MRI Software, L.L.C. v. W. Oaks Mall FL, L.L.C.

[Cite as MRI Software, L.L.C. v. W. Oaks Mall FL, L.L.C., 2018-Ohio-2190.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 105846
MRI SOFTWARE, L.L.C.
PLAINTIFF-APPELLANT/
CROSS-APPELLEE
vs.
WEST OAKS MALL FL, L.L.C.
DEFENDANT-APPELLEE/
CROSS-APPELLANT
JUDGMENT:
AFFIRMED IN PART; REVERSED IN PART
AND REMANDED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-15-850894
BEFORE: Jones, J., Kilbane, P.J., and Celebrezze, J.
RELEASED AND JOURNALIZED: June 7, 2018
ATTORNEYS FOR APPELLANT/CROSS-APPELLEE
Alexander E. Gertsburg
Michael A. Callam
Maximilian Julian
Gertsburg Law Firm Co. L.P.A.
100 N. Main Street, Suite 300
Chagrin Falls, Ohio 44022
Vladimir P. Belo
Dinsmore & Shohl L.L.P.
191 W. Nationwide Blvd., Suite 300
Columbus, Ohio 43215
ATTORNEYS FOR APPELLEE/CROSS-APPELLANT
Keith W. Schneider
Maguire & Schneider L.L.P.
1650 Lake Shore Drive, Suite 150
Columbus, Ohio 43204
Frederick D Elias
Christine R. Essique
Elias & Elias P.C.
7091 Orchard Lake Road, Suite 110
West Bloomfield, Michigan 48322
LARRY A. JONES, SR., J.:
{¶1} Plaintiff-appellant/cross-appellee, MRI Software, L.L.C. (“MRI”), appeals the trial
court’s judgment in favor of defendant-appellee/cross-appellant, West Oaks Mall FL, L.L.C. For
the reasons that follow, we affirm in part, reverse in part, and remand for a determination of
attorney fees and costs.
{¶2} MRI is an Ohio-based software company that provides real estate investment and
management software. West Oaks owns a mall in Ocoee, Florida, and is a subsidiary of
Moonbeam Capital Investments (collectively referred to as “West Oaks”).
{¶3} In 2013, West Oaks approached MRI about transitioning its software from its
then-current program, QuickBooks, to another management software because West Oaks needed a
program that could keep pace with its expanding business. According to West Oaks, it relied on
MRI’s representations that the software could meet the company’s needs; West Oaks was
intending to expand the use of real estate software to its other properties. West Oaks required a
web-based system, as opposed to a Windows-based system, because it had different users located
throughout the United States that would need to access the system.
{¶4} In March 2013, West Oaks entered into a one-year contract with MRI, effective April
1, 2013. The “Agreement” consisted of eight documents drafted by MRI. The Agreement also
included a three-week express implementation plan, for which West Oaks paid an additional
$8,800. But, according to West Oaks, MRI’s software was not implemented within three weeks
or anytime thereafter. West Oaks continued to use QuickBooks while attempting to implement
MRI’s software.
{¶5} West Oaks notified MRI of the problems it was having with its software and
requested MRI’s assistance multiple times. West Oaks ceased paying its invoices to MRI in July
2013. At that point West Oaks had already paid $23,000 to MRI. In January 2014, MRI sent
notice to West Oaks, terminating the contract and accelerating the payments that were due, which
totaled $94,432.45.
{¶6} West Oaks purchased a new software system in January 2014, which it had up and
running in three days. In 2015, MRI filed suit against West Oaks alleging breach of contract and
unjust enrichment.
{¶7} The case proceeded to a bench trial. Prior to trial, the court granted discovery
sanctions in favor of West Oaks and against MRI due to MRI’s failure to timely produce
discovery documents. After trial, the court issued comprehensive findings of fact and
conclusions of law with judgment in favor of West Oaks on all claims, but provided that each
party would bear its own costs.1
{¶8} MRI filed a timely notice of appeal, and West Oaks filed a notice of cross-appeal.
MRI raises the following assignments of error for our review:
I. The trial court erred as a matter of law in its interpretation of the parties’
contract.
II. The trial court erred in its legal conclusion that Plaintiff failed to perform under
the contract.
III. The trial court erred in failing to find unjust enrichment.
{¶9} West Oaks raises the following cross-assignment of error:
I. The Trial Court erred in failing to award reasonable attorney fees and costs to
Defendant, pursuant to Section 10.16 of the parties’ contract because (a) the Trial
Court determined the contract between the parties is enforceable * * *, and (b)
1
The trial court did award West Oaks limited deposition and trial costs based on MRI’s discovery violations.
Defendant is the prevailing party.
Standard of Review
{¶10} The standard of review of the trial court’s conclusion that MRI failed to perform its
contractual obligations is a mixed question of fact and law. Troy Oaks Homes & Residential
Club, Inc. v. Sokolowski, 2016-Ohio-8427, 78 N.E.3d 365, ¶ 28 (11th Dist.2016), citing Ohio Edn.
Assn. v Lopez, 10th Dist. Franklin No. 09AP-1165, 2010-Ohio-5079. Appellate review of a
mixed question of fact and law requires an appellate court to give deference to a trial court’s
factual findings if they are supported by competent, credible evidence, and to independently
review whether the trial court properly applied the law to the facts. Troy Oaks Homes &
Residential Club, Inc. at id.{¶11} While the interpretation of a contract is generally a matter of law subject to de novo
review, the same standard does not apply when the agreement is ambiguous, as the trial court
found in this case. See Dzina v. Dzina, 8th Dist. Cuyahoga No. 83148, 2004-Ohio-4497, ¶ 11 –
13 (whenever contractual language is deemed to be ambiguous, it is the responsibility of the trial
court to interpret it, and the trial court has broad discretion in clarifying ambiguous language).
The interpretation of an ambiguous term used in a contract is a question of fact and will not be
reversed on appeal absent an abuse of discretion. Maines Paper & Food Serv., Inc. v. Eanes, 8th
Dist. Cuyahoga No. 77301, 2000 Ohio App. LEXIS 4480, 2 (Sept. 28, 2000). A trial court’s
decision does not constitute an abuse of discretion unless it is unreasonable, arbitrary, or
unconscionable. Castlebrook Ltd. v. Dayton Properties Ltd., 78 Ohio App.3d 340, 346, 604
N.E.2d 808 (2d Dist.1992), citing Huffman v. Hair Surgeon, Inc., 19 Ohio St.3d 83, 87, 482
N.E.2d 1248 (1985). Accordingly, when applying this standard of review, an appellate court is
not free to substitute its judgment for that of the trial court. Nofzinger v. Blood, 6th Dist. Huron
No. H-02-014, 2003-Ohio-1406, ¶ 42.
{¶12} With regard to the trial court’s factual findings that MRI failed to perform its
contractual obligations, it is important to note that the weight to be given the evidence and the
credibility of the witnesses are issues primarily for the trier of fact. See id. at ¶ 41. A
reviewing court must, therefore, accord due deference to the credibility determinations made by
the fact finder. See id. at ¶ 65. Because the trial court is best able to view the witnesses and
observe their demeanor when it weighs the credibility of the offered testimony, there is a
presumption that the findings of the trier of fact are correct. Id., citing Seasons Coal v. Cleveland,
10 Ohio St.3d 77, 80, 461 N.E.2d 1273 (1984). The standard for appellate review of the trial
court’s conclusion that MRI failed to establish a claim for unjust enrichment is manifest weight of
the evidence. See Hamilton v. Ball, 4th Dist. Scioto No. 13CA3533, 2014-Ohio-1118, ¶ 15.
Accordingly, following a bench trial, a reviewing court will generally uphold a trial court’s
judgment as long as the manifest weight of the evidence supports it — that is, as long as “some”
competent and credible evidence supports it. Id. at ¶ 15.
No error in interpreting Agreement
{¶13} As an initial matter, we note that MRI chose to argue its first two assignments of
error together, stating they are “two sides of the same coin.” Whether that is the case, the
appellate rules state that this court “may disregard an assignment of error presented for review if
the party raising it fails to identify in the record the error on which the assignment of error is based
or fails to argue the assignment separately in the brief, as required under App.R. 16(A).” App.R.
12(A)(2).2 Because cases should be decided on their merits, however, we will address MRI’s
2
App.R. 16(A)(7) provides that the brief of the appellant shall include:
(7) An argument containing the contentions of the appellant with respect to each assignment of
first and second assignments of error. Counsel is cautioned that, in the future, the failure to
separately argue assignments of error may result in this court declining to address assignments of
error.
{¶14} In the first and second assignments of error, MRI contends that the trial court erred
in interpreting the Agreement in West Oaks’ favor.
{¶15} At trial, West Oaks argued that MRI failed to perform in accordance with the
Agreement in the following ways: (1) MRI failed to implement the software in three weeks; (2)
MRI did not implement the required “commercial management and accounts payable solutions in
the web platform”; (3) MRI failed to meet the functional specifications3 of the software; and (4)
MRI failed to provide software support.
A. Express implementation
{¶16} The trial court found that MRI failed to complete the express implementation within
three weeks or anytime thereafter. The trial court noted that MRI did not even begin the
implementation process until four weeks after the effective date of the Agreement and caused
further delays. MRI does not contest this finding on appeal; we find that the trial court’s
findings were supported by competent and credible evidence.
B. MRI received actual or constructive notice of “Errors”
{¶17} West Oaks argued and the trial court found that MRI failed to provide a software
system in the web platform. The trial court specifically found that MRI was required to
error presented for review and the reasons in support of the contentions, with citations to the
authorities, statutes, and parts of the record on which appellant relies. The argument may be
preceded by a summary.
3
According to the Agreement, “Functional Specifications” “means those specifications of MRI’s software
functionality as set forth” on MRI’s website and may be updated “upon posting new specifications at such web page
address.” In other words, to locate the parameters of what functions MRI’s software performs, West Oaks could
find the information on MRI’s website instead of in a written document.
“implement the Commercial Management, Accounts Payable and General Ledger solutions in the
Web platform as part of the * * * Express Implementation * * * and failed to do so.” The trial
court also found that the software was essentially unusable for West Oaks’ purposes and MRI
failed to provide adequate support to fix the software problems.
{¶18} Under the parties’ agreement, MRI warranted that the software would be free from
“Errors,” which is defined in the Agreement as “a material failure of a hosted MRI Software to
conform to its Functional Specifications that is reported by Client to and replicable by MRI.”
{¶19} MRI claims that there were no “Errors” within the term of the parties’ agreement
because West Oaks failed to give proper notice to MRI of any error in the functional
specifications, as required by the Agreement. We disagree.
{¶20} Pursuant to the Agreement, notices were required to be “delivered by hand, by
overnight courier, or by certified mail, return receipt requested.” The trial court found that West
Oaks emailed MRI about the problems it was having with the software on July 6, July 18, and
August 20, 2013, and sent notice via first class mail on September 16, October 22, and November
18, 2013.
{¶21} In response to West Oaks’ July 18, 2013 email, MRI assigned a client experience
manager to devise a “game plan” to address West Oaks’ issues with the software. On July 22,
2013, representatives from West Oaks and MRI conducted an online video conference to address
West Oaks’ issues, but the problems were not resolved. On August 20, 2013, MRI’s senior
officers and executives were copied on internal emails referencing West Oaks’ complaints and the
parties conducted a conference call during which West Oaks outlined their ongoing problems with
the software.
{¶22} “Under Ohio law, failure to comply with a contractual notice provision may be
harmless if actual or constructive notice is nonetheless accomplished.” Simplifi Health Benefit
Mgt., L.L.C. v. Cayman Islands Natl. Ins. Co., S.D.Ohio No. 2:13-CV-714, 2016 U.S. Dist.
LEXIS 101386, 15 (Aug. 2, 2016). Even if written notice is required, where there is evidence of
actual notice, a technical deviation from a contractual notice requirement will not bar the action
for breach of contract brought against a party that had actual notice. Gollihue v. Natl. City Bank,
2011-Ohio-5405, 969 N.E.2d 1233, ¶ 22 (10th Dist.2011); see also Roger J. Au & Son, Inc. v.
N.E. Ohio Regional Sewer Dist., 29 Ohio App.3d 284, 504 N.E.2d 1209 (8th Dist.1986)
(recognizing an abundance of Ohio case authority that failure to abide by a notice requirement
“may be harmless” if the other party nonetheless receives notice).
{¶23} In light of the above, we conclude that the trial court did not err when it found that
MRI had notice of the problems West Oaks’ was having with its software.
C. Error in functional specifications
{¶24} MRI also argues that even if it had notice, there was no error with respect to any
functional specification in the software and the court’s conclusion that the software was not
“dynamic and flexible” enough to meet West Oaks’ needs was improperly based on evidence
outside the record, specifically through the testimony of West Oaks’ information technologist,
Sergey Siminyuk.
{¶25} At trial, after hearing arguments from both parties, the trial court determined that the
Agreement was ambiguous and decided to allow the introduction of parol evidence through
Siminyuk’s testimony:
The evidence before this court demonstrates numerous patent ambiguities in the
contract. While many of the specifications are clear, such as two-way credit
screening, interface, others are not clear. When looking at the functional
specifications in the software, although in English, they do not provide specificity
or empirical objective standards. Terms such as [“]dynamic and flexible
reporting,[”] [“]analysis,[”] [and] [“]command of sales data,[”] are relative terms
which may vary by degrees and have different values to different customers.
***
So, based on that, I am going to allow this witness, * * * , some ability to interpret
or explain what he was looking for from MRI.
{¶26} In its findings of fact and conclusions of law, the court stated:
The Agreement between the parties contains numerous patent ambiguities as to the
Functional Specifications of the software. * * * Many of the specifications * * *
fail to provide specificity or empirical objective standards.
{¶27} When construing a contract, a court’s primary objective is to ascertain and give
effect to the intent of the parties. Hamilton Ins. Servs., Inc. v. Nationwide Ins. Cos., 86 Ohio
St.3d 270, 273, 714 N.E.2d 898 (1999). To achieve this objective, we must examine the contract
as a whole and presume that the language used reflects the parties’ intent. Kelly v. Med. Life Ins.
Co., 31 Ohio St.3d 130, 509 N.E.2d 411 (1987), paragraph one of the syllabus. Thus, when the
contract is clear and unambiguous, the court may look no further than the four corners of the
contract to find the intent of the parties. Alexander v. Buckeye Pipeline Co., 53 Ohio St.2d 241,
374 N.E.2d 146 (1978), paragraph two of the syllabus.
{¶28} However, if a contract is reasonably susceptible to more than one meaning, then it is
ambiguous and the court may consider parol evidence to determine the parties’ intent. Illinois
Controls, Inc. v. Langham, 70 Ohio St.3d 512, 521, 639 N.E.2d 771 (1994). Doubt or ambiguity
in the language of a contract will be construed strictly against the party who prepared it. Smith v.
Eliza Jennings Home, 176 Ohio St. 351, 355, 199 N.E.2d 733 (1964), citing 11 Ohio
Jurisprudence 2d, Contracts, Section 147, at 391. If evidence is allegedly admitted in violation
of the parol evidence rule, the standard of review is harmless error, which means the reviewing
court must determine whether the error was harmless. Robert v. Marks, 3d Dist. Henry No.
7-16-15, 2017-Ohio-1320, ¶ 11, citing Langfan v. Carlton Gardens Co., 183 Ohio App.3d 260,
2009-Ohio-3318, 916 N.E.2d 1079, ¶ 24 (3d Dist.).
{¶29} MRI claims that the court admitted parol evidence that varied or contradicted the
terms of the contract it had with West Oaks, specifically, that MRI made the following
precontractual representations to West Oaks: (1) West Oaks would only operate a web-based
version of the software; (2) there was a definite three-week time period to implement the software;
and (3) West Oaks was led to believe the software would be customized. Whether those
representations were made or not, however, is not germane to the issue of functional
specifications. On this point, the parties appear to agree. In other words, the trial court based
its findings on evidence other than the alleged pre-contractual representations.
{¶30} The trial court in this case did not err in considering parol evidence to interpret the
meaning of the contract. Siminyuk’s testimony offered the trial court clarification for the terms
“dynamic and flexible reporting” with regard to the report generation capabilities that MRI’s
software was to provide to West Oaks. Siminyuk’s testimony also explained what “command of
sales data” meant with respect to the accounting capabilities MRI’s software was to offer.
Because the contract was ambiguous as to these terms, the trial court did not err in considering
evidence outside the contract.
D. Failure to provide software support
{¶31} At trial, West Oaks contended that MRI failed to provide adequate software support.
West Oaks’ information technologist, Sergey Siminyuk, was designated to lead the
implementation process on behalf of the company and work in conjunction with MRI. As
mentioned, West Oaks had problems with the software from the onset, but increased the number
of licenses on the software from 150 to 600 based on MRI’s representation that a more
sophisticated division of its company would supervise its account. West Oaks also extended its
contract with MRI from one year to five years, based on pricing incentives and MRI’s assurances
that the implementation issues would be quickly resolved. The problems with the software
continued, however, and resulted in: West Oaks sending incorrect statements to tenants, losing a
national tenant, opening at least 25 support cases with MRI,4 an inability to bill its tenants or pay
invoices out of MRI’s software system, and the necessity to use Windows-based, rather than
web-based, workarounds, which resulted in lost productivity.
{¶32} In light of the above, the trial court’s finding that MRI failed to perform its
contractual obligations was supported by competent, credible evidence and was not unreasonable,
arbitrary, or unconscionable. Accordingly, the first and second assignments of error are
overruled.
Unjust Enrichment
{¶33} In the third assignment of error, MRI claims that the trial court erred in failing to
find unjust enrichment. In order to succeed on a claim for unjust enrichment, MRI was required
to show: (1) a benefit conferred by a plaintiff upon a defendant; (2) knowledge by the defendant of
the benefit; and (3) retention of the benefit by the defendant under circumstances where it would
be unjust to do so without payment. Just Like Us Family Enrichment Ctr. v. Easter, 8th Dist.
Cuyahoga No. 94180, 2010-Ohio-4893, ¶ 13, citing Hambleton v. R.G. Barry Corp., 12 Ohio
St.3d 179, 183, 465 N.E.2d 1298 (1984).
4
MRI argued that the majority of support cases resulted from user errors.
{¶34} An unjust enrichment claim is an alternative to a breach of contract claim.
‘“Unjust enrichment operates in the absence of an express contract or a contract implied in fact to
prevent a party from retaining money or benefits that in justice and equity belong to another.”’
Kwikcolor Sand v. Fairmount Minerals Ltd., 8th Dist. Cuyahoga No. 96717, 2011-Ohio-6646, ¶
14, quoting Gallo v. Westfield Natl. Ins. Co., 8th Dist. Cuyahoga No. 91893, 2009-Ohio-1094, ¶
19. Absent bad faith, fraud, or some other illegality, an equitable action for unjust enrichment
cannot exist where there is a valid and enforceable written contract. Id., citing id.{¶35} MRI has continuously argued that they had a valid, enforceable contract with West
Oaks. We agree; MRI just failed to perform its contractual obligations. Therefore, MRI cannot
now claim unjust enrichment.
{¶36} The third assignment of error is overruled. The judgment in favor of West Oaks is
affirmed.
Attorney Fees
{¶37} In West Oaks’ cross-assignment of error, it argues that the trial court erred when it
failed to award attorney fees and costs.
{¶38} Ohio courts follow the “American rule,” which requires that each party involved in
litigation pay his or her own attorney fees. McConnell v. Hunt Sports Ent., 132 Ohio App.3d
657, 699, 725 N.E.2d 1193 (10th Dist.1999), citing Sorin v. Bd. of Edn. of Warrensville Hts.
School Dist., 46 Ohio St.2d 177, 179, 347 N.E.2d 527 (1976). There are three well-recognized
exceptions to this rule: (1) where statutory provisions specifically provide that a prevailing party
may recover attorney fees, (2) where there has been a finding of bad faith, and (3) where the
contract between the parties provides for fee shifting. Pegan v. Crawmer, 79 Ohio St.3d 155,
156, 679 N.E.2d 1129 (1997). Fee-shifting contractual provisions are generally enforceable “‘so
long as the fees awarded are fair, just and reasonable as determined by the trial court upon full
consideration of all of the circumstances of the case.”’ Southeast Land Dev., Ltd. v. Primrose
Mgt., L.L.C., 193 Ohio App.3d 465, 2011-Ohio-2341, 952 N.E.2d 563, ¶ 15 (3d Dist.), quoting
Wilborn v. Bank One Corp., 121 Ohio St.3d 546, 2009-Ohio-306, 906 N.E.2d 396.
{¶39} In this case, Section 10.16 of the Agreement provided:
Legal Fees and Costs. In the event of a dispute between the Parties regarding the
enforcement of the Agreement, the prevailing party in such dispute will be entitled
to collect from the other party the prevailing party’s reasonable legal fees and
costs.
{¶40} The trial court found that the parties had a legal and binding contract, but
determined that each party would bear its own costs; that finding was in error. Therefore, the
case is remanded to the trial court for a hearing to award West Oaks reasonable attorney fees and
costs.
{¶41} The cross-assignment of error is sustained.
{¶42} Judgment is affirmed in part and reversed in part. Case is remanded for a hearing
on attorney fees and costs.
It is ordered that appellee 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 Cuyahoga County
Court of Common Pleas 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.
LARRY A. JONES, SR., JUDGE
MARY EILEEN KILBANE, P.J., and
FRANK D. CELEBREZZE, JR., J., CONCUR