottawa County Common Pleas
Court granting a motion to dismiss pursuant to Civ.R. 12(B)(6). For the reasons set forth
below, this court affirms the judgment of the trial court.
{¶ 2} Plaintiffs-appellants, STE Investments, LLC, Marilyn Taylor, and Sandy and
Bart Erwin (hereafter “appellants”) filed this appeal setting forth one assignment of error:
“The trial court committed reversible error in granting, in toto, the Appellees’ collective
Motion to Dismiss. [Appellants] sufficiently pled facts in support of each cause of action
which facts were more than adequate to sustain their pleading obligations under the Ohio
Civil Rules.”
I. Background
{¶ 3} On April 26, 2021, appellants filed a complaint against defendants-
appellees, Macprep, Ltd., Ohio Western Basin Management Group, Ltd., Maclaren
Management, Inc., Susan Gottschalk, Kenneth MacLaren, and R. Scott Prephan
(hereafter “appellees”) claiming four causes of action: conversion, civil theft, breach of
fiduciary duty, and an R.C. 2923.34 civil proceeding for a pattern of corrupt activity (also
referred to as civil racketeering).
{¶ 4} To support their four causes of action, appellants make 80 factual allegations
in their complaint, which are summarized below.
{¶ 5} On unknown dates, appellants purchased condominium units from Macprep,
Ltd., which, since 2008, is the owner and developer of the Island House Hotel
Condominium in Port Clinton, Ottawa County, Ohio. As condominium unit owners,
appellants are members of the Island House Hotel Condominium Association (hereafter
“IHHCA”). R. Scott Prephan is one of the owners of Macprep, Ltd. (hereafter
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“Macprep”), which owns more than two-thirds of the total condo units and “forty-nine
percent (49%) of the non-common square footage of the condominium property.” In
2016 Macprep, Ltd. hired Ohio Western Basin Management Group, Ltd. (hereafter “Ohio
Western”) for general condominium services, such as marketing, bookkeeping, rent
collection, and housekeeping, and also hired Maclaren Management, Inc. (hereafter
“Maclaren Management”) for day-to-day condominium operations. Susan Gottschalk is
the sole owner and principal of Ohio Western, and Kenneth MacLaren is either the sole
owner of, or “exercises complete dominion and control over, Maclaren Management.”
Macprep, Ohio Western, and Maclaren Management are under the sole and exclusive
control of their owners “so that said entity has no free will of its own,” and the owners
are personally liable for the damages caused by the business entities.
{¶ 6} Maclaren Management collected from appellants IHHCA assessments to be
exclusively used for the common area expenses allowed by law and the condominium
declarations and bylaws. “Despite owning approximately one-half of the non-common
areas (which assumes all other residential units were sold to parties other than Macprep)
Macprep maintained an obligation for common area expenses of only nine percent (9%)
of the total expenses.” (Emphasis sic.) These Macprep responsibilities were “passed off”
to appellants because the assessments paid were “pooled into the general expense
account.” Neither Maclaren Management nor Macprep ever caused IHHCA to open and
maintain a bank account independently from themselves.
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{¶ 7} Two questionable expenses “passed off” to appellants are flood insurance
and rental fees exclusively the responsibility of Macprep under its loan documents and
for the units it owns. While the amounts appellants paid in assessments and when they
paid them are not stated, the flood insurance has an “annual cost of approximately
$20,000.” Another questionable expense “passed off” to appellants is, “Ohio Western is
allegedly owed large sums of money. No explanation has been given for this account
payable.” There are “other inappropriate expenditures” appellees “passed off” to
appellants, such as “the payment of large credit card bills that are associated with one or
more the entity Defendants and not IHHCA.”
{¶ 8} In the winter of 2020, “without notice or significant discussion,” and at the
direction of Prephan, Gottschalk, and/or MacLaren, Maclaren Management “locked the
unit owners out of their condominiums by refusing them access to the building. The
front, rear, and other access doors to the building were locked effectively denying all of
the individual condominium unit owners’ access to their properties.” (Emphasis sic.)
{¶ 9} Appellees control the IHHCA board of directors. “That these directors
knowingly and without solicitation of offers entered into contracts for management of the
property, as identified above and otherwise, which were at all times known to them to be
related entities under their direct control and influence and which entities would profit off
of the various business affairs of the condominium.” Appellees “failed to keep adequate
records of their actions, including the collection of assessments, expenditures, voting,
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approval, and other minutes of meetings of the Trustees/Board Members for the IHHCA”
giving rise to the allegation they “put the interest of same above any interest they may
personally have in pecuniary benefit from the operation or ownership of condominium
units and any expenditures associated therewith.”
{¶ 10} Appellants prayed for compensatory, punitive and treble damages, in
addition to equitable relief and any other available relief granted by the trial court.
{¶ 11} On September 13, appellees filed a motion to dismiss for failure to state a
claim upon which relief can be granted pursuant to Civ.R. 12(B)(6). Appellees argued:
(1) conversion cannot lie for money or real property; (2) civil theft cannot prevail where
an action is really based on contract; (3) appellants lack standing to bring a fiduciary duty
claim; (4) appellants have failed to plead racketeering with particularity required by Ohio
law; and (5) that Maclaren Management should be dismissed as an improper party.
{¶ 12} On November 5, over appellants’ objections, the trial court granted
appellees’ motion to dismiss for each of the four causes of action, and appellants timely
appealed.
II. Motion to Dismiss for Failure to State a Claim
A. Standard of Review
{¶ 13} Civ.R. 12(B)(6) states, “Every defense, in law or fact, to a claim for relief
in any pleading * * * may at the option of the pleader be made by motion: * * * (6)
failure to state a claim upon which relief can be granted * * *.” Civ.R. 12(B)(6) motions
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test the sufficiency of the complaint, and any allegations or evidence outside the
complaint must be excluded from the analysis. Volbers-Klarich v. Middletown Mgt., Inc.,
125 Ohio St.3d 494, 2010-Ohio-2057, 929 N.E.2d 434, ¶ 11.
{¶ 14} We review de novo a trial court’s decision on a Civ.R. 12(B)(6) motion to
dismiss by accepting as true all factual allegations in the complaint. Alford v. Collins-
McGregor Operating Co., 152 Ohio St.3d 303, 2018-Ohio-8, 95 N.E.3d 382, ¶ 10.
“‘[T]hose allegations and any reasonable inferences drawn from them must be construed
in the nonmoving party’s favor.’ To grant the motion, ‘it must appear beyond doubt that
the plaintiff can prove no set of facts in support of the claim that would entitle the
plaintiff to the relief sought.’” (Citations omitted.) Id. “The focus is strictly upon the
complaint, as factual findings are never required.” Firstar Bank, N.A. v. Prestige Motors,
Inc., 6th Dist. Huron No. H-04-037, 2005-Ohio-4432, ¶ 7. We are mindful that while we
are to assume the facts alleged in the complaint are true, we do not assume the legal
conclusions alleged to be drawn from those facts are also true and disregard any
unsupported conclusions included among the facts alleged in the complaint. O’Loughlin
v. Ottawa St. Condominium Assn., 6th Dist. Lucas No. L-16-1128, 2018-Ohio-327, ¶ 22.
{¶ 15} We recognize that Ohio’s notice pleading requirements under Civ.R. 8(A)
may be sufficient to defeat a Civ.R. 12(B)(6) motion so long as the plaintiff alleges a set
of facts that would support the causes of action set forth in the complaint. Skaff v.
Khutorsky, 6th Dist. Lucas No. L-15-1249, 2016-Ohio-4903, ¶ 13. Civ.R. 8(A) requires a
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short and plain statement of the claim showing that the pleader is entitled to relief, and a
demand for judgment for the relief to which the pleader deems entitled. State ex rel.
Hanson v. Guernsey Cty. Bd. of Commrs., 65 Ohio St.3d 545, 549, 605 N.E.2d 378(1992). The foregoing pleading requirements are further explained in the 1970 Staff Note
to Civ.R. 8(A):
A note of caution to the pleader should be added. Simplified
pleading under Rule 8 does not mean that the pleader may ignore the
operative grounds underlying a claim for relief. Thus, a pleading which
might read “Plaintiff says that defendant owes plaintiff $1,000.00.
Wherefore plaintiff demands judgment against defendant in the sum of
$1,000.00 and costs,” would be subject to a motion to dismiss for failure to
state a claim for relief. Does such pleading sound in contract? Tort? What
are the operative grounds underlying the claim? In other words, under Rule
8(A) the pleader has failed to state “a short and plain statement of the claim
showing that the pleader is entitled to relief.”
See Deutsche Bank Natl. Tr. Co. v. Moore, 6th Dist. Erie No. E-11-081, 2012-Ohio-5549,
¶ 6; see also Peters v. Child Study Institute, 6th Dist. Lucas No. L-80-16, 1980 WL
351351, *4 (June 20, 1980). Where a complaint fails to state the requisite underlying
operative grounds, or merely recites the elements of a cause of action, we will not supply
the deficiency to prevent dismissal under Civ.R. 12(B)(6). Moore at ¶ 6. The foregoing
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parameters do not invoke the prohibition of a court granting a Civ.R. 12(B)(6) motion
merely because it doubts the plaintiff will prevail. See Riveredge Dentistry Partnership
v. Cleveland, 8th Dist. Cuyahoga No. 110275, 2021-Ohio-3817, ¶ 20.
{¶ 16} The trial court’s judgment did not specify whether dismissal was with or
without prejudice, and we will follow precedent that such dismissal is without prejudice
in light of that silence. Deutsche Bank Natl. Tr. Co. v. Edington, 4th Dist. Scioto No.
13CA3534, 2014-Ohio-1769, ¶ 11. “A trial court’s grant of Civ.R. 12(B)(6) dismissal is
without prejudice except in those cases where the claim cannot be plead in any other
way.” Krohn v. Ostafi, 6th Dist. Lucas No. L-19-1002, 2020-Ohio-1536, ¶ 12. A
dismissal without prejudice generally constitutes an adjudication otherwise than on the
merits, and res judicata does not bar refiling the suit because the parties are placed in the
same position they were before the suit was filed, unless there is nothing left for the trial
court to determine. U.S. Bank, N.A. v. Coffey, 6th Dist. Erie No. E-11-026, 2012-Ohio-
721, ¶ 9.
B. Standing
{¶ 17} Appellees challenge appellants’ standing to bring suit, which is a proper
issue raised by a Civ.R. 12(B)(6) motion. U.S. Bank, N.A. v. Coffey, 6th Dist. Erie No. E-
11-026, 2012-Ohio-721, ¶ 13; Universal Acceptance Corp. v. Colbert, 2019-Ohio-4377,
147 N.E.3d 1212, ¶ 25 (6th Dist.) (a party’s standing is usually determined as of the filing
of the complaint); Civ.R. 17(A) (no dismissal until a reasonable time has been allowed
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after objection for the real party in interest to ratify the commencement of the action or
become a party).
{¶ 18} At this point we must address the essence of appellants’ four causes of
action as alleged in their complaint. The operative grounds for each cause of action are
derived from breaches to the condominium declarations and bylaws, to which they allege
in the complaint they are parties by virtue of being condominium unit owners. Mangano
v. 1033 Water St., L.L.C., 8th Dist. Cuyahoga No. 106861, 2018-Ohio-5349, ¶ 7 and 59;
R.C. 5311.01(CC). When construing appellants’ allegations and any reasonable
inferences drawn from them in their favor, appellees, who control the IHHCA board of
directors and mismanage it, issued assessments; appellants, as condominium unit owners,
paid those assessments; and appellants have concerns the expenses paid by IHHCA with
those assessments do not comply with the condominium declarations and bylaws,
resulting in improper overpayments by appellants.
{¶ 19} The condominium declarations and bylaws are contracts between appellees
(who allegedly control the IHHCA board) and unit-owning appellants, and are subject to
the rules of contract interpretation and remedies. Wood v. Cashelmara Condominium
Unit Owners Assn., Inc., 8th Dist. Cuyahoga No. 110696, 2022-Ohio-1496, ¶ 39;
O’Loughlin, 6th Dist. Lucas No. L-16-1128, 2018-Ohio-327, at ¶ 30 (“If a condominium
association violates the terms of its bylaws, the unit owners can maintain a claim for
breach of contract”). Therefore, for purposes of a Civ.R. 12(B)(6) challenge, appellants
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are real parties in interest in the subject matter of the action pursuant to Civ.R. 17(A),
despite being ultimately unsuccessful to withstand the challenge. See Residential
Funding Co. v. Thorne, 2012-Ohio-2552, 973 N.E.2d 294, ¶ 21 (6th Dist.).
C. Conversion
{¶ 20} The tort of conversion is the exercise of dominion or control wrongfully
exerted over the personal property of another in denial of, or under a claim inconsistent
with, that other person’s rights. Joyce v. Gen. Motors Corp., 49 Ohio St.3d 93, 96, 551
N.E.2d 172 (1990). To prevail over a Civ.R. 12(B)(6) challenge to their conversion
claim, appellants must allege in the complaint operative grounds for the following: “‘(1)
the plaintiff’s ownership or right to possession of the property at the time of the
conversion; (2) defendant’s conversion by a wrongful act or disposition of the plaintiff’s
property right; and (3) damages.’” McCormick v. Credit Acceptance Corp., 6th Dist.
Lucas No. L-16-1111, 2017-Ohio-5687, ¶ 21, quoting Peirce v. Szymanski, 6th Dist.
Lucas No. L-11-1298, 2013-Ohio-205, ¶ 19.
{¶ 21} Appellants’ conversion cause of action is stated in the following numbered
paragraphs from the complaint:
82. That the acts of the individual and entity Defendants, in diverting
money, concealing money diverted to improper uses, and in approving
expenses not related to the common interest of the Unit owners, as executed
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jointly and severally * * * over a period of a decade, constitute the
conversion of Plaintiffs’ property.
83. Such conversion exists by way of the inappropriate allocation of
condominium expenses, the inappropriate assessments of one or more of
the entity Defendants to the individual unit owners/Plaintiffs, and for the
approval of various expenses and execution of contracts binding Plaintiffs
to financial obligations without their consent, due process under the
Declarations and By-Laws, or Ohio Revised Code Section 5311.01 et seq.
84. That despite repeated demands for an accounting of these
expenditures, and in denying them a pursuit of all remedies for the recovery
of these expenditures, monies of the parties Plaintiff (sic.) have been
unlawfully converted to the sole and absolute benefit of one or more of the
entity and individual Defendants whose identities will be more specifically
proven at trial.
85. Conversion has also taken place through the deprivation of use
of the condominium properties. The effective “lock out” of the
condominium owners by Maclaren Management, Macprep, and/or through
decision[s] made by the individual and entity Defendants collectively, the
Plaintiffs have been deprived use of their property.
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86. That the Plaintiffs have demanded a return of the use of their
property and were continuously denied access to their detriment.
87. The Plaintiffs have suffered damages by way of their denied use
of the property, inability to renovate their properties for the upcoming
tourist season, and by way of the inappropriate expenditures and
conversions illustrated above and to be proven at trial.
{¶ 22} The trial court determined “that a claim for conversion cannot lie as there is
no claim of conversion for a general sum of money or real property.” To ascertain the
precise basis of the trial court’s decision, we review the entire journal entry and the
proceedings below. State ex rel. Midwest Pride IV, Inc. v. Pontious, 75 Ohio St.3d 565,
569, 664 N.E.2d 931 (1996), citing Joyce, 49 Ohio St.3d at 95, 551 N.E.2d 172. “We
have ‘consistently held that a reviewing court is not authorized to reverse a correct
judgment merely because erroneous reasons were assigned as the basis thereof.’”
Salloum v. Falkowski, 151 Ohio St.3d 531, 2017-Ohio-8722, 90 N.E.3d 918, ¶ 12,
quoting Joyce at 96.
1. Conversion of Real Property
{¶ 23} We will first address appellants’ claim for conversion of real property,
which they label as “intangible rights.” “Actions for conversion are generally based only
upon the taking of identifiable, tangible personal property.” Prestige Motors, Inc., 6th
Dist. Huron No. H-04-037, 2005-Ohio-4432, ¶ at 15. While appellants argue that under
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the authority of Zacchini v. Scripps-Howard Broadcasting Co., 47 Ohio St.2d 224, 226-
27, 351 N.E.2d 454 (1976), rev’d and remanded on other grounds, 433 U.S. 562, 97
S.Ct. 2849, 53 L.Ed.2d 965 (1977), their “intangible rights * * * given them by deed”
were converted by appellees, we are not persuaded.
{¶ 24} Appellants allege that during the winter of 2020, appellees locked all
access doors to the condominium building “effectively denying all of the individual
condominium unit owners’ access to their properties.” The use and enjoyment of
appellants’ condominium units, whether residential or commercial, are real property
rights. R.C. 5311.03(B) and (E). Appellants’ claim for conversion of real property fails
as a matter of law because “Ohio does not recognize a claim for conversion of real
property.” The Bank of New York Mellon v. Lewis, 6th Dist. Erie No. E-13-051, 2014-
Ohio-5599, ¶ 77.
2. Conversion of Money
{¶ 25} To prevail over a Civ.R. 12(B)(6) challenge to their conversion of money
claim, appellants must also allege in their complaint operative grounds the money was
“earmarked.” Zak v. Airhart, 6th Dist. Lucas No. L-21-1052, 2021-Ohio-4399, ¶ 56,
citing RAE Assocs., Inc. v. Nexus Communications, Inc., 2015-Ohio-2166, 36 N.E.3d
757, ¶ 31 (10th Dist.) (Explaining that “earmarked” means “the defendant had an
obligation to deliver a specific corpus of money capable of identification and not merely
that the defendant had an obligation to pay a certain sum as a general debt”). Even
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accepting as true the IHHCA board of directors breached the contract documents when it
misused “earmarked” funds, such breach of contract does not support a tort claim of
conversion. See RAE Assocs. at ¶ 34.
{¶ 26} The date(s) of conversion and amount of money subject to conversion are
not alleged in the complaint, and appellants argue they are not required to be that
specific. The essence of appellants’ allegations for the conversion of money derives from
appellees improperly inflating the condominium assessments and “passing off” their
individual expenses to appellants. Appellants acknowledge any money they paid to
IHHCA was for assessments as part of their unit owner responsibilities under the
condominium declarations and laws, which infers IHHCA’s acquisition of money from
appellants had a lawful origin. See R.C. 5311.01(E). “Where the object of conversion has
been acquired lawfully, the possessor of such property cannot be held to have converted
it, or to wrongfully possess it until, upon demand, the possessor fails to restore the object
to one who has a right to possess it.” College Station v. Knowles, 6th Dist. Lucas No. L-
93-060, 1993 WL 496687, *6 (Dec. 3, 1993); Brown Motor Sales, Inc. v. Keeley, 6th
Dist. Lucas No. L-95-330, 1996 WL 549231, *9 (Sept. 30, 1996).
{¶ 27} However, we find appellants’ demands on appellees are not for the return
of any identifiable money belonging to them. Rather, their demands are described in the
complaint as “requests for records * * * accountings, general ledgers, accounts receivable
ledger, account payable ledgers, and other evidence of the expenditure of their
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association dues.” Appellants, citing to RAE Assocs. at ¶ 31, argue their demands for
records will form the basis of making the money “capable of being identified.”
Appellants are mistaken in relying on the lack of specificity in their complaint for Civ.R.
8(A) purposes to satisfy their burden to allege operative grounds for a claim of
conversion of money to withstand a Civ.R. 12(B)(6) challenge.
{¶ 28} We find appellants’ complaint alleges they paid unidentified money to
appellees for IHHCA assessments, which they believe were deposited into non-IHHCA
bank accounts controlled by either Maclaren Management or Macprep, and in return
expected their money to be used for the lawful, common expenses of IHHCA, which they
believe were not. We infer that appellants can be described as creditors and appellees as
debtors in that transaction, and their claim for conversion of money fails. “[W]here there
is no obligation to return identical money, but only a relationship of debtor and creditor,
an action for conversion of the funds representing the indebtedness will not lie against the
debtor.” Fairbanks Mobile Wash, Inc. v. Hubbell, 12th Dist. Warren No. CA2007-05-
062, 2009-Ohio-558, ¶ 54, quoting Haul Transport of VA, Inc. v. Morgan, 2d Dist.
Montgomery No. CA 14859, 1995 WL 328995, *4 (June 2, 1995).
{¶ 29} When construing appellants’ allegations and any reasonable inferences
drawn from them in their favor, we find that appellants’ complaint for conversion of real
property and of money fails to withstand a Civ.R. 12(B)(6) challenge. Upon de novo
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review, we find no trial court error dismissing without prejudice appellant’s conversion
cause of action.
D. Breach of Fiduciary Duty
{¶ 30} Appellants’ breach of fiduciary duty cause of action is stated in the
following numbered paragraphs from the complaint:
93. That one or more of the individual Defendants, while serving on
the Board of Directors of the IHHCA, or acting at the express direction of
the Board and acquiescing thereto, did make numerous false and fraudulent
claims to Plaintiffs.
94. Such fraudulent claims include the authentication of expenses
associated with the Entity Defendants’ own expenses which were being
passed off to Plaintiffs and others.
95. Breaches of fiduciary duty also include the failure to elect Board
Members pursuant to the Declarations and statute.
96. Breaches of fiduciary duty include but are not limited to co-
mingling of funds, the improper handling of IHHCA money, the improper
expenditure and handling of Plaintiffs’ money, and the “lock-out”
(referenced above whereby Plaintiffs were denied access to their
properties), and other acts yet to be determined but to be proven at trial.
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97. Furthermore, said persons breach their fiduciary duty to the
Plaintiffs by failing to keep adequate books and records in regards to the
finances and expenses pertaining to the common elements, by failing to
keep true and accurate records of meetings of the Board, actions of the
Board, contracts entered into by the Board, the competitive bidding process
and such other documents and allowing access to same as required by
Section 5311.091 of the Revised Code.
98. Furthermore, and in pursuance of their own pecuniary interest,
the individual Defendants along with the entity Defendants have pressured
Plaintiffs and others to sell their condominium units to Macprep at a
significantly discounted value.
99. That this purported sale serves no interest other than to advance
the pecuniary interests of Macprep, Ken Maclaren, and any other parties
associated with the ownership or management of the condominium
property.
100. At no time were the individual unit owners’ pecuniary interests
of any concern to the then-acting Board Members and their interests were
essentially disregarded for the Board Members own personal gains.
{¶ 31} The trial court determined, “there is no fiduciary relationship which can be
breached.” We agree. Determining the existence of a duty is a question of law. Estate of
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Ciotto v. Hinkle, 2019-Ohio-3809, 145 N.E.3d 1013, ¶ 13 (6th Dist.). “A fiduciary duty
is generally defined as a duty, created by an individual’s undertaking, to act primarily for
the benefit of others in connection with the undertaking.” O’Loughlin, 6th Dist. Lucas
No. L-16-1128, 2018-Ohio-327, at ¶ 32.
{¶ 32} First, appellants’ tort claim arising from a breach of contract is not viable in
the absence of a duty. “‘When a duty in tort exists, a party may recover in tort. When a
duty is premised entirely upon the terms of a contract, a party may recover based upon
breach of contract.’” State Auto Property & Cas. Ins. Co. v. ABCO Fire Protection, Inc.,
2021-Ohio-1189, 170 N.E.3d 1255, ¶ 9 (8th Dist.), quoting Corporex Dev. & Constr.
Mgt., Inc. v. Shook, Inc., 106 Ohio St.3d 412, 2005-Ohio-5409, 835 N.E.2d 701, ¶ 10. As
further explained by the Ohio Supreme Court, “no matter how willful or malicious the
breach, it is no tort to breach a contract.” Motorists Mut. Ins. Co. v. Said, 63 Ohio St.3d
690, 694, 590 N.E.2d 1228 (1992), overruled on other grounds, Zoppo v. Homestead Ins.
Co., 71 Ohio St.3d 552, 644 N.E.2d 397 (1994).
{¶ 33} Second, it is well-settled that boards of condominium associations are not
charged with either a common law or statutory fiduciary duty to their members because
the Ohio Condominium Act, R.C. 5311, creates the applicable rights and remedies.
O’Loughlin at ¶ 33; Belvedere Condominium Unit Owners’ Assn. v. R.E. Roark Cos.,
Inc., 67 Ohio St.3d 274, 282-84, 617 N.E.2d 1075 (1993) (no common law or R.C. 5311
fiduciary relationship “between developers and owners, developers and owners’
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associations, or developers and purchasers”); Wood, 8th Dist. Cuyahoga No. 110696,
2022-Ohio-1496, at ¶ 32 (no fiduciary duty by a condominium association board of
directors is owed to association members).
{¶ 34} Third, appellants allege appellees are IHHCA board members, but IHHCA
is not a named party and is only described in the complaint as being formed from the
filing with the Ottawa County Recorder’s Office of “a Declaration of Condominium and
By-Laws of Condominium Association for an entity formed and commonly known as the
Island House Hotel Condominium.” Appellants’ complaint leaves us to infer that
IHHCA is an unincorporated association, and, therefore, its board of directors are not
subject to the duties of non-profit corporation directors under R.C. 1701.30(B).
O’Loughlin at ¶ 33-34; R.C. 5311.08(E) (non-profit incorporation of the condominium
association is discretionary).
{¶ 35} Fourth, appellants’ reliance on Elam v. Woodhawk Club Condominium, 8th
Dist. Cuyahoga No. 107092, 2019-Ohio-457, ¶ 21, citing Behm v. Victory Lane Unit
Owners’ Assn., Inc., 133 Ohio App.3d 484, 487, 728 N.E.2d 1093 (1st Dist.1999), for the
proposition that a condominium association and its board of directors have a fiduciary
duty to act in the best interest of the property owners, is misplaced for three reasons. The
court concluded there was no such fiduciary duty owed by a condominium association to
unit owners and clarified that a non-profit board of directors’ duty to act in the best
interests of condominium owners would be derived from R.C. 1702.30. Id. at ¶ 24-25,
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citing Kleemann v. Carriage Trace, Inc., 2d Dist. Montgomery No. 21873, 2007-Ohio-
4209, ¶ 40-45; O’Loughlin at ¶ 33-34 (ultimately finding R.C. 1702.30(B) non-profit
board duties do not apply to the board of an unincorporated association). We find
Behm’s holding supported a breach of contract, not a breach of fiduciary duty, where “the
actual nature of these claims sounds in contract, not tort.” O’Loughlin at ¶ 30. Finally,
appellants do not allege a breach of contract cause of action in their complaint, and they
do not allege in their complaint any facts from the condominium declarations and bylaws
where the Island House Hotel Condominium development chose to establish fiduciary
duties in those contracts, so we cannot speculate as to the existence of a fiduciary duty
derived from them. See Kleemann at ¶ 35.
{¶ 36} Fifth, appellants also point to, Akerstrom v. 635 W. Lakeside, Ltd., 2018-
Ohio-98, 105 N.E.3d 440, ¶ 18 (8th Dist.), which they argue “recognized the
appropriateness of a fiduciary duty claim.” Appellants are mistaken, as the court found
the opposite. Id. The court’s decision does not automatically stand for the proposition
that had the plaintiff filed a cause of action asserting individual damages, the court would
have recognized a breach of fiduciary duty. Rather, the court identified “three
mechanisms upon which an aggrieved condominium owner may seek enforcement of the
condominium association’s instruments in lieu of relying on the Association to act”: (1)
under R.C. 5311.23(A), for breach of condominium instruments, (2) under R.C.
5311.23(B), for declaratory judgment action, and (3) under R.C. 5311.23(C), for class
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action. Id. at ¶ 11-12. None of the foregoing mechanisms are for a breach of fiduciary
duty, and appellants’ complaint does not state causes of action for breach of
condominium instruments, declaratory judgment action, or class action.
{¶ 37} Appellants argue it “makes no sense” to interpret R.C. 5311 as limiting
“only the Board could sue the Board Member who was breaching his or her duties * * *
[where] the Board Members conspired equally and would certainly never be in a position
to sue themselves.” They argue that because the condominium association “is merely a
legal fiction created for the purpose of electing a Board to govern the affairs of the
individual unit owners” and acts as nothing more than a flow-through entity for collecting
revenues and paying expenses, it makes no sense “that the person who actually wrote the
check lacks standing to bring a fiduciary claim.” We find the IHHCA is not merely a
“legal fiction,” but a statutorily-defined entity, R.C. 5311.01(DD), with numerous
powers, such as under R.C. 5311.08, and 5311.081. We also find the Akerstrom court
was clear when it held: “Under R.C. 5311.23 and 5311.20, the Association is the party
entitled to enforce the obligations possessed or imposed upon the unit owners association
by statute or otherwise.” Id. at ¶ 16.
{¶ 38} When construing appellants’ allegations and any reasonable inferences
drawn from them in their favor, we find that appellants’ complaint for breach of fiduciary
duty fails to withstand a Civ.R. 12(B)(6) challenge. Upon de novo review, we find no
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trial court error dismissing without prejudice appellant’s breach of fiduciary duty cause of
action.
E. Civil Theft
{¶ 39} Appellants’ tort for civil theft cause of action is stated in the following
numbered paragraphs from the complaint:
89. Revised Code Section 2307.60(A)(1) clearly states that any
person who has been injured by criminal act may bring a civil action for the
recovery of damages. Such damages include punitive or exemplary
damages.
90. That individual and entity Defendants through a pattern of
collusion, fraudulent conduct, and intentional behavior did deprive the
Plaintiffs of money and use of their property which constitutes theft and
embezzlement under the Ohio Revised Code.
91. The Plaintiffs have been damaged financially in amounts to be
determined at trial for the inappropriate expenses and diversion of funds as
set forth above as well as by way of the deprived use of their property and
value associated therewith.
{¶ 40} The trial court determined, “the claim [of] civil theft * * * to [not] contain
sufficient facts to state [the] claim.” We agree.
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{¶ 41} Appellants brought their civil theft cause of action pursuant to R.C.
2307.60(A)(1), which states, “Anyone injured in person or property by a criminal act has,
and may recover full damages in, a civil action unless specifically excepted by law * *
*.” R.C. 2307.61(A) authorizes recovery of damages: “If a property owner brings a civil
action pursuant to [R.C. 2307.60(A)] to recover damages from any person who * * *
commits a theft offense, as defined in [R.C. 2913.01], involving the owner’s property, the
property owner may recover [damages] * * *.” R.C. 2913.01(K)(1) defines the “theft
offense” of “theft” pursuant to R.C. 2913.02(A). Appellants’ complaint is silent as to
which of the five definitions of “theft” forms the basis of their cause of action, and we
decline to speculate.1 R.C. 2913.02(A)(1) to (5).
{¶ 42} Nevertheless, pursuant to R.C. 2307.60(B)(1)(a), appellants’ civil theft
claim fails as a tort because its essence is derived from contracts: alleged IHHCA
mismanagement and improper assessments that breach the terms of the condominium
declarations and bylaws. R.C. 2307.60(B)(1)(a) defines a “tort action” as “a civil action
for damages for injury, death, or loss to person or property other than a civil action for
damages for a breach of contract or another agreement between persons.” Consequently,
appellants are not entitled to R.C. 2307.61 damages for claims based on a breach of
contract. Wildcat Drilling, LLC v. Discovery Oil & Gas, LLC, 2018-Ohio-4015, 121
N.E.3d 65, ¶ 41 (7th Dist.), rev’d and remanded on other grounds, 164 Ohio St.3d 480,
1
The term “embezzlement” does not appear in R.C. 2913.02(A).
23.
2020-Ohio-6821, 173 N.E.3d 1156. In light of having previously found no fiduciary
relationship from the complaint, appellants’ civil theft claim also fails because “the
existence of a contract precludes the assertion of a tort claim based on the same conduct
unless there is a duty owed separate from the contract.” Kott v. Gleneagles Professional
Builders & Remodelers, Inc., 197 Ohio App.3d 699, 2012-Ohio-287, 968 N.E.2d 593, ¶
15 (6th Dist.).
{¶ 43} When construing appellants’ allegations and any reasonable inferences
drawn from them in their favor, we find that appellants’ complaint for civil theft fails to
withstand a Civ.R. 12(B)(6) challenge. Upon de novo review, we find no trial court error
dismissing without prejudice appellant’s civil theft cause of action.
F. Civil Racketeering
{¶ 44} Appellants’ tort of civil racketeering cause of action is stated in the
following numbered paragraphs from the complaint:
107. By their conduct above, the individual and entity Defendants
did create and operate an enterprise that was designed to and did engage in
the illegal activities set forth above therefore rendering them all jointly and
severally liable for all damages available at law.
108. The Plaintiffs were directly and measurably damaged
financially and otherwise through these illegal activities thus entitling them
to treble damages, attorney fees and costs of this suit as well as injunctive
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relief preventing all Defendants from engaging in further activities as are
deemed violative of law and as this Court finds equitable.
{¶ 45} The trial court determined, “the claim [of] * * * racketeering to [not]
contain sufficient facts to state [the] claim.” We agree.
{¶ 46} R.C. 2923.34(A) “provides a civil remedy for persons injured or threatened
with injury by a violation of R.C. 2923.32.” Peirce v. Szymanski, 6th Dist. Lucas No. L-
12-1164, 2013-Ohio-1929, ¶ 5. Pursuant to R.C. 2923.32(A)(1), “No person employed
by, or associated with, any enterprise shall conduct or participate in, directly or indirectly,
the affairs of the enterprise through a pattern of corrupt activity or the collection of an
unlawful debt.”
{¶ 47} When construing appellants’ allegations and any reasonable inferences
drawn from them in their favor, we find that appellants’ complaint for civil racketeering
fails to withstand a Civ.R. 12(B)(6) challenge. Despite appellants’ attempts to echo the
relevant terminology required for civil racketeering, once again, the essence of this cause
of action derives from breach of contract claims for appellees’ alleged IHHCA
mismanagement and improper assessments, where appellees controlled the IHHCA board
of directors. Breach of the condominium declarations and bylaws do not create a tort
claim for civil racketeering absent any fiduciary duty, such as here, owed by appellees to
appellants. Kott, 197 Ohio App.3d 699, 2012-Ohio-287, 968 N.E.2d 593, at ¶ 15.
25.
{¶ 48} Upon de novo review, we find no trial court error dismissing without
prejudice appellant’s civil racketeering cause of action.
III. Conclusion
{¶ 49} Appellants’ assignment of error is not well-taken. On consideration
whereof, the judgment of the Ottawa County Court of Common Pleas is affirmed and the
dismissal is without prejudice. Appellants are ordered to pay the costs of this appeal
pursuant to App.R. 24.
Judgment affirmed,
and dismissed,
without prejudice.
A certified copy of this entry shall constitute the mandate pursuant to App.R. 27.
See also 6th Dist.Loc.App.R. 4.
Mark L. Pietrykowski, J. ____________________________
JUDGE
Thomas J. Osowik, J.
____________________________
Myron C. Duhart, P.J. JUDGE
CONCUR.
____________________________
JUDGE
This decision is subject to further editing by the Supreme Court of
Ohio’s Reporter of Decisions. Parties interested in viewing the final reported
version are advised to visit the Ohio Supreme Court’s web site at:
http://www.supremecourt.ohio.gov/ROD/docs/.
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