Parmatown south assn. v. Atlantis realty co., L.T.D.

[Cite as Parmatown south assn. vs. Atlantis realty co., L.T.D., 2018-Ohio-2520.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 106503
PARMATOWN SOUTH ASSOCIATION
PLAINTIFF
vs.
ATLANTIS REALTY CO., LTD.
DEFENDANT/THIRD-PARTY
PLAINTIFF-APPELLANT
vs.
DEAN RANKIN, ET AL.
DEFENDANTS/THIRD-PARTY
DEFENDANTS-APPELLEES
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-08-669896
BEFORE: Stewart, P.J., Celebrezze, J., and Keough, J.
RELEASED AND JOURNALIZED: June 28, 2018
ATTORNEY FOR APPELLANT
James E. Boulas
James E. Boulas Co., L.P.A.
Raintree Plaza
7912 Broadview Road
Broadview Hts., OH 44147
ATTORNEYS FOR APPELLEES
For Dean Rankin
Janet I. Stich
1799 Akron Peninsula Road, Suite 227
Akron, OH 44313
For Peggy Rankin
James L. Wamsley
2703 Leighton Road
Shaker Hts., OH 44120
For Michael Marron, et al.
Michael P. Harvey
Michael P. Harvey Co., L.P.A.
311 Northcliff Drive
Rocky River, OH 44116
For Expert Construction, Inc.
Scott R. Sylkatis
Sylkatis Law L.L.C.
199 North Leavitt Drive, Suite 200
Amhert, OH 44001
R. Russell O’Rourke
28601 Chagrin Boulevard, Suite 600
Cleveland, OH 44122
For Lorain National Bank
Melissa A. Jones
Frantz Ward L.L.P.
200 Public Square, Suite 3000
Cleveland, OH 44114
For Cuyahoga County Treasurer
Michael C. O’Malley
Cuyahoga County Prosecutor
Gregory B. Rowinski
Assistant Prosecutor
310 West Lakeside Avenue, Suite 300
Cleveland, OH 44113
MELODY J. STEWART, P.J.:
{¶1} This is an appeal from a summary judgment granted to third-party
defendants-appellees Dean Rankin, Peggy Rankin, Michael Marron, and Amy Marron on
third-party plaintiff-appellant Atlantis Realty Company, Ltd.’s complaint for fraud. Atlantis
alleged that the third-party defendants, who operated a general contracting company called
Baywest Construction Group, Ltd., took $20,000 in money earmarked for Baywest’s completion
of certain contracting services, but failed to complete construction and instead fraudulently used
the money for their own purposes. The court approved and adopted a magistrate’s decision
granting summary judgment because there was no evidence to support the fraud claim. The
sole assignment of error contests this ruling.
{¶2} To understand the nature of the third-party complaint, it is necessary to backtrack to
2008. At that time, Atlantis owned an office building and used Baywest as the general
contractor on a buildout of one of the office suites. Expert Construction was an electrical
subcontractor on the job. There were issues on the job, and Baywest stopped work because of
nonpayment.
{¶3} As the issues between Atlantis and Baywest were ongoing, Parmatown South
Associates sought foreclosure against Atlantis for nonpayment of certain maintenance fees that
are unrelated to the issues in this appeal. Expert Construction had a mechanic’s lien against the
Atlantis premises, necessitating its participation in the Parmatown South action. Atlantis then
filed a third-party complaint against Baywest arguing that it breached a contract to provide
construction services. It alleged that it paid Baywest $20,000 based on Baywest’s
representation, made through its general manager, that the payment would be used to “get the
subs back onsite” and allow it to complete construction of the premises. Additional construction
did not occur. Baywest ceased operations in 2010. Atlantis filed an amended complaint
naming the individual third-party defendants as “principals” of Baywest, seeking to pierce the
corporate veil on the allegations that the individual defendants fraudulently used the money for
their own personal purposes. Atlantis also alleged that a fraudulent transfer occurred under R.C.
1336.04 because the defendants were “insiders” who accepted the $20,000 payment with an
actual intent to defraud Atlantis.
{¶4} The Rankins and the Marrons filed separate motions for summary judgment, but
made overlapping arguments that they were shielded from personal liability by the corporation.
With respect to Atlantis’s attempt to pierce the corporate veil, the Rankins and Michael Marron
argued that they had no ownership interest in Baywest and were not “principals” of the
corporation such that the corporate veil could be pierced to find them personally liable for any
debt of Baywest. It was conceded that Amy Marron was a shareholder of Baywest; nevertheless,
she argued that no representations had been made to Atlantis about the manner in which the
$20,000 payment was to be used.
{¶5} Atlantis argued that the $20,000 payment had been made in actual reliance on
Baywest’s representations that the payment would be applied to avoid mechanic’s liens and
complete construction. It cited a Baywest partial waiver of liens against Expert Construction as
evidence that Baywest’s representation was false, claiming that Baywest did not actually pay the
sums owed to Expert Construction.
{¶6} The court took a different approach. It noted that Atlantis claimed that Baywest
made two false representations: (1) that Baywest would perform construction services and that
subcontractors would be paid in order to remove any liens on the property, and (2) that a letter
from Baywest’s general manager contained assurances that a payment of $20,000 would result in
the completion of the project and payment of subcontractors. The court concluded that these
two claims were contractual obligations, the breach of which by itself was not evidence of fraud.
The court found “no evidence that the contract was entered into falsely” and that “it would go
beyond construing the evidence in Atlantis’s favor” to construe the general manager’s letter “as a
false assurance that construction services would resume for only $20,000.”
{¶7} Fraud must be pleaded with particularity. See Civ.R. 9(B). This requirement
means that “the pleading must contain allegations of fact which tend to show each and every
element of a cause of action for fraud.” Minaya v. NVR, Inc., 8th Dist. Cuyahoga No. 105445,
2017-Ohio-9019, ¶ 11. The elements of a fraud claim are:
(a) a representation or, where there is a duty to disclose, concealment of a fact, (b)
which is material to the transaction at hand, (c) made falsely, with knowledge of
its falsity, or with such utter disregard and recklessness as to whether it is true or
false that knowledge may be inferred, (d) with the intent of misleading another
into relying upon it, (e) justifiable reliance upon the representation or
concealment, and (f) a resulting injury proximately caused by the reliance.
Gaines v. Preterm-Cleveland, Inc., 33 Ohio St.3d 54, 55, 514 N.E.2d 709 (1987).
{¶8} Atlantis alleged that the defendants “used Baywest to obtain money from Atlantis
under the pretense that Baywest would perform construction services at the Premises and that the
subcontractors would be paid so there would be no liens on the Premises.” It further alleged that
the defendants made “the false promise that the construction would be completed and the
subcontractors would be paid[,]” but rather than completing construction and paying the
contractors, the defendants “converted the money obtained from Atlantis for their own personal
use.”
{¶9} The “false promise” made by Baywest’s general manager was allegedly contained in
a July 20, 2009 letter to Atlantis, which reads in relevant part as follows:
As previously discussed, and you agreed, Baywest is currently owed $8,951.40
JUST TO BE PAID UP TO DATE. In addition, there are two (2) change orders
that were originally submitted to you on
Feb. 6, 2008, that total $11,946.00.
In our meeting several weeks ago you committed to making the total payment of
$20,897.40 the following Tuesday when you and I met at the site. To date you
have done nothing other than to try to change the terms. Our meeting was to
determine the scope of work and cost(s) necessary to 1) bring the project back to
the state it was prior to out [sic] having to stop work over 1 year ago, 2) determine
what was needed to complete the original scope of work and 3) determine what
additional work you wanted done.
As also discussed, once the costs for 1, 2 and 3 above are known, approved by you
and Baywest has received payment of $20,987.00 we will be willing to return and
complete the work. Payment in full of the balance would be due immediately on
completion. These additional costs will include re-mobilization, new permitting
(as required by Parma), and probable replacement of subcontractors (with cost
changes) and material prices changes from the original bid in August 2007 to
now.
As explained to you, there is no way Baywest will be able to get subs back onsite
without “cash in hand.” I’m sure you would not continue to see a patient that had
a balance due, wanted more treatment yet promised to pay you “everything once
everything is done.” Baywest and our subcontractors have been your bank for
over 1 year on this project, we simply cannot, and will not, continue that practice.
We have incurred additional costs due to your non-payment that include legal fees
and interest charges. We will determine just what these costs are and will expect,
at minimum, some compensation for them.
{¶10} The letter does not prove that Baywest obtained money from Atlantis under the
pretense that it would perform construction services and that the subcontractors would be paid so
there would be no liens on the premises. Baywest’s statement that “there is no way Baywest
will be able to get the subs back onside without ‘cash in hand’” was not a promise to pay the
subcontractors and remove the liens on the premises. Rather, it emphasized the unremarkable
proposition that unless Atlantis paid Baywest in a timely manner, it would not be able to pay the
subcontractors. Acknowledging this was not the same as promising that the subcontractors
would return and complete their jobs if Atlantis made the $20,897.40 payment. Baywest made it
clear that the $20,897.40 payment would not be in full satisfaction of the project, but constitute
the amount due and owing, and would only be enough to cause Baywest to renew work on the
project. This was shown by Baywest’s statement that even after receipt of the $20,897.40
payment, it expected that another “[p]ayment in full of the balance would be due immediately on
completion.” This additional payment also included “material price changes from the original
bid.” So Atlantis had no reason to believe that anything stated in the letter was meant to state
that construction would be completed based solely on the $20,897.40 payment.
{¶11} We agree with the court that “[t]he failure of a contractual obligation by itself is
not evidence of fraud.” See Ketcham v. Miller, 104 Ohio St. 372, 376, 136 N.E. 145 (1922)
(finding a breach of contract could not be converted to a tort regardless of whether “the breach
was unlawful, willful, wanton, and malicious.”). We find, consistent with Civ.R. 56(C), that
there are no facts showing that Baywest knowingly induced Atlantis to make the payment with
no intention of completing the work. Artful pleading by Atlantis cannot convert a breach of
contract claim into a fraud claim. The court did not err by granting summary judgment on the
fraud claim.
{¶12} We reach a similar conclusion on the fraudulent transfer claim. Atlantis alleged a
fraudulent transfer under R.C. 1336.04(A)(1), the Uniform Fraudulent Transfer Act, which
states:
(A) A transfer made or an obligation incurred by a debtor is fraudulent as to a
creditor, whether the claim of the creditor arose before, or within a reasonable
time not to exceed four years after, the transfer was made or the obligation was
incurred, if the debtor made the transfer or incurred the obligation in either of the
following ways:
(1) With actual intent to hinder, delay, or defraud any creditor of the debtor[.]
{¶13} This section of the act refers to a debtor’s dissipation of assets to frustrate a
creditor’s ability to collect on a debt. The debtor has a defense to a fraudulent transfer claim if it
can be shown that the transfer was made in good faith and that the debtor received “reasonably
equivalent value” from the transferee. See R.C. 1336.04(B)(8); Blood v. Nofzinger, 162 Ohio
App.3d 545, 2005-Ohio-3859, 834 N.E.2d 358, ¶ 50 (6th Dist.).
{¶14} The fraudulent transfer act has no application to this case. Only a creditor has a
cause of action under the act, and Atlantis was not a creditor. The act defines a “creditor” as “a
person who has a claim.” R.C. 1336.01(D). Conversely, the act defines a “debtor” as “a person
who is liable on a claim.” R.C. 1336.01(D). The letter sent by Baywest’s general manager
shows that Atlantis owed Baywest money for construction services rendered. The facts do not
show that Baywest purposely dissipated the $20,897.40 payment in order to frustrate Atlantis’s
ability to collect on a debt. The fraudulent transfer act does not apply as a matter of law.
{¶15} Even if the act did apply, we agree with the court that its disposition of the fraud
claim also informed the disposition of the fraudulent transfer claim. The court correctly found
that “[a]s a consequence of Atlantis Realty’s failure to meet its evidentiary burden in responding
to the motions for summary judgment on Atlantis Realty’s claim for fraud, its consequential
claims for fraudulent transfer and malice also fail, for lack of evidence of any falsehood or
malice.” The lack of any evidence showing that Baywest fraudulently promised to complete the
project if paid the sums owned by Atlantis is likewise pertinent to the fraudulent transfer claim
— without fraudulent intent, there is no fraudulent transfer. Likewise, there was no evidence
that Baywest acted with malice.
{¶16} Judgment affirmed.
It is ordered that appellees recover of appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the common pleas
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.
______________________________________________
MELODY J. STEWART, PRESIDING JUDGE
FRANK D. CELEBREZZE, JR., J., and
KATHLEEN ANN KEOUGH, J., CONCUR
KEYWORDS AND SUMMARY: